CA Auditing Principles & Procedures 2 — Questions and Answers
Question 1: Which sampling method gives every item in a population an equal chance of being selected?
- Systematic sampling
- Judgmental sampling
- Simple random sampling (Correct answer)
- Stratified sampling
Correct answer: Simple random sampling
Simple random sampling ensures every item has an equal and independent probability of selection, eliminating bias.
Question 2: An auditor discovers that a client's bank reconciliation contains a fictitious deposit recorded two days before year-end that was reversed in January. This is most likely an indicator of:
- Window dressing (Correct answer)
- Teeming and lading
- Lapping
- Kiting
Correct answer: Window dressing
Window dressing involves manipulating financial records near period-end to make the financial position appear better than it is.
Question 3: Under ISA 265, significant deficiencies in internal control must be communicated to:
- Regulatory authorities only
- Management and those charged with governance (Correct answer)
- External users of financial statements
- The audit committee only
Correct answer: Management and those charged with governance
ISA 265 requires significant deficiencies to be communicated in writing to both management and those charged with governance.
Question 4: The auditor's responsibility for detecting material misstatements due to fraud is addressed primarily by:
- ISA 240 (Correct answer)
- ISA 315
- ISA 330
- ISA 500
Correct answer: ISA 240
ISA 240 'The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements' is the primary standard addressing fraud detection.
Question 5: When performing substantive analytical procedures, an auditor should develop an independent expectation that is:
- Based solely on prior year figures
- Derived from the client's own estimates
- Precise enough to detect a material misstatement (Correct answer)
- Confirmed with management before testing
Correct answer: Precise enough to detect a material misstatement
The independent expectation must be sufficiently precise to detect a material misstatement if one exists, making the procedure effective.
Question 6: Which of the following best describes the concept of 'professional skepticism' in auditing?
- Assuming management is dishonest until proven otherwise
- Questioning mindset with critical assessment of evidence (Correct answer)
- Refusing to accept any management representations
- Requiring corroboration for every audit finding
Correct answer: Questioning mindset with critical assessment of evidence
Professional skepticism is a questioning mindset that critically assesses audit evidence without assuming management is either honest or dishonest.
Question 7: An auditor uses negative confirmation requests when:
- The assessed risk of material misstatement is high
- Individual account balances are large
- Recipients are unlikely to give the request adequate consideration
- The audit population consists of a large number of small balances (Correct answer)
Correct answer: The audit population consists of a large number of small balances
Negative confirmations are appropriate when the population consists of many small balances and the risk of material misstatement is low.
CA Auditing Principles & Procedures 2
Which sampling method gives every item in a population an equal chance of being selected?