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Unit 4: Section 226, 314 and Code of Ethics

15. Which of the following sections deal with qualifications of the auditor ? Notes

(a) Section 226 (1) and section 226(2)
(b) Section 224 (1) and section 224 (2)
(c) Section 226 (3) and section 226(4)

(d) Section 224(3) & Sec. 224
16. The sequence of steps in the auditor's consideration of internal control is as follows -
(a) Obtain an understanding, design substantive test, perform tests of control, make a
preliminary assessment of control risk
(b) Design substantive tests, obtain an understanding, perform tests of control, make a
preliminary assessment of control risk

(c) Obtain an understanding, make a preliminary assessment of control risk, perform
tests of control, design substantive procedures.
(d) Perform tests of control, obtain and understanding, make a preliminary assessment
of control risk, design
17. Which of the following is not an inherent limitation of internal control system?
(a) Management override

(b) Collusion among employees
(c) Inefficiency of internal auditor
(d) Abuse of authority
18. An auditor should study and evaluate internal controls to
(a) determine whether assets are safeguarded

(b) suggest improvements in internal control
(c) plan audit procedures
(d) express and opinion

19. XYZ Ltd. conducts quarterly review of operations. It discovers that unrest in a south east
Asian country may affect the supply of raw materials to it the next quarter. This is an
example of :

(a) risk assessment
(b) control procedure
(c) supervision

(d) control environment

Did u know? Some Rules of Ethics for Auditors: The Sarbanes-Oxley Act sets new standards
of independence for auditors.
Public Companies
Such standards created such friction between public companies and their auditors that
decisional gridlock set in. On May 16, 2005, the Public Company Accounting Oversight
Board (established under the Sarbanes-Oxley Act, to oversee the auditors of public

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