Cairo University Mid-term Exam- 2022-2023 March 2023

Faculty of Commerce Auditing and Assurance Date

Accounting department Georgia Program – Year 3 Page:
Accounting and Auditing Major
MODEL (1)
Choose the appropriate answer from a,b,c and d:
1. Audits with a low acceptable audit risk will normally result in……….
a. limited audit cost b. higher cost of audit c. lower inherent risk d. lower number
of procedures
2. The client business risk measures………………………….
a. the ability of the b. the ability of the c. the ability of the d. All of them
client’s management client’s management client’s management
to generate profit to increase production to meets its objectives
3. The susceptibility of some accounts such as financial leases and pensions to
material misstatements is defined as……………….
a. control risk b. risk of material c. planned detection d. inherent risk
misstatements risk
4. Investigating new clients and re-evaluating existing ones is an essential part of
determining the …………….
a. AAR b. client’s business c. control risk d. inherent risk
risk
5. The CPA firm must have the……….., such as industry knowledge , to accept the
engagement of a new audit.
a. personal judgement b. competency c. scepticism d. professional judgement
6. The predecessor auditor must obtain permission from the client before starting the
communication with the new auditor due to …………………
a. AICPA b. CPA adopted policy c. Engagement letter d. code of
requirements professional conduct
7. ………….. may response by stating that no information will be provided.
a. successor auditor b. the client’s CEO c. predecessor d. the audit
auditor committee
8. For public companies, ………. is responsible for hiring the auditor as required by
the Sarbanes Oxley Act (SOX)
a. the CFO b. the audit committee c. the CEO d. predecessor auditor
9. The restrictions to be imposed on the auditor s work, might be included in ……
a. financial b. Audit plan c. Engagement letter d. Audit report
statements
10. Which of the following transactions involves higher inherent risk?
a. purchases b. sales transactions c. subsidiary and d. capital
transactions with with key customers holding companies’ expenditure
key suppliers mutual transactions transactions
11. The related party transactions lack …………………..
a. the efficiency in b. the independence c. the conflict in d. the effectiveness
operations between parties interests in operations

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 12. Conducting ratio analysis and benchmarking against key competitors, should be
performed after which of the following steps?
a. accepting the b. assessing the c. assessing the preliminary d. Understanding the
new client inherent risk materiality level client s business and
industry.
13. Risks associated with specific industries may affect which of the following?
a. the client’s b. inherent risk c. Acceptable audit risk d. All of them
business risk
14. Which of the following is NOT TRUE?
a. Many inherent risks are common to all clients in certain industries.
b. Key performance indicators (KPIs) that management uses to measure progress toward its
objectives.
c. Materiality is an absolute concept rather than relative .
d. Inherent risk at the financial statements level may increase if the client has set
unreasonable objectives.
15. A tour of the client's facilities provides the auditor an opportunity to………….
a. observe operations b. assess physical c. meet key d. All of them
safeguards over assets. personnel
16. Which of the following is not classified as analytical procedures?
a. reconciling fixed asset dispositions with the fixed asset ledger
b. benchmarking the company's profitability ratios against others in the industry
c. common size analysis
d. dividing income statement account balances by the net sales when the level of sales has
changed from the prior year.
17. Risk of material misstatement at the assertion level.
a. is only relevant to account balances. b. determines the nature, timing, and
extent of further audit procedures.
c. refers to risks that are pervasive to the d. consists of business risk and inherent
financial statements as a whole risk.
18. Risk assessment procedures are performed to identify and assess the risk of
material misstatement which of the following is considered as risk assessment
procedure?
a. Inquiries of management and others b. Observation and inspection
within the entity
c. Analytical procedures d. All of them
19. Which of the following is True?
a. The auditor should assess the audit b. The risk of material misstatement is the
related risks precisely to discover material risk that the financial statements contain a
misstatements. material misstatement due to fraud or error
prior to the audit
c. A significant risk represents an d. Risk of material misstatements refers to
identified and assessed risk of material risk that is related pervasively to the
misstatement due to unintentional errors financial statements as a whole only.
20. Fraud is difficult to uncover because ………………….
a. it has a pervasive effect on the financial b. the auditor lacks the adequate
statements professional skills to discover fraud
c. fraudulent transactions are usually d. Lack of auditing standards that guide
concealed the auditor to uncover fraud.

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 21. Is the risk that audit evidence for a segment will fail to detect misstatements
exceeding performance materiality?
a. Inherent risk b. planned detection c. significant risk d. risk of material
risk misstatements
22. When considering the risk of misstatement due to fraud…….
a. the risk of not detecting a material b. the risk is only made at the financial
misstatement due to fraud is lower than the risk statement level
of not detecting a misstatement due to error.
c. auditing standards outline procedures the d. auditing standards require the auditor
auditor should perform to obtain information to presume that risk of fraud exist in
from management about their consideration of expense transactions.
fraud
23. Which of the following best describes the relationship between PDR and audit
evidence?
a. direct relationship b. inverse c. no relationship d. insignificant
relationship relationship
24. Which transaction cycle has high inherent risk and high control risk?
a. payroll cycle b. Capital acquisition c. Inventory and d. sales collection
cycle warehousing cycle cycle
25. Internal controls are ignored in setting inherent risk because…………
a. they are considered separately in the audit b. they are not affecting each other
risk model as control risk
c. internal controls can not minimize the d. Internal controls are not very important
inherent risk effect
26. The higher the inherent risk, the ………………. to collect.
a. lower evidence b. more evidence c. moderate evidence d. none evidence
27. Why do auditors establish a preliminary judgment about materiality?
a. to help the auditor plan the b. to help the client know what records to make
appropriate evidence to accumulate available to the auditor
c. to finalize the control risk d. to determine the appropriate level of staff to
assessment assign to the audit
28. Which of the following is the primary basis used to decide materiality for a profit-
oriented entity?
a. inventory b. net assets c. net sales d. income before tax and
interest
29. It assesses the effectiveness of internal controls to prevent or detect material
misstatement.
a. significant risk b. planned c. control risk d. fraud risk
detection risk
30. The audit risk model shows the close relationship between ………………………
a. significant risk b. PDR and c. fraud risk and d. inherent and control
and fraud risk AAR client’s business risks
risk

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