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Total questions: 66
Worksheet time: 1hrs 6mins
Which of the following is the most appropriate definition of the external audit?
The external audit is an exercise carried out by auditors in order to give an opinion on
whether the financial statements of a company are materially misstated.
The external audit is an exercise carried out in order to give an opinion on the effectiveness
of a company's internal control system.
The external audit is performed by management to identify areas of deficiency within a
company and to make recommendations to mitigate those deficiencies.
The external audit provides negative assurance on the truth and fairness of a company's
financial statements
Is the following statement regarding stewardship true or false? Directors are stewards of
the investment made by shareholders in a company.
True
False
Which two of the following are elements of an assurance engagement?
(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1) and (4) only
Who normally appoints the external auditors of a company?
Directors
Shareholders
Audit committee
Senior management
The level of assurance provided by an external audit is absolute. True or false?
True
False
Which of the following could cause ADVOCACY?
Audit team to be offered a balloon flight entertainment
Tax fee to be based on a percentage of tax saved
Firm to represent Stark in a dispute with the tax authorities
You are an audit manager of Ali & Co and have just been assigned the audit of Stark Co
(Stark). In an initial meeting with the finance director of Stark, you learn that the audit
team will not be entertained on Stark'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.
Which of the following actions should be taken to ensure the firm complies with ACCA’s
Code of Ethics and Conduct?
The gift may be accepted as Stark has taken appropriate measures to reduce the value of
the gift compared to previous years.
The value of the gift should be assessed to determine whether it is of material value to
the financial statements.
The gift should only be accepted if its value is trivial and inconsequential to the recipients.
Only the audit partner and audit manager should accept the gift.
The audit team is being offered a 10% discount on the client's mobile phones.
Which of the following statements is true by ACCA's Code of Ethics and
Conduct?
The audit team can accept the discount as it is on the same terms as that offered to staff
Junior members of the audit team are allowed to accept the discount, but the audit manager
and audit partner should not
Unless the value of the discount is trivial and inconsequential to the audit team members,
the offer should be declined
The audit team is only allowed to accept a discount of up to 5%
Which TWO of the following are fundamental principles as stated in the ACCA’s Code of
Ethics and Conduct?
1 Objectivity
2 Independence
3 Confidentiality
4 Professional skepticism
1 and 4
1 and 2
2 and 3
1 and 3
Which of the following are recognized threats to independence and objectivity as
identified in ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
(1), (2), (3) and (4)
(1), (2) and (4)
(2), (3) and (4)
(2) and (4) only
In which of the following situations would the auditor be able to disclose confidentially
information about a client?
(1) Disclosure is required by law.
(2) Disclosure is permitted by law but the auditor has not requested the client's permission.
(3) The auditor suspects that the client has committed money-laundering offenses.
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
Andrew Jones has been the key audit partner of X Co, a public interest entity, for seven
years. For how long must he be rotated off the audit as a minimum to comply with ACCA's
Code of Ethics and Conduct?
1 year
2 year
3 year
4 year
Who is ultimately responsible for a company's system of internal controls?
External auditors
Board of directors
Internal auditors
Audit committee
AB & Co audits DEF Co. By the ACCA Code of Ethics and Conduct two of
the following circumstances would constitute a threat to objectivity?
(1) An employee of AB & Co owns shares in DEF Co but is not part of the audit team
(2) The best friend of the engagement partner owns a significant indirect financial interest in DEF. Co
(3) The audit manager of DEF Co owns a small number of shares in DEF Co
(4) The husband of the audit partner owns shares in DEF Co
(1) and (2)
(1) and (4)
(2) and (3)
(3) and (4)
Which two of the following are fundamental principles as stated in the ACCA's Code of
Ethics and Conduct?
(1) Objectivity
(2) Independence
(3) Confidentiality
(4) Professional skepticism
(1) and (4)
(1) and (2)
(2) and (3)
(1) and (3)
When gaining an understanding of the specific business operations of an audit client which
of the following matters would an auditor need to consider?
Accounting principles and industry specific practices relevant to the client's business
Acquisitions or disposals of the client's business activities
Leasing of property, plant or equipment for use in the client's business
Products or services and markets of the client's business
Which of the following procedures must the auditor use to obtain an understanding of the
entity and its environment in accordance with ISA 315 Identifying and assessing the risks
of material misstatement through understanding the entity and its environment?
(1) Analytical procedures
(2) Inquiry
(3) Confirmation
(4) Reperformance
(1), (2) and (3)
(1) and (2)
(2), (3) and (4)
What are the two elements of the risk of material misstatement at the assertion level?
Inherent risk and detection risk
Audit risk and detection risk
Inherent risk and control risk
Detection risk and control risk
'Audit risk' represents the risk that the auditor will give an inappropriate opinion on the
financial statements when the financial statements are materially misstated. Which of the
following categories of risk can be controlled by the auditor? Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
(1) and (2)
(2) only
(1) and (3)
(2) and (3)
The definition of the risk of material misstatement is 'Inherent Risk × Control Risk ×
Detection Risk'.
Is this statement true or false?
True
False
Which of the following statements about materiality is correct?
(1) Information is material if its omission or misstatement could influence the economic
decisions of users of the financial statements.
(2) Materiality is based on the auditor's experience and judgment.
(3) Materiality is always based on revenue.
(4) Materiality should only be calculated at the planning stage of the audit.
(1), (2) and (3)
(1), (3) and (4)
(1) and (2)
(2) and (4)
Performance materiality levels are higher than the materiality for the financial statements
as a whole.
Is this statement true or false?
True
False
Who is responsible for the prevention and detection of fraud?
Internal auditors
External auditors
Those charged with governance and management
The audit committee
The auditor of A Co wishes to reduce audit risk. Which of the following actions could the auditor take to achieve this?
(1) Increase sample sizes
(2) Reduce control risk
(3) Assign more experienced staff to the engagement team
(1) only
(2) only
(1) and (3)
(2) and (3)
Which of the following would normally be included in the audit plan?
Reporting objectives
Industry-specific financial reporting requirements
Nature, timing, and the extent of planned risk assessment procedures
Which of the following statements are correct with regard to the relationship between the
audit plan and the audit strategy for an external audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and developed at the same time.
(3) The overall audit strategy should be more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
(1) and (3)
(2) only
(3) and (4)
(4) only
What are the purposes of planning the audit?
(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
(1), (2), (3) and (4)
(1), (3) and (4)
(1), (2) and (3)
(2) and (3)
Which of the following factors influence the form and content of audit working papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit
(1), (2) and (4)
(1), (3) and (4)
(1) and (2)
(2) and (4)
Is the following statement regarding audit evidence true or false? Appropriateness is the
measure of the quality of audit evidence.
True
False
Which of the following is NOT an inherent limitation of internal control systems?
Insufficient segregation of duties (phân chia trách nhiệm ko đầy đủ)
Possibility that employees may collude together fraudulently
Possibility of human error in undertaking tasks
Which of the following controls of a sales system ensure that all goods despatched are completely and accurately invoiced?
Good despatched notes are matched to sales invoices
Sales invoices are sequentially numbered
Sales invoices are matched to customer orders
ISA 315 Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment sets out the five components of internal control. Which of the following is NOT set out as a component of internal control within ISA 315?
Control environment
The information system relevant to financial reporting
Human resource policies and practices
Which of the following procedures are TESTS OF CONTROL an auditor should perform in
testing the inventory cycle of their client whilst attending the inventory count?
(1) Observe whether the client’s staff are following the inventory count instructions
(2) Review inventory present in the warehouse for evidence of damage or obsolescence
(3) Obtain a sample of the last goods received notes and goods despatched notes and follow
through to ensure inclusion in the correct accounting period
(4) Inspect and review management’s inventory count instructions
2 and 3
1 and 4
1 and 2
3 and 4
Is the following statement regarding the assurance provided by an internal control system true or false? An effective internal control system provides the auditor with absolute assurance that control objectives have been achieved.
True
False
Which of the following methods of recording an accounting and controls system is a series of questions used to determine whether controls exist which meet specific control objectives?
Internal control questionnaire
Internal control evaluation questionnaire
Flowchart
One of the control objectives of the sales system of B Co is to ensure that goods and services are sold to credit-worthy customers. Which of the following control activities would assist B Co in achieving this objective?
All sales orders are based on authorised price lists.
Credit limits are checked before sales orders are accepted.
Overdue debts are chased each month by the credit controller.
The aged-debt listing is reviewed by the finance director on a monthly basis
The draft financial statements of T Co show the following information:
$'000
Revenue 420
Cost of sales 270
Gross profit 150
Trade receivables 160
Trade payables 130
What is the receivables collection period?
139 days
175 days
758 days
958 days
Which of the following controls helps to ensure that payroll payments are only made to bona fide employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in human resources and payroll functions
(4) Reperformance of the calculation of a sample of payroll deductions
(1) and (2)
(1) and (3)
(2) and (4)
(3) and (4)
B Co maintains perpetual inventory records. Which of the following control activities would contribute to the auditor's confidence that inventory recorded in the financial statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
(1) and (2)
(1) and (3)
(2) and (3)
(3) and (4)
Which of the following substantive procedures provides evidence over the
EXISTENCE of non-current assets?
Select a sample of assets included in the non-current asset register and physically
verify them at the client premises
Review the repairs and maintenance expense account to identify any items of a capital
nature
For assets disposed of, agree the sale proceeds to supporting documentation and cash book
Which of the following is a substantive audit procedure for wages and salaries?
Inspect a sample of clock cards for evidence of authorization by a responsible official
Recalculate a sample of payroll deductions such as employment taxes to confirm the accuracy
Attempt to access and make changes to the payroll master file using the log-on for a junior
clerk
Which of the following NOT should be included in an audit engagement letter?
Objective and scope of the audit
Results of previous audits
Management’s responsibilities
Which of the following is NOT a responsibility of the auditor?
To provide an opinion on the truth and fairness of the financial statements
To conduct an audit in accordance with International Standards on Auditing
To express an opinion on the company’s going concern status
Which TWO of the following substantive procedures provide evidence of the EXISTENCE of trade receivables?
(1) Agreeing on a sample of goods despatched notes to sales invoices and the sales ledger
(2) Undertaking a receivables circularisation
(3) Review of post-year-end cash receipts, if these relate to year-end receivables follow through to the sales ledger
(4) Recalculating the allowance for uncollectible accounts
1 and 3
2 and 4
2 and 3
1 and 4
Which of the following statements is/are true with respect to analytical procedures?
(1) Analytical procedures can be used throughout the audit.
(2) Analytical procedures must be used as risk assessment procedures.
(1) only
(2) only
(1) and (2)
Neither (1) nor (2)
Which two of the following would be classified as substantive procedures?
(1) Tests of control
(2) Walk-through tests
(3) Analytical procedures
(4) Tests of details
(1) and (2)
(1) and (4)
(2) and (3)
(3) and (4)
The auditor of G Co is performing audit procedures to confirm the company's ownership of motor vehicles. Which of the following would provide the most persuasive evidence of this?
Physical inspection of the motor vehicles
Inspection of vehicle registration documents
Checking that the motor vehicles are recorded in the non-current asset register
Review of vehicle insurance documentation
Which of the following audit procedures would provide the auditor with evidence of completeness of inventory?
Tracing test counts performed at the inventory count to the detailed inventory listing
Reviewing the physical condition of inventory when attending the inventory count
Casting the inventory listing
Vouching the cost of a sample of inventory items to suppliers' invoices
Which of the following statements is/are true regarding direct confirmation of accounts receivable?
(1) Responses from the customer must be returned directly to the client.
(2) Under the positive method the customer only replies if the amount stated is agrees with the customer's records.
(1)
(2)
(1) and (2)
Neither (1) and (2)
The auditor of M Co has agreed a sample of non-current assets selected by physical inspection back to the non-current asset register. For which of the following assertions does this test provide assurance?
Completeness
Existence
Rights and obligations
Accuracy and valuation
Which of the following techniques is generally accepted to be the most efficient to obtain evidence regarding the existence of bank balances?
Reperformance
Confirmation
Analytical procedures
Observation
Which of the following assertions about classes of transactions and events for the period under audit is defined below: 'Amounts and other data relating to recorded transactions and events have been recorded appropriately'.
Cut-off
Accuracy
Occurrence
Classification
As the audit senior on the year-end audit of Z Co, you have instructed the audit junior to obtain and inspect supporting sales contracts for large sales transactions. Which of the following assertions are you seeking to test with this audit procedure?
Cut-off
Accuracy
Occurrence
Completeness
The auditor of S Co has concluded that the use of the going concern assumption is appropriate and that the material uncertainty has been adequately disclosed. What is the impact of this conclusion on the auditor's report?
Adverse opinion
Qualified opinion
Unmodified opinion without an emphasis of matter paragraph
Unmodified opinion with an emphasis of matter paragraph
The auditor of Y Co has concluded that Y Co is not a going concern. The financial
statements have been prepared on a going concern basis and management has refused to change them. What form of audit opinion will be issued by the auditor?
An unmodified opinion
A qualified 'except for' opinion due to material misstatement
A qualified 'except for' opinion due to insufficient appropriate audit evidence
An adverse opinion
Misstatements can arise from error or fraud. Which of the following statements is correct regarding the auditor's accumulation of identified misstatements?
The auditor must accumulate all misstatements identified during the audit.
The auditor must only accumulate individually material misstatements identified during the
audit.
The auditor must accumulate misstatements identified during the audit, other than those
that are clearly trivial
ISA 700 Forming an opinion and reporting on financial statements sets out the basic elements of an auditor's report. Which of the following is not included in an unmodified auditor's report?
Management's responsibility for the financial statements
Auditors' responsibilities
Audit opinion
Deficiencies of internal controls
The auditor of Q Co has completed the audit and has concluded that sufficient appropriate evidence has been obtained, which confirms that the financial statements are not materially misstated. Which form of audit opinion will the auditor issue?
Adverse opinion
Qualified opinion
Unmodified opinion
A disclaimer of opinion
ISA 705 Modification to the opinion in the independent auditor's report identifies three possible types of modification. In which of the following circumstances would a disclaimer of opinion be issued?
The auditor concludes that the financial statements include misstatements which are
material but not pervasive to the financial statements.
The auditor concludes that the financial statements include misstatements which are both
material and pervasive to the financial statements.
The auditor has not been able to obtain sufficient appropriate audit evidence on which to
base an opinion but has concluded that the possible effects of any undetected
misstatements could be material but not pervasive .
The auditor has not been able to obtain sufficient appropriate audit evidence on which to
base an opinion and has concluded that the possible effects of any undetected
misstatements could be both material and pervasive.
The auditor of B Co has concluded that inventory is overstated as a number of lines have
not been valued at the lower of cost and net realisable value. The overstatement is
material but not pervasive to the financial statements. Management has refused to make
an adjustment to the financial statements. What form of modified opinion should the
auditor issue?
Adverse opinion
Qualified opinion due to a material misstatement
Qualified opinion due to insufficient appropriate evidence on which to base an opinion
A disclaimer of opinion
The financial statements of Z Co include a receivables balance of $20,000 which the
auditors do not believe will be recovered. Materiality has been set at $100,000. There are
no other unadjusted misstatements. What form of audit opinion would be issued by the
auditor?
Adverse opinion
Unmodified opinion
Qualified opinion due to overstatement of receivables
A disclaimer of opinion
The auditor may wish to draw the users' attention to a matter which is not presented or disclosed in the financial statements but which is relevant to the users' understanding of the auditor's report. How would this affect the auditor's report?
An emphasis of matter paragraph would be included.
The audit opinion would be qualified.
An other matters paragraph would be included.
The auditor's report would not be affected as the auditor's report only refers to matters
presented or disclosed in the financial statements
The statement of financial position of R Co includes a material amount of $200,000 in respect of costs capitalized in the year as development expenditure. The auditor has concluded that these costs are research expenditures. If the auditor is to issue an unmodified opinion which financial statements will require adjustment?
Statement of financial position only
Statement of profit or loss only
Statement of financial position and statement of profit or loss
Neither the statement of financial position nor the statement of profit or loss
An emphasis of matter paragraph is used in an audit report to draw attention to a matter
affecting the financial statements. Which two of the following are correct about an
The emphasis of the Matter Paragraph in the Auditor's Report?
(1) It is used when there is material uncertainty.
(2) It constitutes a modified audit opinion.
(3) The auditor's report is re unmodified report.
(4) The matter is fundamental to the users understanding of the financial
statements.
(1) and (2)
(1) and (4)
(1) and (3)
(4) and (2)
P Co is being sued by a customer for the supply of faulty products. At the year end the
outcome of the legal case is still uncertain. The directors have fully disclosed the matter as
a contingent liability and the auditors are satisfied with the treatment and the level of
disclosure. The auditors have concluded that the uncertainty is fundamental to the
understanding of the financial statements. What form of audit opinion would the auditor
give?
Disclaimer
Unmodified opinion with an emphasis of matter paragraph
Unmodified opinion without an emphasis of matter paragraph
Qualified opinion
The majority of the books and records of Q Co have been destroyed by a flood and the auditor has no other realistic means of obtaining sufficient, appropriate audit evidence. Which form of opinion will the auditor issue?
An adverse opinion
A disclaimer of opinion
Qualified opinion on the basis that sufficient appropriate evidence is not available
Unmodified opinion with an emphasis of matter paragraph explaining the circumstances of
the flood
