Department of Management Sciences, IUB

Auditing MCQs File for Mid Term Paper on 14.01.2022 for BBA
Semesters Prepared by Rana Abdul Sattar Zahoory, Director (AA&C)

1. Standard format of Auditor’s Report as per the Companies Ordinance 1984 is

described in which one of the following Legal Forms?
A. Form31A
B. Form32A
C. Form30A
D. Form35A
2. IFRS stands for which one of the following?
A. International Financial Reporting Standards
B. International Financial Recording Systems
C. International Financial Recording Statements
D. International Financial Reporting Systems

3. Which of the following is NOT one of the five major components of internal
control?
A. Risk assessment
B. Control activities
C. Information and communication system
D. Human resource background checks

4. All of the following should be observed and inspected by the auditors during
the risk assessment process of an entity EXCEPT:
A. Observations of Activities and operations
B. Inspection of Documents and records
C. Reading Management reports
D. Visit to other companies in the industry

5. Which one of the following audit techniques ordinarily provides an auditor

with the least assurance about the operating effectiveness of an internal control
activity?
A. Inquiry of client personnel
B. Inspection of documents and reports
C. Observation of client personnel
D. Preparation of system flowcharts

6. Which one of the following opinions advocates that the auditor should form an
opinion only after obtaining sufficient audit evidence instead of blindly accepting
any information given by the management?
A. Auditor’s liability
B. Professional ethics
C. Professional Skepticism
D. Auditor’s opinion.
 7. Which one of the following is NOT required as part of the audit process?
A. Substantive procedures
B. Tests of control
C. Assessment of materiality
D. Procedures to obtain an understanding of the internal control structure

8. SECP stands for which one of the following?

A. Securities and Exchange Collaboration of Pakistan
B. Securities and Exchange Consortium of Pakistan
C. Securities and Exchange Commission of Pakistan
D. Securities and Exchange Constitution of Pakistan

9. One type of analytical procedure is the ‘Trend Analysis’. Which one of the
following is the best example of trend analysis?
A. Comparison of company financial ratios to that of its competitors
B. Comparison of accounting records to budgeted amounts
C. Comparison of inventory levels over the past 3 years
D. Comparison of interest expenses to outstanding loan balances

10. While conducting operational audit, which one of the following auditing
procedures does the auditor primarily rely upon?
A. Inquiry and observation
B. Analytical procedures
C. Physical inspection
D. Tracing and vouching

11. Which one of the following helps to achieve reasonable assurance about the
fairness of financial statements during an audit process?
A. Audit report
B. Audit evidence
C. Audit engagement
D. Audit program

12. Which one of the following helps to achieve reasonable assurance about the fairness of
financial statements during an audit process?

A. Audit report

B. Audit evidence

C. Audit engagement

D. Audit program

13. IFRS stands for which one of the following?

A. International Financial Reporting Standards

B. International Financial Recording Systems

C. International Financial Recording Statements

D. International Financial Reporting Systems

14. Which of the following is NOT one of the five major components of internal control?

A. Risk assessment

B. Control activities

C. Information and communication system

D. Human resource background checks

15. All of the following should be observed and inspected by the auditors during the risk
assessment process of an entity EXCEPT:

A. Observations of Activities and operations

B. Inspection of Documents and records

C. Reading Management reports

D. Visit to other companies in the industry

16. Which one of the following audit techniques ordinarily provides an auditor with the
least assurance about the operating effectiveness of an internal control activity?

A. Inquiry of client personnel

B. Inspection of documents and reports

C. Observation of client personnel

D. Preparation of system flowcharts

17. Which one of the following opinions advocates that the auditor should form an opinion
only after obtaining sufficient audit evidence instead of blindly accepting any information
given by the management?

A. Auditor’s liability

B. Professional ethics

C. Professional Skepticism
D. Auditor’s opinion

18. Which one of the following is NOT required as part of the audit process?

A. Substantive procedures

B. Tests of control

C. Assessment of materiality

D. Procedures to obtain an understanding of the internal control structure

19. SECP stands for which one of the following?

A. Securities and Exchange Collaboration of Pakistan

B. Securities and Exchange Consortium of Pakistan

C. Securities and Exchange Commission of Pakistan

D. Securities and Exchange Constitution of Pakistan

20. One type of analytical procedure is the ‘Trend Analysis’. Which one of the following is
the best example of trend analysis?

A. Comparison of company financial ratios to that of its competitors

B. Comparison of accounting records to budgeted amounts

C. Comparison of inventory levels over the past 3 years

D. Comparison of interest expenses to outstanding loan balances

21. While conducting operational audit, which one of the following auditing procedures
does the auditor primarily rely upon?

A. Inquiry and observation

B. Analytical procedures

C. Physical inspection

D. Tracing and vouching

22-Which of the following authorities shall fix the remuneration of the auditor, if auditors
are appointed by the SCEP?(companies ordinance, 1984)

Directors
Shareholders

Company Registrar

SECP

23-The small audit firms provide the following services EXCEPT:

Liquidation and receivership work, fraud auditing

Financial management and system consultancy

Financial system planning and preparation

Tax management and statutory form filling

24-Which of the following audit process determines that whether entity is following specific
procedures, rules or regulations set down by some higher authority?

Technical audit

Financial statement audit

Compliance audit

Operational audit

25-Reliability of audit evidence is influenced by all of the following factors EXCEPT:

Source and the nature of the information

Timeliness

Objectivity

Quantity

26-For better assessing the audit risk, auditor inquires different groups in the
organizations EXCEPT:

Board of governance and top level management

Legal counsel

Middle level management

Stakeholders
27-Which of the following is the least concern to an auditor regarding the client’s internal
control system?

Efficiency and effectiveness of operations

Controls related to the reliability of financial reporting

Controls over classes of transactions

Auditors are equally concern with each of the given issues

28-During test of control procedure its design can easily tested with the help of:

ICQs and walk through tests

ICQs and judgment sample

ICQs and random sample

ICQS and ICEC

29-Internal source of audit evidence for an entity includes the following EXCEPT:

Associated companies of the entity

Accounting systems, records and documents

Non-financial data and records

Management representation and discussion

30-Which of the following is TRUE?

The audit profession is unregulated

The audit profession is regulated by its own professional body

Outside bodies sometimes become involved in the regulation of audit profession

The audit profession is regulated only by the government

31. Which one of the following cannot be considered as the essential feature of Auditing?

1. An auditor is involved in the examination of financial statements

2. The auditor is responsible for the preparation of the financial statements

3. The end result of an audit is an opinion to assist the user of the financial
statements.
32. The auditor should be independent of the entity
1. It is difficult to prepare financial reports that fairly present a company’s financial
position without the expertise of an external auditor
2. It is management’s responsibility to seek available independent aid in the appraisal of
financial information shown in its financial reports
3. The opinion of an independent party is needed because a company may not be
objective with respect to its own financial reports

33. Which of the following statements is true?

1. The auditing profession is unregulated
2. The auditing profession is regulated only by its own professional body

3. Outside bodies sometimes become involved in the regulation of the audit profession
4. The auditing profession is regulated only by the government
34. Which one 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 records?
1. Valuation
2. Completeness

3. Existence
4. Rights and obligations
35. Internal control is primarily established within a company to do which of the following?
1. To prevent fraud in the company affairs

2. To provide reasonable assurance that the company's objectives will be achieved

3. To catch all errors that may occur in the company
4. To aid in the effective auditing of the company
36. Fixation of remuneration of auditors can be determined by the following authorities
EXCEPT: (Companies Ordinance, 1984)
1. Directors
2. Company secretary

3. Commission
4. Members
37. A leather goods manufacturing company has started its operations in year 2001. After five
years of conducting successful business, it has become a listed company recently. Now, the
company is required to hire its first auditors, but neither the directors nor the members could
appoint the auditors during the past 4 months since the incorporation of the company.
Select among the following authorities who can appoint the auditors in this
situation? (Companies Ordinance, 1984)
 1. Company secretary
2. Company registrar

3. Commission
4. Institute of Chartered Accountants of Pakistan (ICAP)
38. A company has hired auditors who have performed the audit process in accordance with the
auditing standards, but they fail to present its report. According to the Company law, 1984, the
auditors shall be liable for which one of the following liabilities?
1. Criminal liability
2. Liability for misfeasance
3. cLiability for negligence

4. Accounting liability

39. Which one of the following cannot be considered as the essential feature of Auditing?
a. An auditor is involved in the examination of financial statements
b. The auditor is responsible for the preparation of the financial statements
c. The end result of an audit is an opinion to assist the user of the financial
statements.
d. The auditor should be independent of the entity

40. Which one of the following best describes why an independent auditor is asked to
express
an opinion on the presentation of financial reports?
a. It is difficult to prepare financial reports that fairly present a company’s financial
position without the expertise of an external auditor
b. It is management’s responsibility to seek available independent aid in the
appraisal of financial information shown in its financial reports
c. The opinion of an independent party is needed because a company may not be
objective with respect to its own financial reports
d. It is a customary courtesy that all shareholders of a company receive an
independent report on management’s stewardship of the affairs of the business

41. The audit which is a review of any part of an entity’s operating procedures and
methods
is known as which one of the following?
a. Financial statement audits
b. Operational audits
c. Technical Audits
d. Compliance audits

42. Which one of the following is considered as the formal opinion, or disclaimer thereof?
issued by an independent auditor as a result of audit or evaluation performed on a legal
entity?
a. Financial report
b. Financial statement
c. Director’s report
d. Auditor's report

43. Which of the following statements is true?

a. The auditing profession is unregulated
b. The auditing profession is regulated only by its own professional body
c. Outside bodies sometimes become involved in the regulation of the audit profession
d. The auditing profession is regulated only by the government

44. Which one 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
records?
a. Valuation
b. Completeness
c. Existence
d. Rights and obligations

45. Internal control is primarily established within a company to do which of the following?
a. To prevent fraud in the company affairs
b. To provide reasonable assurance that the company's objectives will be achieved
c. To catch all errors that may occur in the company
d. To aid in the effective auditing of the company

46. Fixation of remuneration of auditors can be determined by the following authorities

EXCEPT:
(Companies Ordinance, 1984)
a. Directors
b. Company secretary
c. Commission
d. Members

47. A leather goods manufacturing company has started its operations in year 2001. After
five years of
Conducting successful business, it has become a listed company recently. Now, the
company is
required to hire its first auditors, but neither the directors nor the members could appoint
the
auditors during the past 4 months since the incorporation of the company.
select among the following authorities who can appoint the auditors in this situation?
(Companies
Ordinance, 1984)
a. Company secretary
b. Company registrar
c. Commission
d. Institute of Chartered Accountants of Pakistan (ICAP)

48. A company has hired auditors who have performed the audit process in accordance
with the
auditing standards, but they fail to present its report. According to the Company law, 1984,
the
auditors shall be liable for which one of the following liabilities?
a. Criminal liability
b. Liability for misfeasance
c. Liability for negligence
d. Accounting liability

49 #: During audit of the financial statements, the auditors are concerned with the verification
and determination of which one of the following items?

Statements, accuracy, and feasibility

Date, accuracy, and reliability

Policies, value, and reliability

Cycle, policies, and reliability

50 #: Which one of the following authorities shall fix the remuneration of the auditors, if
auditors are appointed by the SECP? (Companies Ordinance, 1984)

Directors

Shareholders

Company registrar

SECP

51 #: The phrase (Scope of an Audit) refers to which one of the followings?

Engagement letters

Audit procedures

Audit evidence
Reasonable assurance

52 #: Following statements are true about the legal requirements of books accounts for the
companies EXCEPT: (Companies Ordinance, 1984)

Books of accounts should be preserved for 10 years

Books of accounts are to be kept at the registered office of the company

Directors can review the books of account during the business hours

If a company fails to maintain books of accounts according, it may leads to demolish the
entity

53 #: The factors that affect reasonable assurance include all of the following EXCEPT:

Use of testing (Sampling)

Interest limitations of accounting and internal control

Remuneration of the auditor

Persuasive nature of audit evidence

54 #: A well designed Internal Control Questionnaire (ICQ) should incorporate the following
EXCEPT:

Be a sufficient source of data for the evaluation of internal controls

Identity the internal control system's strengths and weaknesses

Be organized by individual functional organizations

Should include simple yes or no responses but no narrative responses

55 #: Which one of the following is FALSE about Internal Control Evaluation Checklists
(ICEC)?

ICEC is developed to overcome the shortcomings of Internal Control Questionnaire

The rules of constructing ICEC is different than construction of Internal Control Questionnaire

It is designed to determine, whether desirable internal controls are present

It is normally employed where system's information has already been recorded

56 #: An auditor's flow chart of an entity's information system is a diagrammatic representation.

It depicts what kind of information?

Program for tests of control

Understanding of the system

Understanding of the types of irregularity that are probable given by the present system

Documentation of the study and evaluation of the system

57 #: Which one of the following is NOT a factor included in the control environment of an
entity?

Integrity and ethical values

Risk assessment

Commitment to competence

Organization structure

58 #: The audit which is a review of any part of an entity's operating procedures and methods is
known as:
Financial statement audits

Operational audits

Technical Audits

Compliance audits

59 #: While considering internal control system of an entity, the auditor is basically concerned
that the system provides reasonable assurance about which one of the following?

That the management can not override the system

Operational efficiency has been achieved according to management plans

Errors have been prevented or detected

Controls have not been circumvented by collusion

60 #: Which one of the following is the source document for staff salaries?

Approved payrolls

Vouchers

Accounting statements

Cash memos

61 #: Analytical procedures used in planning an audit should focus on identifying which one of
the followings?

Areas that may represent specific risks relevant to the audit

Material weaknesses in the internal control structure

The predictability of financial data form individual transactions

The various assertions that are embodied in the financial report

62 #: Which one of the following meetings is considered as a 'meeting of directors or
management?

General meeting

Extra ordinary general meeting

Board meeting

Management meeting

63. The main object of an audit is ___

a) Expression of opinion b) Detection and Prevention of fraud and error

c) Both (a) and (b) d) Depends on the type of audit.

64. The title of AAS2 issued by Council of ICAI is ___

a) Objective and Scope of the Financial Statements

b) Objective and Scope of the Audit of Financial Statements
c) Objective and Scope of Business of an Entity
d) Objective and Scope of Financial Statements Audit

65. Which of the following is not true about opinion on financial statements?

a) The auditor should express an opinion on financial statements.

b) His opinion is no guarantee to future viability of business
c) He is responsible for detection and prevention of frauds and errors in financial statements
d) He should examine whether recognised accounting principle have been consistently

66. A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _

a) Error of omission b) Error of commission c) Compensating error d) Error of principle

67. ‘Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example of _
a) Error of principle b) Error of commission c) Error of omission d) Error of duplication

68. Which of the following statements is not true?

a) Management fraud is more difficult to detect than employee fraud

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

c) The auditor’s responsibility for detection and prevention of errors and frauds is similar.
d) All statements are correct.
69. As per AAS4 if auditor detects an error then –

a) He should inform the management.

b) He should communicate it to the management if it is material
c) The auditor should ensure financial statements are adjusted for detected errors.
d) Both (b) and (c)

70. Which of the following is not a limitation of audit as per AAS4?

a) Objectivity of auditor’s judgment b) Selective testing
c) Persuasiveness of evidence d) Limitations of internal control system.
71. How many principles are listed in AAS1 which govern auditor’s professional obligation?
a) Nine b) Fourteen c) Seven d) Eight

72. Both auditing and accounting are concerned with financial statements. Which of the
following
a) Auditing uses the theory of evidence to verify the financial information made available by
Accountancy
b) Auditing lends credibility dimension and quality dimension to the financial statements
prepared by the accountant.
c) Auditor should have through knowledge of accounting concepts and convention to enable
him to express an opinion on financial statements
d) All of the above.

73. The risk of management fraud increases in the presence of :

a) Frequent changes in supplies b) Improved internal control system c) Substantial

increases in sales

d) Management incentive system based on sales done in a quarter

74.Auditing standards differ from audit procedures in that procedures relate to

a) Audit assumptions b) acts to be performed c) quality criterion d) methods of work

75. Which of the following factors likely to be identified as a fraud factor by the auditor?

a) The company is planning a initial public offer of quality shares to raise additional capital
for expansion.
b) Bank reconciliation statement includes depositsintransit.
c) Plant and machinery is sold at a loss.
d) The company has made political contributions.

76.The most difficult type of misstatement to detect fraud is based on:

a) Related party purchases b) Related party sales

c) The restatement of sales d) Omission of a sales transaction from being recorded.
77. Which of the following statements is correct concerning the required documentation in
working papers of fraud risk assessment undertaken by the auditor?
a) All risk factors as mentioned in AAS4, should be considered and documented along with
response to them.
b) Document the identification of fraud risk factors along with response to them.
c) Document material fraud, risk factors and response to them.
d) No documentation in required.

78. Which of the following is the most appropriate potential reaction of the auditor to his
assessment that the risk of material misstatement due to fraud is high in relation to
existence of inventory?

a) Visit location on surprise basis to observe test counts

b) Request inventory count at a date close to yearend
c) Vouch goods sent on approval very carefully
d) Perform analytical procedures.

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

a) Tax evasion b) Failure to correct known weakness in internal control system c)

Adoption of conservative accounting principles

d) High management turnover

80. Professional skepticism requires that the auditor assume that management is

a) reasonably honest b) Neither honest nor dishonest

c) Not necessarily honest d) Dishonest unless proved otherwise

81. Which of the following information should a successor auditor obtain during the inquiry of
the predecessor auditor before accepting engagement?
i) Information about integrity of management
ii) Disagreement with management concerning auditing procedures
iii) Review of internal control system.
iv) Organisation structure

a) (i) and (ii) b) (ii) and (iii) c) (i) , (ii) and (iii) d) i) and (iii)

82.The audit engagement letter, generally, should include a reference to each of the following

except
a) limitations of auditing b) responsibilities of management with respect to audit work
c) expectation of receiving a written management representation letter.
d) a description of the auditor’s method of sample selection.
83. The use of an audit engagement letter is the best method of assuring the auditor will have
which of the following?
a) Auditor will obtain sufficient appropriate audit evidence.
b) Management representation letter
c) Access to all books, accounts and vouchers required for audit purpose
d) Cooperation from other auditors

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

i) the required communication of significant deficiencies in internal control

ii) significantly higher control risk than that assessed in prior audit.
iii) Objective and scope of auditor’s work
iv) Notification of any changes in the original arrangements of the audit.

a) (i) and (ii) b) (i) and (iii) c) ii and (iv) d) (iii and (iv)

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

a) engage experts
b) obtain knowledge of matters that relate to the nature of entity’s
business c) inform management about it d) take help of other auditors

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

a) assignment of audit assistants b) system of determining audit fees

c) consultation with experts d) confidentiality of client’s information

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

a) ensure adherence to generally accepted auditing standards

b) acceptance or retention of clients whose management does not lack integrity
c) ensure audit fees is charged according to the type of audit work assigned
d) all of the above

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

a) Availability of audit assistants with necessary skill and competence.

b) Provision of other services to the client which may impair independence
c) Predecessor auditor’s advice as to whether audit fees were paid promptly
d) Review of audit work done by one partner by the other

89. An auditor obtains knowledge about a new client’s business and its industry to
a) Make constructive suggestions concerning improvements to the client’s internal control
system.
b) Evaluate the appropriateness of audit evidence obtained
c) Under stand the events and transactions that may have an effect on client’s financial
statements.

d) All of the above

90. Audit of banks is an example of –

a) Statutory audit b) Balance sheet audit c) Concurrent audit
d) Both (a) and (b) e) All of the above
91. Concurrent audit is a part of
a) Internal check system b) Continuous audit c) Internal audit system d) None
92. In India, balance sheet audit is synonymous to
a) Annual audit b) Continuous audit c) Detailed audit d) Statutory audit
93. Audit in depth is synonymous for
a) Complete audit b) Completed audit c) Final audit d) Detailed audit
94. Balance sheet audit includes verification of_
a) Assets b) Liabilities
c) Income and expense accounts where appropriate d) All of the above

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

a) It is conducted at regular interval b) It may be carried out on daily basis c) It is needed

when the organization has a good internal control system

d) It is expensive

96. Which of the following is not a fact of EPA?

a) Economic audit b) Efficiency audit c) Expenditure audit d) Effectiveness audit

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

a) Propriety Auditor b) Performance Auditor c) Financial Auditor d) None of the above

98. Financial auditor is not concerned with propriety of business transactions. However, the
exceptions to this rule are contained for audit of limited companies in_
a) Section 227 (IA) of the Companies Act, 1956
b) Section 227 (IA) and section 227(4A) of the Act
c) CARO, 2003 d) Section 227 (IA) and CARO, 2003

99. Balance sheet does not include

a) Verification of assets and liabilities
b) Vouching of income and expense accounts related to assets and liabilities
c) Examination of adjusting and closing entries d) Routine checks

100. Which of the following statements is not correct about materiality?

a) Materiality is a relative concept

b) Materiality judgments involve both quantitative and qualitative judgments
c) 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
d) At the planning state, the auditor considers materiality at the financial statement level
only

101. …..the audit risk,….. the materiality and ……the audit effort

a) Lower, Higher, Lower b) Lower, Lower, Higher

c) Higher, Lower, Lower d) Lower, Higher, Higher

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

a) Amount of known misstatement is documented in working papers

b) Estimates of the total likely misstatement is less than materiality level c)
Estimate of the total likely misstatement is more than materially level

d) Estimates of the total likely misstatement cannot be made

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

a) Prior year’s errors b) The auditor’s remuneration

c) Adjusted interim financial statements d) Prior year’s financial statements

104. Analytical procedures issued in the planning stage of an audit, generally

a) helps to determine the nature, timing and extent of other audit procedures
b) directs attention to potential risk areas
c) indicates important aspects of business d) All of the above

105. Which of the following statements is most closely associated with analytical procedure
applied at substantive stage?
a) It helps to study relationship among balance sheet accounts
b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific account balance
106. The working papers which auditor prepares for financial statements audit are : _
a) evidence for audit conclusions b) owned by the client
c) owned by the auditor d) retained in auditor’s office until a change in auditors
107. The quantity of audit working papers complied on engagement would most be affected by
a) management’s integrity b) auditor’s experience and professional judgment
c) auditor’s qualification d) control risk
108. Which of the following best describes the primary purpose of audit programme preparation?
a) To detect errors or fraud. b) To comply with GAAP
c) To gather sufficient appropriate evidence d) To assess audit risk

109. Which of the following is not an advantage of the preparation of working paper?

a) To provide a basis for review of audit work

b) To provide a basis for subsequent audits
c) To ensure audit work is being carried out as per programme
d) To provide a guide for advising another client on similar issues

110. The auditor’s permanent working paper file should not normally, include

a) extracts from client’s bank statements b) past year’s financial statements

c) attorney’s letters b) debt agreements

111. For what minimum period should audit working papers be retained by audit firm?

a) For the time period the entity remains a client of the audit firm.
b) For a period of ten years
c) For a period auditor opines them to be useful in servicing the client
d) For the period the audit firm is in existence.

112. Which of the following factors would least likely affect the quantity and content of an
auditor’s working papers

a) The assessed level of control risk b) The possibility of peer review

c) The nature of auditor’s report d) The content of management representation letter

113. Which of the following statement is true regarding an auditor’s working

papers? a) They document the level of independence maintained by the auditor

b) They should be considered as the principle support for the auditor’s report
c) They should not contain details regarding weaknesses in the internal control system
d) They help the auditor to monitor the effectiveness of the audit firm’s quality control

114. Which of the following statement best describes the understanding with respect to
ownership and custody of working papers prepared by an auditor?
a) The working papers may be obtained by third parties when they appear to be relevant to
issues raised in litigation
b) The safe custody of working papers is the responsibility of client, if kept at his premises
c) The working papers must be retained by an audit firm for a period of 10 years
d) Successor auditors may have access to working papers of the predecessor auditors. The
approval of client is not required.

115. The current file of the auditor’s working papers, generally, should include

a) a flowchart of the internal controls b) Organisation charts

c) a copy of financial statements d) copies of bond and debentures

116 .Knowledge of the entity’s business does not help the auditor to

a) reduce inherent risk b) identify problem areas

c) evaluate reasonableness of estimates d) evaluate appropriates of GAAP.

117.The main advantage of using statistical sampling techniques is that such techniques:

a) mathematically measure risk b) eliminate the need for judgmental sampling

c) defines the values of tolerable error d) all of the them.

118. Which of the following methods of sample selection is least suitable for extrapolating
results
to the population?

a) Systematic sampling b) Random sampling c) Haphazard sampling d) None

119. Which of the following statements is correct?

a) Lower the sampling risk greater the sample size

b) Smaller the tolerable error, greater the sample size

c) Lower the expected error, smaller the sample size d) All are correct

120. Which of the following features is most important for randombased selection?

a) Sample should be drawn form population

b) Every strata of population should be represented in the sample
c) Every item in the population has an equal chance of being selected in the sample
d) Items should be selected at ‘n’ th interval