An Interesting Quiz On Audit Theory

1.

The series of tasks and records of an entity by which transactions are processed as a means of maintaining financial records.

A.

Computer information system
B.

Internal control system
C.

Accounting system
D.

Control environment

Correct Answer
C. Accounting system

Explanation
The given correct answer is "Accounting system". An accounting system refers to the series of tasks and records that an entity uses to process transactions and maintain financial records. It involves the collection, recording, and reporting of financial data to provide accurate and reliable information for decision-making and financial management. An accounting system includes various components such as journals, ledgers, financial statements, and controls to ensure the accuracy and integrity of the financial information.

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2.

The measure of the quality of audit evidence and its relevance to a particular assertion and its reliability.

A.

Sufficiency
B.

Appropriateness
C.

Significance
D.

Assurance

Correct Answer
B. Appropriateness

Explanation
The term "appropriateness" refers to the suitability or relevance of audit evidence to a specific assertion and its reliability. In other words, it assesses whether the evidence obtained is appropriate in supporting the conclusions drawn during the audit process. The appropriateness of audit evidence is crucial as it ensures that the evidence obtained is reliable and sufficient to form a basis for the auditor's opinion on the financial statements.

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3.

It serves as a set of instructions to assistants involved in the audit and as a means to control the proper execution of the work.

A.

Audit program
B.

Overall audit plan
C.

Engagement letter
D.

Internal control questionnaire

Correct Answer
A. Audit program

Explanation
An audit program serves as a set of instructions to assistants involved in the audit and as a means to control the proper execution of the work. It outlines the specific procedures and steps that need to be followed during the audit process. This helps ensure that all necessary areas are covered and that the audit is conducted in a systematic and organized manner. The audit program helps to streamline the audit process, improve efficiency, and maintain consistency in the work performed by the audit team.

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4.

Detection risk is

A.

The risk that the auditor gives an inappropriate audit opinion when the financial statements are materially misstated.
B.

The risk that a misstatement, that could occur in an account balance or class of transactions and that could be material individually or when aggregated with misstatements in other balances or classes, will not be prevented or detected and corrected on a timely basis by the accounting and internal control systems.
C.

The risk that an auditor's substantive procedures will not detect a misstatement that exists in an account balance or class of transactions that could be material, individually or when aggregated with misstatements in other balances or classes.
D.

The susceptibility of an account balance or class of transactions to misstatement that could be material, individually or when aggregated with misstatements in other balances of classes, assuming that there were no related internal controls.

Correct Answer
C. The risk that an auditor's substantive procedures will not detect a misstatement that exists in an account balance or class of transactions that could be material, individually or when aggregated with misstatements in other balances or classes.

Explanation
Detection risk refers to the risk that an auditor's substantive procedures, such as testing and sampling, will not identify a material misstatement in an account balance or class of transactions. This means that even though there may be a misstatement present, the auditor's procedures fail to detect it. This can occur due to various factors such as inadequate sample size, ineffective testing methods, or human error. The higher the detection risk, the greater the likelihood that the auditor may give an inappropriate audit opinion, leading to unreliable financial statements.

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5.

Tolerable error means

A.

An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions and is therefore not representative of errors in the population.
B.

An error that the auditor expects to be present in the population.
C.

The maximum error in a population that the auditor is willing to accept.
D.

The possibility that the auditor's conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure.

Correct Answer
C. The maximum error in a population that the auditor is willing to accept.

Explanation
Tolerable error refers to the maximum amount of error that an auditor is willing to accept in a population. This means that the auditor sets a threshold for acceptable error and if the error in the population is below this threshold, the auditor deems it tolerable. It is important for auditors to determine the tolerable error as it helps them assess the reliability and accuracy of the financial statements. By setting a limit on acceptable error, auditors can make informed decisions about the sufficiency of their audit procedures and the overall reliability of the financial information.

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6.

The current period’s auditor who did not audit the prior period’s financial statements is called

A.

Predecessor auditor.
B.

Other auditor.
C.

Incoming auditor.
D.

Principal auditor

Correct Answer
C. Incoming auditor.

Explanation
The term "incoming auditor" refers to the current period's auditor who did not audit the prior period's financial statements. This means that they are newly appointed or have taken over the auditing responsibilities from a different auditor. The incoming auditor is responsible for reviewing and auditing the current period's financial statements, ensuring accuracy and compliance with accounting standards.

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7.

Principal auditor is

A.

The auditor who audited and reported on the prior period's financial statements and continues as the auditor for the current period.
B.

A current period's auditor who did not audit the prior period's financial statements.
C.

The auditor who was previously the auditor of an entity and who has been replaced by an incoming auditor.
D.

The auditor with responsibility for reporting on the financial statements of an entity when those financial statements include financial information of one or more components audited by another auditor.

Correct Answer
D. The auditor with responsibility for reporting on the financial statements of an entity when those financial statements include financial information of one or more components audited by another auditor.

Explanation
The principal auditor is the auditor who is responsible for reporting on the financial statements of an entity when those financial statements include financial information of one or more components that have been audited by another auditor. This means that the principal auditor is overseeing the overall audit process and ensuring that the financial statements of the entity are accurately and fairly presented, even if some components have been audited by a different auditor.

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8.

They are not presented as complete financial statements capable of standing alone, but are an integral part of the current period.

A.

Corresponding figures
B.

Comparative financial statements
C.

Supplementary report
D.

Notes of financial statements

Correct Answer
A. Corresponding figures

Explanation
Corresponding figures are not presented as complete financial statements capable of standing alone, but are an integral part of the current period. This means that corresponding figures are used to provide context and comparison for the current period's financial statements. They help users of the financial statements understand how the current period's performance compares to previous periods. Therefore, corresponding figures are not standalone financial statements but rather serve as a supplementary tool to enhance understanding and analysis of the current period's financial performance.

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9.

The applications of auditing procedures using the computer as an audit tool refer to

A.

Integrated test facility
B.

Data-based management system
C.

Auditing through the computer
D.

Computer assisted audit techniques

Correct Answer
D. Computer assisted audit techniques

Explanation
Computer assisted audit techniques (CAATs) refer to the use of computer programs and software to perform various audit procedures and tasks. This includes using specialized software to extract and analyze data, identify anomalies or patterns, automate testing procedures, and generate audit reports. CAATs help auditors to improve the efficiency and effectiveness of their work, as well as enhance the accuracy and reliability of audit findings. By leveraging technology, auditors can perform tasks more quickly, analyze larger volumes of data, and identify potential risks or issues more easily. Therefore, the correct answer for this question is "Computer assisted audit techniques".

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