MCQ Bank

Associated companies are external sources of audit evidence rather than internal sources. Internal evidence includes accounting records, management representations, and internal non-financial information.

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Q167

Which one of the following examples constitutes the most reliable piece of audit evidence available to an auditor?

A) A supplier’s invoice kept in the client's records
B) A receipted shipping document
C) A duplicate sales receipt dated and signed
D) A written confirmation from a bank

AI Explanation

A written bank confirmation is highly reliable because it comes directly from an independent external party. External evidence obtained directly by the auditor generally has greater reliability than internally held documents.

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Q168

All of the following characteristics reflect the level of competence of audit evidence EXCEPT:

A) Independence
B) Sufficiency
C) Relevance
D) Reliability

AI Explanation

Competence of audit evidence relates to its quality, including relevance, reliability, and independence. Sufficiency refers to the quantity of evidence rather than its competence.

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Q169

Tests of controls are used to obtain evidence regarding the:

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

AI Explanation

Tests of controls are performed to evaluate whether internal controls are operating effectively. They help auditors determine whether they can rely on the client's control system.

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Q170

Analytical procedures are used to understand the:

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

AI Explanation

Analytical procedures help auditors understand the client's business, assess going concern issues, and identify possible misstatements in financial statements. Therefore, all listed options are relevant.

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Q171

From the following options select independent variable which has NO relation to substantive procedures;

A) Reasonable assurance
B) Auditor opinion
C) Auditor engagement
D) Sufficient appropriate audit evidence

AI Explanation

Substantive procedures are performed to obtain audit evidence supporting account balances and transactions. Auditor opinion is the final conclusion of the audit process and is not a variable related to substantive procedures.

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Q172

Appropriateness of the audit evidence refers to the quality of audit evidence that imply to which one of the following statements?

A) Formulation and structure of audit evidence gathered
B) Relevance and reliability of audit evidence gathered
C) Consequence and implication of audit evidence gathered
D) Inconsistency and flexibility of audit evidence gathered

AI Explanation

Appropriateness refers to the quality of audit evidence, which is determined by its relevance and reliability. High-quality evidence helps auditors form appropriate conclusions.

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Q173

While inspecting the purchase cycle of a company the auditor focuses to obtain the following objectives EXCEPT:

A) Goods received should be properly inspected
B) All transaction related to receivables should be properly recorded
C) Purchase orders only issues for such quantity which is necessary for the conducting of business operations
D) Purchase order issued under proper authority and procedures

AI Explanation

The purchase cycle focuses on purchasing activities, receiving goods, and related supplier transactions. Recording receivables belongs to the sales cycle, not the purchase cycle.

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Q174

The Nature of audit procedures refers to which of the following:

I. Its Purpose
II. Its Type
III. Its Duration
IV. Its features

A) II, IV & I only
B) I & II only
C) II, III and IV only
D) I, III & IV only

AI Explanation

The nature of audit procedures refers to their purpose and type, such as tests of controls, substantive procedures, inspection, and observation. Duration and features are not considered elements of the nature of audit procedures.

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Q175

Reliability of audit evidence is influenced by all of the following factors EXCEPT:

A) Timeliness
B) Objectivity
C) Quantity
D) Source and nature of the information

AI Explanation

Reliability of audit evidence is affected by factors such as source, nature, timeliness, and objectivity. Quantity relates to sufficiency of evidence rather than reliability.

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Q176

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

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

AI Explanation

ICQs are designed to evaluate internal controls, identify strengths and weaknesses, and record the evaluation of the control system. Dispatching an engagement letter is not an objective of an ICQ.

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Q177

Which of the following risk/(s) can present at assertion level?

A) Audit risk
B) Significant risk
C) All of the given options
D) Material misstatement risk

AI Explanation

Audit risk, significant risk, and risk of material misstatement can all be considered in relation to assertions during an audit. These risks influence the auditor's assessment and procedures.

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Q178

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

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

AI Explanation

ICEC is developed to overcome limitations of ICQ and is used to evaluate whether effective controls exist. The construction principles of ICEC are generally similar to those of ICQ, so stating that the rules are different is false.

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Q179

Techniques of Audit Tests include all of the following EXCEPT:

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

AI Explanation

Common audit test techniques include inspection, observation, and computation. Examination is not usually listed as a separate audit test technique because it is covered under inspection procedures.

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Q180

Reliability of audit evidence signifies the following implications EXCEPT:

A) Photocopied and facsimile documentation could helpful
B) Effectiveness of internal control should be evident
C) There should be documentary evidence
D) Documentary evidence should be present

AI Explanation

Photocopied and facsimile documents are generally less reliable because their authenticity may be difficult to verify. Reliable audit evidence usually requires original documentary evidence or evidence supported by effective controls.

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Q181

Audit evidence, including information received from third parties in writing is called:

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

AI Explanation

Written information received from third parties is considered external audit evidence. It is generally more reliable because it comes from sources independent of the entity being audited.

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Q182

The quantity of audit evidence needed is NOT effected by:

A) Type of organization
B) Quality of audit
C) Inherent limitations
D) Risk of misstatement

AI Explanation

The quantity of audit evidence required depends on factors such as risk of misstatement, inherent limitations, and the nature of the organization. Quality of audit does not determine the amount of evidence needed.

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Q183

Inspection of tangible assets is a good example of the following assertion for obtaining audit evidence:

A) Existence
B) Presence
C) Occurrence
D) Subsistence

AI Explanation

Inspection of tangible assets provides evidence that the assets recorded in the financial statements actually exist. It is a common audit procedure for testing the existence assertion.

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Q184

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) Materiality
C) Documented in the audit working papers
D) Received only from a third party

AI Explanation

Appropriateness of audit evidence refers to its quality, which is determined by relevance and reliability. Evidence must support the audit objective and be trustworthy to be considered appropriate.

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Q185

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

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

AI Explanation

Direct evidence consists of facts that do not require interpretation, assumptions, or further reasoning. It provides clear and immediate support for audit conclusions.