ABC Ltd. is a newly incorporated medium size company dealing with sale of shoes. The company has huge amount of accounts payable. While examining the accounts payable, the auditor of the company, verified each and every invoices shown under accounts payable and made a decision that the balance shown has no material misstatement. However, test for segregation of duties between person handling payments and person updating the accounts is not possible due to newly incorporated company. Thus the auditor misinterpreted the verification results which enhanced risk instead of reducing the audit risk to an acceptable low level that he would fail to detect a misstatement in the purchasing process which could be material, either individually or when aggregated with other misstatements.

Answer the Questions from 1 to 3 based on the above case study.

1(As an auditor you should always maintain an attitude of professional skepticism throughout the audit. The word professional skepticism implies:

a.

Doubtfulness

b.

Confidence

c.

Trust

d.

Faith

2(Assume that in this entity under audit there is no internal control, the risk of fraud or error for each item of the balance sheet and profit and loss account is known as ________

a.

Inherent Risk

b.

Control Risk

c.

All of the above

d.

Detection Risk

3)In this particular case if the level of audit assurance is 97%, the level of acceptable audit risks will be ___________

a.

7%

b.

5%

c.

3%

d.

10%