76. An auditor tests a sample of payables balances worth CU40,000 from a total of CU800,000. One invoice of CU180 was omitted from the ledger. What is the projected misstatement for the population?

A) CU3,600
B) CU180
C) CU36,000
D) CU360

Correct: A complex ISA 530

The sample covers one twentieth of the population (CU40,000 of CU800,000), so the CU180 error is projected by 20 to CU3,600. This is then compared with tolerable misstatement.

77. An auditor of Bogura Ltd accepts a clerk's verbal answer about a stock write-off. Why is inquiry alone a weak form of evidence?

A) It always takes too long
B) Staff may misstate or misread
C) It cannot be recorded in writing
D) It is only used by internal auditors

Correct: B difficult ISA 500

The strength of inquiry depends on who is asked. A member of staff could misrepresent matters if they misunderstand the question or want to hide a misstatement or fraud.

78. The auditor inspects 25 vehicles listed in the register of Noakhali Transport and sees them all. Which assertion has inspection NOT confirmed?

A) Existence
B) Completeness of listed items
C) Rights and obligations
D) Occurrence

Correct: C difficult ISA 500

Inspection of tangible assets confirms existence but does not confirm rights and obligations or valuation. The auditor would need documents such as registration papers to confirm ownership.

79. Which of these can audit software do?

A) Decide the audit opinion
B) Interview the finance director
C) Sign the engagement letter
D) Flag items beyond set ratios

Correct: D difficult ISA 500

Audit software can extract samples by criteria, calculate ratios and select those more than a set percentage different from last year, check casts and follow items through the system.

80. Audit data analytics is applied to the general ledger of Cumilla Foods. Which entries might it flag as indicating fraud or error?

A) Big round entries near year end
B) Small routine entries on random dates
C) Entries posted by the payroll clerk
D) Entries with a full narrative

Correct: A difficult ISA 500

Analysing general ledger data to extract transactions with characteristics that could indicate fraud or error is a use of ADA, for example large round sum amounts near period ends or descriptions containing the word 'adjust'.

81. Analytical procedures at the planning stage reveal a risk of misstatement the auditor had not recognised. What must the auditor do?

A) Ignore it because the plan has already been approved
B) Revise risk assessment and adjust planned work
C) Report it to the audit committee and suspend all work
D) Wait until the completion stage to consider the point

Correct: B difficult ISA 520

If analytical procedures identify a previously unrecognised risk of material misstatement, the auditor must revise the assessment of risk and modify the further planned procedures accordingly.

82. The auditor wants to rely on unit sales data used in an analytical procedure. How can its reliability be supported?

A) By ignoring controls over it
B) By asking the sales team to confirm
C) By testing unit sales controls
D) By using an industry average only

Correct: C difficult ISA 520

The operating effectiveness of controls over non-financial information, such as the recording of unit sales, can be tested together with controls over the processing of sales invoices.

83. Rangpur Ltd holds a small number of very high value properties, and the risk of misstatement is high. What sampling approach is likely to be appropriate?

A) A tiny random sample
B) A haphazard selection
C) Only items below a set value
D) Examination of all items

Correct: D difficult ISA 530

Where the population consists of a small number of high value items and there is a high risk of material misstatement, testing 100% of the items may be appropriate for a substantive procedure.

84. Which of these is a feature of non-statistical sampling?

A) Probability theory is absent
B) It always uses probability theory
C) It never involves judgement
D) It is banned under ISA 530

Correct: A difficult ISA 530

Statistical sampling needs random selection and the use of probability theory to evaluate results. A method lacking either of these is non-statistical sampling.

85. Sarah selected a small sample for a low-risk receivables area but found many more misstatements than expected. What should she do?

A) Ignore the extra misstatements found
B) Enlarge the sample and extend it
C) Stop the audit of receivables
D) Reduce the sample further

Correct: B difficult ISA 530

Finding more misstatements than expected means that the expected misstatement was too low. She should increase the sample and extend her test.

86. In a substantive test, projected misstatement still exceeds tolerable misstatement after alternative procedures. What should the auditor consider?

A) Whether the statements need adjusting
B) Whether to reduce the sample size
C) Whether the client is listed
D) Whether to reassess control risk only

Correct: C difficult ISA 530

If the auditor still believes actual misstatement exceeds the tolerable level after alternative procedures, then for a substantive test they should consider whether the financial statements need adjusting. For a test of controls, control risk is reassessed.

87. Receivables total CU600,000 and the auditor uses monetary unit sampling with an interval of CU30,000. How many selections are made?

A) 10
B) 30
C) 15
D) 20

Correct: D complex ISA 530

The number of selections is the population divided by the interval. CU600,000 divided by CU30,000 gives 20 selections, and any balance of CU30,000 or more is selected automatically.

88. The number of items in a population doubles from 5,000 to 10,000, with all else unchanged. What is the effect on the sample size?

A) Negligible
B) It also doubles
C) It halves
D) It becomes zero

Correct: A difficult ISA 530

An increase in the number of sampling units in the population has a negligible effect on the sample size for tests of controls and tests of details, unlike changes in risk or tolerable misstatement.

89. Why may it be easier to give a client difficult news about a modified report face to face rather than remotely?

A) Remote audits are not permitted at all
B) Direct contact helps with bad news
C) It avoids the need for any report
D) Face to face costs the firm less

Correct: B difficult ISA 220

The workbook notes that difficult news, such as modifications to the auditor's report, may be easier to communicate face to face, subject to any government restrictions on in-person contact.

90. Management of Habiganj Tea uses a formula to calculate the allowance for receivables. How can the auditor test this estimate?

A) Accept it without checking
B) Replace it with the auditor's own figure
C) Check the calculation and any changes
D) Ask the receivables to confirm

Correct: C difficult ISA 540

Where management uses a formula, the auditor can test the process by checking the calculation and considering whether anything this year is likely to have changed the estimate.

91. The auditor of Padma Shipping inspects a hire purchase agreement for a vessel. Which assertion does it mainly support?

A) Rights and obligations
B) Completeness of liabilities
C) Cut-off of year-end transactions
D) Presentation of income

Correct: A difficult ISA 500

Inspection of a hire purchase agreement gives evidence in relation to ownership of non-current assets, which is rights and obligations.

92. The auditor inspects a share certificate held by a client for an investment. What does this chiefly give evidence of?

A) Valuation at the year end date
B) Existence of the investment
C) Cut-off of dividends received
D) Classification of income and costs

Correct: B difficult ISA 500

Looking at a share certificate gives evidence of the existence of the investment. It does not by itself give evidence of valuation.

93. The expected rate of deviation in a control is unacceptably high. What will the auditor normally decide?

A) To raise the tolerable misstatement
B) To halve the sample size
C) Not to perform tests of controls
D) To rely on the control more

Correct: C difficult ISA 530

If the expected rate of deviation is unacceptably high, the auditor will normally decide not to perform tests of controls, and rely on substantive procedures instead.

94. The auditor increases the use of other substantive procedures directed at the same assertion. What is the effect on the sample size?

A) It rises sharply
B) It rises slightly
C) It is negligible
D) It decreases

Correct: D difficult ISA 530

An increase in the use of other substantive procedures directed at the same assertion decreases the sample size needed for the test of detail.

95. Barry picks the second balance in a receivables list and then every seventh balance. Which selection method is this?

A) Systematic selection
B) Random number selection
C) Haphazard selection method
D) Block selection of items

Correct: A difficult ISA 530

Systematic selection uses a constant interval between selections with a random start. The auditor must ensure the interval does not match a pattern in the population.

96. Total receivables are CU1,200,000 and the auditor uses monetary unit sampling with a CU60,000 interval. What is the maximum number of selections?

A) 10
B) 20
C) 60
D) 1,200

Correct: B complex ISA 530

Every 60,000th CU1 is selected, so there are 1,200,000 / 60,000 = 20 selections at most. A balance larger than the interval is selected automatically.

97. To test the understatement of trade payables, which population could the auditor sample from?

A) The year-end payables listing
B) The sales ledger
C) Unmatched receiving reports
D) The fixed asset register

Correct: C difficult ISA 500

ISA 500 suggests, for understatement of payables, subsequent disbursements, unpaid invoices, suppliers' statements and unmatched receiving reports as a reciprocal population.

98. To test whether revenue is understated, from which population should the auditor sample?

A) The sales ledger balances
B) The trial balance totals
C) The receivables list
D) Despatch notes

Correct: D difficult ISA 500

For understatement the auditor must select from a reciprocal population that gives a chance of selecting omitted items. For revenue that population is despatch notes, if all despatches are captured on them.

99. A misstatement of CU30,000 is below materiality but hides a fall in earnings from the prior year. How should the auditor treat it?

A) As material, as it masks a trend
B) As trivial, since it is below materiality
C) As an anomaly to be ignored
D) As a matter for the next audit

Correct: A difficult ISA 450

Misstatements may be evaluated as material even below materiality if they, for example, mask a change in earnings or other trends.

100. An error of CU20,000 is below materiality but lifts profit just enough for the directors to earn their bonuses. How is it evaluated?

A) As immaterial because it is small
B) As material as it affects pay
C) As a timing difference only
D) As immaterial because it is unadjusted

Correct: B difficult ISA 450

Circumstances that make a misstatement material despite being below materiality include increasing management's compensation, such as meeting the requirements for bonuses.