101. Management refuses to correct an uncorrected misstatement the auditor has reported. What must the auditor do first?

A) Withdraw from the engagement at once
B) Report to the police
C) Ask why management refuses
D) Correct the figure personally for them

Correct: C difficult ISA 450

If management refuses to correct misstatements, the auditor first obtains an understanding of management's reasons, then determines materiality, communicates with those charged with governance and requests a written representation.

102. The auditor tests a sample of CU40,000 from payables of CU600,000 and finds a CU800 omission. What is the projected misstatement?

A) CU800
B) CU9,600
C) CU24,000
D) CU12,000

Correct: D complex ISA 530

The projection is 800 x (600,000 / 40,000) = 800 x 15 = CU12,000.

103. Tolerable misstatement is CU10,000 and the projected misstatement is CU12,000. What should the auditor do?

A) Reassess risk and extend work
B) Ignore the difference as small
C) Reduce the sample size
D) Lower the performance materiality to zero

Correct: A difficult ISA 530

If the projected misstatement exceeds or is close to tolerable misstatement, the auditor reassesses sampling risk and considers extending procedures or performing alternative procedures.

104. Strong controls exist over how management estimates a provision, and the figure comes from routine processing. Which response to the estimate is suitable?

A) Ignore the estimate altogether
B) Test the controls over the estimate
C) Rely on the prior year figure
D) Wait for the next audit cycle to decide

Correct: B difficult ISA 540

Testing the operating effectiveness of controls over how management made the estimate, with associated substantive procedures, suits an estimate derived from the routine processing of data under strong controls.

105. An auditor uses data analytics to compare usernames against transactions. What can this test?

A) Inventory existence at the year end
B) Customer credit limits only
C) Segregation of duties
D) The directors' remuneration

Correct: C difficult FRC data analytics review

Analysing usernames against transactions can test segregation of duties, or unexpected user postings compared to expected roles, which could indicate a fraud risk.

106. Which of these is the least persuasive evidence?

A) Inspection of a client-created sales invoice
B) Inspection of a purchase invoice from a supplier
C) Inspection of inventory by the auditor
D) Auditor reperformance of a supplier reconciliation

Correct: A difficult ISA 500

A purchase invoice is created by a third party, so it is stronger than a sales invoice created by the client. Evidence the auditor generates, such as reperformance or inspection, is strong.

107. Why is observation a relatively weak procedure?

A) It cannot ever be used for inventory counts
B) It only works while the auditor watches
C) It needs a bank letter
D) It always costs too much

Correct: B difficult ISA 500

Observation only confirms that the procedure is performed correctly when the assurance provider is watching.

108. Why might an external confirmation of receivables from a customer be unreliable?

A) Confirmations are always forged
B) Customers never reply to any confirmation requests
C) Customer may confirm a lower balance for own gain
D) The auditor writes the replies

Correct: C difficult ISA 505

A third party may be motivated to misrepresent, for example by confirming an understated receivables balance because it favours the customer.

109. In the test data approach, which is the safest way to run dummy data?

A) After year end, reversing nothing at all
B) Through the live ledger directly with no backup copy
C) Without telling anyone
D) Against a verified copy of the client system

Correct: D difficult ISA 330

Running dummy data against a verified copy of the client's system is much safer, because dummy data run on the live system must be carefully reversed.

110. What is a weakness of using real data as test data?

A) It may lack all the errors needed
B) It always breaks the system
C) It needs no sign-off
D) It is more costly than dummy data always

Correct: A difficult ISA 330

Real data may not contain all the errors necessary to test the controls rigorously, which is why dummy data is often used.

111. An invoice that does not cast is entered into a client's system. What should happen if the control works?

A) The system posts it
B) The system rejects it
C) The system deletes the customer
D) The system prints it twice

Correct: B difficult ISA 330

In a test data run the auditor predicts the system's reaction. An invoice which does not cast, or has an invalid supplier code, should be rejected.

112. Which task is least suited to audit software?

A) Recalculating ledger casts
B) Selecting items over a set amount
C) A test that needs judgement
D) Following items through the system

Correct: C difficult ISA 330

Audit software can do tests that do not require judgement, such as extracting samples, checking casts, calculating ratios and following items through a system.

113. What is a benefit of audit data analytics over sampling?

A) It replaces the auditor's judgement
B) It removes the need for risk assessment
C) It gives a legal opinion
D) It can analyse whole populations

Correct: D difficult ISA 330

ADA can analyse entire datasets for outliers or high-risk and fraudulent transactions, supporting efficiency, compliance and risk management.

114. Which selection method should not be used if the auditor is carrying out statistical sampling?

A) Haphazard selection
B) Random selection
C) Systematic selection
D) Monetary unit sampling

Correct: A difficult ISA 530

Haphazard selection may replace random selection if representative, but should not be used if the auditor is carrying out statistical sampling.

115. Which analytical procedure is compulsory at the end of the audit?

A) Substantive analytics on every balance
B) Overall review analytical procedures
C) Analysis of the audit fee
D) Analytics on client staff pay

Correct: B difficult ISA 520

Analytical procedures at the overall review stage are compulsory under ISA 520. Substantive analytics are optional.

116. When testing for understatement of revenue, which population is suitable?

A) The sales ledger customer balances
B) The revenue figure shown in the accounts
C) Despatch notes, if all are captured
D) The trial balance

Correct: C difficult ISA 500

Testing for understatement needs a reciprocal population that can include omitted items, such as despatch notes, provided all despatches are captured on them.

117. Which statement on directional testing is correct?

A) All items are tested for overstatement only
B) Debits are tested for understatement and credits for overstatement
C) All items are tested for understatement only
D) Debits are tested for overstatement and credits for understatement

Correct: D difficult ISA 500

The normal approach tests debits for overstatement and credits for understatement, though the true risks, such as overstated income in major scandals, must still be assessed.

118. To test that only genuine employees are paid, from which population should the auditor sample?

A) The payroll records
B) The HR records
C) The bank statements of staff
D) The training records

Correct: A difficult ISA 530

The starting population must be the payroll. Sampling names from payroll and agreeing them to HR records tests for fictitious employees. Starting from HR would not.

119. Which of these reduces the required sample size?

A) A higher risk of material misstatement
B) An increase in tolerable misstatement
C) A greater expected misstatement
D) A greater desired level of assurance

Correct: B difficult ISA 530

A higher tolerable misstatement means more error can be accepted, so the sample can be smaller. The other factors all increase sample size.

120. An expected audit document for a sampled item cannot be found. What does ISA 530 require?

A) Ignoring the item
B) Treating it as a misstatement automatically
C) A replacement item is tested
D) Doubling the sample

Correct: C difficult ISA 530

When the expected audit evidence for a specific sample item cannot be found, the auditor performs the procedure on a replacement item and does not treat it as a misstatement.

121. What do online confirmation platforms help auditors to combat?

A) Confirmation fraud
B) The need for any sample to be drawn
C) The audit report on the statements
D) The inventory count at the year end

Correct: A difficult ISA 505

Online platforms help auditors obtain responses from validated institutions and authorised responders, which combats potential confirmation fraud.

122. An auditor sends a confirmation request to a customer. When might the confirmation be unreliable?

A) When it comes back by post to the firm
B) Customer gains by understating
C) When it is returned in writing to us
D) When it is signed by an officer of it

Correct: B difficult ISA 505

External confirmation can be strong, but a third party may be motivated to misrepresent, for example by confirming an understated receivables balance that favours the customer.

123. Customer Khan Ltd disagrees its balance because a payment it made was posted to Rahim Ltd's account in error. Is this a misstatement of total receivables?

A) Yes, if it is an understatement
B) Yes, in every case without doubt
C) No, the total is unaffected
D) Yes, because it is an anomaly

Correct: C difficult ISA 530

A misposting between customer accounts does not affect the total receivables balance, so it is not a misstatement for drawing a conclusion on the whole population.

124. A sample of 12 payables balances totals CU48,000 out of a ledger of CU480,000. One invoice of CU300 was never posted. What is the projected misstatement?

A) CU4,800
B) CU300
C) CU30,000
D) CU3,000

Correct: D difficult ISA 530

Projection is by scaling the misstatement by the ratio of population to sample: CU300 × (480,000 ÷ 48,000) = CU3,000.

125. Several errors in a sample all arise at the Rangpur branch. What may the auditor do?

A) Test all that branch
B) Treat all of them as anomalies at once
C) Stop all testing on the area now
D) Discard the sample and start again

Correct: A difficult ISA 530

Where common features such as location are found in misstatements, the auditor may identify all items in the population with that feature, forming a sub-population, and extend procedures there.