Auditing and Assurance Services MCQs

1. What is the primary purpose of an audit?
(A) To prepare financial statements
(B) To detect all frauds and errors
(C) To provide assurance that the financial statements are free of material misstatement
(D) To evaluate the effectiveness of internal controls

2. Which type of opinion is issued when financial statements are fairly presented in all material respects?
(A) Qualified opinion
(B) Disclaimer of opinion
(C) Adverse opinion
(D) Unmodified opinion

3. The responsibility for the preparation and fair presentation of financial statements lies with:
(A) External auditors
(B) Management
(C) Internal auditors
(D) Shareholders

4. Audit risk is the risk that:
(A) A material misstatement will not be detected by the client’s internal controls
(B) The auditor expresses an inappropriate opinion when the financial statements are materially misstated
(C) The financial statements are misstated and are not corrected by management
(D) The internal controls are ineffective

5. Materiality in auditing refers to:
(A) The total amount of assets in the balance sheet
(B) The auditor’s level of independence
(C) The significance of an omission or misstatement to users of the financial statements
(D) The accuracy of the trial balance

6. Which of the following is an example of a substantive procedure?
(A) Testing the effectiveness of controls over cash disbursements
(B) Sending confirmations to customers to verify accounts receivable balances
(C) Reviewing minutes of board meetings
(D) Examining organizational charts

7. The audit risk model is expressed as:
(A) Audit Risk = Control Risk × Detection Risk
(B) Audit Risk = Inherent Risk + Control Risk + Detection Risk
(C) Audit Risk = Inherent Risk × Control Risk × Detection Risk
(D) Audit Risk = Control Risk – Detection Risk

8. Tests of controls are performed to:
(A) Identify instances of fraud
(B) Evaluate the operating effectiveness of internal controls
(C) Detect material misstatements in the financial statements
(D) Confirm management’s representations

9. Analytical procedures are primarily used in which phase of an audit?
(A) Planning phase
(B) Substantive testing phase
(C) Completion phase
(D) Reporting phase

10. A management representation letter is used to:
(A) Replace audit evidence
(B) Document management’s acknowledgment of its responsibility for the financial statements
(C) Confirm the auditor’s independence
(D) Provide evidence of fraud detection

11. Which of the following is not a component of internal control?
(A) Control environment
(B) Risk assessment
(C) External audit procedures
(D) Monitoring of controls

12. What type of opinion is issued when the auditor cannot obtain sufficient appropriate evidence and the effects could be material and pervasive?
(A) Adverse opinion
(B) Qualified opinion
(C) Disclaimer of opinion
(D) Unmodified opinion

13. The primary objective of an internal audit is to:
(A) Provide assurance on the financial statements
(B) Assist management in achieving organizational goals
(C) Prepare financial reports
(D) Detect fraud and errors

14. Fraudulent financial reporting typically involves:
(A) Embezzlement of company assets
(B) Misappropriation of assets
(C) Intentional misstatement or omission of financial information
(D) Errors in data entry

15. Detection risk is:
(A) The risk that internal controls will fail to prevent or detect a material misstatement
(B) The risk that a material misstatement will not be detected by the auditor’s procedures
(C) The combination of inherent risk and control risk
(D) The risk of misstatements due to fraud

16. What is the purpose of a walkthrough?
(A) To detect fraud
(B) To test the design and implementation of internal controls
(C) To prepare the financial statements
(D) To evaluate the financial position of the client

17. An adverse opinion is issued when:
(A) The financial statements contain material misstatements that are pervasive
(B) There is a scope limitation that is material and pervasive
(C) The auditor cannot obtain sufficient audit evidence
(D) The client refuses to provide management representation

18. Which of the following procedures is used to test the completeness assertion?
(A) Sending confirmations to customers
(B) Performing a search for unrecorded liabilities
(C) Comparing recorded balances with physical counts
(D) Reviewing subsequent events

19. Reasonable assurance in an audit means:
(A) The auditor guarantees the accuracy of the financial statements
(B) The audit provides high but not absolute assurance that the financial statements are free of material misstatement
(C) The auditor detects all fraud and errors
(D) The audit eliminates all risks of misstatement

20. The term “going concern” refers to:
(A) The ability of the auditor to complete the audit
(B) The organization’s ability to continue operating for the foreseeable future
(C) Management’s responsibility for preparing the financial statements
(D) The reliability of the internal controls