The Institute of Chartered Accountants of Bangladesh

Sample Multiple Choice Question (MCQ)

Course Name: Assurance
Chapter 11 and 12: Evidence and sampling and Written Representations

Prepared by: Abdullah Al Mamun, FCA (En # 1142)

1. For any item in the financial statements which is being tested there are two possibilities.
It could be fairly stated or misstated. If it is misstated, it could be:

(a) Overstated
(b) Understated
(c) (a) + (b)
(d) None of the above

2. Tests to discover errors will start with the -

(a) Accounting records

(b) Outside the accounting records
(c) (a) + (b)
(d) None of the above

3. Tests to discover omissions will start with the -

(a) Accounting records

(b) Outside the accounting records
(c) (a) + (b)
(d) None of the above

4. If the test is designed to discover whether all raw material purchases have been
properly processed, the test would start with the -

(a) Goods received notes

(b) Inventory records
(c) Payable ledger
(d) Receivable ledger

5. In respect of an assurance engagement, which one of the following is the least

persuasive method of gathering evidence?

(a) Inspection of a purchase invoice

(b) Inspection of a sales invoice
(c) Inspection of inventory by the auditor
(d) Re-performance of a supplier statement reconciliation undertaken by the client

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6. Management may use a formula to calculate the provision for doubtful accounts
receivable. The auditor can test this by:

(a) Looking at past experience

(b) Checking the calculation
(c) Considering if anything this year is likely to have changed the estimate
(d) All of the above

7. Audit sampling involves the application of audit procedures to less than 100% of the
items within an account balance or class of transactions such that all sampling units
have a chance of selection.

(a) True
(b) False

8. Population is the entire set of data from which a sample is selected and about which an
auditor wishes to draw conclusions.

(a) True
(b) False

9. Statistical sampling is any approach to sampling that involves random selection of a

sample, and use of probability theory to evaluate sample results, including measurement
of sampling risk.

(a) True
(b) False

10. Non-statistical sampling is a subject approach to inference, in that mathematical

techniques are not used consistently in determining sample size, selecting the sample,
or evaluating sample results.

(a) True
(b) False

11. The auditor may alternatively select certain items from a population because of specific
characteristics they possess. The results of items in this way cannot be projected onto
the whole population but may be used in conjunction with other audit evidence
concerning the rest of the population. The selection procedures may be:

(a) High Value or Key Items

(b) All Items over a Certain Amount
(c) Items to obtain information
(d) Items to test procedures
(e) All of the above

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12. Error means either control deviations, when performing tests of control, or
misstatements, when performing substantive procedures.

(a) True
(b) False

13. Expected error is the error that the auditor expects to be present in the population.

(a) True
(b) False

14. Sampling units are the individual items constituting a population.

(a) True
(b) False

15. The individual items constituting a population means:

(a) Sampling units

(b) Sample
(c) Population
(d) None of the above

16. Examples of sampling units are:

(a) Cheques listed on the deposit slip

(b) Credit entries on bank statements
(c) Sales invoices
(d) Receivables’ balances
(e) All of the above

17. Sampling risk arises from the possibility that the auditor’s conclusion, based on a sample
of a certain size, may be different from the conclusion that would be reached if the
entire population were subjected to the same audit procedures.

(a) True
(b) False

18. Non-sampling risk arises from factors that cause the auditor to reach an erroneous
conclusion for any reason not related to the size of the sample.

(a) True
(b) False

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19. The auditor might use inappropriate procedures, or the auditor might misinterpret
evidence and fail to recognize an error are reasons for

(a) Sampling Risk

(b) Non-sampling risk
(c) (a) + (b)
(d) None of the above

20. Non-sampling risk may be arisen due to:

(a) Use inappropriate procedures

(b) Misinterpretation of evidence
(c) Fail to recognize an error
(d) All of the above

21. Tolerable error is the maximum error in the population that the auditor would be willing
to accept.

(a) True
(b) False

22. When considering expected error, the assurance providers should consider:

(a) Errors identified in previous audits

(b) Changes in the entity’s procedures
(c) Evidence available from other procedures
(d) All of the above

23. Which sample selection involves selecting items using a constant interval between
selections, the first interval having a random start –

(a) Sequence or Block Selection

(b) Haphazard Selection
(c) Systematic Selection
(d) Random Selection

24. Under which method of sample selection the auditor should be very careful not to be
biased:

(a) Monetary Unit Sampling (MUS)

(b) Sequence or Block Selection
(c) Haphazard Selection
(d) Systematic Selection

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25. When determining a sample size for tests of detail there are a number of factors that an
auditor should take into account.

For each of the following factors, select whether it would cause the sample size to
increase or decrease.

(a) Decrease in the assessed level of tolerable misstatement.

⃣ Increase ⃣ Decrease

(b) Increase in the assessed risk level.

⃣ Increase ⃣ Decrease

(c) Discovery of more misstatements than were anticipated during testing.

⃣ Increase ⃣ Decrease

26. Dalim has carried out a receivables circularization on Diamond plc to gain evidence
about the receivables balance stated in the draft statement of financial position. Identify
whether the following conclusions drawn by him are correct or not.

(a) An amount disagreed by Lazy Limited because an invoice had been paid two
days before the year end and cleared shortly after the year end, did not
constitute a misstatement for the purposes of drawing a conclusion for the whole
population.

⃣ True ⃣ False

(b) An amount disagreed by Sloth Limited because a credit note had been issued by
Diamond plc a month before the year end did not constitute a misstatement for
the purposes of drawing a conclusion for the whole population.

⃣ True ⃣ False

(c) An amount disagreed by Busy Limited because they had paid the balance some
time earlier, which further enquiry revealed had been posted to a different
customer account, did constitute a misstatement for the purposes of drawing a
conclusion for the whole population.

⃣ True ⃣ False

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27. Which two of the following are purposes of a written representation letter from
management?

(a) Confirmation that management has received the signed audit report

(b) Confirmation that management has fulfilled its responsibility for the
preparation of the financial statements

(c) Confirmation of all representations made by management in the course of the

audit

(d) Confirmation that management has recorded and reflected all

transactions in the financial statements

(e) Confirmation that management understands the terms of the engagement

28. Who normally writes management representations letter to whom

(a) Auditor to the management

(b) Management to the auditor
(c) (a) + (b)
(d) None of the above

29. When management representations may be treated as the only audit evidence:

(a) The facts are a matter of management intention

(b) The matter is judgmental or opinion
(c) (a) + (b)
(d) None of the above

30. Written representations include a statement that management has provided the auditor
with all relevant information.

(a) True
(b) False

31. All written representations are in the form of a representation letter addressed to the
shareholders.

(a) True
(b) False

32. Which two of the following statements are correct?

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(a) Written representations must include a statement that the selected accounting
policies are appropriate.

(b) Written representations should be corroborated with other sources of

evidence.

(c) Written representations are an appropriate source of evidence when other

evidence does not exist because it has been accidentally destroyed.

(d) The written representation should be dated on or before the date of

the auditor’s report.

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