Auditing Quiz 2

1 / 50

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

None of the above.

Analytical procedures will not be able to detect unusual relationships

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

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

2 / 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 audit committee

The board of directors in a board meeting

3 / 50

What is meant by negative assurance?

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

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

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

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

4 / 50

When is evidential matter, generally, considered sufficient?

When it constitutes entire population

When auditor collects and evaluates it independently

When it is objective and relevant

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

5 / 50

Auditing is compulsory for____________?

Partnership firms

Joint stock Companies

Small scale business

Proprietary Concerns

6 / 50

The date on auditor?s report should not be____________?

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

None

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

the data of AGM

7 / 50

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

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

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

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

8 / 50

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

It helps to identify possible oversights

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

It helps to discover material misstatements in the financial statements

It helps to study relationship among balance sheet accounts

9 / 50

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

It should always be in working

It should be addressed to the auditor

It may be dated prior to the report date

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

10 / 50

Pick the odd one:

None of the above

Evaluation of internal control

Checking the vouchers

Preparation of vouchers

11 / 50

Which of the following is true about explanatory notes?

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

All of the above

These are given by the directors of the company

These are given to adhere to requirements of section 211.

12 / 50

Depreciation does not arise form _______

obsolescence through technology be market changes

effluxion of time

use

remarket expectation

13 / 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

Disclaimer of opinion

Unqualified report with ?an emphasis of matter? paragraph?

Adverse opinion

14 / 50

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

the conclusion of next annual general meeting

the conclusion of statutory meeting

the date of removal

the conclusion of first annual general meeting

15 / 50

Floating assets are valued at____________?

Cost less depreciation

cost

Cost or market price whichever is lower

Market price

16 / 50

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

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

Background i.e. industry

Considering whether the financial statements show a true and fair view

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

17 / 50

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

Report suspected fraud and money laundering to the authorities

Are responsible for ensuring that the company complies with the law

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

18 / 50

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

inversely

disproportionately

directly

randomly

19 / 50

Concurrent audit is a part of____________?

None of these

Continuous audit

Internal audit system

Internal check system

20 / 50

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

The auditor?s remuneration

Prior year?s errors

Prior year?s financial statements

Adjusted interim financial statements

21 / 50

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

Past year?s financial statements

Extracts from client?s bank statements

Attorney?s letters

Debt agreements

22 / 50

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

Preparation of accounting records

Preparing tax computations

Advising on weaknesses in the internal control systems

Taking management decisions

23 / 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 concludes balance is materially correct when in actual fact it is not

None of the above

The auditor has rejected an item for sample which was material

24 / 50

What are analytical procedures?

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

Substantive tests designed to assess control risk

All of the above

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

25 / 50

In Pakistan, balance sheet audit is synonymous to___________?

Statutory audit

Detailed audit

Continuous audit

Annual audit

26 / 50

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

Goods sent on consignment being shown as actual sales

Charging capital expenditure to revenue

Charging higher rates of depreciation on fixed assets than actually required

Undervaluation of closing stock

27 / 50

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

The timing of the audit

Analytical review

Obtaining written representations

Last year?s written representation letter

28 / 50

Internal audit is undertaken:

By independent auditor

By a person appointed by the management

By a government auditor

Statutorily appointed auditor

29 / 50

Which of the following is not a corroborative evidence?

Information gathered by auditor through observation

Confirmations from debtors

Minutes of meetings

Worksheet supporting consolidated financial statements

30 / 50

The branch auditor is appointed by___________?

Board of directors in board meeting

Any of the above

Shareholders in general meeting

Shareholders in an annual general meeting

31 / 50

Scope of financial audit is__________?

Non-financial information

Both (a) and (b)

None of these

Financial information

32 / 50

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

It is conducted at regular interval

It is expensive

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

It may be carried out on daily basis

33 / 50

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

indicates important aspects of business

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

All of the above

directs attention to potential risk areas

34 / 50

At the planning stage you would NOT consider____________?

last year?s audit

the potential use of internal audit

whether corrections from the inventory count have been implemented

the timing of the audit

35 / 50

Which of the following is a revenue reserve?

Capital redemption reserve

Debenture redemption reserve

Security premium account

Capital reserve

36 / 50

Auditing engagement can be performed w.r.t.

Any entity

Profit making entity

Corporate entity only

Non-profit making entity

37 / 50

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

sales invoices

purchase orders

bill of loading

sales orders

38 / 50

What is meant by the expression ?expectation gap??

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

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 shareholders expect them to perform

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

39 / 50

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

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

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

40 / 50

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

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

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

They document the level of independence maintained by the auditor

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

41 / 50

Which of the following statements is INCORRECT?

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

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

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

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

42 / 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

annual general meeting

statutory meeting

a general meeting

43 / 50

Which of the following statements is correct?

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

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

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

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

44 / 50

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

Carbon copies of sales invoices inspected by the auditor

Documents obtained by auditor from third parties directly.

Bank statements obtained from the client

Computations made by the auditor

45 / 50

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

Prior year?s financial statements

Adjusted interim financial statements

Prior year?s errors

The auditor?s remuneration

46 / 50

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

To inspect

To investigate

To examine

To hear

47 / 50

Verification refers to_________?

Examining the journal and ledger

Examining the physical existence and valuation of assets.

Examination of vouchers related to assets.

None of the above.

48 / 50

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

Because they are easier to audit

Because the directors have asked for it

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

Because it reduces the audit time

49 / 50

Window dressing implies_______________?

Checking of Wastages

Under valuation of assets

Curtailment of expenses

Over Valuation of assets

50 / 50

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

Verification

Auditing

Checking

Vouching

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