AC102 Assurance, Governance & Ethics Multiple Choice Test 19 March 2013 Response Sheet Place a circle around

d one answer for each question Student number (please print clearly)__________________________
Question Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A A A A A A A A A A A A A A A A A A A A A A A A A B B B B B B B B B B B B B B B B B B B B B B B B B C C C C C C C C C C C C C C C C C C C C C C C C C D D D D D D D D D D D D D D D D D D D D D D D D D

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AC102 Assurance, Governance & Ethics Preparation and instructions for MCQ Test

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The MCQ Test is on Tuesday 19 March 2013 in HBS G11 at 9am. You have one hour to complete the test (if you have additional time you will start at the same time as other students but will continue after the hour has elapsed). The test accounts for 20% of the total marks for this module. If you do not attempt the test you will be awarded a score of zero. If there are extenuating circumstances an extenuating circumstances form must be completed and submitted to the Senior Tutor for your degree programme.

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You will be asked to register for the test when you enter the room so please have your student ID ready. The test is closed book so you must not bring your study manual or any additional loose notes into the room. You may use a calculator during the test. Mobile phones and other electronic devices with a calculator function are not acceptable. You will not be permitted to enter or leave the room after the test has started so please be prepared and allow plenty of time to arrive and get settled. All bags, coats and mobile communication devices must be left at the front of the room during the test. For the avoidance of doubt, mobile phones must be switched completely off, not left on silent / vibrate. You must be silent from the moment you are seated for the test until after you have left the room at the end. This is particularly important as students who have additional time will continue the test after you finish. Do not begin the test until instructed to do so by the invigilator. Detach the response sheet provided when instructed to do so by the invigilator and write your student number clearly on the front in the space provided. Please write your name on the back of the response sheet. For each of the 25 questions on the paper, there are four choices (marked A, B, C, and D). You must choose only one answer by circling the corresponding letter on the response sheet. If you change your mind about which response you wish to choose, you must make it clear which is your final choice. If more than one response is circled and it is not clear which is your final choice, your answer will be recorded as incorrect, regardless of whether one of your choices was right.

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Do not submit the question paper or any workings. As you will be able to access the answers and feedback on Blackboard immediately after the test you may wish to record your answers on the question paper as well as on the response sheet.

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No marks are deducted for incorrect answers. You must stop and put down your pen immediately at the end of the test when the invigilator instructs you to do so. Your response sheet will be collected by the invigilator at the end of the test.

FAILURE TO COMPLY WITH THE ABOVE INSTRUCTIONS COULD RESULT IN YOU FORFEITING THE TEST AND RECEIVING A SCORE OF ZERO

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1. Which one of the following statements best describes the statutory audit? A B C D It leads to a certification of the correctness of the financial statements It is an independent examination of the financial statements It is an opinion on the financial statements and internal controls of a company It may be carried out by both internal and external auditors

2. Which one of the following would NOT suggest an assurance client would be high risk? A B C D Strong internal controls Likely lack of finance Poor forecast performance Many unusual transactions

3. A company may seek to improve corporate governance by ensuring that: A B C D At least half the board is made up of executive directors Shareholders are consulted on important matters An executive director sits on every committee All directors are consulted in a fair and transparent way before decisions are made about their pay and benefits

4.

Which one of the following is MOST likely to give rise to a suspicion of money laundering in relation to a client? A B C D The Financial Director is new It is not clear who the key shareholders are The Chief Executive Officer is particularly helpful and polite to the auditors The business operates throughout the European Union

5. Which one of the following is NOT a reason why the auditor should understand the entity and its environment, in accordance with ISA 315? A B C D To identify and assess the risks of material misstatements To be in a position to design and perform audit procedures To be better able to assess the risks of fraud To encourage a good working relationship with key management

6.

Which one of the following does NOT present a risk at the sales order stage? A Orders cannot be fulfilled

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B C D

Prices authorised are not on the official price list Goods despatched are not of the quality and quantity ordered The customer is not in a position to pay

7. As part of his analytical procedures on the financial statements of Biscuit Ltd, the auditor noted that the gross profit margin had decreased from 43% last year to 39% this year. The accountant of Biscuit Ltd explains that this is due to a combination of the following factors: (i) The price of cocoa, one of the companys principal raw materials, has increased during the year. (ii) During the year the company has introduced a buy three get one free promotion to customers. Which, if either, of the above factors is / are plausible to explain the fall in gross profit margin? A B C D Both (i) and (ii) are plausible Neither (i) or (ii) are plausible (i) is plausible and (ii) is not plausible (ii) is plausible and (i) is not plausible

8. On recording goods inwards on goods received notes, copies of the signed goods received notes should then be sent to which department? A B C D Human resources Sales IT Accounts

9. To what does sufficiency of audit evidence relate? A B C D The quality of audit evidence The reliability of audit evidence The quantity of audit evidence The relevance of audit evidence

10. Which one of the following is an audit assertion that applies to transactions (i.e. to the income statement)? A B
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Existence Valuation

C D

Completeness Rights and obligations

11. For each of the following statements concerning the use of test data, state whether the statement is true or false: (i) Test data involves the use of the assurance providers own software (ii) Test data tests the operation of the clients system and ascertains whether controls are in operation A B C D Both (i) and (ii) are true Both (i) and (ii) are false (i) is true and (ii) is false (ii) is true and (i) is false

12. With regards to the following control procedures, select whether they are PRIMARILY preventative or detective controls: (i) Bank reconciliations are prepared on a monthly basis. (ii) Capital expenditure purchase orders must be signed by the Head of Procurement prior to processing. A B C D Both (i) and (ii) are preventative Both (i) and (ii) are detective (i) is preventative and (ii) is detective (ii) is preventative and (i) is detective

13. At Flower Ltd despatch notes signed by the customer are agreed to the authorised sales order. This is an example of which type of control activity? A B C D Authorisation Performance review Information processing Physical control

14. The scope and objectives of the internal audit function vary widely and depend on the size and structure of the entity and the requirements of its management. Which one of the following activities could NOT be performed by internal audit if the internal audit function is to operate effectively? A B
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Evaluating corporate objectives Performing operational audits

C D

Designing new controls in response to an identified business risk Investigating suspected fraud

15. Which one of the following documents would be found on the current audit file, as opposed to the permanent audit file? A B C D Accounts checklist Company memorandum and articles of association Details of the client companys history Copies of lease documents and title deeds

16. In which one of the following circumstances might it be permissible to use the negative method of receivables confirmation? A B C D The assessed risk of material misstatement is high A small number of large balances is involved A substantial number of errors is not expected Historically customers have not responded to positive confirmation requests

17. An auditor is about to trace a sample of signed goods received notes to invoices and supplier accounts. This procedure is designed to test which one of the following audit assertions? A B C D Completeness Existence Valuation Rights and obligations

18. Which one of the following is NOT a feature of the UK Corporate Governance Code? A B C D Non-executive directors should be fully briefed before board meetings Key institutional shareholders should be invited to board meetings The chairman should provide leadership to the board Non-executive directors should constructively challenge the executive directors

19. Which one of the following is the BEST reason for an auditor to attend a client companys annual inventory count? A B C D Attendance is required by law It gives important audit evidence about the value of inventory in the financial statements Inventory is not material and has been assessed as being very low risk It enables the auditor to observe a key control in operation and collect audit evidence for subsequent evaluation and testing

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20. Which one of the following is NOT likely to be a role of the audit committee? A B C D To review the working papers of the external audit firm To monitor the independence of the external auditor To monitor the effectiveness of the companys internal audit function To make recommendations to the board in relation to the external auditor

21. Which one of the following is NOT a feature of UK corporate governance? A B C D A unitary board is required by statute All companies should comply with the UK Corporate Governance Code The Stewardship Code should be followed by institutional investors The UK approach to corporate governance is shareholder led

22. Which one of the following is NOT an underlying principle of all good governance? A B C D Accountability Transparency Honesty (probity) Disclosure

23. Geeforce plc is a large company based in the north of England. It is MOST likely to adopt a formal corporate and social responsibility policy because such a policy: A B C D Demonstrates good business ethics Is required under the Human Rights Act Is required to comply with the UK Corporate Governance Code Contributes to the truth and fairness of the financial statements

24. Which one of the following does NOT represent a self-interest threat to an assurance firm providing audit services to a client? A B C D Loaning money to the client The assurance firm being the statutory auditor of the client company for the last 15 year The Senior Manager on the audit team holding shares in the client company Lowballing to retain the statutory audit engagement

25. When should the written representation letter be signed? A

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Before the audit work commences

B C D

After testing of controls is complete but before substantive testing begins Just prior to the signing of the audit report At the client companys annual general meeting

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