Question 1

The point where the total value of errors in an account becomes unacceptable to audit is called
A)Unacceptable level
B)Materiality level
C)Qualifiable Level
D)None of these

Accepted Answer

The materiality level in auditing refers to the point at which the size or nature of an error or omission in financial statements becomes significant enough to potentially influence the economic decisions of users. It represents the threshold beyond which inaccuracies or errors in financial information are considered material and, therefore, unacceptable.

Question 2

The materiality thresholds depend on the ____ of accounts and their _____.
A)Basis, Sensitivity
B)Sensitivity, relativity
C)Basis, accountablity
D)Basis, Value

Accepted Answer

A

Question 3

For accounts prepared on cash basis, in respect of gross receipts/expenditure, materiality percentage would be
A)For very sensitive accounts - 1 %, sensitive accounts - 1% to 2% and non sensitive accounts - 5%
B)For very sensitive accounts - 1/2 %, sensitive accounts - 1/2% to 2% and non sensitive accounts - 2%
C)For very sensitive accounts - 2 %, sensitive accounts - 5% and non sensitive accounts - 8%
D)none of these

Accepted Answer

Materiality percentage for gross receipts/expenditure in cash basis accounting is lower than that for accrual basis accounting, as there is less risk of material misstatement due to the absence of accruals and deferrals.

Question 4

Planning materiality may be taken at a lower figure than reporting materiality.

Accepted Answer

Planning materiality is often set at a lower figure than reporting materiality to reduce the risk of undetected misstatements and to ensure that the aggregate of uncorrected and undetected misstatements does not exceed materiality for the financial statements as a whole.

Question 5

Which of the following statements is true about Precision
A)It is a range of error in an account between MLE & materiality
B)It is a range of error in an account between MLE & AMLE
C)It is a range of error in an account between Materiality & AMLE
D)None of these

Accepted Answer

Precision is the range of error in an account between MLE (Maximum Likely Error) and materiality.

Question 6

AMLE in the context of likely errors is used in this stage of audit
A)Reporting
B)Evaluation of results
C)Planning
D)Field Audit

Accepted Answer

The answer of AMLE in the context of likely errors...

Question 7

The formula for calculating precision is
A)(Materiality - Range of error possible) x AMLE
B)(Materiality - AMLE) x Range of error possible
C)(AMLE - Range of error possible) x Materiality
D)None of these

Accepted Answer

The answer of The formula for calculating precision is
A)(Materiality -...

Question 8

There is a direct relationship between materiality level and the level of audit risk

Accepted Answer

Materiality and audit risk are related concepts in auditing, but they do not have a direct relationship. Materiality refers to the significance of an error or omission in financial statements that would influence the decision of a reasonable person, while audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Adjustments in materiality levels do not directly adjust the level of audit risk; instead, they guide the auditor in planning the nature, timing, and extent of audit procedures to reduce audit risk to an acceptably low level.

Question 9

The three components of Audit Risk as per the risk model are
A)Inherent Risk, Control Risk, Mitigation Risk
B)Inherent Risk, Control Risk, Litigation Risk
C)Inherent Risk, Control Risk, Detection Risk
D)None of these

Accepted Answer

The three components of Audit Risk according to the risk model are Inherent Risk, Control Risk, and Detection Risk. These components help auditors assess the overall risk of material misstatement in financial statements.

Question 10

If the desired overall assurance from audit is 95%, the inherent risk is 40% and the control risk is 50%, what would be the desired assurance from substantive tests
A)90%
B)95%
C)99%
D)75%

Accepted Answer

The answer of If the desired overall assurance from audit...

Question 11

what are the audit procedures commonly used to obtain audit assurance?
A)Analytical Procedures
B)Systems Based Audit
C)Direct Substantive Testing
D)All of the above

Accepted Answer

All of the options listed are commonly used audit procedures to obtain audit assurance. Analytical Procedures involve analysis of significant ratios and trends. Systems Based Audit focuses on understanding and testing the internal control systems of an entity. Direct Substantive Testing involves verification of the balances and transactions.

Question 12

Which of the following is not a part of analytical procedures?
A)System Analysis
B)Economic Analysis
C)Regression Analysis
D)Predictive Analysis

Accepted Answer

The answer of Which of the following is not a...

Question 13

When you are finding out the inventory-turnover ratio, you are doing
A)Comparison across components
B)Comparison involving a single component
C)Regression analysis
D)Economic analysis

Accepted Answer

The answer of When you are finding out the inventory-turnover...

Question 14

This is a technique that creates an equation to reveal how one variable is related to one or more other variables.
A)Comparison across components
B)Predictive Analysis
C)Regression analysis
D)Economic analysis

Accepted Answer

Regression analysis is a statistical method used to determine the relationship between a dependent variable and one or more independent variables. It creates an equation that quantifies how changes in the independent variables are associated with changes in the dependent variable.

Question 15

Which of the audit procedures is a form of inductive reasoning where the reasonableness of the aggregate results is inferred from the evidence of reliability of the individual details that are tested?
A)Analytical Procedures
B)Systems Based Audit
C)Direct Substantive Testing
D)All of the above

Accepted Answer

Direct Substantive Testing involves testing individual details to infer the reasonableness of the aggregate results, which is a form of inductive reasoning.

Question 16

Which kind of audit sampling is generally used for testing controls?
A)Attribute Sampling
B)Random Sampling
C)Monetary Unit Sampling
D)Stratified Sampling

Accepted Answer

Attribute sampling is used for testing controls because it involves checking for the presence or absence of certain qualities (attributes) in a sample of items from a population, which aligns with the objective of testing the effectiveness of controls.

Question 17

Which method of sampling is expected to produce representative samples?
A)Block Selection
B)Judgmental Sampling
C)Random Sampling
D)Convenient Sampling

Accepted Answer

Random Sampling is expected to produce representative samples because it gives each member of the population an equal chance of being selected, minimizing bias and ensuring that the sample accurately reflects the population.

Question 18

Which method of sampling is not expected to produce representative samples?
A)Block Selection
B)Random Sampling
C)Systematic Sampling
D)Monetary Unit Sampling

Accepted Answer

Block selection involves selecting a contiguous block of items, which can lead to bias and non-representative samples as it may not capture the diversity of the entire population.

Question 19

A pre-condition for any statistical sampling is the availability of a _______
A)Sampling unit
B)sampling frame
C)Sampling structure
D)All of the above

Accepted Answer

A sampling frame is essential for statistical sampling as it is a list or database from which samples are drawn. It provides the basis for selecting the sample and ensures that every element of the population has a chance of being included in the sample.

Question 20

Population is divided into groups, each being fairly homogenous with respect to value and risk in this kind of sampling
A)Block Selection
B)Random Sampling
C)Stratified Sampling
D)Monetary Unit Sampling

Accepted Answer

Stratified sampling involves dividing the population into subgroups (strata) that are homogenous or similar with respect to certain characteristics, such as value or risk. This approach ensures that each subgroup is fairly represented in the sample, improving the accuracy and efficiency of the sampling process.

Quiz 2: Auditing and Sampling Techniques

The point where the total value of errors in an account becomes unacceptable to audit is called

The materiality thresholds depend on the of accounts and their _.

For accounts prepared on cash basis, in respect of gross receipts/expenditure, materiality percentage would be

Planning materiality may be taken at a lower figure than reporting materiality.

Which of the following statements is true about Precision

AMLE in the context of likely errors is used in this stage of audit

The formula for calculating precision is

There is a direct relationship between materiality level and the level of audit risk

The three components of Audit Risk as per the risk model are

If the desired overall assurance from audit is 95%, the inherent risk is 40% and the control risk is 50%, what would be the desired assurance from substantive tests

what are the audit procedures commonly used to obtain audit assurance?

Which of the following is not a part of analytical procedures?

When you are finding out the inventory-turnover ratio, you are doing

This is a technique that creates an equation to reveal how one variable is related to one or more other variables.

Which of the audit procedures is a form of inductive reasoning where the reasonableness of the aggregate results is inferred from the evidence of reliability of the individual details that are tested?

Which kind of audit sampling is generally used for testing controls?

Which method of sampling is expected to produce representative samples?

Which method of sampling is not expected to produce representative samples?

A pre-condition for any statistical sampling is the availability of a _______

Population is divided into groups, each being fairly homogenous with respect to value and risk in this kind of sampling