Auditing Quiz 2

1 / 50

What is meant by the expression ?expectation gap??

The gap between the auditors? own perception of their duties and how they are set out in the Companies Act

The gap between how the directors of a company perform their duties and how the general public expects them to perform

The gap between how the directors of a company perform their duties and how the shareholders expect them to perform

The gap between the public perception of the role of company auditors and their statutory role and responsibilities

2 / 50

Verification refers to_________?

Examination of vouchers related to assets.

Examining the physical existence and valuation of assets.

Examining the journal and ledger

None of the above.

3 / 50

Which of the following is a revenue reserve?

Debenture redemption reserve

Capital reserve

Security premium account

Capital redemption reserve

4 / 50

What would most appropriately describe the risk of incorrect rejection in terms of substantive testing?

The auditor concludes that the balance is materially misstated when in actual fact it not

The auditor has rejected an item for sample which was material

None of the above

The auditor concludes balance is materially correct when in actual fact it is not

5 / 50

What would most effectively describe the risk of incorrect acceptance in terms of substantive audit testing?

The auditor concludes the balance is materially misstated when in actual fact is not

The auditor has ascertained that the balance is materially correct when in actual fact it is not

The auditor has rejected an item from sample which was not supported by documentary evidence

He applies random sampling on data which is inaccurate and inconsistent

6 / 50

Which of the following is not a corroborative evidence?

Confirmations from debtors

Information gathered by auditor through observation

Worksheet supporting consolidated financial statements

Minutes of meetings

7 / 50

In determining the level of materiality for an audit, what should not be considered?

Prior year?s errors

Adjusted interim financial statements

Prior year?s financial statements

The auditor?s remuneration

8 / 50

The term ?Audit? is derived from a Latin word ?audire? which means___________?

To hear

To examine

To inspect

To investigate

9 / 50

The term of the auditor ship of first auditor would be from the date of appointment till________?

the conclusion of first annual general meeting

the conclusion of statutory meeting

the date of removal

the conclusion of next annual general meeting

10 / 50

Assuming that it is not the first appointment of the auditor, who is responsible for the appointment of the auditor?

The managing director

The shareholders in a general meeting

The board of directors in a board meeting

The audit committee

11 / 50

When is evidential matter, generally, considered sufficient?

When it is enough to provide a basis for giving reasonable assurance regarding truthfulness

When it is objective and relevant

When auditor collects and evaluates it independently

When it constitutes entire population

12 / 50

Window dressing implies_______________?

Over Valuation of assets

Under valuation of assets

Checking of Wastages

Curtailment of expenses

13 / 50

Auditing is compulsory for____________?

Joint stock Companies

Small scale business

Proprietary Concerns

Partnership firms

14 / 50

Analytical procedures issued in the planning stage of an audit, generally?

directs attention to potential risk areas

All of the above

helps to determine the nature, timing and extent of other audit procedures

indicates important aspects of business

15 / 50

In determining the level of materiality for an audit, what should not be considered?

The auditor?s remuneration

Adjusted interim financial statements

Prior year?s errors

Prior year?s financial statements

16 / 50

Which of the following statement is true regarding an auditor?s working papers?

They should not contain details regarding weaknesses in the internal control system

They should be considered as the principle support for the auditor?s report

They document the level of independence maintained by the auditor

They help the auditor to monitor the effectiveness of the audit firm?s quality control

17 / 50

Which of the following statements is not true about continuous audit?

It is expensive

It is needed when the organization has a good internal control system

It may be carried out on daily basis

It is conducted at regular interval

18 / 50

When restrictions that significantly affect the scope of the audit are imposed by the client, the auditor generally should issue which of the following opinion?

Qualified opinion

Adverse opinion

Unqualified report with ?an emphasis of matter? paragraph?

Disclaimer of opinion

19 / 50

Auditing engagement can be performed w.r.t.

Corporate entity only

Non-profit making entity

Any entity

Profit making entity

20 / 50

At the planning stage you would NOT consider____________?

last year?s audit

the timing of the audit

the potential use of internal audit

whether corrections from the inventory count have been implemented

21 / 50

The branch auditor is appointed by___________?

Board of directors in board meeting

Shareholders in an annual general meeting

Shareholders in general meeting

Any of the above

22 / 50

Which of the following statements is INCORRECT?

An auditor who was recently a director of an audit client must not be assigned to the audit team for that client.

Purchasing goods from an audit client on normal commercial terms does not create a threat to the auditor?s independence.

An auditor who is an immediate family member of the director of an audit client must not be assigned to the audit team.

An auditor may serve on the board of directors of an audit client.

23 / 50

Pick the odd one:

Preparation of vouchers

Checking the vouchers

None of the above

Evaluation of internal control

24 / 50

Scope of financial audit is__________?

Non-financial information

None of these

Financial information

Both (a) and (b)

25 / 50

The concept of stewardship means that a company?s directors________________?

Safeguard the company?s assets and manage them on behalf of the shareholders

Are responsible for ensuring that the company pays its tax by the due date

Are responsible for ensuring that the company complies with the law

Report suspected fraud and money laundering to the authorities

26 / 50

The date on auditor?s report should not be____________?

the data of AGM

None

later than the date on which the accounts are approved in board?s meeting

earlier than the date on which the accounts are approved by the management

27 / 50

Which of the following statements is correct?

In a review engagement, evidence is gathered mainly by means of computation and inspection.

In an attestation engagement, the accountant is required to report on the quality of work performed.

In an engagement to review financial statements, the amount of work required is the same as for an audit

When a company negotiates a ?friendly? takeover, it usually appoints a firm of accountants to carry out due diligence on the takeover target.

28 / 50

Floating assets are valued at____________?

Cost less depreciation

Market price

Cost or market price whichever is lower

cost

29 / 50

In Pakistan, balance sheet audit is synonymous to___________?

Statutory audit

Annual audit

Detailed audit

Continuous audit

30 / 50

____________ is a systematic examination of the books and records or a business?

Vouching

Auditing

Checking

Verification

31 / 50

Which of the following statements is not true with respect to management representations obtained as per AAS?11?

It should be addressed to the auditor

It should always be in working

It may be dated prior to the report date

Authenticated copy of relevant minutes of meetings may be regarded as management representation

32 / 50

Which of the following statements is most closely associated with analytical procedure applied at substantive stage?

It helps to discover material misstatements in the financial statements

It helps to accumulate evidence supporting the validity of a specific account balance

It helps to identify possible oversights

It helps to study relationship among balance sheet accounts

33 / 50

Which one of the following is NOT considered to be part of planning?

Considering whether the financial statements show a true and fair view

Previous year?s audit i.e. any qualifications in the report

Background i.e. industry

Considering the work to be done by the client staff e.g. internal audit

34 / 50

In case the directions fail to appoint first auditor (s), the shareholders shall appoint them at_________by passing a resolution.

first annual general meeting

statutory meeting

a general meeting

annual general meeting

35 / 50

Concurrent audit is a part of____________?

Internal audit system

Internal check system

None of these

Continuous audit

36 / 50

Which of the following is true about explanatory notes?

These are given to adhere to requirements of section 211.

These are given by the directors of the company

These are given by auditors of the company in auditor?s report

All of the above

37 / 50

Which one of the following may auditors NOT perform for their client?

Preparing tax computations

Advising on weaknesses in the internal control systems

Taking management decisions

Preparation of accounting records

38 / 50

Why do auditors concentrate their efforts on material items in accounts?

Because they are easier to audit

Because the risk to the accounts of their being incorrectly stated is greater

Because it reduces the audit time

Because the directors have asked for it

39 / 50

Which of the following will not lead to creation of secret reserve?

Undervaluation of closing stock

Charging capital expenditure to revenue

Charging higher rates of depreciation on fixed assets than actually required

Goods sent on consignment being shown as actual sales

40 / 50

The nature, timing and extent of substantive procedures is _________ related to assessed level of control risk?

directly

disproportionately

randomly

inversely

41 / 50

What is meant by negative assurance?

The auditor did not find anything to indicate that a material misstatement exists.

The client?s financial statements were found to be materially misstated.

The auditor could not conduct any tests due to lack of controls.

The auditor cannot give an opinion due to lack of evidence.

42 / 50

To test whether sales have been recorded, the auditor should draw a sample from a file of__________?

bill of loading

sales orders

purchase orders

sales invoices

43 / 50

Internal audit is undertaken:

By a government auditor

By a person appointed by the management

Statutorily appointed auditor

By independent auditor

44 / 50

The auditor?s permanent working paper file should not normally, include__________?

Debt agreements

Extracts from client?s bank statements

Past year?s financial statements

Attorney?s letters

45 / 50

Of the following, which is the least persuasive type of audit evidence?

Bank statements obtained from the client

Carbon copies of sales invoices inspected by the auditor

Computations made by the auditor

Documents obtained by auditor from third parties directly.

46 / 50

Which of the following should NOT be considered at the planning stage?

Obtaining written representations

The timing of the audit

Analytical review

Last year?s written representation letter

47 / 50

What are analytical procedures?

Substantive tests designed to assess control risk

Substantive tests designed to evaluate the validity of management?s representation letter

Substantive tests designed to study relationships between financial and non?financial

All of the above

48 / 50

The basic assumption underlying the use of analytical procedures is:____________?

It helps the auditor to study relationship among elements of financial information

Relationship among data exist and continue in the absence of known condition to the contrary

None of the above.

Analytical procedures will not be able to detect unusual relationships

49 / 50

Depreciation does not arise form _______

obsolescence through technology be market changes

remarket expectation

effluxion of time

use

50 / 50

Which of the following statement best describes the understanding with respect to ownership and custody of working papers prepared by an auditor?

The working papers must be retained by an audit firm for a period of 10 years

The safe custody of working papers is the responsibility of client, if kept at his premises

The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation

Successor auditors may have access to working papers of the predecessor auditors. The approval of client is not required.

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