51. How does big data differ from an ordinary database?

A) It consists only of data that is held in paper form
B) It contains only the data that the auditor has selected
C) It is too large for typical database software to handle
D) It always contains data that the entity has audited already

Correct: C difficult ISA 500

Big data is a dataset whose size is beyond the ability of typical database software to capture, store, manage and analyse. Artificial intelligence has increased the analytical power available to analyse it.

52. When are analytical procedures compulsory in an audit?

A) As substantive procedures on each account balance
B) Only if the client asks for them to be done
C) Only where the auditor does not test controls
D) At the planning stage and near the end of the audit

Correct: D difficult ISA 520

Analytical procedures are compulsory at the risk assessment (planning) stage and at the overall review stage near the end. As substantive procedures they are optional.

53. As the assessed risk for an area rises, what happens to the acceptable difference from expected results before investigation?

A) It becomes smaller
B) It becomes larger
C) It stays the same
D) It is no longer needed

Correct: A difficult ISA 520

The acceptable difference is influenced by materiality and the desired level of assurance. As assessed risk rises, the amount of difference from expected results considered acceptable without investigation reduces.

54. Management gives an explanation for an unexpected fluctuation. What must the auditor do?

A) Accept it, since management knows the business best
B) Corroborate it with other evidence or procedures
C) Ignore it, since analytical procedures are optional
D) Report it to the shareholders without further work

Correct: B difficult ISA 520

The auditor makes inquiries of management about the inconsistency and then corroborates those replies with other evidence. If responses cannot be corroborated or are unavailable, other audit procedures are performed.

55. Why are analytical procedures usually more applicable to payroll than to one-off transactions?

A) Payroll balances are never audited by any other method
B) Payroll is not affected by controls of any kind
C) Many predictable transactions suit analytical procedures
D) Payroll can only be tested by analytical procedures

Correct: C difficult ISA 520

Analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable, such as payroll, than to unusual transactions that cannot be predicted with precision.

56. An auditor uses a budget as the expectation in an analytical procedure. Which question about reliability matters most?

A) Whether the budget was printed in colour
B) Whether the budget was approved at a board meeting
C) Whether the budget was prepared before the year began
D) Whether the budget is realistic or more of a target

Correct: D difficult ISA 520

The nature and relevance of the information matters, for example whether a budget is realistic or more of a target. Source, comparability and controls over the production of the information also affect reliability.

57. Which method of auditing an accounting estimate would be used if a claim was settled after the year end?

A) Review of events up to the date of the auditor's report
B) Testing the controls over how management made the estimate
C) Developing a separate point estimate with a specialist
D) Testing the data on which the process of estimation relies

Correct: A difficult ISA 540

If a claim is settled after the year end and requires a provision, the auditor can use the settlement as evidence of the correct figure. In this case there is usually no need to use the other two methods.

58. An auditor wishes to observe an inventory count at a remote location during restrictions on travel. What alternative is suggested?

A) Skip the count and accept the figure given by management
B) Observe the count using drones or video links
C) Wait until the next year to carry out the count
D) Ask the client to send a signed note of the quantities

Correct: B difficult ISA 500

Obtaining evidence remotely may be harder, so the auditor considers alternative procedures, for example observing an inventory count using drones, and uses video calls to engage with client staff.

59. An auditor tests all items over CU 5 million, which are 60% of the balance by value. May the result be projected to the rest of the balance?

A) Yes, using the average error found in the large items
B) Yes, since the large items are the most important to test
C) No, but the result supports other evidence on the rest
D) No, and the rest of the balance need not be tested

Correct: C difficult ISA 530

Items selected because of specific characteristics, such as high value, are not a representative sample, so the results cannot be projected to the whole population. They are used together with other audit evidence concerning the rest of the population.

60. What is non-sampling risk?

A) The risk of an erroneous conclusion unrelated to sampling
B) The risk that a sample is too large for the population
C) The risk that statistical sampling is used for a small population
D) The risk that the sample does not represent the population

Correct: A difficult ISA 530

Non-sampling risk is the risk of an erroneous conclusion for any reason not related to sampling risk, for example inappropriate procedures or misinterpretation of evidence and failure to recognise a misstatement.

61. Why can an external confirmation sometimes be unreliable evidence?

A) The third party may want to misrepresent the position
B) Confirmations are always created by the auditor himself
C) Banks do not ever confirm balances to the auditor
D) Confirmation cannot be used to test existence of receivables

Correct: A difficult ISA 500

Confirmation can be a very strong procedure, but a third party may be motivated to misrepresent. For example, an understated receivables balance may be confirmed because it favours the customer.

62. What is the main weakness of observation as a way of obtaining evidence?

A) It can be done only after the year end of the entity
B) It shows a control works only while being watched
C) It gives evidence created by the staff of the client
D) It needs a statistical sample of at least thirty items

Correct: B difficult ISA 500

Observation is relatively weak, since it confirms only that the procedure is being performed correctly at the time when the assurance provider is watching.

63. Why is recalculation regarded as strong evidence?

A) It uses documents that were created by third parties
B) It covers all the transactions in the year
C) It is performed by the assurance provider
D) It relies on the controls of the client's computer

Correct: C difficult ISA 500

Recalculation checks the mathematical accuracy of the client's records. It is strong evidence because it is created by the assurance provider.

64. When can an analytical procedure be a strong source of evidence?

A) When it uses only the client's own budget figures
B) When it covers a single month of the year only
C) When management has prepared the comparison itself
D) When compared with items from outside the system

Correct: D difficult ISA 520

Evidence from analytical procedures is limited by the strength of the underlying accounting system. It can be strong if the comparison is made to items that do not rely on the same system, or that the auditor can corroborate outside it.

65. Which comparison lets the auditor predict results most precisely in an analytical procedure?

A) Gross margin against the prior year
B) Advertising spend against the prior year
C) Sundry expenses against the prior year
D) Donations made against the prior year

Correct: A difficult ISA 520

Precision is the accuracy with which results in the test area can be predicted. Gross margin is far more predictable than less predictable items such as advertising, so it supports a more precise expectation.

66. Which kind of test can almost certainly be carried out by audit software?

A) One that requires the auditor to judge management's intent
B) One that does not require judgement
C) One that needs interviews with the directors of the entity
D) One that depends on the feelings of the auditor about risk

Correct: B difficult ISA 500

If a test does not require judgement and the information is held on the client's computer, it can almost certainly be carried out by audit software. Examples include extracting samples and re-performing calculations.

67. How can data analytics help the auditor to test segregation of duties?

A) By counting the number of staff in each department
B) By comparing the budget with last year's actual figures
C) By analysing usernames against transactions posted
D) By checking that a sampling interval stays constant

Correct: C difficult ISA 500

Data analytics can analyse usernames against transactions to test segregation of duties, or to find unexpected user postings compared with the expected role, which could indicate a fraud risk.

68. The workbook says many high-profile scandals involved the overstatement of income. What does this mean for directional testing?

A) Always test income for understatement only
B) Stop testing debit items for overstatement
C) Rely on the directors' word about revenue
D) Assess actual risk, not apply a formula

Correct: D difficult ISA 500

The normal approach is to test debits for overstatement and credits for understatement. However, since scandals often involved overstated income, the true risks should be assessed rather than automatically applying a formula.

69. Analytical procedures near the end of an audit show a fluctuation that points to a risk not recognised before. What must the auditor do?

A) Revise the risk assessment and procedures
B) Ignore it, since the audit work is nearly over
C) Ask the directors to withdraw the statements
D) Report it to the NBR at once without delay

Correct: A difficult ISA 520

The overall review procedures may identify a previously unrecognised risk of material misstatement. In that case the auditor must revise the assessment of the risks and modify the further planned procedures.

70. For which accounting estimate may the auditor test the controls over how management made it?

A) One based on a unique, one-off lawsuit settlement
B) One from routine processing with strong controls
C) One where the controls are known to be weak
D) One that management has refused to explain

Correct: B difficult ISA 540

Testing the operating effectiveness of controls over the estimate, with substantive procedures, is suitable where there are strong controls and the estimate comes from routine processing of data by the accounting system.

71. Which measures does the workbook suggest to keep IT secure in remote auditing?

A) Emailing client files through personal accounts
B) Using public Wi-Fi in cafes for all the work
C) VPNs and secure web portals
D) Storing all of the files on staff memory sticks

Correct: C difficult ISQM 1

IT security is crucial to remote working, so firms should use solutions such as VPNs and secure web portals for reviewing client documentation, investing in third party IT providers if needed.

72. What is a risk of systematic selection of a sample?

A) It cannot be used for tests of controls at all
B) It can be used only with computerised data sets
C) It always picks the largest items first
D) The interval may match a population pattern

Correct: D difficult ISA 530

With systematic selection, the auditor must make sure the population is not structured so that the sampling interval corresponds with a particular pattern. Otherwise the sample may not be representative.

73. The expected evidence for a sampled item cannot be found. What does the workbook say the auditor should do?

A) Perform the procedure on a replacement item
B) Treat the item as a misstatement and project it
C) Reduce the sample size for the whole test
D) Cancel the test of the balance for the year

Correct: A difficult ISA 530

The workbook says that when the expected evidence for a sample item cannot be found, the auditor performs the procedure on a replacement item, and the item is not treated as a misstatement.

74. Misstatements found in a sample share a common feature, such as location. What may the auditor do?

A) Treat them as anomalies and then ignore them
B) Find the sub-population and extend procedures
C) Cut the sample size at the other locations
D) Postpone the procedure until the following year

Correct: B difficult ISA 530

Where common features are found, the auditor may identify all items in the population with that feature, producing a sub-population, and extend audit procedures in that area.

75. Management corrects balances at the auditor's request after misstatements are found. What should the auditor then do?

A) Accept the corrections as complete with no further work
B) Remove them from the list of misstatements found
C) Perform additional procedures on corrected balances
D) Report them to the shareholders at once without delay

Correct: C difficult ISA 450

ISA 450 requires additional audit procedures where management has examined and corrected balances at the auditor's request, to make sure that no misstatements remain.