MCQ's

Question 1

what are the 5 compnenets of an audit report

Answer 1

the independent auditors report
addressee
- shareholders
auditors opinions
modified etc
Basis of opinion section Reasons for qualification
key matters section

Question 2

what is a good report opnion

Answer 2

Unqualified and un modified opinion

Question 3

what is a good audit opinion

Answer 3

unmodified unqualified

Question 4

what are the different audit procedures

Answer 4

inquiry
observation
inspection
re-performance
recalculation
third part confirmation
analytical procedures - calculations of ratios
substantive procedures - test of details, expensive

Question 5

universal audit procedure

Answer 5

review the minutes of meeting to confirm purchase/sales
inspect the purchase/sale agreement
inquire from management the specific accounting treatment of transaction
agree the amount received or paid with the bank statement
recalculate the deprecitation etc
obtain 3rd party confirmation such as supplier etc
review the presentation and disclosures in FD

Question 6

what should be considered before agreeing an engagement

Answer 6

professional clearance can be obtained from previous auditor
review your firm have competence, experience and staff resources to complete engagement
Access any ethical and professional issues e.g. self-interest, conflict of interest

Question 7

types of internal controls

Answer 7

segregation of duties
authorisation control
physical control - security tag
IT control
Supervisory control
Review control
Reconciliation
sequential numbering of invoices

Question 8

weakness of segregation of duties leads to

Answer 8

one person doing many things high risk of material misstatement and fraud.

Question 9

what is the purpose of the basis for opinion paragraph in the auditors report, which contains unmodified opinion

Answer 9

to confirm the audit has been conducted in accordance with ISAs and ethical requirements

Question 10

what is the correct orer of the elements to be included in the auditors report

Answer 10

addressee
opinion
auditors responsibilities
date

Question 11

if a disclaimer of opinion is to be issued the key audit matters should

Answer 11

not be included in the auditors report as to do so may suggest other aspects of the financial statements are reliable

Question 12

what is the primary reason for maintaining an inventory count timetable?

Answer 12

to ensure all areas are counted during the year

Question 13

what does perpetual inventory system mean

Answer 13

all material must be counted at least 1

Question 14

what is not a benefit of auditing

Answer 14

sampling is used

Question 15

what is an explanation for integrity

Answer 15

auditor should be straightforward and honest in all professional and business relationships

Question 16

what are the different levels of assurance

Answer 16

reasonable
limited

Question 17

what are the 5elements of an assurance engagement

Answer 17

3 party relationship
appropriate subject matter
suitable criteria
appropriate evidence
conclusion

Question 18

the auditor will express an opinion as to whether the financial statements give a

Answer 18

true and fair view

Question 19

in order to form an audit opnion the auditor has to

Answer 19

obtain sufficent and appropriate evidence

Question 20

what happens if the financial statement is found contain material misstatement

Answer 20

negative audit opinion will be given

Question 21

what are an examples of expectation gap

Answer 21

the independent auditors report confirms the financial statements are accurate
an unmodified opinion means the company is a going concern
the auditor tests all transations

Question 22

what is going concern

Answer 22

accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future

Question 23

if there is a material misstatement in the financial statement but not persuasive what type pf report is produced

Answer 23

qualified opinion except for ….

Question 24

if there is material misstatement and persuasive in the financial statement what type of report is produced §

Answer 24

adverse negative

Question 25

if the type of matter found is limitation on scope of audit work, with material misstatement and not persuasive what type of report will be produced

Answer 25

qualified opinion except for ….

Question 26

if the type of matter found is limitation on scope of audit work, with material misstatement and persuasive the report produced will be

Answer 26

disclaimer of opinion

Question 27

what response is given to the audit risk of 1 month given to produce audit

Answer 27

hire more staff to complete audit

Question 28

what response is given if 1/3 of machinery is received/ so assests overstated in value

Answer 28

check the existence of order, make a provision and put in auditory report

Question 29

what is the response for the audit risk of a patent, over/under valued

Answer 29

intangible asset so needs to be amortised

Question 30

what is the response for the audit risk of payroll being outsourced/ risk of confidentiality

Answer 30

test their internal control and follow procedures

Question 31

what is the response for the audit risk of redundancies and legal issues

Answer 31

hire an expert (layer)

Question 32

what is the response to the audit risk of going concern and risk of over trading

Answer 32

check financial statements and bored minutes

Question 33

what is the response to the audit risk of revaluing land and building - IAS 16

Answer 33

revaluation needs to be done by an expert

Question 34

describe the steps an auditor should perform in undertaking a positive receivable circularisation for a company

Answer 34

check materiality
contact customers
match payments to bank statements
check bored minutes
select samples from receivables
circularisation letters should be prepared on the companies letter head paper

Question 35

what are the substantive procedures

Answer 35

review after date cash receipts
inspect aged receivables report
review bank confirmations and loan agreements fir evidence of receivables
select sample of goods despatched notes from before yr end

Question 36

list 7 deficiencies in systems

Answer 36

-director authorising payments - needs to delegate/segregate of duties due to risk of fraud
-purchase ledger doesn’t apply controls - risk of error and segregation of duties
-reconciliation of savings account every two months - risk of fraud error, should be done more often
-delayed payments to suppliers leads to risk of going concern as suggest financial issues- pay them sooner
-orders not numbered - can lead to orders being lost, under/overstatement of assets
-process of selecting suppliers is weak due to only going to who can dispatch soonest, research suppliers, find best suited, check price and quality.