1.

It involves establishing the overall strategy for the engagement and development an audit plan
in order to reduce audit risk to an acceptably low level.
a. Reporting
b. Planning
c. Field work
d. Organizing
2. Adequate planning f the audit work helps to ensure that
 Appropriate attention is devoted to important areas of the audit
 Potential problems are identified
 The work is completed expeditiously
a. Yes, yes,no
b. No,yes,yes
c. Yes,yes,yes
d. No,no,no
3. The auditor should plan the audit wok so that the audit will be performed in an effective
manner. The extent of planning will vary according to the
 Size of the entity
 Complexity of the audit
 Auditors experience with the entity and knowledge of the business
a. Yes,yes,yes
b. Yes,no,yes,
c. No,yes,yes
d. No,no,no
4. Obtaining knowledge of the entity’s business is an important part of planning the audit

The audit knowledge of the entity’s business assist in the identification of events, transactions
and practices which may have a material effect in the financial statements

a. Both statements are true

b. Both statements are false
c. True.false
d. False,true
5. According to PSA 300, the auditor may discuss elements of planning with those charged with
governance and the entity’s management

The audit plan sets the scope, timing and direction of the audit guides the development of the
more detailed overall audit strategy
 The overall audit strategy is more detailed than the audit plan and includes the nature,timing
and extent of audit procedures to be performed by engagement team members to obtain
sufficient appropriate evidence to reduce audit risk to an acceptably low level
a. False, false,true
b. True,true,false
c. True, false,false
d. False,true,false
6. Which of the following matters should be considered by the auditor in developing the overall
audit strategy?
a. Important characteristics of the entity, its business, its financial performance and its
reporting requirements including changes since the date of the prior audit
b. Conditions requiring special attention, such as the existence of related parties
c. The setting materiality levels of audit purposes
d. All of the above
7. A measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unmodified opinion has been issued is
the
a. Inherent risk
b. Acceptable audit risk
c. Control risk
d. Detection risk
8. Which of the following audit risk components may be assessed in quantitative terms?
 Inherent risk
 Control risk
 Detection risk
a. Yes,no,yews
b. Yes,yes,yes
c. No,no,no
d. No,no,yes
9. A measure of the auditor’s assessment of the likelihood that there are material misstatements
in an account before considering the effectiveness of the clients internal control is called
a. Audit risk
b. Detection risk
c. Inherent risk
d. Control risk
10. When the inherent risk is high, there will need to be
 A lower assessment of audit risk
 More evidence accumulated by the auditor
a. Yes,yes
b. No,no
c. Yes,no
d. No,yes
11. It is the process designed and effected by those charged with governance, management and
other personnel to provide reasonable assurance about the achievement of the entity’s
objective
a. Internal auditing
b. Internal control
c. Business strategy
d. Accounting process
12. Which of the following is not one of the three primary objectives of effective internal control?
a. Reliability of financing reporting
b. Efficiency and effectiveness of operations
c. Compliance with laws and regulations
d. Assurance of elimination of business risk
13. Which of the following are considered control environment elements?
 Commitment to competence
 Detection risk
 Organizational structure
a. No,yes,no
b. Yes,yes,yes
c. Yes,no,yes
d. No,no,yes
14. Which of the following statements concerning the relevance of various types of controls to
financial statements is correct?
a. All controls are ordinarily relevant to financial statement audit
b. Controls over safeguarding of assets and liabilities are primary importance while control
over the reliability of financial reporting may be also relevant
c. Control over the reliability of the financial reporting are ordinarily most directly relevant to a
financial statement audit , but other controls may be relevant
d. An auditor may ordinarily ignore a consideration of controls when a substantive audit
approach is taken.
15. Under PAS 315, monitoring of controls is an internal control component that involves a process
of assessing the quality of internal control performance over time. It involves assessing the
design and operation of controls on a timely basis and taking necessary corrective actions.
Monitoring of controls is accomplished through ongoing monitoring activities, separate
evaluations, or a combination of the two. An entity’s ongoing monitoring activities often include
a. Periodic reporting by the entity’s internal auditor about the functioning of internal control
b. Reviewing of purchasing function
c. Periodic audits by the audit committee.
d. The audit of the annual financial statements
16. An auditor should consider two keys issues when obtaining an understanding of a client’s
internal control. These issues are
a. The effectiveness and efficiency of the controls
b. The frequency and effectiveness of the controls
c. The design and implementation of the controls
d. The implementation and efficiency of the controls
17. Which of the following statements is most correct with respect to separation duties?
a. Employees should not have temporary and permanent custody of assets
b. Employees who authorize transactions should not have custody of related assets
c. It is permissible to allow an employee to open cash receipts and record those receipts
d. Employees who authorize transactions should have recording responsibility for these
transactions
18. Authorizations can be either general or specific, which of the following is not an example of a
general authorization>
a. Automatic reorder points of raw materials inventory
b. A sales managers authorization for a sales return
c. Credit limits for various classes of transactions
d. A sales price list for merchandise
19. When obtaining knowledge about the entity’s internal control it is important for the auditor to
consider the competence of its employees, because their competence bears directly and
importantly upon the
a. Cost-benefit relationship of internal control
b. Comparison of recorded accountability with assets
c. Achievement of the objectives of internal control
d. Timing of substantive tests to be performed
20. Control activities are the policies and procedures that help ensure that management directives
are carried out. These include activities relating to authorization, performance reviews,
information processing, physical controls and segregation of duties. There is proper segregation
of duties when an individual who
a. Records a transaction do not compare the accounting record of the asset with the asset
itself.
b. Authorizes a transaction records it
c. Authorizes a transaction maintains a custody of the asset that resulted from the transaction
d. Maintains custody of an asset has access to the accounting records for the asset
21. An auditor should obtain sufficient knowledge of an entity’s information system , including the
related business processes relevant to financial reporting to understand the
a. Policies used to detect the concealment of fraud
b. Process used to prepare significant accounting estimates
c. Safeguards used to limit access to computer facilities
d. Procedures used to assure proper authorization of transactions
22. The primary objective of procedures performed to obtain an understanding of internal control is
to provide an auditor with
a. Knowledge necessary to plan the audit
b. A basis for modifying test of controls
c. Information necessary to prepare flowcharts
d. Evidence to use in reducing detection risk
23. In obtaining an understanding of internal control relevant to the audit, an auditor is required to
obtain knowledge about the
a. Effectiveness of controls that have been implemented
b. Consistency with which controls are currently being applied
c. Design of the controls pertaining to the internal control components
d. Controls related to each class of transactions and account balance
24. After considering clients internal controls, an auditor has concluded that it is well designed and
is functioning as intended. Under these circumstances ,the auditor would most likely
a. Performed rest of controls t to the extent outlines in the audit program
b. Determine the control procedures that should prevent or detect errors and fraud
c. Not increase the extent of predetermined substantive tests
d. Determine whether transactions are recorded to permit preparation of financial statements
in accordance with PFRS
25. Audit evidence concerning proper segregation of duties normally is best obtained by
a. Direct personal observation of the employee who applies control procedures
b. Making inquiries of co-workers about the employee who applies control procedures
c. Preparation of a flow chart of duties performed and available personnel.
d. Inspection of third party documents containing the initials of who applied control
procedure.