Controls Chapter Revision Questions Answers

Answers for Controls Revision Questions
Controls OTQ s
1. A part of the External Auditor's job is to ensure companies are applying the Relevant Financial
Reporting standards correctly and fairly. Is the statement true or false?
A. True
B. False
2. XYZ is a company operating in UK. Following details are given about XYZ.
Total Assets – 8 Million (Requirement <5.1m)
Total revenue – 3 Million (Requirement : <10.2m)
Number of Employees – 100 (Requirement : <50)
Considering the Law in UK which of the following statements will apply to XYZ following (Select all that
apply)
1. XYS is required to do a mandatory Internal Audit
2. XYZ is not required to do a mandatory Internal Audit
3. XYS is required to do a mandatory External Audit
4. XYZ is not required to do a mandatory External Audit
BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 1

3. Match the following roles of an external auditor with the correct descriptions.
A
B
A. Independent i) Objectively assess the extent to which the financial statements reflect the
review underlying reality of the company's financial position.
B. Accounting ii) To give an opinion on whether financial statements of the company being audited
standards reflect the reality of the company.
C. True and fair iii) To Express an opinion on whether the statements have been prepared in
view accordance with the relevant legislation.
4. What is the role of the International Finance Reporting Standards (IFSR)?
A. To keep businesses all over the world in check by reporting on their activities.
B. To facilitate international businesses by settling universal standards for financial reporting.
C. To make sure international businesses are being ethically run.
5. The auditor has a specific responsibility to look for fraud.
Is this statement true or false?
A. False
B. True
6. Which of the following is NOT one of the auditor's powers?
A. The right to ask for explanations from the officers of the company.
B. The right to dismiss members of the staff.
C. The right to require the responsible officers of the audited entity to produce any documents
deemed necessary.
D. The right to access to the books and records of the company.

7. The auditor is not required to report on the performance of the management.
A. True
B. False
8. Who is involved in the three party relationship in External Audit?
A. External auditor, Internal auditor, directors

B. Auditor, shareholders and directors
C. Auditor, shareholders, government
9. Put the following stages of the audit process in order.
A. Audit opinion is formed

B. Auditor appointed by shareholders at AGM
C. Planning of the audit
D. Evidence is gathered to support an opinion
E. Audit report published
F. Auditor agrees terms with the company
G. Audit report is presented to the shareholders at the AGM
H. Auditor and senior management review findings
B -> F -> C -> D -> H -> A -> E -> G

10. Which of the following statements about the regulation of auditors and auditing are true?
Select all that apply.
A. The national law may exclude some entities from the requirements of an External Audit – for
example, small or medium companies.
B. Regulations vary from country to country.
C. All companies are subject to the same auditing requirements.
D. The Auditor are required under the law to detect all fraud, if there is any fraud they can be sued
for negligence
11. Which TWO of the following is NOT a benefit of an external audit?

A. It is likely to act as a fraud deterrent
B. The financial statements will not have any errors in them
C. Avoids breaking the law, for some entities an audit is not an option
D. The auditors will assist in the preparation of the financial statements
E. Application to third parties for finance may be enhanced
12. Below are a number of statements regarding internal and external audit. Which FOUR of the
statements relate to internal audit rather than external?
A. It is a legal requirement for larger companies
B. The scope of work is decided by management
C. Can be undertaken by employees of the company
D. Ultimately reports to the company’s shareholders
E. Reviews whether financial statements are true and fair
F. Must be undertaken by independent auditors
G. Mainly focuses on reviewing internal controls
H. Ultimately reports to management

13. The key purpose of internal auditing is to:
A. evaluate the organization’s risk management processes and systems of control
B. give confidence as to the truth and fairness of the financial statements
C. detect errors and fraud
D. express an internal opinion on the truth and fairness of the financial statements
14. A is preparing a seminar for the Board of Directors of the company she works for regarding internal
and external audit and the difference between the two.
Which TWO of the following points are correct with regards to internal and external audit?
I. The scope of the internal auditors’ work is determined by the management of the company,
while external auditors determine the scope of their own work according to International
Auditing Standards.
II. Internal auditors test the organizations’ underlying transactions, while external auditors test the
operation of the organisation’s systems.
III. Internal audit and external audit are usually both legal requirements.
IV. Internal auditors can be employees of the company they audit, while external auditors should not
be employees.
A. (i) and (ii) only

B. (ii) and (iv) only
C. (i) and (iv) only
D. (iii) and (iv) only
15. Which of the following statements are correct with regards to external audit?
I. Due to their in-depth examination of the business, external auditors are often able to
provide advice to the management on possible improvements to the business.
II. External auditors often have an independence problem as they report to management
and yet are also expected to give an objective opinion on them.
III. External auditors are required to give their independent opinion about the business and
can be made answerable by the shareholders
IV. External auditors have little or no interest in the internal controls of the organisation as
these are the responsibility of the internal auditors.

A. (i) and (iii)
B. (ii) and (iv)
C. (i), (ii) and (iv)
D. (i), (iii) and (iv)
16. Consider the following two statements

(1) A comprehensive system of control will eliminate all fraud and error.
(2) Employees working in departments other Accounts have no responsibility for reporting fraud.
Which of these options is/are correct?
A (1) only
B (2) only
C Both
D Neither
17. A major aim of the internal auditors is to

A. prepare financial accounts
B. report to shareholders on the accuracy of the financial statements
C. report to management on internal controls
D. reduce the costs of the external auditors by carrying out some of their duties
18. Which of the following are reasons why an External Audit may not have it’s intended effect for the
shareholders?
A. Because Financial Statements include subjective estimates
B. Because External Auditors cannot provide an assurance on important items
C. Because External Auditors may have to rely on representations by the management
where there is no other evidence
D. Because External Auditors may refuse to test all transactions
E. Because evidence that is gathered is usually persuasive and not conclusive

19. Which of the following statements is correct?
A. External auditors correct errors in financial statements
B. External auditors are required to give a report to shareholders
C. External auditors are appointed by the directors
D. External auditors report to the directors
20. The fundamental objective of an external audit of a limited company is to:

A. give advice to shareholders
B. provide an opinion on the financial statements
C. detect fraud and errors
D. measure the performance and financial position of a company
21. A ‘fair presentation’ or ‘true and fair view’ is one that:

A. shows the financial statements of an organization in an understandable format
B. occurs when the financial statements have been audited
C. presents the financial statements in such a way as to exclude errors that would affect
the actions of those reading them
D. shows the assets on the statement of financial position at their fair value
22. Which of the following statements is not correct?

A. Internal audit should be as much as possible independent of the activities it audits
B. Internal audit is a management control
C. Internal auditors may review value for money
D. Internal auditors should not help external auditors
23. Many organizations consider outsourcing their Internal Audit function. Which of the following
are ADVANTAGES of doing this? (Select ALL correct answers)
A. May improve independence
B. Risk of staff turnover is passed to the outsourcing firm
C. Decisions relating to Internal Audit can be based solely on cost
D. Better understanding of the organization’s objectives and culture
E. Specialist skills may be more readily available

24. Many organizations consider outsourcing their Internal Audit function. Which of the following
are DISADVANTAGES of doing this? (Select ALL correct answers)
A. Flexibility and availability may not be as high as with an in-house function
B. Increased management time
C. Possible conflict of interest if provided by the external auditors
D. Loss of control over standard of service
E. Decisions relating to Internal Audit may be based solely on cost
25. Internal and external audit have similarities, but several features distinguish between them.
Drag and drop the following distinguish features into the correct category.
Internal Audit External Audit

Required by shareholders
Required by statute
Reports to Shareholders
Reports to Audit Committee or Directors
Reports on financial statements
Reports on controls
26. Which of the following best describe the role of the auditor?
A. The auditor is responsible for detecting all fraud
B. The auditor tests all balances as part of their audit work
C. The auditor is responsible for preparing the financial statements on behalf of
management
D. The auditor provides reasonable assurance that the financial statements are correct

27. Which of the following statements is not correct:
A. The auditor has the right to access the accounting record of a company
B. The auditor has the right to call a general meeting of shareholders
C. The auditor has the right to speak at a general meeting of shareholders
D. The auditor has the right to obtain explanations as necessary for the performance of
their duties
28. Which of the following statements describe the role of the internal audit function? (This
question is tougher than it looks, read properly)
(1) Appointment is made by the audit committee
(2) The internal audit team must be independent of the company
(3) The internal audit function reports to the shareholders
A. (1) only
B. (2) only
C. (2) and (3) only
D. (1), (2) and (3)
29. Which of the following is not one of the five elements of an assurance engagement?
A. Suitable criteria
B. Assurance file
C. Subject matter
D. Written report
30. Which of the following statement is false?

A. The audit opinion will provide reasonable assurance.
B. The auditor will express an opinion as to whether the financial statements show a true
and fair view.
C. An audit may not detect all fraud and error in the financial statements.
D. None of the above

31. Which of the following is not a benefit of an audit?
A. Fraud may be detected during the audit
B. Deficiencies in controls may be identified during testing
C. Sampling is used
D. Increased credibility of the financial statements
32. Which of the following statements regarding fraud is correct?

A. The auditor may no detect all fraud in the financial statement but this won’t
necessarily mean the auditor has been negligent due to the nature of fraud and the
likelihood of concealment
B. To ensure the audit is as profitable as possible
C. To enable the appropriate audit to be assigned
D. None of the above
33. Which of the following is not a benefit of planning audit?

A. It ensures the financial statements will be correct
B. It ensures the audit is performed at the lowest cost
C. It minimizes the risk the auditor will issue an inappropriate opinion
D. It helps identify the resources to be allocated
34. Which of the following statement/s is/are correct?

1 Internal auditors always report directly to shareholders
2 The format of external audit reports is determined by management
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 or 2

35. Errors count as Fraud.
True or False?
A. True
B. False
36. What is the formal definition of fraud

A. ‘Making a profit from financial statements’
B. ‘An abuse of position, or false representation, or prejudicing someone’s rights for
personal gain.’
C. ‘Omitting pertinent details’
D. ‘Providing false information’
37. What are the THREE basic conditions that indicate fraud risk?
A. Dishonesty on behalf of the employees
B. The opportunity for fraud to occur
C. Likelihood of getting caught
D. The motivation for the employee to commit fraud
38. If you are called upon to conduct an External Audit what should be your very first step?
A. Discuss the fee
B. Assess the compliance with ethical requirements
C. Assess the number of Auditors required for the Audit
D. Plan the timeline for the Audit
39. Which two of the following are reason why a company might want to set controls
A. To increase the chance of an act of fraud being discovered
B. To increase workplace efficiency
C. To reduce the chance of an employee committing fraud
D. To increase profits

40. Which of the following is NOT one of the three components of fraud risk management?
A. Response
B. Policy statement
C. Prevention
D. Detection
41. Which of the following is NOT an example of a fraud prevention control?

A. Supervision
B. Clear disciplinary procedures
C. Strong PR procedures
D. Strong recruitment procedures
42. Ultimately it is management’s responsibility to identify and manage fraud.

Is the statement true or false?
A. True
B. False
43. Which stage of a company’s fraud risk management strategy involves having a fraud policy
statement?
A. Fraud prevention
B. Fraud response
C. Fraud detection
44. Which stage of a company’s fraud risk management strategy involves having a public relations
plan?
A. Fraud detection
B. Fraud prevention
C. Fraud response

45. Which of the following are problems with internal controls?
Select ALL that apply
A. Assurance is not absolute
B. It can reduce the amount of errors in financial records
C. They are dependent upon people for efficient execution
D. May not be practical for small and medium scale organisations to design considering
the cost
E. They may assist in deterring fraud
46. Companies need to weigh up the benefits and costs of their risk management controls.
A. True
B. False
47. You have been hired as an external consultant for Apple, which is a private limited company
incorporated in UK.
Following data is given to you above Apple
• Total Revenue 10m
• Total Assets 8m
• Number of employees 1500
Apple is operating in multiple countries and has suppliers from all around the world. Apple also
maintain a warehouse in china and is thinking about opening a new warehouse in Bangaldesh.
CEO of apple has asked you to advise him on the requirement of conducting an Audit.
Select ALL that apply.
1. Apple is required to conduct an Internal Audit in terms of the Law as they are a large scale
company operating in multiple countries.
2. Apple is required to conduct an External Audit in terms of the Law considering their
situation.
3. It is advisable for Apple to conduct an External Audit, only if the shareholders want as
conducting an External Audit will reduce error and fraud.

4. It is advisable Apple to conduct an Internal Audit as it will help reduce fraud and error.
5. Since Apple is operating in China, it is not possible for Apple to conduct either an Internal or
External Audit.
48. Internal auditing is an internal, independent, objective assurance designed to add value and
improve an organisation’s operations who’s main role is to implement Internal Controls.

A. True
B. False
49. What is the key purpose of internal auditing?

A. To give an opinion on the truth and fairness of financial statements
B. To evaluate environmental impact of the business
C. To implement Internal Controls
D. To give confidence to the truth and fairness of financial statements
50. Which TWO of the following statements refer to internal auditors?

A. They look at the whole organisation, its controls and processes
B. They are selected by shareholders
C. They are not employees of the company being audited
D. They are responsible to the managers of the company being audited
51. Which of the following do not directly determine the need for an internal audit department?
A. Cost Vs. Benefits

B. Amount of competition
C. Complexity of the organisation
D. Size of the company

52. You have been asked to conduct a value for money Audit for XYZ PLC with regard a department and
it’s performance in 2020 compared to 2019. You have conducted a preliminary analysis and has found
following information. The objective of XYZ for Department A is to manufacture minimum 5000 units per
year.
Department A - Year 2019
Total Purchases $20 Million
Alternative suppliers for purchases is available at $25 Million (Same Quality of input)
Total output 10,000 Units
Department A - Year 2020
Total Purchases $20 Million
Alternative suppliers for purchases is available at $15 Million (Same Quality of input)
Total output 8000 Units
Which aspect of 3Es has the Department A achieved in 2020? (Select ALL that apply)
1. Economy
2. Efficiency
3. Effectiveness
4. Department A has not achieved any of the 3Es
53. An organization is not able to outsource an internal audit. Is the statement true or false?
A. False
B. True

54. Which THREE of the following are advantages of outsourcing internal auditing?
A. Flexibility to increase or reduce in size

B. Less risk of knowledge/expertise of company and its objectives
C. Naturally more independent
D. May lead to lower cost sometimes
55. Linda is an External Auditor of Sinbad PLC a company incorporated in UK and listed in the London Stock
Exchange. Although Sinbad is a publicly listed company and has their own Internal Audit department when
Linda and her team was conducting the Audit they found number of problems with the Internal Controls.
Out of the following statements, select the statements that best apply to Linda’s situation. (Select ALL
that apply)
1. Linda cannot issue an opinion about financial statements as the Internal Controls are unreliable
2. Linda can write a report to the Management identifying the deficiencies of Internal Controls and
recommending corrective actions
3. Linda can change the Internal Controls prior to conducting of the Audit to enhance the quality of the
Internal Controls.
4. It is the duty of Linda to establish the Internal Controls as she is the External Auditor.
5. Linda will have to enhance the amount of substantive testing prior to formation of an Audit Opinion
56. An internal audit report may include related recommendations or action plans. Is this statement true
or false
A. False
B. True
57. Complete the following sentence: An audit risk refers to ...
A. ...the level of risk of regulations being broken; this determines if an audit is necessary.
B. ...the risk that audits present to employees.
C. ... ... the risk that an auditor may arrive at an incorrect opinion about the Financial Statements
D. ...the health and safety risks involved in auditing.

58. You have recently qualified CIMA and has joined an Audit Firm. You have no prior Auditing
experience. How do you reduce the Audit Risk?
1. Exclude auditing areas where the inherent risk is high.
2. Do more testing and implement special procedures
3.Implement more internal controls
4. Attend Training sessions and gain more knowledge
59. What is the first step of an internal audit?
A. Negotiate action plans with management to address the problems.

B. Describe the key risk facing the business activities within the scope of the audit.
C. Establish and communicate the scope and objectives of the audit to appropriate management.
D. Report problems identified.
60. An auditor is testing all transactions in material areas of the ledger for errors and frauds what type of
testing is this auditor conducting?
1. Control Testing
2. Analytical Testing
3. Substantive Testing
4. Transaction Testing
61. You have been appointed as the External Auditor of ABC PLC. You have conducted the Audit and you
are satisfied that the financial statements are True and Fair, however you are not satisfied of the
accounting procedure adopted with regard to some transaction. None of them are material items nor is
the procedure adopted against Internal Standards or the Law, however you feel that a different treatment
could have been better given the situation of the company and you wish to keep the shareholders
informed regarding this. What type of an Audit Report will you have to produce?

1. Unmodified report with unmodified opinion
2. Unmodified report with modified opinion
3. Modified report with unmodified opinion
4. Modified report with modified opinion
62. What does the Head of Internal Audit do?
A. Nothing- such a position doesn't exist

B. Reports the most crucial issues to the Audit Committee
C. Report to the external auditors
63. You are recently qualified CIMA Accountant. You have no prior working experience. You have
recently seen an advertisement where a company is hiring Internal Auditors. You think you can get into
the job by offering to work for a lower salary. What is the Fundamental Principle of CIMA Code of Ethics
that is most at risk?
1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behaviour
64. DrugRUs is an international pharmaceutical company. It offers hundreds of different drugs and
medicines in several companies. It has an annual turnover £100 million.
Why should the company have it’s own internal auditing department?
A. Because it’s the law that all companies with an annual turnover of more than £100 should have
their own internal auditing department.
B. Because it’s a large company therefore have a higher need for governance and control.
C. It shouldn't.

65. Bill is an owner of a medium scale company the revenue of the company is $10,000 per year. The net
profit for the year was $1500. They have 5 staff members, all of them work under Bill at a central office.
The work carried out by the company is very simplistic in nature. Bill has recently done an investigation
and has discovered that annually $300 are stolen by certain staff members. However he has not yet been
able to discover the person who is guilty. Bill has spoken to an Internal Audtior who has promised Bill that
he will implement sufficient internal controls to prevent the theft. Internal Auditor is asking for a salary of
$500 per year. Previously Bill owned another shop which went bankrupt due to a major fraud committed
by an employee.
What is your recommendation to Bill on Auditing?
1. It is recommended that Bill implement an Internal Audit
2. It is recommended that Bill does not implement Internal Audit
3. It is recommended that Bill conduct an External Audit.
4. It is recommended that Bill does not conduct either Internal nor External Audit.
66. Select All correct Answers with regard to Internal and External Audit
1. Main objective of an Internal Audit is to assess the accuracy of Financial statement whether they are
true and fair
2. Conducting an External Audit is a legal requirement for large companies
3. Conducting an Internal Audit is recommended by corporate Governance
4. External Auditors have responsibility to assess internal controls and give their opinion about it
5. Internal Auditors must report their findings to External Auditors
6. Head of Internal Audit is the Chief Internal Auditor
7. It is the duty of the External Audit to advise the Internal Auditors on implementing Internal Controls
8. Appointments of External Auditors is by shareholders and Internal Audit by the Management (or
the audit committee if any)

67. Xavier’s audit wasn’t as effective as he’d have liked it to be. Amongst a number of issues, audit took a
lot longer than it should have and didn’t have a clear schedule. Which of the following are NOT reasons
why the audit wasn’t completely effective. Select ALL that apply.
A. The audit was confidential

B. Not all of the auditors had integrity
C. Due care was not taken
D. The audit didn’t follow a standardized procedure
E. The audit was conducted by qualified auditors
F. The audit was completely objective
68. Dan runs his own business of selling postcards at the beach. He owns four stands and employs four
people – sometimes six in the summer. Why should Dan have his own auditing team?
A. He shouldn’t
B. Because it’s a legal requirement
C. Because all companies should have their own auditing team
69. Billy owns and runs several highly successful business in his town. His business interests many
including: three restaurants, a dry cleaners, an opticians and a corner shop. He only has a few departments
that need auditing and only every financial quarter.
Billy is thinking of outsourcing his auditing.
Why might this be a good idea?
A. Because it might be cheaper

B. Because it would likely result in a more confidential report
C. Because it would be naturally more independent
D. Because it would improve the company's reputation
E. Because that’s what most other businesses do
F. Because expertise is readily available

70. You have been asked to conduct an External Audit of Hora PLC. When you start conducting the Audit
you realise that there are no proper records for most the important transactions. Why would this become
an issue for the Audit? (Select all that apply)
1. Because it is difficult to express an opinion
2. Because it is difficult to establish an Audit Trail
3. Because the inherent risk will be high
4. It is not an issue
71. The external auditors are required to review and report on the performance of
management.
A. False
B. True
72. Which of the following is NOT an issue an auditor must consider when forming an opinion?
A. Whether the client has kept proper books and records.

B. Whether the company is environmentally aware.
C. If the financial statements are in agreement with the underlying financial records
73. An unmodified audit report is the standard report issued when the auditor is satisfied with
each of the elements on which they have to express an opinion.
A. True
B. False

74. When would an auditor use a modified audit report with a modified opinion?
A. When they run into issues when conducting their audit

B. When a company is found to be performing exceptionally well.
C. When they are auditing a multinational corporation.
75. Match the following types of audit reports with the correct definitions.
A B
A. Unmodified Audit Report Financial Statements are true and Fair, but there is something the
with Unmodified Opinion Auditor wishes to inform shareholders.
B. Modified Audit Report with Financial Statements are true and Fair, nothing to report.
Modified Opinion
C. Modified Report with Financial Statements are not true and fair or the auditor was not
Unmodified Opinion able to gather enough evidence to express an opinion.
76.Which THREE of the following are disadvantages of an external audit?
A. Time consuming
B. It’s costly
C. It decreases your company's chance of a loan.
D. Risks a confidential information leaking
77. Which of the following is NOT an advantage of external auditing?
A. Increased chance of loan approval.

B. Error and fraud detection/ prevention.
C. It's a fast process.
D. Helps to value to the business

78. Audit requirements are the same for all countries.
A. False
B. True
79. Which TWO of the following statements refer to external auditors?
A. They are responsible to the managers of the company being audited.

B. They are responsible to the shareholders
C. They look at the whole organization, its controls and processes.
D. They are focused on purely financial matters.
80. Which TWO of the following statements refer to internal auditors?
A. They are responsible to the managers of the company being audited

B. They are selected by the shareholders
C. They look at the whole organization, its control and processes
D. They are not employees of the company being audited
81. Sam has been external auditor for less than three weeks. She sometimes forgets what her
powers are.
Which of the following powers does she have?
A. The right to require the responsible officers of the audited entity to produce any
documents the auditor believes are necessary.
B. The right to dismiss company employees
C. The right to be notified of meeting of the shareholders of the company and to speak at
them.
D. The right to recommend new managerial appointments
E. The right to ask for explanation from officers of the company
F. The right to shut the company down.
G. The right to access to the books and records of the company.
H. The right to present arguments at a meeting if there is a proposal to remove the
auditors

82. Nigel is thinking about having an external audit conducted on his business.
What are the possible ADVANTAGES Nigel may experience from conducting an External Audit?
A. The business will make a short-term saving.

B. The company's reputation will improve with shareholders
C. The company’s chance of obtaining a loan will increase
D. The company will be able to increase employee motivation
E. The company will be able to identify any weakness in internal controls and processes.
F. The company will be able eradicate all errors and fraud
83. Nigel is thinking about having an external audit conducted on his business
What are the possible DISADVANTAGES Nigel may experience from conducting an External
Audit?
A. There are risks of confidential information leaking.

B. It would cost him, a lot of money.
C. It would take up a lot of the business's time.
D. It decreases the company's chance of a loan.
E. It decreases the company's reputation.
84. After weighing up the pros and cons, Nigel has decided to go ahead with the audit.
However, he still needs reminding of the audit process.
What should his first step be?
A. To have shareholders appoint the auditor at the next AGM.

B. To research potential auditors
C. To plan the audit.
D. To discuss terms with the appointed auditor.
E. To randomly select a name out of the hat at the next AGM.

85. It has been a year since Nigel appointed his Auditor. Now the Audit has come to an end.
What will be the last step of the Audit.
1. Informing the government regarding results of the Audit
2. Presenting the Audit Report to the Shareholders at a AGM
3. Informing the Management regarding weakness of internal controls identified during the
process
4. Submitting the Audit Report to the Audit Committee of the company
86.
Jerry has been conducting an audit on BoxCo, a company that manufactures cardboard boxes.
The audit started smoothly. However, during the process Jerry has discovered misstatements in
the company's financial statements, most which are among material items.
What should he do?
A. Issue a modified audit report.

B. Formally tell the company's head management to correct the issue.
C. Make a note of the issue in an ‘emphasis of matter' statement.
D. Issue an unmodified audit report.
87.
Which of the following should be included in an Engagement Letter? (Select ALL that apply)
A. The responsibilities of shareholders

B. The responsibilities of the auditor.
C. The responsibilities of management.
D. The powers of the auditor to call for shareholder meetings
E. The identification of an applicable financial reporting framework.
F. The guidelines prepared by the management on how to conduct the audit
G. Reference to the expected form and content of any reports to be issued.
H. The objective and scope of the audit.

88.
You are working as an External Auditor for a company listed in the London Stock Exchange.
Recently when you were trying to obtain certain information you were prevented by the CEO of
the company from obtaining that information. He has offered you a job with a very high salary
and has requested you to stop unnecessary investigations. What should you do?
1. Report to the Police that the CEO is involved with a Fraud
2. Report to the Audit Committee regarding the incident
3. Report to the Board of Directors regarding the incident
4. Report to the shareholders regarding the incident
89. Becky works for an auditing company. Her services are hired by fizzy drinks company who
want their finances, risk management and internal controls/ processes checked – as well as other
things that may fall outside of her usual remit.
What type of auditor is Becky?
A. Internal auditor
B. Either
C. External auditor
D. Neither
90. Katie is conducting an external audit on a manufacturing company. She is focusing on the
expense accounts of the heads of departments.
Why should she inform the internal auditors that this is where she will be focusing her attention?
A. Because the internal auditor has a responsibility to monitor the external auditor.
B. Because they could work together to address mutual concerns.
C. Because it is mandatory for internal and external auditors to cooperate.
D. Because external auditors should co-ordinate with internal auditors in order to ensure
pertinent information is available.

91. Below is a list of accountants who have all made mistakes in their reports .
Which of them has made an error of principle?
A. Michael – Entered purchases in sales account
B. Terry – Entered money paid to A who is a creditor in B’s account who is also a creditor
C. John – Forgot to record a payment made to Z
D. Sarah – Entered machinery which has a life time of 10 years in an expense account.
E. Jessica – Recorded a payment from Zeela in Deela’s account both of whom are debtors
92. Divide the following whether they are to Fraud Prevention tools or parts of Fraud Response Plan
A. Creating an Anti Fraud Culture
B. Internal Disciplinary Action
C. Encouraging Whistleblowing
D. Risk Awareness
E. Public Relations Plan
93. Below is a list of accountants who have all made mistakes in their reports.
Which of them has made an error of omission?


94. Which of the following should be confirmed in a Written Representation Letter
A. The relevant Financial Reporting Standard that was followed in preparing financial
statements
B. Plans or intentions that may affect the carrying value of assets ex liabilities
C. The fee of the Auditor
D. Matters affecting the Independence of the Auditor
E. Confirmation of values where there is a significant degree of estimation or
judgement involved
F. Formal confirmation of the directors' judgement on contentious
G. Weaknesses in internal controls identified during the Audit Process and the
recommendations to improve them
H. Aspects of laws and regulations that may affect the financial statements, including
compliance.
95. Mike notices one of his employees has been eating lunch on his own and generally avoiding
people – he used to be quite sociable.
Why could this be a sign that the employee is committing fraud?
A. Because fraudsters are generally quite unsociable
B. Because he doesn’t want to give himself away
C. Because an employee being on their own is always a sign that they are up to something
D. It’s not a sign, and never should be seen as one
96. Company Y a computer manufacturer that is assessing its fraud risk management . It begins by
looking at fraud prevention.
Which of the following could Company Y do in order to reduce the likelihood of fraud occurring?
Select all that apply.
A. Ensure that its inventory and assets are regularly checked.

B. Ensure that all staff on the production floor are supervised and monitored
C. Ensure that its management accounts are regularly checked
D. Ensure that all new staff – on the production line and those higher up are thoroughly
vetted.

E. Have a clear disciplinary procedure in place for anyone who has not been acting
responsibly or competently.
F. Ensure that the company has a PR department to handle Fraud Related issues
97. An employee in charge of a fizzy drinks production account is going through an expensive
divorce.
Why might the company’s senior management be concerned?
A. Because there is an opportunity for fraud within the company
B. Because he might not work as hard
C. Because the employee might start to be untruthful and not disclose information that he
should
D. Because the employee could be motivated to commit fraud
98. Debra has hired an External Auditor. She has heard that getting an External Audit will help
reduce fraud and error. Which of the following statements are MOST suitable.
A. Debra’s information is not true, External Auditors cannot reduce any fraud or error
B. Debra’s information is true, External Auditors will help reduce all errors and frauds
C. Debra information is true to some extent, External Auditors will detects errors and
frauds in material items
D. Debra’s information is not true, External Auditors are in charge on implementing
Internal Controls and they do not look for fraud and error
99. The purchasing process of Emily’s pharmacy is long and cumbersome requiring tender
documents, reviews, authorization and supplier checks.
Which problem with controls does this demonstrate?
A. Bureaucracy and inflexibility
B. Some factors are out of organisation’s control
C. Costs
D. Dependent on people

100. Below is a list of accountants who have all made mistakes in their reports.
Which of them has made an error of commission?


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Answers for Controls Revision Questions

Total Assets – 8 Million (Requirement <5.1m)

Total revenue – 3 Million (Requirement : <10.2m)

Number of Employees – 100 (Requirement : <50)

1. XYS is required to do a mandatory Internal Audit

2. XYZ is not required to do a mandatory Internal Audit

3. XYS is required to do a mandatory External Audit

4. XYZ is not required to do a mandatory External Audit

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 1

4. What is the role of the International Finance Reporting Standards (IFSR)?

5. The auditor has a specific responsibility to look for fraud.

Is this statement true or false?

6. Which of the following is NOT one of the auditor's powers?

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 2

Is this statement true or false?

8. Who is involved in the three party relationship in External Audit?

A. External auditor, Internal auditor, directors

9. Put the following stages of the audit process in order.

A. Audit opinion is formed

B -> F -> C -> D -> H -> A -> E -> G

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 3

Select all that apply.

11. Which TWO of the following is NOT a benefit of an external audit?

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 4

A. (i) and (ii) only

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 5

16. Consider the following two statements

Which of these options is/are correct?

17. A major aim of the internal auditors is to

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 6

20. The fundamental objective of an external audit of a limited company is to:

21. A ‘fair presentation’ or ‘true and fair view’ is one that:

22. Which of the following statements is not correct?

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 7

Internal Audit External Audit

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 8

30. Which of the following statement is false?

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 9

32. Which of the following statements regarding fraud is correct?

33. Which of the following is not a benefit of planning audit?

34. Which of the following statement/s is/are correct?

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 10

36. What is the formal definition of fraud

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 11

41. Which of the following is NOT an example of a fraud prevention control?

42. Ultimately it is management’s responsibility to identify and manage fraud.

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 12

Select ALL that apply.

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 13

Is this statement true or false?

49. What is the key purpose of internal auditing?

50. Which TWO of the following statements refer to internal auditors?

A. Cost Vs. Benefits

BA4 2021 – Answers for Controls Revision Questions – Boopathy Kahathuduwa 14

Department A - Year 2019

Total Purchases $20 Million

Total output 10,000 Units

Department A - Year 2020

Total Purchases $20 Million