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01 MCQ Auditing PL PDF
01 MCQ Auditing PL PDF
2. Which of the following are implied in the auditor's report and reported only by
exception?
(1) Adequate accounting records have been kept
(2) The directors' report is consistent with the financial statements
(3) Adequate returns have been received from branches
(4) The financial statements agree with the underlying records
A. 1, 2 and 4
B. 1, 3 and 4
C. 2, 3 and 4
D. 1, 2, 3 and 4
3. Which of the following is the most appropriate definition of the external audit?
A. The external audit is an exercise carried out by auditors in order to give an
opinion on
whether the financial statements of a company are true and fair.
B. The external audit is an exercise carried out in order to give an opinion on the
effectiveness of a company's internal control system.
C. The external audit is performed by management to identify areas of deficiency
within a
company and to make recommendations to mitigate those deficiencies.
D. The external audit provides negative assurance on the truth and fairness of a
company's
financial statements.
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6. Which of the following are examples of good internal control within a company?
(1) Internal audit department
(2) Segregation of duties
(3) External audit
(4) Audit committee
A. 1, 2, 3 and 4
B. 1, 3 and 4
C. 1, 2 and 4
D. 2, 3 and 4
10. Which of the following are recognised threats to independence and objectivity
as identified in
ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A. 1, 2, 3 and 4
B. 1, 2 and 4
C. 2, 3 and 4
D. 2 and 4 only
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11. Which of the following is the correct definition of 'integrity' in accordance
with ACCA's Code of
Ethics and Conduct?
A. Members should not allow bias, conflicts of interest or undue influence of
others to
override professional or business judgements.
B. Members should act diligently and in accordance with applicable technical and
professional standards when providing professional services.
C. Members should comply with relevant laws and regulations and should avoid any
action
that discredits the profession.
D. Members should be straightforward and honest in all business and professional
relationships.
12. An audit firm providing internal audit services to its external audit client is
an example of a selfreview threat. Is this statement true or false?
A. True
B. False
13. Which of the following is not one of the fundamental principles of ACCA’s Code
of Ethics and
Conduct?
A. Integrity
B. Objectivity
C. Independence
D. Confidentiality
14. Which of the following statements is true in respect of the external audit?
A. An external audit is undertaken by the management of a company to assess the
effectiveness of the internal controls.
B. An external audit is carried out in order for auditors to report independently
on the truth
and fairness of a company’s financial statements.
C. An external audit is performed with the express purpose of reporting on
deficiencies in
internal control.
D. An external audit must always consist of an interim audit visit and a final
audit visit.
15. Which of the following statements explains one of the reasons why external
audits provide only
reasonable, but not absolute, assurance?
A. Some reliance is placed on the work of internal audit
B. Not all transactions and balances are examined
C. The audit has to be completed within a specific timeframe
D. Not all members of the audit team are fully qualified accountants
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16. Which of the following is not a statutory right of the auditors of a limited
liability company?
(1) A right to attend all directors’ meetings and receive all notices and
communications relating
to such meetings.
(2) A right to speak at general meetings on any part of the business that concerns
them as
auditors.
(3) A right to attend any general meeting and receive all notices and
communications relating to
such meetings.
A. (1) only
B. (1) and (3)
C. (2) only
D. (2) and (3)
17. The primary purpose of an auditor evaluating and testing the internal controls
of a limited liability
company, is to enable the auditor to advise management of the deficiencies in the
internal
controls. Is this statement true or false?
A. True
B. False
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2. Multiple choice questions
1. When gaining an understanding of the specific business operations of an audit
client which of
the following matters would an auditor need to consider?
A. Accounting principles and industry specific practices relevant to the client’s
business
B. Acquisitions or disposals of the client’s business activities
C. Leasing of property, plant or equipment for use in the client’s business
D. Products or services and markets of the client’s business
4. Which audit procedure describes an audit test to perform a proof in total of the
depreciation
charge for the year?
A. Reperformance
B. Analytical procedures
C. Confirmation
8. What are the two elements of the risk of material misstatement at the assertion
level?
A. Inherent risk and detection risk
B. Audit risk and detection risk
C. Inherent risk and control risk
D. Detection risk and control risk
10. Which of the following sets the scope, timing and direction of the audit?
A. Audit plan
B. Audit strategy
C. Audit engagement letter
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11. What are the purposes of planning the audit?
1 To ensure appropriate attention is devoted to different areas of the audit.
2 To identify potential problem areas.
3 To facilitate delegation of work to audit team members.
4 To ensure the audit is completed within budget and time restraints.
A. 1, 2, 3 and 4
B. 1, 3 and 4
C. 1, 2 and 3
D. 2 and 3
13. Which of the following factors influences the auditor’s judgement as to what
constitutes
sufficient, appropriate audit evidence?
(1) Risk
(2) Cost
(3) Materiality
(4) Experience from prior audits
A. 1, 2 and 3
B. 1, 3 and 4
C. 3 and 4
D. 2, 3 and 4
14. During which of the following stages of the audit must analytical procedures be
used, in
accordance with International Standards on Auditing?
(1) Audit planning
(2) Audit fieldwork
(3) Audit completion
A. 1 and 3
B. 1, 2 and 3
C. 1 only
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D. 1 and 2
15. For which of the following could the external auditor employ the services of an
expert in
accordance with ISA 620 Using the work of an auditor's expert?
1 Analytical procedures on inventory
2 Valuation of land and buildings
3 Legal opinion on the outcome of a court case
4 Verifying directors' transactions
A. 1, 2 and 3
B. 2, 3 and 4
C. 2 and 3
D. 1, 3 and 4
16. Which of the following is not a method used when selecting a sample for audit
testing?
A. Systematic selection
B. Haphazard selection
C. Statistical selection
17. In which of the following situations would it be most appropriate to test 100%
of the population?
A. The population consists of a small number of high value items.
B. Control risk has been assessed as low.
C. The population consists of a high number of low value items.
D. Audit evidence can be obtained from various sources.
18. The auditor can reduce sampling risk by increasing the sample size. Is this
statement true or
false?
A. True
B. False
20. Which of the following factors influences the form and content of audit working
papers?
1 Risks of material misstatement
2 Exceptions identified
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3 Nature of the package used for documentation
4 Cost to the audit
A. 1, 2 and 4
B. 1, 3 and 4
C. 1 and 2
D. 2 and 4
21. The disclosure checklist is prepared as part of the planning stage of the
audit. Is this statement
true or false?
A. True
B. False
22. Which of the following papers would normally be retained on the permanent file
maintained for a
company audit client?
A. Completed checklist of statutory disclosure provisions
B. Extracts of minutes of meetings of the directors
C. Letter of representation
D. Copy of the company’s legal constitution
23. Which of the following would normally be retained on the current file
maintained for a company
audit client?
A. Narrative notes describing the company’s accounting systems
B. A copy of the company’s constitution
C. A representation letter
D. A description of the company’s business and its operations
24. Performance materiality levels are higher than the materiality for the
financial statements as a
whole. Is this statement true or false?
A. True
B. False
25. ‘Audit risk’ represents the risk that the auditor will give an inappropriate
opinion on the financial
statements when the financial statements are materially misstated. Which of the
following
categories of risk can be controlled by the auditor?
Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
A. (1) and (2)
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B. (2) only
C. (1) and (3)
D. (2) and (3)
26. Which of the following papers would normally be retained on the permanent file
maintained for a
limited liability company audit client?
A. Completed checklist of statutory disclosure provisions
B. Extracts of minutes of meetings of the directors
C. Written representations from management
D. Copy of the company’s legal constitution
28. Which audit working paper should provide satisfactory evidence that audit
resources have been
directed towards high risk areas of an audit?
A. Systems narrative notes
B. Audit attention points brought forward from the previous year’s audit
C. The overall audit strategy documentation
29. Which of the following statements are correct with regard to the relationship
between the audit
plan and the audit strategy for an external audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and developed at
the same
time.
(3) The overall audit strategy should be more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A. (1) and (3)
B. (2) only
C. (3) and (4)
D. (4) only
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30. The definition of financial reporting (or financial statement) risk is
‘Inherent Risk x Control Risk x
Detection Risk’. Is this statement true or false?
A. True
B. False
31. Which of the following is the distinguishing factor of the systematic sample
selection method?
A. All items in the population under review have the same statistical probability
of being
selected.
B. The currency unit value rather than the items is used as the sampling
population.
C. A uniform sampling interval is calculated by dividing the population size by the
sample
size.
D. None of the above.
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3. Multiple choice questions
1. Internal control is the responsibility of the internal audit department. Is this
statement true or
false?
A. True
B. False
5. Which of the following questions would you expect to find on an Internal Control
Evaluation
Questionnaire (ICEQ) for the area of inventory when auditing a company’s financial
statements?
1 Can inventory be wasted without proper recording?
2 Is there inadequate documentation over the receipt and issue of inventory?
3 Does the system produce inadequate information for completeness of recording in
the
company’s accounting records?
4 Can inventory be over/under valued?
A. 1 and 3 only
B. 1, 3 and 4
C. 3 and 4 only
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D. 1, 2 and 4
6. Which of the following questions would you expect to find on an Internal Control
Evaluation
Questionnaire (ICEQ) for the payroll system of a limited company?
1 Can the payroll supervisor authorise the payment of wages?
2 Can employees be paid for work not done?
3 Can bonuses be wrongly paid?
4 Can statutory deductions be incorrectly recorded?
A. 1, 2 and 3
B. 1, 2 and 4
C. 1, 3 and 4
D. 2, 3 and 4
10. Which of the following explains why the control environment in a small company
is often
deficient?
A. The directors are usually the owners of the company.
B. There is likely to be a lack of segregation of duties.
C. Small companies do not need to have an external audit.
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11. Which of the following are examples of tests of controls?
1 Reperforming the year-end bank reconciliation
2 Reviewing the minutes of the monthly board of directors meetings
3 Agreeing invoices to the amounts recorded on the ledger
4 Physically inspecting a sample of assets selected from the non-current assets
register
A. 1 and 4
B. 2, 3 and 4
C. 1 and 2
D. 3 and 4
12. What is the primary purpose of the report to management (letter on internal
control)?
A. It sets out management's responsibilities and those of the auditor.
B. It sets out deficiencies found in the internal control system and makes
recommendations
to overcome those deficiencies.
C. It states the audit fee for the audit.
D. It states whether the financial statements are true and fair.
13. With regard to which of the following financial statement assertions may an
auditor encounter
particular difficulties in obtaining sufficient evidence where internal controls
are weak?
A. Ownership
B. Existence
C. Valuation
D. Completeness
14. Which of the following is a control objective relating to the sales system?
A. Credit notes are only issued for valid reasons.
B. Sales invoices are checked to Goods Despatched Notes by accounts staff.
C. Customer accounts are scrutinised to see if credit limits have been observed.
D. Orders are made only to authorised suppliers.
15. Which of the following is not a control activity relating to the purchases
system?
A. All orders are authorised by a senior staff member.
B. Blank order forms are kept in a secure location with restricted access.
C. All goods and services received are accurately recorded.
D. Order forms are sequentially pre-numbered.
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16. The following data for employees exists in the computer-based wages system of
an audit client:
1 Standard hourly rate of pay
2 Hours actually paid each week in the year to date
3 Identifying department code
4 Holiday pay paid in the year to date
Which of the above data should be held on the wages master file?
A. 1, 2, 3 and 4
B. 1 and 3 only
C. 1, 3 and 4
D. 2 and 4 only
17. Which of the following questions would you expect to find on an Internal
Control Evaluation
Questionnaire (ICEQ) for the area of sales when auditing a company’s financial
statements?
1 Can sales be made without proper authorisation?
2 Can sales be made to customers who are not creditworthy?
3 Are all invoices properly prepared?
4 Are sales invoices checked to Goods DespatchNotes before being recorded on the
ledger?
A. 1, 2 and 3
B. 1, 2, and 4
C. 1, 3 and 4
D. 2, 3 and 4
18. Which of the following are nota recognised method for recording a company’s
accounting and
control systems?
A. Questionnaires
B. Disclosure checklists
C. Narrative notes
19. Which of the following audit procedures is a test of controls over non-current
assets?
A. Agreeing the totals on the non-current asset register to the general ledger
B. Performing a proof in total for depreciation
C. Inspecting purchase orders for authorising signatures
D. Inquiring of management their plans for future capital expenditure
21. Which of the following audit procedures would assist the auditor in assessing
whether inventory
at the year-end was appropriately valued?
A. Reviewing precautions in place to guard against theft and misuse of inventory
B. Inspecting inventory to identify obsolete or damaged items
C. Matching a sample of inventory items with inventory records
D. Reviewing the entity's procedures for the year-end inventory count
22. Which of the following questions would you expect to find on an Internal
Control Evaluation
Questionnaire (ICEQ) for the area of purchases when auditing a company’s financial
statements?
1 Can goods or services be received without a liability being recorded?
2 Can a liability be recorded for unauthorised items?
3 Can payments be made without proper authorisation?
4 Are purchase invoices checked to Goods Received Notes before being passed for
payment?
A. 1, 2 and 3
B. 1, 2, 3 and 4
C. 1, 2 and 4
D. 2 and 3 only
23. Which of the following audit procedures is a test of controls over inventory?
A. Performing test counts on year-end inventory
B. Physically inspecting a warehouse owned by the company to store inventory
C. Inspecting a sample of inventory movement records for authorisation
D. Matching the last Goods Received Notes of the period to the relevant purchase
invoices
24. Which of the following controls would provide the most positive assurance as to
the
completeness of the sales figure recorded in the financial statements of a
manufacturing
company?
A. Segregation of sales between the preparation of goods despatched notes and the
preparation of the sales invoices
B. The issue of pre-numbered sales invoices for every sales transaction and
internal
checking for completion of processing
C. The use of a pre-numbered goods despatched note for every sales transaction and
internal checking for completeness of processing
D. Authorisation of all sales invoices by the sales manager prior to processing
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25. Which of the following data should not be held on a wages master file of a
company for an
individual employee of a company?
A. Authorised rate of pay
B. Employees’ identification number
C. Cumulative statutory deductions to date
D. Date of commencement of employment
26. Which of the following types of internal controls does a small limited
liability company normally
have particular difficulty in implementing satisfactorily?
1 Segregation of duties
2 Performance reviews
3 Information processing
A. A 1 only
B. B 2 only
C. C 3 only
D. 1, 2 and 3
27. Which of the following types of internal controls does a small limited
liability company find the
most difficult to implement?
A. Authorisation
B. Segregation of duties
C. Information processing
28. When auditing the financial statements of a limited liability company, auditors
should ascertain
and document the internal controls relevant to the accounting system only when they
plan to rely
on the system. Is this statement true or false?
A. True
B. False
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4. Multiple choice questions
1. The auditors of Three Co recently completed their interim audit for the year
ending 31 July 20X9.
They confined their work only to tests of control on accounting records to 31 March
20X9 and
concluded that controls were totally unreliable.
What will be the nature of the work carried out when conducting the final audit of
the company’s
financial statements for the year ending 31 July 20X9?
A. Tests of control on the system and substantive procedures on transactions for
the period
from 1 April 20X9 to 31 July 20X9, plus a review of the financial statements.
B. Tests of control on the system for the period from 1 April 20X9 to 31 July 20X9,
substantive procedures on the statement of financial position as at 31 July 20X9,
plus a
review of the financial statements.
C. Substantive procedures on transactions for the whole accounting period and on
the
statement of financial position as at 31 July 20X9, plus a review of the financial
statements.
D. Substantive procedures on the statement of financial position as at 31 July
20X9, plus a
review of the financial statements.
2. Why does the auditor need to undertake analytical procedures at the final review
stage of the
audit?
A. To identify areas of risk
B. To form an overall view about the consistency of the financial statements
C. To assist in identifying material misstatements
D. To provide evidence to support the financial statement assertions
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B. Estimated or actual selling price (net of trade discounts but before settlement
discounts)
less all further costs to completion and less all costs to be incurred in
marketing, selling
and distribution
C. Estimated or actual selling price (net of settlement discounts but before trade
discounts)
less all further costs to completion and less all costs to be incurred in
marketing, selling
and distribution
D. Purchase price including import duties, transport and handling costs and any
other
directly attributable costs, less trade discounts, rebates and subsidies
6. Which of the following regarding the timing of the entity's inventory count is
the best from the
auditor's point of view?
A. Inventory count just after the year-end
B. Inventory count at the year-end date Inventory count just before the year-end
C. All of the timings in A, B and C above are equally good
7. Which of the following audit procedures is a valid test for the existence of
tangible non-current
assets?
A. Inspecting title deeds to buildings
B. Agreeing figures on the valuation certificate for a building to the general
ledger
C. Agreeing a sample of assets selected by physical inspection back to the non-
current
assets register
D. Physically inspecting a sample of assets selected from the non-current assets
register
11. What action should the auditors take if a reply to a positive confirmation
request letter for a
material amount is not received from the customer within two or three weeks of
being sent out?
A. Qualify the audit report due to lack of sufficient appropriate audit evidence
B. Inform the entity's internal audit department
C. Send out a second request to the customer
D. Qualify the audit report due to a material misstatement in the financial
statements
12. Which of the following statements about the bank letter is correct?
A. Only one bank letter is required for each audit client.
B. The bank letter should be sent to the bank immediately after the year-end.
C. The banks will require explicit written authority from their client to disclose
the
information.
D. The bank letter is sent by the client on its own headed notepaper.
13. Which of the following matters would an auditor seek confirmation on when
sending a standard
letter (bank report for audit purposes) to the bank of an audit client?
1 Customer’s assets held as security
2 Directors’ guarantees
3 Contingent liabilities
4 Particulars of any set-off arrangements
A. 1 and 3 only
B. 1, 3 and 4
C. 3 and 4 only
D. 1, 2 and 4
14. Which of the following audit procedures is the most appropriate when testing
for the existence,
rights and obligations and completeness of trade payables balances?
A. A payables' confirmation
B. Comparison of suppliers' statements with payables ledger balances
C. C Analytical procedures
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D. Tests of controls
15. Which of the following audit procedures is primarily a test for completeness of
trade payables of
an entity?
A. Circularisation of trade payables suppliers
B. Sample checking of balances outstanding per the accounting records at the end of
the
accounting period forward to payments to suppliers made immediately after the end
of
the accounting period (i.e. balances to payments)
C. Sample checking of payments to suppliers made immediately after the end of the
accounting back to balances outstanding per the accounting records at the end of
the
accounting period (i.e. payments to balances)
D. A review of the relationship between reported purchases for the accounting
period and
the reported level of trade payables balances outstanding at the end of the
accounting
period
17. Which of the following techniques for collecting audit evidence is generally
accepted to be the
most efficient from the perspective of the auditor when testing for the
completeness and
accuracy of the depreciation charge for the year?
A. Recalculation
B. Reperformance
C. Analytical procedures
D. Confirmation
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19. Which of the following are examples of accounting estimates?
1 Depreciation
2 Provisions for warranties
3 Share capital
4 Losses on long-term contracts
A. 1 and 3 only
B. 1, 2 and 3
C. 1, 2 and 4
D. 2 and 4 only
21. Which of the following sources of evidence would be most appropriate to confirm
the existence
of yearend trade receivables balances?
A. External confirmations
B. Written representations from management
C. Analytical procedures
D. Recalculation
22. What primary audit objective is an auditor seeking to confirm when carrying out
a physical
inspection of the plant and equipment of a company?
A. Ownership of the assets
B. Existence of the assets
C. Ownership and existence of the assets
D. Valuation of the assets
25. Which of the following describes the auditor’s role when attending a client’s
inventory count?
A. To count all of the inventory
B. To observe the conduct of the inventory count
C. To identify damaged and obsolete inventory
D. To supervise the inventory counting teams
26. The auditor of Four Co, a manufacturing company, has noted an increase in total
sales value but
a decrease in the company’s gross profit percentage for 20X9 as compared to the
previous year.
Which of the following is consistent with and adequately explains the decrease?
A. Sales commission payable to the company’s sales force increased in relation to
sales
values as compared to 20X8.
B. Sales volumes have decreased as compared to 20X8.
C. During 20X9, due to a scarcity of supply the company had to pay higher prices
when
purchasing components.
D. During 20X9 a major component supplier withdrew the settlement discounts
previously
granted.
27. Which of the following would provide the most persuasive evidence of a
company’s ownership of
a freehold office building?
A. Inspection of the purchase documentation
B. Inspection of recent expense invoices for extensive repairs to the building,
paid for by the
company
C. Inspection of the title deeds to the building
D. Inspection of a directors’ board minute confirming ownership of the building
28. Which of the following strategies should give an auditor the strongest
assurance as to the
existence of trade receivables year-end balances, in a company with weak internal
controls,
over the sales and trade receivables function?
A. Carrying out a positive circularisation of receivable balances in respect of the
year-end
balances.
B. Carrying out a negative circularisation of receivables balances in respect of
year-end
balances.
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C. Confirming receivables balances by agreeing to sales invoices, authorised
delivery notes
and valid order.
D. Confirming receivables balances by verifying subsequent payments after the year-
end.
29. The auditor of Berry Co, a manufacturing company, has noted an increase in
total sales value
but a decrease in the company’s gross profit percentage for 2011 as compared to the
previous
year. Which of the following is consistent with, and adequately explains, the
decrease?
1 Sales volumes have decreased as compared to 2010.
2 During 2011, due to a scarcity of supply the company had to pay higher prices
when
purchasing components.
3 During 2011, a major component supplier withdrew early settlement discounts
previously
granted.
A. 1 only
B. 1 and 2
C. 2 only
D. 3 only
31. Checking a sample of purchase invoices to goods received notes (GRNs) would
provide
assurance the purchases had been completely recorded. Is this statement true or
false?
A. True
B. False
33. Which of the following documents is the most relevant in providing direction
and control of an
external audit?
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A. A summary of the results of the initial analytical review of the financial
statements
B. An internal control questionnaire
C. An audit completion checklist
D. A management letter
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5. Multiple choice questions
1. Which of the following techniques is not used at the final review stage of the
audit?
A. Tests of controls
B. B Analytical procedures
C. Accounting policies review
D. Discussion with directors
4. The management accounts of a limited liability company audit client reveal the
following assets
and liabilities at the end of an accounting period:
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The company’s Quick (Acid Test) Ratio was 1.60 in the previous year. What might the
auditor
infer?
A. The company should consider cheaper forms of finance.
B. The company’s current liabilities may have been overstated in the previous year.
C. The company is finding it difficult to support its level of debt and may have
going concern
issues.
D. None of the above
5. What type of audit report should be issued if the auditor identified a material
adjusting event but
the directors refuse to amend the financial statements to reflect it?
A. Unmodified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Qualified opinion
6. What type of audit report should be issued if the auditor identified a non-
adjusting event which
he considers needs disclosure in the financial statements but the directors refuse
to include the
disclosure?
A. Unmodified opinion
B. Disclaimer of opinion
C. C Adverse opinion
D. D Qualified opinion
11. Which of the following is not included in the standard auditor’s report?
A. Statement of management's responsibilities
B. Date
C. Title
D. Audit fee
12. Which of the following is not a necessary component of a standard audit report
for a limited
company?
A. A title identifying to whom the report is addressed
B. Identification of the financial statements audited
C. Confirmation of the accounting convention used in preparing the financial
statements
D. Confirmation of the directors’ responsibility in connection with the preparation
of the
financial statements
13. Which of the following should be included in an auditor’s report, when there
has been a limitation
on the auditor’s work in connection with a matter they consider material but not
pervasive to the
financial statements of a company?
A. A qualified opinion
B. A disclaimer of opinion
C. An adverse opinion
D. None of the above
14. Which of the following should a firm of auditors include in their report to
shareholders when they
disagree with the accounting treatment of an item that is material and pervasive to
the
company’s financial statements?
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A. An qualified opinion
B. An unmodified opinion
C. An adverse opinion
D. A disclaimer of opinion
15. The directors of an entity are refusing to amend the financial statements to
take account of a
customer who went bankrupt after the year-end and who owed the entity $10,000 at
the yearend. This amount is material. What type of audit report should be issued as
a result?
A. A Qualified opinion
B. B Adverse opinion
C. Unmodified opinion
D. Disclaimer of opinion
16. The auditors have been unable to verify the value of year-end inventory held by
an entity due to
a fire in one of its premises which destroyed some records. The value of inventory
affected is
thought to be around $1.5 million. Materiality is $2 million. What type of audit
report should be
issued as a result?
A. Disclaimer
B. Adverse opinion
C. Unmodified opinion
D. Qualified opinion
17. The management accounts of a limited liability company audit client reveal the
following assets
and liabilities at the end of an accounting period:
The company’s current ratio was 2.8 in the previous year, and the average current
ratio in the
industry is 3.2. What conclusions might the auditor draw?
A. The company’s current liabilities may be understated.
B. The company’s current assets may be overstated.
C. The company may have going concern problems.
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D. The financial statements may have been manipulated by management.
18. From your review of the financial statements of ABC Ltd, you calculated that
the current ratio at
31 December 20X9 was marginally lower than it was at31 December 20X8. However, the
quick
ratio at 31 December 20X9 was significantly lower than it had been a year earlier.
In the light of this, which one of the following should you be most concerned about
in your audit
of ABC Ltd?
A. Inventory has been over-stated
B. Trade receivables have been over-stated
C. Inventory has been under-stated
D. Trade receivables have been under-stated
19. Which of the following should a firm of auditors include in its auditor’s
report when they have
been unable to obtain sufficient appropriate audit evidence for an issue that is
material and
pervasive to the client’s financial statements?
A. An adverse opinion
B. A disclaimer of opinion
C. An qualified opinion
20. From your review of the financial statements of XYZ Ltd, you calculated that
the current ratio at
31 December 20X9 was significantly higher than it had been at 31 December 20X8. The
quick
ratio at 31 December 20X9 was also significantly higher than it had been a year
earlier.
In the light of this, which one of the following should you be most concerned about
in your audit
of XYZ Ltd?
A. Inventory has been under-stated
B. Trade receivables have been under-stated
C. Allowances for receivables have been over-stated
D. Accruals have been under-stated
21. Which of the following should a firm of auditors include in its auditor’s
report when there is a
misstatement arising from the accounting treatment of an item that is material and
pervasive to
the client’s financial statements?
A. An adverse opinion
B. A qualified opinion
C. A disclaimer of opinion
22. Which of the following statements is true with regard to an emphasis of matter
paragraph
included in a modified auditor’s report?
(1) The paragraph may refer to a matter other than those presented or disclosed in
the financial
statements that, in the auditor’s opinion is relevant to users’ understanding of
the audit.
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(2) The paragraph should ordinarily refer to the fact that the auditor’s opinion is
modified in
respect of the subject matter.
(3) The inclusion of the paragraph should not affect the auditor’s opinion on the
financial
statements.
A. (1) only
B. (2) only
C. (3) only
D. (1) (2) and (3)
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