Audit And Assurance MCQ Quiz in தமிழ் - Objective Question with Answer for Audit And Assurance - இலவச PDF ஐப் பதிவிறக்கவும்
Last updated on Mar 8, 2025
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Audit And Assurance Question 1:
Comprehension:
It is 1 July 20X5. You are an audit manager in Tim & Co responsible for the audit of Jim Co. The audit of the financial statements for the year ended 31 March 20X5 is nearing completion and the auditor’s report is due to be signed next week.
Included within receivables in the statement of financial position is a balance of $85,000 owed by Alex Co, a key customer of Jim Co. Alex Co has just notified Jim Co that it is unlikely to be able to pay the balance due to cash flow problems. The customer has asked for an extension of credit for a further three months as it expects its cash flow situation to improve in July and August. Jim Co has agreed to this extension.
Due to the uncertainty over the recoverability of the debt, you believe that an allowance for receivables should have been made and you have discussed the issue with the finance director who has informed you that an adjustment for the balance will be made in the following year’s financial statements if the debt is not paid during the extended credit period agreed with Alex Co.
Revenue for the year is $2.6 million, profit before tax is $1.4 million and total assets are $7.5 million.
Which of the following procedures would allow the auditor to form a conclusion as to the level of adjustment required to the receivables balance?
1. Review correspondence with the customer indicating when payment will be made
2. Discuss with management why they feel an adjustment is not required in the current year
3. Perform a direct confirmation of the balance outstanding at the year end
4. Review post‐year‐end bank statements to identify if any payment has been received from the customer
5. Inspect the sales invoice and GDN relating to the receivable balance
Answer (Detailed Solution Below)
Audit And Assurance Question 1 Detailed Solution
The correct option is option 2
Additional Information:
- From the scenario the customer has agreed the balance is outstanding but is struggling to make any payments. Confirming an already confirmed balance will not provide evidence over the level of adjustment required. Inspecting the sales invoice and GDN does not provide evidence of when the balance will be received.
Audit And Assurance Question 2:
Comprehension:
It is 1 July 20X5. You are an audit manager in Tim & Co responsible for the audit of Jim Co. The audit of the financial statements for the year ended 31 March 20X5 is nearing completion and the auditor’s report is due to be signed next week.
Included within receivables in the statement of financial position is a balance of $85,000 owed by Alex Co, a key customer of Jim Co. Alex Co has just notified Jim Co that it is unlikely to be able to pay the balance due to cash flow problems. The customer has asked for an extension of credit for a further three months as it expects its cash flow situation to improve in July and August. Jim Co has agreed to this extension.
Due to the uncertainty over the recoverability of the debt, you believe that an allowance for receivables should have been made and you have discussed the issue with the finance director who has informed you that an adjustment for the balance will be made in the following year’s financial statements if the debt is not paid during the extended credit period agreed with Alex Co.
Revenue for the year is $2.6 million, profit before tax is $1.4 million and total assets are $7.5 million.
Which of the following statements is correct regarding the materiality of the irrecoverable debt?
Answer (Detailed Solution Below)
Audit And Assurance Question 2 Detailed Solution
The correct option is option 4
Additional Information:
- Materiality is calculated using the following benchmarks: ½ – 1% of revenue, 5 – 10% of profit before tax and 1 – 2% of total assets. The receivable is 3.3% revenue, 6.1% of profit before tax and 1.1% of assets. The irrecoverable debt is material by size. An irrecoverable debt is unlikely to be material by nature unless the effect of the adjustment was so significant it would change a profit to a loss.
Audit And Assurance Question 3:
Comprehension:
Ray Trading Co (Ray) manufactures electrical equipment. As audit supervisor of Underwood & Co, you are developing the audit programmes for the forthcoming interim audit.
Ray’s internal audit department has provided you with documentation relating to the non-current assets cycle including the following related controls:
All purchase orders for capital items are required to be authorised by the capital expenditure committee.
On receipt, each asset is assigned a unique serial number that is recorded on the asset and in the non-current assets register.
When the asset arrives, a goods received note (GRN) is completed and the GRN classification is reviewed and initialled by a responsible official
Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.
Shortly after the interim audit, the audit manager informs you that a fraud occurred during the year. Apparently, a payroll clerk set up fictitious employees and the wages were paid into the clerk’s own bank account. This clerk has subsequently left Ray, but the audit manager is concerned that additional frauds have taken place in the wages department.
Another material fraud was discovered at Ray shortly after Underwood & Co presented an auditor’s report with an unmodified opinion to the annual general meeting.
Which of the following statements most accurately reflects the likelihood that Underwood & Co would be liable for the failure to find the fraud?
Answer (Detailed Solution Below)
Audit And Assurance Question 3 Detailed Solution
The correct option is option 2
Additional Information:
- This is the most accurate statement as the auditor clearly suspected possible fraud but failed to sufficiently investigate. The terms of engagement of an audit will refer only to “reasonable expectation”, they do not accept audit responsibility to find material misstatements, nor do they state that management is solely responsible for the prevention and detection of fraud; the auditor has specific duties in relation to fraud and error and cannot pass them onto management.
- The design of tests option is also incorrect as the auditor designs audit tests to have a “reasonable expectation” of detecting material misstatement, whether due to fraud or error (so not all misstatements).
Audit And Assurance Question 4:
Comprehension:
Ray Trading Co (Ray) manufactures electrical equipment. As audit supervisor of Underwood & Co, you are developing the audit programmes for the forthcoming interim audit.
Ray’s internal audit department has provided you with documentation relating to the non-current assets cycle including the following related controls:
All purchase orders for capital items are required to be authorised by the capital expenditure committee.
On receipt, each asset is assigned a unique serial number that is recorded on the asset and in the non-current assets register.
When the asset arrives, a goods received note (GRN) is completed and the GRN classification is reviewed and initialled by a responsible official
Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.
Shortly after the interim audit, the audit manager informs you that a fraud occurred during the year. Apparently, a payroll clerk set up fictitious employees and the wages were paid into the clerk’s own bank account. This clerk has subsequently left Ray, but the audit manager is concerned that additional frauds have taken place in the wages department.
Which of the following procedures should you undertake because of the increased risk arising from the payroll fraud?
A.Review board minutes for evidence of management’s discussion of the materiality of the payroll fraud
B.Review the supporting documentation to confirm the total of the fraudulent payments and assess the materiality of the misstatement
C.Recommend and assist Bonsai in implementing better controls over payroll
D.Inform local law enforcement authorities of the fraud and name the payroll clerk
Answer (Detailed Solution Below)
Audit And Assurance Question 4 Detailed Solution
The correct option is option 1
Additional Information:
- The auditor cannot assist Ray in implementing better controls ((3) as this would create a self-interest threat as the audit firm may be perceived as performing the role of management. Management is responsible for the system of internal control. (4) is not appropriate because the auditor‘s duty of confidentiality normally precludes any reporting to third parties.
Audit And Assurance Question 5:
Comprehension:
Ray Trading Co (Ray) manufactures electrical equipment. As audit supervisor of Underwood & Co, you are developing the audit programmes for the forthcoming interim audit.
Ray’s internal audit department has provided you with documentation relating to the non-current assets cycle including the following related controls:
All purchase orders for capital items are required to be authorised by the capital expenditure committee.
On receipt, each asset is assigned a unique serial number that is recorded on the asset and in the non-current assets register.
When the asset arrives, a goods received note (GRN) is completed and the GRN classification is reviewed and initialled by a responsible official
Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.
Shortly after the interim audit, the audit manager informs you that a fraud occurred during the year. Apparently, a payroll clerk set up fictitious employees and the wages were paid into the clerk’s own bank account. This clerk has subsequently left Ray, but the audit manager is concerned that additional frauds have taken place in the wages department.
Substantive procedures are most likely to be performed during the interim audit on an account balance that is subject to which of the following?
Answer (Detailed Solution Below)
Audit And Assurance Question 5 Detailed Solution
The correct option is option 2
Additional Information:
- Interim substantive procedures should only be performed when the risk of material misstatement is low, such as when an account is subject to few transactions/has little movement from year to year. The other three options all have a high risk of material misstatement and substantive procedures will therefore be performed on year-end balances.
Audit And Assurance Question 6:
Comprehension:
Ray Trading Co (Ray) manufactures electrical equipment. As audit supervisor of Underwood & Co, you are developing the audit programmes for the forthcoming interim audit.
Ray’s internal audit department has provided you with documentation relating to the non-current assets cycle including the following related controls:
All purchase orders for capital items are required to be authorised by the capital expenditure committee.
On receipt, each asset is assigned a unique serial number that is recorded on the asset and in the non-current assets register.
When the asset arrives, a goods received note (GRN) is completed and the GRN classification is reviewed and initialled by a responsible official
Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.
Shortly after the interim audit, the audit manager informs you that a fraud occurred during the year. Apparently, a payroll clerk set up fictitious employees and the wages were paid into the clerk’s own bank account. This clerk has subsequently left Ray, but the audit manager is concerned that additional frauds have taken place in the wages department.
As you develop the audit programme for Ray, you identify the financial controller’s review of the bank reconciliation as another control to test. In connection with this test, you:
- Interview the financial controller to understand the specific data he has reviewed
- Verify that the bank reconciliation is properly prepared by the accountant and reviewed by the financial controller as evidenced by their respective signatures.
These actions are examples of which of the following types of audit procedure?
| Action 1 | Action 2 | |
| A | Inquiry | Inspection |
| B | Confirmation | Reperformance |
| C | Inquiry | Observation |
| D | Observation | Inspection |
Answer (Detailed Solution Below)
Audit And Assurance Question 6 Detailed Solution
The correct option is option 1
Additional Information:
- Interviewing the controller is inquiry and verifying the proper preparation of a bank reconciliation by reviewing the signatures is inspection.
Audit And Assurance Question 7:
Comprehension:
Ray Trading Co (Ray) manufactures electrical equipment. As audit supervisor of Underwood & Co, you are developing the audit programmes for the forthcoming interim audit.
Ray’s internal audit department has provided you with documentation relating to the non-current assets cycle including the following related controls:
All purchase orders for capital items are required to be authorised by the capital expenditure committee.
On receipt, each asset is assigned a unique serial number that is recorded on the asset and in the non-current assets register.
When the asset arrives, a goods received note (GRN) is completed and the GRN classification is reviewed and initialled by a responsible official
Periodically, internal audit undertakes a review of assets in the register and compares them to assets on site, using the serial number to confirm existence of the asset.
Shortly after the interim audit, the audit manager informs you that a fraud occurred during the year. Apparently, a payroll clerk set up fictitious employees and the wages were paid into the clerk’s own bank account. This clerk has subsequently left Ray, but the audit manager is concerned that additional frauds have taken place in the wages department.
In relation to the controls identified, which of the following are tests of control that should be performed during the interim audit?
A.Review a sample of capital expenditure purchase orders for evidence of authorisation by the capital expenditure committee
B.From a list of serial numbers extracted from the non-current asset register, select a sample of assets purchased and verify their physical existence
C.Select a sample of GRNs and confirm whether each GRN is initialled as reviewed by a responsible official
D.Accompany internal audit on its next review of the asset ledger, select a sample of the serial numbers confirmed by internal audit and verify the existence of the assets
Answer (Detailed Solution Below)
Audit And Assurance Question 7 Detailed Solution
The correct option is option 2
Additional Information:
- These are tests of control as they concern the operating effectiveness of controls: were the purchase orders authorised? (Yes or no?), were the GRNs reviewed (as evidence by a signature)? (Yes or no?). The other two tests are substantive tests of details.
Audit And Assurance Question 8:
Comprehension:
Obadiah Co
You are a manager in the audit firm of Nera & Co, and this is the first time you have been assigned the audit of one of the firm’s established clients, Obadiah Co (Obadiah). The main activity of Obadiah is providing investment advice to individuals on retirement planning, purchase of shares and securities and investing in tax-efficient savings schemes. Obadiah is regulated by the relevant financial services authority and is considered a public interest entity.
Mr Harry has been the audit engagement partner for Obadiah for the previous nine years and so has excellent knowledge of the client. Mr Harry has informed you that he would like his daughter Hela to be part of the audit team this year; Hela is currently studying for her first set of fundamentals papers for her ACCA qualification. Mr Harry also informs you that Mr Neville, an audit junior, received investment advice as a regular client of Obadiah during the year and intends to do the same next year.
In an initial meeting with Obadiah’s finance director, you learn that the audit team will not be entertained on Obadiah’s yacht this year. Instead, he has arranged a balloon flight costing less than one-tenth of the expense of using the yacht and hopes this will be acceptable. The director also states that the fee for tax advisory services this year should be based on a percentage of tax saved.
The finance director further suggests that Nera & Co be paid a fixed fee for representing Obadiah in a dispute regarding the amount of sales tax payable to the taxation authorities.
In line with ACCA’s Code of Ethics and Conduct, which of the following factors must be considered by Nera & Co in relation to the suggestion of a fixed fee for representing Obadiah in a tax dispute?
Answer (Detailed Solution Below)
Audit And Assurance Question 8 Detailed Solution
The correct option is option 2
Additional Information:
Where taxation services involve acting as an advocate for an audit client before a court in the resolution of a tax matter that is material to the financial statements, the advocacy threat created would be so significant that no safeguards could eliminate or reduce the threat to an acceptable level. Therefore, Nera & Co cannot perform this type of service for Obadiah. (As the dispute concerns sales tax it will almost certainly be material since ½ – 1% revenue is generally considered material.)
Audit And Assurance Question 9:
Comprehension:
Obadiah Co
You are a manager in the audit firm of Nera & Co, and this is the first time you have been assigned the audit of one of the firm’s established clients, Obadiah Co (Obadiah). The main activity of Obadiah is providing investment advice to individuals on retirement planning, purchase of shares and securities and investing in tax-efficient savings schemes. Obadiah is regulated by the relevant financial services authority and is considered a public interest entity.
Mr Harry has been the audit engagement partner for Obadiah for the previous nine years and so has excellent knowledge of the client. Mr Harry has informed you that he would like his daughter Hela to be part of the audit team this year; Hela is currently studying for her first set of fundamentals papers for her ACCA qualification. Mr Harry also informs you that Mr Neville, an audit junior, received investment advice as a regular client of Obadiah during the year and intends to do the same next year.
In an initial meeting with Obadiah’s finance director, you learn that the audit team will not be entertained on Obadiah’s yacht this year. Instead, he has arranged a balloon flight costing less than one-tenth of the expense of using the yacht and hopes this will be acceptable. The director also states that the fee for tax advisory services this year should be based on a percentage of tax saved.
The finance director further suggests that Nera & Co be paid a fixed fee for representing Obadiah in a dispute regarding the amount of sales tax payable to the taxation authorities.
What safeguards, if any, are required in relation to the basis for the fees for taxation services and the external audit assignment?
Answer (Detailed Solution Below)
Audit And Assurance Question 9 Detailed Solution
The correct option is option 2
Additional Information:
- The contingent fee basis for the taxation services must be rejected.
Audit And Assurance Question 10:
Comprehension:
Obadiah Co
You are a manager in the audit firm of Nera & Co, and this is the first time you have been assigned the audit of one of the firm’s established clients, Obadiah Co (Obadiah). The main activity of Obadiah is providing investment advice to individuals on retirement planning, purchase of shares and securities and investing in tax-efficient savings schemes. Obadiah is regulated by the relevant financial services authority and is considered a public interest entity.
Mr Harry has been the audit engagement partner for Obadiah for the previous nine years and so has excellent knowledge of the client. Mr Harry has informed you that he would like his daughter Hela to be part of the audit team this year; Hela is currently studying for her first set of fundamentals papers for her ACCA qualification. Mr Harry also informs you that Mr Neville, an audit junior, received investment advice as a regular client of Obadiah during the year and intends to do the same next year.
In an initial meeting with Obadiah’s finance director, you learn that the audit team will not be entertained on Obadiah’s yacht this year. Instead, he has arranged a balloon flight costing less than one-tenth of the expense of using the yacht and hopes this will be acceptable. The director also states that the fee for tax advisory services this year should be based on a percentage of tax saved.
The finance director further suggests that Nera & Co be paid a fixed fee for representing Obadiah in a dispute regarding the amount of sales tax payable to the taxation authorities.
In line with ACCA’s Code of Ethics and Conduct, which of the following factors must be considered before the tax advisory services engagement can be accepted?
A.The level of tax expertise in the audit engagement team
B.The period of time over which the advice is expected to be provided
C.The extent to which the advice will be supported by tax law or regulation
D.The extent to which the outcome of the tax advice will have a material effect on the financial statements
Answer (Detailed Solution Below)
Audit And Assurance Question 10 Detailed Solution
The correct option is option 3
Additional information:
- Both these factors affect the assessment of the self-review threat. The tax expertise in the audit team is not relevant, since the service should be performed by professionals who are not audit team members; this is also a safeguard.