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Mcqs Bank-Audit & Assurance (from CA study manual full & CMA Exam)
01.In determining the level of materiality for an audit what should not be considered (CMA-september-2024)
(a) Prior years’ errors.
(b) The auditor remuneration.
(c) Adjusted interim financial statement.
(d) Prior year financial statements.
Ans (b)
02.which of the following statement is most closely associated with analytical procedure applied at substantive stage?(CMA-september-2024)
(a) It helps to study relationship among balance sheet accounts.
(b) It helps to discover material misstatements in the financial statements.
(c) It helps to identify possible oversights.
(d) It helps to accumulate evidence supporting the validity of a specific account balance
Ans (d)
03.Professional skepticism requires that the auditor assume that management is(CMA-september-2024)
(a) reasonably honest.
(b) neither honest nor dishonest.
(c) not necessarily honest.
(d) dishonest unless proved otherwise.
Ans (b)
04. An auditor who accepts an audit but does not possess the industry expertise of the business entity should(CMA-september-2024)
(a) engage experts.
(b) obtain knowledge of matters that relate to the nature of entity business.
(c) inform management about it.
(d) take help of other auditors.
Ans(b)
05.When a transaction has not been recorded in the books of account either wholly or partially such errors are called as(CMA-september-2024)
(a) Error of commission
(b) Error of omission.
(c) Compensating error.
(d) Error of principle.
Ans (b)
06.Verification of the value of assets, liabilities, the balance of reserves, provision and the amount of profit earned or loss suffered a firm is called-(CMA-september-2024)
(a) Continuous audit.
(b) Balance sheet audit.
(c) Interim audit.
(d) Partial audit.
Ans (b)
07.Which BSA standard deals with the responsibilities of auditors regarding fraud in an Audit of financial statements?(CMA-september-2024)
(a) SA-200
(b) BSA-240
(c) BSA-315
(d) BSA-240A
(e) All the above
Ans (b)
08.What is a potential liability that auditors might face?(CMA-september-2024)
(a) Breach of confidentiality
(b) Lack of attention to audit procedures
(c) Non-compliance with tax regulations
(d) Failure to identify a minor error
(e) None of above
Ans (a)
09.According to auditing standards, what should auditors primarily consider when assessing the risk of material misstatement due to fraud? (CMA-september-2024)
(a) The possibility of management override of controls
(b) The history of the company's financial performance
(c) The amount of internal control documentation
(d) The complexity of the financial reporting framework
(e) All the above
Ans (a)
10.During an information system audit, what is the primary concern? (CMA-september-2024)
(a) Compliance with marketing regulations
(b) Security and integrity of data
(c) Efficiency of production processes
(d) Accuracy of financial statements
(e) None of the above
Ans (b)
11.A good audit report must at least meet one of the following qualifications:(CMA-May-2024)
(a) It should offer constructive and timely suggestions to the management.
(b) It should not point out mistakes.
(c) It should not be based on factual information.
(d) It should not be based on balance sheet.
Ans (a)
12. Group engagement teams will not be able to form an opinion on group financial(CMA-May-2024)
statement if-
(a) The component auditors are not from the same firm
(b) They have the knowledge of the whole group
(c) The component auditors do not carry out all the procedure as specified by the group engagement team
(d) The portion of the financial statements they do not audit is material
Ans (c)
13.When issuing unqualified opinion, the auditor who evaluates the audit findings should(CMA-May-2024)
be satisfied that the:
(a) Amount of known miss-statement is documented in working papers.
(b) Estimates of the total likely misstatement are less than materiality level.
(c) Estimated of the total likely misstatement is more than materiality level.
(d) Estimates of the total likely misstatement cannot be made.
Ans
(b)
14.Sale of BDT. 50,000 to ‘A’ was entered as a sale to ‘B’. This is an example of (CMA-May-2024)
(a) Error of omission
(b) Error of commission
(c) Compensating error
(d) Error of Principle.
Ans (b)
15.The term Standard Auditing Practices refers (CMA-May-2024)
(a) Auditing techniques adopted by auditor for collecting & vouching evidences
(b) Test checking
(c) Standards of auditing
(d) True & fair view
Ans (a)
16. In comparison to the independent auditor an internal auditor is more likely to be(CMA-May-2024)
concerned with –
(a) Cost accountancy system
(b) Internal control system
(c) Legal compliance
(d) Accounting system
Ans (b)
17. Which of the following is not preserved in the permanent audit file?(CMA-May-2024)
(a) Engagement Letter.
(b) Trial Balance.
(c) Long-term contract.
(d) Board meeting minutes.
(e) Certification of Incorporation.
Ans (b)
18.A company auditor should see that the dividend is paid(CMA-May-2024)
(a) After charging depreciation
(b) Without charging depreciation
(c) Out of capital
(d) None of the above.
Ans (a)
19. Valuation of fixed assets is based on the concept (CMA-May-2024)
(a) Going concern
(b) Money measurement
(c) Dual aspect
(d) Cost concept.
Ans (a)
20.Floating assets are valued at (CMA-May-2024)
(a) cost
(b) Market price
(c) Cost price or market price whichever is less
(d) Cost less than depreciation
Ans (c)
11. At what levels can assurance be provided under the assurance services framework?(CMA-January-2024)
(a) Reasonable assurance and limited assurance.
(b) High assurance and reasonable assurance.
(c) Assurance can be provided on a continuum from 0% to 100%.
(d) Assurance can be provided on a continuum from absolute to limited.
Ans: (a)
12. Who is the responsible party for the adequacy of the disclosure in the financial report and accompanying notes?(CMA-January-2024)
(a) Auditor in charge of fieldwork.
(b) The entity's board of directors.
(c) Auditor who signs the auditor's report.
(d) Securities and Investments Commission.
Ans: (b)
13. The essence of a financial report audit is to:(CMA-January-2024)
(a) Examine individual transactions so that the auditor may certify as to their validity.
(b) detect fraud.
(c) Assure the consistent application of correct accounting procedures.
(d) Determine whether the client's financial reports are fairly stated.
Ans: (d)
14.Internal auditor is appointed by –(CMA-January-2024)
(a) The management
(b) The shareholders
(c) The government
(d) statutory body
Ans: (a)
15. In comparison to the independent auditor, an internal auditor is more likely to be concerned with–(CMA-January-2024)
(a) Cost accountancy system
(b) Internal control system
(c) Legal compliance
(d) Accounting system
Ans: (b)
16. The work of one clerk is automatically check by another clerk is called-(CMA-January-2024)
(a) Internal control.
(b) Internal check.
(c) Internal audit.
(d) None of the above.
Ans: (b)
17. Vouching implies –(CMA-January-2024)
(a) Inspection of receipts
(b) Examination of vouchers to check authenticity of records
(c) Surprise checking of accounting records
(d) Examining the various assets
Ans: (b)
18. Under valuation of stock is –(CMA-January-2024)
(a) Technical error
(b) Compensatory error
(c) Error of principles
Ans: (c)
19.A company auditor can be removed by-(CMA-January-2024)
(a) Board of directors.
(b) Managing director.
(c) Any director.
(d) General Meeting.
Ans: (d)
20. Verification refers to –(CMA-January-2024)
(a) Examination of journal & ledger
(b) Examination of vouchers related to assets
(c) Examining the physical existence & valuation of assets
(d) Calculation of valuation of assets
Ans: (c)
(21) Non Compliance of Audit include: (CMA MAY-2023)
(a) Acts of omission or commission by the entity being audited either intentional or unintentional, which are not contrary to the prevailing laws.
(b) Acts of simply omission by the entity being audited either intentional or
unintentional, which are contrary to the prevailing laws.
(c) To refer as acts of omission or commission by the entity being audited either intentional or unintentional, which are contrary to the prevailing laws.
(d) To avoid error and fraud in financial statement.
(e) None of above.
Ans: (C)
(22) Assurance services provided by certified auditors and it includes:(CMA MAY-2023 )
(a) the record of the audit procedures performed, relevant audit evidence
of an entity which being audited are accurate and fair.
(b) Data for determining the proper type of audit report which mostly acceptable to stake holders and essential for future compliance.
(c) Auditing of historical financial statements are “Fair”, effectiveness of internal control on financial reporting, and also provided some measure of assurance of data security and compliance etc.
(d) It is not the auditor responsibility to give assurance of audit documents, security and compliance in all respect.
(e) None of above.
Ans: (C)
(23) Audit risk equation is:(CMA MAY-2023 )
(a) Inherent risk X Detection risk.
(b) Inherent risk X Control risk X Detection risk.
(c) Inherent risk X Control risk.
(d) Inherent risk X Control risk X Detection risk X External risk.
(e) None of Above
Ans: (b)
(24) Disclaimer opinion of an Auditors can be based in the case of: (CMA MAY-2023 )
(a) Misstatement is material and not pervasive.
(b) Misstatement is immaterial and not pervasive.
(c) Misstatement is immaterial and pervasive.
(d) Misstatement is material and pervasive.
(e) None of above.
Ans: (d)
(25) Which one is general procedure to identify contingent liability? (CMA MAY-2023 )
(a) Reading minutes of the meeting decision related with contingent liability.
(b) The acceptability of accounting policy and standard are adopted properly.
(c) Obtaining legal letter as to litigation.
(d) Examining invoices & documents.
(e) Obtaining Management representation.
Ans: (a)
(26) Which on relates to principle of audit: (CMA MAY-2023 )
(a) Documentation
(b) Assessing efficiency
(c) Timelines
(d) Criminal investigation
(e) None of above
Ans: (a)
(27) In continuous audit -(CMA MAY-2023 )
(a) There cannot be any break.
(b) Break may be there and gap is decided by auditor.
(c) Gap may be there which is decided by management.
(d) Gap may be decided by management and auditor.
(e) none of above.
Ans: (b)
(28) Which one is relevant to audit per-plan activities? - (CMA MAY-2023 )
(a) Quality control of work.
(b) Understanding of client business.
(c) Audit evidence.
(d) Monitoring.
(e) None of above
Ans: (b)
(29) Which one is not relevant to audit approach constraints?-(CMA MAY-2023 )
(a) High fees.
(b) Materiality.
(c) Audit risk.
(d) Documentation.
(e) None of above
Ans: (a)
(30) Which is not relevant to elements of examination of forecast projection? - (CMA MAY-2023 )
(a) Evaluating agreed upon criteria.
(b) Evaluating support underlying assumptions.
(c) Evaluating presentation as to relevant guidelines
(d) Issuing examination report.
(e) None of above
Ans: (a)
(31) For a retail business with a large volume of transactions, which of the following audit techniques is the MOST appropriate for addressing emerging risk?(CMA-Sep-2023)
(a) Use of computer-assisted audit techniques
(b) Quarterly risk assessments
(c) Sampling of transaction logs
(d) Continuous auditing
(e) Integrate Auditing
Ans: (d)
(32) The decisions and actions of an auditor are MOST likely to affect which of the following types of risk?(CMA-Sep-2023)
(a) Inherent
(b) Detection
(c) Control
(d) Business
(e) Sample
Ans: (b)
(33) Which of the following is the MOST critical step when planning an IS audit?(CMA-Sep-2023)
(a) Review findings from prior audits
(b) Executive management's approval of the audit plan
(c) Review information security policies and procedures
(d) Perform a risk assessment
Ans: (d)
(34) Which of the following sampling methods is MOST useful when testing for compliance?(CMA-Sep-2023)
(a) Attribute sampling
(b) Variable sampling
(c) Stratified mean-per-unit sampling
(d) Difference estimation sampling
(e) Unratified mean per unit
Ans: (a)
(35) Which of the following would normally be the MOST reliable evidence for an auditor?(CMA-Sep-2023)
(a) A confirmation letter received from a third party verifying an account balance
(b) Assurance from management
(c) Trend data obtained from Internet sources
(d) Ratio analysis developed by the auditor from reports supplied by line management
(e) An internally generated computer accounting report
Ans: (a)
(36) When selecting audit procedures, an auditor should use professional judgment to ensure that:(CMA-Sep-2023)
(a) Sufficient evidence will be collected
(b) Significant deficiencies will be corrected within a reasonable period
(c) All material weaknesses will be identified
(d) Audit costs will be kept at a minimum level
(e) Sufficient audit staff has been engaged
Ans: (a)
(37) The final decision to include a material finding in an audit report should be made by the:(CMA-Sep-2023)
(a) audit committee
(b) Management
(c) Engagement Partner
(d) Review Partner
(e) Board of Director
Ans: (c)
(38) After initial review, an auditor has reasons to believe that fraud may be present. The auditor should:(CMA-Sep-2023)
(a) Expand activities to determine whether an investigation is warranted
(b) Report the matter to the audit committee
(c) Report the possibility of fraud to management
(d) Consult with external legal counsel to determine the course of action to be taken
(e) Report the matter in the management letter
Ans: (a)
(39) An auditor uses computer-assisted audit techniques (CAATs) to collect and analyze data. Which of the following attributes of evidence is MOST affected by using CAATs?(CMA-Sep-2023)
(a) Usefulness
(b) Reliability
(c) Relevance
(d) Adequacy
(e) Readiness
Ans: (b)
(40) An auditee disagrees with an audit finding. Which of the following is the BEST course of action for the auditor to take?(CMA-Sep-2023)
(a) Discuss the finding with the auditor’s manager
(b) Retest the control to confirm the finding
(c) Elevate the risk associated with the control
(d) Discuss the finding with the auditee manager
(e) Remove the findings from the report
Ans: (a)
(41) Major advantage of risk based approach for audit planning is:(CMA-Sep-2022)
a) Audit planning can be communicated to client in advance
b) Audit activity can be completed within allotted budget or time
c) Use of latest technology for audit activities
d) Appropriate utilization of resources for high risk areas
e) To minimize the audit risk
Ans: (d )
(42) Risk assessment process is: (CMA-Sep-2022)
a) Subjective
b) Objective
c) Mathematical
d) Statistical
e) Quantitative
Ans: ( a)
(43) The most important factor while evaluating controls is to ensure that the control:(CMA-Sep-2022)
a) Is less costly than risk
b) Does not reduce productivity
c) Addresses the risk
d) Is automotive
e) Is persuasive
Ans: (c )
(44) Statistical sampling reduces which of the following risks:(CMA-Sep-2022)
a) Audit risk
b) Detection risk
c) Inherent risk
d) Sampling risk
e) Control risk
Ans: (b )
(45) Which of the following types of audit risk assumes an absence of compensating controls in the area being reviewed?(CMA-Sep-2022)
a) Control risk
b) Detection risk
c) Inherent risk
d) Sampling risk
e) Residual risk
Ans: ( a)
(46) Accounts department of XYZ limited cannot prepare bank reconciliation statement on monthly basis due to shortage of manpower but they do it half yearly basis. Finance Director advised to check or match, at least, the debit amount in bank statement with the counterfoil of cheque book. This is an example of a:(CMA-Sep-2022)
a) Preventive control
b) Management control
c) Compensating control
d) Detective control
e) Corrective control
Ans: (c )
(47) A Statutory auditor is conducting audit on line items of Balance sheet of a company and considers the assertions. Which of the following assertions are not important or relevant here?(CMA-Sep-2022)
a) Occurrence
b) Existence
c) Rights and Obligations
d) Valuation and allocation
e) Completeness
Ans: ( a)
(48) Direct confirmation procedures are performed during audit of accounts receivable balances to address following balance sheet assertion:(CMA-Sep-2022)
a) Rights & Obligation
b) Valuation
c) Completeness
d) Existence
e) Cut-off
Ans: (d )
(49) For given level of audit risk, acceptable level of detection risk bears ……relationship to assessed risk of material misstatement at assertion level.(CMA-Sep-2022)
a) Direct
b) Indirect
c) Inverse
d) Either (a) or (b)
e) None of the above
Ans: ( c)
(50) Access control in a server room of a company is administered by automated bio metric device at the entrance and a manual register. An employee of IT division having no bio metric ID in that device or related software is trying to enter into the server room although it was clearly mentioned at a conspicuous place before the entrance gate that authorized bio-metric ID is required for entrance. Which of the following is correct in above scenario in respect to notice at a conspicuous place?(CMA-Sep-2022)
a) Preventive Control,
b) Detective Control
c) Compensating Control
d) Corrective control
e) Deterrent Control
Ans: (e )
51.The elements of an assurance engagement include (CMA-January-2023)
(a) Three party involvement
(b) Appropriate subject matter
(c) Suitable criteria and Sufficient appropriate evidence
(d) Written assurance report in an appropriate form
(e) All of the above
Ans: ( e)
(52) Why do auditors concentrate their efforts on material items in accounts?(CMA-January-2023)
(a) Because they are easier to audit
(b) Because it reduces the audit time
(c) Because the risk to the accounts of their being incorrectly stated is greater
(d) Because the directors have asked for it
(e) None of above
Ans: ( c)
(53) Which one of the following is NOT a duty of the auditor?(CMA-January-2023)
(a) Duty to report to the company’s bankers
(b) Duty to report to the members
(c) Duty to sign the audit report
(d) Duty to report on any violation of law
(e) None of above
Ans: ( a)
(54) Audit risk is composed of 3 factors. Which of the following is NOT one of those factors?(CMA-January-2023)
(a) Compliance risk
(b) Detection risk
(c) Control risk
(d) Inherent risk
(e) None of above
Ans: ( a)
(55) Which should NOT be considered at the planning stage?(CMA-January-2023)
(a) The timing of the audit
(b) Analytical review
(c) Last year’s written representation letter
(d) Obtaining written representations
Ans: ( d)
(56) Scope Paragraph of Audit Report are included:(CMA-January-2023)
(a) conclusions based on professional judgment.
(b) Auditor followed generally accepted auditing standard or not.
(c) The discussion of the audit evidences accumulated or not.
(d) Auditor drawn an end conclusion as per judgment.
(e) Auditor is design to obtain reasonable assurance about whether the statement
are free from material misstatement.
Ans: ( e)
(57) Which one is not clerical errors?(CMA-January-2023)
(a) Errors of commission
(b) Errors of omission
(c) Errors of principle
(d) Errors of compensation
(e) None of above
Ans: ( c)
(58) Which one is audit Postulate?(CMA-January-2023)
(a) Independence
(b) Due Care
(c) Past hold true for future
(d) True Presentation
(e) Fair Presentation
Ans: ( a)
(59) BSA 230 deals with(CMA-January-2023)
(a) Audit documentation
(b) Audit evidence
(c) Quality Control
(d) Audit Sampling
(e) Audit Test
Ans: ( a)
(60) Which of the following is normally the most reliable source of audit evidence?(CMA-January-2023)
(a) Internal audit
(b) Suppliers’ statements
(c) Board minutes
(d) Analytical review
(e) None of above
Ans: ( b)
61. Define an assurance engagement.
Ans:
In assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.
62. Any assurance engagement requires which of the following elements?
A. A user
B. A responsible party
C. A subject matter
D. Criteria
Ans: All are the above
63. In a reasonable assurance engagement, a negative conclusion is drawn.
True, False
Ans:
False. A positive opinion is given in a reasonable assurance engagement.
64. An audit is a limited assurance engagement.
True False
Ans:
False. It is a reasonable assurance engagement
65. Which of the following is not a potential benefit of having an audit?
A. Management may value having their business scrutinized by a set of professional eyes
B. Assurance may be given to parties other than management who have a financial interest in the company
C. An audit is likely to be required in the near future by a growing company
D. Fraud will be uncovered by the auditors
Ans:
D – Although an audit may act as a deterrent to fraud, it does not certify that one has not occurred. We shall look at the responsibilities of auditors in relation to fraud in the next chapter
66. Which one is management not responsible for?
A. The safeguarding of company assets
B. Keeping proper accounting records
C. Preparing financial statements
D. Auditing financial statements
Ans:
D. Auditing financial statements.
67. Auditors have a duty to detect frauds which have a material impact on the financial statements.
True
False
Ans:
True, as auditors are giving an opinion whether the financial statements are free from material misstatements,
they should plan and perform procedures designed to discover material misstatements even if they result from a fraud.
68. The Sarbanes-Oxley Act requires CEOs to certify that the accounts are true.
True
False
Ans:
True.
69. Which two of the following are auditors not necessarily required to do?
A. Assess the risk of fraud causing material misstatement in the financial statements
B. Discuss the risk of fraud causing material misstatement in the financial statements
C. Detect instances where fraud has caused a material misstatement in the financial statements
D. Report material misstatements caused by fraud to the police
Ans:
C – Detect fraud causing a material misstatement – auditors are required to plan in a manner that tries to uncover material misstatement caused by fraud, but as fraud is by its nature concealed, they might not necessarily uncover it. D – Report fraud to the police. They are required to report to directors, but may be precluded from reporting outside the entity by their duty of professional confidence
70. Auditors may be required to report instances of non-compliance with laws and regulations to which of the following?
A. Shareholders
B. Directors
C. Regulatory authorities
Ans:
All of them, although again, in the case of reporting outside of the organization, the auditor must take care not to breach his duty of professional confidence
71. Management are responsible for making appropriate disclosures concerning related parties in the financial statements.
True
False
Ans: True
72. Which of the following is not a measure designed to close the expectations gap?
A. Auditors required to attend company board meetings
B. More detailed engagement letter sent to audit clients
C. Audit report format revised and extended
D. Statement of directors’ responsibilities included in the financial statements
Ans:
A – And in fact, this could be a breach of the auditor’s professional duties if the auditor attended in a management capacity
73.Auditing is regulated by the government in Bangladesh
True
False
Ans:
False. It is regulated by ICAB
74. ICAB issues auditing standards which auditors are required to follow.
True
False
Ans:
True. Auditors face discipline by the ICAB if they do not.
75.Why are professional standards important?
Ans:
It is in the public interest that assurance services are carried out to professional standards
76. Which of the following is a Bangladesh auditor required to follow?
A. International Standards on Auditing
B.UK Standards on Auditing
C. ICAB Ethical Codes for Auditor
Ans:
Auditors in Bangladesh are required to comply with ISAs and the ICAB’s Ethical Codes for Auditors .
77.What are the six general threats to integrity and objectivity?
Ans:
1 Self-interest
2.Self-review
3.Management
4. Advocacy
5.Intimidation
6.Familiarity
78.Give three examples of when auditors are entitled to make a disclosure in breach of the duty of confidence
Ans:
1.Reporting of suspected money laundering
2. Reporting of terrorist offenses
3.Defending oneself against negligence charges
79. Name the nine qualities which the FRC states should characterize an auditor.
Ans:
1.Accountability
2.Integrity
3.Objectivity and independence
4.Competence
5.Rigour
6.Judgment
7.Clear, complete and effective communication
8.Association
9.Providing value
80. Compliance with quality control policies and procedures as required by ISQC 1 will constitute a good defense against allegations that the firm has been negligent.
True
False
Ans: True
71. The ICAB’s practice assurance scheme is primarily disciplinary.
True
False
Ans:
False, although disciplinary action may be taken as a result of a review if required.
72.Which one of the following statements about formal leadership is incorrect? Partners should ensure that:
Ans:
A. Commercial considerations do not override the quality of work performed.
B. Sufficient resources are allocated to developing quality controls policies and procedures.
C. Staff priorities quality control procedures over ethical considerations for listed clients.
D. The firm’s policies in relation to remuneration should reflect the importance of quality.
E. Staff priorities quality control procedures over ethical considerations for listed clients
73.Explain an ICAB member’s responsibility with regards to CPD.
Ans:
Every member is required to certify that he/she has carried out appropriate professional development annually.
74.List four items the engagement partner should ensure the assurance team are aware of prior to commencing an engagement.
Ans:
a. What work they are supposed to be doing
b.The nature of the entity’s business
c.Any risks relevant to the engagement
d. Problems that might arise during the engagement
e.The detailed approach to the engagement
75. Define hot review.
Ans:
A hot review is a review carried out by a partner not otherwise involved in the engagement or an external consultant before the audit report is signed
76. Define low balling.
Ans:
Low balling is the practice of charging less than the market rate for assurance services.
77. List four issues that IFAC states should be referred to when determining fees
Ans:
From:
a.The seniority and professional experience of the persons necessarily engaged on the work
b. The time expended by each
c. The degree of risk and responsibility which the work entails
d. The nature of the client’s business, the complexity of its operation and the work to be performed
c.The priority and importance of the work to the client
d. Together with any expenses properly incurred
78. Why do firms undertake risk analysis?
Ans:
a.To ensure that the assurance provider believes an appropriate conclusion can be drawn.
b.To assist in determining an appropriate fee (that reflects the risk of the assignment).
79. If the client refuses the existing auditor permission to communicate with the prospective auditor, the prospective auditor should decline the appointment.
True
False
Ans:
False. Not necessarily, although this might be an indicator that the auditor should have concerns about director integrity.
80.An auditor can be appointed by which of the following methods?
a. Ordinary resolution by shareholders
b. By directors to fill a casual vacancy
c. By directors to appoint first auditor
d. By the Government
Ans:
All of them.
81. If a client requests that an auditor reduce the level of assurance offered on a statutory audit, an auditor may agree and reduce procedures accordingly.
True
False
Ans:
False. A statutory audit provides a reasonable level of assurance.
82. State why audits are planned.
Ans:
To ensure that the right work is carried out resulting in the right conclusion being drawn.
83. Why should care be taken if using a standardized audit pack?
Ans:
It is important for the audit plan to be tailored to the client.
84. Give an example of an item being material by its nature.
Ans:
Examples include:
a. Related party transactions
b.Directors’ transactions
c.CU1 that makes a company small/medium/large
d. CU1 that turns a profit into a loss
85. Analytical procedures should be carried out by an audit junior.
True
False
Ans:
False, as experience and understanding are required to carry out analytical procedures properly
86. What key knowledge should an audit firm obtain about its client and why is this understanding of the entity important?
Ans:
Key knowledge to obtain
a. Nature of the business
b. Key personnel and their integrity/competence
c. Whether there are any laws or regulations which apply to the entity
87.Whether there are any pressures on the directors which may lead them to show the company in a more favorable light than might otherwise be the case – for example
a. Directors’ profit related bonuses
b. Cash flow/financing concerns
c. Stock market pressures
d. Strength of internal control systems
e. Existence of related parties and related party transactions
f. Complex account transactions
88. What is the meaning and implication of high inherent risk?
Ans:
a. Meaning and implication of high inherent risk
b. Meaning = risk of material errors arising is high
c. Implication = detection risk must be rendered low
89. What is the meaning and implication of high detection risk?
Ans:
Meaning and implication of high detection risk
a. Assessed levels of inherent and control risk are low
b.High risk that substantive procedures do not detect material misstatement
c. Implies small sample sizes
90. If an auditor decides that an acceptable level of audit risk is 5%, what does this mean?
Ans:
Meaning – audit risk 5%
a. 5% chance of an invalid conclusion (audit opinion) being drawn after all procedures completed; or
b. 95% confident that audit opinion will be valid
91. Auditors should plan and perform their audit procedures recognizing that fraud and error may materially affect the financial statements. Give four examples of indicators in a business that the risk of fraud and error may be high.
Ans:
From:
a. Previous experience of integrity or competence of management
b.Financial reporting pressures (profit-based rewards)
c.Weaknesses in design or operation of systems
d. High staff turnover
e. Industry characteristics, for example, cash handling
f. Unusual transactions
g. Problems in obtaining audit evidence
h. Inadequate control over information systems data
92.The three sources of audit confidence are:
Ans:
1 .Tests of controls
2 .Analytical procedures
3 .Tests of details
93. It is appropriate to rely solely on controls testing in relation to the existence of inventory.
True
False
Ans:
False
94. The auditor must always carry out substantive procedures.
True
False
Ans:
True
95. Which of the following will external auditors consider in their assessment of whether to use the work of internal audit?
a. To whom the internal audit department reports
b. The technical training of the staff in the department
c. The fact that the fee will fall if much use can be made of internal audit work
d. Whether internal audit work is properly documented
Ans:
To whom they report
Their technical training
Whether internal audit work is properly documented
96. External auditors will not rely on the work of an expert who works for the entity.
True
False
Ans:
False
97. Group engagement teams may refer to the work of component auditors in their report on the group financial statements.
True
False
Ans:
False
98. Group engagement teams will not be able to form an opinion on group financial statements if:
A The component auditors are not from the same firm
B They have knowledge of the whole group
C The component auditors do not carry out all the procedures as specified by the group engagement team
D The portion of the financial statements they do not audit is material
Ans:
C
99. The minimum ideal number of staff used in an audit is:
A 1
B 2
C 3
D 4
Ans: B (one to carry out the work and another to review it
100.Which of the following might require a specialist audit and why?
Care Share Ltd, a NGO limited by guarantee Pytox Ltd,
a listed parent of a group of manufacturing companies Loyds Ltd,
a bank Allied Insurance Company Ltd, an insurer Linens Ltd,
a retail company
Ans:
a. Care Share Ltd might have additional NGO Affairs Bureau requirements
b. Loyds Ltd is likely to have additional banking requirements
c. Allied Insurance Company Ltd is likely to have additional insurance requirement
101. Will an audit report for a NGO have to conform to ISA 700 criteria?
Ans:
Only if the NGO requires a statutory audit
102. What is NAO?
Ans:
The National Audit Office (NAO) is an independent body which scrutinizes public spending on behalf of Parliament. It is responsible for auditing the accounts of central government departments and other public bodies.
103. Help the Kids Ltd, a registered NGO, has income of CU150,000 and assets of CU750,000. It is required to have an audit of its financial statements.
True
False
Ans:
False. Help the Kids Ltd would only be required to have an audit if its income was over CU500,000, or if its income was over CU250,000 and it had assets greater than CU3.26m.
104. What four issues are likely to fall within the scope of a public audit?
Ans:
(1) Audit of financial statements
(2) Regularity
(3) Propriety
(4) Value for money
105. What three questions will the partner responsible for signing the audit report seek to answer at completion?
Ans:
a.Do the financial statements comply with the provisions of the Companies Act 1994?
b. Do the financial statements make sense?
c.Has the audit report been drafted properly?
106. It is appropriate to use a checklist to determine whether the financial statements comply with the Companies Act.
True
False
Ans: True
107. Opening balances need only be checked in a new auditor situation.
True or False
Ans: False
108. List five financial indicators that a company has going concern problems.
Ans:
From:
1. Net liabilities or net current liability position
2.Necessary borrowing facilities have not been agreed
3.Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment, or excessive reliance on short-term borrowings
4.Major debt repayment falling due where refinancing is necessary to the entity’s continued existence Major restructuring of debt
5.Indications of withdrawal of financial support by creditor
6.Negative operating cash flows indicated by historical or prospective financial statements
Adverse key financial ratios
a. Substantial operating losses or significant deterioration in the value of assets used to generate cash flows
b.Major losses or cash flow problems which have arisen since the reporting date
c.Arrears or discontinuance of dividends
d.Inability to pay creditors on due dates
e.Inability to comply with terms of loan agreements
f.Reduction in normal terms of credit by suppliers
g.Change from credit to cash-on-delivery transactions with suppliers
h.Inability to obtain financing for essential new product development or other essential investments
i.Substantial sale of non-current assets not intended to be replaced
109. Is the auditor responsible for discovering relevant subsequent events after the audit report has been signed?
Ans:
No – but he will have to take appropriate steps if made aware of them
110. List five matters that might be referred to in a MAPS
Ans:
1 Comments on significant changes to the business
2 Issues relating to the financial statements
3 Matters arising from the audit strategy/plan
4 Issues referred to in the management letter
5 From related issues (such as budget overruns/opportunities for other services)
111. A report to those charged with governance should be in writing.
True
False
Ans:
True
112. Which of the following might be included in a report to those charged with governance?
The audit approach
Audit adjustments
The audit opinion
Material control deficiencies
Ans:
Approach, adjustments, material control deficiencies. Although any expected modification to the audit opinion might be noted, the full audit opinion would not be given
113. What is negative assurance?
Ans:
Assurance of a matter in the absence of any evidence to the contrary.
114. When would a practitioner not give any assurance in a review engagement?
Ans:
When there was a pervasive limitation in the scope of the review or where the practitioner is of the opinion that the report being reviewed is incorrect
115. What two opinions are stated in an unmodified auditor’s report opinion paragraph?
Ans:
The financial statements:
1 Give a true and fair view
2 Have been properly prepared in accordance with IFRSs
116. In what two situations should an audit opinion be modified?
Ans:
1 There has been a limitation on the auditors’ work
2 There is a disagreement with management about an item in the financial statements
117. Management responsibilities are-
Ans:
01. Managing business so as to achieve company objectives
02. Assessing business risk to those objectives being achieved
03. Safeguarding the company’s assets
04. Keeping proper accounting records
05. Preparing company financial statements & delivering them to registrar
06. Ensuring the company complies with applicable laws & regulations
**** It is not the responsibility of the auditors of the company to do any of the above***
118. Audit planning
Ans:
01. To enable the audit to be performed in an effective and timely manner
02. To ensure-Potential problems are identified
03. To ensure-Work is completed expeditiously
03. Assists in proper assignment of work to the team
04. Assists in co ordination of work done by others
05. Facilities review
119. Internal control
Ans:
Internal controls are designed in part to prevent error occurring in financial information, or to detect errors and correct them.
120. There are six key element of quality control systems are
01. Leadership
02. Ethical requirement
03. Acceptance & continuance of client relationship
04. Human resource
05. Engagement performance
06. Monitoring
121. Auditors Responsibility
Ans:
It is not the Auditors responsibility to assessing what business risks face the company and devising the necessary strategies to deal with them.
Set out rules on auditor’s responsibilities regarding –
01. Error
02. Fraud
03. Company compliance with laws and regulations
122. Disclosure related partied transaction
The responsibility is to obtain sufficient appropriate Audit evidence about the appropriateness of management’s use of going concern assumption.
123. Director’s responsibility
Ans-
Directors are responsible are includes-
01. Keeping proper accounting record
02. Disclosing with reasonable accuracy at any time the financial position of the company
03. Ensuring that financial statements comply with the company act -1994
04. It is the director’s responsibility to assessing what business risks face
the company and devising the necessary strategies to deal with them
05. To manage the business so that its objective achieved
06. To act in the way most likely to promote the success of the company for the benefit of its me4mbers as whole
07. The directors have the legal responsibility for safeguarding the assets of the property
124. In Preparing financial statements directors are required to
A. selects suitable accounting policies and then apply them consistency
B. Make judgment and estimates that are reasonable and prudent
C. Comply with Applicable accounting standards
D. Prepare the financial statement s on going concern basis unless it is inappropriate to presume that the company will continue in business
125.Independent,director
Ans:
Who will be a corporate leader, business leader, university teacher also professionals like CA,CMA,CS .The independent director must have at least 12(twelve years) of corporate management/ professional experience. In special cases the above qualification may be relaxed subject to prior approval of the commission
126. Fraud & Error (IAS-240)
Ans:
IAS 240 Sets out Management and auditor responsibilities regarding fraud include-
01. Assessing risk of material misstatement
02. Discussing the susceptibility of the financial statements to material misstatements caused by fraud.
Two types of risk of misstatement which can arise from fraud
01. Misstatements arising from fraudulent financial reporting
02. Misstatements arising from misappropriation of an asset .
127. Operational risk
Ans:
Operational risks are the risk arising with regard to operations, for example, the major supplier will be lost and the company will be unable to operate.
128. Compliance Risk
Ans:
Compliance Risks are the risk arises, non –compliance with laws and regulations that surround the business for example, the restaurant failing to comply with food hygiene regulations might face fine.
129. Business Risk (ISA-315)
Ans:
Business risk is the risk inherent to the company in its operations. It include risks at all levels of the business
Audit risks
Audit risk is risk given an inappropriate audit opinion in relation to the financial statements
There are three components of audit risks are
01.Inherent risk
Inherent risk is the susceptibility of an assertion to misstatement that could be material, individually or when aggregated with other misstatements, assuming that there was no related internal control
02. Control risk
This type of risks refers to the risks of misstatements and errors in the company’s financial statements as the company fails to manage its internal controls well. As an instance, the management was unable to control and prevent unauthorized staff from carrying out those transactions in the first place.
Sources of control risks:
The management failed to make sure that there is proper segregation of duties between the staff that has their responsibility in financial reporting
03 Detection risk
Detection risk is that an auditor procedures will not detect a misstatement that exist in an assertion could be material.
130. Financial risk
Ans: Financial risk is the risks arising from the financial activities or financial Consequence of an operation, for example, cash flow issues of over trading.
131. It is the Responsibilities of managements to Compliance with laws and regulations includes-
01. SEC regulations.
02. Money laundering
03. Corporate governance guidelines
04. Labour law
05. Health & Safety
06. Public liability
07. Employers liabilities
08. Tax withholding, TDS, VAT, and payroll matters.
132. It is the Responsibilities of the board of directors (BOD) under BSEC Corporate Governance (CG) Guidelines includes
01. Shall be appointed independent director:
Who will be a corporate leader, business leader, university teacher also professionals like CA,CMA,CS .The independent director must have at least 12(twelve years) of corporate management/ professional experience.
In special cases the above qualification may be relaxed subject to prior approval of the commission.
02. The director report to the shareholders
The board of directors should clearly define respective roles, responsibilities and duties of the CFO, the head of internal audit and the CS.
133. Audit committee: -
The audit committee under independent director adapting following-To monitor, Review Company accounting, auditing, internal control, and shall assist the Board of director s ensuring that the financial statements reflect true and fair view of the company’s financial statements.
134. Assurance provider’s responsibilities includes-
01. Carrying out the assurance service in accordance with professional and ethical standard
02. Quality control standard
03. Terms of engagement letter
04. Where relevant (eg audit) law
135. External auditor responsibilities includes-
01. To form an independent opinion on the truth and fairness of the annual accounts
02. Confirm that annual accounts have been properly prepared in accordance with the companies Act-1994.
136. Key elements of assurance engagements includes
01. Three party’s involvement (share holders, BOD, Audit firm)
02. Subject matter
03. Suitable criteria
04. Sufficient appropriate evidence &
05. Written assurance report in an appropriate form
137. What is Assurance engagement: -
Assurance engagement is an engagement performed by a practitioner to enable him to express an opinion about the measurement of subject matter against a criterion.
138. What is Audit?
Ans:
An audit is an exercise designed to enable an auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
139. Professional Skepticism: -
Professional skepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
The professional skepticism is an integral part of auditor of professional judgment, it’s essential to high-quality auditing.
140. What is negative assurance?
Negative assurance is normally used by auditors in situations where it is not possible to positively confirm the accuracy of financial reports. The goal of negative assurance is to confirm that no evidence of fraud has been found or that any legal accounting practices were found to be violated.
141. Auditors responsibility against fraud (ISA-240 and ISA 250 A &B)
01. The auditor must obtain reasonable assurance that the financial statement taken as a whole, are free from material misstatement caused by fraud or error.
When the auditors become aware of suspected or actual frauds or instances of non-compliance which should be reported to the relevant authority, they should:
01. Report to the management
02. Report to those charged with governance
03. Report to the regulatory and enforcement authority, where appropriate.
142. There are six key elements of quality control system
Ans:
01. Leadership
02. Ethical requirements
03. Acceptance & continuance of client relationship
04. Human resource
05. Engagement performance
06. Monitoring
143. Audit risk is composed of 3 factors are includes-
Ans:
1. Inherent risk
2. Control risk
3. Detection risk
144. There are three general categories of business risk are including-
Ans:
1. Financial risk
2. Operational risk
3. Compliance risk
145. What is the significance risk?
Ans:
A significant risk is a risk of material misstatement that, in the auditor’s judgment, requires special audit consideration.
(ISA-315) sets out the following factors which indicate the significant risk includes-
Ans:
1. Risk of fraud
2. The complexity of transaction
3. It is a Significant transaction with a related party
4. It is an unusual transaction
146. Scope paragraph of audit report are including-
Ans:
The
purpose of the scope paragraph under the auditor's responsibility is to inform
the financial statement users of the nature of the audit procedures performed.
The information in the scope paragraph includes:
1. Procedures used to obtain audit evidence about the amounts and disclosures
in the financial statements.
2. The audit procedures selected depend on the auditor's judgment, and consider the auditor's assessment of the risks of material misstatement, whether due to fraud or error.
3. As part of this risk assessment, the auditor considers internal control over financial reporting in the design of the audit procedures.
4. An audit includes evaluating the appropriateness of the accounting policies used, the reasonableness of significant estimates, and the overall presentation of the financial statements.
147. What are the different types of errors?
Ans:
1. Errors of commission:
Errors of commission occur when an incorrect entry is made in the accounting records, resulting in an overstatement or understatement of an account balance. Unlike errors of omission, where transactions are entirely omitted, errors of commission involve recording transactions but with incorrect amounts or accounts. These errors can occur due to various reasons, such as data entry mistakes, misinterpretation of information, or confusion between similar accounts.
Examples of errors of commission include:
- Recording a sale at the wrong amount, resulting in an incorrect revenue figure.
- Incorrectly recording a payment to a vendor, resulting in an inaccurate accounts payable balance.
- Posting a transaction to the wrong customer account, leading to discrepancies in accounts receivable.
- Accidentally debiting or crediting the wrong account, causing misstatements in the general ledger.
- Overstating or understating inventory values due to errors in recording purchases or sales.
2. Errors of omission:
Errors of omission occur when a transaction or financial information is entirely left out or not recorded in the accounting records. These errors result in incomplete or inaccurate financial statements because certain transactions or events are not properly accounted for. Errors of omission can happen for various reasons, including oversight, negligence, or intentional manipulation of financial information.
Examples of errors of omission include:
- Failing to record a sale or revenue transaction, leading to an understatement of income.
- Forgetting to record a purchase or expense transaction, resulting in an understatement of expenses.
- Omitting the recording of a cash receipt, causing an understatement of cash balances.
- Neglecting to record a liability, such as accounts payable or accrued expenses, resulting in an understatement of liabilities.
- Not including information about significant events or transactions in the financial statements' footnotes or disclosures, leading to incomplete financial reporting.
3. Errors of principle:
Errors of principle occur when transactions are recorded in a manner inconsistent with generally accepted accounting principles (GAAP) or established accounting policies. These errors result from misunderstanding or misapplication of accounting principles or policies rather than clerical mistakes or oversight. Errors of principle can lead to misstatements in financial statements and distortions in the presentation of financial information.
Examples of errors of principle include:
- Recording capital expenditures as revenue expenditures: Treating expenditures that should be capitalized (i.e., recorded as assets) as expenses (i.e., recorded as costs in the income statement) can lead to an understatement of assets and an overstatement of expenses, reducing reported profits.
- Failing to accrue expenses: Neglecting to recognize expenses that should be accrued (i.e., recognized in the period they are incurred) can result in an understatement of expenses and overstatement of profits in the current period.
- Incorrectly applying revenue recognition criteria: Recognizing revenue before it is earned or before all revenue recognition criteria are met can lead to an overstatement of revenue and profits.
- Misclassifying items in the financial statements: Placing transactions or items in incorrect categories or accounts can result in misstatements in the financial statements and distortions in financial performance.
- Using an inappropriate method of inventory valuation: Choosing an inventory valuation method (e.g., FIFO, LIFO, weighted average) that does not reflect the economic substance of the transactions can lead to misstatements in inventory balances and cost of goods sold.
4. Errors of compensation:
Errors of compensation occur when an error in one account is offset by an equal and opposite error in another account, resulting in the overall financial statement remaining materially correct. While the financial statement totals may be accurate, individual account balances are misstated. Errors of compensation can mask underlying issues and may not be immediately apparent without detailed analysis.
Examples of errors of compensation include:
- Overstating one expense account and understating another expense account by the same amount, resulting in no net impact on total expenses.
- Understating accounts receivable and understating sales revenue by the same amount, resulting in no net impact on total assets or revenue.
- Overstating inventory valuation and understating cost of goods sold by the same amount, resulting in no net impact on net income.
- Overstating accounts payable and understating expenses by the same amount, resulting in no net impact on total liabilities or expenses.
- Overstating depreciation expense and understating accumulated depreciation by the same amount, resulting in no net impact on total assets or equity.
148. Which one are not clerical errors?
Ans:
01. Errors of principle
149. What is the audit postulate?
Ans:
1. Truth and fairness
2. Independence
3. Evidence
4. Responsibility
5. Data
6. Management support
7. Fraud
8. Internal control
9. Fair presentation
10. Operational consistency
11. Professional behavior
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