ACC311- Fundamentals of Auditing OLD Mid Term Exam Papers

 MID TERM EXAM 2009

                            ACC311- Fundamentals of Auditing (Session - 1)                                     

Question No: 1      (Marks: 1) - Please choose one                  

Which of the following is a primary objective of an operational audit?

Pastprotection provided by existing internal control

The verification that a company's financial report is fairly presented The accuracy of the data reflected in management's financial records Future improvements to accomplish the goals of management

Question No: 2       ( Marks: 1 ) - Please choose one

Which  of  the  following  auditors  especially  focus  upon  exceptions,  oddities,  accounting

Irregularities, patterns of conduct, and not on errors or omissions?

Financial auditors

Fraud auditors

External auditors

Internal auditors

Question No: 3       ( Marks: 1 ) - Please choose one

Whichof the following ‘audit process stages’ shall generally be conducted at the end in relation to the others?

Auditing business processes and related accounts

Preliminary assessment of materiality and audit risk Preliminary analytical procedures e.g. ratio analysis Consideration of internal control systems

Question No: 4      ( Marks: 1 ) - Please choose one                                                            

Which  of  the  following  primary  assertion  is  satisfied  when  an  auditor  ensures  that  there  is  no false transaction recorded and all recorded transactions have actually taken place?

Occurrence

Completeness

Existence

Rights and obligations

Question No: 5      ( Marks: 1 ) - Please choose one                                                            

Whichone of the following statements is NOT true about the internal control system of a company?

Internal control is affected by people working in an organization

Internal control is a process of bringing accuracy and improvements in the systems

Internal control system is expected to provide absolute assurance about the performance of a company

Internal  control  is  geared  to  achieve  objectives  of  financial  reporting,  compliance  and operations

Question No: 6       ( Marks: 1 ) - Please choose one

Which one of the following meetings is considered as a ‘meeting of members'?

General meeting

 board meeting 

management 

employee

Question No: 7       ( Marks: 1 ) - Please choose one

The first auditors of a company are required to hold office till which one of the following events?

(Companies Ordinance, 1984)

Board meeting

Completion of one year

Firstannual general meeting- Extra ordinary general meeting

Question No: 8       ( Marks: 1 ) - Please choose one

A sports goods manufacturing company has started its operations in year 2003 as a private limited company.  After  five  years  of  conducting  successful  business,  it  has  incorporated  as  a  listed

company  in  year  2008.  Now,  the  company  is  required  to  hire  its  first  auditors,  but  neither  the directors nor the members could appoint the auditors within four months since the incorporation

of the company.

Select among the following authorities who can appoint the auditors in this situation? (Companies

Ordinance, 1984)

Company secretary

Company registrar

Securities and Exchange Commission

Institute of Chartered Accountants of Pakistan

Question No: 9       ( Marks: 1 ) - Please choose one

Which one of the following actions shall give rise to tort, while performing audit of a company?

Negligence

Negligent misconduct

Assault

Allof the given options

Question No: 10       ( Marks: 1 ) - Please choose one

Suppose  that  a  private  limited  company  has  just  been  incorporated  as  public  limited  company. After  how  much  time  the  company  is  required  to  present  its  first  annual  accounts  before  the Annual General Meeting (AGM)? (Companies Ordinance, 1984)

Within 12 months

Within 13 months

Within 16 months

Within 18 months

Question No: 11       ( Marks: 1 ) - Please choose one

A listed company has just hired the auditors who have been involved in using ratio analysis, trend analysis, and common size analysis of financial as well as non financial information pertaining to the entity for about a month. In your opinion, auditors should be considered at which one of the following stages of risk assessment?

Inspection of the entity and others within the entity

Inquiries of management and others within the entity

Observation of the entity’s procedures and all within the entity

Using analytical tools of risk assessment

Question No: 12       ( Marks: 1 ) - Please choose one

Suppose an auditor makes the assessment that there is a low level of control risk and inherent risk for a client, what would you expect the auditor to do in this situation?

Perform no substantive procedures

Perform no control tests because of the low level of control risk

Perform a relatively small number of substantive procedures

Re-evaluate his or her acceptable level of audit risk

Question No: 13      ( Marks: 1 ) - Please choose one                                                          

During the audit, an independent auditor identifies the existence of a reportable condition in the client's  system  of  internal  controls  and  orally  communicates  this  finding  to  the  client's  senior management and audit committee. In your opinion, the auditor should perform which one of the following actions instead of reporting to management in this way?

Consider the reportable condition a scope limitation and therefore disclaim an opinion

Document the  matter in  the working  papers and  consider the effects of  the condition  on the audit

Suspend all audit activities pending directions from the client's audit committee

Withdraw from the engagement

Question No: 14      ( Marks: 1 ) - Please choose one                                                          

Which one of the following statement best describes the inherent risk in auditing?

Auditors  fail  to  discover  a  material  misstatement  in  the  course  of  their  audit  and  do  not modify their audit opinion

A company's internal control fails to identify a material misstatement in a timely fashion

Auditing procedures fail to find a material misstatement

The possibility that an account or class of transactions contains material misstatements irrespective of the effects of the internal controls

Question No: 15       ( Marks: 1 ) - Please choose one

While considerating the i nternal control system, the auditor is basically concerned that the system provides reasonable assurance about which one of the following?

Thatthe management can not override the system

Operational efficiency has been achieved according to management plans

Errors have been prevented or detected

Controls have not been circumvented by collusion

Question No: 16       ( Marks: 1 ) - Please choose one

Which of the following is one of the most fundamental and effective internal controls?

Increased use of computers for recording accounting transactions

Increased reliance on internal auditors to monitor accounting systems

Segregation of incompatible duties across several people

Having internal auditors report only to the Board of Directors

Question No: 17       ( Marks: 1 ) - Please choose one

An audit firm audited a Leather Manufacturing company and presented its report addressed to the management.  They  found  significant  material  misstatements  in  the  company’s  internal  controls system. They strongly recommended that there should be sufficient controls in existence to ensure management  can  effectively  control  the  business  operations.  In  your  opinion,  auditors  are emphasizing on which one of the following categories of SOAP MAPS?

Authorization

Question No: 18       ( Marks: 1 ) - Please choose one

Which  one  of  the  following  statements  best describes  the  term  'Observation'  that  is  performed during the audit testing stage?

Reviewing or examining records, documents or tangible assets

Looking at an operation or procedure being performed by others with a view to determine the manner of its performance

Examining  that  an  operating  system  and/or  applications  are  configured  appropriately  to the companies needs and lockdown requirements

Seeking relevant information from knowledgeable persons inside or outside the enterprise, whether formally or informally

Question No: 19       ( Marks: 1 ) - Please choose one

In which one of the following situations auditors are required to perform tests of controls?

          When the internal controls are operating inefficiently                                                When substantive procedures alone do not provide sufficient appropriate audit evidence at

the assertion level

When  substantive  procedures  alone  provide  sufficient  appropriate  audit  evidence  at  the assertion level

Whenanalytical procedures alone do not provide sufficient appropriate audit evidence at the assertion level

Question No: 20      ( Marks: 1 ) - Please choose one                                                          

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

Audit competence

Question No: 21       ( Marks: 1 ) - Please choose one

One  of  the  main  objectives  of  performing  analytical  review  procedures  is  to  obtain  evidence  in the planning phase of the audit that helps to identify which one of the followings?

Transactions that have not been properly authorized Illegal acts undetected as a result of poor internal controls Inefficient operational activities

Unusual changes that may signal possible account misstatements

Question No: 22      ( Marks: 1 ) - Please choose one                                                          

An  audit  firm  audited  a  company  and  presented  its  report  addressed  to  the  management.  They found  discrepancies  in  the  Financial  System  of  the  company  and  strongly  recommended  the company  to  incorporate  adequate  controls  to  ensure  the  completeness  and  accuracy  of  its financial  records.  In  your  opinion,  auditors  are  emphasizing  on  which  one  of  the  following categories of SOAP MAPS?

Authorization

Question No: 23       ( Marks: 1 ) - Please choose one

An  audit  firm  audited  a  company  and  presented  its  report  addressed  to  the  management.  They found significant material misstatements in the company’s records and its operations and strongly recommended  the  company  to  define  a  proper  allotment  of  responsibilities  to  reduce  the opportunity for fraud and manipulation. In your opinion, auditors are emphasizing on which one

of the following categories of SOAP MAPS?

Arithmetic and Accounting

Segregation of duties

Authorization

Management and Monitoring

Question No: 24       ( Marks: 1 ) - Please choose one

Which  one  of  the  following  descriptions  best define  the  term  ‘Flowchart’  used  in  evaluating internal control system of the entities?

Entity relationship diagram of an accounting system

Diagrammatical representation of an accounting system Show how data move between different entities Narrative description of the audit files

Question No: 25      ( Marks: 1 ) - Please choose one                                                          

Whichone of the following is the possible application of  Arithmetic and Accounting category of internal control?

A supervisor or manager reviews and checks the work of a subordinate in order to check the work quality

Using of standard accounting procedures e.g. control accounts, reconciliation procedures, arithmetic checks on accounting records

Authorization of purchases, cash and bank payments, sale of non-current assets, sales to customers on credit, bad debt write offs

Lines of authority within an organization make it clear which individuals are responsible for decisions and transactions

Question No: 26       ( Marks: 1 ) - Please choose one

In auditing, Flowcharts have the following disadvantages EXCEPT:

When the program logic is very complex the flow chart may become difficult to comprehend.

Any modifications in the process may require the creation of a new flow chart.

Generating a flowchart is a tedious procedure, as flowchart symbols cannot be typed. Force the auditors to understand how the company controls operations

Question No: 27       ( Marks: 1 ) - Please choose one

A  public  limited  company  hires  First  statutory  auditors  who  take  extensive  information  about business  operations  for  understanding  the  entity's  environment.  For this,  they  asked  for company’s records and internal control manuals. They also visited the plant and documented the

information  about  its  activities.  In  your  opinion,  auditors  should  be  considered  at  which  one  of

the following stages of risk assessment in this case?

Inspection of the entity and others within the entity

Inquiries of management and others within the entity

Observation of the entity’s procedures and all within the entity

Using analytical tools of risk assessment

Question No: 28       ( Marks: 1 ) - Please choose one

When the Cashier of a bank is also appointed to maintain the books of accounts then which one of the following internal control principles is violated?

Rotating employee duties Establish

Question No: 29       ( Marks: 1 ) - Please choose one

Which of the following may NOT be considered as the essential feature of Auditing?

Auditing is the examination of financial statements of a firm

Auditing includes preparation of financial statements of a firm

The end result of an audit is an opinion to assist the users of the financial statements

An audit should be independent

Questi on No: 30       ( Marks: 1 ) - Please choose one

What is the primary difference between an operational audit and a compliance audit?

Operational  audit  focuses  on  business  efficiencies  and  effectiveness,  while  compliance audit focuses on whether laws and other requirements are being followed

Operational audit focuses on reliability of the financial statements, while compliance audit focuses on whether laws and other requirements are being followed

Operational audit focuses on business growth prospects, while a compliance audit focuses on reliability of the financial statements

Operational audit focuses on business size and potential to grow, while compliance audit focuses on reliability of accounting records

Question No: 31       ( Marks: 5 )

Mr.Kamran  is  a  partner  of  an  audit  firm.  He  bought  shares  of  a  company  for  which  his  firm  is also conducting audit. However, he sold out all these shares within thirty days and immediately

informed the company secretary about the whole transaction. Is the company secretary required to

take any step under the Companies Law, 1984?

Question No: 32       ( Marks: 10 )

Whybooks  of  accounts are  required  to  be  kept  by companies?  Discuss  the  types  of  books  of accounts with examples.