ACC311- Fundamentals of Auditing (Session – 1)
Question No: 1 ( Marks: 1 ) – Please choose one
When the cash sales should be recorded by the companies in order to achieve control objectives?
Record the cash sales when purchase order is received from the customer
Record the cash sales at the point they are made
Record the cash sales after some period
Record the cash sales weekly
Question No: 2 ( Marks: 1 ) – Please choose one
Auditors conduct auditing in accordance with :
International Financial Reporting Standards
Financial Accounting Standards Board
All of the given options
Question No: 3 ( Marks: 1 ) – Please choose one
Which of the following primary assertions is satisfied when an auditor ensures that there are no
unrecorded assets, liabilities, transactions or events or undisclosed items in the client s financial
Rights and obligations
Question No: 4 ( Marks: 1 ) – Please choose one
Which one of the following statements is NOT true about the internal control system of a
Internal control is affected by people working in an organization
Internal control is a process of bringing accuracy and improvements in the systems
Internal control systemt is expected to provide absolute assurance about the performance
of a company
Internal control is geared to achieve objectives of financial reporting, compliance and
Question No: 5 ( Marks: 1 ) – Please choose one
Who shall fix the remuneration of the auditors, if auditors of a company are appointed by the
shareholders? (Companies Ordinance, 1984)
Securities and Exchange Commission
Institute of Chartered Accountants of Pakistan (ICAP)
Question No: 6 ( Marks: 1 ) – Please choose one
If Directors could not appoint the first auditors of a company, then the first auditors shall be
appointed by which one of the following authorities? (Companies Ordinance, 1984)
Securities and Exchange Commission
Question No: 7 ( Marks: 1 ) – Please choose one
The books of accounts of a company should be kept at which one of the following offices?
(Companies Ordinance, 1984)
Registered office of the company
Accounts office of the company
Record office of the company
Question No: 8 ( Marks: 1 ) – Please choose one
Which one of the following is also called as books of secondary entries ?
Question No: 9 ( Marks: 1 ) – Please choose one
According to Section 236, Director s report should be attached to which of the following
financial statement? (Companies Ordinance, 1984)
Profit and loss account
Statement of retained earnings
Statement of cash flows
Question No: 10 ( Marks: 1 ) – Please choose one
A well designed Internal Control Questionnaire (ICQ) should incorporate the following
Be a sufficient source of data for the evaluation of internal controls
Identify the internal control system s strengths and weaknesses
Be organized by individual functional organizations
Should include simple yes or no responses but not narrative responses
Question No: 11 ( Marks: 1 ) – Please choose one
Which one of the following examples constitutes the most reliable piece of evidence available to
A written confirmation from a bank
A supplier s invoice kept in the client’s records
A duplicate sales receipt dated and signed
A receipted shipping document
Question No: 12 ( Marks: 1 ) – Please choose one
Considering the Extent of audit procedure refers to which one of the following description?
It refers to the nature of testing and their procedures that is, designing, structuring, and
compiling work to be done
It refers to the purpose i.e. (tests of controls or substantive procedures) and their type, that
is, inspections, observation, inquiry confirmation, recalculation, re-performances or analytical
It refers to when audit procedures are performed or the period or date to which the audit
It refers to sample size or number of observations of a control activity (quantity of audit
Question No: 13 ( Marks: 1 ) – Please choose one
Which one of the following situations can contitute grounds for a claim of negligence on part of
the auditors to detect a fraud?
The fraud was committed by a senior management override of internal controls which had
been relied upon in reducing the extent of detailed testing
The auditor relied on sample evidence and thus failed to detect the fraudulent transactions
The auditor reported discrepancies to local management but did not investigate further as
the likely impact on the accounts was not material
The auditor accepted local management representations as to discrepancies as the
potential impact of the fraud was not material to the accounts as a whole
Question No: 14 ( Marks: 1 ) – Please choose one
The control objectives of a sales system typically include the following EXCEPT:
Invoices and credits should be appropriately checked for accuracy and should be
authorized before entering in the records
Goods returned and claims by customers should be controlled to determine the liability for
goods returned and claims received
Customers’ orders should be authorized, controlled and recorded in order to execute them
All valid transactions relating to payables, and only those transactions, should be
accurately recorded in the accounting records
Question No: 15 ( Marks: 1 ) – Please choose one
A local gas station has one clerk that accepts cash payments for gas and rings them up on the cash
register. Which one of the following would be the best control to provide assurance that the
cashier is not keeping some of the cash?
Count all cash before and after the shift and compare it to cash register totals
Require that each customer be given a receipt of their purchase
Compare cash register totals to a total that is automatically generated by each gas pump
Each employee should have a separate cash drawer that only they use
Question No: 16 ( Marks: 1 ) – Please choose one
Which one of the following may NOT be the control procedure at key stages of the sales cycle of
Receipt of goods
Invoicing and credit notes
Question No: 17 ( Marks: 1 ) – Please choose one
While testing the purchase system of an entity, which one of the following control tests may
NOT be applied to the purchase order document?
Evidence of a sequence check
Evidence of approval of requisitions
Proof of issuance date
Adherence to authority limits
Question No: 18 ( Marks: 1 ) – Please choose one
While testing the purchase system of an entity, which one of the following control tests may be
applied to the Goods Returned Notes by the auditors?
Adherence to authority limits
Evidence of approval of requisitions
Evidence of the sequence check
Proof of the issuance date
Question No: 19 ( Marks: 1 ) – Please choose one
An oil marketing company employs 1000 personnel in its local market. Majority of its workers
are paid on the piece rate basis. The company should compensate them in which one of the
following forms of payment?
None of the given options
Question No: 20 ( Marks: 1 ) – Please choose one
According to the requirements of auditing standards for Wages and Salaries, who should be
allowed to take wages of another employee in a company?
Next of kin
Question No: 21 ( Marks: 1 ) – Please choose one
How often Inventory levels should be checked against the inventory records in order to verify
internal control effectiveness?
Question No: 22 ( Marks: 1 ) – Please choose one
Which one of the following is an appropriate evidence for verifying the existence of inventory?
Checking valuation of that inventory
Identifying the slow-moving inventory
Obtaining a letter of representation from the management of the entity about it
Observing the counting of inventory
Question No: 23 ( Marks: 1 ) – Please choose one
An oil exploring company employs 1500 personal in its international market. All of its personnel
are paid on monthly basis. The company should compensate them in which form of payment?
None of the given option
Question No: 24 ( Marks: 1 ) – Please choose one
Which one of the following best describes the process of ‘teeming and lading’ in the cash system
of an entity?
The use of one’s occupation for personal enrichment through the deliberate misuse of
organization s assets
An attempt to hide the loss of cash received from one customer by using cash from
another customer or customers to replace it
The conversion and obtaining of money or property by false pretense
Any intentional deception resulting in injury to another person
Question No: 25 ( Marks: 1 ) – Please choose one
KMC Electronics Company hires auditors at the year end. Auditors are at the stage of verification
and vouching of company s financials. Before examining the equity section, they developed
general aspects concerning the owner s equity. In your opinion, which one of the following
aspects may NOT be considered by the auditors during this assessment?
Share capital is properly classified and described in the accounts
Assets of the company are properly classified and presented
Reserves are properly classified and presented
Movements in reserves are properly authorized
Question No: 26 ( Marks: 1 ) – Please choose one
Following are the points considered during the verification of bank balances EXCEPT:
Obtain direct bank confirmation
Obtain direct bank confirmation
Investigate about outstanding stale cheques
Investigate any significant reconciling items of an unusual nature in
Ensure that the creditors have been paid for their loan amount
Question No: 27 ( Marks: 1 ) – Please choose one
Judgmental sampling has the following advantages EXCEPT:
No special knowledge of statistics is required in this type
It tends to cause uniform standards among different audit firms
No time is spent on playing with mathematics
This approach has been well understood and refined by the experience over years
Question No: 28 ( Marks: 1 ) – Please choose one
In which one of the following methods of sampling, an auditor is concerned that client should not
be able to know or guess which items will be examined?
Question No: 29 ( Marks: 1 ) – Please choose one
Which one of the following is a common approach to increase the audit efficiency in sampling?
Question No: 30 ( Marks: 1 ) – Please choose one
Which one of the following can be an advantage of using statistical sampling techniques?
It defines the values of tolerable error and risk of incorrect acceptance required for audit
It has been established in the courts to be superior to judgmental sampling
It mathematically measures risk
It eliminates the need for judgmental decisions
Question No: 31 ( Marks: 1 ) – Please choose one
Following statements describes the functions of internal auditing EXCEPT:
It is a function that evaluates an organization s risk management, control and governance
It is a wide ranging activity and includes functions that are advisory or task oriented
It is an activity which entails appraising the entity’s strategies and expressing an opinion
on the financial statements
It is an activity that extends beyond the appraisal of efficiency and effectiveness
Question No: 32 ( Marks: 1 ) – Please choose one
An audit firm started planning annual audit process for a sports goods manufacturing company.
The planning involves the following key points EXCEPT:
Establishing the overall audit strategy for the engagement
Developing an audit plan, in order to reduce audit risk to an acceptably low level
Surveillance of company operations and procedures
To benefit from the experience and insight of auditors and other key members of the
Question No: 33 ( Marks: 1 ) – Please choose one
What is NOT required as part of the audit process?
Tests of control
Assessment of materiality
Procedures to obtain an understanding of the internal control structure
Question No: 34 ( Marks: 1 ) – Please choose one
Which one of the following mainly affects the auditor s opinion?
Agreement on accounting policies
Limitation on the scope of the auditor s work
Dispute among the members of the company
Future prospects of the company s growth
Question No: 35 ( Marks: 1 ) – Please choose one
Which one of the following matters does NOT affect Auditor s Opinion?
When there is a limitation on the scope of the auditor s work
When there is a disagreement with management regarding the accounting policies selected
When there is a disagreement with management regarding the method of applying
When an auditor modify the auditor s report by adding a paragraph to highlight a material
Question No: 36 ( Marks: 1 ) – Please choose one
Which one of the following statements is TRUE?
A very small sample of only one or two pieces of relevant, competent, and timely
evidence lacks persuasiveness
A large sample of highly competent evidence is not persuasive unless it is relevant to the
A large sample of evidence that is neither competent nor timely is not persuasive
All of the given options are true
Question No: 37 ( Marks: 1 ) – Please choose one
Analytical procedures are performed as a substantive test to achieve which of the following
To determine the nature, timing, and extent of compliance procedures
To reduce detection risk
To determine the nature, timing, and extent of other audit procedures
To keep audit risk to an acceptably low level
Question No: 38 ( Marks: 1 ) – Please choose one
A written understanding between the auditor and the client concerning the auditor’s responsibility
for the discovery of illegal acts is usually set forth in which of the following letters?
Client representation letter
Letter of audit inquiry
Question No: 39 ( Marks: 1 ) – Please choose one
Gains and losses during business operations of a company are determined in terms of increases
and decreases in which one of the following sections of the Balance sheet?
Long term finances
Long term liabilities
Question No: 40 ( Marks: 1 ) – Please choose one
All expenditures incurred through petty cash should be recorded in which one of the following?
Question No: 41 ( Marks: 1 ) – Please choose one
Which one of the following International Auditing Standards deals with the Audit Materiality?
ISA – 320
Question No: 42 ( Marks: 1 ) – Please choose one
Property, plant and equipment are stated at cost less accumulated depreciation. Which of the
following is the relevant assertion?
Rights and obligations
Existence or occurrence
Question No: 43 ( Marks: 3 )
According to your understanding, what control objectives must be defined for bringing fairness in
the Cash System of an entity?
Question No: 44 ( Marks: 3 )
What are the Control Accounts? How they should be monitored in order to bring fairness in the
inventory system of an entity?
Question No: 45 ( Marks: 3 )
Suppose you have been appointed as the auditor of a company and have started examining the
entity by taking initial interviews of the concerned personnel. During this course, one of the
person from management has asked you the following information:
1. What are the matters about which an auditor may disagree with the management?
2. What should an auditor do if such disagreements are material?
Give your answers in brief
Question No: 46 ( Marks: 5 )
According to your knowledge, what tests of controls auditors usually perform for the evaluation
of Purchase Invoice of an entity?
Question No: 47 ( Marks: 5 )
What matters should the auditor consider for developing an overall audit plan for the expected
scope and control of an audit?
Question No: 48 ( Marks: 10 )
A company has hired auditors at the year end. Auditors used audit sampling techniques which
made them enable to gather audit evidence efficiently. State the objectives auditors might have
defined first to achieve by using sampling techniques and also briefly explain further steps the
auditors might undertake to complete the sampling process.
http://vustudents.ning.comAn unlisted public limited company undergoing expansion intends to create
an internal audit
department. The Managing Director (MD) has asked your advice and comments on each of the
matters listed below:
1. The fundamental differences in the scope, approach, and responsibility between the
internal and external auditor.
2. Whether it would be advisable to assign the responsibility of development of systems and
procedures to the internal auditor?