MCQ Bank

The study of economic operations involves examining the legitimacy, usefulness, and reliability of business transactions. It helps auditors understand and evaluate organizational activities.

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Q161

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

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

AI Explanation

Using substantive procedures alone without properly assessing controls may indicate an inappropriate audit approach if effective controls exist. Auditors should design procedures based on risk assessment and control evaluation.

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Q162

Existence of purchasing department entertain the auditor in following manner:

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

AI Explanation

The purchasing department provides auditors with information about purchased goods, re-order levels, and whether purchasing is centralized. All these factors help auditors understand and evaluate the purchase system.

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Q163

Tests of controls include all of the following EXCEPT:

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

AI Explanation

Tests of controls generally include walkthrough procedures, observation, and inspection of documents to evaluate whether controls are operating effectively. Analytical procedures are mainly used as substantive audit procedures rather than tests of controls.

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Q164

‘Timing of audit procedure’ refers to which one of the following descriptions?

A) It refers to sample size or number of observations of a control activity (quantity of audit evidence)
B) It refers to when audit procedures are performed or the period or date to which the audit evidence applies
C) It refers to the nature of testing and their procedures, that is, designing, structuring, and compiling work to be done
D) 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

AI Explanation

Timing of audit procedures relates to when audit work is carried out and the period covered by the evidence obtained. It helps determine whether evidence is appropriate for the audit objective.

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Q165

Test of details is also called as:

A) Substantive test
B) Compliance test
C) Test of skills
D) Test of control

AI Explanation

Test of details is a type of substantive test used to verify transactions, account balances, and disclosures directly. It provides evidence about the accuracy and completeness of financial information.

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Q166

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

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

AI Explanation

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.