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This set of Auditing Multiple Choice Questions & Answers (MCQs) focuses on Auditing Set 8

Q1 | Tests of control are not concerned with_
  • Existence of controls
  • Effectiveness of controls
  • Continuity of controls
  • Designing of controls
Q2 | The sequence of steps in the auditor’s consideration of internal control is asfollows –
  • Obtain an understanding, design substantive test, perform tests of control, and make a preliminary assessment of control risk
  • Design substantive tests, obtain an understanding, perform tests of control, and make a preliminary assessment of control risk
  • Obtain an understanding, make a preliminary assessment of control risk, perform tests of control, design substantive procedures.
  • Perform tests of control, obtain and understanding, make a preliminary assessment of control risk, design
Q3 | Which of the following is not an inherent limitation of internal control system?
  • Management override
  • Collusion among employees
  • Inefficiency of internal auditor
  • Abuse of authority
Q4 | An auditor should study and evaluate internal controls to
  • Determine whether assets are safeguarded
  • Suggest improvements in internal control
  • Plan audit procedures
  • Express and opinion
Q5 | The primary purpose of performing tests of control is to provide reasonableassurance that_
  • There are no material misstatements due to fraud or error in financial statement
  • Accounting system is well documented
  • Written evidence is there to support transactions
  • if internal control is effective
Q6 | If the auditor assesses control risk as high….
  • Document the conclusions
  • Documents the reasons along with conclusions
  • Perform tests of control
  • Perform walk through tests
Q7 | The overall attitude and awareness of an entity’s board of directors concerningthe importance of internal control is reflected in
  • Accounting controls
  • Control environment
  • Control procedures
  • Supervision
Q8 | Which of the following are included in test of control?
  • Reperformance and observation
  • Inquiry and analytical procedures
  • Comparison and conformation
  • Inspection and verification
Q9 | Control risk is assessed at
  • Overall financial statements level
  • Fraud risk factor level
  • Financial statement assertion level
  • Control environment level
Q10 | An auditor assesses control risk because it
  • Affects the audit risk
  • Affects the level of detection risk that auditor may accept
  • Helps him to fix materiality level for each financial assertion
  • Is directly related to inherent risk
Q11 | A flow chart, made by the auditor, of an entity’s internal control system is a graphic representation that depicts the auditor’s.
  • Understanding of the system
  • Understanding of fraud risk factors
  • Documentation of assessment of control risk
  • Both (a) and (c)
Q12 | The performance of tests of control is documented in
  • Audit programme
  • Flow charts
  • Working papers
  • Any of the above
Q13 | The independence of an internal auditor will most likely be assured if he reportsto the
  • President Finance
  • President System
  • Managing Director
  • CEO
Q14 | In comparison to the independent auditor, an internal auditor is more likely tobe concerned with
  • Cost accounting system
  • Internal control system
  • Legal compliance
  • Accounting system
Q15 | When an independent auditor relies on the work of an internal auditor, he orshe should
  • Examine the scope of internal auditor’s work
  • Examine the system of supervising review and documentation of internal auditor’s work
  • Adequacy of related audit programme
  • all of the above
Q16 | Proper segregation of duties reduces the opportunities in which a person wouldboth
  • Establish controls and executes them
  • Records cash receipts and cash payments
  • Perpetuate errors and frauds and conceals them
  • Record the transaction in journal and ledger
Q17 | Analytical procedures are least likely to be use in the audit of –
  • Cash balance
  • Investments
  • Bills receivables
  • Debtors
Q18 | Which of the following statements is not true with regard to teeming andlading ?
  • It results in the deliberate misappropriation of cash receipts
  • It is associated with cash receipts
  • If same individual maintains cash receipts and cash payments teeming and lading is likely to exist
  • To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily agreement so that a bank reconciliation will not detect the irregularity.
Q19 | The balance of cash in often between one to five percent of total assets. Tickthe most appropriate statement with regard to verification of cash in context of this
  • Cash in always material as materiality is qualitative concept
  • No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a relative concept
  • The cash balance need only be audited if the balance is in overdraft
  • Cash is to be verified if control risk is assessed as high
Q20 | When counting cash on hand the auditor should ___
  • Ensure presence of somebody from management
  • Obtain a receipt from custodian as to its return
  • Ensure postage and revenue stamps are not counted in physical count
  • Temporary advances to employees are counted to calculate balance of cash in hand
Q21 | Which of the following statement is not true regard to auditor’s attendance atstock taking?
  • Auditor should attend physical stock taking only if inventory is material
  • Auditor may not attend physical verification of stock by management, if he does not find it appropriate to rely on it
  • If inventory is material, even when the auditor is not placing reliance on the physical verification by the management, he should attend it
  • The primary objective of an auditor’s observation of an entity’s observation of an entity’s stock take is to obtain direct knowledge that the stock and has been property counted
Q22 | While observing a client’s annual physical inventory, an auditor conducted testcounts for certain test counts were higher than the recorded quantities in the client’s perpetual records. This situation could be the result of the client’s failure to record –
  • Purchase returns
  • Sales returns
  • Goods with consignor
  • Purchase discounts
Q23 | Inspection report/receiving report supports entries in
  • Sales book and sales return book
  • Purchase book and sales return book
  • Cash book and purchase book
  • Sales book and purchase return book
Q24 | ……………….. Starts where …………….. Ends
  • Accounting, auditing
  • Auditing, accounting
  • Vouching, auditing
  • Accounting,vouching
Q25 | ............ means “proving the truth or confirmation”
  • Vouching
  • Verification
  • Inspection
  • Auditing