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.

Q11: Which one of the following controls could be used to detect bank deposits that
are recorded but never made?
a) Having bank reconciliations performed by a third party.
b) Linking receipts to other internal accountabilities, for example, collection to either
accounts receivables or sales.
c) consolidating cash receiving points.
d) Establishing accountability for receipts at the earlier possible time.

Q12: An auditor is responsible for preparing an audit documentation for an audit of

financial statements. Audit documentation serves a number of additional purposes
which may include:
i) Assisting the engagement team to plan and perform the audit.
ii) Enabling the engagement team to be accountable for its work.
iii) Retaining a record of matters of continuing significance to future audits.
Which of the above option is correct?
a) Option (i) and (ii) are correct.
b) Option (i), (ii) and (iii) are correct.
c) Option (i) is correct.
d) Option (ii) and (iii) are correct.

Q13: Select the best option from the following which does not represent purpose of
audit documentation:
a) Retaining a record of matters of continuing significance to future audits.
b) Enabling the engagement team to be accountable for its work.
c) Discussion of significant matters with management or those charged with
governance.
d) Assisting the engagement team to plan and perform the audit.

Q14: In accordance with ISA 510, The nature and extent of audit procedures
necessary to obtain sufficient appropriate audit evidence regarding opening balances
depends upon which of the following matters?
a) The accounting policies followed by the company.
b) Whether the prior period’s financial statements were audited and, if so, whether the
predecessor auditor’s opinion was unmodified.
c) The significance of the opening balances relative to the prior period’s financial
statements.
d) The nature of the account balances, classes of transactions and disclosures and the
risks of material misstatement in the prior period’s financial statements.

Q15: The risk that the procedures performed by the auditor to reduce audit risk to an
acceptably low level will not detect a misstatement that exists and that could be
material, either individually or when aggregated with other misstatements.
The above statement explains which one of the following concept:
a) Audit risk.
b) Inherent risk.
c) Control risk.
d) Detection risk.

Q16: As per ISA 580, in which of the following situations the auditor may risk
management to reconfirm its acknowledgement and understanding of their
responsibilities in terms of audit engagement in written representation?
a) The terms of the audit engagement were prepared in a previous year.
b) Management’s plan that may affect the carrying value or classification of assets
and liabilities.
c) Auditor believes that management understands their responsibilities.
d) Those who signed the terms of the audit engagement on behalf of the company
continue to have the relevant responsibilities.

Q17: ABC Associates has been proposed for conducting an audit of XYZ limited.
Which one of the following ethical requirements should be satisfied before accepting
an audit engagement in accordance with ISA 220?
a) confidentiality and conventionality.
b) independence and professional competence.
c) subjectivity and professional competence.
d) integrity and subjectivity.

Q18: In accordance with ISA 260, which of the following matters the auditor may not
take into account when considering communication with a subgroup of those
charged with governance?
a) The nature of the matter to be communicated.
b) Relevant or legal or regulatory requirement.
c) The respective responsibilities of the subgroup and the governing bodies.
d) Entity control environment.

Q19: ISA 250 (Revised) sets out the responsibilities of the auditor in relation to the
entity’s compliance with laws and regulations. Which one of the following
responsibilities is correct regarding the responsibilities of the company’s auditors in
relation to the compliance with employment regulations?
a) To perform specific audit procedures to identify possible non-compliance.
b) To obtain sufficient appropriate evidence regarding compliance, as they have a
direct effect on the financial statements.
c) To prevent and detect all non-compliance with the regulations.
d) The auditors do not have any responsibility, as the employment regulations do not
have a direct effect on the financial statements.
Q20: While conducting the audit of ABC limited, Mr. A is verifying the completeness
assertion of fixed assets of the company. Which one of the following audit
procedures is most appropriate in this situation.
a) Select source document for repair/ maintenance expense to determine if fixed asset
was inappropriately expensed.
b) Inspect vendor’s invoice to establish purchase price.
c) Inspect documentation related to purchase contract.
d) Develop an expectation of the total deprecation using analytical procedures.

Q21: ISA 620 states the nature, timing and extent of audit procedures to evaluate the
work of the auditor’s expert depend on the circumstances of the engagement. Which
of the following matters should the auditor not consider in determining the nature,
extent and timing of these audit procedures?
a) Auditor’s experience with previous work performed by the expert.
b) The risk of material misstatement associated with audited company’s properties.
c) The existence of any interests in or relationships with company being audited that
might pose a threat to the expert’s objectivity.
d) Whether the expert is subject to auditor’s quality control policies and procedures.

Q22: As per ISA 600, if does not meet the independence requirements that
are relevant to group audit, the shall obtain sufficient appropriate evidence
relating to the financial information of the component without requesting the
component auditor to perform work on the financial information of that component.
a) management, auditor’s expert.
b) component auditor, auditor’s expert.
c) management, group engagement team.
d) component auditor, group engagement team.

Q23: As per ISRE 2400, the engagement partner shall take responsibility for all of the
following except for:
a) The overall quality of each review engagement to which that partner is assigned.
b) The engagement being performed in accordance with the firm’s quality control
policies.
c) The practitioner’s report being appropriate in the circumstances.
d) The direction, supervision, planning and performance of the company in
compliance with professional standards and applicable legal and regulatory
requirements.

Q24: ISA 620 suggests that the auditor should not refer to the work of an expert in
their report as such a reference might be misunderstood to be a qualification of the
auditor’s opinion or a division of responsibility when expressing what type of opinion?
a) Adverse.
b) Unmodified.
c) Qualified.
d) Disclaimer.

Q25: In accordance with ISA 706, the inclusion of an Emphasis of Matter paragraph in
the auditor’s report does not effect the auditor’s opinion. Select the best option from
the following for which an Emphasis of Matter paragraph is not a substitute for:
i) A modified opinion in accordance with ISA 705, when required by the
circumstances of a specific audit engagement.
ii) Disclosures in the financial statements that the applicable financial reporting
framework requires management to make, or that are otherwise necessary to
achieve fair presentation.
iii) Reporting in accordance with ISA 570 when a material uncertainty exists relating
to events or conditions that they cast significant doubt on an entity’s ability to
continue as a going concern.
a) Option (i) and (ii) are correct.
b) Option (ii) and (iii) are correct.
c) Option (i), (ii), and (iii) are correct.
d) Option (i) is correct.
Q26: In accordance with ISA 600, group wide controls may include a combination of
the following:
i. Regular meetings between group and component management to discuss business
developments and to review performance.
ii. A process for monitoring the timeliness and assessing the accuracy and
completeness of financial information received from components.
iii. The extent to which component management has an understanding of the
applicable financial reporting framework.
iv. Control activities within an IT system that is common for all or some components.
a) Option (iii) and (iv) are correct.
b) Option (ii) and (iii) are correct.
c) Option (i), (ii) and (iv) are correct.
d) Option (ii),(iii) and (iv) are correct.

Q27: The company shall apply to the Securities and Exchange Commission of
Pakistan (SECP) in the form, set out in to the Companies (Audit of cost
accounts) Rules 1998, for appointment of cost auditor, not later than days
before date on which cost auditor is to be appointed.
a) Appendix-I, 30.
b) Appendix-I, 60.
c) Appendix-II, 60.
d) Appendix-II, 30.

Q28: Which one of the following industries are not required to maintain cost
accounting records to provide cost accounting information in a verifiable for.
a) Vegetable ghee.
b) Automobile industry.
c) Sugar industry.
d) Cement industry.
Q29: of records and documents provide cost audit evidence of varying
degrees of reliability, depending on the nature and source and the effectiveness of
internal control over their processing.
a) inquiry and confirmation.
b) observation.
c) analytical procedures.
d) inspection.

Q30: 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) Administrative, technical, managerial and other consultancy services.
b) Purchase and sale of raw materials and process material.
c) Utilization of plant facilities.
d) All of these records are required to be maintained by a company.

Q31: Which of the following is not one of the five elements of an assurance
engagement?
a) subject matter.
b) assurance file.
c) written report.
d) suitable criteria.

Q32: Which of the following statements about the responsibilities of external and
internal auditors with regards to fraud is not correct?
a) The internal auditor must always consider the potential of management overriding
controls and modify their audit procedures accordingly when performing internal audit
engagements.
b) The work of internal auditors in reviewing the company’s internal control systems
helps management to fulfill its responsibility for preventing and detecting fraud.
c) The external auditor must maintain an attitude of professional skepticism throughout
the audit, recognizing the possibility that a material misstatement due to fraud could
exist.
d) It is not the responsibility of the external auditors to detect fraud within a client.

Q33: In larger companies, the policies and procedures may be supplemented by

assigning appropriate responsibilities to the following:
a) An internal audit function.
b) A compliance function.
c) An audit committee.
d) A company secretary.

Q34: In accordance with ISA 560, if, after the financial statements have been issued, a
fact become known to the auditor that, had it been known to the auditor at the date
of the auditor’s report may have caused the auditor to amend the auditor’s report,
the auditor shall:
i) Discuss the matter with the engagement quality control reviewer.
ii) Determine whether the financial statements need amendment.
iii) Inquire how management intends to address the matter in the financial statements.
a) option (i), (ii) and (iii) are correct.
b) option (i) and (ii) are correct.
c) option (ii) and (iii) are correct.
d) option (i) is correct.

Q35: Communication with the audit committee is one of the key elements in the
auditor’s communication with those charged with governance as per ISA 260.
Following are the examples of good governance principles, except:
a) The auditor will be invited to regularly attend meetings of the audit committee.
b) Opinion of auditor for allocation of responsibilities between those charged with
governance and management.
c) The chair of the audit committee and the other members of the audit committee, will
liaise with the auditor periodically.
d) The audit committee will meet the auditor without management present at least
annually.

Q36: In accordance with ISA 570, if the financial statements have been prepared
using the going concern basis of accounting but, in the auditor’s judgement,
management’s use of the going concern basis of accounting in the preparation of the
financial statements is inappropriate, the auditor shall express a/an opinion.
a) Modified
b) Adverse
c) Unmodified
d) Disclaimer of opinion.

Q37: Any program for selecting and developing the human resources of the internal
audit activity will fail unless compensation is adequate at all levels of responsibility.
Policies concerning compensation should:
a) Be clearly stated and based on evaluations of position requirements and individual
performance.
b) Link internal auditors’ compensation to the pay for comparable positions in the
controller’s department.
c) Be informal and as flexible as possible to allow the chief audit executive to respond
to unusual situations.
d) Provide for cost-of-living, longevity and merit increases annually.

Q38: Mr. A is conducting the audit of ABCDEFG Limited, identify the best option from
the following from whom he may direct inquiries about the existence or suspicion of
fraud:
i. operating personnel not directly involved in the financial reporting process of the
company.
ii. Employees of competitor’s company involved in initiating, processing or recording
complex or unusual transactions and those who supervise or monitor such employees.
iii. In-house legal counsel of the company.
a) option (i) is correct.
b) option (i), (ii) and (iii) are correct.
c) option (i) and (iii) are correct.
d) option (ii) and (iii) are correct.

Q39: In accordance with ISA 250, which of the following policies and procedures a
company may implement to assist in the prevention and detection of non-
compliance with laws and regulations?
i. Engaging auditor to report any non-compliance with laws and regulations to an
appropriate authority.
ii. Developing, publicizing and following a code of conduct.
iii. Engaging legal advisors to assist in monitoring legal requirements.
a) option (ii) and (iii) are correct.
b) option (i) and (iii) are correct.
c) option (i) is correct.
d) option (i), (ii) and (iii) are correct.

Q40: Which of the following may indicate the possibility that the financial statements
may contain discrepancies in the accounting records resulting from frauds?
i) Unsupported or unauthorized balances or transactions.
ii) Unusual delays by the entity in providing requested information.
iii) Last minutes adjustments that significantly affect financial results.
a) option (i) and (iii) are correct.
b) option (i) is correct.
c) option (ii) and (iii) are correct.
d) option (i) and (ii) are correct.
Q41: Mr. A is conducting audit of ABC Limited for the purpose of forming a conclusion
on compliance with independence requirements that apply to the audit engagement
he shall:
(i) Obtain relevant information from the company to identify and evaluate
circumstances and relationships that create threats to independence.
(ii) Evaluate information on identified breaches of the company’s policies and
procedures to determine whether they create a threat to independence for the audit
engagement.
(iii) Take appropriate actions to eliminate threats or reduce them to an acceptable level
by applying safeguards.
a) options (ii) and (iii) are correct.
b) option (i), (ii) and (iii) are correct.
c) options (i) and (ii) are correct.
d) option (i) is correct.

Q42: According to ISA 550, which one of the following shall not be considered as
related party?
a) Another entity over which the reporting entity has control or significant influence,
directly or indirectly through one or more intermediaries.
b) Entities that are under common control by a state that a national, regional or local
government.
c) A related part as defined in the applicable financial reporting framework.
d) A person or other entity that has control or significant influence, directly or indirectly
through one or more intermediaries, over the reporting entity.

Q43: Domination of management by a single person or small group of persons

without compensating controls is a fraud risk factor. Which of the following factor
may include as an indicator of dominant influence exerted by a related party?
(i) Significant transactions are referred to the related party for final approval.
(ii) Transactions under contracts whose terms are changed before expiry.
(iii) Transactions involving the related party are rarely independently reviewed and
approved.
a) option (i), (ii) and (iii) are correct.
b) option (i) is correct.
c) option (ii) and (iii) are correct.
d) option (i) and (iii) are correct.

Q44: Which one of the following audit procedures is most appropriate that the
auditor may perform in order to ascertain accounts receivable balance?
a) Examining preceding cash receipts, shipping documents and sales near the period
end.
b) Examining specific subsequent cash receipts, shipping documentation and sales
near the period end.
c) Examining subsequent cash disbursements or correspondence from third parties
and other records.
d) Examining preceding cash disbursements or correspondence from third parties and
other records.

Q45: Which one of the following audit procedures is likely to provide the auditor with
the most reliable audit evidence regarding the legal claim?
a) Review the minutes of the disciplinary hearing to understand whether the company
has acted in accordance with employment legislation and its internal rules.
b) Request a written representation from management supporting their assertion that
the claim will not be successful.
c) Send an enquiry letter to company’s lawyers to obtain their view as to the
probability of the claim being successful.
d) Review correspondence between the company and its lawyers regarding the likely
outcome of the case.

Q46: Financial statements prepared in accordance with a special purpose framework

in accordance with ISA 800 may be the only financial statements and entity prepares.
In such circumstances, those financial statements may be used by users other, than
those for whom the financial reporting framework is designed. Despite the board
disruption of the financial statements in those circumstances, the financial
statements are still considered to be .
a) General purpose financial statements.
b) Applicable financial reporting framework.
c) General purpose and special purpose financial statements both.
d) Special purpose financial statements.

Q47: The consultative approach to internal auditing emphasizing .

a) implementation of policies and procedures.
b) imposition of corrective measures.
c) participation with engagement clients to improve methods.
d) fraud investigation.

Q48: In accordance with ISA 620, the agreement between the auditor and an
auditor’s external expert is often in the form of a/an .
a) management letter.
b) appointment letter.
c) engagement letter.
d) audit report.

Q49: In accordance with ISA 560, the auditor shall include in the new or amended
auditor’s
report a/an referring to a note to the financial statements that more
extensively discusses the reason for the amendment of the previously issued financial
statements and to the earlier report provided by the auditor.
a) written representation.
b) emphasis of matter paragraph or other matter paragraph.
c) emphasis of matter paragraph.
d) other matter paragraph.

Q50: The cost audit is performed by an independent professionally

qualified .
a) cost and management accountant or chartered accountant.
b) certified internal auditor.
c) chartered accountant.
d) all of these.

Q51: The cost auditor shall make out a report within days of his appointment
to the directors in the form set out in Appendix II along with a statement of capacity
utilization and stock-in-trade.
a) sixty.
b) thirty.
c) forty five.
d) ninety.

Q52: The basic structure of the cost audit has been laid down in the .
a) code of corporate governance regulations, 2019.
b) companies (audit of cost accounts) rules, 1998.
c) both a and b above.
d) companies incorporation regulations 2017.

Q53: In larger companies, the policies and procedures may be supplemented by

assigning appropriate responsibilities to the following except:
a) A company secretary.
b) A compliance function.
c) An audit committee.
d) An internal audit function.

Q54: Identify the best option from the following which does not represent an
example of the expectation gap:
a) The auditor tests all transactions.
b) An unmodified opinion means the company is a going concern.
c) The auditor can be sued for negligence if they issue an inappropriate opinion.
d) The audit report confirms the financial statements are accurate.

Q55: In accordance with ISA 450, which one of the following information the auditor
shall not include in the audit documentation.
a) The amount below which misstatements would be regarded as clearly trivial.
b) All misstatements accumulated during the audit and whether they have been
corrected.
c) Misstatements identified in previous audits have been corrected or not.
d) The auditor’s conclusion as to whether uncorrected misstatements are material
individually or in aggregate, and the basis for that conclusion.

Q56: Which of the following statements concerning auditing accounting estimates is

incorrect?
a) Auditors should use their own estimate in the financial statements as auditor
generated evidence is more conclusive than management generated evidence.
b) It can be difficult to obtain evidence concerning accounting estimates as
management use judgement in their estimation.
c) Accounting estimates are high risk as they can be subject to management bias.
d) Auditors can formulate a point estimate to compare to management’s estimate.

Q57: Mr. Shah ji is conducting the audit of Sleepy limited, for maintaining professional
skepticism, he should remain alert to conditions such as:
a) Evaluating whether sufficient, appropriate audit evidence has been obtained.
b) The evaluation of management’s judgements in applying the entity’s applicable
financial reporting framework.
c) Information that brings into question the reliability of documents and responses to
enquiries to be used as audit evidence.
d) The drawing of conclusions based on the audit evidence obtained.

Q58: An internal auditor is examining inventory control in a merchandising division

with annual sales of Rs. 30,000,000 and a 40% gross profit rate. Tests show that 2%
of the monetary amount of purchases do not reach inventory because of employee
theft. Adding certain controls costing Rs. 350,000 annually could reduce these losses
to 0.5% of the purchase. Should the controls be recommended.
a) Yes, regardless of cost benefit considerations, because the situation involves
employee theft.
b) Yes, because the projected savings exceed the cost of the added controls.
c) No, because the cost of added controls exceed the projected savings.
d) Yes, because the ideal system of internal controls is the most extensive one.

Q59: Select the best option from the following which does not represent purpose of
audit documentation:
a) Retaining a record of matters of continuing significance to future audits.
b) Assisting the engagement team to plan and perform the audit.
c) Discussions of significant matters with management of those charged with
governance.
d) Enabling the engagement team to be accountable for its work.

Q60: In accordance with ISA 450, which of the following factor the auditor’s
documentation of uncorrected misstatements does not take into account:
a) The evaluation of whether the materiality level or levels for particular classes or
transactions, account balances or disclosure, if any, have been exceeded.
b) The consideration of the aggregate effect of uncorrected misstatement.
c) Performance of materiality.
d) The evaluation of the effect of uncorrected misstatements on key ratios or trends,
and compliance with legal, regulatory and contractual requirements.

Q61: is the measure of the quality of audit evidence, that is, its relevance
and its reliability in providing support for the conclusions on which the auditor’s
opinion is based.
a) Audit report.
b) Appropriateness of audit evidence.
c) Sufficiency of audit evidence.
d) Accounting records.

Q62: You are conducting audit of Corrupt Zardari limited, while reviewing company’s
purchases cycle, you identified that goods received notes for raw material purchases
are not sequentially numbered. Which of the following areas would you consider to
be most at risk of material misstatement, as a result of this internal control deficiency.
a) Rights and obligations of inventory.
b) Valuation of payables.
c) Existence of inventory.
d) Completeness of payables.

Q63: Which one of the following is a reason for deficient or non-existence controls
over related party relationships and transactions as per ISA 550?
a) The importance attached by management to identifying and disclosing related party
relationships and transactions.
b) An insufficient understanding by management of the related party requirements
of the applicable financial reporting framework.
c) The appropriate oversight by those charged with governance.
d) The presence of disclosure requirements under the applicable financial reporting
framework.
Q64: The internal audit activity collectively must possess or obtain certain
competencies, excluding:
a) The ability to conduct training sessions in quantitative methods.
b) The ability to maintain good interpersonal relations.
c) An understanding of management principles.
d) Proficiency in applying auditing standards.

Q65: As per ISA 810, Before accepting an engagement to report on summary financial
statements, the auditor shall:
i. Determine whether the applied criteria are acceptable.
ii. Obtain the agreement of management that it acknowledges and understands its
responsibility on summary financial statements regarding their preparation,
availability to intended users, auditor’s report and its opinion.
a) none of the given option is correct.
b) option (ii) is correct only.
c) option (i) is correct only.
d) both options (i) and (ii) are correct.

Q66: An auditor identified numerous deficiencies in internal control relating to the

sales system. The amounts exposed to the deficiencies were high and they have
concluded that it is likely that the deficiencies would result in material misstatements
in the financial statements. A deficiency was also identified in the purchases system
but further investigation showed this to be a minor issue. Which of the following
statements is correct regarding the deficiencies which must be included in the report
to management.
a) The deficiencies identified in the sales and purchases system both.
b) The deficiencies identified in the sales system only.
c) Neither the deficiencies identified in the sales system nor the purchases system.
d) The deficiencies identified in the purchases system only.
Q67: In accordance with ISA 600, if the group engagement team plans to request a
component auditor to perform work on the financial statements of a component,
which one of the following understanding is not necessary to obtain by the group
engagement team?
a) Whether the component auditor understands and will comply with the ethical
requirements that are relevant to the group audit.
b) Whether the group engagement team will be able to be involved in the work of the
component auditor to the extent necessary to obtain sufficient appropriate audit
evidence.
c) Whether the component auditor operates in a regulatory environment that activity
overseen auditors.
d) The group’s auditor professional competence.

Q68: In accordance with ISA 620, on which one of the following matters the auditor
shall agree in writing when appropriate, with the auditor’s expert.
a) The nature, scope and objectives of the audit engagement.
b) The respective roles and responsibilities of the management and auditor.
c) The need of the management’s expert to observe confidentiality requirements.
d) The nature, timing and extent of communication between the auditor and that
expert, including the form of any report to be provided by that expert.

Q69: Every company shall, in addition to the records and statements specified in the
order of the corporate law authority, prepare a statement of stock in trade of the
company as at the end of financial year in terms of quantity and cost thereof
distinguishing between:
a) Stock of raw material and components and stock of work in process both.
b) Stock of raw material and components
c) stock of work in process
d) Labor hours worked.

Q70: Following persons are eligible to be appointed as cost auditor of the company:
a) A spouse of a director of the company.
b) A person who had been a Chartered Accountant for three years.
c) A person who has been appointed as auditor of the company for the respective
period.
d) A person who is, or at any time during the preceding three years was, a director,
officer or employee of the company.

Q71: The remuneration of the cost auditor shall be fixed by the .

a) chief executive officer.
b) securities and exchange commission of Pakistan.
c) Board of directors.
d) Chief financial officer.

Q72: Which of the following the auditor shall document in the audit documentation
as per ISA 220?
a) The procedures required by the firm’s policies on engagement quality control review
have been performed.
b) The reviewer is not aware of any unresolved matters that would cause the
reviewer to believe that the significant judgements the engagement team made and
conclusions it reached were not appropriate.
c) Conclusions reached regarding the acceptance and continuance of client
relationships and audit engagements.
d) Engagement quality control review have been completed on or before the date of
the auditor’s report.

Q73: In accordance with ISA 210, when the auditor of a parent entity is also the
auditor of a component, the factor that may influence the decision whether to send a
separate audit engagement letter to the component include the following:
i. Who appoints the component auditor.
ii. Whether a separate auditor’s report is to be issued on the component.
iii. Legal requirements in relation to audit appointments.
iv. Arrangements concerning the involvement of other auditors and experts in some
aspect of audit.
a) Option (iii), (iv) are correct.
b) Option (ii), (iii), (iv) are correct.
c) Option (i), (ii) are correct.
d) Option (i), (ii) and (iii) are correct.

Q74: In accordance with ISA 300, for an initial audit engagement, which one of the
following additional matters the auditor may consider in establishing the overall audit
strategy and audit plan?
a) Unless prohibited by law, arrangements to be made with the predecessor auditor
to review the predecessor auditor’s working papers.
b) The audit procedures necessary to obtain sufficient appropriate audit evidence
regarding closing balances.
c) Other procedures required by the firm’s system of quality control for future audit
engagements.
d) Minor issues discussed with management in connection with the initial selection as
auditor.

Q75: Management can best strengthen internal controls over the custody of
inventory stored in an offsite warehouse by implementing:
a) Regular reconciliation of physical inventories to accounting records.
b) Regular confirmation of the amount in hand with custodian of the warehouse.
c) Increase in insurance coverage.
d) Reconciliation of transfer slips to/from the warehouse with inventory records.

Q76: Which one of the following steps an auditor does not need to perform in
determining overall responses to address the assessed risk of material misstatement
due to fraud at the financial statements level.
a) The auditor will perform all the stated steps.
b) Incorporate an element of predictability in the selection of nature, timing and
extent of audit procedures.
c) Assign and supervise personal taking account of the knowledge of the individuals to
be given significant engagement responsibilities and the auditor’s assessment of the
risk of material misstatement due to fraud.
d) Evaluate whether the selection and application of accounting policies by the entity,
may be indicative of fraudulent financial reporting resulting.

Q77: Cheques from customers are received in the organization’s mail room each day.
Which one of the following controls should be in place to safeguard them?
a) Forwarding all cheques to the cashier upon receipt.
b) Establishing a separate post office box for customer payment.
c) Requiring a specific mail clerk to list and restrictively endorse each cheque.
d) None of these is an appropriate control for safeguarding customer’s cheques.

Q78: Shah ji have been appointed as a statutory auditor of Azeem Imran Khan
Limited, the company has been sued by a customer for a defective product. Identify
best option from the following which indicates audit risk for the company in this
situation.
a) The company will have to spend a significant amount of money on improving their
quality control procedures to avoid the same defect occurring again.
b) Provisions may be understated if the probable liability resulting from the court case
is not recognized in the financial statements.
c) The reputation of the company is being damaged due to court case.
d) If company lose the case, the compensation awarded is likely to be significant.

Q79: In accordance with ISA 705, in which of the following situations an auditor shall
express a qualified opinion?
a) The auditor, having obtained sufficient appropriate evidence, concludes that
misstatements, individually or in aggregate, are material, but not pervasive, to the
financial statements.
b) When the auditor, having obtained sufficient appropriate evidence, concludes that
misstatements, individually or in aggregate, are both material and pervasive to the
financial statements.
c) When an auditor is unable to obtain sufficient appropriate audit evidence, on which
to base the opinion and he concludes that possible effects on the financial statements
of undetected misstatements could be both material and pervasive.
d) In all of these situations, the auditor shall express a qualified opinion.

Q80: In which of the following circumstances the auditor is not required by ISA 706 to
include an Emphases of matter paragraph in the audit report.
a) Early application (where permitted) of a new accounting standard that has a
material effect on the financial statements.
b) Inability of auditor to obtain sufficient appropriate audit evidence to conclude that
financial statements as a whole are free from material misstatements.
c) A significant subsequent event that occurs between the date of the financial
statements and the date of auditor’s report.
d) A major catastrophe that has had, or continues to have, a significant effect on the
entity’s financial position.

Q81: When the auditor modifies the opinion on the financial statements, the auditor
shall include a paragraph in the auditor’s report. All of the following are true of this
paragraph except:
a) It should draw the financial statement user’s attention to matters presented or
disclosed in the financial statements that are of such importance that they are
fundamental to user’s understanding of the financial statements.
b) The auditor shall place this paragraph immediately before the opinion paragraph in
the auditor’s report.
c) The auditor shall use the heading “Basis for qualified opinion”, “Basis for adverse
opinion” or “Basis for disclaimer of opinion”, as appropriate.
d) The paragraph should provide a description of the matter giving rise to the
modification.

Q82: The statement of production capacity and shall be signed by chief

executive
and of the company.
a) statement of stock in trade, chief accountant.
b) statement of stock in trade, company secretary.
c) cost auditor report, chief accountant.
d) cost auditor report, company secretary.

Q83: The company shall, within days from the date of receipt of copy of
the cost auditor report, furnish the corporate law authority with full information and
explanation on every reservation or qualification contained in such report.
a) seven.
b) twenty.
c) thirty.
d) fifteen.

Q84: Mr. A is an audit partner of ABC associates, he was found guilty of ethical
misconduct by failing to respond to the professional clearance requests from another
audit firm. Which of the following fundamental principle is breached by Mr. A?
a) integrity.
b) independence.
c) professional behavior.
d) professional competence and due care.
Q85: Which of the following statements are true regarding the auditor’s attendance
at the inventory count?
i. It is the auditor’s responsibility to organize the inventory count.
ii. The auditor observes client staff to determine whether inventory count procedures
are being followed.
iii. The auditor reviews procedures for identifying damaged, obsolete and slow-
moving inventory.
iv. If the results of the auditor’s test counts are not satisfactory, the auditor should
insist that the inventory is recounted.
a) option (i) and (ii) are correct.
b) option (ii), (iii) and (iv) are correct.
c) option (ii) and (iii) are correct.
d) option (iii) and (iv) are correct.

Q86: In accordance with ISA 220, in order to draw conclusion the auditor shall not:
a) Be dissatisfied that members of the engagement team have undertaken
appropriate consultation during the course of the engagement.
b) Be satisfied that the nature and scope of, and conclusions resulting from, such
conclusions are agreed with the party consulted.
c) Determine that conclusions resulting from such consultations have been
implemented.
d) Take responsibility of the engagement team undertaking appropriate consultation
on different or contentious matters.

Q87: Which one of the following is an operating control relating to management’s

directing functions?
a) Prescribed formal procedures for selecting potential suppliers.
b) Information purchasing personnel of the future need for long lead-time products in
ample time.
c) Supplying buyers with timely, accurate and useful reports on products received,
accepted or rejected.
d) Establishing measurable goals for the department.

Q88: Which one of the following does not represent the factor on which the form,
content and extent of audit documentation depend?
a) The nature of the audit procedures to be performed.
b) The identified risk of material misstatements.
c) The simplicity of the entity.
d) The significance of audit evidence obtained.

Q89: Which one of the following statement regarding compliance with laws and
regulations is correct?
a) The auditor has no responsibility with regards to laws and regulations as this is
management’s responsibility.
b) The auditor must identify instances of non-compliances with laws and regulations as
they are required by law to report it to the police.
c) The auditor must identify instances of non-compliances with laws and regulations
as this may lead to material misstatement in the financial statements.
d) Any breach of laws and regulations must be disclosed in the audit report.

Q90: Your organization has selected you to develop an internal audit activity. Your
approach will most likely be to hire:
a) Internal auditors, each of whom possesses all the skills required to handle all
engagements.
b) Inexperienced personnel and train them the way the organization wants them
trained.
c) Cost and management accountants as most of the internal audit work is accounting
related.
d) None of these.
Q91: 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) Access to all information of which management and where appropriate, those
charged with governance are aware that is relevant to the preparation of the financial
statements.
b) Unrestricted access to persons within the entity from whom the auditor determines
to necessary to obtain audit evidence.
c) Additional information that the auditor may request from management and where
appropriate, those charged with governance for the purpose of the audit.
d) All of these.

Q92: Which one of the following characteristic would lead the auditor to assess
inherent risk relating to financial reporting at a higher level?
a) The company is in an industry that is mature and declining.
b) The controls over the account balance are weak.
c) The account balance represents an asset that is relatively easily stolen.
d) The company has a history of exactly meeting analyst estimates.

Q93: is an element of assurance engagement which means that subject

matter is evaluated or measured against criteria in order to reach an opinion.
a) suitable criteria.
b) a subject matter.
c) evidence.
d) assurance report.

Q94: Mr. Rose is conducting the audit of Jasmine Limited. He was unable to attend
physical inventory count due to unforeseen circumstances, identify the best course
of action available to him in these circumstances.
a) Inquire of management and where appropriate, others within the entity, including in
-house legal council.
b) Mr. Rose can make or observe some physical counts on an alternative date, and
perform audit procedures on intervening transactions.
c) Request confirmation from third party as to the quantities and condition of inventory.
d) Review minutes of meeting of those charged with governance and correspondence
between the company and its external legal council.

Q95: Use of external service providers with expertise in health care benefits is
appropriate when the internal audit activity is:
a) Training its staff to conduct an audit of health care costs in a major division of the
organization.
b) Comparing the cost of the organization’s health care program with other programs
offered in the industry.
c) Evaluating the organization’s estimate of its liability for post retirement benefits
which include health care benefits.
d) All of these statements are correct.

Q96: Alooo ly lo Limited auditors find insufficient evidence to substantiate the

company’s cash sales, which are material in amount. What form of modification of
the audit opinion would normally be appropriate in this situation.
a) Qualified opinion – unable to obtain sufficient appropriate evidence.
b) Disclaimer of opinion.
c) Qualifed opinion – misstatements are material but not pervasive.
d) Adverse opinion.

Q97: In accordance with ISA 805, if the auditor concludes that an audit of a single
financial statement or of a specific element of a financial statement in accordance
with ISAs may not be practicable, the auditor may:
a) Withdraw from the engagement.
b) Discuss with management whether another type of engagement might be more
practicable.
c) Express a qualified opinion.
d) Discuss the matter with engagement quality control reviewer.

Q98: Mr. Neem Hakeem is conducting the audit of Fool (Pvt.) Limited. He tested the
population by examining 60000000000000 items selected judgmentally and found
one error. The main limitation of the auditor’s sampling is the inability to .
a) Quantify sampling risk.
b) Project the population’s error rate.
c) Determine whether the sample is random.
d) Quantify the acceptable error rate.

Q99: is known as summary that the auditor may prepare or retain as part
of the audit documentation.
a) Acceptance letter.
b) Audit file.
c) Management letter.
d) Completion memorandum.

Q100: You are conducting the audit of Jahil Trust, a charitable organization, and have
identified a risk that income may be understated in the financial statements. You are
concerned that not all income may be recorded. Which of the following statements is
not a valid response to this audit risk.
a) Review the internal controls relating to cash collected in buckets to determine
whether buckets are sealed, sequentially numbered and signed in and out by Jahil’s
volunteers.
b) Observe the counting and recording of proceeds from collections, to determine
whether appropriate segregation of duties is in place.
c) Perform analytical procedures on the level of donations in shopping areas per
volunteer.
d) Obtain a breakdown of the income recorded from the cash that was collected in
buckets, and vouch a sample of entries back to the volunteer in order to determine
which volunteer collected the relevant donations.

Q101: Auditors provide reasonable assurance which is not an absolute assurance. The
limitation of an audit mean that it is not possible to provide a 100% guarantee. Which
one of the following represent limitations of an audit.
a) Representations from management may have to be relied upon as the only source
of evidence in some areas.
b) Financial statements exclude subjective estimates and other judgmental matters.
c) Evidence obtained is always conclusive.
d) Auditors test all transactions and balances for completion of audit.

Q102: In accordance with section 246 of companies Act 2017, a member having not
less
than percent shareholding of the company shall also be entitled to
propose any auditor or auditors for appointment.
a) Twenty five.
b) Five.
c) Forty.
d) Ten.

Q103: The major reasons for the internal auditor’s involvement in information systems
development is of the internal auditor to .
a) Propose enhancement for subsequent development and implementation.
b) Gain familiarity with systems for use in subsequent reviews.
c) Help assure that systems have adequate control procedures.
d) Help minimize the cost and development for new systems.

Q104: You have set the level of materiality for the financial statements as a whole,
and now need to determine performance materiality. Which of the following
statements about performance materiality is not true?
a) It refers to the amounts set by the auditor at higher than the materiality level for
particular classes of transactions, account balances or disclosures where the
materiality level might otherwise mean that such items are not tested.
b) It is used to reduce the risk that the aggregate of uncontrolled and undetected
misstatements exceeds materiality for the financial statements a whole to an
acceptable level.
c) Once the level of materiality for the financial statements as a whole has been set, a
lower level of performance materiality is determined by the auditor using their
professional judgement.
d) The performance materiality level is affected by the auditor’s understanding of the
entity and the nature and extent of misstatements identified in prior audits.

Q105: Which of the following issues would not result in a misstatement in the
receivable balance?
i. An error in recording the amount of a sales transaction.
ii. A misposting between customer accounts.
iii. A timing difference identified as a result of a receivables circularization.
iv. A sales invoice not being recorded in the sales system.
a) Option (i) and (ii) are correct.
b) Option (i) and (iii) are correct.
c) Option (ii) and (iii) are correct.
d) Option (i) and (iv) are correct.

Q106: Which of the following statements is correct regarding audit procedures

concerning the non-current asset cycle?
a) If the same ordering documentation is used in the non-current assets cycle as in the
purchases cycle, it will not be necessary to produce additional systems documentation.
b) The non-current assets cycle is likely to have a lower risk of material misstatement
than the purchases cycle.
c) Because the control risk around the non-current assets cycle is likely to be high, it is
important to perform tests of controls.
d) Because there are likely to be fewer capital purchases than standard purchases in
the year, it may not be cost efficient to undertake tests of controls.

Q107: During the previous audit of Zukaam Limited (ZL), the audit team had
recommended ZL’s management to ensure that any amendments to the standing
data on the wages systems are reviewed by an authorized manager. Which of the
following is test a of control designed to provide evidence that the recommended
internal control is operating effectively?
a) Obtain printouts of employee wage rates and compare these to Human Resource
records.
b) Review the log of amendments to standing data for evidence of review.
c) Review overtime lists for evidence of authorization.
d) Perform a proof in total using the number of employees and average wage.

Q108: Which of the following statements are valid recommendations with regards to
improving the internal controls for goods received in a company?
i) The ordering department should match orders to GRNs and mark orders as closed
once all goods have been received, to enable any outstanding orders to be chased up.
ii) The first copy of the GRNs should be sent directly to the accounts department,
without first going through the ordering department, to prevent delays in recording
the purchase.
iii) The goods inwards department should review the goods for their condition, in
order to identify and return any damaged goods.
iv) GRNs should be filed in date order by purchase order number, instead of by the
supplier’s reference number, to ensure that they can be matched easily to orders.
a) Option (i), (ii) and (iv) are correct.
b) Option (i) and (iii) are correct.
c) Option (i), (iii) and (iv) are correct.
d) Option (i), (ii) and (iii) are correct.
Q109: Which of the following statements correctly describe the auditor’s
responsibility in respected misstatements.
a) Where misstatements are not material the auditor should request that management
correct the misstatements in the following accounting period.
b) If management refuses to correct some or all of the misstatements, the auditor
should consider the implications of this for their audit opinion.
c) ISA 450 states that the auditor only has a responsibility to accumulate material
misstatements identified during the audit.
d) A written representation should be requested from management to confirm
whether they believe that the effects of the unadjusted misstatements are immaterial,
to the financial statements as a whole.

Q110: Analytical procedures are commonly used as substantive procedures over

revenue, purchases and payroll for which of the following reasons?
a) Analytical procedures are more reliable than test of details.
b) These are often areas where controls are strong and analytical procedures will
therefore be the most efficient way of testing these items.
c) It would be far too time consuming to perform tests of details over these items as
there are many transactions.
d) The auditor does not need as much evidence for statement of profit or loss items as
they need for statement of financial position items.

Q111: Which one of the following situations represents an example of adverse

relationship between the company and employees that may motivate employees to
misappropriate company’s assets?
a) Inadequate segregation of duties or independent checks.
b) Recent or anticipated changes to employee compensation or benefit plans.
c) Inadequate management understanding of information technology.
d) Inadequate oversight of senior management expenditure.

Q112: The fact that fraud is usually concealed can make it very difficult to detect.
Select the best option from the following that indicate an event which may create
pressure for the management to commit fraud in accordance with ISA 240.
a) Effective oversight by those charged with governance.
b) The granting of significant bonuses if unrealistic profit targets are met.
c) A control environment that is not effective.
d) The need to meet expectations of third parties.

Q113: While conducting the audit of Raja Hindustani Limited (RL), as part of your
assessment of going concern you have reviewed the cash flow forecast of RL. This is
based on the assumption of significant increases in revenue. Which of the following
procedures would provide the most reliable evidence regarding the validity of the
assumption?
a) A review of board minutes showing details of new customers.
b) A review of post year-end sales and the order book.
c) Email correspondence between the sales director and potential new customers.
d) Discussions with management regarding their plans for obtaining new business.

Q114: Which of the following recommendations are appropriate in increasing the

independence of a company’s internal audit department?
i. The chief internal auditor should be appointed by the Board of Directors.
ii. The chief internal auditor should report to the Board of Directors.
iii. The Finance director should decide on the scope of the internal audit work.
a) Option (i), (ii) and (iii) are correct.
b) Option (i) and (ii) are correct.
c) Option (ii) and (iii) are correct.
d) Option (i) and (iii) are correct.

Q115: There is a major uncertainty facing by Zakoota Jin Limited IZL). Actions are
pending against the company for allegedly supplying faulty goods, causing
widespread damage. The directors have fully described the circumstances of the
case in a note to the financial statements. What form of audit opinion is appropriate
in this case?
a) Unmodified opinion with an additional emphasis of matter paragraph.
b) Disclaimer of opinion.
c) Qualified opinion - misstatements are material, but not pervasive.
d) Qualified opinion – unable to obtain sufficient appropriate audit evidence.

Q116: As per ISA 810, In case the auditor concludes that additional explanation in the
auditor’s report on the summary financial statements cannot mitigate possible
misunderstanding, is the auditor still required to accept the engagement?
a) Yes, if required by the intended users of the summary financial statements.
b) Yes, if required by law or regulation.
c) No, he is not required to accept the engagement.
d) Yes, if required by those charged with governance.

Q117: A company shall apply to the Securities and Exchange Commission of Pakistan
in the form, set out
In to the Companies (Audit of Cost Accounts) Rules 1998, for appointment
of cost auditor.
a) Appendix-II.
b) Appendix-III.
c) Appendix-I.
d) None of these ji.

Q118: The code of ethics of the cost auditor is largely covered by the
companies (Audit of Cost Accounts) Rules 1998, under which a person who has or has
specified relationships, which go to mar his independence, cannot be appointed as a
cost auditor.
a) Integrity.
b) Independence.
c) Professional competence and due care.
d) Objectivity.

Q119: As per section 246 of the Companies Act, 2017, the first auditor or auditors of a
company shall be appointed by the board within days of the date of
incorporation of the company.
a) Sixty.
b) Ninety.
c) Fifteen.
d) One hundred and twenty.

Q120: Mr. Anda Paratha conducted the audit of ACHAAR Limited, he drew new
conclusions by performing additional audit procedures after the date of auditor’s
report. In this respect, which of the following information he shall document?
(i) The circumstances encountered.
(ii) When and whom the resulting changes to audit documentation were made and
reviewed.
a) Option (i) and (ii) are correct.
b) Option (i), (ii), and (iii) are correct.
c) Option (i) is correct.
d) Option (ii) and (iii) are correct.

Q121: An independent audit is connected in accordance with ISA does not act as a
substitute for:
a) The maintenance of internal control necessary for the preparation of financial
statements by management.
b) The maintenance of report by the internal auditor.
c) The confiscation made by third party validation on the financial statements.
d) None of these.
Q122: Any assurance engagement requires which of the following elements.
a) A subject matter.
b) A responsible party.
c) A user.
d) All of these are required.

Q123: Which one of the following most seriously compromises confidence in the
internal audit activity?
a) The chief audit executive has dual reporting responsibility to the organization’s chief
executive officer and the Board of Director.
b) Internal auditor frequently draft revised procedures for departments whose
procedures have been criticized in an engagement communication.
c) The internal audit activity included in the review cycle of the organization’s contracts
with other organizations before the contract are executed.
d) The internal audit activity and the organization’s external auditor’s engaged in joint
planning of total engagement coverage to avoid duplicating each other’s work.

Q124: As per ISA 505, when evaluating the results of individual external confirmation
request, in which of the following ways the auditor may categorize such results?
i. A response deemed reliable.
ii. A non response.
iii. A response indicating an exception.
a) Option (ii) and (iii) are correct.
b) Option (i), (ii) and (iii) are correct.
c) Option (i) and (ii) are correct.
d) Option (i) and (iii) are correct.

Q125: In accordance with ISA 250, in order to obtain a general understanding of the
legal and regulatory framework, and how the entity complies with that framework,
the auditor may:
(i) Use the auditor’s existing understanding of the entity’s industry, regulatory and
other external factors.
(ii) Update the understanding of those laws and regulations that directly determine
the reported amounts and disclosures in the financial statements.
(iii) Inquire of engagement quality control reviewer as to other laws and regulations
that may be expected to have a fundamental effect on the operation of the entity.
a) Option (i) and (ii) are correct.
b) Option (i), (ii) and (iii) are correct.
c) Option (i) is correct.
d) Option (ii) and (iii) are correct.

Q126: Independence permits internal auditors to render impartial and unbiased

judgements. The best way to achieve independence is through:
a) A dual-reporting relationship.
b) Individual knowledge and skill.
c) Organizational knowledge and skill.
d) Supervision within the organization.

Q127: Audit documentation may be recorded on paper or on electronic media. Which

one of the following does not represent example of audit documentation.
a) Correspondence via phone call.
b) Audit programs.
c) Analysis.
d) Summaries of significant matters.

Q128: As per ISA 520, are generally more applicable to large volumes of
transactions that tend to be over time.
a) Substantive analytical procedures, predictable.
b) Test of details, predictable.
c) Test of details, unpredictable.
d) Substantive analytical procedures, unpredictable.

Q129: Which of the following is not an example of fraud in the acquisition and
payment cycle?
a) Theft of inventory by an employee.
b) Employee scheme involving fictitious vendors and means to transfer payments to
themselves.
c) Executives inappropriately recording higher values for existing inventory.
d) Minimal manual adjustments to inventory accounts.

Q130: As per ISA 265, identify the best option from the following which does not
represent matters that the auditor may consider in determining whether a deficiency
or combination of deficiencies in internal control constitutes a significant deficiency:
a) The likelihood of deficiencies leading to material misstatements in the financial
statements in the future
b) The resistance to loss or fraud of the related asset or liability.
c) The subjectivity and complexity of determining estimated amounts.
d) The financial statement amounts exposed to deficiencies.

Q131: In accordance with ISA 610, for a particular account balance, class of transaction
or disclosure, the higher an assessed risk of material misstatement at the
level, the judgement is often involved in planning and performing the audit
procedures and evaluating the results thereof.
a) Assertion, less.
b) Assertion, more.
c) Financial statement, less.
d) Financial statement, more.
Q132: As per ISA 450, misstatements may arise due to the following factors, except:
a) An inaccuracy in gathering or processing data from which the financial statements
are prepared.
b) An appropriate classification, aggregation or disaggregation of information.
c) Judgements of management concerning accounting estimates that the auditor
considers unreasonable.
d) An incorrect accounting estimate arising from over looking, or clear
misinterpretation of facts.

Q133: An organization has a separate department that is primarily responsible for the
prevention of fraud, the internal audit activity is responsible for .
a) Controlling that department’s fraud prevention activities.
b) Establishing and maintaining that department’s system of internal control.
c) Planning that department’s fraud prevention activities.
d) Examining and evaluating the adequacy and effectiveness of that department’s
action taken to prevent fraud.

Q134: refers to a response that indicates a difference between information

requested to be confirmed, or contained in entity’s records, and information provided
by the confirming party.
a) Error.
b) Evidence.
c) Exception.
d) Estimation uncertainty.

Q135: If the auditor expects to include an Emphasis of matter or an Other matter

paragraph in the auditor’s report as per ISA 706, the auditor shall communicate with
regarding this expectation and the working of this paragraph.
a) internal auditor.
b) those charged with governance.
c) auditor’s expert.
d) in-house legal counsel.

Q136: Which one of the following particular a cost auditor shall include with respect to
“raw materials” in the cost auditor report?
a) Comments on the method of accounting followed for recording the quantitates
and value of receipts, issues and balances of all materials directly used in the
production.
b) Percentage of production of the product under reference in relation to installed
capacity.
c) Average number of workers employed for the year.
d) Employees cost on administration.

Q137: refers to the component of internal control that includes control action
that have been established by policies and procedures, they help ensure that
management’s directives regarding internal controls are carried out.
a) control environment.
b) control deficiency.
c) control activities.
d) detective controls.

Q138: Identify the best option from the following which financial statement assertion
are fulfilled through following audit procedures.
i) Physical inspection of inventory.
ii) Confirmation from legal advisor.
a) Physical inspection of inventory, completeness, Confirmation from legal advisor,
existence.
b) Physical inspection of inventory, valuation, Confirmation from legal advisor,
completeness.
c) Physical inspection of inventory, accuracy, Confirmation from legal advisor,
valuation, rights and obligations.
d) Physical inspection of inventory, Existence, Confirmation from legal advisor,
completeness, valuation.

Q139: Throughout the audit engagement, the shall remain alert, through
observation and
making as necessary for evidence of non compliance with relevant ethical
requirements by members of the engagement team.
a) engagement partner, inspection.
b) management, inquiries.
c) engagement partner, inquiries.
d) management, inspection.

Q140: An experienced auditor is an individual who has practical audit experience and
a reasonable understanding of:
a) ISAs and applicable legal and regulatory environment.
b) Audit processes.
c) The business environment in which company operates.
d) All of these.

Q141: Select the best option from the following which does not indicate going
concern problem for a company:
a) Net current liabilities indicate an ability to meet debts as they fall due.
b) The company find it difficult to repay loans.
c) Over reliance on a small number of products.
d) Inability to trade due to loss of key staff.

Q142: Mr. Lallu is conducting the audit of Meeru Limited, the management of the
company is not cooperating in providing written representation, which of the
following steps Mr. Lallu can take in this regard.
a) Take appropriate actions, including determining the possible effect on the opinion in
the auditor’s report.
b) Re-evaluate the integrity of management and evaluate the effect that this may have
on the reliability of representations.
c) Discuss with the management.
d) All of these.

Q143: The internal auditor has concluded that an engagement client’s system of
internal controls is inadequate to achieve management’s objectives. The most
appropriate next step is to:
a) Test controls to determine whether they are functioning as designed.
b) Contact the engagement client’s direct supervisor to recommend that the head of
the department or function under audit is transferred or terminated.
c) Draw preliminary conclusions about internal control.
d) End the engagement and issues report about inadequate controls.

Q144: In accordance with ISA 580, which one of the following International Standards
on Auditing (ISA) does not require subject specific written representation?
a) ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
Statements.
b) ISA 710, Comparative information – Corresponding Figures and Comparative
Financial Statements.
c) ISA 500, Audit Evidence.
d) ISA 450, Evaluation of misstatements identified during the audit.

Q145: In accordance with ISA 705 (Revised), identify the best option from the
following that represent an example of circumstances beyond the control of the
company that makes the auditor unable to obtain sufficient appropriate audit
evidence for the audit.
a) Management prevents the auditor from requesting external confirmation of specific
account balances.
b) The auditor determines that performing substantive procedures alone is not
sufficient, but the entity’s controls are not effective.
c) The timing of the auditor’s appointment is such that the auditor is unable to observe
the counting of the physical inventories.
d) The accounting records of a significant component have been seized indefinitely
by governmental authorities.

Q146: Assuming that the internal auditing staff possesses the necessary experience
and training which of the following service is most appropriate for a staff internal
auditor to undertake?
a) Participate in an internal audit of the accounting department shortly after
transferring from the accounting department.
b) Determining the probability of alternate investment acquisition and select the best
alternative.
c) As part of an evaluation team, review vendor accounting software internal controls
and rank according to exposures.
d) Substitute for the accounts payable supervisor while he/she is on sick leaves.

Q147: The Basis for Opinion section provides important context about the auditor’s
opinion. Accordingly, ISA 700 (Revised) requires the basis for opinion section to
directly follow the section in the auditor’s report.
a) title.
b) Auditor’s address.
c) Opinion.
d) Auditor’s signature.

Q148: The cost auditor shall be appointed by within days of the

close of the financial year of the company.
a) Directors, 30
b) Securities and Exchange Commission of Pakistan, 60
c) Directors, 60
d) Securities and Exchange Commission of Pakistan, 30

Q149: As per ISA 402, identify which one of the following options best define
“Subservice organization”:
a) The policies and procedures designed, implemented and maintained by the service
organization to provide user entities with the services covered by the service
auditor’s report.
b) A service organization used by another service organization to perform some of the
services provided to user entities that are part of those user entities’ information
systems relevant to financial reporting.
c) Controls that the service organization assumes. In the design of its services will be
implemented by the user entities, and which, if necessary to achieve control objectives,
are identified in the description of its system.
d) A third party organization that provides services to user entities that are part of
those entities’ information systems relevant to financial reporting.

Q150: You are conducting the audit of ABC Limited and observed the following:
ABC purchases its raw materials from a wide range of approved suppliers.
When production supervisors require raw materials, they complete a requisition form
and this is submitted to the purchase ordering department.
Requisition forms do not require authorization and no reference is made to the
current inventory levels of the materials being requested.
Which of the following are the most likely consequences of the internal control.
a) Fraudulent purchases may be made, leading to funds being diverted to third parties
for illegal purposes.
b) Raw materials of poor quality may be purchased, resulting in low quality products
being produced, customer goodwill being lost and going concern risks.
c) Unnecessary purchases may be made, resulting in excess obsolescent raw materials
accumulating in inventory requiring to be written down.
d) All of these are consequences of the internal control deficiency in the requisition
system of raw materials.

Q151: In accordance with ISA 220, which one of the following information an
engagement quality control reviewer is not required to document for the audit
engagement reviewed?
a) The procedures required by the firm’s policies on engagement quality control review
have been performed.
b) The reviewer is not aware of any unresolved matters that would cause the reviewer
to believe that the significant judgements the engagement team made and the
conclusions it reached were not appropriate.
c) The engagement quality control review has been completed on or before the date of
the auditor’s report.
d) Conclusions reached regarding the acceptance and continuance of client
relationships and audit engagements.

Q152: In accordance with ISA 330, which one of the following factor the auditor will
not consider in determining whether it is appropriate to use audit evidence about the
operating effectiveness of control obtained in previous audits, and, if so, the length of
the time period that may elapse before retesting a control.
a) The effectiveness of IT controls of entity’s competitors.
b) The risks of material misstatement and the extent of reliance on the control.
c) Whether the lack of a change in a control possess a risk due to changing
circumstances.
d) The risk arising from the characteristics of the control, including whether it is material
or automated.

Q153: In accordance with ISA 315, risks assessment procedures to obtain audit
evidence about the design and implementation of relevant controls may include:
i) Inquiring of entity’s personnel.
ii) Observing the application of internal control.
iii) Inspecting documents and reports.
a) Option (i) is correct.
b) Option (i), (ii), and (iii) are correct.
c) Option (i) and (ii) are correct.
d) Option (ii) and (iii) are correct.

Q154: In accordance with ISA 500, if information to be used as audit evidence has
been prepared by using the work of a management’s expert, the auditor shall, to the
extent necessary, having regard to the significance of that expert’s work for the
auditor’s purposes.
i) Evaluate the competence, capabilities and objectivity of that expert.
ii) Obtain an understanding of the work of that expert.
iii) Evaluate the appropriateness of that expert’s work as audit evidence for the
relevant assertion.
a) Option (ii) and (iii) are correct.
b) Option (i), (ii), and (iii) are correct.
c) Option (i) and (ii) are correct.
d) Option (i) is correct.

Q155: Select the best option from the following that does not represent reason for a
company’s complex or unstable organizational structure.
a) Overly complex organizational structure involving unusual legal companies or
managerial lines of authority.
b) Domination of management by a single person or small group without
compensating controls.
c) High turnover of senior management, legal counsel, or those charged with
governance.
d) Difficulty in determining the organization or individual that have controlling interest
in the company.

Q156: ISAE 3000 (revised) states that, the engagement partner shall take
responsibility for the overall quality on the engagement. This comprises responsibility
for the following, but does not include:
a) The engagement being planned and performed to comply with professional
standards and applicable legal and regulatory requirements.
b) Appropriate procedures being performed regarding the acceptance and
continuance of client relationships and engagements.
c) Reviews being performed in accordance with the firm’s review policies and
procedures and reviewing the engagement documentation on or before the date of
the assurance report.
d) Appropriate consultation being undertaken by the management of the client on
difficult or contentious matters.

Q157: Which one of the following steps the auditor shall take in accordance with ISA
705 (Revised), if there is a material misstatement of the financial statements that
relates to the non-disclosure of information required to be disclosed.
a) Discuss the non-disclosure with those charged with governance.
b) Does not express an opinion on the accompanying financial statements.
c) Amend the heading in the auditor’s report “Basis for Qualified opinion” or “Basis for
Disclaimer of opinion” as appropriate.
d) State in the audit report that the auditor has not been able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the financial
statements.

Q158: is the date on which all the statements that comprise the financial
statements, including the related notes, have been prepared and those with the
recognized authority have asserted that they have taken responsibility for those
financial statements.
a) Date of the auditor’s report.
b) Date the financial statements are issued.
c) Date of the financial statements.
d) Date of approval of the financial statements.
Q159: In the light of ISA 805, if the auditor concludes that it is necessary to express an
adverse opinion or disclaim an opinion on the entity’s complete set of financial
statements as a whole but, in the context of a separate audit of a specific element
that is included in those financial statements, the auditor nevertheless considers it
appropriate to express an unmodified opinion on that element, the auditor shall only
do so if:
i. The auditor is not prohibited by law or regulation from doing so.
ii. That opinion is expressed in an auditor’s report that is not published together with
the auditor’s report containing the adverse opinion or disclaimer of opinion and;
iii. The specific element does not constitute a major portion of the entity’s complete set
of financial statements.
a) Option (i), (ii), and (iii) are correct.
b) Option (ii) is correct.
c) Option (i) is correct.
d) Option (ii) and (iii) are correct only.

Q160: The auditor’s report for ABC Limited (LL) is about to be signed. The auditor has
concluded that the disputed receivable balance of Rs. 500,000 that represents 6.3%
of total receivable balance from a customer is likely to be irrecoverable, but the
Directors have not made any changes to the financial statements in respect of this as
they are confident that the issue will be resolved. Which of the following options
correctly summarizes the impact on the auditor’s report for LL if the issue remains
unresolved.
a) Disclaimer of opinion.
b) Adverse opinion.
c) Qualified “except for”
d) Unmodified with key audit matters section.

Q161: If a component is subject to audit by regulation and the group engagement

team decides to use that audit to provide audit evidence for the group audit, the
group engagement team shall determine whether for the component
financial statements as a whole meet the requirement of ISA 600.
a) Materiality.
b) Component management.
c) Accounting estimates relating to outcome of litigations.
d) Group audit opinion.

Q162: Cost auditor has to conform to technical and professional standards laid down
by the and the relevant laws, orders, rules and regulations.
a) Institute of Chartered Accountants of Pakistan (ICAP) and International Federation of
Accountants.
b) Institute of Chartered Accountants of Pakistan (ICAP,) and Institute of Cost and
Management Accountants of Pakistan (ICMAP)
c) Institute of Cost and Management Accountants of Pakistan (ICMAP) and
International Federation of Accountants.
d) Institute of Chartered Accountants of Pakistan (ICAP), Institute of Cost and
Management Accountants of Pakistan (ICMAP) and International Federation of
Accountants.

Q163: Which one of the following activities do not constitute an engagement

supervision?
a) Preparing a preliminary engagement work program.
b) Reviewing engagement working papers.
c) Providing appropriate instructions to the internal auditors.
d) Ensuring that engagement communication meet appropriate criteria.

Q164: Identification of an appropriate population to sample is dependent upon audit

objectives, a population of entries in an asset repairs expense file is an appropriate
population if the audit objective is to determine whether:
a) Expenditure for fixed assets have been improperly expensed.
b) Expenditure for fixed assets have been recorded in the proper period.
c) Non-capital repair expenditure have been properly charged to expense.
d) Non-capital repair expenditure have been recorded in the proper period.

Q165: Which one of the following methods is most likely to be considered

inappropriate for selecting a sample of inventory for physical inspection.
a) The auditor selects every 100th item from the 2000 items on the inventory listing.
b) The auditor uses random number tables to select 20 items from the inventory listing.
c) The auditor selects the first 20 items from page 3 of the inventory listing.
d) Without any reference to random number tables, the auditor, without any
conscious bias, selects two items from each page of the 10-page inventory listing.

Q166: According to ISA 200, reasonable assurance obtained when the auditor has
reduced audit risk to:
a) A reasonable low level.
b) An acceptably low level.
c) An acceptable level.
d) A reasonable level.

Q167: Select the best option from the following which indicates retention period of
audit documentation from the date of auditor’s report, or, if later, the date of the
group’s auditor report?
a) Five years.
b) Two years.
c) Six years.
d) Six months.

Q168: is an audit procedure designed to detect material misstatement at the

assertion level.
a) Performance materiality.
b) Substantive procedure.
c) Test of controls.
d) Segregation of duties.

Q169: You are an audit manager of ABC associates. Your firm has been invited to
tender for the audit of XYZ Limited. You have identified a number of issues which
should be considered prior to tendering for a new client. Which of the following are
most important to consider prior to tendering for audit?
i. ABC Associates is independent of XYZ Limited.
ii. ABC Associates has the appropriate resources to conduct the audit of XYZ Limited.
iii. The preconditions of audit will be met.
iv. The outgoing auditors of XYZ Limited will give ABC Associates access to working
papers.
a) Option (i), (ii), (iii) and (iv) are correct.
b) Option (i) and (ii) are correct.
c) Option (iii) and (iv) are correct.
d) Option (i) and (iii) are correct.

Q170: In which one of the following audit procedures are existence and accuracy,
valuation and allocation of account receivable, the major assertion of interest?
a) Positive external confirmation of account receivable.
b) Agreeing amounts listed on the aged accounts receivable trial balance to
subsequent receipts.
c) Vouching transactions back to supporting documentation and ensuring that the
dollar value is correctly recorded.
d) Negative external confirmation of accounts receivable.

Q171: Which one of the following statement is correct with regard to subsequent
review?
a) The auditor only needs to consider subsequent events that the directors have
informed them
b) The auditor has no responsibility after signing the audit report, even if they become
aware of events occurring which means te opinion is now incorrect.
c) The auditor does not need to consider any events which occur after the date of the
financial statements as it is outside of the reporting period.
d) The auditor must perform audit procedures to identify events occurring after the
date of the financial statements up to the date the audit report is signed that could
have an effect on the financial statements.

Q172: For a component that is significant due to its individual financial significance to
the group, the group engagement team, or a on its behalf, shall perform an
audit of the financial information of the component using component materiality.
a) engagement quality control reviewer.
b) component auditor.
c) auditor’s expert.
d) internal auditor.

Q173: As per ISA 800 (revised), the auditor’s report on special purpose financial
statements shall include a/an alerting the users of the auditor’s report that
the financial statements are prepared in accordance with special purpose framework.
a) Emphasis of matter paragraph.
b) Other matter paragraph.
c) Key audit matters section.
d) None of these.

Q174: refers to a group discussion designed to encourage auditors to

creatively assess clerk’s risk, particularly those that are relevant to the possible
existence of fraud in the organization.
a) Posting materiality.
b) Clearly trivial.
c) Brainstorming.
d) Audit risk model.

Q175: Which one of the following description best define “inspection” in accordance
with ISA 220.
a) Any individual with authority to bind the firm with respect to the performance of a
professional services engagement.
b) Procedures designed to provide evidence of compliance by engagement team
with the firm’s quality control policies and procedures.
c) A process of objectivity evaluating the significant judgements that the engagement
team made and the conclusions it reached in formulating the auditor’s report.
d) A process comprising an outgoing consideration and evaluation of the firm’s system
of quality control, designed to provide the company with reasonable assurance that its
system of quality control is operating effectively.

Q176: In accordance with ISA 540, which one of the following description best defines
“Management’s point estimate?
a) The susceptibility of an accounting estimate and related disclosures to an inherent
lack of precision in its measurement.
b) The amount, or range of amounts, respectively, derived from audit evidence for use
in evaluating management’s point estimate.
c) The amount selected by management for recognition or disclosure in the financial
statements as an accounting estimate.
d) A lack of neutrality by management in the preparation of information.

Q177: Audit documentation is not a substitute for the:

a) Correspondence of significant matters.
b) Record of the Board of Director’s meeting.
c) Entity’s accounting record.
d) None of these.
Q178: In accordance with ISA 550, the auditor shall inquire of management and
others within the company, and perform other risk assessment procedures
considered appropriate, to obtain an understanding of the controls that management
has established to:
a) Obtain bank and legal confirmations as a part of auditor’s procedures.
b) Authorize and approve insignificant transactions and arrangements with related
parties.
c) Identify, account for and disclose related party relationships and transactions in
accordance with the applicable financial reporting framework.
d) Authorize and approve significant transactions and arrangements under the normal
course of business.

Q179: Which of the following considerations is the most important when deciding
whether or not to rely on the work performed by a company’s internal audit
department.
a) Whether company’s internal audit department has a work plan which schedules the
work they should perform to the end of the year.
b) Whether the work performed by the internal audit department relates to specific
audit assertions over which the auditor has concerns.
c) Whether a separate audit committee exists.
d) Whether any members of companies’ internal audit department.

Q180: ABC Limited is being sued for substantial damages for producing a faulty
product. However, while the result of the litigation will not be known for some time,
the entity believe that the claim is unjustified and that it will be successful in
defending the action. As a result, it shall not including any reference to the lawsuit in
the financial statements. The audit firm’s independent illegal advice suggests that the
outcome of the case is unclear. What type of audit opinion should be issued?
a) An unmodified opinion with an emphases of matter paragraph.
b) A disclaimer of opinion.
c) An unmodified opinion with an other matter paragraph.
d) A qualified opinion.
Q181: As per ISAE 3000, If it is discovered after the engagement has been accepted
that one or more preconditions for an assurance engagement is not present, the
practitioner shall discuss the matter with the appropriate parties, and shall determine
whether:
a) the matter can be resolved to the auditor expert’s satisfaction.
b) it is appropriate to continue with the engagement and if so how to communicate
the matter in the assurance report.
c) The practitioner shall determine all the stated factors.
d) It is appropriate to consult with engagement quality control reviewer.

Q182: Select the best option from the following which does not represent purpose of
planning the audit?
a) To enable the audit to be performed efficiently and effectively.
b) To enable the appropriate audit team to be assigned.
c) To ensure the audit to be as profitable as possible.
d) To ensure that appropriate opinion will be issued when the audit is complete.

Q183: Identify the best option from the following which represent an objective of ISA
710:
a) To consider whether there is a material inconsistency between the comparative
information and the financial statements.
b) To respond appropriately when the auditor becomes aware that comparative
information appears to be materially misstated.
c) To obtain sufficient appropriate evidence about whether the comparative
information has been presented, in accordance with the requirements of applicable
financial reporting framework.
d) To consider whether there is a material inconsistency between the comparative
information and the auditor’s knowledge obtained in the audit.

Q184: Which of the following is not a measure designed to close the expectation gap?
a) More detailed engagement letter sent to audit clients.
b) Statement of director’s responsibilities included in the financial statements.
c) Auditors required to attend company board meetings.
d) Auditor’s report format revised and extended.

Q185: The advantage attributed to the establishment of internal auditing field offices
for work at foreign locations is best described as:
a) The increased ease of maintaining uniform organization wide standards.
b) The possibility of increased objectivity of personnel assigned to a field office.
c) More contact with senior personnel leading to an increase in control.
d) A reduction of travel time and related travel expense.

Q186: Which one of the following statement regarding fraud is correct?

a) The auditor must detect all material fraud in the financial statements.
b) the auditor must detect every fraud in the financial statements.
c) The auditor may not detect all material fraud in the financial statements but this
will not necessarily mean the auditor has been negligent to make sure of the nature
of fraud and the likelihood of concealment.
d) The auditor is not responsible for detecting fraud as this is management’s
responsibility.

Q187: You are an Audit Manager of ABC Associates. Your firm has tendered for the
engagement of XYZ Limited and has been successful. You have been asked to follow
through the acceptance procedures for the firm. You are reappraising whether it is
appropriate for the firm to accept the engagement. Which of the following issues
arising would cause ABC Associates to decline the engagement.
a) The engagement letter not being received by ABC Associates.
b) ABC Associates loosing a major client meaning XYZ Limited’s audit fee would
represent 20% of annual firm income.
c) A reply from the outgoing auditors stating that they declined to seek reappointment
to the audit of XYZ Limited due to a disagreement over accounting policies.
d) All of the given options would cause ABC Associates to decline the engagement.

Q188: In accordance with ISA 700, which one of the following action is appropriate
when the auditor concludes that based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement?
a) The auditor shall modify the opinion in the auditor’s report in accordance with ISA
705.
b) Shall communicate key audit matters in the auditor’s report in accordance with ISA
701.
c) Discuss the matter with management and those charged with governance.
d) None of the given option is an appropriate action in the given scenario.

Q189: In which of the following circumstances the auditor is not required by ISA 706
to include an Emphasis of matter paragraph in the audit report?
a) Early application (where permitted) of a new accounting standard that has a
material effect on the financial statements.
b) A major catastrophe that has had, or continuous to have, a significant effect on the
entity’s financial position.
c) Inability of auditor to obtain sufficient appropriate audit evidence to conclude that
financial statements as a whole are free from material misstatement.
d) A significant subsequent event that occurs between the date of the financial
statements and the date of the auditor’s report.

Q190: Which one of the following steps the auditor shall take in accordance with ISA
705. If there is a material misstatement of the financial statements that relate to non
disclosure of information required to be disclosed.
a) Amend the heading in the auditor’s report “Basis of opinion” or “Basis for Disclosure
of opinion”, as appropriate.
b) Does not express an opinion on the accompanying financial statements.
c) State in the audit report that the auditor has not been able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the financial
statements.
d) Discuss the non disclosure with those charged with governance.

Q191: In which one of the following situations the external auditor shall not use
internal auditor to provide direct assistance for the conduct of the audit?
a) Tracing transactions through the information system relevant to financial reporting.
b) Testing of the operating effectiveness of controls.
c) Performing procedures that involve making significant judgements in the audit.
d) Observations of inventory count.

Q192: Which one of the following best describes the auditor’s responsibilities in
evaluating the appropriateness of the going concern basis of accounting?
a) The auditor should collect information and make their own evaluation of the
appropriateness of the going concern basis of accounting.
b) The auditor should evaluate management’s assessment of the appropriateness of
the going concern basis of accounting.
c) The auditor should ask management about its plans to deal with problems relating to
the business’s ability to continue as a going concern.
d) The auditor’s responsibility is to consider the going concern basis of accounting
only when potential problems appear.

Q193: In assessing which risks are significant risks under ISA 315, which one of the
following is not required to be considered by the auditor.
a) Whether the firm has an internal audit department.
b) The complexity of transactions.
c) The degree of subjectivity in the measurement of financial information.
d) Whether the risk is a risk of fraud.

Q194: As per ISA 600 the, shall design and perform further audit
procedures on the consideration process to respond to the assessed risks of material
misstatement of the group financial statements arising from the consolidation
process.
a) Service auditor.
b) Auditor’s report.
c) Group engagement team.
d) Component auditor.

Q195: The auditor shall prepare audit documentation that is sufficient to enable an
experienced auditor, having no previous connection with the audit, to understand:
i) The nature, timing and extent of the audit procedures performed to comply with the
ISA and applicable legal and regulatory requirements.
ii) The results of the audit procedures performed and the audit evidence obtained.
iii) Significant matters arising during the audit, the conclusions.
a) option (i) is correct.
b) option (i) and (ii) are correct.
c) option i and iii are correct.
d) option (ii) and (iii) are correct.

Q196: is the auditor from a different audit firm, who audited the financial
statements of an entity in the prior period and who has been replaced by the current
auditor.
a) user auditor.
b) predecessor auditor.
c) internal auditor.
d) service auditor.

Q197: A company shall apply to the Securities and Exchange Commission of Pakistan
in the form, set out in to the Companies (Audit of Cost Accounts) Rules,
1998, for appointment of cost auditor.
a) Appendix III
b) Appendix I
c) Appendix II
d) None of these.

Q198: With respect to international standards on Auditing (ISAs) which one of the
following options is incorrect?
a) They apply to all types of assurance engagements.
b) They apply to the public sector and the private sector.
c) They apply to all members of the accounting profession.
d) They apply to audits of all sizes and complexity.

Q199: Which one of the following option does not represent element of an assurance
engagement?
a) subject matter.
b) suitable criteria.
c) evidence.
d) a two party relationship.

Q200: You are issuing a report for an agreed upon procedures engagement related to
a report prepared by management about an entity’s compliance with environmental
requirements. Your report should contain which one of the following?
a) A statement that the distribution of the report will be reported to interested parties.
b) An opinion about whether management’s assertion on environmental compliance is
fairly stated.
c) A statement that the procedures undertaken are your responsibility and are
sufficient for the purposes of the engagement.
d) A negative assurance statement that there is no evidence that management did not
comply with environmental requirements.
 NEW MCQS

Q1: Which one of the following indicates main reason that the auditor need to be
independent?
a) To ensure users of the audit report can place reliance on it and it is not biased.
b) To ensure the financial statements give a true and fair view.
c) To provide more regulation for auditors so it looks like the audit is of higher quality.
d) None of these.

Q2: The board of SL has asked your audit firm to conduct a review of SL’s compliance
with hygiene regulation in order to allow the board to assess whether the appropriate
processes have been implemented at each of its factory. The partner responsible for
the review of hygiene compliance is of the opinion that the engagement is an
assurance engagement. Which of the following would not have been relevant to the
partner in forming this opinion?
a) The existence of suitable criteria.
b) The determination of materiality.
c) The subject matter.
d) the existence of a three party relationship.

Q3: Which one of the following does not represent a true statement regarding
financial statement fraud?
a) The auditor must consider the risk of material fraud at both the financial statement
level and the assertion level.
b) Enquiries of management are more useful for detecting management fraud than
employee fraud.
c) Excessive pressure on management to meet expectations of third parties creates
incentives for management fraud.
d) The auditor needs to consider the likelihood of collusion in determining the
appropriate level to report suspicions of fraud.

Q4: Which one of the following controls would prevent the ordering of quantities in
excess of an organization’s needs.
a) Review of all purchase requisitions by a supervisor in the user department prior to
submitting them to the purchasing department.
b) A policy requiring agreement of the receiving report and packing slip before storage
of new receipts.
c) Automatic reorder by the purchasing department when low inventory level is
indicated by the system.
d) A policy requiring of the purchase order before receiving new shipment.

Q5: The internal audit activity must evaluate the effectiveness and contribute to the
improvement of risk management processes. With respect to evaluating the
adequacy of risk management processes, internal auditors most likely should:
a) Determine the level of risks acceptable to the organization.
b) Determine that the key objectives of risk management processes are being met.
c) Treat the evaluation of risk management processes in the same manner as the risk
analysis used to plan engagement.
d) Recognize that organizations should use similar techniques for managing risks.

Q6: Due professional care implies reasonable care and competence not infallibility or
extraordinary performance. Thus, which one of the following is unnecessary.
a) The reasonable assurance that compliance does exist.
b) The conduct of examinations and verifications to a reasonable extent.
c) The conduct of extensive examinations.
d) The consideration of the possibility of material irregularities.

Q7: Internal control refers to the various procedures adopted for the control of
financial and non-financial system of a company. Select the best option from the
following which may represent a disadvantage of internal control.
a) Opportunity for flexibility.
b) Ignorance of unusual activity.
c) Identification of defects.
d) Lesser risk of omission.

Q8: During the audit, an auditor compared the inventory turnover rate of a subsidiary
with established industry standards in order to:
a) Determine compliance with corporate procedures regarding inventory levels.
b) Evaluate the accuracy of internal financial reports.
c) Test controls designed to safeguard assets.
d) Access performance and indicate where additional audit work may be needed.

Q9: Ms. ABC is conducting the audit of XYZ. Which one of the following auditor
responses to the increase in the increase in the receivables collected period of XYZ in
the least relevant?
a) Make enquiries of management to understand the likely reason why the receivables
collection period exceeds the extended credit period.
b) Perform a trend analysis on current year and prior year monthly revenue to identify
whether revenue is overstated as a result of fraud or error.
c) Perform detailed substantive testing on the aged receivables listing, to determine
whether any amounts should be written off.
d) Perform further working capital ratio analysis, to determine the effect of the
extended credit on XYZ’s cash position.

Q10: When hiring entry level internal auditing staff, which one of the following will
most likely predict the applicant’s success as an internal auditor?
a) Level of detailed knowledge of the organization.
b) Grade point average on college accounting courses.
c) Ability to fit well society into a group.
d) Ability to organize and express thoughts wel.

Q11: Which one of the following situations will cause an internal auditor to question
the adequacy of controls over a purchasing function?
a) receiving reports are forwarded to purchasing where they are matched with
purchase order and sent to accounts payable.
b) The original and one copy of the purchase order are mailed to the vendor. The copy
of which the vendor acknowledges acceptance is returned to the purchasing
department.
c) Unpaid voucher files and perpetual inventory records are independently maintained.
d) The accounts payable section prepares documentation for payments.

Q12: An employee in the payroll department is contemplating a fraud involving the

addition of a fictitious employee and the entry of fictitious hours worked. The salary
would then be transferred to the bank account of employees. The most effective
control procedure to prevent this type of fraud is to acquire that:
a) All new employees and their hours worked be entered by the human resource
department.
b) The payroll department physically delivers paychecks to employees rather than
mailing them.
c) A report of all new employees should be approved by someone outside of the payroll
department. Also a report showing all employees and hours worked should be sent to
the supervisors department for review.
d) All changes to employee records be approved by supervisors outside of both human
resource and payroll.

Q13: The auditor of ABC limited with a recently automated human resource system
reviews the retirement benefits plan and identifies that the pension and medical
benefits have been changed several times in the past 10 years. The auditor is
determining whether further investigation is required. Which one of the following
represents most appropriate procedure in this situation.
a) Use generalized audit software to take a monetary unit sample of retirement pay
and determine whether each retired employee was paid correctly.
b) Review reasonableness of retirement pay and medical expense on a per person
basis stratified by which plan was in effect when the employee retired.
c) Use generalized audit software to take an attribute sample of retirement pay and
perform detailed testing to determine whether each person chosen was given the
proper benefit.
d) Review the trend of overall retirement expense over the last 10 years. If it has
increased, further investigation is needed.

Q14: Accounts payable schedule verification may include the use of analytical
information. Select the best option from the following which represent analytical
information:
a) Examining vendor’s invoices in support of selected items on the schedule.
b) Comparing the schedule with the accounts payable ledger or unpaid voucher file.
c) Comparing confirmations received from selected creditors with the accounts
payable ledger.
d) Comparing the balance on the schedule with the balance of prior years.

Q15: The auditor of FL has made enquiries about a related party transaction identified
in the notes to the financial statements. The auditor has discovered that the CEO of the
company is the owner of the manufacturing company that is a major supplier to FL.
What will be the auditor’s assessment of the risk of fraud associated with the
transaction?
a) medium, because incentive is absent.
b) medium, because opportunity is absent.
c) high, because incentive, opportunity and rationalization are all present.
d) medium, because rationalization is absent.

Q16: Which one of the following is a common rationalization for fraudulent financial
reporting?
a) We are only borrowing the money, we will pay it back next year.
b) This is a one-time transaction and it will allow the company to get through the
current financial crises, but we will never do it again.
c) Executives at other companies are getting paid more than us, so we deserve the
money.
d) The accounting rules does not suit our company they make our financial results look
weaker than is necessary so we have a good reason to record revenue using other
method than IFRS.

Q17: Which one of the following does not represent example of special purpose
frameworks as per ISA 800 “Special considerations – Audits of financial statements
prepared in accordance with special purpose Frameworks“
a) The cash receipts and disbursements basis of accounting for cash flow information
that a company may be requested to prepare for creditors.
b) The financial reporting provisions established by a management of a company to
meet the requirements of a regulator.
c) The financial reporting provisions of a contract, such as a bond indenture, a loan
agreement, or a project grant.
d) A tax basis of accounting for a set of financial statements that accompany a
company’s tax return.

Q18: Which one of the following factor does not suggest the need for a more detailed
agreement between auditor and auditor’s expert to be set out in writing:
a) The matter to which the auditor’s experts work relates is highly complex.
b) Multi jurisdictional legal or regulatory requirements apply.
c) The auditor’s expert will have access to insensitive entity’s information.
d) The representative roles or responsibilities of the auditor and the auditor’s expert are
different from those normally expected.

Q19: In accordance with ISA 710, for corresponding figures, the auditor’s opinion on the
financial statements refers to the:
a) Three year previous period.
b) Two year previous period.
c) Current period only.
d) Each period for which financial statements are presented.

Q20: Under which one of the following circumstances would a disclaimer of opinion not
to be an appropriate option:
a) The chief executive office (CEO) is unwilling to sign the management representation
letter.
b) Management does not provide reasonable justification for a change in accounting
principles.
c) The auditor is unable to determine the amounts associated with an employee fraud
scheme.
d) The auditor is unable to verify the account balances of a major subsidiary.

Q21: For a component that is significant due to its individual financial significance to the
group, the group engagement team or a on its behalf, shall perform an
audit of the financial information of the component using component materiality.
a) component auditor
b) auditor’s expert
c) engagement quality control reviewer
d) internal auditor

Q22: The cost auditor shall make out a report within sixty days of his appointment to
the directors in the form set out in Appendix II along with a statement of capacity
utilization and stock-in-trade.
a) Appendix II, statement of capacity utilization and stock in trade.
b) Appendix I, statement of capacity utilization and stock in trade.
c) Appendix I, statement of financial position.
d) Appendix II, statement of financial position.
Q23: Internal auditors must have the knowledge, skills and other competencies
needed to perform their individual responsibilities. Which one of the following
properly describes the level of knowledge, skills or other competency required that
internal auditor must possess:
a) Proficiency in applying internal auditing standards and procedures without extensive
recourse to technical research and assistance.
b) A board appreciation of accounting principles and techniques during engagements
involving the financial records and reports of the organization.
c) An understanding of board techniques used in supporting and developing
engagement observations and the ability to research the proper procedures to be used
in any engagement situation.
d) Proficiency in applying knowledge of accounting and information technology to
specific or potential problems.

Q24: Which one of the following indicates an example of control risk?

a) The client is in a highly regulated industry and therefore at risk of unrecorded fines
and penalties.
b) Client has a high number of cash sales which may mean income is not completely
recorded.
c) Non-existence of a finance director.
d) Client has perishable inventory which may be overvalued.

Q25: Internal auditors should be prudent in their relationships with persons and
organizations external to their employer. Which one of the following activities will
most likely not adversely affect internal auditor’s ethical behavior.
a) Serving as consultant to competitor organizations.
b) Serving as consultants to suppliers.
c) Discussing engagement plans or result with external parties.
d) Accepting compensation from professional organization is for consulting work.
Q26: As part of your audit of the procurement system of S Limited, you have
recommended that the goods inwards department should ensure that the goods
received are valid business purchases, by matching all deliveries to an authorized
order from before issuing a GRN. Which of the following would be an appropriate test
of control to confirm that the control is operating effectively.
a) Check that the numerical sequence of GRNs is complete.
b) For a sample of orders, check that there is a matching GRN.
c) For a sample of GRNs check that there is an authorized purchase order.
d) Check that the numerical sequence of purchase orders is complete.

Q27: Which one of the following does not form part of the audit committee’s
objectives?
a) Applying the external auditor.
b) Implementing the policy on the supply of non-audit services by the external auditor.
c) Monitoring the independence of the external auditor.
d) Safeguarding the privacy of whistleblowers.

Q28: Which one of the following matters would not be considered by the auditor in
establishing the overall audit strategy?
a) Audit areas where there is higher risk of material misstatement.
b) The legal and regulatory framework applicable to the entity.
c) Testing of key controls that the auditor intends to rely upon.
d) Industry specific reporting requirements.

Q29: To avoid being the apparent cause of conflict between an organization’s senior
management and the board, the chief audit executive should:
a) Discuss all reports of senior management with board.
b) Request board approval of policies that include internal audit activity relationships
with the board.
c) Communicate all engagement results to both senior management and the board.
d) Strengthen the independence of the internal audit activity through organizational
position.

Q30: Management is concerned with the potential for unauthorized changes in the
payroll. Which one of the following is the proper organizational structure to prevent
such unauthorized changes?
a) The payroll department is supervised by the management of the human resources
division.
b) The payroll department’s functions are limited to maintaining the payroll records,
distributing pay cheques and posting the payroll entries to general ledger.
c) The payroll department maintains and authorizes all changes in the personnel
records.
d) The human resource department authorizes the hiring and pay levels of all
employees.

Q31: The most appropriate method to prevent fraud or theft during the frequent
movement of trailers loaded with valuable metal scrap from the manufacturing plant
to the organization’s scrap yard about 10 miles away would be to:
a) Require existing security guards to log the time of plant departure and scrap yard
arrival. The elapsed time should be reviewed by a supervisor for fraud.
b) Use armed guards to escort the movement of the trailers from the plant to the scrap
yard.
c) Perform complete physical inventory of the scrap trailers before leaving the plant
and upon arrival at the scrap yard.
d) Contract with an independent hauler for the removal of the scrap.

Q32: Which of the following is not a component of an entity’s internal control?

a) The selection and application of accounting policy.
b) The information system relevant to financial reporting.
c) The control environment.
d) Control activities relevant to the audit.
Q33: You are conducting the audit of M Limited, the company has a debt covenant
that requires a 2:1 interest cover ratio. With respect to interest expense, you would be
most interested in:
a) occurrence.
b) completeness.
c) cut-off.
d) accuracy.

Q34: As per ISA 700 (Revised), which one of the following functions the opinion
section of the auditor’s report does not perform?
a) Identify the title of each statement comprising the financial statements.
b) Specify the date of, or period covered by, each financial statement comprising the
financial statements.
c) State that the financial statements have been published.
d) Identify the company whose financial statement have been audited.

Q35: As per ISA 620, when there is no written agreement between the auditor and
the auditor’s expert, evidence of the agreement of the engagement may be included
in:
a) The policies and procedures of the auditor’s firm.
b) Planning memoranda, or related working papers such as the audit program.
c) Written representation provided by management.
d) Both planning memoranda and related working papers such as the audit program
and the policies and procedures of the auditor’s firm.

Q36: Summary financial statements are derived from:

a) Unaudited financial statements.
b) Audited financial statements.
c) Both audited and unaudited financial statements.
d) None of these.

Q37: Which one of the following industries are not required to maintain cost
accounting records to provide cost accounting information in a verifiable form?
a) Automobile industry.
b) Vegetable ghee or cooking oil companies.
c) Cement industry.
d) Sugar industry.

Q38: A treasury department employee transferred to the internal audit department of

the company. The chief financial officer of the company has suggested, because of
the employee’s significant knowledge in this area, it would be a good idea for the
employee to immediately begin an engagement to evaluate the treasury department.
In this circumstance the employee should:
a) Accept the engagement and begin work immediately.
b) Offer to prepare an engagement work program but suggest that interviewers with
the employee’s former co-workers be conducted by other members of the internal
audit staff.
c) Discuss the need for such an engagement with the employee’s former superior, the
treasurer.
d) Suggest that the engagement should be performed by another member of the
internal audit staff.

Q39: While performing the audit of ZL, CEO has asked you to give some relaxation to
the CFO because his son is seriously ill. Apparently, the child must travel regularly to
the United States for expensive medical treatments. What fraud risk factors are
present in this situations?
a) Incentive and opportunity.
b) Incentive and rationalization.
c) Incentive, opportunity and rationalization.
d) Opportunity and rationalization.

Q40: R associates have been appointed as an auditor of RL. The agreed terms of
audit engagement shall be recorded in an audit engagement letter and shall include
the following, except:
a) Identification of the applicable financial reporting framework for the preparation of
the financial statements.
b) Straightforward or uncompleted transactions of RL.
c) The objective and scope of the audit of the financial statements,
d) A statement that there may be circumstances in which a report may differ from its
expected form and content.

Q41: Mr. A is conducting the audit of R Limited, he tested a population by examining

60 items selected judgmentally and found one error. The main limitation of the
auditor’s sample is the inability to:
a) Quantifying sampling risk.
b) Quantify the acceptable error rate.
c) Project the population’s error rate.
d) Determine whether the sample is random.

Q42: Which of the following steps should the auditor take first in relation to the
uncorrected misstatement in respect of the revalued property?
a) Speak to the expert valuer to assess the methodology used in performing the
valuation.
b) Accumulate the misstatement along with other uncorrected misstatements in a
schedule of unadjusted audit differences. If the aggregate is material, ask the directors
to correct the misstatements.
c) Ask the directors to correct the specific misstatement, if it is material to the financial
statements.
d) None of these.
Q43: Professional skepticism must be applied by auditors during the audit. Which of
the following is not an application of professional skepticism.
a) Being alert to fraud and error.
b) Open and questioning mind.
c) Critical evaluation of the evidence.
d) Don’t believe anything that client tells you.

Q44: Ordinarily, an auditor might write an emphasis of a matter paragraph:

a) When limitation in scope is not so material as to require an adverse opinion or a
disclaimer of opinion.
b) When the effect of a disagreement with management is material and pervasive to
the financial statements.
c) To highlight an immaterial matter regarding a going concern problem.
d) If there is a significant uncertainty, resolution of which is dependent upon future
events.

Q45: An audit of K Limited’s financial statements has shown that inventory is

overstated by a material amount due to obsolete items being included in the
inventory count. Management has refused to change the valuation. The auditor does
not consider the misstatement to be pervasive. What type of audit opinion should be
issued in this situation:
a) Unmodified opinion with an emphasis of matter paragraph.
b) Adverse opinion.
c) Qualified opinion.
d) Unmodified opinion.

Q46: A and co. performed the audit of B Limited for the year ended December 31,
2019. The auditor is expressing a disclaimer of opinion. Select the best option from the
following which describes a disclaimer of opinion, except for:
a) The auditor does not express an opinion on the financial statements.
b) The financial statements give a true and fair view.
c) The financial statements do not give a true and fair view.
d) Except for the matter described, the financial statements give a true and fair view.

Q47: As per corporate governance regulation, 2019, the and or in

their absence, the nominee appointed by the board, shall attend all meetings of the
board.
a) chief financial officer, internal auditor.
b) chief financial officer, company secretary.
c) internal auditor, chief executive officer.
d) chief executive officer, company secretary.

Q48: Mr. A is conducting the audit of B Trust, a non-profit organization. He has

identified several audit risks which he feel his team will need to address. One such
audit risk is that income may be understand in the financial statements. He is
concerned that not all incomes may be recorded. Select the best option from the
following which does not represent a valid response to this audit risk:
a) Obtain a breakdown of the income recorded from the cash that was collected in
buckets, and vouch a sample of entries back to the volunteer in order to determine
which volunteer collected the relevant donations.
b) Perform analytical procedures on the level of donations in shopping areas per
volunteer.
c) Observe the counting and recording of proceeds from collections, to determine
whether appropriate segregation of duties is in place.
d) Review the internal controls relating to cash collected in buckets to determine
whether buckets are sealed, sequentially numbered and signed in and out by Trust’s
vounteers.

Q49: Communication with the audit committee is one of the key elements in the
auditor’s communication with those charged with governance as per ISA 260.
Following are the examples of good governance principles, except:
a) Opinion of auditor for allocation of responsibilities between those charged with
governance and management.
b) The auditor will be invited to regularly attend meetings of the audit committee.
c) The chair of the audit committee and the other members of the audit committee
with liase with auditor periodically.
d) The audit comitee will meet the auditor without management present at least
annually.

Q50: ABC Associates have been appointed as an auditor of RL. The agreed terms of
audit engagement shall be recorded in an audit engagement letter and shall include
the following except:
a) The objective and scope of the audit of the financial statement.
b) Straight forward or uncompleted transactions of RL.
c) Identification of the applicable financial reporting framework for the preparation of
the financial statements.
d) A statement that there my be circumstances in which a report may differ from its
expected from and content.

Q51: Internal control should follow certain basic principles to achieve its objectives.
One of these principles is the segregation of functions. Which one of the following
examples does not violate the principles of segregation of functions?
a) The sales manager has the responsibility to approve credit and the authority to write
off accounts.
b) The department time clerk is given the undistributed payroll checks for mailing to
absent employees.
c) The treasurer has the authority to sign checks but give the significant block to the
assistant treasurer to run the check signing machine.
d) The warehouse clerk, who has the custodial responsibility over inventory in the
warehouse, may authorize disposal of damaged goods.

Q52: As per ISA 700, which of the following options represent circumstances where
the auditor may not be able to express an unqualified opinion?
a) Limitation of scope and fraud.
b) Disagreement with management or inconsistent application of accounting
standards.
c) Disagreement with management and fraud.
d) Disagreement with management and limitation of scope.

Q53: A Limited internal audit department is going to assist with the statutory audit
and will provide the auditor with documentation on the computerized inventory
systems at TL. The documentation shows diagrammatically how transactions are
processed through the inventory system and can be used to significantly decrease
the time needed to understand the computer systems. Which of the following is not a
matter the audit team should consider is determining whether or not the internal
auditor’s work is adequate for the purposes of the audit?
a) Whether there are any significant threats to the objectivity of the internal auditor.
b) Whether the work was properly planned, performed, supervised, reviewed and
documented.
c) Whether sufficient appropriate evidence was obtained to allow the internal auditors
to draw reasonable conclusions.
d) Whether the conclusions reached are appropriate in the circumstances and the
reports prepared are consistent with the results of the work done.

Q54: Matters related to fraud to be discussed with those charged with governance of
the company may include following, except:
a) Concerns about the adequacy and completeness of the authorization of
transactions that appear to be outside the normal course of business.
b) Concerns about the nature of management assessment of the controls in place to
prevent and detect fraud and of the risk that the financial statements may be
misstated.
c) The internal auditor’s evaluation of the company’s control environment, including
questions regarding the competence and integrity of management.
d) A failure by management to appropriately address identified significant deficiencies
in internal control, or to appropriately respond to an identified fraud.
Q55: Risks come from both internal and external sources. Which one of the following
represents external source of risk?
a) Changes in internal information technologies.
b) A poorly conceived business model that makes it difficult for the organization to
remain profitable.
c) Changes in management responsibilities.
d) Change in regulation that makes the business model of the organization
unsustainable.

Q56: Which one of the following is a common rationalization for fraudulent financial
reporting?
a) The accounting rules does not suit our company they make our financial results look
weaker than is necessary so we have a good reason to record revenue using other
method than IFRS.
b) This is a one time transaction and it will allow the company to get through the
current financial crises, but we will never do it again.
c) We are only borrowing the money, we will pay it back next year.
d) Executives at other companies are getting paid more than us, so we deserve the
money.

Q57: Which one of following evidence-collecting procedure is likely to be the most

effective in testing the completeness of accounts receivables?
a) Select a sample of subsequent cash receipts and verify that relates sales were cut
off properly.
b) Select a sample of shipping documents around the year end and ensure that all
shipments prior to the year end were invoiced and reached in the accounts receivable
sub-ledger.
c) Select a sample of customers and verify that the year end balances does not exceed
the customer’s credit limit.
d) Recalculate the client’s ageing of accounts receivable and trace a sample of the
outstanding invoices to the ageing.
Q58: If a component is subject to audit by statute or regulation, and the group
engagement team decides to use that audit to provide audit evidence for the group
audit, the group engagement team shall determine whether for the
component financial statements as a whole and at the component level
meet the requirements of ISA 600.
a) group wide controls, performance materiality.
b) group wide controls, component materiality.
c) performance materiality, materiality.
d) materiality, performance materiality.

Q59: Which one of the following factors does not create a demand for external audit
service?
a) Requirement of the center for audit quality.
b) Remoteness between a user and the organization.
c) Potential bias by management in providing information.
d) Complexity of the accounting processing system.

Q60: Which one of the following statements best describes the term “assurance
services”?
a) Independent professional services that improve the credibility of information, or its
context, for decision makers.
b) Services designed for the improvement of operations, resulting in better outcomes.
c) The assembly of financial statements based on assumptions of a responsible party.
d) Services designed to express an opinion on historical financial statements based on
the results of an audit.

Q61: Internal audit department of ABC Private Limited has provided the auditor
details of the internal controls over non-current assets cycle. One of the control is that
upon receipt of a new asset, each asset is assigned a unique serial number and this is
recorded on the asset and in the non-current assets register. Which of the following
statements is correct regarding audit procedures concerning the non-current assets
cycle?
a) Because the control risk around the non-current assets cycle is likely to be high, it is
important to perform tests of controls.
b) Because there are likely to be fewer capital purchases than standard purchases in
the year, it may not be cost effective to undertake tests of controls.
c) If the same ordering documentation is used in the non-current assets cycle as in the
purchases cycle, it will not be necessary to produce additional systems documentation.
d) The non-current assets cycle is likely to have a lower risk of material misstatement
than the purchases cycle.

Q62: Upon receipt of purchased goods, receiving department personnel match the
quantity received with the packing slip quantity and mark the retail price on the
goods based on a master price list. The annotated packing slip is then forwarded to
inventory control and goods are automatically moved to the retail sales area. The
most significant control strength of this activity is:
a) Using a master price list for marking the sale price.
b) Immediately pricing goods for retail sale.
c) Automatically moving goods to the retail sales area.
d) Matching quantity received with the packing slip.

Q63: A bank’s internal auditor wishes to determine whether all loans are supported
by sufficient collateral properly aged regarding current payments and accurately
categorized. The best audit procedures to accomplish these objectives would be to:
a) Select a block sample of all loans in excess of a specified monetary limit and
determine if they are current and properly categorized. For each loan approved, verify
aging and categorization.
b) Use generalized audit software to read the total loan file, age by last payment due
and extract a statistical sample, stratified by the current and aged population. Examine
each loan selected for proper collateralization.
c) Select a sample of payments made on the loan portfolio and trace them to loans to
see if the payments are properly applied. For each loan identified, examine the loan
application to determine that the loan has proper collateralization.
d) Select discovery sample of all loan applications to determine whether each
application contains a statement of collateral.

Q64: A receiving department receives copies of purchase orders for use in identifying
and recording inventory receipts. The purchase orders list the name of the vendor
and the quantities of the material ordered. A possible error that this system could
allow this:
a) Payment to unauthorized vendors.
b) Payment for unauthorized purchases.
c) Delay in recorded purchases.
d) Overpayment for partial deliveries.

Q65: Mr. A is conducting the audit of Shan Limited. He is investigating the

performance of one of the division of SL with an unusually large increase in sales,
gross margin and profit. Which one of the following indicators is least likely to indicate
the possibility of sales-related fraud in the division?
a) A significant portion of divisional management’s compensation in based on reported
divisional profit.
b) There is an unusually large amount of sales return recorded after year end.
c) Mr. A has taken a random sample of sales invoices but cannot locate a shipping
document for a number of sales transactions selected for November and December.
d) One of the division’s a major competitor went out of business during the year.

Q66: ABC owns a number of supermarket within the country. ABC has recently
installed a till system in all super markets and has capitalized it as non-current assets.
In relation to the capitalized costs of the new till system, the auditor is concerned that
ABC may have included within the capitalized costs some items which are revenue in
nature, leading to the overstatement of non-current assets. Which one of the
following statements represent a valid response to this audit risk?
a) Obtain a copy of the training manual relating to the new till system and discuss with
directors the extent of training staff have received on the new system.
b) Recalculate the depreciation charged on the new till system.
c) Agree the capitalized costs from the trial balance back to invoices to confirm their
value.
d) Inspect invoices capitalized within the cost of the new till system to determine
whether thy are directly attributes to the cost of the new till system.

Q67: Historical financial information that is derived from financial statements but that
contains less detail than the financial statements, while still providing a structured
representation consistent with that provided by the financial statements of the
entity’s economic resources or obligations at a point in time or the changes therein
for a period of time is called:
a) General purpose financial statements.
b) Summary financial statements.
c) Special purpose financial statements.
d) Elements of financial statements.

Q68: For a financial audit of a government department carried out by an auditor-

general’s office, which one of the following would not be an output of the audit?
a) an audit opinion on the financial statements.
b) a letter to the governing body of the auditee that includes observations about the
quality of internal controls.
c) an opinion on whether taxpayers money is spent efficiently, effectively and
economically.
d) report to parliament on significant issues arising out of the audit.

Q69: Mr. A is conducting the audit of B Private Limited as per ISA 530, in which of the
following factor he shall consider to increase the sample size for tests of details?
a) Stratification of the population when appropriate.
b) An increase in the amount of misstatement Mr. A expects to find in the population.
c) An increase in the use of other substantive procedures directed at the same
assertion.
d) An increase in tolerable misstatement.
Q70: Which one of the following statement represent more reliable source of
evidence in assessing its reliability.
a) Evidence obtained from verbal communication.
b) Evidence from within client’s organization.
c) Evidence that existed in documentary form.
d) Evidence derived from an easily overridden information system.

Q71: Which one of the following does not form part of the audit committee’s
objectives?
a) Appointing the external auditor.
b) Safeguarding the privacy of whistleblowers.
c) Implementing a policy on the supply of non-audit services by the external auditor.
d) Monitoring the independence of the external auditor.

Q72: The supervisor of claims processing for a health insurance firm selects all claims
processed in the past two days by a particular employee for audit. From this sample
the supervisor can develop:
a) An understanding of the details contained in the processing task.
b) Conclusions about the correctness of processing for the department.
c) A quantification of sampling error.
d) An overall representative view of employee work for the year.

Q73: Prior to accepting an appointment as auditor, the audit firm is informed by

management that management does not believe it is responsible for the internal
control system. As a result of this information, the auditor:
a) Will not be able to rely on internal controls and will need to carry out substantive
tests of details and analytical procedures.
b) Cannot accept the audit engagement unless required to do so by law or regulation.
c) Will need to increase the extent of controls, as well consider the nature and timing of
these in order to rely on internal controls.
d) Must inform management that unless management acknowledges its responsibility
for the internal control system it will be considered a “limitations of scope” on the audit.

Q74: Which one of the following best describes the most effective preventive control
to ensure proper handling of cash receipt transaction?
a) Use predetermined totals of cash receipts to control posting routines.
b) Have bank reconciliations prepared by an employee not involved with cash
collections and then have been reviewed by a supervisor.
c) The employee who receives customer mail receipt prepares the daily bank deposit,
which is then deposited by another employee.
d) One employee issues a pre-numbered receipt for all cash collections, another
employee reconciles the delay total of numbered receipts to the bank deposits.