Deck 6: Auditing, Corporate Governance and Ethics

Question 1

Which of the following can be appointed as an external auditor?

A) An independent legally recognised qualified accountant.
B) A director
C) An independent director (non-executive)
D) A member of CIMA

Answer 1

An independent legally recognised qualified accountant.

Question 2

Testing to determine the extent of reliance that can be placed on the entity's controls is called:

A) Compliance testing
B) Substantive testing
C) Good audit planning
D) Forensic testing

Answer 2

Compliance testing

Question 3

Which of the following is most correct? Assessing the auditor's knowledge of the business, assessing the risk associated with the entity's controls and records, the risk of fraud and performing an analytical review, is:

A) Compliance testing
B) Substantive testing
C) Good audit planning
D) Forensic testing

Answer 3

Good audit planning

Question 4

A clean audit report implies that:

A) The auditors have not detected any fraud or error.
B) The directors believe the accounts show a true and fair view.
C) The shareholders believe the financial statements are reliable
D) The auditors believe the accounts show a true and fair view

Question 5

Which of the following is not correct?

A) The internal audit department is part of the internal controls within an entity
B) Internal auditors review value for money
C) Internal audit departments should be independent from the activities audited by them.
D) Internal auditors should not liaise with external auditors

Question 6

A 'true and fair view' is one which:

A) Presents the financial statements in such a way as to exclude errors, or omissions which would affect the decision making of the users
B) Shows the financial statements of an entity in an understandable form
C) Shows the assets on the statement of financial position at fair value
D) Occurs when the financial statements have been audited

Question 7

When a customer invoice is included in the sales ledger, and it is known that the customer is in liquidation. This in the only entry in relation to this transaction and it is regarded as material. Which audit report would you issue:

A) Clean report
B) Except for report
C) Not 'true and fair view' report
D) Clean but emphasis of matter report

Question 8

A one off fraud involving £1,500 is discovered in a large public limited company. No other issues are uncovered by the audit. The management has taken steps to ensure the fraud does not occur again and you are happy with those steps.
Which audit report would you issue:

A) Clean report
B) Except for report
C) Not 'true and fair view' report
D) Clean but emphasis of matter report

Question 9

A company that trades predominately in cash was found to have no controls over the cash accounting system. As a consequence, you as auditor cannot verify sales. All other areas are fine and you are happy with them.
Which audit report would you issue:

A) Clean report
B) Except for report
C) Not 'true and fair view' report
D) Clean but emphasis of matter report

Question 10

The inventory in a grocery store has been value at sales price. The gross margin is 70%. In all other instances you are happy with the figures in the financial statements.
Which audit report would you issue:

A) Clean report
B) Except for report
C) Not 'true and fair view' report
D) Clean but emphasis of matter report

Question 11

Which of the following would result in a qualified audit report (adverse opinion)?

A) Discovery of theft from petty cash of £150.
B) Gross inaccuracies in the register of shareholders
C) Incorrect casting of the sales day book
D) The omission of the income statement from the financial statements.

Question 12

Which of the following tests would be an example of a compliance test?

A) Writing to the credit customers requesting that they confirm (independently) the balance that is owing to them at the year end.
B) Observing the opening and recording of mail every day.
C) Confirming that proper authorisation of cheque payments has occurred, by examining the appropriate documentation.
D) Ensuring that cut-off has been appropriately performed.

Question 13

Which of the following reports promotes a 'risk-based' approach to the corporate governance of an entity?

A) Smith Report
B) Greenbury Report
C) Hampel Report
D) Turnbull Report

Question 14

There are two types of internal control, those controls that detect errors and those controls that prevent errors entering the accounting system. Which of the following is a control that detects errors?

A) Matching purchase invoices with goods received notes
B) Supervisors signing overtime sheets
C) Preparing bank reconciliations
D) Matching sales invoices with delivery notes.

Question 15

There are two types of internal control, those controls that detect errors and those controls that prevent errors entering the accounting system. Which of the following is a control that prevents errors?

A) Matching purchase invoices with goods received notes
B) Preparing the purchase ledger control account.
C) Preparing bank reconciliations
D) Preparing the sales ledger control account.

Question 16

Which of the following statements is correct?

A) External auditors correct errors in financial statements
B) External auditors prepare the financial statements independently
C) External auditors are appointed by the directors
D) External auditors report to shareholders