Question

MULTIPLE CHOICES - ADVANCED AUDITING

1. Which one of the following does not impact on inherent risk?

                 A. The auditor has reduced the sample sizes for testing of purchases for the company

B. During the year, the company converted its computer system to a new improved online system.

C. The company has purchased its raw materials from the United States at discounted prices.

D. Management has introduced a new bonus scheme for sales employees who meet their monthly target.

2. Which of the following increase control risk?

Select which two options are correct.

1. Optimistic forecasts presented to analysts
2. Lack of segregation of duties
3. Reduction in the size of the internal audit group
4. Reduction in sample size for substantive tests

3. Which one of the following fundamental principles of professional conduct is under threat when an accountant prepares an advertisement comparing the quality of their work with that of other accountants?

Select one:

1. Professional competence and due care
2. Objectivity
3. Professional behaviour
4. Professional scepticism

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Answer 1

#1.

Correct Answer-A. The auditor has reduced the sample sizes for testing of purchases for the company.

Reason-Inherent risk is suspectibility of an account balance or class of transactions to a material misstatement assuming that there were no internal controls. Inherent risk is a client related risk in which the auditor assess the risk of material misstatement in case of absence on Internal control.

-Events B,C & D are related to the client and it will impact the inherent risk assessment of the auditor assuming there is no internal control.

- Auditors reduction in sample size is a detection risk and it is auditor sopecific and hence it will not affect the Inherent risk.

Hence Correct option -A.

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#2.

Correct Option - B &C

Reason- Control risk is the risk that the material misstatement will ot be prevented, corrected and detected on a timely basis by INTERNAL CONTROL SYSTEM of the company.

Seggregation of duties and internal audit group are the part of the internal control system of the company. Hence Lack of seggregation of duties and reduction of size of the internal audit group will increase the control risk.

Correct options are

B.Lack of segregation of duties

C.Reduction in the size of the internal audit group

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#3

Correct option- C.-Professional behaviour

Reason- Doing advertisement comparing the quality of their work with that of other accountants is not an professional behaviour. Hence the accountant has violeted Professional Behaviour Conduct.

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