Q1. Internal audit reviews a board report which the external auditors do not audit. What is its role? Incorrect

A) Publishing the report to the members
B) Writing the report for the directors
C) Approving the report as a director
D) Acting as auditors of that report

Your answer: A  |  Correct answer: D

Internal audit can assist the board by, in effect, acting as auditors for board reports not audited by the external auditors.

ISA 610

Q2. Under ESG, executive pay is classified as which type of issue? Incorrect

A) A governance issue
B) An environmental issue
C) A social issue
D) A climate dependency

Your answer: —  |  Correct answer: A

Governance issues relate to the governance of companies and include board structure, executive pay, shareholder rights, disclosure, business ethics, bribery and corruption, and internal controls.

IFRS S1

Q3. Which finding in the accounts of Faridpur Ltd might indicate money laundering? Incorrect

A) Normal costs for the level of income
B) A simple one-company structure
C) Credits on the receivables ledger with no explanation
D) Lack of expected costs in the income statement

Your answer: —  |  Correct answer: D

Issues that may raise suspicion include credits on the receivables ledger, unusual related party transactions, lack of expected costs, complicated group structures and many cash transactions with no business reason.

Money Laundering Prevention Act 2012

Q4. Goods may be despatched but not recorded, so they are lost to the business. Which control objective follows from this risk? Incorrect

A) Invoices relate to goods and services supplied
B) Credit notes are given for valid reasons only
C) Only customers with good credit are supplied
D) All despatches are recorded

Your answer: A  |  Correct answer: D

The risk that goods are despatched but not recorded leads to the objective that all despatches of goods are recorded, supported by a despatch record and sequence checks.

ISA 315

Q5. Cleaned funds are used to buy a luxury apartment. Which stage is this? Incorrect

A) Detection of the crime
B) Placement of the cash
C) Layering of the funds
D) Integration

Your answer: —  |  Correct answer: D

Integration is when laundered funds re-enter the legitimate economy, such as through property purchases.

IESBA Code 114

Q6. What does 'assembly of the final audit file' mean? Incorrect

A) Completing file closure
B) Starting the planning work
C) Signing the engagement letter
D) Sending the invoice to the client

Your answer: —  |  Correct answer: A

File assembly is the administrative process of completing the documentation after the report date.

ISA 230

Q7. Which evidence best shows that staff at Sylhet Tea Ltd start to be paid only when they join and are removed from the payroll when they leave? Incorrect

A) A check that the nominal ledger wages account has been reconciled at the end of each month
B) Written confirmation of engagements and discharges that is compared with payroll records
C) A review of the payroll totals to see whether the total is similar to that of the prior year
D) Inspection of the payroll for the signature of the person who authorised the payment

Your answer: —  |  Correct answer: B

Tests of controls include obtaining evidence that staff start being paid only when they join and are removed on leaving, and checking that engagements and discharges have been confirmed in writing and are reflected in payroll records.

ISA 330

Q8. An accounting firm in Dhaka introduces AI to automate parts of its finance work. What does the workbook say the organisation should do for its staff? Incorrect

A) Replace them all with automation
B) Hide the change from staff
C) Offer retraining and upskilling
D) Cut their pay during the change

Your answer: —  |  Correct answer: C

Organisations should use AI ethically and not just replace employees. They should provide opportunities for retraining and upskilling so that staff can move into new AI-based roles.

ISA 315

Q9. A customer confirms CU 95,000 while the ledger shows CU 100,000. The difference is a cheque in transit. How is it treated? Incorrect

A) Ignored without any testing
B) Evidence of a fraud
C) A misstatement of CU 100,000
D) A timing difference

Your answer: —  |  Correct answer: D

A cheque sent before year end but received after is a timing difference; the auditor verifies by checking subsequent receipt.

ISA 505

Q10. What does the opening paragraph of the sample representation letter say about its purpose? Incorrect

A) It is given for the tax authority to consider
B) It is given so that an opinion can be expressed
C) It is given to set the audit fee for the next year
D) It is given to replace the audit report

Your answer: —  |  Correct answer: B

The letter is provided in connection with the audit of the financial statements for the purpose of expressing an opinion as to whether they are presented fairly in all material respects, or give a true and fair view.

ISA 580

Q11. Which threat arises if the firm that audits the statements of Dhaka Power PLC also performs its internal audit? Incorrect

A) Self-review threat
B) Advocacy threat
C) Intimidation threat
D) Familiarity threat only

Your answer: —  |  Correct answer: A

The firm may review its own internal audit work when auditing the statements, creating a self-review threat.

IESBA Code

Q12. Which is an example of building an element of unpredictability into the audit of Rajshahi Silk Ltd? Incorrect

A) Testing the same month each year
B) Using the same sample size every year
C) Visiting a depot without notice to the client
D) Telling management which accounts will be tested

Your answer: —  |  Correct answer: C

ISA 240 expects the auditor to vary the nature, timing and extent of procedures so they are less predictable.

ISA 240

Q13. An auditor sends 56 receivables confirmations and gets 54 replies. Of the replies, 30 agree and 24 disagree, and 10 of the 24 are timing differences on cash that clears the bank after the year end. How many disagreements still need investigation? Incorrect

A) 10
B) 24
C) 2
D) 14

Your answer: —  |  Correct answer: D

Of the 24 disagreements, 10 are explained timing differences, leaving 24 - 10 = 14 to investigate (for example credits requested, invoices with no goods delivered, and misposted invoices). The two non-replies are followed up separately.

ISA 505

Q14. Dhaka Ceramics Ltd carries work in progress at CU 60,000. Costs to complete are CU 15,000 and the expected selling price is CU 70,000. What write-down is needed to reach the lower of cost and NRV? Incorrect

A) CU 5,000
B) CU 10,000
C) CU 15,000
D) No write-down is needed

Your answer: —  |  Correct answer: A

For work in progress the selling price is compared with the carrying value plus costs still to be incurred. NRV is CU 70,000 less CU 15,000, which is CU 55,000. Cost of CU 60,000 less NRV of CU 55,000 gives a write-down of CU 5,000.

IAS 2

Q15. What is the role of a lead schedule in the file of Mymensingh Textiles Ltd? Incorrect

A) It records the fee agreed with the client
B) Sums up schedules; agrees to the TB
C) It replaces the rest of the audit file
D) It lists the home addresses of the team

Your answer: —  |  Correct answer: B

A lead schedule summarises a balance from detailed working papers and ties it to the trial balance.

ISA 230

Q16. An internal auditor checks whether all branches follow the credit policy. What type of audit is this? Incorrect

A) A financial statement audit
B) A value for money audit
C) A special investigation
D) A compliance audit

Your answer: —  |  Correct answer: D

A compliance review checks that laws, regulations and company policies are being followed.

ISA 610

Q17. According to the standard report wording, who is responsible for overseeing the company's financial reporting process? Incorrect

A) The external auditor of the company
B) The company's bank and other lenders
C) The engagement partner of the firm
D) Those charged with governance

Your answer: —  |  Correct answer: D

Management is responsible for preparing the financial statements, and those charged with governance are responsible for overseeing the company's financial reporting process.

ISA 700

Q18. A manufacturer faces energy shortages because droughts lower the water levels that feed its hydroelectric supplier. What is this exposure? Incorrect

A) An indirect sustainability dependency
B) A transition risk from new regulation
C) A direct impact on the company's own emissions
D) A governance risk from board structure

Your answer: —  |  Correct answer: A

Hydropower depends on water availability, which climate change can affect. Other businesses relying on that energy are exposed too, which shows that businesses can have indirect sustainability-related dependencies.

ISA 315

Q19. Items selected for testing at Mymensingh Mills Ltd cannot be found. What should the auditor do? Incorrect

A) Stop the whole audit of the entity
B) Replace them silently with other items
C) Skip them and carry on with the others
D) Count as errors or test otherwise

Your answer: —  |  Correct answer: D

Unlocatable items must be treated as errors unless alternative evidence is obtained.

ISA 530

Q20. Which description fits independence in appearance? Incorrect

A) Avoiding facts that an informed third party would see as compromising integrity
B) A state of mind that allows a conclusion to be expressed free of outside influence
C) A situation where the firm has no financial interest in the client whatsoever
D) A period of rest between two engagements for the same client firm

Your answer: —  |  Correct answer: A

Independence in appearance is the avoidance of facts and circumstances so significant that a reasonable and informed third party would conclude that integrity, objectivity or professional scepticism has been compromised. The state of mind description is independence of mind.

IESBA Code

Q21. Independence of mind means what? Incorrect

A) Working alone on the audit
B) Looking independent to others
C) Freedom from influences
D) Charging a lower audit fee

Your answer: —  |  Correct answer: C

Independence of mind permits an opinion to be expressed without being affected by influences that compromise professional judgement.

IESBA Code 400

Q22. Which document sets out the work for the team in detail at Chattogram Foods Ltd? Incorrect

A) The financial statements
B) The audit plan
C) The tax return
D) The board minutes

Your answer: —  |  Correct answer: B

The audit plan details the nature, timing and extent of procedures.

ISA 300

Q23. Which company is more likely to have an internal audit function? Incorrect

A) A four-person trading firm
B) A large listed group
C) A small family shop
D) A sole trader

Your answer: —  |  Correct answer: B

Internal audit is generally a feature of large companies. Companies that do not apply the Corporate Governance Code are not required to have one and small companies seldom do.

IIA Standards

Q24. What must the rules of an Autonomous Regulatory Body ensure about those eligible for appointment as company auditor under the Companies Act 1994? Incorrect

A) That they are employees of the company which they are appointed to audit
B) That they are members of the board of the company for which they act
C) That they have been appointed by the Registrar of Joint Stock Companies
D) Qualified individuals, or firms controlled by qualified persons

Your answer: —  |  Correct answer: D

ARBs must have rules to ensure that those eligible for appointment are individuals holding an appropriate qualification or firms controlled by qualified persons. ARBs must also monitor their registered auditors regularly. ICAB is an ARB.

Companies Act 1994

Q25. What does a sample representation letter say about access to people? Incorrect

A) Access only through the lawyer
B) Access only to the finance director alone
C) No access to staff
D) Unrestricted access to persons needed

Your answer: —  |  Correct answer: D

Management confirms it has provided unrestricted access to persons within the entity from whom the auditor determined it necessary to obtain audit evidence.

ISA 580

Q26. An audit needs 10 partner hours at CU 12,000, 30 manager hours at CU 6,000 and 110 staff hours at CU 2,500. What is the fee on time? Incorrect

A) CU 575,000
B) CU 495,000, ignoring partner time
C) CU 650,000, adding overheads twice
D) CU 307,500, halving the staff cost

Your answer: —  |  Correct answer: A

The fee on time is 10 x 12,000 + 30 x 6,000 + 110 x 2,500 = 120,000 + 180,000 + 275,000 = CU 575,000. The engagement letter sets out the basis on which fees are computed.

ISA 210

Q27. Audit fee for a client is quoted at less than half of the previous auditor's fee. What concern? Incorrect

A) Lowballing
B) Familiarity
C) Advocacy
D) Competence

Your answer: —  |  Correct answer: A

Very low fees can threaten the firm's ability to perform properly.

IESBA Code 410

Q28. Why are lead schedules cross-referenced to supporting working papers at Narsingdi Spinning Ltd? Incorrect

A) A trail from figures to evidence
B) To reduce the audit fee for the client
C) To avoid reviewing the file in full
D) To hide the source of the evidence

Your answer: —  |  Correct answer: A

Cross-referencing links the summary to the support so a reviewer can trace evidence.

ISA 230

Q29. Why does the title of the report include the word 'Independent'? Incorrect

A) To show that the entity is independent of owners
B) To show that the fee has been fixed in advance
C) To show the auditor is independent
D) To show that the audit is voluntary in nature

Your answer: —  |  Correct answer: C

ISA 700 requires a title that clearly shows the report is that of an independent auditor.

ISA 700

Q30. At the end of the audit, what is the purpose of analytical procedures near the review stage? Incorrect

A) To choose the sample size
B) To replace the substantive tests
C) To set the planning materiality
D) To check the overall picture

Your answer: —  |  Correct answer: D

Analytical procedures near the end help the auditor form an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity.

ISA 520

Q31. External audit work relates to the financial statements. To what does internal audit work relate? Incorrect

A) The dividend policy set by shareholders
B) The share register and its annual updating
C) The personal tax returns of the directors
D) The operations of the organisation

Your answer: —  |  Correct answer: D

An internal auditor's work relates to the operations of the organisation, whereas external audit work relates to the financial statements and the records that underlie them.

IIA Standards

Q32. A firm acts for two clients that compete with each other. Which safeguard would help to keep their information confidential? Incorrect

A) Using the same audit team for both clients to save fees
B) Telling each client the working paper files of the other client
C) Information barriers, such as separate teams and premises
D) Ending the engagement with both clients and then taking on neither

Your answer: —  |  Correct answer: C

Safeguards for a conflict of interest include disclosure and informed consent, confidentiality agreements, and information barriers: no overlap between teams, physical separation, and careful procedures for any information passing a barrier.

IESBA Code

Q33. What distinguishes statistical sampling from non-statistical sampling? Incorrect

A) The use of a computer in the work
B) Random choice and probability maths
C) The use of a larger sample every year
D) The use of lower overall materiality

Your answer: —  |  Correct answer: B

Statistical sampling needs random selection and probability theory to evaluate the results.

ISA 530

Q34. When should the firm reassess whether to continue as auditor of Barisal Cement Ltd? Incorrect

A) Never after the first year of the audit
B) Every year, on re-evaluation
C) Only if the client asks the firm to do so
D) Only when the fee paid by it drops

Your answer: —  |  Correct answer: B

Continuance is reviewed regularly because the client's circumstances and risks can change.

ISA 210

Q35. What should an audit firm of Chattogram & Co do before engaging an outsourced service provider that will handle Chattogram Foods Ltd's data? Incorrect

A) Written confidentiality terms
B) Nothing, since the provider is a professional
C) Share the passwords of the firm with the provider
D) Give open access to all the files of the clients

Your answer: —  |  Correct answer: A

Contracts should bind third parties to confidentiality.

ISQM 1

Q36. What does 'integrity' require of the accountant of Narayanganj Fibre Ltd? Incorrect

A) Being friendly with all the clients of the firm
B) Being honest
C) Being rich enough to avoid any pressure
D) Being fast in the delivery of all the work

Your answer: —  |  Correct answer: B

Integrity means being straightforward and honest and not misleading.

IESBA Code

Q37. Why is the scope of an internal auditor's testing of controls wider than that of the external auditor? Incorrect

A) Because the law requires internal auditors to test every transaction in the company each year
B) Because internal auditors look at all controls of operations, not just financial ones
C) Because internal auditors report to the shareholders on the truth and fairness of the accounts
D) Because external auditors never test any controls in the course of an audit of the statements

Your answer: —  |  Correct answer: B

Internal auditors are focused on all the operations of the company, so they look at all controls, not just those ultimately linked to the financial statements. The scope of their testing is therefore far greater than that of the external auditors.

ISA 610

Q38. Which combination of control activities is most likely to reduce the risk of Bogura Cement Ltd making payments twice for the same liability? Incorrect

A) Stamping 'paid' on invoices that have been paid, and authorisation of payments
B) Tracing transfers to other bank accounts, and checking supplier statements before payment
C) Tracing transfers to other bank accounts, and review of the classification of expenditure
D) Checking supplier statements before payment, and review of the classification of expenditure

Your answer: —  |  Correct answer: A

Stamping or electronically marking an invoice as paid stops it from being presented for payment again, and authorisation of payments allows the authoriser to see whether the liability has already been settled. Checking supplier statements helps but is not foolproof because of timing differences between the statement date and the payments made, tracing transfers is a test performed afterwards, and reviewing the classification of expenditure does not prevent duplicate payments.

ISA 315 (Revised 2019)

Q39. At Bhola Textiles Ltd, audit risk is set at 4%, inherent risk is assessed at 100% and control risk at 50%. What detection risk is acceptable? Incorrect

A) 8%
B) 2%, found by multiplying 4% by the 50% control risk
C) 4%, taken to be equal to the planned audit risk
D) 12.5%, found by dividing the 50% by the 4%

Your answer: —  |  Correct answer: A

DR = AR / (IR x CR) = 4% / (100% x 50%) = 8%.

ISA 200

Q40. The firm of Sylhet & Co receives a gift basket of nominal value from Sylhet Tea Ltd at a festival. What is the outcome? Incorrect

A) Always forbidden under the Code in every case
B) Acceptable if trivial
C) Required by the Code for the sake of courtesy
D) Must be shared with the press for transparency

Your answer: —  |  Correct answer: B

Modest gifts of clearly insignificant value are acceptable.

IESBA Code

Q41. Which of the following would an audit file normally contain about meetings with management? Incorrect

A) Notes of discussions on significant matters
B) Recordings of private talks with directors
C) A transcript of every informal conversation
D) Nothing, as discussions are never recorded

Your answer: —  |  Correct answer: D

An audit file normally contains notes of discussions about significant matters with management and others. These are part of the record of what was considered and concluded.

ISA 230

Q42. While planning the audit of Rupali Jute Mills Ltd, the team notes that gross margin fell from 22% to 15%. The finance director, who is respected and has been reliable in past years, explains orally that raw jute prices rose sharply and could not be passed on to customers. The explanation sounds plausible. Which response reflects professional scepticism? Incorrect

A) Obtain a written representation from the finance director confirming the explanation, which then provides sufficient evidence
B) Corroborate the explanation, for example with supplier price lists, purchase invoices and sales records, before relying on it
C) Treat the explanation as an indication of fraud, extend procedures on all accounts and inform the regulator at once
D) Accept the explanation as it is plausible and fits the commodity market, and document the inquiry on the planning file

Your answer: —  |  Correct answer: B

ISA 200 requires the auditor to plan and perform the audit with professional scepticism, which includes a questioning mind and a critical assessment of audit evidence. Inquiry alone does not give sufficient appropriate evidence, and a plausible explanation from a trusted source must still be corroborated with independent or documentary information. Scepticism does not mean assuming dishonesty, so reporting to a regulator is premature, and a written representation does not replace corroborating evidence.

ISA 200

Q43. The audit firm lends CU 1 million to an officer of its audit client Dhaka Cables Ltd. What independence issue arises? Incorrect

A) Self-interest and pressure
B) None, since the loan is made on normal terms
C) A benefit to independence from the loan terms
D) A reduction in the fee of the firm for the year

Your answer: —  |  Correct answer: A

Loans between a firm and an audit client's officers can impair independence.

IESBA Code

Q44. Management of Satkhira Textiles says it will refinance a loan next year. What does ISA 570 require the auditor to obtain in writing? Incorrect

A) A copy of the loan agreement only
B) The bank's opinion on the audit
C) Plans and their feasibility
D) A promise that profit will rise

Your answer: —  |  Correct answer: C

The going concern standard calls for written representations about management's plans for future action and the feasibility of those plans, which the auditor then tries to corroborate.

ISA 570

Q45. Which feature makes a risk significant? Incorrect

A) It is easy for staff to test
B) It is small in amount each time
C) It arises every month of the year
D) It needs special attention

Your answer: —  |  Correct answer: D

A significant risk is an identified risk that, in the auditor's judgement, requires special audit consideration, for example fraud risks or non-routine complex transactions.

ISA 315

Q46. Alam & Co is invited to replace the current auditor of Shitalakshya Plastics Ltd. It asks the client for permission to contact the existing auditor, but the managing director refuses without giving a reason. What is the most appropriate course of action for Alam & Co? Incorrect

A) Weigh the refusal in deciding whether to accept, since the existing auditor may not disclose anything without the client's permission
B) Ask the client's lawyers to approach the existing auditor, since a request through a third party avoids the need for the consent
C) Contact the existing auditor anyway, since a proposed auditor has an automatic right to information from the outgoing auditor firm
D) Accept the appointment, since the existing auditor must give audit information to a successor on request without client consent or delay

Your answer: —  |  Correct answer: A

The existing auditor is bound by confidentiality and can communicate with the proposed auditor only with the client's permission, so the proposed auditor must ask for that permission. If the client refuses, the proposed auditor should weigh the refusal, and the reasons if given, in deciding whether to accept, because it may indicate disagreements or concerns about integrity. Neither auditor has an overriding right to the information, and routing a request through a third party is simply another way of seeking disclosure without proper authority.

IESBA Code Section 320 and Section 114

Q47. Online orders of Dhaka Gadgets Ltd are accepted before the payment is confirmed. What control should exist? Incorrect

A) Dispatch after payment
B) Dispatch before payment is confirmed
C) Dispatch at any time that is convenient
D) Dispatch on request of the salesperson

Your answer: —  |  Correct answer: A

Releasing goods only after payment prevents non-payment losses.

ISA 315

Q48. An inventory test working paper does not say how the sample was chosen or how large it was. What is missing? Incorrect

A) The client's year end date again
B) The preparer's name and date only
C) Sample selection and size
D) The auditor's fee for the work done

Your answer: —  |  Correct answer: C

Working papers should show how any sample was selected and the sample size determined, so a reviewer can understand the work done.

ISA 230

Q49. Ms Nila has led the audit of a family-owned bakery for 11 years in a row. It is not a public interest entity. What must the firm do? Incorrect

A) Consider whether independence is impaired
B) Resign from the bakery audit at once
C) Take no action since it is not a PIE
D) Ask for a new engagement letter every year

Your answer: —  |  Correct answer: A

After ten continuous years as engagement partner on a non-public interest client, careful consideration is needed on whether a reasonable and informed third party would see independence as impaired.

ICAB Code of Ethics

Q50. Danielle circularises receivables of Donothing plc and receives disagreements: (i) a payment sent two days before the year end and received after it; (ii) a credit note issued a month before the year end; (iii) a payment posted to the wrong customer account. Which two are NOT misstatements for projecting to the whole population? Incorrect

A) (ii) and (iii)
B) (i) and (iii)
C) (i) and (ii)
D) (i), (ii) and (iii)

Your answer: —  |  Correct answer: B

A payment in transit at the year end is only a timing difference, and a misposting between customer accounts does not affect the overall balance on the ledger, so neither is a misstatement for the purposes of drawing a conclusion on the population. A credit note issued a month before the year end which the customer has not seen suggests that credit notes may not have been processed to the ledger, an error that could also affect other balances.

ISA 530