C6-Internal Audit Assurance

Welcome to your C6-Internal Audit Assurance Exam

Total Number of Question: 60

Total Time is 120 Minutes

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Auditing standards differ from audit procedures in that procedures relate to ____________

Audit assumptions

Acts to be performed

Quality criterion

Methods of work

None of these

The main object of an audit is ____________

Expression of opinion

Detection and prevention of fraud and error

Both (a) and (b)

Depends on the type of audit.

None of these

Tests of control are not concerned with _________

Existence of controls

Effectiveness of controls

Continuity of controls

Designing of controls

None of these

XYZ Ltd. Conducts quarterly review of operations. It discovers that unrest in a South East Asian country may affect the supply of raw materials to it the next quarter. This is an example of:

Risk assessment

Control procedure

Supervision

Control environment

None of these

Double entry book-keeping was fathered by:

W.Taylor

Henry Fayol

Lucas Pacioli

None of these

Funds flow statement and sources and application statement are:

Synonymous

Antagonistic

All of these

None of these

A sale of $ 500 to A was entered as a sale to B. This is an example of:

Error of omission

Error of commission

Compensating error

Error of principle

Goods sent on approval basis’ have been recorded as ‘credit sales’. This is an example of___________

Error of principle

Error of commission

Error of omission

Error of duplication

Which of the following statements is not true

Management fraud is more difficult to detect than employee fraud

Internal control system reduces the possibility of occurrence of employee fraud and management fraud

The auditor’s responsibility for detection and prevention of errors and frauds is similar

All statements are correct

10.

As per AAS-4 if auditor detects an error then ________

He should inform the management

He should communicate it to the management if it is material

The auditor should ensure financial statements are adjusted for detected errors

Both (b) and (c)

11.

Which of the following is not a limitation of audit as per AAS-4?

Objectivity of auditor’s judgment

Selective testing

Persuasiveness of evidence

Limitations of internal control system

12.

How many principles are listed in AAS-1, which govern auditor’s professional obligation?

Nine

Fourteen

Seven

Eight

13.

Both auditing and accounting are concerned with financial statements. Which of the following is not true

Auditing uses the theory of evidence to verify the financial information made available by accountancy

Auditing lends credibility dimension and quality dimension to the financial statements prepared by the accountant

Auditor should have through knowledge of accounting concepts and convention to enable him to express an opinion on financial statements

All of the above

14.

The risk of management fraud increases in the presence of:

Frequent changes in supplies

Improved internal control system

Substantial increases in sales

Management incentive system based on sales done in a quarter

15.

Which of the following statements is correct concerning the required documentation in working papers of fraud risk assessment undertaken by the auditor.

All risk factors as mentioned in AAS-4, should be considered and documented along with response to them

Document the identification of fraud risk factors along with response to them

Document material fraud, risk factors and response to them

No documentation in required

16.

Which of the following is not likely to be a fraud risk factor relating to management’s characteristics?

Tax evasion

Failure to correct known weakness in internal control system

Adoption of conservative accounting principles

High management turnover

17.

Professional skepticism requires that the auditor assume that management is____________

Reasonably honest

Neither honest nor dishonest

Not necessarily honest

Dishonest unless proved otherwise

18.

Which of the following information should a successor auditor obtain during the inquiry of the predecessor auditor before accepting engagement?

Information about integrity of management

Disagreement with management concerning auditing procedures

Review of internal control system

Organization structure

19.

The audit engagement letter generally should include a reference to each of the following except

Limitations of auditing

Responsibilities of management with respect to audit work

Expectation of receiving a written management representation letter

A description of the auditor’s method of sample selection.

20.

The use of an audit engagement letter is the best method of assuring the auditor will have which of the following?

Auditor will obtain sufficient appropriate audit evidence

Management representation letter

Access to all books, accounts and vouchers required for audit purpose

Cooperation from other auditors

21.

The use of an audit engagement letter is the best method of documenting

The required communication of significant deficiencies in internal control

Significantly higher control risk than that assessed in prior audit

Objective and scope of auditor’s work

Notification of any changes in the original arrangements of the audit

22.

An auditor who accepts an audit but does not possess the industry expertise of the business entity should

Engage experts

Obtain knowledge of matters that relate to the nature of entity’s business

Inform management about it

Take help of other auditors

None of these

23.

The least important element in the evaluation of an audit firm’s system of quality control would relate to

Assignment of audit assistants

System of determining audit fees

Consultation with experts

Confidentiality of client’s information

None of these

24.

The primary purpose of establishing quality control policies and procedures for deciding on client evaluation is to

Ensure adherence to general y accepted auditing standards

Acceptance or retention of clients whose management does not lack integrity

Ensure audit fees is charged according to the type of audit work assigned

All of the above

25.

Which of the following is not a quality control consideration on accepting a new client?

Availability of audit assistants with necessary skill and competence

Provision of other services to the client which may impair independence

Predecessor auditor’s advice as to whether audit fees were paid promptly

Review of audit work done by one partner by the other

None of these

26.

An auditor obtains knowledge about a new client’s business and its industry to

Make constructive suggestions concerning improvements to the client’s internal control system

Evaluate the appropriateness of audit evidence obtained

Understand the events and transactions that may have an effect on client’s financial statements

All of the above

27.

Audit of banks is an example of:

Statutory audit

Balance sheet audit

Concurrent audit

Both (a) and (b)

All of the above

28.

Concurrent audit is a part of

Internal check system

Continuous Audit

Internal audit system

None of these

29.

Audit in depth is synonymous for

Complete audit

Completed audit

Final audit

Detailed audit

None of these

30.

Balance sheet audit includes verification of________

Assets

Liabilities

Income and expense accounts where appropriate

All of the above

31.

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

It is conducted at regular interval

It may be carried out on daily basis

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

It is expensive

None of these

32.

Which of the following is not a fact of EPA:

Economic audit

Efficiency audit

Expenditure audit

Effectiveness audit

None of these

33.

The Federal government had constructed six bungalows for its ministers. They are lying unoccupied for last three years. This would be a matter of concern for

Propriety auditor

Performance auditor

Financial auditor

All of these

None of the above

34.

Balance sheet does not include ________________

Verification of assets and liabilities

Vouching of income and expense accounts related to assets and liabilities

Examination of adjusting and closing entries

Routine checks

None of the above

35.

Which of the following statements is not correct about materiality:

Materiality is a relative concept

Materiality judgments involve both quantitative and qualitative judgments

Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of an informed decision maker who will rely on the financial statements

At the planning state, the auditor considers materiality at the financial statement level only

None of these

36.

_______ the audit risk, ______ the materiality and ______the audit effort

Lower, higher, lower

Lower, lower, higher

Higher, lower, lower

Lower, higher, higher

None of these

37.

When issuing unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the

Amount of known misstatement is documented in working papers

Estimates of the total likely misstatement is less than materiality level

Estimate of the total likely misstatement is more than materialy level

Estimates of the total likely misstatement cannot be made

None of these

38.

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

Prior year’s errors

The Auditor’s Remuneration

Adjusted interim financial statements

Prior year’s financial statements

None of these

39.

When issuing unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the

Amount of known misstatement is documented in working papers

Estimates of the total likely misstatement is less than materiality level

Estimate of the total likely misstatement is more than materialy level

Estimates of the total likely misstatement cannot be made

None of these

40.

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

Prior year’s errors

The Auditor’s Remuneration

Adjusted interim financial statements

Prior year’s financial statements

None of these

41.

Analytical procedures issued in the planning stage of an audit generally _______

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

Directs attention to potential risk areas

Indicates important aspects of business

All of the above

42.

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

It helps to study relationship among balance sheet accounts

It helps to discover material misstatements in the financial statements

It helps to identify possible oversights

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

None of these

43.

For all audits of financial statements made in accordance with AAS-14, the use of analytical procedures is at the discretion of the auditor in which stage?

Substantive testing

Planning stage

Overall review stage

All of the above

None of these

44.

The basic assumption underlying the use of analytical procedures is:

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

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

Analytical procedures will not be able to detect unusual relationships

None of the above

45.

What are analytical procedures?

Substantive tests designed to assess control risk

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

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

All of the above

46.

Which of the following is not an analytical procedure?

Tracing of purchases recurred in the purchase book to purchase invoices.

Comparing aggregate wages paid to number of employees

Comparing the actual costs with standard costs

All of them are analytical procedure

None of these

47.

When applying analytical procedures, an auditor could develop independent estimate of an account balance to compare it to ______

Client’s unedited account balance

Client’s unedited account balance adjusted for trends in the industry

Prior year audited balance

Prior year audited balance adjusted for trends in the industry

None of these

48.

What is the primary objective of analytical procedures used in the overall review stage of an audit

To help to corroborate the conclusions drawn from individual components of financial statements

To reduce specific detection risk

To direct attention to potential risk areas

To satisfy doubts when questions arise about a client’s ability to continue

None of these

49.

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

Bank statements obtained from the client

Documents obtained by auditor from third parties directly

Carbon copies of sales invoices inspected by the auditor

Computations made by the auditor

None of these

50.

Which of the following statements is generally correct about the reliability of audit evidence?

To be reliable, evidence should conclusive rather than persuasive

Effective internal control system provides reliable audit evidence

Evidence obtained from outside sources routed through the client

All are correct

None of these

51.

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

Randomly

Disproportionately

Directly

Inversely

None of these

52.

Which of the following factors is most important in determining the appropriations of audit evidence:

The reliability of audit evidence and its relevance in meeting the audit objective

The objectivity and integrity of the auditor

The quantity of audit evidence

The independence of the source of evidence

None of these

53.

When is evidential matter, generally considered sufficient?

When it constitutes entire population

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

When it is objective and relevant

When auditor col acts and evaluates it independently

None of these

54.

Which of the following is not corroborative evidence?

Minutes of meetings

Confirmations from debtors

Information gathered by auditor through observation

Worksheet supporting consolidated financial statements

None of these

55.

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

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

It should always be in working

It may be dated prior to the report date

It should be addressed to the auditor

None of these

56.

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

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

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

The auditor has rejected an item for sample which was material

None of the above

57.

Which of the following affects audit effectiveness?

Risk of over reliance

Risk of incorrect rejection

Risk of incorrect acceptance

Both (a) and (c)

None of these

58.

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

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

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

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

He applies random sampling on data which is inaccurate and inconsistent

None of these

59.

Which of the following auditing assurance standard deals with audit planning:

AAS-7

AAS-8

AAS-9

AAS-3

None of these

60.

Audit Programme Is Prepared By:

An auditor

The client

The audit assistant

The auditor and his assistants

None of these

61.

Which of the following documents is not relevant for vouching cash sales?

Daily cash sales summary

Salesmen’s summary

Monthly statements sent to customers

Bank statement

None of these

62.

Confidence schemes, art forgery, falsified scientific research data are classified as:

White collar crimes

Occupational Frauds

All of these

None of these

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C6-Internal Audit Assurance

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