Audit Internal Control MCQs

By: Prof. Dr. Fazal Rehman | Last updated: May 21, 2025

1. : The independent auditor should evaluate the objectivity of the internal auditor. The most important factor influencing it would be:
(A) Organizational level to which he reports
(B) Qualification of internal auditor
(C) System of quality control of his work
(D) All of the above

2. : When an independent auditor relies on the work of an internal auditor, he or she should:
(A) Examine the scope of internal auditor’s work
(B) Examine the system of review and documentation of internal auditor’s work
(C) Adequacy of related audit programme
(D) All of the above

3. : Proper management reduces the opportunities in which a person would both:
(A) Establish controls and execute them
(B) Record cash receipts and cash payments
(C) Perpetuate errors and frauds and conceal them
(D) Record the transaction in journal and ledger

4. : An auditor should study and evaluate internal controls to:
(A) Determine whether safeguarded
(B) Suggest improvements in internal control
(C) Plan audit procedures
(D) Express an opinion

5. : XYZ Ltd. conducts a quarterly review of operations. It discovers that another country may affect material to the next quarter. This is an example of:
(A) Risk assessment
(B) Control procedure
(C) Supervision
(D) Control environment

6. : The primary purpose of performing tests of control is to provide reasonable assurance that:
(A) There are no misstatements due to fraud or error in financial statements
(B) Accounting system is well documented
(C) Written evidence is there to support transactions
(D) Internal control is effective

7. : If the auditor assesses control risk as high:
(A) Document the conclusions
(B) Document the reasons along with conclusions
(C) Perform tests of control
(D) Perform walk-through tests

8. : The overall attitude and awareness of directors concerning the importance of internal control is reflected in:
(A) Accounting controls
(B) Control environment
(C) Control procedures
(D) Supervision

9. : Which of the following are included in tests of control?
(A) Re-performance and observation
(B) Inquiry procedures and analytical
(C) Comparison and confirmation
(D) Inspection and verification

10. : Control risk is assessed at:
(A) Overall financial statement level
(B) Fraud risk factor level
(C) Financial statement assertion level
(D) Control environment level

11. : Which of the following is not an example of a circumstance, after obtaining an understanding to plan the audit?
(A) Controls are known to be cost ineffective
(B) Controls are effective but auditor opinions tests of control would not be cost-effective
(C) Controls are effective and evidence already obtained is adequate
(D) Performing extensive substantive testing would not lead to efficiency

12. : An auditor checks control risk because it:
(A) Affects the audit risk
(B) Affects the level of detection risk that auditor may accept
(C) Helps him to fix materiality level for each financial assertion
(D) Is directly related to inherent risk

13. : A flowchart, that depicts the auditor’s:
(A) Understanding of the system
(B) Documentation of assessment of control risk
(C) Both (A) and (B)
Answer: (A) Understanding of the system

14. : The performance of tests of control is documented in:
(A) Audit programme
(B) Flow charts
(C) Working papers
(D) Any of the above

15. : Which of the following statements is not correct?
(A) Inherent risk and control risk cannot be controlled by the management
(B) Detection risk is related directly to the effectiveness of the auditor’s procedures
(C) Detection risk is related inversely to control risk
(D) Inherent risk and control risk are highly interrelated

16. : The independence of an internal auditor will most likely be assured if he reports to the:
(A) President Finance
(B) President System
(C) Managing Director
(D) None of these

17. : In comparison to the independent auditor, an internal auditor is more likely to be involved with:
(A) Cost accounting system
(B) Internal control system
(C) Legal compliance
(D) Accounting system

18. : Tests of control are not concerned with:
(A) Existence of controls
(B) Effectiveness of controls
(C) Continuity of controls
(D) Designing of controls

19. : Consideration of internal control is as follows:
(A) Obtain an understanding, design substantive test, make a preliminary assessment of control risk
(B) Design substantive tests, perform tests of control, make a preliminary assessment of control risk
(C) Obtain an understanding, perform tests of control, design substantive procedures
(D) Perform tests of control, obtain an understanding, make preliminary assessment of control risk, design a substantive procedure

20. : Which of the following is not a limitation of the internal control system?
(A) Management override
(B) Collusion among employees
(C) Inefficiency of internal auditor
(D) Abuse of authority