1- When an auditor has substantial doubt about an entity's ability to continue as a going concern because of

the probable discontinuance of operations, the auditor most likely would express a qualified opinion if:a. The effects of the adverse financial conditions likely will cause a bankruptcy filing.b... Information about the entity's ability to continue as a going concern is not disclosed.c. Management has no plans to reduce or delay future expenditures.d. Negative trends and recurring operating losses appear to be irreversible.

2- Which of the following factors would most likely be considered an inherent limitation to an entity's internal

control?a. The complexity of the information processing system.b.. Human judgment in the decision making process.c. The ineffectiveness of the board of directors.d. The lack of management incentives to improve the control environment.

3- A successor auditor is required to attempt communication with the predecessor auditor prior to:a. Performing test of controls.b. Testing beginning balances for the current year.c. Making a proposal for the audit engagement.d.. Accepting the engagement.

4- Which of the following factors would least likely affect the extent of the auditor's consideration of the

client's internal controls?a.. The amount of time budgeted to complete the engagement.b. The size and complexity of the client.c. The nature of specific relevant controls.d. The auditor's prior experience with client operations.

5- The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside

location would be to:a.. Observe physical counts of the inventory items.b. Trace the total on the inventory listing to the general ledger inventory account.c. Obtain a confirmation from the client indicating inventory ownership.d. Analytically compare the current-year inventory balance to the prior-year balance.

6- An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost

of sales is reasonable. What type of audit procedure was performed?a. Test of transactions.b.. Analytical procedures.c. Test of controls.d. Test of details.

7- If the business environment is experiencing a recession, the auditor most likely would focus increased

attention on which of the following accounts?

a. Purchase returns and allowances.b. Allowance for doubtful accounts.c. Common stock.d. Noncontrolling interest of a subsidiary purchased during the year.

8- Which of the following is true regarding reportable conditions?a.. Auditors must search for them.b. Auditors must communicate them to the audit committee.c. They must be included in the financial statements.d. They must be disclosed in footnotes.

9- An auditor who uses a transaction cycle approach to assessing control risk most likely would test control

activities related to transactions involving the sale of goods to customers with the:a.. Collection of receivables.b. Purchase of merchandise inventory.c. Payment of accounts payable.d. Sale of long-term debt.

10- Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared

shipping documents provides evidence that:a. Shipments to customers were properly billed.b. Entries in the accounts receivable subsidiary ledger were for sales actually shipped.c.. Sales billed to customers were actually shipped.d. No duplicate shipments to customers were made.

11- Which of the following procedures is usually the first step in reviewing the financial statements of a

nonpublic entity?a. Make preliminary judgments about risk and materiality to determine the scope and nature of theprocedures to be performed.b.. Obtain a general understanding of the entity's organization, its operating characteristics, and itsproducts or services.c. Assess the risk of material misstatement arising from fraudulent financial reporting and themisappropriation of assets.d. Perform a preliminary assessment of the operating efficiency of the entity's internal control activities.

12- Which of the following events most likely would indicate the existence of related parties?a. Granting stock options to key executives at favorable prices.b. High turnover of senior management and members of the board of directors.c. Failure to correct internal control weaknesses on a timely basis.d.. Selling real estate at a price significantly different from appraised value.

13- An auditor discovered that a client's accounts receivable turnover is substantially lower for the current

year than for the prior year. This may indicate that:a. Obsolete inventory has not yet been reduced to fair market value.b.. There was an improper cutoff of sales at the end of the year.

c. An unusually large receivable was written off near the end of the year.d. The aging of accounts receivable was improperly performed in both years.

14- The main object of an audit is ___a) Expression of opinion b) Detection and Prevention of fraud and errorc) Both (a) and (b) d).. Depends on the type of audit.

Which of the following is not true about opinion on financial statements?a) The auditor should express an opinion on financial statements.b) His opinion is no guarantee to future viability of businessc).. He is responsible for detection and prevention of frauds and errors in financial statementsd) He should examine whether recognised accounting principle have been consistently

A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _a) Error of omission b).. Error of commission c) a&b d) Error of principle

‘Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example of _a).. Error of principle b) Error of commission c) Error of omission d) Error of duplication

The risk of management fraud increases in the presence of :a) Frequent changes in supplies b) Improved internal control systemc) Substantial increases in salesd).. Management incentive system based on sales done in a quarter

Auditing standards differ from audit procedures in that procedures relate toa) Audit assumptions b).. acts to be performed c) quality criterion d) a&b

Professional skepticism requires that the auditor assume that management isa) reasonably honest b).. Neither honest nor dishonestc) Not necessarily honest d) Dishonest

The audit engagement letter, generally, should include a reference to each of the followingexcepta) limitations of auditing b) responsibilities of management with respect to audit workc) expectation of receiving a written management representation letter.d).. a description of the auditor’s method of sample selection.

An auditor who accepts an audit but does not possess the industry expertise of thebusiness entity shoulda) engage expertsb).. obtain knowledge of matters that relate to the nature of entity’s businessc) inform management about it d) take help of other auditors

Which of the following is not a quality control consideration on accepting a new client?

a) Availability of audit assistants with necessary skill and competence.b) Provision of other services to the client which may impair independencec).. Predecessor auditor’s advice as to whether audit fees were paid promptlyd) a&b

An auditor obtains knowledge about a new client’s business and its industry toa)Make constructive suggestions concerning improvements to the client’s internal controlsystem.b) Evaluate the appropriateness of audit evidence obtainedc).. Under stand the events and transactions that may have an effect on client’s financialstatements.d) All of the above

Audit in depth is synonymous for:a)annual audit b) 2 year audit c) Final audit d) ..Detailed audit

In determining the level of materiality for an audit, what should not be considered?a) Prior year’s errors b).. The auditor’s remunerationc) Adjusted interim financial statements d) Prior year’s financial statements

Of the following, which is the least persuasive type of audit evidence?a) Bank statements obtained from the clientb) Documents obtained by auditor from third parties directly.c).. Carbon copies of sales invoices d) Computations made by the auditor

Which of the following statements is, generally, correct about the reliability of auditevidence?a) To be reliable, evidence should conclusive rather than persuasiveb).. Effective internal control system provides reliable audit evidencec) Evidence obtained from outside sources routed is unreliabed) All are correct.

Which of the following factors is most important in determining the appropriations of auditevidence?a).. The reliability of audit evidence and its relevance in meeting the audit objectiveb) The unreliability of audit evidencec) The quantity of audit evidence d) The independence of the source of evidence

Appropriateness of evidence is related toa) ..Quality b) quantity c) a&b d) none of above

sufficency of evidence is related toa) Quality b).. quantity c) a&b d) none of above

What would most appropriately describe the risk of incorrect rejection in terms ofsubstantive testing?a) The auditor concludes balance is materially correct when in actual fact it is notb).. The auditor concludes that the balance is materially misstated when in actual fact it notc) The auditor has rejected an item when it is not correctd) None of the above

Audit programme is prepared bya)the management b) the client c) directorsd).. the auditor and his audit assistants

Knowledge of the entity’s business does not help the auditor toa)..reduce inherent risk b) identify problem areasc) evaluate reasonableness of estimates d) all of above

Which of the following statements is correct?a) Lower the sampling risk greater the sample sizeb) Smaller the tolerable error, greater the sample sizec) Lower the expected error, smaller the sample size d).. All are correct

Tolerable error, is the maximum monetary error that the auditor is prepared to accept in thepopulation and still conclude that audit objective has been achieved, is directly related toa) Sample size b) Audit risk c).. Materiality d) Expected error

Which of the following expenses should not be treated as capital expenditure?a) Expenses paid on installation of a plant.b) Cost of dismantling a building in case a new building is to be constructed on the landc).. purchasing of inventoryd) The fees paid to engineer who constructed the plant.

Who is responsible for the appointment of statutory auditor of a limited company ?a) Directors of the company b).. Members of the companyc) The Central Government d) All of the above

The auditor has noticed existence of recurring losses sale of fixed assets this indicatesa).. Depreciation charges are insufficientb) Policy of sale or disposal of fixed assets needs to be reviewedc) The sale of assets have not been properly authorized d) Accounting errors

Tests of control are not concerned with_a) Existence of controls b) Effectiveness of controlsc) Continuity of controls d).. Designing of controls

The performance of tests of control is documented ina)audit programme b) flow charts c).. working papers d) any of the above

An auditor should study and evaluate internal controls toa)determine whether assets are safeguarded b) Suggest improvements in internal controlc).. Plan audit procedures d) express and opinion

While verifying intangible assets, an auditor would recompute amortization charges anddetermine whether amortization period is reasonable. The auditor tries to establish ….bydoing ita).. valuation b) existence c) disclosure d) possession

Which of the following is most crucial to a purchase department?a) Reducing the cost of acquisition b) Selecting suppliesc) ..Authorizing the acquisition of goods d) Assuring the quality of goods

For vouching of which item, the auditor is most likely to examine cost records?

a) Commission earned b) Bad debts recorded c) Credit sales d).. Sale of scrap

To test whether sales have been recorded, the auditor should draw a sample from a file ofa) purchase orders b) purchase invoice c)… sales invoices d) bill of loading

Working paper is properity of…….a) …Auditor b) management c) shareholder d) government

Management has time of ……………. To appoint the 1st auditor after incorporation.a) 120 days b) …60 days c) 360 days d) 100 days

If management fails to appoint the 1st auditor within 60 days then who will appoint the auditor?a) Auditor b)… management c) shareholder d) government