Question

1.Which of the following statements is TRUE:

i) Internal audit’s role is to assess if financial statements are true and fair

ii)External auditors are responsible for the identification of all fraud

iii)Internal auditors report their audit opinions to shareholders

a)i and ii only

b)i and iii only

c)ii and iii

d)None of the above

2.Ruby, an external auditor, has been asked by the Finance Director of Aberdeen Ltd. if she will be the company’s external auditor. Before agreeing to the appointment as auditor she reads of news that Aberdeen Ltd. has just lost a major client and has had its overdraft facility with the bank withdrawn.

Which of the following best describes the risks Ruby will be considering on reading the news about Aberdeen Ltd.?

1. Inherent risks
2. Control risks
3. Acceptance risks
4. Detect risks

3. Which of the following are included in external audit engagement letter?

1. Management’s responsibilities
2. Identification of the financial reporting framework
3. Form & content of reports to be issued by the auditor
4. The audit opinion

1. i, ii and iii only
2. i, iii and iv only
3. ii, iii and iv only
4. None of the above

4. Harbour Construction Ltd. is a company building large, complex and unique cruise ships in Hong Kong. At the end of the year there are two ships which are half finished. Which of the following best describes a major risk to the external auditor regarding the Work in Progress balance on the financial statements:

1. Control risk
2. Inherent risk
3. Detection risk
4. Compliance risk

5. When the external auditor compares turnover for 2017 with the previous year’s turnover, this is known as:

A.   Reasonableness test

B.   Proof in total test

C. Ratio analysis

D. Trend analysis

6. Which of the following constitutes the most reliable form of audit evidence for assurance over the existence, valuation and rights assertions for trade receivables?

A. Debtors’ circularisation

B.   Goods Despatch Notes matched to invoice to customer

C. Aged debtors analysis

D. Cut off testing of sales recorded the financial year end

7. When a business performs an inventory count and reconciles this to their financial records this is an example of:

A.  A substantive test

B.  A compliance test

C. A physical control

D. An accounting control

8. An auditor selects a sample of non-current assets from the Non-Current Asset Register and physically inspects the asset in the company factory.

Identify which of the following best describes this procedure:

A.      Walk through test for non-current assets purchases

B.      Test of control for non-current assets

C.      Substantive test for the existence assertion

D.      Compliance test of non-current assets

9. The responsibility for maintaining a sound system of internal control for a company lies with which of the following parties?

A.    Directors

B.    Internal auditors

C. External auditors

D. Shareholders

10. An audit client has had its major bank loan withdrawn and has posted several years of losses. A major creditor has successfully petitioned the court to have the company assets sold in order to recover their debt. The directors intend to publish financial statements using the same accounting rules and policies as previous years when the company was successful. What would be the most appropriate audit opinion to reach?

1. An ‘except for’ opinion
2. An adverse opinion
3. A disclaimer’ of opinion
4. An emphasis of matter

Answer 1

1. D- None of the above is true.

• Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company.
• An external financial auditor’s responsibility is to express an opinion on financial statements and to ensure that documents are free from material misstatement. External financial auditors perform their work on a sample basis and do not test every transaction, so they can’t be expected to catch all fraud or errors
• Internal Auditors report to the management while external auditors report to the stakeholders directly.