Students should practice these Risk Assessment and Internal Control – CA Inter Audit MCQ based on the latest syllabus.

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 1.
The risk that a misstatement that could occur in an assertion about a class of transaction, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control is known as:
(a) Inherent Risk
(b) Control Risk
(c) Risk of Material Misstatement
(d) Detection Risk
Answer:
(b) Control Risk

Question 2.
Risk arises to inherent limitations of control is known as:
(a) Inherent Risk
(b) Control Risk
(c) Risk of Material Misstatements
(d) Detection Risk
Answer:
(b) Control Risk

Question 3.
Risks of material misstatement at the overall financial statement level refer to risks of material misstatement
(a) that relate pervasively to the financial statements as a whole and potentially affect many assertions
(b) are assessed in order to determine the NTE of fur-ther audit procedures necessary to obtain sufficient appropriate audit evidence
(c) that material misstatement will not be prevented or detected and corrected on a timely basis by the internal control system
(d) both (a) and (b)
Answer:
(a) that relate pervasively to the financial statements as a whole and potentially affect many assertions

Question 4.
When inherent and control risks are high, acceptable detection risk needs to be
(a) low to reduce audit risk to an acceptably high level
(b) high to reduce audit risk to an acceptably high level
(c) low to reduce audit risk to an acceptably low level
(d) high to reduce audit risk to an acceptably low level
Answer:
(c) low to reduce audit risk to an acceptably low level

Question 5.
Which of the following statement is correct?
(a) SA 315 has a purpose to establish standards to form procedures to be followed to have an understanding of the entity and its environment
(b) Risk of material misstatement may be defined as the risk that the financial statements are materially misstated subsequent to audit.
(c) Internal control can provide absolute assurance
(d) Inherent and Control Risk, and detection risk have same meaning
Answer:
(a) SA 315 has a purpose to establish standards to form procedures to be followed to have an understanding of the entity and its environment

Question 6.
Which of the following is not a component of Risk Assessment Procedures?
(a) Inquiries of management, and of others within the entity
(b) Analytical procedures
(c) Observation and inspection
(d) Reperformance
Answer:
(d) Reperformance

Question 7.
Risk arises on account of judgment on part of auditor, test nature of audit and nature of audit evidences collected:
(a) Inherent Risk
(b) Control Risk
(c) Risk of Material Misstatements
(d) Detection Risk
Answer:
(d) Detection Risk

Question 8.
Procedures performed to obtain an understanding of the entity and its environment, including the entity’s internal control, to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels are known as:
(a) Risk Assessment procedures
(b) Compliance procedures
(c) Substantive procedure
(d) Substantive Analytical procedures
Answer:
(a) Risk Assessment procedures

Question 9.
Components of risk of material misstatement at the assertion level are:
(a) Inherent risk and detection risk
(b) inherent risk and control risk
(c) Control risk and detection risk
(d) Inherent risk, control risk and detection risk
Answer:
(b) inherent risk and control risk

Question 10.
Audit risk is a function of the
(a) Risks of material misstatement and detection risk.
(b) Audit risk and detection risk.
(c) Control risk and detection risk.
(d) Inherent risk and detection risk
Answer:
(a) Risks of material misstatement and detection risk.

Question 11.
Risk of material misstatement may be defined as the risk that the financial statements are materially misstated _________
(a) after audit,
(b) during audit.
(c) prior to audit.
(d) All of the above
Answer:
(c) prior to audit.

Question 12.
The assessment of risks is a matter
(a) capable of precise measurement rather than matter of professional judgment,
(b) of professional judgment, rather than a matter capable of precise measurement.
(c) of professional judgment as well as capable of precise measurement sometimes.
(d) none of the above
Answer:
(b) of professional judgment, rather than a matter capable of precise measurement.

Question 13.
Which of the following is not an assertion about presentation and disclosure?
(a) Occurrence and rights and obligations
(b) Completeness
(c) Classification and understandability
(d) Existence
Answer:
(d) Existence

Question 14.
Which of the following Assertion is not related to assertion about presentation and disclosure:
(a) Occurrence and rights and obligations
(b) Completeness
(c) Classification and understandability
(d) Valuation and allocation
Answer:
(d) Valuation and allocation

Question 15.
Assertions used by the auditor to consider the different types of potential misstatements in relation to transactions occurred during the year include:
(a) Occurrence, completeness, accuracy and cut-off
(b) Existence, completeness, valuation and allocation
(c) Occurrence, completeness, understandability and classification
(d) Valuation, measurement, rights and obligations.
Answer:
(a) Occurrence, completeness, accuracy and cut-off

Question 16.
AH of the following are components of internal control except:
(a) Management Reports
(b) Risk Assessment Process
(c) Monitoring
(d) The Information System
Answer:
(a) Management Reports

Question 17.
Implementation of a control means that the control exists and that:
(a) all necessary personnel are trained to operate the control
(b) the entity is using it
(c) the control was properly designed
(d) the control is documented
Answer:
(b) the entity is using it

Question 18.
Process to assess the effectiveness of internal control performance over time is known as:
(a) Entity risk assessment process
(b) Risk assessment process of statutory auditor
(c) Control activities relevant to audit
(d) Monitoring of controls
Answer:
(d) Monitoring of controls

Question 19.
Policies and procedures that help ensure that management directives are carried out are known as:
(a) Control Environment
(b) Entity risk assessment process
(c) Information System
(d) Control activities relevant to audit
Answer:
(d) Control activities relevant to audit

Question 20.
Which of the following is not a component of internal control system?
(a) Control Environment
(b) Risk assessment process of statutory auditor
(c) Information System
(d) Control activities relevant to audit
Answer:
(b) Risk assessment process of statutory auditor

Question 21.
A graphic presentation of internal controls in the organisation and is normally drawn up to show the controls in each section or sub-section is known as:
(a) Narrative Records
(b) Check List
(c) Internal Control Questionnaire
(d) Flowchart
Answer:
(d) Flowchart

Question 22.
A series of instructions and/or questions which a member of the auditing staff must follow and/or answer, is known as:
(a) Narrative Records
(b) Check List
(c) Internal Control Questionnaire
(d) Flowchart
Answer:
(b) Check List

Question 23.
The auditor’s primary consideration is whether, and how, a specific control prevents, or detects and corrects, material misstatements:
(a) in classes of transactions
(b) in account balances
(c) in disclosures
(d) in classes of transactions, account balances or disclosures
Answer:
(d) in classes of transactions, account balances or disclosures

Question 24.
All of the following are sub-systems (contents) of an entity’s information system except:
(a) Computer systems software
(b) Production system
(c) Personnel information
(d) Customer and vendor records
Answer:
(c) Personnel information

Question 25.
Key components to assess and evaluate the control environment includes:
(a) Enterprise Risk management
(b) SegregationofjobresponsibilitiesandjobRotation in Sensitive Areas
(c) IT Based Controls
(d) All of the above
Answer:
(d) All of the above

Question 26.
Which of the following makes for an effective control environment with regards to commitment to competence?
(a) assure independence from management
(b) increase interaction between senior management and operating management
(c) reduce pressure to meet unrealistic performance targets
(d) its culture is one in which quality and competence are openly valued
Answer:
(d) its culture is one in which quality and competence are openly valued

Question 27.
New life Hospital is a multi-specialty hospital which has been facing a lot of pilferage and troubles regardingtheir inventory maintenance and control.
On investigation into the matter it was found that the person in charge of inventory inflow and outflow from the store house is also responsible for purchases and maintaining inventory records. According to you, which basic system control has been violated
(a) Internal Audit
(b) Internal Check
(c) Monitoring
(d) Risk assessment
Answer:
(b) Internal Check

Question 28.
Because the assessment of the risk of material misstatement takes account of internal control,
(a) The extent of substantive procedures may need to be increased irrespective of the results from tests of controls.
(b) The extent of substantive procedures may need to be increased when the results from tests of controls are satisfactory.
(c) The extent of substantive procedures may need to be decreased when the results from tests of controls are unsatisfactory.
(d) The extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory
Answer:
(d) The extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory

Question 29.
When deviations from controls upon which the auditor intends to rely are detected,
(a) The auditor shall not make any inquiries to understand these matters and their potential consequences
(b) The auditor shall make specific inquiries to understand these matters and their potential consequences
(c) The auditor shall make general inquiries to understand these matters and their potential consequences
(d) The auditor shall make both general as well as specific inquiries to understand these matters and their potential consequences
Answer:
(b) The auditor shall make specific inquiries to understand these matters and their potential consequences

Question 30.
When more persuasive audit evidence is needed regarding the effectiveness of a control,
(a) It may be appropriate to increase the extent of testing of the control and reduce the extent of the degree of reliance on controls
(b) It may be appropriate to decrease the extent of testing of the control as well as the degree of reliance on controls
(c) It may be appropriate to decrease the extent of testing of the control and increase the extent of the degree of reliance on controls
(d) It may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls
Answer:
(d) It may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls

Question 31.
An independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity is known as:
(a) Internal Control
(b) Internal Audit
(c) Internal Check
(d) Risk assessment process
Answer:
(b) Internal Audit

Question 32.
Which of the below mentioned standard prescribes the auditors requirements while using the work of internal auditors:
(a) SA 299
(b) SA 600
(c) SA 610
(d) SA 620
Answer:
(c) SA 610

Question 33.
Internal Auditor shall be
(a) a practicing chartered accountant
(b) a practicing cost accountant.
(c) an employee of the company
(d) either be a chartered accountant (whether in Practice or not) or a cost accountant, or such other professional as may be decided by the Board
Answer:
(d) either be a chartered accountant (whether in Practice or not) or a cost accountant, or such other professional as may be decided by the Board

Question 34.
Which of the following company is required to have internal audit system as per Sec. 138 of Companies Act, 2013:
(a) Unlisted public company having paid up equity share capital of 50 crore rupees or more during the preceding financial year.
(b) Unlisted public company having paid up equity share capital of 50 crore rupees or more during the current financial year.
(c) Unlisted public company having paid up share capital of 50 crore rupees or more during the preceding financial year.
(d) Unlisted public company having paid up share capital of 50 crore rupees or more during the current financial year.
Answer:
(c) Unlisted public company having paid up share capital of 50 crore rupees or more during the preceding financial year.

Question 35.
The objectives and scope of internal audit functions typically include designed to evaluate and improve the effectiveness of the entity’s governance processes, risk management and internal control
(a) assurance activities only
(b) consulting activities only
(c) assurance and consulting activities
(d) risk management activities
Answer:
(c) assurance and consulting activities

Question 36.
Scope of Internal Audit is:
(a) restricted to financial statements
(b) not restricted to financial statements, but also extends to the task review of all operations of the enterprise
(c) not restricted to financial statements, but also ex-tends to take upon the function of the operational manager
(d) not restricted to financial statements, but also ex-tends to statutory reporting under Section 143(3) of Companies Act, 2013
Answer:
(b) not restricted to financial statements, but also extends to the task review of all operations of the enterprise

Question 37.
Which ofthe following public unlisted companies, required to appoint an internal auditor?
(a) Companies having paid up equity capital and re-serves of ₹ 50 cr. or above during the preceding financial year
(b) Companies having turnover of ₹ 200 cr. or more during the current financial year
(c) Companies having outstandingloans or borrowings from banks, financial institutions and directors exceeding ? 100 Cr. or more at any point of time during the preceding financial year
(d) None of the above
Answer:
(d) None of the above

Question 38.
Which of the following private companies, required to appoint an internal auditor?
(a) Companies having paid up capital ₹ 50 cr. or above during the preceding financial year
(b) Companies having turnover of ₹ 200 cr. or more during the preceding financial year
(c) Companies having outstanding loans or borrowings from banks, financial institutions and directors exceeding ₹ 100 Cr. or more at any point of time during the preceding financial year
(d) Both (b) and (c)
Answer:
(b) Companies having turnover of ₹ 200 cr. or more during the preceding financial year

Question 39.
Which ofthe following companies is notrequired to appoint an internal auditor?
(a) Public companies having its securities listed on Main Board of Stock Exchange
(b) Public companies having its securities listed on ITP
(c) Unlisted Public companies having paid up share capital of ₹ 50 crores or above during the preceding financial year
(d) Private companies having paid up share capital of ₹ 50 crores or above during the preceding financial year
Answer:
(d) Private companies having paid up share capital of ₹ 50 crores or above during the preceding financial year

Question 40.
Which of the following companies is required to appoint an internal auditor?
(a) Private companies having paid up share capital of ₹ 40 crores during the preceding financial year
(b) Private companies having turnover of ₹ 120 cr. during the preceding financial year
(c) Private companies having outstanding loans or borrowings from banks or financial institutions was ₹ 105 Cr. attheend of preceding financial year.
(d) None of the above
Answer:
(c) Private companies having outstanding loans or borrowings from banks or financial institutions was ₹ 105 Cr. attheend of preceding financial year.

Question 41.
When more persuasive audit evidence is needed regarding the effectiveness of a control,
(a) it may be appropriate to increase the extent of testing of the control and reduce the extent of the degree of reliance on controls.
(b) it maybe appropriate to decrease the extent of testing of the control as well as the degree of reliance on controls.
(c) it may be appropriate to decrease the extent of testing of the control and increase the extent of the degree of reliance on controls.
(d) it may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls.
Answer:
(d) it may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls.

Question 42.
When deviations from controls upon which the auditor intends to rely are detected,
(a) the auditor shall not make any inquiries to under-stand these matters and their potential consequences
(b) the auditor shall make specific inquiries to under-stand these matters and their potential consequences
(c) the auditor shall make general inquiries to under-stand these matters and their potential consequences
(d) the auditor shall make both general as well as specific inquiries to understand these matters and their potential consequences
Answer:
(b) the auditor shall make specific inquiries to under-stand these matters and their potential consequences

Question 43.
Risk of material misstatement may be defined as the risk
(a) that the financial statements are materially mis-stated after audit.
(b) that the financial statements are materially mis-stated during audit.
(c) that the financial statements are materially mis-stated prior to audit.
(d) All of the above
Answer:
(c) that the financial statements are materially mis-stated prior to audit.

Question 44.
The assessment of the risks of material misstatement may be expressed in
(a) quantitative terms, such as in percentages, or in non-quantitative terms.
(b) quantitative terms, such as in percentages,
(c) non-quantitative terms.
(d) none of the above
Answer:
(a) quantitative terms, such as in percentages, or in non-quantitative terms.

Question 45.
SA 315 establishes requirements and provides guidance on identifying and assessing the risks of material misstatement
(a) at the financial statement levels only.
(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
Answer:
(c) at the financial statement and assertion levels.

Question 46.
SA 315 establishes requirements and provides guidance on identifying and assessing the risks of material misstatement
(a) at the financial statement levels only.
(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
Answer:
(c) at the financial statement and assertion levels.

Question 47.
The risks of material misstatement at the assertion level consist of two components:
(a) Inherent risk and detection risk
(b) Control risk and detection risk
(c) Audit risk and detection risk
(d) Inherent risk and control risk
Answer:
(d) Inherent risk and control risk

Question 48.
The Guidance Note on Audit of Internal Financial Controls over Financial Reporting has been issued by?
(a) ICAI
(b) SEBI
(c) MCA
(d) RBI
Answer:
(a) ICAI

Question 49.
Audit risk is a function of the
(a) risks of material misstatement and detection risk.
(b) audit risk and detection risk.
(c) control risk and detection risk.
(d) inherent risk and detection risk.
Answer:
(a) risks of material misstatement and detection risk.

Question 50.
Risk of material misstatement may be defined as the risk
(a) that the financial statements are materially mis-stated after audit.
(b) that the financial statements are materially mis-stated during audit.
(c) that the financial statements are materially mis-stated prior to audit.
(d) All of the above
Answer:
(c) that the financial statements are materially mis-stated prior to audit.