ACC311- Fundamentals of Auditing - Final Term

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?
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



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 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 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

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?



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



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

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


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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It 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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To 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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Future 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?



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Input 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





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Completeness, 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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They 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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Operational 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 )


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Enlist 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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Question No: 48 ( Marks: 10 )

Suppose 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.

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?
1984)



Download Latest Papers:

[You must be registered and logged in to see this link.]






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



Download Latest Papers:

[You must be registered and logged in to see this link.]






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



Download Latest Papers:

[You must be registered and logged in to see this link.]



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


Download Latest Papers:

[You must be registered and logged in to see this link.]



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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[You must be registered and logged in to see this link.]



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?






Download Latest Papers:

[You must be registered and logged in to see this link.]



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


Download Latest Papers:

[You must be registered and logged in to see this link.]





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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[You must be registered and logged in to see this link.]






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





Download Latest Papers:

[You must be registered and logged in to see this link.]



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



Download Latest Papers:

[You must be registered and logged in to see this link.]





It 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?

[You must be registered and logged in to see this link.]







To 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

[You must be registered and logged in to see this link.]





Future 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?

[You must be registered and logged in to see this link.]






Input 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

[You must be registered and logged in to see this link.]



Completeness, 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

[You must be registered and logged in to see this link.]






They 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

[You must be registered and logged in to see this link.]





Operational 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 )

[You must be registered and logged in to see this link.]





Enlist 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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Suppose 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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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


(Companies Ordinance, 1984)
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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?



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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Question No: 49 ( Marks: 10 )

An 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?

thse al r past parperz
in currten parper 64 total Question tha
jin main sa 54 mcqs tha or zida tar 31 to 40 lects main sa ay tha

Casual Vacancy
a) Any casual vacancy shall be filled by directors. [Sec 252(4)].

Casual
Vacancy
Within 30 days
of the vacancy


Following aspects of assets must be verified:
1. Cost
2. Authorization
3. Value
4. Existence
5. Beneficial Ownership
6. Presentation in the accounts

or sub to tauf tha n lengthy b like
scop of audit on
solo paro
partnetship
company

if u r an auditor of a bank wht pross u may take for auditing on online trans etc

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


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.

expainl th Verification Methods:


Cut-off. Verify cut-off. For example a trade creditor should hot be included unless the goods were
acquired before the year end.

thankx alot

very nice