Introduction to Audit and Assurance MCQs

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An assurance engagement is an engagement in which a practitioner obtains sufficient appropriate evidence in order to express a conclusion designed
Introduction to Audit and Assurance MCQs

Introduction to Audit and Assurance

An assurance engagement is an engagement in which a practitioner obtains sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users. Here on MCQs.club we have prepared helpful Multiple-Choice Questions (MCQs) on Introduction to Audit and Assurance that cover MCQs on assurance concept & need for assurance, Assurance-Engagements, the types of assurance, role of assurance. These introduction to assurance MCQs with answers are useful for Business management exams, Professional accountancy exams and Competitive exams.

  1. What is assurance?
    1. An assurance engagement is: ‘An engagement in which a practitioner obtains sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users.
    2. Giving assurance means offering an opinion about specific information so the users of that information are able to make confident decisions knowing that the risk of the information being ‘incorrect’ is reduced.
    3. Both A&B
    4. None
  1. There are ___________ elements of an assurance engagement.
    1. Three
    2. Five
    3. Seven
    4. None
  1. The elements of an assurance engagement include:
    1. Three party involvement
    2. Appropriate subject matter
    3. Suitable criteria and Sufficient appropriate evidence
    4. Written assurance report in an appropriate form
    5. All of the above
  1. The elements of an assurance engagement “Three party involvement” refers to:
    1. Practitioner (the reviewer of the subject matter who provides the assurance)
    2. Intended users (of the information)
    3. Responsible party (those responsible for preparing the subject matter)
    4. All of the above
  1. Sufficient appropriate evidence is needed to provide a basis for the opinion/conclusion. The Sufficient appropriate evidence is obtained by performing audit procedures.
    1. True
    2. False
  1. The output of the assurance engagement expressing a conclusion/opinion about the subject matter is called:
    1. Appropriate subject matter
    2. Written assurance report
    3. Suitable criteria
    4. None
  1. Examples of assurance engagements include:
    1. Audit or Review of financial statements
    2. Systems reliability reports
    3. Verification of social and environmental information
    4. All of the above

  1. General principles the assurance provider must follow when performing assurance engagements include:
    1. Comply with ethical requirements.
    2. Apply professional skepticism and judgment.
    3. Perform acceptance and continuance procedures to ensure only work of acceptable risk is accepted.
    4. Agree the terms of engagement.
    5. Comply with quality control requirements.
    6. Plan and perform the engagement effectively.
    7. Obtain sufficient appropriate evidence.
    8. Consider the effect of subsequent events on the subject matter.
    9. Form a conclusion expressing either reasonable or limited assurance as appropriate.
    10. The evidence should be documented to provide a record of the basis for the assurance report.
    1. (I) (III) and (VII) only
    2. (III) (IV) (VI) and (X) only
    3. (III) (V) (VII) and (X) only
    4. All of the above
  1. The degree of assurance that can be provided about the reliability of the financial statements of a company will depend on:
    1. the amount of work performed in carrying out the assurance process
    2. the results of the work performed
    3. Both A&B
    4. None
  1. The types of assurance engagement permitted include:
    1. Reasonable Assurance
    2. Limited Assurance
    3. Both A&B
    4. None
  1. In Reasonable assurance engagements the practitioner:
    1. Gathers sufficient appropriate evidence to be able to draw reasonable conclusions by Performing very thorough procedures – tests of controls and substantive procedures.
    2. Concludes that the subject matter conforms in all material respects with identified suitable criteria
    3. Gives a positively worded assurance opinion
    4. Gives a high (but not absolute) level of assurance (confidence)
    5. All of the above
  1. When giving a Reasonable assurance the practitioner states that:
    1. In our opinion, the financial statements give a true and fair view of (or present fairly, in all material respects) ….
    2. Nothing has come to our attention that causes us to believe that the ….
    3. Both A&B
    4. None
  1. In Limited assurance engagements the practitioner:
    1. Gives a negatively worded assurance conclusion
    2. Gives a moderate or lower level of assurance than that of an audit
    3. Performs significantly fewer procedures – mainly enquiries and analytical procedures
    4. All of the above
  1. When giving a Limited assurance the practitioner states that:
    1. In our opinion, the financial statements give a true and fair view of (or present fairly, in all material respects) ….
    2. Nothing has come to our attention that causes us to believe that the ….
    3. Both A&B
    4. None

  1. Which of the following is correct?
    1. There are more regulations/standards governing a reasonable assurance assignment.
    2. The procedures carried out in a reasonable assurance assignment will be more thorough.
    3. The evidence gathered for a reasonable assurance assignment will need to be of a higher quality.
    4. All of the above
  1. The higher level of assurance provided by an audit will enhance the credibility provided by the assurance process, but the audit work is likely to be:
    1. more time-consuming than a review
    2. more costly than a review
    3. Both A&B
    4. None
  1. Negative assurance is necessary in situations where the accountant/auditor cannot obtain sufficient evidence to provide positive assurance.
    1. True
    2. False
  1. An audit is an official examination of the accounts (or accounting systems) of an entity (by an auditor).
    1. True
    2. False
  1. The main objective of an audit is to enable an auditor to convey an opinion as to whether or not the financial statements of an entity are prepared according to an applicable financial reporting framework.
    1. The above statement is correct
    2. The above statement is incorrect
  1. The applicable financial reporting framework is decided by:
    1. legislative or regulatory environment within each individual country
    2. accounting standards (for example, International Accounting Standards/ International Financial Reporting Standards).
    3. Both A&B
    4. None
  1. Which of the following is correct?
    1. The directors have a stewardship role. They look after the assets of the company and manage them on behalf of the shareholders.
    2. In small companies the shareholders may be the same people as the directors. However, in most large companies, the two groups are different.
    3. Both A&B
    4. None

  1. The key features of the audit report include:
    1. The auditors producing the report are independent from the directors producing the financial statements.
    2. The report gives an opinion on whether the financial statements ―give a true and fair view, or present fairly the position and results of the entity.
    3. The report considers whether the financial statements give a true and fair view in all material respects.
    4. All of the above
  1. Which of the following is correct with respect to Materiality concept?
    1. The auditor reports in accordance with the concept of materiality.
    2. Information is material if, on the basis of the financial statements, it could influence the economic decisions of users should it be omitted or misstated
    3. Both A&B
    4. None
  1. Applying the concept of materiality means that the auditor will not aim to examine every number in the financial statements. He will concentrate his efforts on the more significant items in the financial statements, either:
    1. because of their (high) value
    2. because there is a greater risk that they could be stated incorrectly
    3. Both A or B
    4. None
  1. Benefits of an audit include:
    1. Enhances the credibility of the financial statements, e.g. for tax authorities or lenders.
    2. Reduces the risk of management bias, fraud and error by acting as a deterrent. An audit may also detect bias, fraud and error.
    3. Deficiencies in the internal control system may be highlighted by the auditor.
    4. All of the above
  1. Examples of the expectation gap include:
    1. A belief that auditors are responsible for preparing the financial statements – this is the responsibility of management.
    2. A belief that auditors test all transactions and balances – they test on a sample basis.
    3. A belief that auditors are required to detect all fraud
    4. All of the above
  1. Limitations of an audit include:
    1. Internal controls may be relied on which have their own inherent limitations.
    2. In order to balance cost and efficiency the auditor routinely uses sampling rather than tests every item.
    3. Representations from management may have to be relied upon as the only source of evidence in some areas.
    4. All of the above
  1. With respect to the audit and contrary to what many members of the public think, it is management and those charged with governance which are responsible for:
    1. Prevention and detection of fraud
    2. Preparation of the financial statements
    3. Design and implementation of effective internal controls
    4. All of the above

  1. Management and those charged with governance are responsible for providing the auditor with:
    1. Access to information relevant to the preparation of the financial statements
    2. Additional information relevant to the audit
    3. Unrestricted access to persons whom the auditor needs access to in order to complete the audit
    4. Written representations at the end of the audit
    5. All of the above
  1. The first auditor or auditors of a company shall be appointed by the board within __________ days of the date of incorporation of the company.
    1. 40
    2. 60
    3. 90
    4. None
  1. The Commission may appoint a person to fill the vacancy in the cases if the company fails to appoint:
    1. the first auditors within a period of 90 days of the date of incorporation of the company
    2. the auditors at an annual general meeting
    3. an auditor in the office to fill up a casual vacancy within thirty days after the occurrence of the vacancy
    4. appointed auditors are unwilling to act as auditors of the company.
    5. All of the above
  1. Which of the following is correct?
    1. The board will fill any casual vacancy in the office of an auditor within thirty days
    2. Any auditor appointed to fill in any casual vacancy shall hold office until the conclusion of the next annual general meeting.
    3. Where the auditors are removed during their tenure, the board shall appoint the auditors with prior approval of the Commission.
    4. All of the above
  1. A member or members having not less than 10% shareholding of the company will be entitled to propose any auditor for appointment whose consent has been obtained by him.
    1. True
    2. False
  1. Every company shall, within fourteen days from the date of any appointment of an auditor, send to the registrar intimation thereof, together with the consent in writing of the auditor concerned.
    1. True
    2. False
  1. The auditor or auditors appointed by the board or the members in an annual general meeting may be removed through a special resolution.
    1. True
    2. False

  1. An auditor of a company has a right:
    1. of access at all times to the company’s books, accounts and vouchers
    2. to require any director, officer or employee of the company or any subsidiary undertaking of the company to provide him with such information or explanations as he thinks necessary.
    3. Both A&B
    4. None
  1. In order to try and regain trust in the auditing profession, national and international standard setters and regulators have tried to introduce different initiatives including:
    1. Harmonisation of auditing procedures, so that users of audit services are confident in the nature of audits being conducted around the world.
    2. Focus on audit quality, so that the expectations of users are met.
    3. Adherence to a strict ethical code of conduct, to try and improve the perception of auditors as independent, unbiased service providers.
    4. All of the above
  1. Who may not act as auditor?
    1. Persons Excluded by law
    2. Persons Excluded by the Code of Ethics
    3. Both A&B
    4. None
  1. Arrangements for removing the auditor have to be structured in such a way that:
    1. The auditor has sufficiently secure tenure of office, to maintain independence of management.
    2. Auditors can be removed if there are doubts about their continuing abilities to carry out their duties effectively.
    3. Both A&B
    4. None
  1. Which of the following is correct on resignation of the auditor?
    1. To request a General Meeting of the company to explain the circumstances of the resignation.
    2. To require the company to circulate the notice of circumstances relating to the resignation.
    3. Both A&B
    4. None
  1. IFAC (International Federation of Accountants) includes:
    1. IAASB: The International Auditing and Assurance Standards Board
    2. IAESB: The International Accounting Education Standards Board
    3. IESBA: The International Ethics Standards Board for Accountants
    4. IPSASB: The International Public Sector Accounting Standards Board
    5. All of the above
  1. The process of developing an ISA include:
    1. A subject is selected for detailed study, with a view to eventually issuing an ISA.
    2. An exposure draft is produced. The exposure draft is approved by the IAASB and then distributed widely amongst the profession and others for comment.
    3. Comments and proposed amendments are considered by the IAASB. The draft standard is then modified and approved by the IAASB.
    4. All of the above

  1. The IAASB also issues International Auditing Practice Statements (IAPSs). IAPSs aim to:
    1. provide help to auditors in implementing ISAs
    2. promote good auditing practice in general.
    3. Both A&B
    4. None
  1. Each ISA contains:
    1. an introduction
    2. objectives
    3. definitions
    4. requirements
    5. application and other explanatory material which is for guidance only.
    1. All of the above
    2. (I) (II) and (IV) only
    3. (I) (III) and (V) only
    4. None

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