Basic_Post Test 2025

Which of the following is most likely a significant risk?

• A. Routine revenue transactions with well-established customers
• B. Management override of controls in journal entries
• C. Bank interest income from fixed-term deposits
• D. Standard payroll expenses

Answer explanation

Management override is presumed to be a fraud risk under ISA 240 and typically considered a significant risk because it can bypass even strong controls

Under ISA 315, the auditor is required to assess risk at which level(s)?

• A. Only at the financial statement level
• B. Only at the assertion level
• C. Both financial statement and assertion levels
• D. Only for significant accounts

Answer explanation

ISA 315 requires risk assessment at both levels — to capture risks that are pervasive (FS level) and those that affect specific assertions for classes of transactions, account balances, and disclosures.

The primary purpose of an audit walkthrough is to:

• A. Test the operating effectiveness of a control
• B. Confirm the financial statement balances are accurate
• C. Understand the process
• D. Test the design and implementation of controls.

When planning the extent of a test of controls, which factor is least relevant?

• A. The importance of the control to preventing material misstatements
• B. The frequency of control performance
• C. The number of walkthroughs performed during the year
• D. The auditor’s planned reliance on the control

Which of the following best describes materiality in an audit context

• The minimum amount of misstatement the auditor will report to management
• The amount that would influence the economic decisions of users based on the financial statements
• The auditor's fee threshold for performing an audit
• The maximum error allowed by tax authorities

Answer explanation

Materiality is defined as the magnitude of an omission or misstatement that could influence the economic decisions of users.

If the auditor becomes aware of a misstatement that is below the planning materiality, what should they do?

• Ignore since it is below planning materiality
• Evaluate it individually and in aggregate with other misstatements
• Qualify the audit opinion
• Adjust the financial statements without informing management

Answer explanation

Even small misstatements must be considered cumulatively to assess whether they are material in total.

Which of the following statements about audit sampling is TRUE?

• Sampling eliminates audit risk
• Every transaction must be tested in sampling
• Sampling provides sufficient audit evidence if applied properly
• Sampling is never used for controls testing

Answer explanation

Sampling, when properly designed and applied, can provide sufficient appropriate audit evidence.

Which of the following is least likely to affect the auditor's decision on sample size?

• Level of audit risk
• Expected rate of deviation
• Population size (when large)
• Size of the audit team

Answer explanation

Sample size is determined by risk, not by team size or audit staffing.

Which of the following is most likely to be detected through analytical procedures rather than tests of details?

• Misclassification of an expense
• Duplicate invoice
• A misstatement of a specific balance
• An unusual trend in gross margin over time

Answer explanation

Analytical procedures are strong in identifying trends and ratios, like unusual gross margin fluctuations.

When performing analytical procedures, an unexpected fluctuation is noted. What should the auditor do FIRST?

• Report it immediately to management
• Assume it's an error and propose an adjustment
• Investigate further by inquiring or performing tests
• Ignore it if materiality is low

Answer explanation

Unusual fluctuations require further investigation, often beginning with inquiry or substantive procedures.