.
FINALTERM
EXAMINATION
Spring
2009
ACC311- Fundamentals of Auditing (Session - 1)
Marks:
81
Question
No: 1 ( Marks: 1 ) - Please choose one
Which
one of the following is an objective of the internal audit?
To
report on financial statements
To
check accounting system and internal control are operating efficiently
To
determine the accuracy of financial statement values and disclosures
To
establish a control system in the company
Question
No: 2 ( Marks: 1 ) - Please choose one
Which
one of the following statements is NOT correct in respect of the internal
auditor?
The
scope of audit performed by internal auditors is primarily in respect of
financial
report
audits
An
internal auditor does not require a license to practice
Internal
auditors are usually employed by companies and government units
Primary
responsibility of the internal auditor is to the board of directors
Question
No: 3 ( Marks: 1 ) - Please choose one
After
how many days the Securities and Exchange Commission may appoint the auditors,
if the
Directors
of a company could not appoint the auditors to fill casual vacancy? (Companies
Ordinance,
1984)
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.
30
days
60
days
80
days
120
days
Question
No: 4 ( Marks: 1 ) - Please choose one
Suppose
that during audit of a company, an auditor accepted the schedule of bad debts
furnished
by
the client, though it was apparent that debts were not recoverable. The auditor
shall be held
liable
for which one of the following liabilities?
Liability
for negligence
Liability
for misfeasance
Criminal
liability
Personal
liability
Question
No: 5 ( 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
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Registrar
office
Question
No: 6 ( Marks: 1 ) - Please choose one
Which
of the following is one of the most fundamental and effective internal
controls?
Increased
use of computers for recording accounting transactions
Increased
reliance on internal auditors to monitor accounting systems
Segregation
of incompatible duties across several people
.
Having
internal auditors report only to the Board of Directors
Question
No: 7 ( Marks: 1 ) - Please choose one
Which
of the following is NOT a major component of an internal control system?
Risk
assessment
Staffing
Control
procedures/activities
Information
and communication system
Question
No: 8 ( Marks: 1 ) - Please choose one
An
audit firm audited a Leather Manufacturing company and presented its report
addressed to the
management.
They found significant material misstatements in the company s internal controls
system.
They strongly recommended that there should be sufficient controls in existence
to ensure
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management
can effectively control the business operations. In your opinion, auditors are
emphasizing
on which one of the following categories of SOAP MAPS?
Authorization
Management
and Monitoring
Arithmetic
and Accounting
Segregation
of duties
Question
No: 9 ( Marks: 1 ) - Please choose one
Which
of the following statements best describes the purpose of an internal control
questionnaire
(ICQ)?
An
internal control questionnaire is a series of questions regarding accounting
and control
policies
and procedures that the auditor considers necessary to prevent all
misstatements in the
financial
report
.
An
internal control questionnaire is a series of questions regarding accounting
and control
policies
and procedures that the auditor considers necessary to prevent material
misstatements in
the
financial report
An
internal control questionnaire is a series of questions regarding accounting
and control
policies
and procedures that the auditor considers necessary to detect material
misstatements in
the
financial report
An
internal control questionnaire is a series of questions prepared by the entity
about the
entity's
accounting and control policies and procedures for which the entity seeks
guidance on
from
the auditor in order to detect material misstatements in the financial report
Question
No: 10 ( Marks: 1 ) - Please choose one
A
Beverages company is being audited by an audit firm. Audit procedures are being
undertaken
in
all of its departments. During this, the audit team has to spend more time on
physical
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examination
of the company assets to get reliable audit evidence. In your opinion, auditors
are
considering
which type of audit inquiry in this case?
Recalculations
Inspection
of tangible assets
Analytical
procedures
Confirmations
Question
No: 11 ( Marks: 1 ) - Please choose one
Which
one of the following matters should be included in the letter of
representation?
Existence
of any immaterial mistake in the statements
Existence
of any fraud or error in the statements
Company
s growth trend in the future in figures
.
Market
value of the company s stock
Question
No: 12 ( Marks: 1 ) - Please choose one
Which
one of the following may NOT be a type of control of the purchase cycle of an
entity?
Receipt
of goods
Invoicing
and returns
Invoicing
and credit notes
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Purchase
ledger and suppliers
Question
No: 13 ( 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 Credit Notes by the auditors?
Evidence
of matching credit notes to goods returned notes
Evidence
of approval of credit notes
Evidence
of a sequence check
Proof
of issuance date
Question
No: 14 ( Marks: 1 ) - Please choose one
During
the audit work of testing the purchase system of an entity, which one of the
following
control
tests may be applied to the Payables Ledger by the auditors?
Evidence
of authorization of adjustments to payables ledger
Evidence
of review of reconciliation of purchase ledger listing
Evidence
of authorization of adjustments to payable ledger control account
Evidence
of authorization of adjustments to purchase ledger
Question
No: 15 ( Marks: 1 ) - Please choose one
Which
one of the following possible misstatements related to payroll does not involve
the audit
.
objective
of Validity?
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Payments
to fictitious employees
Payments
to terminated employees
Payments
to valid employees who have not worked
Payments
to valid employees at a rate in excess of the authorized amount
Question
No: 16 ( Marks: 1 ) - Please choose one
In
order to ensure effective control, how often a full inventory count should be
held when
perpetual
inventory records are not kept adequately?
On
a daily basis
At
least once a year
At
least monthly
At
least weekly
Question
No: 17 ( Marks: 1 ) - Please choose one
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: 18 ( Marks: 1 ) - Please choose one
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For
the purpose of keeping effective control in the cash system, who should have no
access to the
.
cash
or the preparation of the paying-in slip?
Sales
ledger personnel
Teller/cashier
Cash
officers
Operations
manager
Question
No: 19 ( Marks: 1 ) - Please choose one
When
should the petty cash book entries be made?
At
the day end
Next
day
Promptly
Monthly
Question
No: 20 ( Marks: 1 ) - Please choose one
How
often the physical inspection of non current assets should be carried out?
Rarely
Periodically
Never
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Daily
Question
No: 21 ( Marks: 1 ) - Please choose one
In
which one of the following ways auditors can choice the verification techniques
in a given set
of
circumstances?
It
depends upon the available audit evidence to the auditor
It
depends upon the nature of business operations of the entity
It
depends upon the audit procedures planned by the auditor
.
It
depends upon the judgmental skills of the auditor
Question
No: 22 ( Marks: 1 ) - Please choose one
Which
one of the following may NOT ensure that the movement in share capital of a
company is
properly
authorized and correctly shown and described in accordance with the Companies
Ordinance,
1984?
Check
that directors were authorized to allot shares
Agree
authorized capital with memorandum of association
Consider
special rules for allotments of public company shares
Test
payments with supporting evidence and trace entries in register
Question
No: 23 ( Marks: 1 ) - Please choose one
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Which
one of the following testing objectives refers to the management assertion
Occurrence
in
obtaining audit evidence?
Assets
shown include all rights under the control of the enterprise
Transactions
and events that have been recorded have occurred and pertain to the entity
The
amounts at which assets and liabilities are stated is correct
Assets
and liabilities included on the balance sheet actually exist
Question
No: 24 ( Marks: 1 ) - Please choose one
Which
one of the following certain expense items may be verified in order to keep
control of
stock-in-trade
and stores & spares?
Interest
on short term loan
Accumulated
depreciation on assets
Director
s fees
Wages
and salaries
.
Question
No: 25 ( Marks: 1 ) - Please choose one
Which
one of the following is NOT an advantage of using statistical sampling?
It
aids in the design of an efficient sample
It
allows the auditor to measure the sufficiency of the evidential matter obtained
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allows the auditor to greatly reduce substantive testing
It
provides means for mathematically measuring the degree of sampling risk
Question
No: 26 ( Marks: 1 ) - Please choose one
Which
one of the following is an underlying feature of random-based selection of
items?
Each
stratum of the accounting population be given equal representation in the
sample
All
items in the accounting population be randomly ordered.
Every
item in the population should have an opportunity to be selected
Every
item must be systematically selected using replacement
Question
No: 27 ( Marks: 1 ) - Please choose one
Which
one of the following matters is generally included in an auditor's engagement
letter?
Management's
responsibility for the entity's compliance with laws and regulations
The
factors to be considered in setting preliminary judgments about materiality
Management's
vicarious liability for illegal acts committed by its employees
The
auditor's responsibility to search for significant internal control
deficiencies
Question
No: 28 ( Marks: 1 ) - Please choose one
What
should be the next step of an auditor after establishing the overall audit
strategy of an
entity?
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develop an audit plan
To
define the scope of audit
To
determine the focus of engagement team efforts
To
determine the objectives of audit
.
Question
No: 29 ( Marks: 1 ) - Please choose one
The
establishment of the overall audit strategy involves the following EXCEPT:
To
determine the characteristics of the engagement
To
ascertain the reporting objectives of the engagement
To
consider the important factors i.e. materiality levels, higher risks of
material
misstatement
etc.
To
guide the development of detailed business activities to occur in future
Question
No: 30 ( 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
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prospects of the company s growth
Question
No: 31 ( 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
When
an auditor modify the auditor s report by adding a paragraph to highlight a
material
matter
Question
No: 32 ( Marks: 1 ) - Please choose one
Tracing
selected shipments to the sales journal to be sure that each one is included is
a test of
which
of the following?
Accuracy
.
Classification
Completeness
Existence
Question
No: 33 ( Marks: 1 ) - Please choose one
Which
one of the following best describes the term Input VAT?
http://vustudents.ning.comInput
VAT is charged on a firm when it makes its purchases
Input
VAT is charged on a firm when it makes its investments
Input
VAT is charged on a firm when it produces highly quality products
Input
VAT is charged on a firm when it exports the products
Question
No: 34 ( Marks: 1 ) - Please choose one
The
duties of the wages staff should preferably be rotated during the year when the
salary
payment
is made by which of the following systems?
By
cheque
In
cash
By
demand draft
Direct
transfer to employees bank account
Question
No: 35 ( Marks: 1 ) - Please choose one
Which
of the following are the three audit objectives that are most important for
cash, and that
receive
the greatest attention during the audit?
Existence,
accuracy, and completeness
Existence,
cutoff, and presentation
Accuracy,
cutoff, and presentation & disclosure
http://vustudents.ning.comCompleteness,
realizable value, and cutoff
Question
No: 36 ( Marks: 1 ) - Please choose one
Which
one of the following is most likely to indicate fraud?
.
Several
overpayments are made for goods received from a supplier
The
year end cash balance does not include cash in transit to the company at
year-end
A
check received after year end was inadvertently recorded as if received before
year-end
A
documented loan is sanctioned to an officer of the company
Question
No: 37 ( Marks: 1 ) - Please choose one
When
an auditor increases the assessed level of control risk because certain control
activities
were
determined to be ineffective, which of the following would most likely be
increased by the
auditor?
Extent
of tests of controls
Level
of detection risk
Extent
of tests of details
Level
of inherent risk
Question
No: 38 ( Marks: 1 ) - Please choose one
Which
one of the following statements is TRUE regarding control procedures?
They
are not required if the control environment is strong
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should generally be all manual
They
should generally be all automated
They
can be either manual or automated
Question
No: 39 ( Marks: 1 ) - Please choose one
Which
one of the following statements does not apply to the Institute of Chartered
Accountants of
Pakistan
(ICAP) in Pakistan?
An
autonomous body incorporated under the Chartered Accountants Ordinance 1961
Regulatory
body that formulates auditing standards in Pakistan
Its
affairs are run by a council which is elected by its member (Chartered
Accountants).
ICAP
is a member of the International Federation of Accountants (IFAC)
.
Question
No: 40 ( Marks: 1 ) - Please choose one
Which
one of the following statements indicates a primary difference between an
operational
audit
and a compliance audit?
Operational
audit focuses on business efficiencies and effectiveness, while compliance
audit
focuses on whether laws and other requirements are being followed
Operational
audit focuses on reliability of the financial statements, while compliance
audit
focuses
on whether laws and other requirements are being followed
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audit focuses on business growth prospects, while a compliance
audit
focuses
on
reliability of the financial statements
Operational
audit focuses on business size and potential to grow, while compliance audit
focuses
on reliability of accounting records
Question
No: 41 ( Marks: 1 ) - Please choose one
Which
one of the following primary assertions is satisfied when an auditor ensures
that there is no
false
transaction recorded and all recorded transactions have actually taken place?
Occurrence
Completeness
Existence
Rights
and obligations
Question
No: 42 ( 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
.
Ensure
that the creditors have been paid for their loan amount
Question
No: 43 ( Marks: 3 )
http://vustudents.ning.comEnlist
the typical control procedures at key stages of the sales cycle.
Solution:
Obtain
direct bank confirmation
Obtain
direct bank confirmation
Investigate
about outstanding stale cheques
Investigate
any significant reconciling items of an unusual nature
Ensure
that the creditors have been paid for their loan amount
Question
No: 44 ( Marks: 3 )
What
steps an auditor should take in order to ensure that the reserves are properly
classified and
described
in the accounts in accordance with the Companies Ordinance, 1984?
Question
No: 45 ( Marks: 3 )
Throughout
the 1960s and 70s, the largest accounting firms devoted extensive resources to
the
development
and implementation of statistical sampling procedures. Enlist several sample
selection
methods now available to an auditor for selecting items in the populations.
Question
No: 46 ( Marks: 5 )
Suppose
you have been appointed as an auditor of a manufacturing company. You are at
the stage
of
testing the purchase system. According to your knowledge of Auditing Standards,
what control
objectives
would you develop in respect of the Purchase system of the entity?
Question
No: 47 ( Marks: 5 )
Discuss
the factors which influence auditor s judgment regarding sample size for tests
of control.
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that your supervisor has asked you to carry out an internal
control
review of the
inventory
system of a manufacturing company. What internal control procedures would you
.
examine
in respect of the following functions of the inventory system?
1.
Arithmetical Accuracy
2.
Control Accounts
3.
Access to Assets and Records
Question
No: 49 ( 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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