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FINALTERM
EXAMINATION
Fall
2008
ACC311- Fundamentals of Auditing (Session - 1)
Question
No: 1 ( Marks: 1 ) - Please choose one
When
the cash sales should be recorded by the companies in order to achieve control
objectives?
Record
the cash sales when purchase order is received from the customer
Record
the cash sales at the point they are made
Record
the cash sales after some period
Record
the cash sales weekly
Question
No: 2 ( Marks: 1 ) - Please choose one
Auditors
conduct auditing in accordance with :
International
Financial Reporting Standards
Local
pronouncements/Legislations
Financial
Accounting Standards Board
All
of the given options
Question
No: 3 ( Marks: 1 ) - Please choose one
Which
of the following primary assertions is satisfied when an auditor ensures that
there are no
unrecorded
assets, liabilities, transactions or events or undisclosed items in the client
s financial
records?
Valuation
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Completeness
Existence
Rights
and obligations
Question
No: 4 ( Marks: 1 ) - Please choose one
Which
one of the following statements is NOT true about the internal control system
of a
company?
Internal
control is affected by people working in an organization
Internal
control is a process of bringing accuracy and improvements in the systems
Internal
control systemt is expected to provide absolute assurance about the performance
of
a company
Internal
control is geared to achieve objectives of financial reporting, compliance and
operations
Question
No: 5 ( Marks: 1 ) - Please choose one
Who
shall fix the remuneration of the auditors, if auditors of a company are
appointed by the
shareholders?
(Companies Ordinance, 1984)
Directors
Shareholders
Securities
and Exchange Commission
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Institute
of Chartered Accountants of Pakistan (ICAP)
Question
No: 6 ( Marks: 1 ) - Please choose one
If
Directors could not appoint the first auditors of a company, then the first
auditors shall be
appointed
by which one of the following authorities? (Companies Ordinance, 1984)
Shareholders
Securities
and Exchange Commission
.
Company
secretary
Company
registrar
Question
No: 7 ( Marks: 1 ) - Please choose one
The
books of accounts of a company should be kept at which one of the following
offices?
(Companies
Ordinance, 1984)
Registered
office of the company
Accounts
office of the company
Record
office of the company
Registrar
office
Question
No: 8 ( Marks: 1 ) - Please choose one
Which
one of the following is also called as books of secondary entries ?
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Journal
Voucher
Ledger
Memo
Question
No: 9 ( Marks: 1 ) - Please choose one
According
to Section 236, Director s report should be attached to which of the following
financial
statement? (Companies Ordinance, 1984)
Balance
sheet
Profit
and loss account
Statement
of retained earnings
Statement
of cash flows
Question
No: 10 ( Marks: 1 ) - Please choose one
A
well designed Internal Control Questionnaire (ICQ) should incorporate the
following
.
EXCEPT:
Be
a sufficient source of data for the evaluation of internal controls
Identify
the internal control system s strengths and weaknesses
Be
organized by individual functional organizations
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Should
include simple yes or no responses but not narrative responses
Question
No: 11 ( Marks: 1 ) - Please choose one
Which
one of the following examples constitutes the most reliable piece of evidence
available to
an
auditor?
A
written confirmation from a bank
A
supplier s invoice kept in the client's records
A
duplicate sales receipt dated and signed
A
receipted shipping document
Question
No: 12 ( Marks: 1 ) - Please choose one
Considering
the Extent of audit procedure refers to which one of the following description?
It
refers to the nature of testing and their procedures that is, designing,
structuring, and
compiling
work to be done
It
refers to the purpose i.e. (tests of controls or substantive procedures) and
their type, that
is,
inspections, observation, inquiry confirmation, recalculation, re-performances
or analytical
procedures
It
refers to when audit procedures are performed or the period or date to which
the audit
evidence
applies
It
refers to sample size or number of observations of a control activity (quantity
of audit
evidence)
Question
No: 13 ( Marks: 1 ) - Please choose one
.
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Which
one of the following situations can contitute grounds for a claim of negligence
on part of
the
auditors to detect a fraud?
The
fraud was committed by a senior management override of internal controls which
had
been
relied upon in reducing the extent of detailed testing
The
auditor relied on sample evidence and thus failed to detect the fraudulent
transactions
The
auditor reported discrepancies to local management but did not investigate
further as
the
likely impact on the accounts was not material
The
auditor accepted local management representations as to discrepancies as the
potential
impact of the fraud was not material to the accounts as a whole
Question
No: 14 ( Marks: 1 ) - Please choose one
The
control objectives of a sales system typically include the following EXCEPT:
Invoices
and credits should be appropriately checked for accuracy and should be
authorized
before entering in the records
Goods
returned and claims by customers should be controlled to determine the
liability for
goods
returned and claims received
Customers'
orders should be authorized, controlled and recorded in order to execute them
promptly
All
valid transactions relating to payables, and only those transactions, should be
accurately
recorded in the accounting records
Question
No: 15 ( Marks: 1 ) - Please choose one
A
local gas station has one clerk that accepts cash payments for gas and rings
them up on the cash
register.
Which one of the following would be the best control to provide assurance that
the
cashier
is not keeping some of the cash?
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Count
all cash before and after the shift and compare it to cash register totals
Require
that each customer be given a receipt of their purchase
Compare
cash register totals to a total that is automatically generated by each gas
pump
Each
employee should have a separate cash drawer that only they use
Question
No: 16 ( Marks: 1 ) - Please choose one
Which
one of the following may NOT be the control procedure at key stages of the
sales cycle of
an
entity?
Receipt
of goods
Receivables
Bad
Debts
Invoicing
and credit notes
Question
No: 17 ( Marks: 1 ) - Please choose one
While
testing the purchase system of an entity, which one of the following control
tests may
NOT
be applied to the purchase order document?
Evidence
of a sequence check
Evidence
of approval of requisitions
Proof
of issuance date
Adherence
to authority limits
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Question
No: 18 ( Marks: 1 ) - Please choose one
While
testing the purchase system of an entity, which one of the following control
tests may be
applied
to the Goods Returned Notes by the auditors?
Adherence
to authority limits
Evidence
of approval of requisitions
Evidence
of the sequence check
.
Proof
of the issuance date
Question
No: 19 ( Marks: 1 ) - Please choose one
An
oil marketing company employs 1000 personnel in its local market. Majority of
its workers
are
paid on the piece rate basis. The company should compensate them in which one
of the
following
forms of payment?
Salary
Cheque
Wages
None
of the given options
Question
No: 20 ( Marks: 1 ) - Please choose one
According
to the requirements of auditing standards for Wages and Salaries, who should be
allowed
to take wages of another employee in a company?
Any
colleague
Next
of kin
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No
one
Family
Question
No: 21 ( Marks: 1 ) - Please choose one
How
often Inventory levels should be checked against the inventory records in order
to verify
internal
control effectiveness?
Rarely
Periodically
Never
Daily
Question
No: 22 ( Marks: 1 ) - Please choose one
.
Which
one of the following is an appropriate evidence for verifying the existence of
inventory?
Checking
valuation of that inventory
Identifying
the slow-moving inventory
Obtaining
a letter of representation from the management of the entity about it
Observing
the counting of inventory
Question
No: 23 ( Marks: 1 ) - Please choose one
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An
oil exploring company employs 1500 personal in its international market. All of
its personnel
are
paid on monthly basis. The company should compensate them in which form of
payment?
Salary
Cheque
Wages
None
of the given option
Question
No: 24 ( Marks: 1 ) - Please choose one
Which
one of the following best describes the process of 'teeming and lading' in the
cash system
of
an entity?
The
use of one's occupation for personal enrichment through the deliberate misuse
of
organization
s assets
An
attempt to hide the loss of cash received from one customer by using cash from
another
customer or customers to replace it
The
conversion and obtaining of money or property by false pretense
Any
intentional deception resulting in injury to another person
Question
No: 25 ( Marks: 1 ) - Please choose one
KMC
Electronics Company hires auditors at the year end. Auditors are at the stage
of verification
and
vouching of company s financials. Before examining the equity section, they
developed
.
general
aspects concerning the owner s equity. In your opinion, which one of the
following
aspects
may NOT be considered by the auditors during this assessment?
Share
capital is properly classified and described in the accounts
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Assets
of the company are properly classified and presented
Reserves
are properly classified and presented
Movements
in reserves are properly authorized
Question
No: 26 ( Marks: 1 ) - Please choose one
Following
are the points considered during the verification of bank balances EXCEPT:
Obtain
direct bank confirmation
Obtain
direct bank confirmation
Investigate
about outstanding stale cheques
Investigate
any significant reconciling items of an unusual nature in
Ensure
that the creditors have been paid for their loan amount
Question
No: 27 ( Marks: 1 ) - Please choose one
Judgmental
sampling has the following advantages EXCEPT:
No
special knowledge of statistics is required in this type
It
tends to cause uniform standards among different audit firms
No
time is spent on playing with mathematics
This
approach has been well understood and refined by the experience over years
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Question
No: 28 ( Marks: 1 ) - Please choose one
In
which one of the following methods of sampling, an auditor is concerned that
client should not
be
able to know or guess which items will be examined?
Block
sampling
.
Representative
sampling
Unpredictable
sampling
Haphazard
sampling
Question
No: 29 ( Marks: 1 ) - Please choose one
Which
one of the following is a common approach to increase the audit efficiency in
sampling?
Selective
testing
Stratification
Systematic
selection
Random
selection
Question
No: 30 ( Marks: 1 ) - Please choose one
Which
one of the following can be an advantage of using statistical sampling
techniques?
It
defines the values of tolerable error and risk of incorrect acceptance required
for audit
satisfaction
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It
has been established in the courts to be superior to judgmental sampling
It
mathematically measures risk
It
eliminates the need for judgmental decisions
Question
No: 31 ( Marks: 1 ) - Please choose one
Following
statements describes the functions of internal auditing EXCEPT:
It
is a function that evaluates an organization s risk management, control and
governance
processes
It
is a wide ranging activity and includes functions that are advisory or task
oriented
It
is an activity which entails appraising the entity's strategies and expressing
an opinion
on
the financial statements
It
is an activity that extends beyond the appraisal of efficiency and
effectiveness
.
Question
No: 32 ( Marks: 1 ) - Please choose one
An
audit firm started planning annual audit process for a sports goods
manufacturing company.
The
planning involves the following key points EXCEPT:
Establishing
the overall audit strategy for the engagement
Developing
an audit plan, in order to reduce audit risk to an acceptably low level
Surveillance
of company operations and procedures
To
benefit from the experience and insight of auditors and other key members of
the
engagement
team
Question
No: 33 ( Marks: 1 ) - Please choose one
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What
is NOT required as part of the audit process?
Substantive
procedures
Tests
of control
Assessment
of materiality
Procedures
to obtain an understanding of the internal control structure
Question
No: 34 ( Marks: 1 ) - Please choose one
Which
one of the following mainly affects the auditor s opinion?
Agreement
on accounting policies
Limitation
on the scope of the auditor s work
Dispute
among the members of the company
Future
prospects of the company s growth
Question
No: 35 ( Marks: 1 ) - Please choose one
Which
one of the following matters does NOT affect Auditor s Opinion?
When
there is a limitation on the scope of the auditor s work
When
there is a disagreement with management regarding the accounting policies
selected
.
When
there is a disagreement with management regarding the method of applying
accounting
policies
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When
an auditor modify the auditor s report by adding a paragraph to highlight a
material
matter
Question
No: 36 ( Marks: 1 ) - Please choose one
Which
one of the following statements is TRUE?
A
very small sample of only one or two pieces of relevant, competent, and timely
evidence
lacks persuasiveness
A
large sample of highly competent evidence is not persuasive unless it is
relevant to the
audit
objective
A
large sample of evidence that is neither competent nor timely is not persuasive
All
of the given options are true
Question
No: 37 ( Marks: 1 ) - Please choose one
Analytical
procedures are performed as a substantive test to achieve which of the
following
objectives?
To
determine the nature, timing, and extent of compliance procedures
To
reduce detection risk
To
determine the nature, timing, and extent of other audit procedures
To
keep audit risk to an acceptably low level
Question
No: 38 ( Marks: 1 ) - Please choose one
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A
written understanding between the auditor and the client concerning the
auditor's responsibility
for
the discovery of illegal acts is usually set forth in which of the following
letters?
Client
representation letter
.
Letter
of audit inquiry
Management
letter
Engagement
letter
Question
No: 39 ( Marks: 1 ) - Please choose one
Gains
and losses during business operations of a company are determined in terms of
increases
and
decreases in which one of the following sections of the Balance sheet?
Long
term finances
Investments
Owners'
equity
Long
term liabilities
Question
No: 40 ( Marks: 1 ) - Please choose one
All
expenditures incurred through petty cash should be recorded in which one of the
following?
Cheque
Register
Computer
sheet
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Voucher
Question
No: 41 ( Marks: 1 ) - Please choose one
Which
one of the following International Auditing Standards deals with the Audit
Materiality?
ISA
300
ISA
315
ISA
- 320
ISA
335
Question
No: 42 ( Marks: 1 ) - Please choose one
Property,
plant and equipment are stated at cost less accumulated depreciation. Which of
the
.
following
is the relevant assertion?
Rights
and obligations
Valuation
Completeness
Existence
or occurrence
Question
No: 43 ( Marks: 3 )
According
to your understanding, what control objectives must be defined for bringing
fairness in
the
Cash System of an entity?
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Question
No: 44 ( Marks: 3 )
What
are the Control Accounts? How they should be monitored in order to bring
fairness in the
inventory
system of an entity?
Question
No: 45 ( Marks: 3 )
Suppose
you have been appointed as the auditor of a company and have started examining
the
entity
by taking initial interviews of the concerned personnel. During this course,
one of the
person
from management has asked you the following information:
1.
What are the matters about which an auditor may disagree with the management?
2.
What should an auditor do if such disagreements are material?
Give
your answers in brief
Question
No: 46 ( Marks: 5 )
According
to your knowledge, what tests of controls auditors usually perform for the
evaluation
of
Purchase Invoice of an entity?
Question
No: 47 ( Marks: 5 )
What
matters should the auditor consider for developing an overall audit plan for
the expected
scope
and control of an audit?
.
Question
No: 48 ( Marks: 10 )
A
company has hired auditors at the year end. Auditors used audit sampling
techniques which
made
them enable to gather audit evidence efficiently. State the objectives auditors
might have
defined
first to achieve by using sampling techniques and also briefly explain further
steps the
auditors
might undertake to complete the sampling process.
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unlisted public limited company undergoing expansion intends to create
an
internal audit
department.
The Managing Director (MD) has asked your advice and comments on each of the
matters
listed below:
1.
The fundamental differences in the scope, approach, and responsibility between
the
internal
and external auditor.
2.
Whether it would be advisable to assign the responsibility of development of
systems and
procedures
to the internal auditor?
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