Audit G2 DPQ 1

Auditing and Ethics
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Audit & Ethics

Chapter-4: Audit Evidence
1. How is audit evidence defined? 6. What does the word “available” mean in the
(a) Information used by management context of evidence?
(b) Information used by the auditor in arriving at (a) Evidence available with the client is the only
conclusions for the financial statements available evidence
(c) Financial statements themselves (b) Evidence available with the client is the most
(d) Expert knowledge and experience of the reliable evidence
auditor (c) Evidence that is easily accessible to the auditor
(d) Evidence that is typically available in the
2. What are the broad types of evidence mentioned in context of the transaction
the text?
(a) Only documentary examination 7. What should the auditor know about evidence
(b) Only physical examination availability?
(c) A variety including documentary (a) Only evidence available with the client
examination, physical examination, and (b) Only evidence available through internal
statements controls
(d) Only internal controls (c) What normally should be available in the
context of the transaction
3. What is an example of the best evidence for (d) Evidence availability is not a relevant
verifying cash in hand? consideration
(a) Documentary examination of cash
transactions 8. In the context of evidence, what is balance
(b) Bank statement reconciliation confirmation?
(c) Counting cash (a) Only a variety of internal controls
(d) Auditor’s arithmetical calculations (b) A procedure for obtaining greater satisfaction
about the reliability of an assertion
4. For verifying assertions about book debts, what are (c) A type of documentary examination
some examples of evidence mentioned in the text? (d) An arithmetical calculation by the auditor
(a) Only balance confirmation procedure
(b) Only client’s ledger invoices 9. What is the purpose of internal controls and internal
(c) A variety including client’s ledger invoices, checks as evidence?
debit notes, credit notes, and monthly accounts (a) To limit the evidence available to the auditor
statements (b) To expedite the audit process
(d) Only banker’s certificates (c) To prove or disprove assertions
(d) To increase the complexity of audit
5. What is the auditor’s task regarding the weight of procedures
each piece of evidence?
(a) To ignore any evidence that is available 10. What does an auditor pick up evidence from?
(b) To prioritize verification procedures based on (a) Only client’s ledger invoices
evidence weight (b) Only statements and explanations of
(c) To consider all evidence equally management, officials, and employees
(d) To delegate the evaluation of evidence to (c) A variety of fields, including documentary
management examination, physical examination, and
statements
(d) Only arithmetical calculations by the auditor
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11. What is considered part of the accounting records 17. External evidence is generally considered more
when gathering audit evidence? reliable because it:
(a) Social media interactions (a) Originates within the organization being
(b) Minutes of the meetings audited
(c) Invoices and contracts (b) Comes from third parties not interested in
(d) Weather reports manipulation
(c) Is always accurate and truthful
12. Which of the following is an example of supporting (d) Requires less verification by the auditor
records included in accounting records?
(a) Diary entries 18. In an audit, what type of evidence is obtained
(b) Cheques and records of electronic fund through discussion with the management and
transfers various officers of the client?
(c) Personal emails (a) External evidence
(d) Movie tickets (b) Visual evidence
(c) Oral evidence
13. What type of information supports the auditor’s (d) Documentary evidence
rationale behind the true and fair presentation of
financial statements? 19. What is the auditor advised to be careful about
(a) Fictional stories when relying on internal evidence?
(b) Records of weather forecasts (a) External evidence is more reliable
(c) Manuals containing details of internal control (b) External evidence is less reliable
(d) Unrelated poetry (c) Possibilities of manipulation and creation of
false evidence
14. In addition to accounting records, what may the (d) Internal evidence is always accurate
auditor use as evidence to authenticate financial
statements? 20. What is the relationship between the auditor’s
(a) Personal diaries of employees opinion on financial statements and the relevance
(b) Minutes of the meetings and reliability of audit evidence?
(c) Unrelated cartoons (a) Irrelevant to the opinion
(d) Telephone directories (b) Directly impacts the opinion
(c) Reliability is more important than relevance
15. What type of evidence is obtained through (d) Relevance is more important than reliability
observing the physical verification of inventory
conducted by the client’s staff? 21. How does relevance of information used as audit
(a) Visual evidence evidence relate to the purpose of the audit
(b) Oral evidence procedure?
(c) Documentary evidence (a) Irrelevant to the purpose
(d) External evidence (b) Independently determined
(c) Logical connection with the purpose
16. Which of the following is an example of internal (d) Unrelated to the assertion
evidence in an audit situation?
(a) Purchase invoice 22. What is the primary factor influencing the
(b) Supplier’s challan reliability of information used as audit evidence?
(c) Inspection report (a) Audit procedures
(d) Quotations (b) Direction of testing
(c) Source and nature of information
(d) Assertion under consideration
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23. When testing for overstatement in the existence or 29. When performing tests of controls, what does the
valuation of accounts payable, what is considered a auditor identify to test the presence or absence of
relevant audit procedure? conditions indicating performance of a control?
(a) Testing subsequent disbursements (a) Assertions
(b) Inspecting unpaid invoices (b) Deviation in conditions
(c) Verifying suppliers’ statements (c) Analytical procedures
(d) All of the above (d) Substantive evidence
24. In testing for understatement in the existence or 30. Why is inspection of documents related to the
valuation of accounts payable, which audit collection of receivables after the period end
procedure is considered relevant? considered relevant audit evidence?
(a) Inspecting unpaid invoices (a) Confirms cut-off accuracy
(b) Testing subsequent disbursements (b) Supports existence and valuation
(c) Verifying suppliers’ statements (c) Verifies the completeness of controls
(d) All of the above (d) Substitutes for substantive analytical
procedures
25. When designing tests of controls, what is the
purpose of identifying conditions that indicate 31. In terms of relevance, what is important to note
performance of a control? about audit evidence from different sources or of
(a) Establishing irrelevant criteria different nature?
(b) Demonstrating a lack of controls (a) It’s irrelevant to the assertion
(c) Evaluating operating effectiveness (b) It’s never considered reliable
(d) Confirming financial statement amounts (c) It’s often relevant to the same assertion
(d) It can’t be used in the audit process
26. What is the primary focus of substantive
procedures in the audit process? 32. What is the primary focus of tests of details in
(a) Evaluating operating effectiveness substantive procedures?
(b) Detecting material misstatements (a) Confirming controls
(c) Identifying conditions for controls (b) Detecting material misstatements
(d) Confirming management assertions (c) Evaluating operating effectiveness
(d) Identifying conditions for controls
27. Tests of details and substantive analytical
procedures are components of which type of audit 33. Why is it advised for the auditor to match internal
procedures? and external evidence in an audit?
(a) Tests of controls (a) Internal evidence is always reliable
(b) Substantive procedures (b) External evidence is irrelevant
(c) Compliance testing (c) To minimize reliance on internal evidence
(d) Analytical controls (d) To enhance the reliability of audit evidence
28. What does designing substantive procedures 34. In terms of relevance, what is emphasized when
involve in the context of identifying conditions testing for overstatement in the existence or
relevant to the purpose of the test? valuation of accounts payable?
(a) Confirming controls (a) Testing subsequent disbursements
(b) Establishing irrelevant criteria (b) Logical connection with the purpose
(c) Detecting material misstatements (c) Testing recorded accounts payable
(d) Evaluating operating effectiveness (d) Inspecting unpaid invoices
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35. What factor significantly influences the reliability 42. What is the primary measure of the quantity of
of audit evidence? audit evidence?
(a) The auditor’s experience (a) Appropriateness
(b) The nature of the audit procedure (b) Sufficiency
(c) The source and nature of the information (c) Reliability
(d) The length of the audit engagement (d) Quality
36. Under what circumstances might information 43. How does the auditor’s assessment of risks of
obtained from an independent external source be misstatement impact the quantity of audit evidence
unreliable? needed?
(a) Lack of objectivity (a) Higher risks require less evidence
(b) Over-reliance on controls (b) Higher risks require more evidence
(c) Enhanced knowledgeability (c) Risks have no impact on evidence
(d) Lengthy audit procedures (d) Evidence is unrelated to risk assessment
37. When is the reliability of audit evidence generated 44. What influences the reliability of audit evidence?
internally increased? (a) The auditor’s experience
(a) When controls are ineffective (b) The quantity of evidence
(b) When related controls are effective (c) The source and nature of evidence
(c) When external sources are involved (d) The assessed risks of misstatement
(d) When the auditor is not directly involved
45. How does the quality of audit evidence impact the
38. Which type of audit evidence is generally more
quantity required?
reliable than evidence obtained orally?
(a) Higher quality requires more evidence
(a) Contemporaneously written records
(b) Higher quality requires less evidence
(b) Verbal representations
(c) Quality is unrelated to quantity
(c) Inference-based evidence
(d) Quality and quantity are inversely related
(d) Photocopied documents
46. What is the primary purpose of obtaining audit
39. In the context of documentary evidence, what is
evidence?
considered more reliable than evidence obtained
(a) Supporting management’s assertions
orally?
(a) Electronic documents (b) Contradicting management’s assertions
(b) Photocopies (c) Forming the auditor’s opinion
(c) Subsequent oral representations (d) Fulfilling regulatory requirements
(d) Contemporaneously written records
47. In addition to audit procedures, where else can
40. Why is audit evidence obtained as original audit evidence be derived from?
documents considered more reliable than (a) Only from inspection
photocopies or facsimiles? (b) Only from external sources
(a) Due to the length of the audit engagement (c) Previous audits and the entity’s accounting
(b) Dependence on controls records
(c) Enhanced knowledgeability (d) Exclusively from inquiry
(d) Controls over preparation and maintenance
48. What constitutes audit evidence in some cases,
41. Which audit evidence is generally more reliable indicating management’s refusal to provide a
when transformed into electronic form? requested representation?
(a) Original documents (a) Presence of information
(b) Photocopies (b) Contradictory information
(c) Facsimiles (c) Absence of information
(d) Contemporaneously written records (d) External information
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49. Which of the following is NOT a type of audit 54. What is control risk in the context of risk of
procedure used to obtain audit evidence? material misstatement?
(a) Recalculation (a) The risk that financial statements are
(b) Reperformance materially misstated
(c) Supervision (b) The risk that internal controls will not prevent
misstatements
(d) Confirmation
(c) The risk that auditors will not detect
misstatements
50. When is reasonable assurance obtained in an audit? (d) The risk that a misstatement could occur
(a) When all audit procedures are completed before considering controls
(b) When audit risk is reduced to an acceptably
low level 55. In the context of risk of material misstatement,
(c) When no material misstatements are found what does less evidence imply about the risk level?
(d) When the audit is free from errors (a) Lower risk of material misstatement
(b) Higher risk of material misstatement
51. How does materiality impact the amount of (c) Independent of risk of material misstatement
(d) Lower risk of detection
evidence required in an audit?
(a) More evidence is required for less material
56. How does the auditor obtain audit evidence through
assertions testing accounting records?
(b) Less evidence is required for less material (a) By analyzing and reviewing unrelated
assertions information
(c) More evidence is required for more material (b) By performing procedures like reperformance
assertions and reconciliation
(d) Evidence requirement is independent of (c) By relying solely on internal consistency
materiality (d) By reviewing management representations
52. What is inherent risk in the context of risk of 57. What is the significance of consistent audit
evidence from different sources?
material misstatement?
(a) Less assurance is obtained from consistent
(a) The risk that internal controls will not prevent
evidence
misstatements (b) More assurance is obtained from consistent
(b) The risk that a misstatement could occur evidence
before considering controls (c) Consistency does not affect the level of
(c) The risk that auditors will not detect assurance
misstatements (d) Consistency is irrelevant in audit evidence
(d) The risk that financial statements are
materially misstated 58. How can the auditor increase assurance by using
corroborating information?
(a) By relying solely on internal evidence
53. How does the size and characteristics of a
(b) By avoiding independent sources
population affect the evidence requirement in an
(c) By using information from sources
audit? independent of the entity
(a) Less evidence for larger, more heterogeneous (d) By relying on management representations
populations
(b) More evidence for larger, more heterogeneous 59.
What is the primary source of audit evidence to
populations draw reasonable conclusions for the auditor’s
(c) Less evidence for smaller, more homogeneous opinion?
populations (a) Risk assessment procedures only
(d) Evidence requirement is independent of (b) Further audit procedures only
population size (c) Both risk assessment procedures and further
audit procedures
(d) Substantive procedures only
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60. Which audit procedure involves examining records 65. Which audit procedure involves evaluations of
or documents, whether internal or external, in paper financial information made by a study of plausible
form, electronic form, or other media, or a physical relationships among both financial and non-
examination of an asset? financial data?
(a) Inquiry (a) Recalculation
(b) Analytical Procedures
(b) Observation
(c) Inquiry
(c) External Confirmation
(d) Inspection
(d) Inspection
66. Inquiry as an audit procedure consists of:
61. What is an example of using observation as an audit (a) Seeking information from knowledgeable
procedure? persons
(a) Observing inventory counting (b) Observing physical verification of assets
(b) Observing a bank reconciliation (c) Checking the mathematical accuracy of
(c) Observing management’s response to an documents
inquiry (d) Reperforming procedures originally
performed by the entity
(d) Observing the preparation of financial
statements
67. When is inquiry alone generally insufficient as an
audit procedure?
62. Which audit procedure involves obtaining a direct (a) When seeking information from
written response from a third party to confirm knowledgeable persons
certain account balances or other relevant details? (b) When evaluating financial information by
(a) Recalculation studying relationships
(b) Reperformance (c) When obtaining written responses from third
(c) External Confirmation parties
(d) Analytical Procedures (d) When confirming certain account balances
with external parties
63. What does recalculation as an audit procedure
68. What does inspection of tangible assets primarily
involve?
provide reliable audit evidence about?
(a) Checking the mathematical accuracy of (a) Ownership and valuation
documents or records (b) Existence, rights, and obligations
(b) Independently executing procedures (c) Accuracy of financial statements
originally performed by the entity (d) Compliance with ethical requirements
(c) Evaluating financial information by studying
plausible relationships 69. Which audit procedure may involve obtaining audit
(d) Seeking information from knowledgeable evidence about the absence of certain conditions?
persons within or outside the entity (a) Inquiry
(b) Recalculation
(c) External Confirmation
64. Reperformance as an audit procedure involves:
(d) Analytical Procedures
(a) Evaluating financial information by studying
plausible relationships 70. How might the nature and timing of audit
(b) Checking the mathematical accuracy of procedures be affected by the availability of
documents or records accounting data in electronic form?
(c) Independently executing procedures (a) It doesn’t affect audit procedures
originally performed by the entity (b) Only affects the timing, not the nature of audit
(d) Seeking information from knowledgeable procedures
persons within or outside the entity (c) May require additional procedures due to
electronic data
(d) Reduces the need for audit procedures
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71. In what situation may the auditor find it necessary 76. What is the primary purpose of tests of controls in
to request retention of information for review? an audit engagement?
(a) When files are changed and backup files exist (a) To detect material misstatements at the
(b) When electronic information is retrievable assertion level.
after a specified period (b) To evaluate the operating effectiveness of
(c) When the entity discards source documents controls.
after scanning (c) To express an opinion on the financial
(d) When information is available during regular statements.
audit procedures (d) To identify potential fraud in the entity.
72. How can an entity’s data retention policies impact 77. Substantive procedures in an audit engagement are
the timing of audit procedures? designed to:
(a) They don’t impact the timing of audit (a) Evaluate the operating effectiveness of
procedures controls.
(b) They may require audit procedures to be (b) Confirm the accuracy of internal controls.
performed at specific times (c) Detect material misstatements at the assertion
(c) They speed up the timing of audit procedures level.
(d) They eliminate the need for audit procedures (d) Assess risks of material misstatement.
73. What might be a challenge for the auditor when 78. What does the term “tests of details” refer to in an
dealing with electronic information that is not audit engagement?
retrievable after a specified period? (a) Procedures to understand the entity and its
(a) The need for fewer audit procedures environment.
(b) A reduction in data security concerns (b) Procedures to evaluate the operating
(c) The possibility of incomplete audit trails effectiveness of controls.
(d) Increased reliance on automated audit tools (c) Detailed examinations of specific
transactions, account balances, and
74. In the context of electronic commerce, what might disclosures.
exist only in electronic form, affecting the nature of (d) Analyzing trends and relationships in financial
audit procedures? data.
(a) Backup files
(b) Purchase orders and invoices 79. In an audit engagement, substantive analytical
(c) Image processing systems procedures involve:
(d) Data retention policies (a) Confirming the accuracy of internal controls.
(b) Identifying potential fraud in the entity.
75. Which of the following best describes risk (c) Evaluating the operating effectiveness of
assessment procedures in an audit engagement? controls.
(a) Procedures to obtain evidence on specific (d) Analyzing relationships and trends in financial
transactions and account balances. data.
(b) Procedures to express an opinion on the
financial statements. 80. In the context of auditing, what do assertions
(c) Procedures to understand the entity and its represent?
environment, assess risks, and identify (a) Financial projections provided by the auditor.
potential misstatements. (b) Representations by management embodied in
(d) Procedures to confirm the accuracy of internal the financial statements.
controls. (c) External opinions on the financial statements.
(d) Legal obligations of the audit firm.
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81. What is the primary focus of assertions in financial 86. What is the primary purpose of an audit trail in the
statements? context of financial transactions?
(a) Future financial projections. (a) To create a detailed record of user log-on
(b) Management’s explicit opinions. attempts.
(c) Representations made by management (b) To reduce system expenditure.
regarding recognition, measurement, (c) To track and document the flow of
presentation, and disclosure. transactions, verifying their source and
(d) Auditor’s opinions on compliance. integrity.
(d) To analyze large volumes of data for audit
82. Which category of assertions is concerned with the purposes.
existence, completeness, and accuracy of
transactions and events during the audit period?
87. How do audit trails contribute to internal controls
(a) Assertions about classes of transactions and
and data security?
events.
(a) By increasing system expenditure.
(b) Assertions about account balances at the
(b) By reducing the need for automated tools.
period end.
(c) By documenting evidence of events and
(c) Assertions about presentation and disclosure.
operations, reducing fraud and unauthorized
(d) Assertions about valuation and allocation.
use.
83. Which assertion is related to the disclosure of (d) By limiting the analysis of data made available
events, transactions, and other matters in the by audit trails.
financial statements?
(a) Existence. 88. What is one potential drawback associated with
(b) Completeness. audit trails?
(c) Presentation and disclosure. (a) They inspire confidence in auditors.
(d) Accuracy and valuation. (b) They reduce the reliability of audit evidence.
(c) They involve costs in terms of system
84. In certain entities, especially where the expenditure and time for data analysis.
Government is a major stakeholder, what (d) They have no impact on internal controls.
additional assertions might be made by
management? 89. How can audit trails aid auditors in verifying
(a) Assertions about transactions and events. controls devised by management?
(b) Assertions about account balances. (a) By eliminating the need for audit procedures.
(c) Assertions about compliance with legislation (b) By increasing the reliance on manual records.
or proper authority.
(c) By inspiring confidence in users.
(d) Assertions about the fair presentation of
(d) By providing evidence on whether controls
financial information.
were operating effectively.
85. How flexible is the auditor in expressing
assertions? 90. What role do audit trails play in fixing
(a) Strictly follow the assertions as outlined in the responsibility and analyzing problem areas?
auditing standards. (a) They have no impact on fixing responsibility.
(b) Flexibility is limited, and assertions cannot be (b) They reduce the need for problem analysis.
expressed differently. (c) They can track user activities, fixing
(c) May express assertions differently as long as responsibility and aiding in problem analysis.
all aspects are covered. (d) They are only used for system operations and
(d) The Auditor has no discretion in expressing not for problem-solving.
assertions.
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91. In auditing, how may the use of information 96. In which situation is 100% examination more
prepared by a management’s expert impact audit common for tests of details?
procedures? (a) When dealing with a large and diverse
(a) It has no effect on audit procedures. population.
(b) It may influence the nature, timing, and extent (b) When there is a low risk of material
of audit procedures based on various factors. misstatement.
(c) It simplifies audit procedures. (c) When the population constitutes a small
(d) It eliminates the need for alternative sources of number of large value items.
audit evidence. (d) When using audit sampling.
92. What is a relevant consideration when determining 97. What is a factor relevant to the judgmental
the impact of a management’s expert on audit selection of specific items?
procedures? (a) The population size.
(a) The cost of the expert’s services. (b) The auditor’s understanding of the entity.
(b) Whether the expert is employed by the entity. (c) The use of audit sampling.
(c) The availability of alternative sources of audit (d) The risk of material misstatement.
evidence.
(d) The auditor’s knowledge of the entity’s 98. When may the auditor decide to select specific
financial statements. items within a population?
(a) When the population is small and
93. How might the auditor’s knowledge and experience homogenous.
of the management’s expert’s field of expertise (b) When the items are of low value.
influence audit procedures? (c) When there is no risk of material
(a) It has no impact on audit procedures. misstatement.
(b) It may affect the timing but not the nature of (d) When items are suspicious, unusual, or have a
audit procedures. history of error.
(c) It may influence the nature and extent of audit
procedures. 99. What is a situation where 100% examination may
(d) It eliminates the need for controls over the be cost-effective?
management’s expert’s work. (a) Large and diverse population.
(b) Low-risk transactions.
94. What steps should the auditor take when using (c) Repetitive nature of a calculation in an
information produced by the entity in the audit information system.
process? (d) Minimal audit evidence required.
(a) Trust the information without further verification.
(b) Obtain audit evidence about the accuracy and 100. When might the auditor decide to examine items
completeness of the information. whose recorded values exceed a certain amount?
(c) Assume that the information is sufficiently (a) To save time in the audit process.
precise for audit purposes. (b) To verify a small proportion of the total
(d) Bypass evaluation as it is the entity’s amount.
responsibility. (c) To obtain information about the nature of the
entity.
95. When is 100% examination most likely to be (d) To verify a large proportion of the total
appropriate in audit procedures? amount.
(a) When the population is large and
homogenous. 101. What is a potential drawback of judgmental
(b) When there is a low risk of material selection of specific items?
misstatement. (a) Reduced audit efficiency.
(c) When the population constitutes a small (b) Increased sampling risk.
number of large value items. (c) Lower materiality threshold.
(d) When the audit evidence required is minimal. (d) Decreased audit scope.
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102. Why might the auditor decide to perform 100% 107. According to SA 230, what specific documentation
examination in the case of tests of controls? requirement exists if the auditor identifies
(a) To save time in the audit process. information inconsistent with the final conclusion
(b) Because it is more common for tests of on a significant matter?
controls. (a) No specific documentation is required.
(c) When the population is large and (b) Record the inconsistency in the management
homogenous. letter.
(d) When there is a low risk of material (c) Provide an oral explanation to the audit
misstatement. committee.
(d) Document the inconsistency and resolution.
103. What is a characteristic that might make 100%
examination appropriate in tests of controls? 108. How is a management’s expert defined in this
(a) High sampling risk. context?
(b) Significant risk and other means insufficient. (a) An internal auditor designated by
(c) Diverse population. management.
(d) Minimal audit evidence required. (b) An individual or organization with expertise in
accounting.
104. In which situation may the auditor decide to select (c) Any member of the management team.
specific items to verify a large proportion of the (d) An expert in a field other than accounting or
total amount? auditing, used by the entity to assist in
(a) Small and homogenous population. preparing financial statements.
(b) Low-risk transactions.
(c) The repetitive nature of a calculation. 109. When the auditor decides to rely on the work of a
(d) The population constitutes a small number of management’s expert, what must the auditor
large value items. evaluate regarding the expert’s competence,
capabilities, and objectivity?
105. What is the primary purpose of audit sampling? (a) Whether the expert is employed by the entity.
(a) To test the entire population. (b) The expert’s salary and compensation
structure.
(b) To draw conclusions about an entire
population based on a sample. (c) The expert’s membership in professional
organizations.
(c) To examine each individual item in the
population. (d) The competence, capabilities, and objectivity
of the expert.
(d) To analyze the entire population exhaustively.
110. What is one of the auditor’s responsibilities when

106. What action should the auditor take if audit
information is prepared using the work of a
evidence from one source is inconsistent with that
management’s expert?
obtained from another source?
(a) Ignore the work of the management’s expert if
(a) Ignore the inconsistency as it may not be
it seems reliable.
material.
(b) Conduct a detailed background check on the
(b) Modify or add to audit procedures to resolve
management’s expert.
the inconsistency.
(c) Evaluate the appropriateness of the expert’s
(c) Conclude the audit immediately.
work as audit evidence.
(d) Rely only on the evidence obtained from the
(d) Delegate the evaluation of the expert’s work to
more reliable source.
the internal audit team.
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111. Which standard is applicable to all audit evidence 117. What might the internal audit function review
obtained during the audit to enable the auditor to concerning compliance activities?
draw reasonable conclusions for the opinion? (a) Financial planning
(a) SA 230- Audit Documentation (b) Operational efficiency
(b) SA 500- Audit Evidence (c) Compliance with laws, regulations, and
(c) SA 330- The Auditor’s Responses to Assessed internal requirements
Risks (d) External audit procedures
(d) SA 600- Using the Work of Another Auditor
118. What is one of the objectives of the internal audit
112. What is the auditor’s responsibility concerning the function in relation to governance processes?
sufficiency and appropriateness of audit evidence? (a) Preparing financial forecasts
(b) Evaluating performance management
(a) Delegate the judgment to the audit team.
(c) Conducting external financial audits
(b) Draw conclusions based on personal intuition.
(d) Classifying financial transactions
(c) Conclude whether sufficient appropriate audit
evidence has been obtained.
119. What aspect might the internal audit function
(d) Only consider audit evidence related to
review concerning operating activities?
financial statements. (a) Accuracy of financial statements
(b) Compliance with laws and regulations
113. What is the primary purpose of the internal audit (c) Design of internal controls
function in an entity? (d) Operational efficiency
(a) Conducting financial audits
(b) Evaluating and improving the effectiveness of 120. In what way may the external auditor use the
governance, risk management, and internal internal audit function to enhance the audit
control processes process?
(c) Preparing financial statements (a) As a replacement for the external auditor in
(d) Managing external audit engagements performing the entire audit
(b) To obtain information relevant to assessments
114. Which area is NOT typically within the scope of of risks of material misstatement
the internal audit function’s objectives? (c) Only when explicitly required by law
(a) Governance processes (d) Only when the internal audit function has the
(b) Risk management same objectives as the external auditor
(c) Financial reporting preparation
(d) Internal control processes 121. Under what circumstances may the external auditor
decide to use work performed by the internal audit
115. What activities might the internal audit function function in partial substitution for direct audit
perform related to risk management? evidence?
(a) Always, regardless of the nature of the work
(a) Preparing financial statements
performed
(b) Identifying and evaluating significant
(b) When prohibited by law or regulation
exposures to risk
(c) When the internal audit function has different
(c) Conducting external audits
objectives
(d) Classifying financial information
(d) After appropriate evaluation
116. In the context of internal control, what does the 122. What is the term used when the external auditor
internal audit function provide assurance on? utilizes internal auditors to perform audit
(a) Accuracy of financial statements procedures under their direction, supervision, and
(b) Efficiency of operating activities review?
(c) Design, implementation, and operating (a) Internal substitution
effectiveness of internal control (b) Direct replacement
(d) Compliance with tax regulations (c) Indirect assistance
(d) Direct assistance
12
123. What is the primary focus of SA 610 regarding the 128. According to SA 610, who is required to be
use of internal audit functions by the external independent of the entity in an audit of financial
auditor? statements?
(a) To mandate the use of internal audit function (a) Internal auditors
in all audit engagements (b) External auditors
(b) To guide the external auditor on modifying the (c) Management of the entity
nature, timing, and extent of audit procedures (d) Audit committee
(c) To define the external auditor’s
responsibilities when using the work of 129. When using internal auditors to provide direct
assistance, what is the external auditor required to
internal auditors
do?
(d) To restrict the external auditor from using
(a) Delegate all responsibilities to internal
internal audit function
auditors
(b) Rely solely on the internal auditors’ judgment
124. According to SA 610, who has the ultimate
(c) Direct, supervise, and review their work
decision-making authority in establishing the appropriately
overall audit strategy, including the use of the (d) Reduce the extent of audit procedures
internal audit function?
(a) Management of the entity 130. What is a crucial factor in determining whether the
(b) Internal audit function work of the internal audit function can be used for
(c) External auditor the external audit?
(d) Audit committee (a) Independence from the entity
(b) Organizational status and relevant policies
125. In an audit engagement, who has the sole (c) Internal audit’s alignment with management
responsibility for the audit opinion expressed? (d) Regulatory compliance
(a) Internal audit function
(b) Audit committee 131. According to SA 610, what is a key consideration
(c) External auditor in assessing the internal audit function’s suitability
(d) Management of the entity for the external audit?
(a) Size of the internal audit team
126. What is the primary objective of the external (b) Independence from management
auditor when using the work of the internal audit (c) Level of coordination with external auditors
(d) Quality control and systematic approach
function or internal auditors in an audit
engagement?
132. What does the external auditor need to evaluate
(a) To replace the external auditor’s
concerning the internal audit function’s
responsibilities
objectivity?
(b) To fulfill regulatory requirements
(a) The internal audit team’s opinion on financial
(c) To determine the adequacy of the work for statements
audit purposes (b) The extent to which organizational status
(d) To shift responsibility to the internal audit supports objectivity
function (c) Compliance with external regulations
(d) Independence from the audit committee
127. Why does SA 610 emphasize defining conditions
for the use of the work of internal auditors? 133. What is the primary concern of evaluating
(a) To promote overuse of internal auditors’ work objectivity in the internal audit function?
(b) To establish a framework for external (a) The size of the internal audit team
auditor’s judgments (b) Independence from the audit committee
(c) To shift responsibility to internal auditors (c) Ability to perform tasks without bias
(d) To eliminate the need for external audit (d) Compliance with external regulations
13
134. In assessing objectivity, what is a crucial factor 140. What does the continuum of objectivity and
related to the organizational status of the internal competence imply for the external auditor?
audit function? (a) Strong organizational support compensates for
(a) Direct access to those charged with low competence
governance (b) High competence compensates for a lack of
(b) Reporting to management organizational support
(c) Providing operational duties to the function (c) Both are equally important and
(d) Being subject to constraints by management interchangeable
(d) Neither objectivity nor competence is crucial
135. What is an example of a potential constraint on the
internal audit function that might impact 141. What cannot compensate for a lack of sufficient
objectivity? competence of the internal audit function?
(a) Direct access to those charged with (a) High-level policies
governance (b) Objectivity of internal auditors
(b) Lack of managerial responsibilities (c) Adequate resourcing
(c) Constraints on communicating findings to the (d) Organizational status
external auditor
(d) Independence from the audit committee 142. What distinguishes the activities of the internal
audit function from other monitoring control
136. Why is the oversight of employment decisions activities?
related to the internal audit function relevant in (a) Independence
(b) Objectivity
assessing objectivity?
(c) Systematic and disciplined approach
(a) To ensure compliance with internal policies
(d) Adequate resourcing
(b) To determine the appropriateness of
remuneration
143. What factor is crucial in assessing whether the
(c) To maintain independence from management
internal audit function applies a systematic
(d) To enhance coordination with external
approach?
auditors
(a) Existence of quality control policies
(b) Appropriateness of internal audit procedures
137. What does the competence of the internal audit
(c) Independence of the internal auditors
function refer to?
(d) Size and circumstances of the entity
(a) Independence from external influence
(b) Adequate and appropriate resourcing
144. Under what conditions should the external auditor
(c) Knowledge and skills required for tasks avoid using the work of the internal audit function?
(d) Established policies for hiring only (a) When internal auditors lack objectivity
(b) When the function applies a systematic
138. What factor is crucial in assessing competence approach
concerning internal audit engagements? (c) When organizational status supports
(a) Technical training and proficiency objectivity
(b) Organizational status (d) When the function lacks competence
(c) Objectivity of internal auditors
(d) Size of the entity 145. What is a key consideration for the external auditor
when determining the use of internal audit work?
139. Why is the resourcing of the internal audit function (a) The size of the internal audit function
relevant to competence assessment? (b) The relevance to the overall audit strategy and
(a) To establish policies for hiring plan
(b) To support objectivity (c) The number of internal auditors
(c) To ensure independence (d) The geographical location of the internal audit
(d) To enable diligent task performance function
14
146. Which of the following is an example of work 151. When should the external auditor plan to perform
performed by the internal audit function that can be more of the work directly instead of relying on the
used by the external auditor? internal audit function?
(a) Management representation letters (a) When the internal audit function has a low
(b) External confirmations level of competence
(c) Observations of inventory counts (b) When the external auditor wants to minimize
(d) Bank reconciliation judgment
(c) When the organizational status of the internal
147. When considering the use of internal audit work, audit function supports objectivity
what is a primary factor for the external auditor to (d) When the assessed risk of material
assess? misstatement is low
(a) The internal audit budget
(b) The internal auditors’ independence
152. What is a key step the external auditor should take
(c) The nature and scope of the internal audit
if planning to use the work of the internal audit
work
function?
(d) The financial expertise of the internal audit
(a) Skip coordination with the internal audit
team
function
(b) Perform audit procedures directly without
148. In what situation can the external auditor use the
discussion
work of the internal audit function?
(c) Discuss the planned use of its work with the
(a) When it involves subjective judgments
function
(b) When it aligns with the overall audit strategy
(c) When it duplicates the external audit (d) Rely solely on the reports of the internal audit
procedures function
(d) When it lacks relevance to financial reporting
153. What information should the external auditor
149. Under what circumstances should the external obtain by reading the reports of the internal audit
auditor plan to use less of the work of the internal function?
audit function? (a) Detailed financial statements
(a) When the internal audit function has a high (b) Nature and extent of audit procedures
level of competence performed
(b) When the external auditor wants to reduce (c) Employee payroll information
workload (d) External auditor’s findings
(c) When there is more judgment involved in
planning and performing audit procedures 154. What is an essential step for the external auditor
(d) When the internal audit function lacks when planning to use the work of the internal audit
objectivity function?
(a) Rely solely on the internal audit function’s
150. What is a key consideration for the external auditor reports
in planning to use less of the work of the internal (b) Skip performing audit procedures on the
audit function? internal audit function’s work
(a) The external auditor’s workload preference
(c) Perform audit procedures on the body of work
(b) The level of competence of the internal audit
to determine its adequacy
function
(d) Conduct independent audit without
(c) The size of the internal audit team
considering internal audit findings
(d) The assessed risk of material misstatement
15
155. Effective coordination between the external auditor 160. What agreements should the external auditor obtain
and the internal audit function involves discussions before using internal auditors to provide direct
on various aspects. Which of the following is NOT assistance?
typically discussed during coordination? (a) Agreement from external auditors to supervise
(a) Materiality for the financial statements internal auditors
(b) Nature of the entity’s products (b) Agreement from internal auditors to report
(c) Proposed methods of item selection and directly to management
sample sizes (c) Agreement from internal auditors to follow
(d) Timing of the work to be performed external auditor’s instructions and maintain
confidentiality
156. What does “direct assistance” refer to in the context
(d) Agreement from management to intervene in
of using internal auditors during an audit?
internal auditors’ work
(a) Providing financial assistance to the internal
audit function
(b) Supervising and directing internal audit 161. What does the term “Internal Financial Controls
processes (IFC)” encompass?
(c) Using internal auditors to perform audit (a) Only financial reporting policies
procedures under external auditor’s direction (b) Financial reporting, operational effectiveness,
(d) External auditors taking over internal audit and compliance
responsibilities (c) Only prevention and detection of fraud
(d) Compliance with applicable laws and
157. Under what circumstances may the external auditor regulations
be prohibited from obtaining direct assistance from
internal auditors? 162. What is the primary focus of “Internal Control over
(a) If internal auditors lack objectivity financial reporting”?
(b) If direct assistance is not significant (a) Safeguarding of assets
(c) If prohibited by law or regulation (b) Prevention and detection of fraud
(d) If internal auditors lack competence (c) Compliance with laws and regulations
(d) Effectiveness of internal controls over
158. What is a condition under which the external financial reporting
auditor shall not use internal auditors to provide
direct assistance?
163. How does “internal controls over financial
(a) When internal auditors have significant
reporting” relate to the auditor’s opinion?
relationships with management
(a) It is the same as the opinion on financial
(b) When internal auditors are too competent
statements
(c) When there are significant threats to the
objectivity of internal auditors (b) It is an additional and distinct opinion from the
(d) When internal auditors are not involved in the one on financial statements
audit process (c) It is not required by auditors
(d) It is only applicable to operational
159. In what situations should the external auditor not effectiveness
use internal auditors to provide direct assistance for
audit procedures? 164. What distinguishes “internal financial control”
(a) Situations involving low risks of material from “internal controls over financial reporting”?
misstatement (a) Internal financial control is narrower in scope
(b) Situations already reported to management by (b) Internal controls over financial reporting
the internal audit function include prevention and detection of fraud
(c) Routine audit tasks without significant (c) Internal financial control is broader, covering
judgment financial reporting, compliance, and more
(d) Decisions made by the internal auditor (d) Internal controls over financial reporting focus
regarding audit strategy on efficiency of operations
16
165. Which term is considered the wider concept 171. When is SA 530 applicable?
between “Internal Financial Controls” and (a) When auditors use non-statistical sampling
“Internal Controls over financial reporting”? only
(a) Internal Controls over financial reporting (b) When auditors use statistical sampling only
(b) Both terms have the same scope (c) When auditors decide to use audit sampling in
(c) Internal Financial Controls performing procedures
(d) None of the above (d) When auditors conduct routine checking
166. What is the primary criticism of the traditional 172. What is the population in the context of audit
approach to auditing mentioned in the passage? sampling?
(a) It lacks emphasis on routine checking (a) Sample units
(b) It is economically wasteful (b) Items selected for testing
(c) It involves too much sampling (c) Entire set of data from which a sample is
(d) It neglects the role of internal controls drawn
(d) Statistical parameters
167. What is the purpose of internal controls in the
management of organizations according to the 173. What are the characteristics of a population,
passage? according to the passage?
(a) To complicate audit procedures (a) Inappropriateness, Completeness, & Unreliability
(b) To prevent detection and correction of frauds (b) Appropriateness, Completeness, and Reliability
and errors (c) Completeness, Unreliability, and Unimportance
(c) To make routine checking more necessary (d) Appropriateness, Completeness, and
(d) To increase the cost of audit procedures Unimportance
168. What distinguishes the shift in the audit approach 174. What is the purpose of audit sampling, according to
mentioned in the passage? the passage?
(a) More emphasis on routine checking (a) To eliminate all errors in the population
(b) More attention towards questions of principles (b) To measure sampling risk
and controls (c) To provide a reasonable basis for the auditor
(c) Increased reliance on personal judgment to draw conclusions about the population
(d) Decreased importance of internal controls (d) To ensure 100% accuracy in the audit opinion
169. According to the passage, what is the basis for 175. What distinguishes statistical sampling from non-
determining the extent of checking in audit statistical sampling?
procedures? (a) Complexity of operation
(a) Regulatory requirements (b) Personal bias in selection
(b) Personal preference of the auditor (c) Dependence on internal controls
(c) Statutory guidelines (d) Reliability of audit objectives
(d) Auditor’s judgment
176. What is a key consideration when designing an
170. What is the objective of audit sampling, as defined audit sample?
by SA 530? (a) Achieving a high level of sampling risk
(a) To examine 100% of items within a population (b) Reducing the characteristics of the population
(b) To eliminate sampling risk (c) Ensuring that each sampling unit has a chance
(c) To draw conclusions about the population of selection
based on a sample (d) Ignoring the purpose of the audit procedures
(d) To ensure completeness of the population
17
177. Why is it important for the auditor to have a clear 183. What is the overall goal of the auditor when
understanding of what constitutes a deviation or selecting items for an audit sample?
misstatement? (a) To increase the expected misstatement
(a) To increase sampling risk (b) To achieve a high level of sampling risk
(b) To include irrelevant conditions in the (c) To ensure 100% accuracy in the audit opinion
evaluation (d) To ensure that each sampling unit has a chance
(c) To assess the risk of fraud of selection
(d) To use a smaller sample size
184. Why might it not be appropriate to consider a
178. What is the auditor’s consideration when
certain condition a misstatement in evaluating
performing audit sampling, according to SA 500?
sample results?
(a) Ensuring 100% examination of the population
(a) It increases sampling risk
(b) Obtaining evidence that the audit sample is
(b) It affects the risk of fraud
incomplete
(c) It is irrelevant to the purpose of the audit
(c) Reducing the expected misstatement in the
population procedure
(d) Assessing the characteristics of the population (d) It has a significant effect on other areas of the
audit
179. When considering the purpose of an audit
procedure, why might an auditor not treat a 185. What does the auditor’s assessment of the expected
particular condition as a misstatement? rate of deviation assist in designing?
(a) It has a significant effect on other areas of the (a) A small sample size
audit (b) An incomplete population
(b) It affects the allowance for doubtful accounts (c) An assessment of the risk of fraud
(c) It is irrelevant to the purpose of the audit (d) The audit sample and determining sample size
procedure
(d) It increases the risk of fraud 186. What is the objective of stratification in audit
sampling?
180. How does the auditor assess the expected rate of (a) To increase the variability of items within each
deviation in tests of controls? stratum
(a) By ignoring the relevant controls (b) To reduce the audit efficiency
(b) By examining the entire population (c) To increase sampling risk
(c) Based on the examination of a small number
(d) To reduce the variability of items within each
of items
stratum and allow for a smaller sample size
(d) By reducing the sample size
187. How is the population often stratified when
181. What is the auditor’s assessment based on when
performing tests of details?
determining the expected misstatement in the
population for tests of details? (a) By alphabetical order
(a) 100% examination (b) By the age of the items
(b) A high sampling risk (c) By the size of the items
(c) The expected rate of deviation (d) By the number of items
(d) The expected misstatement in the population
188. What is one benefit of value-weighted selection in
182. In what situation might a 100% examination or a audit sampling?
large sample size be appropriate in tests of details? (a) It directs audit effort to smaller value items
(a) When the expected misstatement is high (b) It increases the sample size
(b) When the expected rate of deviation is low (c) It reduces the variability of items
(c) When sampling risk is minimal (d) It directs audit effort to larger value items and
(d) When the population is incomplete results in smaller sample sizes
18
189. How does stratification impact the sample results 195. How does an increase in the auditor’s desired level
in audit sampling? of assurance affect the sample size in audit
(a) The results are projected only to the stratum of sampling?
the items selected (a) It increases the sample size
(b) The results are projected to the entire (b) It decreases the sample size
population without considering strata (c) It has no effect on the sample size
(c) The variability of items is increased within (d) It depends on other factors
each stratum
196. What role does the actual size of the population
(d) The sample size remains constant across all
play in determining the sample size in audit
strata sampling?
(a) It significantly increases the sample size
190. When might a population be stratified according to (b) It significantly decreases the sample size
a particular characteristic? (c) It has no significant effect on the sample size
(a) When selecting items randomly (d) It depends on other factors
(b) When testing for alphabetical order
(c) When the characteristic indicates a higher risk 197. When there is an increase in the extent to which the
of misstatement auditor’s risk assessment takes into account
(d) When the population size is small relevant controls, how does it impact the sample
size in audit sampling?
191. What does value-weighted selection focus on when (a) It increases the sample size
defining the sampling unit? (b) It decreases the sample size
(c) It has no effect on the sample size
(a) Random selection of items
(d) It depends on other factors
(b) Individual monetary units within the
population 198. Which sampling method ensures that each item in
(c) Items with alphabetical order the population has an equal chance of being
(d) Smaller value items selected, and is suitable for a homogeneous
population with a similar range?
192. In value-weighted selection, why is audit effort (a) Stratified Sampling
directed to larger value items? (b) Haphazard Sampling
(a) Larger value items have a greater chance of (c) Block Sampling
selection (d) Simple Random Sampling
(b) Larger value items are less significant
(c) Smaller value items have a greater chance of 199. What is the primary characteristic of Stratified
selection Sampling in audit sampling?
(d) The sample size is larger for larger value items (a) It involves dividing the population into
separate groups, and a sample is taken from
each group.
193. How does an increase in the tolerable rate of
(b) It selects items without following a structured
deviation affect the sample size in audit sampling?
technique.
(a) It increases the sample size (c) It selects contiguous items from within the
(b) It decreases the sample size population.
(c) It has no effect on the sample size (d) It involves selecting a block of items from the
(d) It depends on other factors population.
194. What is the impact of an increase in the expected 200. Which sampling method involves value-weighted
rate of deviation on the sample size in audit selection, where sample size, selection, and
sampling? evaluation result in a conclusion in monetary
(a) It increases the sample size amounts?
(b) It decreases the sample size (a) Haphazard Sampling
(c) It has no effect on the sample size (b) Block Sampling
(d) It depends on other factors (c) Monetary Unit Sampling
(d) Simple Random Sampling
19
201. What is the key characteristic of Haphazard 205. What is an example of a suitable alternative
Sampling in audit sampling? procedure according to SA 505?
(a) It involves dividing the population into (a) Ignoring the selected item.
separate groups, and a sample is taken from (b) Replacing the item with a similar one.
each group. (c) Seeking confirmation from the debtor.
(b) It selects items without following a structured (d) Reviewing subsequent cash receipts.
technique, avoiding conscious bias or
predictability. 206. When all transactions of computerized sales are
(c) It involves selecting a block of items from the being checked, and a sample of manual billing gets
population. selected, what is the appropriate action for the
(d) It ensures that each item in the population has auditor?
an equal chance of being selected. (a) Ignore the manual billing.
(b) Replace the manual billing with a
202. Why is Block Sampling rarely an appropriate computerized sale.
sample selection technique when the auditor (c) Skip the audit procedure for that item.
intends to draw valid inferences about the entire (d) Replace the item after adequately checking its
population based on the sample? correctness.
(a) It involves dividing the population into
separate groups, and a sample is taken from 207. If documentation related to a selected item is lost,
each group. what action should the auditor take according to SA
(b) It selects items without following a structured 505?
technique. (a) Assume the item is not material.
(c) It involves selecting a block of items from the (b) Seek confirmation from the debtor.
population. (c) Skip the audit procedure for that item.
(d) Most populations are structured such that (d) Apply alternative audit procedures.
items in a sequence can be expected to have
similar characteristics. 208. In the case of tests of details, what should the
auditor treat a selected item as if the designed audit
203. In the case of tests of controls, what should the procedures cannot be applied or suitable alternative
auditor treat a selected item as if the designed audit procedures are not available?
procedures cannot be applied or suitable alternative (a) Error
procedures are not available? (b) Deviation
(a) Deviation (c) Misstatement
(b) Exception (d) Irregularity
(c) Irregularity
(d) Discrepancy 209. When the auditor observes that many deviations or
misstatements have a common feature, what action
204. If a cancelled cheque is selected while testing for may the auditor take according to auditing
evidence of payment authorization and the auditor standards?
is satisfied it does not constitute a deviation, what (a) Ignore the common feature.
should the auditor do? (b) Extend audit procedures to items with the
(a) Ignore the selected cheque. common feature.
(b) Examine the cancelled cheque. (c) Exclude items with the common feature from
(c) Perform the procedure on a replacement the audit scope.
cheque. (d) Document the common feature without further
(d) Exclude the cheque from the audit scope. investigation.
20
210. What may deviations or misstatements with a 215. When a misstatement is established as an anomaly,
common feature indicate, according to auditing what action may the auditor take when projecting
standards? misstatements to the population?
(a) Routine errors only. (a) Exclude the entire population from the
(b) Intentional actions and the possibility of fraud. projection.
(c) Inadequate audit planning. (b) Include the misstatement in the projection
(d) Acceptable variations in financial statements. without adjustment
(c) Exclude the misstatement from the projection.
211. In the case of deviations or misstatements, what (d) Adjust the projection based on the nature of
the misstatement.
action is required of the auditor according to
auditing standards?
216. For which type of audit procedures is the explicit
(a) Ignore them if they are not material.
projection of deviations to the population
(b) Investigate the nature and causes.
unnecessary according to auditing standards?
(c) Assume they are routine errors.
(a) Tests of controls.
(d) Rely solely on the client’s explanation. (b) Analytical procedures.
(c) Substantive procedures.
212. In extremely rare circumstances when the auditor (d) Compliance testing.
considers a misstatement or deviation discovered in
a sample to be an anomaly, what is the auditor 217. What is the purpose of stratification in audit
required to obtain? sampling?
(a) Approval from management. (a) To increase the variability within each stratum.
(b) A confirmation from the external auditor. (b) To decrease the sample size within each stratum.
(c) High certainty that it is representative of the (c) To reduce the variability of items within each
population. stratum.
(d) A second sample for validation. (d) To increase the sample size within each stratum.
213. How should the auditor obtain a high degree of 218. How does the auditor use the concept of “tolerable
certainty that a misstatement or deviation misstatement” in audit sampling?
discovered in a sample is not representative of the (a) It defines the acceptable level of deviation in
population? internal control procedures.
(a) Accept the misstatement or deviation as an (b) It sets the monetary amount for which
assurance is sought regarding the absence of
anomaly.
actual misstatement in the population.
(b) Rely on the client’s explanation.
(c) It establishes the expected rate of deviation in
(c) Perform additional audit procedures.
the population.
(d) Exclude the item from the audit report.
(d) It determines the sample size for tests of
controls.
214. What is the auditor required to do regarding the
projection of misstatements for the population 219. What does the “tolerable rate of deviation”
according to auditing standards? represent in audit sampling?
(a) Project misstatements only for material items. (a) The maximum rate of deviation that the
(b) Project misstatements to determine the exact auditor is willing to accept in the sample.
amount to be recorded. (b) The rate of deviation that is inherent in the
(c) Project misstatements broadly for an overall population.
view. (c) The rate of deviation that is acceptable in the
(d) Exclude projection for anomalous entire audit.
misstatements. (d) The minimum rate of deviation that the auditor
expects in the sample.
21
220. What is the objective of the auditor regarding 225. What is a relevant audit procedure for identifying
specific considerations for inventory, litigation, litigation and claims involving the entity that may
and segment information under SA 501? give rise to a risk of material misstatement?
(a) To express an opinion on the entity’s financial (a) Inspection of inventory records.
statements. (b) Inquiry of management and, where applicable,
(b) To obtain assurance on the effectiveness of others within the entity.
internal controls. (c) Reviewing bank statements.
(c) To identify potential fraud in the financial (d) Observing physical inventory counting.
statements.
(d) To obtain sufficient appropriate audit evidence 226. In addition to the procedures mentioned, what does
related to specific aspects. SA 540 provide guidance on regarding litigation
and claims involving the entity?
221. When inventory is material to the financial (a) Requirements for internal control assessment.
statements, what does the auditor need to do (b) Guidelines for financial statement
regarding attendance at physical inventory presentation.
(c) Consideration of litigation and claims
counting?
requiring accounting estimates or related
(a) It is optional for the auditor to attend physical
disclosures.
inventory counting.
(d) Procedures for fraud detection.
(b) The auditor should perform audit procedures
over the entity’s final inventory records.
227. When the auditor assesses a risk of material
(c) The auditor must attend physical inventory
misstatement related to litigation or claims, what is
counting, unless impracticable.
the auditor required to do regarding communication
(d) The auditor should rely solely on the entity’s with the entity’s external legal counsel?
perpetual inventory system. (a) The auditor is not required to communicate
with external legal counsel.
222. What is a relevant consideration for planning (b) Seek indirect communication through
attendance at physical inventory counting? management.
(a) The convenience of the auditor. (c) Seek direct communication through a letter of
(b) The nature of inventory. inquiry.
(c) The size of the audit team. (d) Rely solely on internal audit reports.
(d) The auditor’s personal preferences
228. If law or regulation prohibits the entity’s external
223. In case attendance at physical inventory counting is legal counsel from directly communicating with the
impracticable, what alternative audit procedures auditor, what should the auditor do?
should the auditor perform? (a) Cease any further audit procedures related to
(a) No alternative procedures are required. litigation.
(b) Rely on the entity’s management (b) Seek legal advice before proceeding with
representation. communication.
(c) Modify the opinion in the auditor’s report. (c) Modify the opinion in the auditor’s report.
(d) Perform inspection of documentation of (d) Perform alternative audit procedures.
subsequent sales.
229. In what circumstances might the auditor judge it
224. When inventory is under the custody and control of necessary to meet with the entity’s external legal
a third party, what should the auditor do to obtain counsel regarding litigation or claims?
sufficient appropriate audit evidence? (a) For routine matters with minimal financial
(a) Rely solely on the third party’s confirmation. implications.
(b) Perform inspection of documentation only. (b) If the matter is not complex.
(c) Ignore the third party’s role and focus on (c) When there is disagreement between
internal controls. management and legal counsel.
(d) Request confirmation from the third party or (d) Only when required by regulatory authorities.
perform inspection.
22
230. What does segment information refer to in the 235. When obtaining an understanding of the methods
context of an enterprise’s financial reporting? used by management in determining segment
(a) Information about the company’s information, what is a relevant matter to consider?
shareholders. (a) Operating profits as a percentage of sales.
(b) Information about the enterprise’s internal (b) Consistency with prior periods and disclosure
structure and hierarchy. adequacy.
(c) Information about different types of products (c) Comparison with industry benchmarks.
and services and operations in different
(d) Employee satisfaction.
geographical areas.
(d) Information about the enterprise’s employees.
236. In the context of determining segment information,
231. Regarding segment information, what is the what is a matter relevant for evaluation according
auditor’s responsibility in relation to the financial to SA 501?
statements? (a) Number of employees in each segment.
(a) The auditor is solely responsible for preparing (b) Allocation of assets and costs among
segment information. segments.
(b) The auditor must express a separate opinion on (c) Total revenue of the enterprise.
the segment information. (d) The popularity of the products in different
(c) The auditor’s responsibility is only for stand- segments.
alone segment information.
(d) The auditor’s responsibility is in relation to the 237. What is considered a relevant matter in evaluating
financial statements taken as a whole. the methods used for segment information
disclosure?
232. What is one of the auditor’s tasks concerning
(a) Adherence to industry-specific regulations.
segment information, as per SA 501?
(b) Consistency with prior periods.
(a) Developing segment reporting standards.
(c) The geographic location of the enterprise.
(b) Evaluating the profitability of each segment.
(c) Obtaining an understanding of the methods (d) Employee turnover rate.
used by management in determining segment
information. 238. According to SA 500, which statement is true
(d) Preparing segment information summaries. regarding the reliability of audit evidence?
(a) Audit evidence obtained indirectly is always
233. In relation to segment information, what does the more reliable than evidence obtained directly.
auditor evaluate concerning the methods used by (b) Audit evidence is equally reliable, irrespective
management? of its source.
(a) The profitability of each segment. (c) Audit evidence obtained from independent
(b) Whether the methods result in disclosure in sources outside the entity is generally more
accordance with the applicable financial reliable.
reporting framework. (d) Documentary form of audit evidence is always
(c) The total revenue of the enterprise.
less reliable.
(d) The market share of each segment.
239. What is the primary focus of SA 505 “External
234. Is the auditor required to express an opinion on the
segment information presented on a standalone Confirmations”?
basis? (a) Guidelines for internal control assessment.
(a) Yes, it is a mandatory requirement. (b) Use of statistical sampling techniques.
(b) No, the auditor’s responsibility is in relation to (c) Designing and performing external
the financial statements taken as a whole. confirmation procedures.
(c) Only if requested by the entity’s management. (d) Treatment of related party transactions.
(d) Only if there are significant variations in
segment information.
23
240. How does SA 505 define external confirmation? 245. What is the auditor’s responsibility regarding
(a) Any evidence received directly from the external confirmation requests?
entity. (a) Determine whether the confirming party
(b) Direct written response from a third party to agrees or disagrees.
the auditor. (b) Select confirming parties and request
(c) Evidence generated internally by the entity. information.
(d) Indirect response from a related party. (c) Evaluate confirmation responses.
(d) Analyze confirmation risk factors.
241. What is a positive confirmation request?
246. What is a key consideration when determining the
(a) A request for the auditor to confirm
information to be confirmed or requested?
information directly.
(a) Management’s encouragement to confirm
(b) A request for the entity to confirm
parties.
information.
(b) The assertion being addressed.
(c) A request for the confirming party to respond
(c) The method of communication.
only if they disagree. (d) The auditor’s authorization.
(d) A request for a non-response.
247. Why might a positive confirmation request be
242. What is a negative confirmation request? considered more reliable?
(a) A request for the auditor to confirm (a) It provides less information to the confirming
information directly. party.
(b) A request for the entity to confirm (b) It is sent electronically.
information. (c) It allows confirming parties to disagree
(c) A request for the confirming party to respond without providing information.
only if they disagree. (d) It asks the confirming party to reply in all
(d) A request for a non-response. cases.
243. How is “non-response” defined in the context of 248. How can the auditor reduce the risk associated with
confirmation requests? positive confirmation requests?
(a) An acknowledgment of the confirmation (a) Use blank confirmation requests.
request. (b) Request information only from management.
(b) A failure to respond, or fully respond, to a (c) Send fewer confirmation requests.
(d) State the amount on the confirmation request.
positive confirmation request.
(c) A response indicating agreement with the
249. What does “properly addressed requests” involve?
information.
(a) Ensuring that the auditor’s address is correct.
(d) A response indicating a difference between
(b) Checking the validity of addresses on
information requested and provided.
confirmation requests before sending.
(c) Verifying management’s authorization.
244. What does the term “exception” refer to in the (d) Confirming parties’ agreement with the
context of confirmation responses? information.
(a) A response that indicates a difference between
requested information and that in the entity’s 250. When might the auditor send a follow-up
records. confirmation request?
(b) A positive confirmation response. (a) Immediately after the initial request.
(c) Any information provided by the confirming (b) Only if the confirming party disagrees.
party. (c) When a reply to the previous request is not
(d) A non-response to a negative confirmation received within a reasonable time.
request. (d) If the auditor wants more information.
24
251. What should the auditor do if management refuses 256. In what circumstances can the auditor use negative
to allow the auditor to send a confirmation request? confirmation requests as the sole substantive audit
(a) Proceed with other audit procedures without procedure?
inquiry. (a) The risk of material misstatement is high.
(b) Document the refusal and ignore its (b) The population comprises a small number of
implications. large, heterogeneous items.
(c) Inquire as to management’s reasons, evaluate (c) The auditor has not assessed the operating
implications, and perform alternative effectiveness of controls.
procedures. (d) The risk of material misstatement is assessed
(d) Conclude the audit without further action. as low, and specific conditions are met.
252. If the auditor determines that management’s refusal 257. When is a failure to receive a response to a negative
is unreasonable, what action is required? confirmation request less persuasive as audit
(a) Continue with the audit without any evidence?
modifications. (a) When the confirming party agrees with the
(b) Communicate with those charged with information in the request.
governance and determine implications for the (b) When the auditor has assessed a high risk of
audit and opinion. material misstatement.
(c) Ignore the refusal and proceed with (c) When the information in the request is
confirmation requests. unfavorable to the confirming party.
(d) Request additional audit evidence from (d) When the confirming party is unaware of the
management. audit.
253. What is a common reason for management to 258. What is a condition that would allow the auditor to
refuse the auditor to send a confirmation request? use negative confirmation requests as the sole
(a) Inability to locate confirming parties. substantive audit procedure?
(b) Ongoing legal dispute or negotiation with the (a) High expected exception rate.
confirming party. (b) Small and heterogeneous population.
(c) Auditor’s lack of authorization. (c) Lack of controls in the entity.
(d) Routine company policy. (d) Presence of circumstances causing recipients
to disregard the requests.
254. Why is the auditor required to seek audit evidence
about the validity and reasonableness of 259. What is the auditor’s response category when the
management’s refusal reasons? confirming party agrees with the information in the
(a) To accuse management of fraud. confirmation request without exception?
(b) To revise the financial statements. (a) Unreliable response
(c) Due to the risk of management denying access (b) Exceptional response
to evidence revealing fraud or error. (c) Non-response
(d) As a routine procedure in every audit. (d) Reliable response
255. In case of a refusal, what could be an example of an 260. How does the auditor categorize a response that is
alternative audit procedure for accounts payable deemed unreliable during external confirmation
balances? procedures?
(a) Sending confirmation requests to suppliers. (a) Exceptional response
(b) Examining specific subsequent cash receipts. (b) Unreliable response
(c) Reviewing purchase orders. (c) Non-response
(d) Examining subsequent cash disbursements or (d) Reliable response
correspondence from third parties.
25
261. What does the auditor consider when evaluating the 266. What is one of the auditor’s responsibilities in
results of external confirmation procedures? obtaining sufficient appropriate audit evidence
(a) Only the response categories regarding opening balances?
(b) Other audit procedures performed (a) Determining whether the opening balances
(c) Only the non-response category reflect the application of inappropriate
accounting policies.
(d) Results of internal control assessments
(b) Ensuring that adjustments to opening balances
are not disclosed as prior period items.
262. What does a non-response during external (c) Determining whether the prior period’s
confirmation procedures indicate? closing balances have been brought forward
(a) Agreement with the information in the request correctly to the current period.
(b) Unreliable response (d) Focusing on adjustments disclosed as prior
(c) Disagreement with the information in the period items in the current year’s Statement of
request Profit and Loss.
(d) Lack of response from the confirming party
267. What does the auditor need to evaluate concerning
the opening balances?
263. What is the definition of an “initial audit
(a) Whether audit procedures performed in the
engagement”?
prior period provide evidence relevant to the
(a) An engagement where the financial statements opening balances.
for the prior period were audited by a (b) Whether the opening balances reflect
predecessor auditor. inappropriate accounting policies.
(b) An engagement where the financial statements (c) Whether adjustments disclosed as prior period
for the prior period were audited by the current items have been appropriately accounted for.
auditor. (d) Whether the prior period’s closing balances
(c) An engagement where the financial statements are consistent with the current year’s
for the prior period were not audited. Statement of Profit and Loss.
(d) An engagement where the financial statements
268. In the context of opening balances, what does the
for the prior period were audited by the same
auditor do if misstatements are found that could
auditor.
materially affect the current period’s financial
statements?
264. What do “opening balances” represent in the (a) Conclude the audit without further
context of an audit? investigation.
(a) Balances that exist at the end of the period. (b) Communicate the misstatements with
(b) Balances that reflect the effects of transactions appropriate management and governance.
and events of the current period. (c) Ignore the misstatements if they are
(c) Balances that exist at the beginning of the immaterial.
period. (d) Adjust the opening balances in the current
year’s financial statements.
(d) Balances that are adjusted during the audit.
269. Which of the following is a specific action the
265. Who is a “predecessor auditor”? auditor may take regarding prior year financial
(a) The current auditor from a different audit firm. statements during the audit of opening balances?
(b) The current auditor from the same audit firm. (a) Ignoring the prior year financial statements as
(c) The auditor who audits the financial they are not relevant.
statements in the current period. (b) Perusing copies of the audited financial
(d) The auditor from a different audit firm who statements from the prior year.
audited the financial statements in the prior (c) Relying solely on the current year’s Statement
period. of Profit and Loss.
(d) Requesting a complete restatement of the prior
year financial statements.
26
270. What is a factor that influences the nature and 275. How might the auditor obtain audit evidence about
extent of audit procedures related to opening opening balances for non-current assets and
balances? liabilities such as property, plant and equipment?
(a) The location of the entity’s offices. (a) Rely on the closing balances without further
(b) The color scheme used in the financial audit procedures.
statements.
(b) Confirm with third parties.
(c) The accounting policies followed by the
(c) Assume opening balances for non-current
entity.
(d) The popularity of the entity’s products. assets and liabilities remain unchanged.
(d) Ignore non-current assets and liabilities in the
271. What aspect of the current period’s financial opening balances.
statements affects the nature and extent of audit
procedures for opening balances? 276. What action should the auditor take if the current
(a) The entity’s budget for the current year. period’s accounting policies are not consistently
(b) The significance of the opening balances applied in relation to opening balances, or if a
relative to the current period’s financial change in accounting policies is not properly
statements.
accounted for or adequately presented and
(c) The number of shareholders in the entity.
disclosed?
(d) The entity’s market share.
(a) Ignore the inconsistency and continue the
272. What consideration is important in determining the audit.
extent of audit procedures for opening balances? (b) Express an unmodified opinion.
(a) The entity’s current financial performance. (c) Express a qualified or adverse opinion, as
(b) Whether the predecessor auditor’s opinion appropriate.
was modified. (d) Request management to modify the financial
(c) The popularity of the entity’s products. reporting framework.
(d) The geographical distribution of the entity’s
customers. 277. What should the auditor do if they are unable to
obtain sufficient appropriate audit evidence
273. In the context of opening balances, what action can
regarding the opening balances?
the auditor take if the prior period’s financial
statements were audited by a predecessor auditor? (a) Express an unmodified opinion.
(a) Ignore the prior period’s financial statements. (b) Request management to provide additional
(b) Obtain copies of the audited financial evidence.
statements and relevant documents. (c) Express a qualified opinion or a disclaimer of
(c) Assume all opening balances are correct. opinion, as appropriate.
(d) Contact the predecessor auditor for predictions (d) Ignore the issue and proceed with the audit.
about the current period.
278. What action should the auditor take if the opening
274. In the case of inventories, what additional audit
balances contain a misstatement that materially
procedures may be necessary to obtain sufficient
affects the current period’s financial statements and
appropriate audit evidence about opening
balances? is not properly accounted for or adequately
(a) Rely solely on the current period’s audit presented and disclosed?
procedures for closing inventory. (a) Express an unmodified opinion.
(b) Observe a current physical inventory count (b) Request management to rectify the
and reconcile it to opening inventory misstatement.
quantities. (c) Express a qualified or adverse opinion, as
(c) Assume that the opening inventory is the same appropriate.
as the closing inventory of the prior period. (d) Ignore the misstatement and proceed with the
(d) Only perform audit procedures on the audit.
valuation of the opening inventory items.
27
279. How does the Standard on Auditing (SA) 550 283. Considering the ability of related parties to exert
define a related party in the absence of specific dominant influence over the entity or its
requirements in the financial reporting framework? management is relevant when:
(a) Any entity mentioned in the financial (a) Evaluating the effectiveness of internal
statements. controls.
(b) Any entity with which the reporting entity has (b) Determining appropriate audit procedures.
contractual agreements. (c) Identifying and assessing risks of material
(c) Only entities that share common controlling misstatement due to fraud.
ownership. (d) Assessing the accuracy of financial
(d) A person or entity that has control or
statements.
significant influence over the reporting entity.
284. Regarding related party transactions and
280. Which of the following is NOT considered a related
relationships, the auditor is required to inquire
party, even if there is common control?
about:
(a) Entities with common controlling ownership.
(b) Entities owned by close family members. (a) The entity’s related parties and any changes
(c) Entities under common control by a state from the prior period.
(national, regional, or local government). (b) The nature of relationships between the entity
(d) Entities engaged in significant transactions and related parties.
with one another. (c) Whether the entity engaged in transactions
with related parties during the period and
281. What is the key difference between control and details of those transactions.
significant influence according to financial (d) All of the above.
reporting frameworks?
(a) Control involves power over financial and 285. How might the control environment in smaller
operating policies, while significant influence entities differ from larger entities in terms of
involves ownership of a significant percentage governance and control activities?
of shares. (a) Smaller entities always have a more formal
(b) Control allows participation in financial and control environment.
operating policy decisions, while significant (b) Governance in smaller entities is similar to
influence involves the ability to govern an larger entities.
entity’s activities. (c) Control activities in smaller entities are
(c) Control implies ownership of a majority of
typically more formalized.
shares, while significant influence requires
(d) The role of governance in smaller entities may
ownership of a minority interest.
be undertaken directly by the owner-manager,
(d) Control provides benefits from entity
and control activities are likely to be less
activities, while significant influence is
formal.
limited to financial policy decisions.
282. What relationship may indicate the presence of 286. In smaller entities, how might an owner-manager’s
control or significant influence? involvement affect the risks associated with related
(a) Having a significant business relationship party transactions?
with a close family member. (a) Owner-manager involvement has no impact
(b) Holding direct or indirect equity or other on risks.
financial interests in the entity. (b) Owner-managers decrease all risks.
(c) Being a close family member of someone with (c) Owner-managers may mitigate or increase
no financial interests in the entity. risks through active involvement.
(d) Being part of those charged with governance (d) Owner-managers only increase risks.
or key management.
28
287. When auditing related party relationships and 292. How does SA-520 define the term “analytical
transactions in smaller entities, what procedures procedures”?
can the auditor use to understand controls? (a) Strictly evaluations of financial data.
(a) Only inquiry of management is sufficient. (b) Limited to routine checks.
(b) Observation of management’s oversight and (c) Evaluations of financial and non-financial
review activities. information through analysis of plausible
(c) Inspection of available relevant relationships.
documentation. (d) Only analysis of financial ratios.
(d) Both (b) and (c).
293. What do analytical procedures encompass,
288. How can an auditor verify the existence of related according to SA-520?
party relationships and transactions during the (a) Only analysis of financial data.
audit? (b) Investigations of fluctuations or relationships
(a) Only by reviewing income tax returns. consistent with other information.
(b) Inspecting shareholder registers is the most (c) Analysis of plausible relationships among
reliable method. non-financial data only.
(c) Limited to documents associated with (d) Evaluations of financial and non-financial data
securities regulator filings. through analysis of plausible relationships and
(d) Reviewing various records and documents, necessary investigations of identified
including income tax returns, regulatory fluctuations.
submissions, shareholder registers, contracts,
and agreements. 294. Why have analytical procedures gained
significance as substantive audit procedures?
289. Which of the following is NOT suggested as a (a) Due to their routine nature.
document to inspect for related party information? (b) As a replacement for overall tests.
(a) Entity income tax returns. (c) Because they are limited to financial data.
(b) Shareholder registers. (d) In addition to reasonable tests, they provide
(c) Employee handbook. valuable insights and can detect
(d) Statements of conflicts of interest. inconsistencies or significant deviations.
290. What are “overall tests” in the context of auditing? 295. What are the main objectives of the auditor when
(a) Routine checks applied to all accounts. using substantive analytical procedures, according
(b) Procedures like comparisons, trend and ratio to SA-520?
analysis, and reasonable tests collectively. (a) To replace overall tests.
(c) Limited to analytical procedures. (b) To assist in forming an overall conclusion on
(d) In-depth tests for a specific account only. the financial statements.
(c) To obtain irrelevant audit evidence.
291. According to SA-520, what is the meaning of (d) To compare account balances only.
“analytical procedures”?
(a) Basic audit tests for financial information. 296. How does SA-520 define analytical procedures?
(b) Only evaluations of financial data. (a) Limited to routine comparisons.
(c) Evaluations of financial and non-financial (b) Strictly based on financial data.
information through analysis of plausible (c) Use comparisons and relationships to assess
relationships. whether account balances or other data appear
(d) Strictly limited to the investigation of reasonable.
inconsistencies. (d) Only applicable at the beginning of the audit.
29
297. What is the purpose of establishing relationships 303. What does SA-520 highlight as the potential
and comparisons in analytical procedures, as significance of unusual or unexpected relationships
mentioned in SA-520? identified through analytical procedures?
(a) To create a complex financial model. (a) No significance.
(b) To complicate audit processes. (b) They indicate routine financial activities.
(c) To detect unusual states of affairs and (c) They assist the auditor in identifying risks of
mistakes in accounts. material misstatement, especially risks of
(d) To replace substantive audit procedures. material misstatement due to fraud.
(d) They are not relevant to the audit process.
298. In the context of analytical procedures, what does
the auditor do when abnormalities are found? 304. Why are analytical procedures considered
(a) Ignore them as immaterial. significant as substantive audit procedures?
(b) Assess whether the accounts have been (a) Due to their routine nature.
manipulated to inflate or suppress profits. (b) Because they replace overall tests.
(c) Immediately conclude the audit. (c) They provide valuable insights and can detect
inconsistencies or significant deviations.
(d) Document them without further investigation.
(d) Limited to financial data.
299. When an abnormal fall in the cost of manufacture
305. In which stage of the audit are analytical
is suspected, what should the auditor do, according
procedures required to assist the auditor in
to the information provided?
understanding the client’s business and identifying
(a) Ignore the suspicion.
areas of potential risk?
(b) Compare entries only with the current year.
(a) Testing phase.
(c) Compare the entries in the outstanding book (b) Completion phase.
with those in the previous year and check (c) Both planning and testing phases.
vouchers for one month before the close of the (d) Only in the completion phase.
following years.
(d) Rely solely on the client’s explanation. 306. What is the primary purpose of using analytical
procedures in the planning stage of the audit?
300. How can independently verifying the correctness of (a) To replace other audit procedures.
certain items in the Statement of Profit and Loss be (b) To identify areas of potential risk and
achieved? understand the client’s business.
(a) By relying on the client’s assertion. (c) To confirm financial data.
(b) Through analytical procedures only. (d) To complete the audit.
(c) By comparing entries with the previous year.
(d) By using external confirmations. 307. What type of information is used in analytical
procedures during the planning phase of the audit?
301. What does analytical review encompass, as (a) Financial data only.
mentioned in the context of the provided (b) Non-financial information only.
information? (c) Both financial data and non-financial
(a) Strictly based on financial data. information.
(b) Limited to physical balances. (d) No information is used.
(c) Calculation of ratios, trends, and comparisons.
(d) Application only at the beginning of the audit. 308. During the planning stage, how do analytical
procedures assist the auditor in determining the
302. According to SA-520, what may analytical nature, timing, and extent of other audit
procedures help identify? procedures?
(a) Routine transactions. (a) By replacing other audit procedures.
(b) Unusual transactions or events, and amounts, (b) By confirming client assertions.
ratios, and trends. (c) By indicating aspects of and developments in
(c) Only material misstatements. the entity’s business.
(d) Fraud risks exclusively. (d) By focusing only on non-financial
PW CA WALLAH INTERMEDIATE information.
30
309. When are analytical procedures typically 315. What type of analytical procedures can be used to
performed in the testing phase of the audit? address completeness, valuation/measurement, and
(a) At the beginning of the audit. occurrence?
(b) Only during the completion phase. (a) Predictive analytical procedures.
(c) Throughout the entire audit process.
(b) Descriptive analytical procedures.
(d) Only during the planning phase.
(c) Diagnostic analytical procedures.
310. What is the basis for the auditor’s decision on (d) Confirmatory analytical procedures.
which audit procedures to perform at the assertion
level? 316. In designing audit procedures for higher inherent
(a) Client’s preferences. risk, what approach may the auditor take?
(b) Auditor’s experience.
(a) Rely solely on substantive analytical
(c) Auditor’s judgment about the expected
procedures.
effectiveness and efficiency.
(d) Random selection. (b) Design tests of details to address the higher
inherent risk.
311. When using analytical data prepared by (c) Use only random sampling techniques.
management for substantive analytical procedures, (d) Rely on client-provided data.
what is a crucial consideration for the auditor?
(a) The speed of data preparation.
317. What is trend analysis in the context of substantive
(b) Whether the data is properly prepared.
(c) Whether the data is extensive. analytical procedures?
(d) The cost of data preparation. (a) Analysis of unrelated data points.
(b) Comparison of current data with unrelated
312. Which factor is relevant for the effectiveness of prior data.
substantive analytical procedures? (c) Comparison of current data with the prior
(a) Lack of data availability. period balance or trend in two or more prior
(b) Extensive disaggregation in available data.
period balances.
(c) Limited predictability in relationships.
(d) Non-routine and estimation SCOTs. (d) Analysis of non-financial data only.
313. Why are income statement accounts considered 318. What does trend analysis involve when comparing
more predictable for substantive analytical account fluctuations?
procedures compared to balance sheet accounts? (a) Comparing the account to unrelated data
(a) Balance sheet accounts have routing points.
processes.
(b) Analyzing account fluctuations with non-
(b) Income statement accounts reflect
financial data.
accumulated transactions over a period.
(c) Balance sheet accounts are subject to greater (c) Comparing current year information with
management judgment. information derived over several years.
(d) Income statement accounts represent the net (d) Ignoring prior period information.
effect of transactions at a point in time.
319. Why is ratio analysis useful for substantive
314. When might substantive analytical procedures be
analytical procedures?
more effective in providing evidence for certain
assertions? (a) It helps analyze non-financial data.
(a) For assertions related to rights and obligations. (b) It is applicable only to income statement
(b) For assertions related to existence. accounts.
(c) For assertions related to completeness or (c) It provides insights into individual balance
valuation. sheet accounts.
(d) For assertions related to presentation and (d) It relies solely on unrelated data.
disclosure.
31
320. What is the focus of reasonableness tests in 325. How does the auditor evaluate the precision of the
substantive analytical procedures? developed expectation in substantive analytical
(a) Events of prior periods. procedures?
(a) By using unsophisticated predictive models.
(b) Unpredictable fluctuations.
(b) By determining the acceptable amount of
(c) Non-financial data for the audit period under difference without further investigation.
consideration. (c) By relying on management’s assertions.
(d) Data unrelated to the audit period. (d) By performing extensive tests of details.
321. What is structural modeling in the context of 326. What influences the determination of the suitability
substantive analytical procedures? of particular substantive analytical procedures?
(a) Nature of the auditor’s expectations.
(a) Analysis of structural elements of financial
(b) Auditor’s assessment of the risk of material
statements.
misstatement.
(b) Creating a statistical model to predict current (c) Reliability of management’s assertions.
account balances based on prior data. (d) Volume of transactions.
(c) Examining the structure of unrelated data
points. 327. What is relevant when determining the reliability of
(d) Ignoring non-financial data. data for designing substantive analytical
procedures?
(a) Auditor’s expectations.
322. What is the auditor required to determine when (b) Complexity of the information.
designing and performing substantive analytical (c) Volume of data.
procedures? (d) Source, comparability, nature, and relevance
(a) Suitability of particular procedures for of information, and controls over preparation.
management’s assertions.
(b) The necessity of using tests of details. 328. When considering the source of information for
reliability, which is considered more reliable?
(c) The effectiveness of planned analytical
(a) Information obtained from independent
procedures.
sources outside the entity.
(d) The auditor’s level of expertise in analytical (b) Information obtained from internal
procedures. management reports.
(c) Information based on industry averages.
323. When evaluating the reliability of data for (d) Information gathered from subjective
developing expectations, what factors should the estimates.
auditor consider?
329. In assessing the comparability of information, what
(a) The auditor’s expectations.
factor may influence the need for supplementation?
(b) The complexity of the data. (a) The reliability of information.
(c) Source, comparability, nature, and relevance (b) The scope of the audit.
of information, and controls over preparation. (c) Industry data may need supplementation for
(d) The volume of transactions. comparability.
(d) Volume of transactions.
324. What is the auditor required to develop when
330. What does the auditor consider when evaluating the
performing substantive analytical procedures?
nature and relevance of information for designing
(a) Predictive models. substantive analytical procedures?
(b) Expectations of recorded amounts or ratios. (a) Whether budgets are achieved.
(c) An understanding of management’s (b) The comprehensiveness of financial data.
assertions. (c) The entity’s financial goals.
(d) Comprehensive data analysis. (d) Whether budgets are established as expected
results.
32
331. Why might the auditor test the operating 335. As the assessed risk increases, what happens to the
effectiveness of controls over the entity’s amount of difference considered acceptable
preparation of information for analytical without investigation according to SA 330?
procedures? (a) It remains constant.
(a) To ensure compliance with regulatory (b) It decreases.
requirements. (c) It increases.
(b) To identify errors in the financial statements. (d) It depends on the nature of the assertion.
(c) To enhance the efficiency of audit procedures.
(d) To increase confidence in the reliability of the 336. When analytical procedures identify fluctuations
information. inconsistent with other relevant information, what
should the auditor do?
332. What is relevant to the auditor’s evaluation of (a) Accept the fluctuations without investigation.
whether the expectation can be developed (b) Inquire of management and obtain appropriate
sufficiently precisely to identify a misstatement? audit evidence relevant to management’s
(a) Consistency in comparing discretionary responses.
expenses. (c) Ignore the inconsistencies and proceed with
(b) Accuracy of historical data. other audit procedures.
(c) The auditor’s knowledge of the industry. (d) Rely solely on non-financial information.
(d) The accuracy with which expected results can
be predicted. 337. What is the primary purpose of the conclusions
drawn from the results of analytical procedures
333. When considering the degree to which information performed in accordance with SA 520?
can be disaggregated for analytical procedures, (a) To replace the need for testing individual
what may be more effective? components.
(a) Applying analytical procedures to the entity as (b) To independently form an overall conclusion
a whole. on the financial statements.
(b) Disaggregating financial information on (c) To corroborate conclusions formed during the
individual sections of an operation. audit of individual components.
(c) Relying on non-financial information only. (d) To provide a standalone opinion on the
(d) Ignoring components of a diversified entity. financial statements.
334. What factor influences the auditor’s determination 338. If the results of analytical procedures identify a
of the amount of difference from the expectation previously unrecognized risk of material
that can be accepted without further investigation? misstatement, what does SA 315 require the auditor
(a) The availability of financial forecasts. to do?
(b) The level of disaggregation in the financial (a) Ignore the identified risk.
data. (b) Revise the auditor’s assessment of risks and
(c) Materiality and the desired level of assurance. modify planned audit procedures.
(d) The auditor’s personal judgment. (c) Proceed with the audit without any
modifications.
(d) Seek external validation of the analytical
procedures.
33
Chapter-4: Audit Evidence

Answer Key
1. (b) 2. (c) 3. (c) 4. (c) 5. (b) 6. (d) 7. (c) 8. (b) 9. (c) 10. (c)
11. (c) 12. (b) 13. (c) 14. (b) 15. (a) 16. (c) 17. (b) 18. (c) 19. (c) 20. (b)
21. (c) 22. (c) 23. (d) 24. (a) 25. (c) 26. (b) 27. (b) 28. (c) 29. (b) 30. (b)
31. (c) 32. (b) 33. (d) 34. (c) 35. (c) 36. (a) 37. (b) 38. (a) 39. (d) 40. (d)
41. (a) 42. (b) 43. (b) 44. (c) 45. (c) 46. (c) 47. (c) 48. (c) 49. (c) 50. (b)
51. (c) 52. (b) 53. (b) 54. (b) 55. (a) 56. (b) 57. (b) 58. (c) 59. (c) 60. (d)
61. (a) 62. (c) 63. (a) 64. (c) 65. (b) 66. (a) 67. (b) 68. (b) 69. (c) 70. (c)
71. (c) 72. (b) 73. (c) 74. (b) 75. (c) 76. (b) 77. (c) 78. (c) 79. (d) 80. (b)
81. (c) 82. (a) 83. (c) 84. (c) 85. (c) 86. (c) 87. (c) 88. (c) 89. (d) 90. (c)
91. (b) 92. (c) 93. (c) 94. (b) 95. (c) 96. (c) 97. (b) 98. (d) 99. (c) 100. (d)
101. (b) 102. (c) 103. (b) 104. (d) 105. (b) 106. (b) 107. (d) 108. (d) 109. (d) 110. (c)
111. (b) 112. (c) 113. (b) 114. (c) 115. (b) 116. (c) 117. (c) 118. (b) 119. (d) 120. (b)
121. (d) 122. (d) 123. (c) 124. (c) 125. (c) 126. (c) 127. (b) 128. (b) 129. (c) 130. (b)
131. (d) 132. (b) 133. (c) 134. (a) 135. (c) 136. (b) 137. (c) 138. (a) 139. (d) 140. (c)
141. (b) 142. (c) 143. (b) 144. (d) 145. (b) 146. (c) 147. (c) 148. (b) 149. (c) 150. (d)
151. (a) 152. (c) 153. (b) 154. (c) 155. (b) 156. (c) 157. (c) 158. (c) 159. (b) 160. (c)
161. (b) 162. (d) 163. (b) 164. (c) 165. (c) 166. (b) 167. (b) 168. (b) 169. (d) 170. (c)
171. (c) 172. (c) 173. (b) 174. (c) 175. (a) 176. (c) 177. (c) 178. (b) 179. (c) 180. (c)
181. (d) 182. (a) 183. (d) 184. (c) 185. (d) 186. (d) 187. (c) 188. (d) 189. (a) 190. (c)
191. (b) 192. (a) 193. (b) 194. (a) 195. (a) 196. (c) 197. (a) 198. (d) 199. (a) 200. (c)
201. (b) 202. (d) 203. (a) 204. (c) 205. (d) 206. (d) 207. (d) 208. (c) 209. (b) 210. (b)
211. (b) 212. (c) 213. (c) 214. (c) 215. (c) 216. (a) 217. (c) 218. (b) 219. (a) 220. (d)
221. (c) 222. (b) 223. (d) 224. (d) 225. (b) 226. (c) 227. (c) 228. (d) 229. (c) 230. (c)
231. (d) 232. (c) 233. (b) 234. (b) 235. (a) 236. (b) 237. (b) 238. (c) 239. (c) 240. (b)
241. (a) 242. (c) 243. (b) 244. (a) 245. (b) 246. (b) 247. (d) 248. (a) 249. (b) 250. (c)
251. (c) 252. (b) 253. (b) 254. (c) 255. (d) 256. (d) 257. (c) 258. (d) 259. (d) 260. (b)
261. (b) 262. (d) 263. (c) 264. (c) 265. (d) 266. (c) 267. (b) 268. (b) 269. (b) 270. (c)
271. (b) 272. (b) 273. (b) 274. (b) 275. (b) 276. (c) 277. (c) 278. (c) 279. (b) 280. (c)
281. (b) 282. (d) 283. (c) 284. (d) 285. (d) 286. (c) 287. (d) 288. (d) 289. (c) 290. (b)
291. (c) 292. (c) 293. (d) 294. (d) 295. (b) 296. (c) 297. (c) 298. (b) 299. (c) 300. (c)
301. (c) 302. (b) 303. (c) 304. (c) 305. (c) 306. (b) 307. (c) 308. (c) 309. (c) 310. (c)
311. (b) 312. (c) 313. (b) 314. (c) 315. (a) 316. (b) 317. (c) 318. (c) 319. (c) 320. (c)
321. (b) 322. (a) 323. (c) 324. (b) 325. (b) 326. (b) 327. (d) 328. (a) 329. (c) 330. (d)
331. (d) 332. (d) 333. (b) 334. (c) 335. (b) 336. (b) 337. (c) 338. (b)
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