The Institute of Chartered Accountants of Bangladesh

Sample Multiple Choice Question (MCQ)

Course Name: Assurance
Chapter 03: Process of Assurance: Planning the Assignment

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

1. Audit strategy sets:

(a) Scope of audit

(b) Timing of audit
(c) Direction of audit
(d) All of the above

2. Audit strategy guides the development of an audit plan.

(a) True
(b) False

3. Audit plan sets out which of the following procedures to obtain sufficient
appropriate audit evidence:

(a) Nature of audit procedures

(b) Timing of audit procedures
(c) Extent of audit procedures
(d) All of the above

4. Which of the following is the benefit of audit planning:

(a) Attention can be devoted to important areas

(b) Problems can be identified and resolved on a time basis
(c) Audit work can be properly organized and managed
(d) Team members can be directed and supervised easily
(e) All of the above

5. Which one is more detailed than another

(a) Audit strategy

(b) Audit Plan

6. Which of the following to be included in the content of an overall audit strategy

(a) Understanding the Entity’s Environment

(b) Understanding the accounting and internal control systems
(c) Risk and Materiality

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 (d) Consequent nature, timing and extent of procedures
(e) Co-ordination, direction, supervision and review
(f) All of the above

7. To obtain an understanding of the entity and its environment, the auditor shall
understand:

(a) Relevant industry, regulatory and other external factors

(b) The nature of the entity
(c) The entity’s selection and application of accounting policies
(d) The entity’s objectives and strategies and related business risks
(e) The measurement and review of the entity’s financial performance
(f) All of the above

8. Which of the following procedures might an auditor use in gaining an

understanding of the entity?

(a) Inquiry
(b) Recalculation
(c) Analytical procedures
(d) Re-performance of a control
(e) Observation and inspection

9. Which three of the following would ordinarily be contained in the overall audit
strategy?

(a) The contract between the audit firm and the client
(b) The results of audit risk assessment
(c) Calculation of preliminary materiality
(d) Detailed plan of audit procedures to be carried out
(e) List of staff to be involved with the audit

10. In order to obtain an understanding of the entity, auditors must use a

combination of which four of the following procedures?

(a) Inspection
(b) Observation
(c) Inquiry
(d) Analytical procedures
(e) Computation

11. Professional skepticism means

(a) Believing everything

(b) Critical assessment of audit evidence
(c) Consider the management is unquestioned honest
(d) All of the above

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12. Professional skepticism does not mean that auditors should disbelieve everything
they are told; however, they must have a questioning attitude.

(a) True
(b) False

13. Analytical procedures include the consideration of comparison with:

(a) Comparable information for prior periods

(b) Anticipated results as budgets or forecasts
(c) Similar industry information
(d) All of the above

14. Analytical procedures are often carried out on payroll costs as there are strong
relationships among

(a) Numbers of staff

(b) Pay rates
(c) Tax rates
(d) All of the above

15. Materiality is of

(a) Three types

(b) Two types
(c) Four types
(d) None of the above

16. For setting materiality, there should be a

(a) Cut-off point

(b) Threshold level
(c) Tolerable limit
(d) All of the above

17. Materiality considerations during audit planning are extremely important.

(a) True
(b) False

18. Materiality assessment will help the auditors to decide:

(a) How many and what items to examine

(b) Whether to use sampling techniques
(c) What level of error is likely to affect the true and fair view of financial
statements
(d) All of the above

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19. There is no golden rule for calculation of materiality. It’s a matter of auditor’s
professional judgment.

(a) True
(b) False

20. Different firms have different methods to calculate materiality level.

(a) True
(b) False

21. There is an inverse relationship between materiality and audit risk.

(a) False
(b) True

22. The audit team is required to discuss the susceptibility of the financial
statements to material misstatements.

(a) True
(b) False

23. Audit risk is the risk that the auditors give an inappropriate opinion on the
financial statements.

(a) True
(b) False

24. Inherent risk is the risk that items will be misstated due to characteristics of
those items.

(a) True
(b) False

25. Example of issues that might increase inherent risk is:

(a) Balance is or includes an estimate

(b) Balance is important in the account
(c) Company is in trouble
(d) Balances with complex financial accounting requirements
(e) Company is seeking to raise finance
(f) Profit targets or profit related bonuses
(g) All of the above

26. The auditors must use their professional judgment and all available knowledge to
assess inherent risk. If no such information or knowledge is available then the
inherent risk is high.

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 (a) True
(b) False

27. Control Risk is risk that a material misstatement would be prevented, detected or
corrected by the accounting and internal control systems.

(a) True
(b) False

28. Which of the following component of audit risk the auditor can control over:

(a) Inherent risk

(b) Control risk
(c) Detection risk
(d) All of the above

29. As inherent risk and control risks are integral to the client, the auditor cannot
change the level of these risks.

(a) False
(b) True

30. If control and inherent risk are assessed as sufficiently low, substantive
procedures can be abandoned completely.

(a) False
(b) True

31. The auditor shall identify and assess the risks of material misstatement at:

(a) The financial statement level

(b) The assertion level for classes of transactions, account balances and
disclosures.
(c) (a) + (b)
(d) None of the above

32. Some risks may be significant risks, which require special audit consideration.

(a) False
(b) True

33. Which of the following factor indicates that a risk might be a significant risk:

(a) Risk of fraud

(b) Unusual transaction
(c) Transactions with related parties
(d) All of the above

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34. Routine, non-complex transactions are less likely to give rise to significant risk
than unusual transactions or matters of directors’ judgment because unusual
transactions are likely to have more:

(a) Management intervention

(b) Manual intervention
(c) Complex accounting principles or calculations
(d) Opportunity for control procedures not to be followed
(e) All of the above

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