AUDIT & ASSURANCE (MCQs SET 1)
Q1: An organization’s directors, management, external and internal auditors all play an
important role in creating a proper control environment. Senior management is primarily
responsible for:
a) implementing and monitoring controls designed by the Board of Directors.
b) Establishing a proper organizational culture and specifying a system of internal controls.
c) Ensuring that external and internal auditors adequately monitor the control environment.
d) Designing and operating a control system that provides reasonable assurance that established
objectives and goals will be achieved.
Q2: Which one of the following characteristics would lead the auditor to assess inherent risk
relating to financial reporting at a higher level?
a) The company has a history of exactly meeting analyst estimates.
b) The account balance represents an asset that is relatively easily stolen.
c) The controls over the account balance are weak.
d) The company is in an industry that is mature and declining.
Q3: Which one of the following record is not required to be maintained by a company when
supplying goods to its holding or subsidiary company.
a) utilization of plant facilities.
b) purchase and sale of raw materials and process material.
c) administrative, technical, managerial and other consultancy services.
d) All of these records are required to be maintained by a company.
Q4: In accordance with ISA 200, select the best option from the following which indicates the
responsibility of management and those charged with governance to provide the auditor
with:
a) additional information that the auditor may request from the management and where
appropriate, those charged with governance for the purpose of the audit.
b) Access to all information of which management and where appropriate, those charged with
governance are aware that is relevant to the preparation of financial statements
c) Unrestricted access to the persons within the entity from whom the auditor determines it
necessary to obtain audit evidence.
d) All of these.
Q5: Final audit takes place after the year end and focuses on the remaining tests and areas
that pose significant risk of material misstatement. Final audit involves concentration on the
following matters, EXCEPT:
a) obtaining evidence that the controls tested at the interim audit have continued to operate during
the period since it took place.
b) attendance at perpetual inventory counts.
c) year end journals which may include adjustments to the transactions tested at the interim audit.
d) Statement of financial position balances.
Q6: Organizational independence is required in the processing of customer’s orders in order
maintain an internal control structure. Which one of the following situations is not a proper
segregation of duties in the processing of orders from customers.
a) Approval of a sales credit memo because of a product return by the sales department with
subsequent posting to the customer’s account by the account receivable department.
b) Invoice preparation by the billing department and posting to customer’s account by the account
receivables department.
c) Approval by credit department of a sales order prepared by the sales department.
d) Shipping of goods by the shipping department that have been retrieved from stock by the
finished goods storeroom department
Q7: Which one of the following audit procedures below is not appropriate in auditing the
valuation assertion for company’s inventory.
a) Access the reasonableness of the management’s point estimate of realizable value of
inventory that has not yet been sold by reviewing sales before the year end and comparing
the values with inventory that has been sold since the year end.
b) For a sample of inventory sold just before and just after the year end, match date of sales
invoices/date posted to ledgers with date on related goods dispatch note.
c) For unsold inventory, assess reasonableness of provisions for selling expenses by comparison of
selling expenses with inventory sold.
d) Agree the selling prices of inventory sold since the year end to sales invoices and the cash book.
Q8: In accordance with ISA 501, select the best option from the following which does not
indicate the objective of the auditor.
a) Evaluation of the effect of identified misstatements on the audit.
b) Existence and condition of inventory.
c) Presentation and disclosure of segment information in accordance with the applicable financial
reporting framework.
d) Completeness of litigation and claims involving the company.
Q9: As per ISA 220, the objective of the auditor is to implement quality control procedures at
the engagement level that provide the auditor with reasonable assurance that:
i) The audit complies with professional standards and applicable legal and regulatory requirements.
ii) The auditor’s report issued is appropriate in the circumstances.
iii) The management will provide written representation.
a) options (i), (ii), and (iii) are correct.
b) option (i) is correct.
c) option (i) and (ii) are correct.
d) option (ii) and (iii) are correct.
Q10: Identify the best option from the following which creates an opportunity for fraud to be
committed in an organization.
a) commitments tied to debt convents.
b) poor internal control.
c) management compensation scheme.
d) pending retirement or stock option expiration.
