Hawassa University, College of Business & Economics, Accounting And Finance

Auditing Principles and Practices II Questions from Chapter 1 to 3

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Part I: Multiple choice questions
Choose the best answer for the following multiple choice questions and put your letter of response on the
separate answer sheet provided.
1. When the auditor decides to select less than 100% of the population for testing, the auditor is said to use;
A. Audit sampling C. Representative sampling
B. Poor judgment. D. Estimation sampling
2. Which one of the following is causes of non - sampling risk;
A. Choosing the wrong sample size C. Ineffective audit procedures
B. Inadequate sample size D. Exceptions being found in the sample
3. Which of the following is the risk that audit tests will not uncover existing exceptions in a sample?
A. Non sampling risk C. Audit risk
B. Sampling risk D. Detection risk
4. When the auditor goes through a population and selects items using non probabilistic selection, without
regard to their size, source, or other distinguishing characteristics, is called;
A. Block sample selection C. Systematic sample selection
B. Haphazard selection D. Direct sample selection
5. A sample in which the characteristics of the sample are the same as those of the population is a(n)
A. Variables sample C. Representative sample
B. Attributes sample D. Random sample
6. It is a test of the controls to prevent financial misstatement and it ensures that the financial record
keeping system is effective in preventing fraud.
A. Audit test of control C. Testing the entire population
B. Substantive Audit Procedure D. Ineffective audit procedures
7. Which of the following is wrong?
A. The risk that the auditor concludes that controls are more effective than they actually are is the risk of
overreliance.
B. The incorrect conclusion that a control is ineffective may lead to an unnecessary increase in assessed
control risk and substantive tests.
C. Substantive tests are used to obtain evidence about the validity and propriety of the accounting
treatment of transactions and balances.
D. Sampling risk is the risk that the auditor reaches an erroneous conclusion for any reason not related
to sampling risk
8. Which of the following is the risk that an auditor will reach an incorrect conclusion because a sample is
not representative of the population?
A. Audit risk C. Non sampling risk
B. Sampling risk D. Detection risk
9. Which of the following is true about the risk that the auditor reaches an erroneous conclusion for any
reason not related to sampling like inappropriate procedure and misinterpretation of evidences?
A. Inherent risk C. Non-detection risk
B. Control risk D. Non-sampling risk
10. Which of the following is wrong?
A. When audit procedures have been completed for a sampling application, the auditor will have a
sample size and number of exceptions for each attribute.
B. Calculated sampling error equals the actual number of exceptions divided by the actual sample size.
 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3
C. An increase in the sample size has the effect of decreasing the sampling error if the actual sample
exception rate does not increase.
D. ARACR represents the auditor’s risk of incorrectly accepting the control as effective, and a larger
sample size is required to lower this risk.
11. It is a document that is matched with the customer order to assure that the correct quantity and type of
goods are shipped.
A. Sales order C. Vendor invoice
B. Customer order D. Sales invoice
12. Which of the following can be used as substantive test for receivables and sales transactions, except?
A. Confirm receivable with debtors.
B. Perform analytical procedures.
C. Review the year-end cutoff of sales transactions.
D. Shipping documents are prenumbered and accounted weekly
13. Which of the following is primary audit objective for receivables/sales?
A. Clerical accuracy C. Existence
B. Valuation D. Statement Presentation
14. Which of the following is not an account affected by the sales and collection cycle?
A. Cash
B. Accounts receivable
C. Allowance for doubtful accounts
D. Sales of Accounts Receivables
15. The “completeness” assertion indicates that;
A. All transactions and events have been recorded in the proper accounts.
B. All transactions and events that have been recorded have occurred
C. All transactions and events that should have been recorded have been recorded.
D. All transactions and events have been recorded in the correct accounting period.
16. The Occurrence assertion is that;
A. All sales, cash receipts sales adjustments that occurred during the period have been recorded.
B. Recorded sales transactions represent goods shipped during the period or supported by the necessary
documents.
C. The entity has rights to the receivables and cash resulting from sales transactions.
D. The allowance for uncollectible accounts represent a reasonable estimate.
17. A document prepared to initiate shipment of the goods sold by an independent shipper is the;
A. Bill of lading C. Customer order
B. Sales invoice D. Sales order
18. When an auditor calculates the gross margin as a percent of sales and compares it with previous periods,
this type of evidence is called
A. Physical examination C. Observation
B. Analytical procedures D. Inquiry
19. The control procedures, over sales and receivables include the following, except;
A. Sales invoices should be checked for prices and calculations by a person other than the one preparing
the invoice.
B. The authority to write off a bad debt should be given in writing and adjustments made to the accounts
receivable ledger.
 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3
C. Receivables ledger personnel should be independent of dispatch and cash receipt functions.
D. Ascertain that collections from deductibles have been paid to the correct beneficiary account in full
and in a timely manner.
20. Which one of the following indicate substantive test of transactions for sales as transactions related audit
objective or assertion “posting and summarization”?
A. Trace selected sales invoices from the sales journal to the accounts receivable master file and test for
amount, date, and invoice number.
B. Compare date of recording of sale in sales journal with sales invoice and bill of lading (shipping
document).
C. Vouch details on sales invoices to shipping documents, sales order and customer order.
D. Trace selected shipping documents to the sales journal to be sure that each one is included.
21. One of the following is different;
A. Evidence that pricing, extensions, and footings are checked.
B. Amount and other data on the sales invoice agree with the sales journal entry.
C. Quantity and other data on the customer order agree with the sales invoice.
D. Quantity of goods shipped differs from quantity on the sales invoice.
 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3

22. It is a document that is matched with the customer order to assure that the correct quantity and type of
goods are shipped.
A. Sales order C. Vendor invoice
B. Customer order D. Sales invoice
23. Which of the following is not a substantive test?
A. Bank confirmations C. Account reconciliations
B. Document matching D. Manager interviews
24. Identify types of procedures that an auditor might use when carrying out test of controls?
A. Inquiries of appropriate entity personnel.
B. Inspection of documents, reports, or electronic files, indicating performance of the control.
C. Observation of the application of the control.
D. Reperformance of the application of the control by the auditor, including CAATs
E. All of the above
25. Which one is an audit procedure used to determine whether internal controls effectively prevent or
discover material misstatements at the appropriate assertion level?
A. Test of control C. Internal control
B. Substantive test D. None of the above
26. Among the following, which one is not the documents and records of sales and collection cycle?
B. Customer Order E. Sales invoice
C. Sales Order F. None of the above
D. Shipping Document
27. Tracing recorded sales transactions in the sales journal to the shipping documents (bills of lading)
provides evidence about the:
A. Completeness of recording of sales transactions.
B. Occurrence of sales transactions.
C. Billing of all sales transactions.
D. Presentation of payables.
28. Which of the following is an account that is Not affected by the payroll and personnel cycle?
A. Salary expense C. Pension payable
B. Allowance for doubtful accounts D. Tax payable
29. A sample in which every possible combination of items in the population has an equal chance of
constituting the sample is a
A. Random sample. C. Judgment sample.
B. Statistical sample. D. Representative sample
30. Which of the following is NOT a common sampling technique in auditing?
A. Random sampling C. Systematic sampling
B. Block sampling D. Biased sampling
31. How the auditor shall treat, if the he/she is unable to apply the designed audit procedures, or suitable
alternative procedures to a selected item?
A. Treat as a deviation from the prescribed control, in the case of tests of controls
B. Treat as a misstatement, in the case of tests of details.
C. Treat as a misstatement, in both cases of test of control and tests of details
D. A and B
32. Which of the following is true about the type of risk that the auditor’s conclusion based on a sample
may be different from the conclusion if the entire population were subjected to the same audit
procedure?
A. Inherent risk D. Detection risk
B. Sampling risk E. All of the above
C. Control risk
33. Which one is best describe the objectives of audit sampling?

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 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3

A. Gather enough evidence to conclude an audit opinion

B. Reduce the number of resources used and provide the basis for auditors to issue a conclusive audit
opinion
C. Detect any errors or fraud that can occur and used as a tool for investigating
D. Prove that auditors have completed their audit fully in accordance with auditing standards
E. All of the above
34. Records that include data such as employment date, performance ratings and pay rates are the:
A. Personnel records.
B. Employee screening forms.
C. Summary payroll reports.
D. Employee folders
35. Which department should be authorized to add and delete employees from the payroll or change pay
rates and deductions?
A. Supervising department. C. Human resources department.
B. Accounting department. D. Treasurer’s department
36. The payroll and personnel cycle ends with which of the following events?
A. Interviewing job candidates.
B. Hiring a new employee.
C. Existing employees submitting requests for payment for work performed.
D. Issuance of paychecks
37. Which of the following is an account that is Not affected by the payroll and personnel cycle?
A. Salary expense
B. Allowance for doubtful accounts
C. Pension payable
D. Tax payable
38. Which of the following is a substantive audit procedure for wages and salaries?
A. Inspect a sample of clock cards for evidence of authorization by a responsible official
B. Recalculate a sample of payroll deductions such as employment taxes to confirm
accuracy
C. Attempt to access and make changes to the payroll master file using the log on for a
junior clerk
D. None of the above
39. The main goal of substantive testing is to provide reasonable assurance about the validity and
correctness of financial reporting or to identify material misstatements.
A. True B. False
40. Substantive testing's goal is to obtain assurance about the accuracy and completeness of the financial
statements. Analytical procedures involve evaluating financial information through analysis and
comparison to detect unusual trends or anomalies.
A. True B. False
41. Which one’s ultimate goal is to evaluate the performance of the internal control system to improve the
organization’s operations, financial reporting, and compliance.
A. Control testing’s C. Analytical procedures
B. Substantive testing’s D. None of the above
42. What is the purpose of internal controls of an organization?
A. To protect a business from accounting fraud.
B. To protect a business from asset loss.
C. To protect a business from financial reporting failures.
D. To assure that the business meets its regulatory compliance obligations.
E. All of the above
43. Which of the following can be used as substantive test for receivables and sales transactions, except?

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 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3

A. Confirm receivable with debtors.

B. Perform analytical procedures.
C. Review the year-end cutoff of sales transactions.
D. Shipping documents are prenumbered and accounted weekly
44. Which one is correctly define the applicable assertion in internal controls for sales class of transaction
record all sales in the correct accounting period?
A. Accuracy C. Occurrence
B. Cutoff D. Completeness
45. All are the types of substantive tests. Except.
A. Analytical procedures. C. Tests of details of balances.
B. Test of details of transactions. D. Test of compliance
46. Which of the following is an account that is Not affected by the sales and collection cycle?
A. Cash C. Accounts payable
B. Accounts receivable D. Allowance for doubtful accounts
47. The process of dividing a population into sub-populations, each of which is a group of sampling units
which have similar characteristics (often monetary value) is:
A. Testing C. Classification
B. Stratification D. Randomizing
48. When using audit sampling the objective of the auditor is to provide a reasonable basis for the auditor
to draw conclusions. They conclude about?
A. The sample they selected
B. The population from which the sample is selected
C. The sample from which the population is selected
D. The part of the population they selected
49. Which assertions relating to receivables/sales are addressed when auditors select a sample of sales
invoices and compare details to shipping documents?
A. Existence C. Valuation
B. Ownership D. All of the above
50. The Occurrence assertion is that;
A. All sales, cash receipts sales adjustments that occurred during the period have been recorded.
B. Recorded sales transactions represent goods shipped during the period or supported by the
necessary documents.
C. The entity has rights to the receivables and cash resulting from sales transactions.
D. The allowance for uncollectible accounts represent a reasonable estimate.
51. The accounting system automatically obtains the unit price based on scans of bar codes for
merchandise sold. This control is relevant to which transaction related objective for sale;
A. Occurrence C. Accuracy
B. Posting and summarization D. Completeness
52. In applying variables sampling, an auditor attempts to;
A. Estimate a qualitative characteristics of interest
B. Discover at least one instance of the critical deviation
C. Determine various rates of occurrence for specific attributes
D. Predict a monetary population value within a range of precision
53. Control procedures, over sales and receivables include the following, except;
A. Sales invoices should be checked for prices and calculations by a person other than the one preparing
the invoice.
B. The authority to write off a bad debt should be given in writing and adjustments made to the
accounts receivable ledger.

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 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3

C. Ascertain that collections from deductibles have been paid to the correct beneficiary account in full
and in a timely manner.
D. Receivables ledger personnel should be independent of dispatch and cash receipt functions.
54. Which one of the following indicate substantive test of transactions for sales as audit objective of
“posting and summarization”?
A. Trace selected sales invoices from the sales journal to the accounts receivable master file and test
for amount, date, and invoice number.
B. Compare date of recording of sale in sales journal with sales invoice and bill of lading (shipping
document).
C. Vouch details on sales invoices to shipping documents, sales order and customer order.
D. Trace selected shipping documents to the sales journal to be sure that each one is included.
55. One of the following is different;
A. Evidence that pricing, extensions, and footings are checked.
B. Amount and other data on the sales invoice agree with the sales journal entry.
C. Quantity and other data on the customer order agree with the sales invoice.
D. Quantity of goods shipped differs from quantity on the sales invoice.

56. Which of the following is wrong?

A. The risk that the auditor concludes that controls are more effective than they actually are is the risk
of overreliance.
B. The incorrect conclusion that a control is ineffective may lead to an unnecessary increase in
assessed control risk and substantive tests.
C. Substantive tests are used to obtain evidence about the validity and propriety of the accounting
treatment of transactions and balances.
D. Sampling risk is the risk that the auditor reaches an erroneous conclusion for any reason not
related to sampling risk

57. Which of the following is wrong?

A. When audit procedures have been completed for a sampling application, the auditor will have a
sample size and number of exceptions for each attribute.
B. Calculated sampling error equals the actual number of exceptions multiplied by the actual sample
size.
C. An increase in the sample size has the effect of decreasing the sampling error if the actual sample
exception rate does not increase.
D. ARACR represents the auditor’s risk of incorrectly accepting the control as effective, and a larger
sample size is required to lower this risk.

Part II: Discussion Questions

1) Discuss the importance of audit sampling.
2) Why do auditors want to rely on internal controls wherever possible?
3) Describe the actions that auditor must take when the auditor concludes that TER – SER is too
small to conclude that the population is acceptable or when SER exceeds TER;
4) List and discuss applicable assertions in Internal Controls for Sales Class of Transactions.

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 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3

5) List and discuss applicable assertions (balance-related audit objectives) in designing tests of details
of balances for accounts receivable.
6) List and discuss assertions used by the auditor in payroll and personnel cycle.

ANSWER SHEET

Name: ___________________________ID No: _______________Section: _____Add_____

Part I: Multiple Choice Questions: Use only Block (Capital) letters

1. 2. 3. 4. 5.

6. 7. 8. 9. 10.

11. 12. 13. 14. 15.

16. 17. 18. 19. 20.

21. 22. 23. 24. 25.

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 Hawassa University, College of Business & Economics, Accounting And Finance
Auditing Principles and Practices II Questions from Chapter 1 to 3

26. 27. 28. 29. 30.

31. 32. 33. 34. 35.

36. 37. 38. 39. 40.

41. 42. 43. 44. 45.

46. 47. 48. 49. 50.

51. 52. 53. 54. 55.

56. 57. 58. 59. 60.

Part II: Discussion Questions

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