Q.1 What is audit evidence?
Information used by the auditor to arrive at conclusions
Company’s financial statements
Reports prepared by internal staff
Only written documents
Explanation - Audit evidence includes all the information collected by auditors to support their opinion on financial statements.
Correct answer is: Information used by the auditor to arrive at conclusions
Q.2 Which of the following is the MOST reliable source of audit evidence?
Information obtained directly from management
Documents prepared by the client
Information obtained directly from external sources
Internal reports not verified
Explanation - External evidence is more reliable than internal because it comes from independent parties.
Correct answer is: Information obtained directly from external sources
Q.3 Audit evidence must be:
Sufficient and appropriate
Extensive and expensive
Only quantitative
Only qualitative
Explanation - Audit evidence must be both sufficient in quantity and appropriate in quality to support audit conclusions.
Correct answer is: Sufficient and appropriate
Q.4 Which audit procedure provides the HIGHEST reliability of evidence?
Inquiry
Observation
Inspection of documents
External confirmations
Explanation - Evidence from external confirmations is highly reliable as it comes from third parties.
Correct answer is: External confirmations
Q.5 In auditing, 'sufficiency' relates to:
Quality of evidence
Quantity of evidence
Independence of auditor
Cost of audit
Explanation - Sufficiency refers to the quantity of audit evidence collected.
Correct answer is: Quantity of evidence
Q.6 In auditing, 'appropriateness' relates to:
Reliability and relevance of evidence
Quantity of evidence
Independence of auditor
Cost of audit
Explanation - Appropriateness refers to the relevance and reliability of evidence collected.
Correct answer is: Reliability and relevance of evidence
Q.7 Which of the following is NOT a type of audit evidence?
Physical examination
Observation
Confirmation
Speculation
Explanation - Speculation is not considered valid audit evidence.
Correct answer is: Speculation
Q.8 Which of the following is an example of external evidence?
Sales invoices prepared by the company
Supplier invoices received by the company
Internal cash register tape
Employee attendance sheet
Explanation - Invoices from suppliers are considered external evidence since they come from outside parties.
Correct answer is: Supplier invoices received by the company
Q.9 Why is audit evidence required?
To satisfy management
To reduce audit fees
To support auditor’s opinion
To ensure 100% accuracy
Explanation - Audit evidence provides the basis for forming the auditor’s opinion on financial statements.
Correct answer is: To support auditor’s opinion
Q.10 Which type of evidence is MOST persuasive?
Oral statements from management
Written external confirmations
Verbal confirmations
Internal memos
Explanation - Written confirmations from external parties are more reliable than oral or internal evidence.
Correct answer is: Written external confirmations
Q.11 Observation in audit refers to:
Examining supporting documents
Watching a process being performed
Confirming balances with third parties
Recalculating financial figures
Explanation - Observation means the auditor watches processes like stock counting or cash handling.
Correct answer is: Watching a process being performed
Q.12 Physical examination is MOST suitable for verifying:
Cash balance
Inventory
Accounts payable
Revenue recognition
Explanation - Physical examination is primarily used to confirm the existence of tangible assets like inventory.
Correct answer is: Inventory
Q.13 Analytical procedures in auditing involve:
Comparing recorded amounts with expectations
Counting physical stock
Obtaining external confirmations
Verifying signatures
Explanation - Analytical procedures identify unusual fluctuations or trends in financial data.
Correct answer is: Comparing recorded amounts with expectations
Q.14 Which is LESS reliable as audit evidence?
Written confirmation from banks
Invoices from suppliers
Oral representation by management
External contracts
Explanation - Oral evidence is the least reliable as it cannot be independently verified.
Correct answer is: Oral representation by management
Q.15 Audit evidence is collected to test:
Management’s honesty
Assertions in financial statements
The cost of audit
The independence of auditors
Explanation - Audit evidence is gathered to test management assertions such as existence, completeness, and valuation.
Correct answer is: Assertions in financial statements
Q.16 Which assertion is tested when auditors confirm accounts receivable balances?
Completeness
Existence
Valuation
Presentation
Explanation - Confirmations ensure that recorded receivables actually exist.
Correct answer is: Existence
Q.17 Which assertion is tested when the auditor counts inventory?
Completeness
Existence
Valuation
Rights and obligations
Explanation - Physical counting of inventory proves that recorded inventory exists.
Correct answer is: Existence
Q.18 Which audit procedure involves re-performing calculations?
Inspection
Observation
Recalculation
Inquiry
Explanation - Recalculation involves verifying the mathematical accuracy of documents.
Correct answer is: Recalculation
Q.19 Inspection in audit evidence refers to:
Looking at records or documents
Watching employees at work
Sending confirmations
Recalculating totals
Explanation - Inspection is the examination of documents or tangible assets.
Correct answer is: Looking at records or documents
Q.20 Which of the following is considered audit evidence of LOW reliability?
Third-party confirmations
Internally generated reports without controls
Bank statements directly from bank
Original contracts
Explanation - Evidence generated internally without effective controls is less reliable.
Correct answer is: Internally generated reports without controls
Q.21 Which type of audit evidence is MOST subjective?
External confirmations
Auditor’s observation
Inquiry of management
Recalculation
Explanation - Management inquiry is subjective and less reliable since it depends on verbal representations.
Correct answer is: Inquiry of management
Q.22 Why must evidence be both sufficient and appropriate?
To reduce audit risk
To reduce audit cost
To satisfy client
To replace analytical procedures
Explanation - Sufficient and appropriate evidence reduces the risk of forming an incorrect audit opinion.
Correct answer is: To reduce audit risk
Q.23 Which audit evidence technique involves comparing data across periods?
Analytical procedures
Inspection
Recalculation
Confirmation
Explanation - Analytical procedures involve comparisons across periods or with expectations.
Correct answer is: Analytical procedures
Q.24 Written representations from management are:
A substitute for other evidence
A complement to other evidence
Not required
Always sufficient
Explanation - Written representations complement but cannot substitute other audit evidence.
Correct answer is: A complement to other evidence
Q.25 When an auditor recalculates depreciation, they are testing:
Existence assertion
Completeness assertion
Valuation assertion
Presentation assertion
Explanation - Recalculation of depreciation tests valuation of fixed assets.
Correct answer is: Valuation assertion
Q.26 Which audit procedure is MOST effective for testing bank balances?
Recalculation
Observation
External confirmation
Analytical review
Explanation - Bank confirmations from external parties are the most reliable for verifying balances.
Correct answer is: External confirmation