Auditing MCQs : This section focuses on the "Auditing". These Multiple Choice Questions (MCQs) should be practiced to improve the Auditing skills required for various interviews (campus interview, walk-in interview, company interview), placement, entrance exam and other competitive examinations.
Question 1
Who is responsible for the appointment of statutory auditor of a limited company?
A. Directors of the company
B. Members of the company
C. The Central Government
D. All of the above
Question 2
____________ means “proving the truth or confirmation”
A. Vouching
B. Verification
C. Inspection
D. Auditing
Question 3
Instruction of audit issued by controller and auditor general of India ________.
A. Statutory audit
B. Final Audit.
C. Management audit
D. Government audit
Question 4
Special audit is necessary for _________.
A. inefficient concern
B. processing concern
C. trading concern
D. manufacturing concern
Question 5
__________ is a systematic examination of the books and records or a business.
A. Auditing
B. Vouching
C. Verification
D. Checking
Question 6
________________ Asset, which is not subject to physical verification
A. stock
B. cash
C. furniture
D. debtors
Question 7
________________ document is not relevant for vouching cash purchases
A. purchase order
B. goods inward register
C. purchase invoice
D. attendance record of cashier
Question 8
________________ incorporates both Accounting and Administrative Controls.
A. internal control
B. internal check
C. statutory audit
D. internal audit
Question 9
________________ is not an error of Commission
A. mathematical error
B. compensating error
C. posting error
D. none of the above
Question 10
________________ should be checked by the Auditor in verification of Machinery
A. all the above
B. charge/line
C. the possession
D. ownership
Question 11
‘Auditor is not a valuer’, was stated in
A. Kingston Cotton Mills case
B. London Oil Storage Co. Case
C. London and General Bank case
D. None of the above
Question 12
‘Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an exampleof _
A. Error of principle
B. Error of commission
C. Error of omission
D. Error of duplication
Question 13
_____.the audit risks___ the materiality and ______the audit effort
A. Lower, Higher, Lower
B. Lower, Lower, Higher
C. Higher, Lower, Lower
D. Lower, Higher, Higher
Question 14
____________________ Starts where _________________ Ends
A. Accounting, auditing
B. Auditing, accounting
C. Vouching, auditing
D. Accounting,vouching
Question 15
A company has bought patents. Which of the following methods is most suitable forproviding depreciation on them?
A. SLM
B. WDV
C. Sum of year digits
D. Any of the above
Question 16
A departure from recognized accounting principle is disclosed in a note to thefinancial statementsThe auditor should
A. Issue a standard unqualified audit report
B. Issue a qualified report
C. Issue an unqualified report with ‘emphasis of matter’ paragraph
D. Disclaim opinion
Question 17
A flow chart, made by the auditor, of an entity’s internal control system is a graphic representation that depicts the auditor’s.
A. Understanding of the system
B. Understanding of fraud risk factors
C. Documentation of assessment of control risk
D. Both (a) and (c)
Question 18
A number of checks and controls exercised in a business to ensure its efficient workingare known as ________.
A. Internal Check
B. Internal Control
C. Internal Audit
D. Interim Check
Question 19
A sale of Rs. 25,000 to A was entered as a sale to B. This is an example of _
A. Error of omission
B. Error of commission
C. Compensating error
D. Error of principle
Question 20
A sale of Rs. 50000 to Mr. A was entered as a sale to Mr. B. This is an example of what?
A. Error of omission
B. Error of commission
C. Compensating error
D. Error of principle
Question 21
A statutory auditor has a right of access at all times to
A. Books and accounts of a company
B. Books, accounts and documents of the company
C. Books, accounts and vouchers of the company
D. Notices and documents of the company
Question 22
A Voucher is a _______.
A. Document is support of an entry made in books of accounts
B. Invoice received from suppliers
C. Receipt issued to a customer for cash
D. Dispatch Receipt
Question 23
An analysis of fixed assets account has revealed possibility of unrecorded sale of plant and machinery. Which of the following audit procedures may be adopted to discover it?
A. Examination of property tax files
B. Inquiry of plant manager
C. Examination of debits to accumulated depreciation
D. All of the above
Question 24
An Audit Programme must be prepared ________________
A. before commencement of an audit
B. after completion of an audit
C. after submission of an audit report
D. during the conduct of an audit
Question 25
An audit which is compulsory by the law is __________.
A. Government Audit
B. Internal Audit
C. Cost Audit
D. Statutory Audit
Question 26
An auditor assesses 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
Question 27
An auditor conducts a surprise check on the pay day (i.e) the day wages andsalaries are paidThe primary purpose of this audit procedure is
A. To ensure that there are no ghost workers
B. To ensure the casual workers employed are authorized by the supervisor
C. To test procedures for distributing pay cheques
D. To obtain understanding of internal control system
Question 28
An auditor is held criminally liable for
A. Loss to his client
B. Neglect of his duty
C. Offence against statutory provisions
D. Frauds
Question 29
An auditor is held liable under C.A Act 1949 for
A. negligence
B. misfeasance
C. Professional misconduct
D. breach of contract.
Question 30
An auditor is like a
A. Blood haunt
B. Watch dog
C. May both according to situation
D. None of these
Question 31
An auditor is verifying valuation of building which has been self constructed bythe client. Which of the following documents is least relevant to the auditor for verification purposes?
A. Bills of contractor
B. Minutes of meeting of board of directors
C. Certificates of engineer and architect
D. Loan agreement
Question 32
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
Question 33
An internal auditor discovered that fictitious purchases have been recorded bythe purchase clerk. This indicates absence of which control?
A. Purchase invoices are independently matched with purchase orders and goods received notes
B. Goods received notes requires the signature of individual who authorized the purchase
C. Routine checks are performed by internal auditor fortnightly.
D. Purchase function and production function are clubbed in one department
Question 34
Analytical Review is ________________
A. an audit technique
B. audit in depth
C. a compliance procedure
D. reporting requirement
Question 35
Analytical procedures are least likely to be use in the audit of –
A. Cash balance
B. Investments
C. Bills receivables
D. Debtors
Question 36
Analytical procedures issued in the planning stage of an audit, generally
A. Helps to determine the nature, timing and extent of other audit procedures
B. Directs attention to potential risk areas
C. Indicates important aspects of business
D. All of the above
Question 37
As per AAS4, if auditor detects an error then –
A. He should inform the management.
B. He should communicate it to the management if it is material
C. The auditor should ensure financial statements are adjusted for detected errors.
D. Both (b) and (c)
Question 38
As per the ‘Statement on Qualification in Auditor’s Report’s issued by theICAI, the auditor, Under section 227(3) has to gave a statement of fact on_
A. Proper books of account
B. Accounting standards
C. Cess payable under section 441A
D. None of the above
Question 39
As per the requirements of section 226(3) and 226(4) a person is disqualified frombeing appointed as a statutory auditor if he holds
A. Equity shares or debentures of the company
B. Equity shares carrying voting of the company
C. Shares carrying voting rights of the company
D. Security carrying voting rights of the company
Question 40
Audit done by the employees of the business undertaking is called _______.
A. Final audit
B. Management Audit
C. Government Audit
D. Internal Audit
Question 41
Audit in depth is synonymous for
A. Complete audit
B. Completed audit
C. Final audit
D. Detailed audit
Question 42
Audit in Depth means ________________
A. none of the above
B. detailed examination of all transactions
C. investigation of all transactions
D. detailed examination of selected transactions
Question 43
Audit of banks is an example of –
A. Statutory audit
B. Balance sheet audit
C. Concurrent audit
D. All of the above
Question 44
Audit plan should be best on knowledge of the ________________
A. client\s reputation
B. client\s family
C. client\s share capital
D. client\s business
Question 45
Audit programme is prepared by
A. The auditor
B. The client
C. The audit assistants
D. The auditor and his audit assistants
Question 46
Audit programme should be ________________
A. flexible
B. rigid
C. oral and flexible
D. oral
Question 47
Auditing is compulsory for
A. Small scale business
B. Partnership firms
C. Joint stock Companies
D. Proprietary Concerns
Question 48
Before the work of audit is commenced, the auditor plans out the whole of audit work iscalled _________
A. Audit Plan
B. Audit Note
C. Audit Programme
D. Audit Control
Question 49
Closing stock with the consignee is to be shown as the Asset of ________________
A. consignee
B. customer
C. all the above
D. consignor
Question 50
Concealment of shortage by delaying the recording of cash receipts is known as
A. Embezzlement
B. Misappropriation
C. Lapping
D. None of these
Question 51
Concurrent audit is a part of
A. Internal check system
B. Continuous audit
C. Internal audit system
D. None
Question 52
Confirmation is ________________
A. a compliance procedure
B. an audit technique
C. a principle of audit
D. none of the above
Question 53
Control risk is assessed at
A. Overall financial statements level
B. Fraud risk factor level
C. Financial statement assertion level
D. Control environment level
Question 54
Debtors are valued at ________________
A. realizable value
B. as per articles of association
C. book value
D. decided by the customer
Question 55
Depreciation does not arise form _______
A. Effluxion of time
B. Use
C. Obsolescence through technology be market changes
D. Remarket expectation
Question 56
Errors and frauds already committed can be discovered under the system of ________.
A. internal audit, internal check, internal control
B. external check
C. statutory audit
D. interim audit
Question 57
Errors of Omission are
A. Technical errors
B. Errors of principle
C. Compensating errors
D. None of the above
Question 58
Floating assets are valued at
A. cost
B. Market price
C. Cost or market price whichever is lower
D. Cost less depreciation
Question 59
For all audits of financial statements made in accordance with AAS14, the use ofanalytical procedures is at the discretion of the auditor in which stage?
A. Substantive testing
B. Planning stage
C. Overall review stage
D. All of the above
Question 60
For the purposes of section 224(IB) the number of partners of a firm which shall betaken into account would be as on the date of _
A. Completion of audit
B. Auditor’s report
C. Acceptance of audit
D. Starting of audit work
Question 61
For vouching of which item, the auditor is most likely to examine cost records?
A. Commission earned
B. Bad debts recorded
C. Credit sales
D. Sale of scrap
Question 62
Goods sold but not recorded in Sales Register is ________________
A. compensating error
B. an error of commission
C. an error of omission
D. none of the above
Question 63
Goods sold on the basis of ‘sales or return ‘ should
A. Be included in the stock
B. Not be included in the stock
C. Not be checked by auditor
D. None of the above
Question 64
If a material financial fraud is detected, Auditor should ________________
A. report it to police
B. report it to the institute of ca of india
C. ignore it
D. report it to the owners or shareholders
Question 65
If any director is disqualified from being appointed under section 274(1) (g), the auditor should mention this fact in his audit report. For this purpose, how does hedetermine their eligibility :
A. He obtains a representation from each director
B. He obtains a management representation
C. He enquiries from Registrar of Companies
D. Any one of the above
Question 66
If the auditor assesses control risk as high___.
A. Document the conclusions
B. Documents the reasons along with conclusions
C. Perform tests of control
D. Perform walk through tests
Question 67
In an audit of financial statements, substantive tests are audit procedures that __
A. May be eliminated for an account balance under certain conditions
B. Are designed to discover significant subsequent events
C. Will increase proportionately when the auditor decreases the assessed level of control risk
D. May be test of transactions, test of balance and analytical procedures
Question 68
In case of sales return, the auditor should examine which documents?
A. Credit notes, advice notes and inward return notes
B. Debit notes, advice notes and inward return notes
C. Purchase invoices, advice notes and inward return notes
D. Credit notes, inspection report and inward return notes
Question 69
In case of unclaimed wages, the auditor should examine whether
A. The amount has been deposited in a separate bank account
B. Deposited with the cashier
C. Held in a safe deposit box
D. All of these
Question 70
In case of vouching, the auditor is least likely to examine authorization byappropriate authority in case of –
A. Bad debts written off
B. Sales return
C. Purchase return
D. Discount allowed to customers as per organizational policy
Question 71
In case the auditor gives a disclaimer of opinion in the audit report which of thefollowing paragraph(s) of a standard unqualified audit report are modified?
A. Scope paragraph
B. Opinion paragraph
C. Scope and opinion paragraphs
D. Introductory, scope and opinion paragraph
Question 72
In case the directions fail to appoint first auditor (s), the shareholders shall appointthem at_____by passing a resolution
A. a general meeting
B. first annual general meeting
C. statutory meeting
D. annual general meeting
Question 73
In comparison to the independent auditor, an internal auditor is more likely tobe concerned with
A. Cost accounting system
B. Internal control system
C. Legal compliance
D. Accounting system
Question 74
In determining the level of materiality for an audit, what should not be considered?
A. Prior year’s errors
B. The auditor’s remuneration
C. Adjusted interim financial statements
D. Prior year’s financial statements
Question 75
In order to vouch bought ledger, the auditor obtain confirmations from creditorsThe principal reason for the auditor to examine suppliers statements at balance sheet date is to obtain evidence that
A. The supplier exist
B. There are no unrecorded liabilities
C. Recorded purchases actually occurred
D. To link creditors with cash book entries
Question 76
In order to vouch, which of the expenses, the auditor will examine Bill ofEntry?
A. Custom
B. Excise duties
C. Sales tax
D. Income tax
Question 77
Inspection report/receiving report supports entries in
A. Sales book and sales return book
B. Purchase book and sales return book
C. Cash book and purchase book
D. Sales book and purchase return book
Question 78
Institute of Chartered Accountants of India was established
A. 1956
B. 1949
C. 1956
D. 1948
Question 79
Internal audit is undertaken
A. By independent auditor
B. Statutorily appointed auditor
C. By a person appointed by the management
D. By a government auditor
Question 80
Internal check is carried on by
A. Staff specially appointed for the purpose
B. Internal auditor
C. Supervisor of the staff
D. Members of the staff
Question 81
Internal check is meant for ___________.
A. Prevention of frauds
B. Detection of frauds
C. Helping audit is depth
D. Detection of errors
Question 82
Goods purchased but not recorded in the purchase register is ________________
A. an error of omission
B. to reduce profits
C. an error of commission
D. affect on agreement of trial balance
Question 83
If a casual vacancy in the office of auditor arises by his resignation it should only befilled by the company in a________
A. Board meeting
B. Extraordinary general meeting
C. General meeting
D. Annual general meeting
Question 84
Knowledge of the entity’s business does not help the auditor to
A. Reduce inherent risk
B. Identify problem areas
C. Evaluate reasonableness of estimates
D. Evaluate appropriates of GAAP.
Question 85
Lapping is also known as:
A. Teeming and lading
B. Embezzlement
C. Looping
D. Hacking
Question 86
Management audit otherwise called as _______.
A. Final audit
B. Efficiency Audit
C. Cost Audit
D. Cash audit
Question 87
Mr. A, a Charted Accountant, has nineteen audits, Out of following audits whichaudits should he accept to ensure he doesn’t violate provisions of section 224(IB) __
A. Audit of a private company
B. Audit of branch of a foreign company
C. Audit of two branches of an Indian company
D. All of them
Question 88
Of the following, which is the least persuasive type of audit evidence?
A. Bank statements obtained from the client
B. Documents obtained by auditor from third parties directly.
C. Carbon copies of sales invoices inspected by the auditor
D. Computations made by the auditor
Question 89
Payment for wage should be vouched with the help of
A. Piece Work Statement.
B. Wage sheets
C. Minutes book
D. Bank pass book.
Question 90
Payment for building purchased should be vouched with the help of
A. Title Deed
B. Correspondence with the brokers
C. Building Account
D. Cash book
Question 91
Process of verifying the documentary evidences of transactions are known as:
A. Auditing
B. Testing
C. Vouching
D. Verification
Question 92
Proper segregation of duties reduces the opportunities in which a person wouldboth
A. Establish controls and executes them
B. Records cash receipts and cash payments
C. Perpetuate errors and frauds and conceals them
D. Record the transaction in journal and ledger
Question 93
Purchase of machinery is a ____________.
A. revenue receipt
B. capital receipt
C. capital expenditure
D. revenue expenditure
Question 94
Purchase returns should be vouched with the help of
A. Bought notes
B. Credit notes
C. Goods inward book
D. Cash book
Question 95
Receipts from sale of investments should be vouched with the help of
A. Brokers bought notes
B. Brokers Sold notes
C. Minutes book
D. Inventory of investment
Question 96
Recording a transaction twice in the books of original entry is an error of __________.
A. principle
B. commission
C. duplication
D. omission
Question 97
Right to visit branches has been given to the auditor under which section?
A. Section 222(3)
B. Section 228(2)
C. Section 228(4)
D. Section 228(3)
Question 98
Sale of land is a __________.
A. revenue receipt
B. capital receipt
C. capital expenditure
D. revenue expenditure
Question 99
Schedule XIV has prescribed rates of depreciation for double shift and triple shiftworking for which one of the following assets?
A. Building
B. Plant and Machinery
C. Furniture and fittings
D. Ships
Question 100
Secret reserves are shown on ________________
A. assets side of balance sheet
B. none of the above
C. liabilities side of balance sheet
D. credit side of trading account
Question 101
Section 227(2) of the Companies Act, requires the auditor to give his report tothe members of the company on certain matters. Which of the following is not included in the above?
A. Accounts examined by him
B. Every balance sheet and profit and loss account laid before a general meeting during his tenure
C. Every document that is a part of or ‘annexed to’ the balance sheet
D. Every document which is attached to the profit and loss account
Question 102
Special audit is conducted at the order of the Central Government. Whichsection gives such powers?
A. Section 233(A)
B. Section 233A
C. Section 242(A)
D. Section 242A
Question 103
Stock of goods on consignment should be valued at ________________
A. none of the above
B. invoice price
C. cost of realizable value whichever is lower
D. cost price
Question 104
Stock should be valued at
A. Cost
B. Market price
C. Cost or Market price whichever is lower.
D. Cost less depreciation.
Question 105
Telephone charges should be examine on the basis of ________________
A. cash memo
B. telephone bill
C. all the above
D. agreement with telephone department
Question 106
Test Checking refers to
A. Testing of accounts and records
B. Checking of selected number of transactions
C. Examination of adjusting and closing entries
D. Checking of all transactions recorded
Question 107
Tests of control are not concerned with_
A. Existence of controls
B. Effectiveness of controls
C. Continuity of controls
D. Designing of controls
Question 108
The “Guidance Note on Revenue” issued by the ICAI does not deal with
A. Sales revenue
B. Revenue rendering service
C. Revenue from sale of fixed assets
D. Income from interest, dividend
Question 109
The Auditor examines Bill of Lading in order to vouch ________________
A. sales within the state
B. all the above
C. sales outside the state
D. sales outside the country
Question 110
The auditor has a right to
A. Obtain information and explanation
B. Obtain information and explanation from the employees and officers
C. Obtain information and explanation necessary for the purpose of audit
D. Both (b) and (c)
Question 111
The auditor has noticed existence of recurring losses sale of fixed assets thisindicates
A. Depreciation charges are insufficient
B. Policy of sale or disposal of fixed assets needs to be reviewed
C. The sale of assets have not been properly authorized
D. Accounting errors
Question 112
The auditor has serious concern about the going concern of the company. It isdependent on company’s obtaining a working capital loan from a bank which has been applied forThen management of the company has made full disclosure of these facts in the notes to the balance sheetThe auditor is satisfied with the level of disclosure. He should issue_
A. Unqualified opinion
B. Unqualified opinion with reference to notes to the accounts
C. Qualified opinion
D. Disclaimer of opinion
Question 113
The auditor has to enquire, under section 227 (IA) into different aspects, related toshares allotted for cash for the purpose of auditor include
A. Shares against whose allotment cash has actually been received
B. Shares allotted for consideration other than cash
C. Shares allotted against a debt payable
D. All of them
Question 114
The balance of cash in often between one to five percent of total assets. Tickthe most appropriate statement with regard to verification of cash in context of this
A. Cash in always material as materiality is qualitative concept
B. No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a relative concept
C. The cash balance need only be audited if the balance is in overdraft
D. Cash is to be verified if control risk is assessed as high
Question 115
The board of directors shall appoint first auditor of a company
A. Within one month of completion of capital subscription state of the company
B. Within one month of the promotion of the company
C. Within one month of the commencement of the business of the company
D. Within one month of incorporation of the company
Question 116
The branch auditor is appointed by –
A. Shareholders in an annual general meeting
B. Shareholders in general meeting
C. Board of directors in board meeting
D. Any of the above
Question 117
The client changed method of depreciation from straight line to written downvalue method. This has been disclosed as a note to the financial statements. It has an immaterial effect on the current financial statements. It is expected, however, that the change will have a significant effect on future periods. Which of the following option should the auditor express?
A. Unqualified opinion
B. Qualified opinion
C. Disclaimer of opinion
D. Adverse opinion
Question 118
The creditor’s accounts, generally, have credit balance. Debit balance may be due to
A. Advance paid against an order
B. Goods returned
C. Wrong debit to supplier account
D. Any of these
Question 119
The current file of the auditor’s working papers, generally, should include
A. A flowchart of the internal controls
B. Organisation charts
C. A copy of financial statements
D. Copies of bond and debentures
Question 120
The date on auditor’s report should not be__
A. The data of AGM
B. Later than the date on which the accounts are approved in board’s meeting
C. Earlier than the date on which the accounts are approved by the management
D. Both (a) and (b)
Question 121
The auditor is most likely to examine related party transactions very carefullywhile vouching
A. Credit sales
B. Sales returns
C. Credit purchases
D. Cash purchases
Question 122
The auditor of a Government company is appointed by the C & AG. His remunerationis fixed by__
A. The C & AG
B. The shareholders
C. The shareholders at an annual general meeting
D. The board of directors
Question 123
The auditor should examine subsequent realization of revenue such asdividends, interest, commission, etc to
A. Identify cases of unrecorded revenue
B. Ensure proper disclosure in the balance sheet
C. Recomputed accrued income on the data of balance sheet
D. Any of these
Question 124
The auditor should state the reasons for his reservations in audit report andshould try to quantify the effect on them. This should be done in case he has expressed _ i) A qualified opinion ii) an unqualified opinion with emphasis of matter paragraph iii) An adverse opinion IV) a disclaimer of opinion
A. i) only
B. i) and (iv) only
C. i), iii) and (iv) only
D. All of the above
Question 125
The auditor while verifying prepaid insurance has concluded that there isinadequate insurance of building, He should__
A. Modify his audit report
B. Insist it should be disclosed in the notes to financial statements
C. Write it in letter of weakness
D. Both (b) and (c)
Question 126
The auditor’s permanent working paper file should not normally, include
A. Extracts from client’s bank statements
B. Past year’s financial statements
C. Attorney’s letters
D. Debt agreements
Question 127
The authority to remove the first auditor before the expiry of term is with_
A. The shareholders in a general meeting
B. The shareholders in the first annual General meeting
C. The board of directors
D. the Central Government
Question 128
The first auditors appointed by head office ____________.
A. for a period of one year
B. for a period of two years
C. for a period of three years
D. till the conclusion of the first annual general meeting
Question 129
The independence of an internal auditor will most likely be assured if he reportsto the
A. President Finance
B. President System
C. Managing Director
D. CEO
Question 130
The inventory consists of about one per cent of all assetsThe client hasimposed restriction on auditor to prohibit observation of stock takeThe auditor cannot apply alternate audit procedures.
A. Unqualified opinion
B. Qualified opinion
C. Disclaimer of opinion
D. Adverse opinion
Question 131
The main object of an audit is ___
A. Expression of expert opinion
B. Detection and Prevention of fraud and error
C. Both (a) and (b)
D. Depends on the type of audit.
Question 132
The main object of an Audit is ________________
A. to ensure that final accounts are prepared
B. expression of an opinion on true and fair view of accounts
C. to ensure the future viability of the enterprise
D. detection and prevention of frauds and errors
Question 133
The main objective of Window Dressing is ________________
A. increase liability
B. to mislead investors
C. to reduce tax liability
D. to understate profits
Question 134
The management of a company, to which AS3 is not applicable, does not includestatement of cash flows in its annual reportThe auditor should express
A. Unqualified opinion
B. Qualified opinion
C. Adverse opinion
D. Any of these depending upon materiality and pervasiveness and adequacy of disclosure
Question 135
The nature, timing and extent of substantive procedures is related to assessed level ofcontrol risk
A. Randomly
B. Disproportionately
C. Directly
D. Inversely
Question 136
The overall attitude and awareness of an entity’s board of directors concerningthe importance of internal control is reflected in
A. Accounting controls
B. Control environment
C. Control procedures
D. Supervision
Question 137
The performance of tests of control is documented in
A. Audit programme
B. Flow charts
C. Working papers
D. Any of the above
Question 138
In India, balance sheet audit is synonymous to
A. Annual audit
B. Continuous audit
C. Detailed audit
D. Statutory audit
Question 139
The primary purpose of performing tests of control is to provide reasonableassurance that_
A. There are no material misstatements due to fraud or error in financial statement
B. Accounting system is well documented
C. Written evidence is there to support transactions
D. if internal control is effective
Question 140
The principal auditor, as per clarification issued by the ICAI, does not have any rightto
A. Inspect working papers of the branch auditor
B. Visit branches
C. Seek information necessary for audit purposes
D. Incorporate the branch audit report in his audit report
Question 141
The quantity of audit working papers complied on engagement would most be affectedby
A. Management’s integrity
B. Auditor’s experience and professional judgment
C. Auditor’s qualification
D. Control risk
Question 142
The retiring auditor does not have a right to___
A. make written representations
B. get his representations circulated.
C. be heard at the meeting
D. speak as a member of the company
Question 143
The scope of internal audit is decided by the :
A. Shareholders
B. Management
C. Government
D. Law
Question 144
The scope of the audit including reference to the pronouncements of the ICAI, which the auditor adheres to, generally is communicated to the client in the ____ i) auditor’s report ii) engagement letter iii) representation letter
A. i) only
B. Both (i) and (ii)
C. Both (i) and (iii)
D. All the above
Question 145
The section which contains provisions regarding remuneration of the auditor is_
A. Section 224(9)
B. Section 224(7)
C. Section 224(8)
D. Section 224(6)
Question 146
The sequence of steps in the auditor’s consideration of internal control is asfollows –
A. Obtain an understanding, design substantive test, perform tests of control, and make a preliminary assessment of control risk
B. Design substantive tests, obtain an understanding, perform tests of control, and 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
Question 147
The term ‘Audit’ is derived from a Latin word “audire” which means;
A. To inspect
B. To examine
C. To hear
D. To investigate
Question 148
The term of the auditor ship of first auditor would be from the date of appointmenttill__
A. the conclusion of statutory meeting
B. the conclusion of first annual general meeting
C. the conclusion of next annual general meeting
D. the date of removal
Question 149
The working papers which auditor prepares for financial statements audit are: _
A. Evidence for audit conclusions
B. Owned by the client
C. Owned by the auditor
D. Retained in auditor’s office until a change in auditors
Question 150
This kind of audit is conducted generally between two annual audit ______.
A. Internal Audit
B. Interim audit
C. Final Audit
D. Continuous Audit
Question 151
To select a sample for Audit, the auditor should consider ________________
A. all the above
B. the size of the sample
C. the volume of transactions
D. adequacy of internal control system
Question 152
To test whether sales have been recorded, the auditor should draw a samplefrom a file of
A. Purchase orders
B. Sales orders
C. Sales invoices
D. Bill of loading
Question 153
Treating revenue expenditure as capital expenditure is a case of _________.
A. fraud
B. misappropriation of cash
C. misappropriation of goods
D. manipulation of accounts
Question 154
Under which of the following section auditor has a duty to enquire into six specifiedmatters and report by exception?
A. Section 227(4A)
B. Section 227 (IA)
C. Section 227 (2)
D. Section 227(3)
Question 155
Verification of the value of assets, liabilities, the balance of reserves, provision and theamount of profit earned or loss suffered a firm is called _________
A. continuous audit
B. balance sheet audit.
C. interim audit
D. partial audit
Question 156
Verification refers to :
A. Examining the physical existence and valuation of assets.
B. Examining the journal and ledger
C. Examination of vouchers related to assets.
D. None of the above.
Question 157
Voucher relates to _________.
A. Cash receipt & payments, credit transactions
B. Cash payment only
C. Credit transactions only
D. Cash receipt only
Question 158
What would most appropriately describe the risk of incorrect rejection in terms ofsubstantive testing?
A. The auditor concludes balance is materially correct when in actual fact it is not
B. The auditor concludes that the balance is materially misstated when in actual fact it not
C. The auditor has rejected an item for sample which was material
D. None of the above
Question 159
What would most effectively describe the risk of incorrect acceptance in terms ofsubstantive audit testing?
A. The auditor has ascertained that the balance is materially correct when in actual fact it is not
B. The auditor concludes the balance is materially misstated when in actual fact is not
C. The auditor has rejected an item from sample which was not supported by documentary evidence
D. He applies random sampling on data which is inaccurate and inconsistent
Question 160
When a transaction has not been recorded in the books of account either wholly orpartially such errors are called as _________.
A. errors of commission
B. errors of omission
C. compensating error
D. error of principle
Question 161
When an independent auditor relies on the work of an internal auditor, he orshe should
A. Examine the scope of internal auditor’s work
B. Examine the system of supervising review and documentation of internal auditor’s work
C. Adequacy of related audit programme
D. all of the above
Question 162
When auditing prepaid insurance, an auditor discovers that the insurancepolicy bond on building is not available for inspection. This may indicate__
A. No insurance has been undertaken for building
B. Lien on building
C. Insurance premium has not been paid
D. Insurance premium paid but not recorded
Question 163
When counting cash on hand the auditor should ___
A. Ensure presence of somebody from management
B. Obtain a receipt from custodian as to its return
C. Ensure postage and revenue stamps are not counted in physical count
D. Temporary advances to employees are counted to calculate balance of cash in hand
Question 164
When is evidential matter, generally, considered sufficient?
A. When it constitutes entire population
B. When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
C. When it is objective and relevant
D. When auditor collects and evaluates it independently
Question 165
When issuing unqualified opinion, the auditor who evaluates the audit findings shouldbe satisfied that the
A. Amount of known misstatement is documented in working papers
B. Estimates of the total likely misstatement is less than materiality level
C. Estimate of the total likely misstatement is more than materially level
D. Estimates of the total likely misstatement cannot be made
Question 166
When restrictions that significantly affect the scope of the audit are imposed bythe client, the auditor generally should issue which of the following opinion?
A. Qualified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Unqualified report with ‘an emphasis of matter’ paragraph;
Question 167
Which audit out of the following would not be regarded as one audit for the purposesof section 224(IB)?
A. Audit of one branch each of two different companies
B. Joint audit
C. Audit head office & branches
D. Audit of one or more branches of a company
Question 168
Which of the following affects audit effectiveness?
A. Risk of over reliance
B. Risk of incorrect rejection
C. Risk of incorrect acceptance
D. Both (a) and (c)
Question 169
Which of the following are included in test of control?
A. Reperformance and observation
B. Inquiry and analytical procedures
C. Comparison and conformation
D. Inspection and verification
Question 170
Which of the following assets is least likely to be subjected to lien?
A. Freehold land
B. Plant and machinery
C. Leasehold property
D. Motor vehicles
Question 171
Which of the following Auditing Assurance Standard deals with Audit Planning?
A. AAS7
B. AAS8
C. AAS9
D. AAS3
Question 172
Which of the following best describes the primary purpose of audit programmepreparation?
A. To detect errors or fraud.
B. To comply with GAAP
C. To gather sufficient appropriate evidence
D. To assess audit risk
Question 173
Which of the following controls would ensure that securities are not lost,stolen or diverted?
A. Establish physical barriers over investment securities
B. Maintain files of authorized signatures
C. Segregate investment approval from accounting and from custody of securities
D. All of the above
Question 174
Which of the following documents is not relevant for vouching cash sales?
A. Daily cash sales summary
B. Salesmen’s summary
C. Monthly statements sent to customers
D. Bank statement
Question 175
Which of the following documents is not relevant for vouching of sales ________________
A. daily cash sales summary
B. credit memos
C. delivery challans
D. sales department attendance record
Question 176
Which of the following expenses should not be treated as capital expenditure?
A. Expenses paid on installation of a plant.
B. Cost of dismantling a building in case a new building is to be constructed on the land
C. Legal expenses incurred to defend a suit related to title of patent. The suit has been lost
D. The fees paid to engineer who constructed the plant.
Question 177
Which of the following factors is most important in determining the appropriations ofaudit evidence?
A. The reliability of audit evidence and its relevance in meeting the audit objective
B. The objectivity and integrity of the auditor
C. The quantity of audit evidence
D. The independence of the source of evidence
Question 178
Which of the following factors would least likely affect the quantity and content of anauditor’s working papers
A. The assessed level of control risk
B. The possibility of peer review
C. The nature of auditor’s report
D. The content of management representation letter
Question 179
Which of the following financial statements assertions are addressed by testingthe cut off for plant asset addition?
A. Existence and ownership
B. Valuation and disclosure
C. Possession and ownership
D. Completeness and valuation
Question 180
Which of the following is a revenue reserve?
A. Capital redemption reserve
B. Security premium account
C. Debenture redemption reserve
D. Capital reserve
Question 181
Which of the following is counted for the purposes of section 224(IB) the number ofpartners of a firm which shall be taken into account would be as on the data of ___
A. Joint audit
B. Audit to non-profit companies
C. Audit of unlimited companies
D. All of the above
Question 182
Which of the following is most crucial to a purchase department?
A. Reducing the cost of acquisition
B. Selecting supplies
C. Authorizing the acquisition of goods
D. Assuring the quality of goods
Question 183
Which of the following is not a limitation of audit as per AAS4?
A. Objectivity of auditor’s judgment
B. Selective testing
C. Persuasiveness of evidence
D. Limitations of internal control system.
Question 184
Which of the following is not a revenue expense?
A. Cost of raising a loan
B. Cost of accessories of motor vehicles spent at the time of purchase
C. Expenses incurred for laying of sewers on land purchased
D. Insurance premium paid at the time of registration of the ship
Question 185
Which of the following is not an advantage of the preparation of working paper?
A. To provide a basis for review of audit work
B. To provide a basis for subsequent audits
C. To ensure audit work is being carried out as per programme
D. To provide a guide for advising another client on similar issues
Question 186
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
Question 187
Which of the following is not corroborative evidence?
A. Minutes of meetings
B. Confirmations from debtors
C. Information gathered by auditor through observation
D. Worksheet supporting consolidated financial statements
Question 188
Which of the following is not true about opinion on financial statements?
A. The auditor should express an opinion on financial statements.
B. His opinion is no guarantee to future viability of business
C. He is responsible for detection and prevention of frauds and errors in financial statements
D. He should examine whether recognised accounting principle have been consistently
Question 189
Which of the following is not true regarding requirements under section 227(3) (f) of the Companies Act, 1956?
A. The auditor has to satisfy himself whether any of the directors of the company, whether public or private, are disqualified from being appointed as directors as per section 274(1) (g).
B. Section 274(1) (g) is applicable to appointment of directors both in public and private companies but reporting is limited to only those directors of a company who are also directors of a public company
C. The auditor requires every director to submit a written representation in respect of each Public company, of which the is a director, as to whether such company has defaulted in terms of provisions of sections 274(1) (g)
D. The disqualification should be considered on the date of audit report.
Question 190
Which of the following is not true with regard to verification of assets?
A. It invoices substantiation of occurrence of transactions
B. Its objective is to establish existence, ownership, possession, valuation and disclosure of assets
C. The auditor has to form an opinion on different aspects
D. All are true
Question 191
Which of the following is true about explanatory notes?
A. These are given by the directors of the company
B. These are given to adhere to requirements of section 211.
C. These are given by auditors of the company in auditor’s report
D. All of the above
Question 192
Which of the following report not result in qualification of the auditor’s opinion due to a scope limitation?
A. Restrictions the client imposed
B. Reliance on the report of other auditor
C. Inability to obtain sufficient appropriate evidential matter
D. Inadequacy of accounting records
Question 193
Which of the following Schedule of the Companies Act, 1956 deals with depreciations?
A. Schedule XIV
B. Schedule V
C. Schedule XIII
D. Schedule X
Question 194
Which of the following sections deal with qualifications of the auditor ?
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
Question 195
Which of the following statement best describes the understanding with respect toownership and custody of working papers prepared by an auditor?
A. The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation
B. The safe custody of working papers is the responsibility of client, if kept at his premises
C. The working papers must be retained by an audit firm for a period of 10 years
D. Successor auditors may have access to working papers of the predecessor auditors. The approval of client is not required.
Question 196
Which of the following statement is not true regard to auditor’s attendance atstock taking?
A. Auditor should attend physical stock taking only if inventory is material
B. Auditor may not attend physical verification of stock by management, if he does not find it appropriate to rely on it
C. If inventory is material, even when the auditor is not placing reliance on the physical verification by the management, he should attend it
D. The primary objective of an auditor’s observation of an entity’s observation of an entity’s stock take is to obtain direct knowledge that the stock and has been property counted
Question 197
Which of the following statement is not true regarding appointment of statutoryauditor by the Central Government?
A. Such powers have been conferred upon it by section 224(3)
B. If a company fails to appoint an auditor at a general meeting
C. If an auditor refuses to accept appointment, the powers of the Central
D. None of the above
Question 198
Which of the following statement is not true?
A. A partnership firm can be appointed as a statutory auditor of limited company
B. Appointment can be made in the name of the firm
C. Majority of the partners should be practicing in India
D. All partners should be chartered accountants
Question 199
Which of the following statement is true regarding an auditor’s working papers?
A. They document the level of independence maintained by the auditor
B. They should be considered as the principle support for the auditor’s report
C. They should not contain details regarding weaknesses in the internal control system
D. They help the auditor to monitor the effectiveness of the audit firm’s quality control
Question 200
Which of the following statements is most closely associated with analytical procedureapplied at substantive stage?
A. It helps to study relationship among balance sheet accounts
B. It helps to discover material misstatements in the financial statements
C. It helps to identify possible oversights
D. It helps to accumulate evidence supporting the validity of a specific account balance
Question 201
Which of the following statements is not correct about materiality?
A. Materiality is a relative concept
B. Materiality judgments involve both quantitative and qualitative judgments
C. Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of an informed decision maker who will rely on the financial statements
D. At the planning state, the auditor considers materiality at the financial statement level only
Question 202
Which of the following statements is not correct regarding removal of first auditorbefore expiry of the term?
A. He is removed at a general meeting
B. The shareholders are authorized to do so
C. The approval of the Central Government is required for such removal
D. The provisions for such removal are contained in section 224(7)
Question 203
Which of the following statements is not true about continuous audit?
A. It is conducted at regular interval
B. It may be carried out on daily basis
C. It is needed when the organization has a good internal control system
D. It is expensive
Question 204
Which of the following statements is not true with regard to teeming andlading ?
A. It results in the deliberate misappropriation of cash receipts
B. It is associated with cash receipts
C. If same individual maintains cash receipts and cash payments teeming and lading is likely to exist
D. To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily agreement so that a bank reconciliation will not detect the irregularity.
Question 205
Which of the following statements is not true with respect to managementrepresentations obtained as per AAS11?
A. Authenticated copy of relevant minutes of meetings may be regarded as management representation
B. It should always be in working
C. It may be dated prior to the report date
D. It should be addressed to the auditor
Question 206
Which of the following statements is not true?
A. Management fraud is more difficult to detect than employee fraud
B. Internal control system reduces the possibility of occurrence of employee fraud and management fraud
C. The auditor’s responsibility for detection and prevention of errors and frauds is similar.
D. All statements are correct.
Question 207
Which of the following statements is not true?
A. Valuation of assets is the responsibility of management
B. The auditor can rely on a certificate issued by an authorized valuationer as to the valuation of assets in the balance sheet
C. The auditor should value the asset as per generally accepted accounting principle
D. Valuation is no part of auditor’s duty
Question 208
Which of the following statements is, generally, correct about the reliability of auditevidence?
A. To be reliable, evidence should conclusive rather than persuasive
B. Effective internal control system provides reliable audit evidence
C. Evidence obtained from outside sources routed through the client
D. All are correct.
Question 209
Which of the following statements with regard to rules regarding exemptionfrom branch audit is not true?
A. A branch office of a company can be granted exemption on the basis of quantum of activity criterion
B. If a satisfactory arrangement of scrutiny check of the books of account of a branch office of a manufacturing company has been made, it can be exempted from branch audit
C. Cost consideration should be considered as an important factor/ground for exemption from branch audit
D. The auditor should state in his audit report that branch office is exempted by virtue of quantum of activity or any other basis
Question 210
Which of the following will not lead to creation of secret reserve?
A. Undervaluation of closing stock
B. Charging capital expenditure to revenue
C. Goods sent on consignment being shown as actual sales
D. Charging higher rates of depreciation on fixed assets than actually required
Question 211
Which of the following would give the assurance that debtors mentioned on thedate of balance sheet actually exist?
A. Sending debtor’s confirmation letters
B. Reviewing subsequent collection
C. Verify debtors against sales document
D. Both (a) and (b)
Question 212
Which of the following would prevent double payment of the same voucher?
A. The person signing the cheque should cancel the supporting documents
B. Cheques should be signed by at best two persons
C. The data of payment of vouchers of similar nature should be the same or close to each other
D. All of the above
Question 213
The title of AAS2 issued by Council of ICAI is ___
A. Objective and Scope of the Financial Statements
B. Objective and Scope of the Audit of Financial Statements
C. Objective and Scope of Business of an Entity
D. Objective and Scope of Financial Statements Audit
Question 214
While observing a client’s annual physical inventory, an auditor conducted testcounts for certain test counts were higher than the recorded quantities in the client’s perpetual records. This situation could be the result of the client’s failure to record –
A. Purchase returns
B. Sales returns
C. Goods with consignor
D. Purchase discounts
Question 215
While verifying intangible assets, an auditor would recomputed amortizationcharges and determines whether amortization period is reasonableThe auditor tries to establish ___.by doing it
A. Valuation
B. Existence
C. Disclosure
D. Possession
Question 216
While vouching wages, auditor should examine whether there is proper segregation of duties. Which of the following activities should not be done by same department?
A. Maintaining personnel records and approving changing in wages rates
B. Proposing pay roll summary and disbursement of wages
C. Making salary statements and filing tax returns
D. Comparing time clock records with time reports prepared by supervisors and preparing list of workers employed along with the units of production for each one of them
Question 217
While vouching, how will the auditor ensure himself that all credit salestransactions have been recorded by the entity?
A. Examining cut-off points
B. Matching entries in the sales book against renumbered sales invoices and goods outward notes
C. Counting the number of invoices and matching the number with entries on sales book
D. Both (a) and (b)
Question 218
Who among the following can be appointed as special auditor by the CentralGovernment?
A. The statutory auditor
B. chartered accountant in practice
C. Any chartered accounted who is not in practice
D. Both (a) and (b)
Question 219
Who out of the following cannot be appointed as a statutory auditor of the company?
A. Erstwhile director
B. Internal auditor
C. Relative of a director
D. Only (b) and (c)
Question 220
Window dressing implies:
A. Curtailment of expenses
B. Checking of Wastages
C. Under valuation of assets
D. Over Valuation of assets
Question 221
Working papers are the property of the ________________
A. client and auditor
B. auditor
C. client
D. equity shareholders
Question 222
Vendors should be approved by Management before purchase departmentexecutes an order. If this is not done, then which of the following situations may arise?
A. Purchases could be made from vendors whose product quality may not be good
B. Purchases may be made from related parties without management’s knowledge
C. Purchases could be made from vendors who may have offered price to manager purchases
D. Any of these
Question 223
Audit of banks is an example of
A. Statutory audit
B. Balance sheet audit
C. Concurrent audit
D. All of the above
Question 224
…...the audit risks… the materiality and ……the audit effort
A. Lower, Higher, Lower
B. Lower, Lower, Higher
C. Higher, Lower, Lower
D. Lower, Higher, Higher
Question 225
In case the directions fail to appoint first auditor (s), the shareholders shall appointthem at…..by passing a resolution
A. a general meeting
B. first annual general meeting
C. statutory meeting
D. annual general meeting
Question 226
If a casual vacancy in the office of auditor arises by his resignation it should only befilled by the company in a……..
A. Board meeting
B. Extraordinary general meeting
C. General meeting
D. Annual general meeting
Question 227
The branch auditor is appointed by
A. Shareholders in an annual general meeting
B. Shareholders in general meeting
C. Board of directors in board meeting
D. Any of the above
Question 228
The inventory consists of about one per cent of all assets. The client hasimposed restriction on auditor to prohibit observation of stock take. The auditor cannot apply alternate audit procedures.
A. Unqualified opinion
B. Qualified opinion
C. Disclaimer of opinion
D. Adverse opinion
Question 229
The auditor has serious concern about the going concern of the company. It isdependent on company’s obtaining a working capital loan from a bank which has been applied for. Then management of the company has made full disclosure of these facts in the notes to the balance sheet. The auditor is satisfied with the level of disclosure. He should issue_
A. Unqualified opinion
B. Unqualified opinion with reference to notes to the accounts
C. Qualified opinion
D. Disclaimer of opinion
Question 230
The management of a company, to which AS3 is not applicable, does not includestatement of cash flows in its annual report. The auditor should express
A. Unqualified opinion
B. Qualified opinion
C. Adverse opinion
D. Any of these depending upon materiality and pervasiveness and adequacy of disclosure
Question 231
A departure from recognized accounting principle is disclosed in a note to thefinancial statements. The auditor should
A. Issue a standard unqualified audit report
B. Issue a qualified report
C. Issue an unqualified report with ‘emphasis of matter’ paragraph
D. Disclaim opinion
Question 232
An auditor conducts a surprise check on the pay day (i.e) the day wages andsalaries are paid. The primary purpose of this audit procedure is
A. To ensure that there are no ghost workers
B. To ensure the casual workers employed are authorized by the supervisor
C. To test procedures for distributing pay cheques
D. To obtain understanding of internal control system
Question 233
In order to vouch bought ledger, the auditor obtain confirmations from creditors. The principal reason for the auditor to examine suppliers statements at balance sheet date is to obtain evidence that
A. The supplier exist
B. There are no unrecorded liabilities
C. Recorded purchases actually occurred
D. To link creditors with cash book entries
Question 234
While verifying intangible assets, an auditor would recomputed amortizationcharges and determines whether amortization period is reasonable. The auditor tries to establish ….by doing it
A. Valuation
B. Existence
C. Disclosure
D. Possession
Question 235
The sequence of steps in the auditor’s consideration of internal control is asfollows
A. Obtain an understanding, design substantive test, perform tests of control, and make a preliminary assessment of control risk
B. Design substantive tests, obtain an understanding, perform tests of control, and 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
Question 236
If the auditor assesses control risk as high….
A. Document the conclusions
B. Documents the reasons along with conclusions
C. Perform tests of control
D. Perform walk through tests
Question 237
Analytical procedures are least likely to be use in the audit of
A. Cash balance
B. Investments
C. Bills receivables
D. Debtors
Question 238
……………….. Starts where …………….. Ends
A. Accounting, auditing
B. Auditing, accounting
C. Vouching, auditing
D. Accounting,vouching
Question 239
........... means “proving the truth or confirmation”
A. Vouching
B. Verification
C. Inspection
D. Auditing
Question 240
Before the work of audit is commenced, the auditor plans out the whole of audit work iscalled _________.
A. Audit Plan
B. Audit Note
C. Audit Programme
D. Audit Control
Question 241
Verification of the value of assets, liabilities, the balance of reserves, provision and theamount of profit earned or loss suffered a firm is called _________.
A. continuous audit
B. balance sheet audit.
C. interim audit
D. partial audit
Question 242
/. Special audit is necessary for _________.
A. inefficient concern
B. processing concern
C. trading concern
D. manufacturing concern