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Summary more than 100 possible exam questions + answers
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possible exam questions, including 10% of which will be on the exam. With answers included.
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1. Which of the following is NOT a type of sample distribution that can be used for attributesampling?
A) Poisson
B) Nominal
C) Hypergeometric
D) Binomial
Correct answer: B
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2. Which of the following statements regarding the relationship between materiality and
detection risk is correct?
A. If the materiality threshold is lower, detection risk is also lower and hence less effort is
required from the auditor to keep detection risk at an appropriate level.
B. If the materiality threshold is lower, detection risk is higher and hence the auditor should
put in more effort to reduce detection risk to an appropriate level.
C. A linear relationship between the materiality threshold and detection risk does not exist,
such that the detection risk is not influenced by the materiality threshold.
D. None of the other answer options are correct.
Correct answer: B
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3. Consider the following statements:
1) IT general controls can be manual controls.
2) Physical security of a data center is an example of an IT general control.
Which of the following statements is true?
A) None of the statements are true.
B) Only statement 1 is true.
C) Only statement 2 is true.
D) Both statements are true.
Correct answer: C
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4. Consider the following statements:
1) Competency of evidence relates to the quantity of evidence.
2) Client representations are a type of evidence with a low reliability.
Which of the following statements is true?
A) None of the statements are true.
B) Only statement 1 is true.
C) Only statement 2 is true.
D) Both statements are true.
Correct answer: C
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5. What are possible behavioral issues of the remote audit for the auditee?
a) The ability to hide fraud, the lack of technical skills and ability, and information overload
b) Continual auditor presence, resistance to change, and the ability to hide fraud
c) Trust, resistance to change, and efficiency of collecting and processing data
,d) The ability to hide fraud, information overload, and continual auditor presence
Correct answer: B
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6. What is the best possible definition of materiality (not given in accounting standards)?
a) Materiality is broadly defined as an amount that would not make a user change his or her
mind about a company.
b) Omission of misstatement of items are material if they could, individually or collectively,
influence the economic decisions that users make on the basis of the financial statements.
c) Materiality is the magnitude of an omission or misstatement of accounting information
that makes it probable that the judgement of a reasonable person relying on the information
would have been changed or influenced.
d) None of the above answers is correct.
Correct answer: c
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7. Which control activity is no form of a preventive control?
A) Segregation of duties
B) Physical control
C) Performance reviews
D) Processing controls
Correct answer: c
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8. What is no audit objective:
A) Valuation
B) Prudence
C) Cut-off
D) Classification
Correct answer: B
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10. What is no engagement risk?
A) Regulatory penalties
B) a risk of material misstatement
C) Lack of profitability
D) Reputation loss
Correct answer: B
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12. Which statement below is true:
1. Authorisation, use of documents and records, independent verification are processing
controls.
2. Authorisation, segregation of duties, independent verification are processing controls.
A. Statement (1) is true, statement (2) is false.
,B. Statement (1) is false, statement (2) is true.
C. Both statement (1) and statement (2) are true.
D. Both statement (1) and statement (2) are false.
Correct answer: A
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13. Which statement is true?
1. Confirmation, observation, recalculation - three examples of general types of audit
evidence.
2. Client inquiry, competence, sufficiency - three examples of general types of audit
evidence.
3. Statement 1 and Statement 2 both true.
4. Statement 1 and Statement 2 both false.
Correct answer: (1)
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15. What is not part of the test of controls?
A. Test
B. Assess
C. Prepare
D. Evaluate
Correct answer: C
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16. Which element is not included in detection risk?
A. Test of Controls (TOC)
B. Test of Details (TOD)
C. Sustantive analytical procedures (SAP)
D. Other substantive procedures (OSP)
correct answer: B.
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18. What do auditors assume?
A. 10% audit risk
B. they are most likely to conservative, so they overaudit
C. performance materiality is higher than overall materiality
D. that companies hardly make any errors, so a low error rate
Correct answer: D.
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19. What is NOT a reason for the auditor to increase the materiality for related party
transactions?
a: Related party transactions may not take place on commercial terms similar to non-related
party transactions
b: Related parties are at arm’s length, therefore the materiality of related party transactions
should be higher
, c: Related parties are dependent on each other.
d: Related party transactions are more difficult for the auditor to audit.
Correct answer: B
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20.
1. Higher audit fees are incurred with companies with IT material weaknesses relative to
companies not reporting such weaknesses
2. Ability to hide fraud is lower with a remote audit
A. 1 is false, 2 is true
B. 1 is true, 2 is false
C. Both are false
D. Both are true
Correct answer: B
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21.
1. With substantive testing you never test the whole population, you always use a sample
2. Risk is the same as a type II error
A. 1 is true, 2 is false
B. 1 is false, 2 is true
C. Both are false
D. Both are true
Correct answer: B
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22. What is an example of both quantitative and qualitative evidence?
A. Confirmation of suppliers when you only have 2 suppliers
B. Invoices of sales transactions
C. Inquiry with the client to better understand the business
D. None of the above
Correct answer: A
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23. Which of the following statements regarding control risk is true?
Statement 1: The auditor’s evaluation of control risk depends on the auditor’s assessment of
internal control system strength and the degree the auditor intends to rely on the control
system to reduce substantive audit testing.
Statement 2: If control risk is assessed to be high, the auditor will rely heavily on the quality
of internal control to reduce the risk of material misstatement.
A. Statement 1 is true, statement 2 is false.
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