MCQ Bank

Substantive procedures during the financial statement closing process focus on evaluating journal entries, adjustments, and agreeing the financial statements to underlying accounting records. Examining documentary proof of each individual transaction at the time of recording is not specifically a closing process procedure, making it the exception.

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A well designed Internal Control Questionnaire (ICQ) should incorporate the following EXCEPT:

A) Be organized by individual functional organizations
B) Should include simple yes or no responses but not narrative responses
C) Be a sufficient source of data for the evaluation of internal controls
D) Identify the internal control system’s strengths and weaknesses

AI Explanation

A well-designed Internal Control Questionnaire (ICQ) may include yes/no questions along with opportunities for narrative explanations where additional details are needed. Restricting responses only to yes or no answers would limit the effectiveness of the evaluation process, making this the exception.

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Substantive procedures are tests which are undertaken to obtain which one of the followings?

A) Audit appointment
B) Audit evidence
C) Audit opinion
D) Reasonable assurance

AI Explanation

Substantive procedures are audit tests designed to detect material misstatements in financial statement balances and transactions. They are performed to obtain sufficient and appropriate audit evidence to support the auditor’s conclusions.

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Tests of controls are used to obtain evidence regarding the:

A) Implementation of internal control system
B) None of the given options
C) Effectiveness of internal control system
D) Planning of internal control system

AI Explanation

Tests of controls are audit procedures performed to evaluate the operating effectiveness of internal controls in preventing, or detecting and correcting, material misstatements at the assertion level. They provide evidence about whether the controls are working as designed.

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Tests of controls include all of the following EXCEPT:

A) Inspection of documents, files, etc.
B) Walk-through procedures
C) Observation
D) Analytical procedures

AI Explanation

Analytical procedures are substantive procedures used to evaluate financial information through analysis of plausible relationships among financial and non-financial data, rather than tests of controls. Tests of controls typically include inquiry, inspection, observation, re-performance, and walk-through procedures.

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Highlight the statements which truly described the method of re-performance by auditor EXCEPT;

A) Prepare Bank reconciliation
B) To inspect the documents
C) To Prepare Final accounts
D) To verify control over cash receipt

AI Explanation

Re-performance involves the independent execution of procedures or controls that were originally performed as part of the entity's internal control. Inspecting documents is a distinct audit procedure on its own, not the method of re-performance.

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Existence of purchasing department entertain the auditor in following manner:

A) All of the given options
B) Give awareness whether ordering is centralized or not
C) Give awareness to auditor about nature of goods purchased
D) Give awareness about entity’s minimum and maximum re-order level to ensure efficient control

AI Explanation

The existence of a purchasing department helps the auditor understand whether purchasing is centralized, identify the types and nature of goods purchased, and review inventory re-order policies. All of these insights assist the auditor in evaluating internal controls.

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Inappropriate audit approaches lead towards misunderstanding of internal control systems. The best example for an inappropriate audit approach is;

A) Apply tests of control only for a particular assertion
B) Apply substantive procedures only for a particular assertion may be because auditor failed to identify any effective control
C) Apply the tests of controls only after occurring of event
D) Combined approach (applying both tests of operating effectiveness of control’s and substantive procedures for same assertion

AI Explanation

Relying entirely on substantive procedures because the auditor failed to properly identify effective controls or test them can represent an inadequate or inappropriate strategy if controls actually exist and could be relied upon to reduce substantive testing. However, depending on control risk, auditors do sometimes use purely substantive approaches; yet a failure to identify controls due to an inappropriate approach leads to misunderstandings.

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Information that an Auditor may use as an audit evidence consists of the following EXCEPT:

A) Minutes of meeting
B) Analysis reports
C) Meeting schedule
D) Control manuals

AI Explanation

Minutes of meetings, analysis reports, and control manuals contain substantive information and decisions used as audit evidence. A meeting schedule only lists dates and times of upcoming or past meetings and generally does not provide substantive evidence regarding financial statements.

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Audit evidence in the form of facts which do not need any further guesswork or reasoning is called:

A) Secondary evidence
B) Direct evidence
C) Indirect evidence
D) None of the given options

AI Explanation

Direct evidence establishes a fact directly without the need for any inferences or intermediate reasoning. It stands on its own to prove the matter in question.

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Q10

Types of analytical procedures may include the following EXCEPT:

A) Reasonable analysis
B) Vertical analysis
C) Ratio analysis
D) Trend analysis

AI Explanation

Common types of analytical procedures used in auditing include trend analysis, vertical analysis, and ratio analysis. 'Reasonable analysis' is not a standard recognized category of analytical procedures.

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Q11

Which one of the following primary assertions is satisfied when an auditor observes the client's physical count of inventory?

A) Existence
B) Rights and obligations
C) Valuation
D) Completeness

AI Explanation

Observing the client's physical count of inventory primarily provides audit evidence regarding the existence assertion. It allows the auditor to verify that the inventory actually physical exists at the balance sheet date.

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Q12

Following are included in the analytical procedure EXCEPT:

A) Comparison of information for the period examined with the previous period
B) Determination of audit risk
C) Comparison of the examined information with its budget
D) Examine the relationship between financial and non-financial data

AI Explanation

Analytical procedures involve comparing financial information with prior periods, budgets, or expected results to identify unusual fluctuations. The determination of audit risk is a risk assessment process performed during audit planning rather than an analytical procedure itself.

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Q13

Techniques of Audit Tests include all of the following EXCEPT:

A) Examination
B) Observation
C) Computation
D) Inspection