Auditing MCQs

Which of the following is an example of a control activity in an entity’s internal control over financial reporting.

a) Segregating the duties of employees who handle cash receipts and cash disbursements
b) Confirming accounts payable balances with third parties
c) Reviewing the entity’s accounting policies and procedures
d) Performing substantive procedures to test account balances and transactions
Answer: a) Segregating the duties of employees who handle cash receipts and cash disbursements

Which of the following is an example of an inherent limitation of an audit.

a) The need for the auditor to rely on the entity’s internal controls over financial reporting
b) The need for the auditor to obtain sufficient and appropriate audit evidence
c) The need for the auditor to maintain an attitude of professional skepticism
d) The need for the auditor to have adequate knowledge of the entity’s industry
Answer: a) The need for the auditor to rely on the entity’s internal controls over financial reporting

Which of the following is an example of a sampling risk in an audit.

a) The risk that the auditor will not detect a material misstatement in the financial statements
b) The risk that the sample of transactions tested is not representative of the population as a whole
c) The risk that the auditor will not be able to rely on the entity’s internal controls over financial reporting
d) The risk that the auditor will not be independent in mental attitude
Answer: b) The risk that the sample of transactions tested is not representative of the population as a whole

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