MCQ Bank

For ensuring the quality of Internal Control Questionnaire (ICQ), Auditor includes some reference in this respect. Highlight the reference which is NOT suitable to be included in ICQ;

A) Reference to Management Letter
B) Reference to Audit Program
C) Reference to Engagement Letter
D) None of the given options

AI Explanation

An engagement letter is signed before the audit starts to set the terms of the audit engagement, whereas an Internal Control Questionnaire (ICQ) is used during fieldwork to evaluate controls and link to audit programs or management letters. Therefore, referencing an engagement letter inside an ICQ is generally not suitable or relevant.

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Q21

Which one of the following elements is NOT related to audit quality?

A) Independence
B) Audit competence
C) Audit fees
D) Due diligence

AI Explanation

Audit quality is fundamentally driven by professional elements such as auditor independence, competence, and due diligence. While audit fees can impact resource allocation, they are not a core definitional element of audit quality itself.

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Q22

Following are some main assertions used in substantive procedures EXCEPT:

A) Concreteness
B) Occurrence
C) Existence
D) Completeness

AI Explanation

Standard financial statement assertions used in substantive procedures include existence, occurrence, completeness, rights and obligations, and valuation. 'Concreteness' is not a recognized audit assertion.

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Q23

While designing the substantive analytical procedures auditor should considers following matters EXCEPT:

A) Sustainability
B) Availability
C) Suitability
D) Reliability

AI Explanation

When designing substantive analytical procedures, auditors evaluate the availability, suitability, and reliability of the data used. Sustainability is an environmental or long-term operational concept and is not a core technical factor considered when designing analytical procedures.

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Q24

Following are the basic objectives of constructing the Internal control questionnaire (ICQ) EXCEPT:

A) To identify those controls which indicate the strengths of system
B) To ensures about the proper dispatching of engagement letter
C) To identify those controls which indicate the weakness of system
D) To ensures about evaluation of control system thus recorded

AI Explanation

An Internal Control Questionnaire (ICQ) is designed to evaluate internal controls by identifying system strengths and weaknesses and facilitating the evaluation of the recorded control system. The engagement letter is dispatched prior to fieldwork during the planning phase and is unrelated to the ICQ's operational objectives.

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Q25

Analytical procedures are used to understand the:

A) Client’s business
B) All of the given options
C) Possible misstatements in financial statements
D) Going concern

AI Explanation

Analytical procedures are versatile tools used across the audit to gain an understanding of the client's business, identify potential material misstatements, and evaluate the entity's ability to continue as a going concern.

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Q26

Internal sources of audit evidence for an entity includes the following EXCEPT:

A) Management representation and discussion
B) Accounting systems, records, and documents
C) Non-financial data and records
D) Associated companies of the entity

AI Explanation

Associated companies or external third parties are considered external sources of information rather than internal sources. Internal sources comprise the entity's own accounting records, management discussions, and internal non-financial data.

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Q27

Audit evidence, including information received from the audited entity in writing or oral is called:

A) External audit evidence
B) Internal audit evidence
C) Mixed audit evidence
D) None of the given options

AI Explanation

Audit evidence originating from within the audited entity, whether received in writing or orally from management and employees, is classified as internal audit evidence. External evidence, by contrast, is obtained from independent third parties outside the entity.

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Q28

External source of obtaining audit evidence are listed below EXCEPT:

A) Subsidiary of a company
B) Third parties
C) Suppliers
D) Customers

AI Explanation

External audit evidence comes from independent outside sources such as suppliers, customers, and third parties. A subsidiary of the same company is an internal source rather than an external source.

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Q29

Sound internal control helped out the auditor to entertain some relaxation, such as:

A) Helped the auditor to express his opinion at the end of audit process
B) Reduces the volume of transactions testing required in conducting an audit
C) All of the given options
D) Helped the auditor to check available records

AI Explanation

Effective internal controls allow auditors to reduce the extent of detailed testing because the risk of errors is lower. This improves audit efficiency while maintaining assurance.

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Q30

Appropriateness refers to the quality of audit evidence. For evidence to be appropriate, it should integrate which one of the followings?

A) Relevancy and reliability
B) Received only from a third party
C) Documented in the audit working papers
D) Materiality

AI Explanation

Appropriateness of audit evidence refers to its quality, which depends on relevance and reliability. Evidence with these characteristics provides stronger support for audit conclusions.

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Q31

SOFs are special types of forms used in internal control questionnaire (ICQ) process. These form basically named as:

A) Standard (Acquiring services) Order Forms
B) Standard (Purchase) Order Forms
C) Standard (Offering services) Order Forms
D) Standard (Sales) Order Forms

AI Explanation

SOFs in internal control questionnaires refer to Standard Purchase Order Forms. These forms help control and document purchasing activities.

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Q32

Which of the following is an integral part of audit at the stage of checking and evaluation of information?

A) Plan of the audit task
B) None of the given options
C) Final report
D) Internal control questionnaire

AI Explanation

An internal control questionnaire is an integral audit tool used during checking and evaluation of information. It helps auditors assess the effectiveness of internal controls.

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Q33

Test of controls comprise of testing all of the following three things EXCEPT:

A) Design
B) Implementation
C) Operating effectiveness
D) Operating efficiency

AI Explanation

Tests of controls evaluate whether controls are properly designed, implemented, and operating effectively. Operating efficiency is related to performance or productivity rather than the effectiveness of internal controls.

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Q34

Documentary evidence is used extensively in auditing. Which one of the following represents two special classes of documentary evidence?

A) Confirmations and oral representations
B) Confirmations and oral representations
C) Confirmations and written representations
D) Oral and written representations

AI Explanation

Confirmations and written representations are special classes of documentary evidence used in auditing. They provide documented support obtained from external or responsible parties.

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Q35

During tests of control procedure its design can easily tested with the help of:

A) ICQs & Judgmental sample
B) ICQs & Random sample
C) ICQs & ICEC
D) ICQs & Walk through tests

AI Explanation

The design of controls can be tested through Internal Control Questionnaires (ICQs) and walkthrough tests. Walkthroughs help auditors trace transactions through the system to evaluate whether controls are properly designed and implemented.

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Q36

Which one of the following is FALSE about Internal Control Evaluation Checklists (ICEC)?

A) It is normally employed where system’s information has already been recorded
B) ICEC is developed to overcome the shortcomings of Internal Control Questionnaire
C) The rules of constructing ICEC is different than construction of Internal Control Questionnaire
D) It is designed to determine; whether desirable internal controls are present

AI Explanation

Internal Control Evaluation Checklists (ICEC) are constructed using principles similar to Internal Control Questionnaires (ICQ). ICEC is used to evaluate whether effective controls exist and to address ICQ limitations.

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Q37

Which one of the following audit procedures is most associated with the management’s assertion of ‘Completeness’?

A) Searching for all unmatched receiving reports
B) Reviewing the outstanding cheques listing
C) Checking that the accounts receivable aged trial balance adds up
D) Confirming an accounts receivable balance with a customer

AI Explanation

Searching for unmatched receiving reports helps identify goods received that have not been recorded as purchases or liabilities, addressing the completeness assertion. It ensures that all relevant transactions have been captured.

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Q38

Which one of the following is an alternative name for ‘Test of controls’?

A) Control procedures
B) Compliance tests
C) Analytical procedures
D) Substantive tests

AI Explanation

Test of controls are also known as compliance tests because they evaluate whether prescribed internal controls are being followed. They help auditors assess the effectiveness of an organization's control system.

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Q39

Auditor is able to apply tests of control procedure if following condition are fulfilled EXCEPT:

A) Only applied after application of test of details procedure
B) When sound internal control exists in the organization
C) None of the given options
D) When sufficient appropriate audit evidence can’t be obtained at assertion level by substantive procedures alone

AI Explanation

Tests of controls are generally performed before or instead of extensive tests of details when auditors plan to rely on internal controls. They are not dependent on being applied after tests of details.