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auditing MCQs

Practise multiple-choice questions from auditing for competitive examinations and subject revision. Review each marked answer and report any item that may be outdated or unclear.

auditing Mcqs
1. Assuming that it is not the first appointment of the auditor, who is responsible for the appointment of the auditor?
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A. The board of directors in a board meeting

B. The shareholders in a general meeting

C. The audit committee

D. The managing director

2. An auditor is like a_______________?
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A. Blood haunt

B. Watch dog

C. May both according to situation

D. None of these

3. Which of the following statements is, generally, correct about the reliability of auditevidence?
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A. Effective internal control system provides reliable audit evidence

B. To be reliable, evidence should conclusive rather than persuasive

C. Evidence obtained from outside sources routed through the client

D. All are correct.

4. Audit risk is composed of 3 factors. Which of the following is NOT one of those factors?
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A. Inherent risk

B. Control risk

C. Detection risk

D. Compliance risk
5. The concept of stewardship means that a companys directors________________?
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A. Are responsible for ensuring that the company pays its tax by the due date

B. Safeguard the companys assets and manage them on behalf of the shareholders

C. Are responsible for ensuring that the company complies with the law

D. Report suspected fraud and money laundering to the authorities

6. Who out of the following cannot be appointed as a statutory auditor of the company?
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A. Internal auditor

B. Erstwhile director

C. Relative of a director

D. Only (B. and (C.

7. According to ISA 500, the strength of audit evidence is determined by which two qualities?
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A. Appropriateness & competence

B. Objectivity & independence

C. Sufficiency & appropriateness

D. Reliability & extensiveness

8. Audit of banks is an example of__________?
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A. Statutory audit

B. Balance sheet audit

C. Concurrent audit

D. Both (A. and (B.

E. All of the above
9. Which of the following statements is most closely associated with analytical procedure applied at substantive stage?
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A. It helps to accumulate evidence supporting the validity of a specific account balance

B. It helps to study relationship among balance sheet accounts

C. It helps to identify possible oversights

D. It helps to discover material misstatements in the financial statements

10. How many Standards on Auditing have been issued?
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A. 38

B. 32

C. 36

D. 34

11. _______the audit risk,_______the materiality and _______the audit effort?
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A. Lower, Higher, Higher

B. Lower, Higher, Lower

C. Higher, Lower, Lower

D. Lower, Lower, Higher

12. The client changed method of depreciation from straight line to written down value method. This has been disclosed as a note to the financial statements. It has an immaterial effect on the current financial statements. It is expected, however, that the change will have a significant effect on future periods. Which of the following option should the auditor express?
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A. Unqualified opinion

B. Qualified opinion

C. Disclaimer of opinion

D. Adverse opinion

13. For companies required to produce interim financial statements (IFI):
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A. the same firm should review the IFI and the financial statements for the year as a whole.

B. one audit firm should audit the IFI and a different firm should audit the financial statements for the year as a whole.

C. the same firm should audit the IFI and the financial statements for the year as a whole.

D. one accountancy firm should review the IFI and a different firm should audit the financial statements for the year as a whole.

14. Which one of the following is NOT a duty of the auditor?
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A. Duty to report to the members

B. Duty to report on any violation of law

C. Duty to sign the audit report

D. Duty to report to the companys bankers
15. The degree of effectiveness of an internal control system depends on:
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A. The design of the internal controls and the implementation of the control system

B. The design of the internal control system and the implementation of the controls

C. The implementation of the controls and the correctness of the accounting records

D. The design of the internal control system and the correctness of the accounting records

16. Stock should be valued at_________?
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A. Cost or Market price whichever is lower.

B. Cost

C. Cost less depreciation.

D. Market price

17. Analytical procedures issued in the planning stage of an audit, generally
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A. Indicates important aspects of business

B. Directs attention to potential risk areas

C. Helps to determine the nature, timing and extent of other audit procedures

D. All of the above
18. International auditing standards are issued by the______________?
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A. Auditing Practices Board

B. International Accounting Standards Board

C. International Standards Board

D. International Federation of Accountants
19. Which of the following is not corroborative evidence?
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A. Confirmations from debtors

B. Information gathered by auditor through observation

C. Worksheet supporting consolidated financial statements

D. Minutes of meetings

20. The term of the auditor ship of first auditor would be from the date of appointment till________?
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A. the conclusion of first annual general meeting

B. the date of removal

C. the conclusion of statutory meeting

D. the conclusion of next annual general meeting

21. Which of the following is NOT the responsibility of a companys directors?
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A. Reporting to the shareholders on the accuracy of the accounts

B. Supplying information and explanations to the auditor

C. Establishment of internal controls

D. Keeping proper accounting records

22. What would most appropriately describe the risk of incorrect rejection in terms of substantive testing?
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A. The auditor concludes balance is materially correct when in actual fact it is not

B. The auditor has rejected an item for sample which was material

C. None of the above

D. The auditor concludes that the balance is materially misstated when in actual fact it not
23. Which of the following is true about written representations?
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A. They should be used only when there is a lack of other substantive audit evidence

B. Shareholders receive a copy of all material written representations

C. They should be used only when there is other substantive audit evidence to complement it

D. They are the best source of audit evidence

24. The board of directors shall appoint first auditor of a company
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A. With in one month of the promotion of the company

B. With in one month of the commencement of the business of the company

C. With in one month of completion of capital subscription state of the company

D. With in one month of incorporation of the company
25. What are analytical procedures?
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A. Substantive tests designed to assess control risk

B. Substantive tests designed to evaluate the validity of managements representation letter

C. All of the above

D. Substantive tests designed to study relationships between financial and nonfinancial
26. Which of the following statements is not correct about materiality?
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A. Materiality is a relative concept

B. Materiality judgments involve both quantitative and qualitative judgments

C. Auditors consideration of materiality is influenced by the auditors perception of the needs of an informed decision maker who will rely on the financial statements

D. At the planning state, the auditor considers materiality at the financial statement level only
27. Which of the following factors is most important in determining the appropriations of audit evidence?
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A. The independence of the source of evidence

B. The objectivity and integrity of the auditor

C. The quantity of audit evidence

D. The reliability of audit evidence and its relevance in meeting the audit objective
28. Which of the following is true about explanatory notes?
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A. All of the above

B. These are given to adhere to requirements of section 211.

C. These are given by the directors of the company

D. These are given by auditors of the company in auditors report

29. Which one of the following may auditors NOT perform for their client?
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A. Preparation of accounting records

B. Taking management decisions

C. Preparing tax computations

D. Advising on weaknesses in the internal control systems

30. For what minimum period should audit working papers be retained by audit firm?
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A. For the time period the entity remains a client of the audit firm.

B. For a period of ten years

C. For a period auditor opines them to be useful in servicing the client

D. For the period the audit firm is in existence.

31. Which of the following is not an advantage of the preparation of working paper?
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A. To provide a basis for subsequent audits

B. To provide a basis for review of audit work

C. To provide a guide for advising another client on similar issues

D. To ensure audit work is being carried out as per programme

32. Which of these are types of Audit Report?
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A. l of above

B. Disclaimer of opinion.

C. Unqualified opinion

D. Adverse opinion

E. Qualified opinion

33. If the book value of an asset stands at________per cent of the original cost, a company need not provide depreciation on it.
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A. five

B. fifteen

C. ten

D. two

34. An auditor should not accept a loan on favourable commercial terms from an audit client because of the threat to his or her independence. The threat would be a___________?
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A. Advocacy threat

B. Familiarity threat

C. Self-interest threat

D. Self-review threat

35. Which of the following is a revenue reserve?
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A. Debenture redemption reserve

B. Capital reserve

C. Capital redemption reserve

D. Security premium account

36. Audit of banks is an example of_____________?
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A. Balance sheet audit

B. Statutory audit

C. All of the above

D. Concurrent audit

37. Which of the following are you unlikely to see in the current file of auditors working papers?
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A. Audit planning memorandum

B. Summary of unadjusted errors

C. Details of the work done on the inventory count

D. Memorandum & articles of association
38. Which of the following affects audit effectiveness?
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A. Risk of over reliance

B. Risk of incorrect rejection

C. Risk of incorrect acceptance

D. Both A. and C.
39. Goods sent on approval basis have been recorded as Credit sales. This is an example of____________?
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A. Error of omission

B. Error of principle

C. Error of commission

D. Error of duplication

40. Analytical procedures issued in the planning stage of an audit, generally?
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A. All of the above

B. indicates important aspects of business

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

D. directs attention to potential risk areas

41. You have been proposed as auditor of a company. What is the first step that you should take?
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A. Obtain a copy of the companys most recent board minutes

B. Obtain the existing auditors working papers

C. Obtain a copy of the existing auditors letter of engagement

D. Obtain the clients permission to communicate with the existing auditor
42. Of the following, which is the least persuasive type of audit evidence?
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A. Carbon copies of sales invoices inspected by the auditor

B. Documents obtained by auditor from third parties directly.

C. Computations made by the auditor

D. Bank statements obtained from the client

43. What sort of assurance is provided in a review engagement?
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A. No assurance

B. Positive assurance

C. Negative assurance

D. High level of assurance

44. Which of the following is normally the most reliable source of audit evidence?
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A. Analytical review

B. Internal audit

C. Board minutes

D. Suppliers statements
45. Balance sheet does not include:_____________?
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A. Verification of assets and liabilities

B. Examination of adjusting and closing entries

C. Routine checks

D. Vouching of income and expense accounts related to assets and liabilities

46. Pick the odd one:
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A. None of the above

B. Evaluation of internal control

C. Checking the vouchers

D. Preparation of vouchers
47. The independent auditors primary responsibility is to______________?
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A. the companys creditors (payables)

B. the shareholders

C. the companys bank

D. the directors

48. The basic assumption underlying the use of analytical procedures is:____________?
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A. Analytical procedures will not be able to detect unusual relationships

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

C. None of the above.

D. Relationship among data exist and continue in the absence of known condition to the contrary
49. According to ISA 315, which of the following is NOT an element of the control environment?
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A. Participation of management

B. Information processing

C. Commitment to competence

D. Human resource policies and practices

50. Scope of financial audit is__________?
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A. Financial information

B. Non-financial information

C. Both (a) and (b)

D. None of these