126. What must the auditor be certain of before treating a misstatement as an anomaly?

A) That it is the largest error found
B) It is not representative
C) That it is below the materiality
D) That management agrees with it

Correct: B difficult ISA 530

An anomaly is a misstatement demonstrably not representative of the population, and the auditor must do extra work to prove it.

127. An auditor tests 50 consecutive purchase invoices for a control. What is the weakness?

A) It is too large a sample here
B) It is too random in its nature
C) It may not be representative
D) It uses a computer to select

Correct: C difficult ISA 530

Sequence or block selection may give samples that are not representative, especially if misstatements occurred only during a certain part of the period.

128. Which weakness applies to monetary unit sampling?

A) It always needs haphazard selection made
B) It ignores all the large items in a ledger
C) It cannot be done by a computer program
D) Copes poorly with understatement

Correct: D difficult ISA 530

MUS gives every CU1 an equal chance, so every material item is sampled, but it copes poorly with understatements and negative balances since a CU that is not there cannot be selected.

129. Systematic selection is used on a ledger with a pattern repeating every 20 items, and the interval is 20. What is the danger?

A) The pattern may bias the sample
B) The sample is far too random
C) The sample is far too large
D) The sample ignores the first item

Correct: A difficult ISA 530

When using systematic selection, the auditor must ensure the population is not structured so that the sampling interval corresponds with a pattern in the population.

130. What happens to the sample size if the tolerable rate of deviation increases?

A) It increases
B) It decreases
C) It stays the same
D) It doubles

Correct: B difficult ISA 530

An increase in the tolerable rate of deviation allows a smaller sample size, while an increase in the expected rate of deviation or desired assurance increases it.

131. Which factor has only a negligible effect on the sample size for a large population?

A) The tolerable misstatement set
B) The assessed risk of the area
C) Number of units in population
D) The desired level of assurance

Correct: C difficult ISA 530

An increase in the number of sampling units in a large population has a negligible effect on sample size.

132. Which of these is an example of non-sampling risk?

A) Having a very large population
B) Choosing a sample of 30 items
C) Using a random start for selection
D) Using an inappropriate procedure

Correct: D difficult ISA 530

Non-sampling risk arises for reasons unrelated to sampling, such as using inappropriate procedures or misinterpreting audit evidence.

133. A claim against the company is settled shortly after the year end. How can the auditor use this?

A) Evidence of the right provision
B) A reason to ignore the provision
C) A reason to cancel the audit
D) A reason to change the year end

Correct: A difficult ISA 540

Reviewing events up to the date of the auditor's report may give evidence of the correct figure; a post year-end settlement can establish the provision, with usually no need for the other methods.

134. Remote auditing cannot be carried out in person. How might an inventory count be observed?

A) By phone call only
B) Using drones
C) By ignoring the count
D) By asking the client to estimate

Correct: B difficult ISA 501

The workbook notes that, to make up for lack of physical proximity, alternative procedures may be used, for example observing an inventory count using drones.

135. After accumulating non-trivial misstatements, what must the auditor consider revising?

A) The client's year end date itself
B) The engagement letter date itself
C) The audit plan or strategy
D) The auditor's firm name and address

Correct: C difficult ISA 450

During the audit, the auditor accumulates non-trivial misstatements and determines whether the audit plan or overall audit strategy needs to be revised.

136. An auditor repeats the same weak type of evidence at more locations of Kishoreganj Ltd. Which aspect of evidence does this improve?

A) Sufficiency
B) Appropriateness
C) Relevance
D) Reliability

Correct: A difficult ISA 315

Sufficiency is the measure of the quantity of audit evidence. Appropriateness is the quality, meaning relevance and reliability, so more of the same weak evidence does not improve its quality.

137. When are records held by a client more reliable as audit evidence?

A) When the client is very large
B) When controls work well
C) When the records are old
D) When staff wrote them quickly

Correct: B difficult ISA 500

Evidence obtained from the entity's records is more reliable when the related control systems operate effectively.

138. At the planning stage, an auditor uses heat maps and drill-down charts on the client's ledger data. What are these used for?

A) To confirm the client's bank balance
B) To replace the audit opinion
C) To find areas to assess risk
D) To decide the final audit fee

Correct: C difficult ISA 315

Audit data analytics at planning can use visualisation such as heat maps and bar charts with drill-down to find patterns and deviations, pointing to areas for further risk assessment procedures.

139. Expected payroll cost is CU 18,000,000 and the recorded cost is CU 18,900,000. The auditor accepts a 3% difference. What action is needed?

A) 3% gap, which needs no follow-up
B) 5% gap, within the accepted limit
C) 0.5% gap, so ignore it
D) 5% gap, so investigate it

Correct: D difficult ISA 315

The difference is 900,000 / 18,000,000 = 5%, which is above the 3% acceptable difference. Significant unexpected fluctuations must be investigated by inquiring and corroborating the explanations.

140. A systematic sample of 80 is taken from 2,000 items with a random start of 7. What is the number of the last item selected?

A) 1,982
B) 1,957, being the 79th item
C) 1,975, ignoring the random start
D) 2,000, being the last item

Correct: A difficult ISA 315

The interval is 2,000 / 80 = 25. Selections are 7, 32, 57 and so on, so the 80th item is 7 + 79 x 25 = 1,982.

141. A population of CU 3,600,000 is tested with monetary unit sampling and a sample of 24 units. What is the sampling interval?

A) CU 3,600,000, the full population
B) CU 150,000
C) CU 24,000, the sample size
D) CU 86,400,000, found by multiplying

Correct: B difficult ISA 315

The sampling interval is the population value divided by the sample size: 3,600,000 / 24 = CU 150,000. Items of at least this value are selected for certain.

142. Using monetary unit sampling, the start is 40,000 and the interval is 150,000. Cumulative invoice values end at 120,000, 210,000, 330,000 and 450,000. Which invoice contains the third selected unit?

A) Invoice 2
B) Invoice 3
C) Invoice 4
D) Invoice 1

Correct: C difficult ISA 315

The selected units are 40,000, 190,000 and 340,000. The third selection of 340,000 falls above 330,000 and so is in invoice 4. Invoice 3 is skipped, as its value of 120,000 is below the interval.

143. The auditor tests 50 of 400 equal items and finds errors of CU 2,400 in the sample. What is the projected misstatement?

A) CU 120,000, multiplying by 50
B) CU 2,400, the error found
C) CU 960, dividing by 2.5
D) CU 19,200

Correct: D difficult ISA 315

The sample is one eighth of the items, so the error is projected by multiplying by 400 / 50 = 8, giving 2,400 x 8 = CU 19,200.

144. The projected misstatement is CU 19,200 and tolerable misstatement is CU 15,000. What is the conclusion?

A) It exceeds tolerable misstatement
B) It is within tolerable misstatement
C) It equals tolerable misstatement
D) It should be ignored as small

Correct: A difficult ISA 315

A projected misstatement above tolerable misstatement means the sample does not give reasonable assurance that the population is fairly stated, so the auditor extends work or asks for adjustment.

145. The auditor finds 3 deviations in a sample of 60 and the tolerable rate of deviation is 4%. What is the conclusion?

A) 5% is within the tolerable rate
B) 5% exceeds the tolerable rate
C) 3% is within the tolerable rate
D) 4% equals the tolerable rate

Correct: B difficult ISA 315

The deviation rate is 3 / 60 = 5%, which is above the 4% tolerable rate, so the auditor cannot rely on the control at the planned level and extends substantive work.

146. Which gives better evidence of the cost of inventory: a purchase invoice from a supplier or a sales invoice raised by the client?

A) They are equally reliable
B) The client's sales invoice
C) The supplier's invoice
D) Neither of them shows any cost

Correct: C difficult ISA 315

Inspection of a purchase invoice gives better quality evidence than a sales invoice because it is created by a third party, and so is external evidence.

147. A director tells the auditor orally that all contracts have been disclosed. How reliable is this compared with a signed written representation?

A) The most reliable evidence
B) More reliable
C) Equally reliable
D) Less reliable

Correct: D difficult ISA 315

Evidence in the form of documents or written representations is more reliable than oral representations, so the oral assurance is less reliable.

148. For a warranty provision, the auditor builds an independent model with different assumptions. What approach to the estimate is this?

A) Developing a point estimate
B) Testing management's process
C) Using events after the year end
D) Relying on a control test

Correct: A difficult ISA 315

ISA 540 allows the auditor to use a point estimate, for example by using an available or proprietary model, introducing different assumptions or engaging a specialist.

149. Why might an auditor prefer face-to-face discussion when communicating a modified report to management?

A) A video call cannot be recorded
B) Difficult news is easier in person
C) Face-to-face discussion is mandatory
D) Remote calls are not allowed by ISAs

Correct: B difficult ISA 315

Where difficult news must be communicated, such as modifications to the auditor's report, it may be easier face-to-face, although ISA and ISQM discussion requirements can be met remotely.

150. Auditing standards require which type of analytical procedure near the end of every audit?

A) Sampling of all transactions
B) Detailed substantive procedures
C) Overall review procedures
D) Tests of all controls

Correct: C difficult ISA 315

ISA 520 requires analytical procedures near the end of the audit to help form an overall conclusion that the financial statements are consistent with the auditor's understanding of the entity.