300+ Auditing Solved MCQs

1.

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
Answer» A. an error of omission
2.

Working papers are the property of the ________________

A. client and auditor
B. auditor
C. client
D. equity shareholders
Answer» B. auditor
3.

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
Answer» D. sales department attendance record
4.

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
Answer» B. expression of an opinion on true and fair view of accounts
5.

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
Answer» A. before commencement of an audit
6.

Analytical Review is ________________

A. an audit technique
B. audit in depth
C. a compliance procedure
D. reporting requirement
Answer» A. an audit technique
7.

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
Answer» D. detailed examination of selected transactions
8.

Audit programme should be ________________

A. flexible
B. rigid
C. oral and flexible
D. oral
Answer» A. flexible
9.

________________ incorporates both Accounting and Administrative Controls.

A. internal control
B. internal check
C. statutory audit
D. internal audit
Answer» A. internal control
10.

Debtors are valued at ________________

A. realizable value
B. as per articles of association
C. book value
D. decided by the customer
Answer» C. book value
11.

The main objective of Window Dressing is ________________

A. increase liability
B. to mislead investors
C. to reduce tax liability
D. to understate profits
Answer» B. to mislead investors
12.

________________ document is not relevant for vouching cash purchases

A. purchase order
B. goods inward register
C. purchase invoice
D. attendance record of cashier
Answer» D. attendance record of cashier
13.

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
Answer» A. all the above
14.

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
Answer» B. none of the above
15.

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
Answer» C. cost of realizable value whichever is lower
16.

________________ is not an error of Commission

A. mathematical error
B. compensating error
C. posting error
D. none of the above
Answer» B. compensating error
17.

Telephone charges should be examine on the basis of ________________

A. cash memo
B. telephone bill
C. all the above
D. agreement with telephone department
Answer» B. telephone bill
18.

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
Answer» D. sales outside the country
19.

________________ Asset, which is not subject to physical verification

A. stock
B. cash
C. furniture
D. debtors
Answer» D. debtors
20.

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
Answer» C. an error of omission
21.

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
Answer» D. client\s business
22.

Confirmation is ________________

A. a compliance procedure
B. an audit technique
C. a principle of audit
D. none of the above
Answer» B. an audit technique
23.

________________ should be checked by the Auditor in verification of Machinery

A. all the above
B. charge/line
C. the possession
D. ownership
Answer» A. all the above
24.

Closing stock with the consignee is to be shown as the Asset of ________________

A. consignee
B. customer
C. all the above
D. consignor
Answer» D. consignor
25.

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
Answer» D. report it to the owners or shareholders
26.

An auditor is like a

A. Blood haunt
B. Watch dog
C. May both according to situation
D. None of these
Answer» B. Watch dog
27.

The term ‘Audit’ is derived from a Latin word “audire” which means;

A. To inspect
B. To examine
C. To hear
D. To investigate
Answer» C. To hear
28.

Process of verifying the documentary evidences of transactions are known as:

A. Auditing
B. Testing
C. Vouching
D. Verification
Answer» C. Vouching
29.

Auditing is compulsory for

A. Small scale business
B. Partnership firms
C. Joint stock Companies
D. Proprietary Concerns
Answer» C. Joint stock Companies
30.

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.
Answer» D. Depends on the type of audit.
31.

Concealment of shortage by delaying the recording of cash receipts is known as

A. Embezzlement
B. Misappropriation
C. Lapping
D. None of these
Answer» C. Lapping
32.

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
Answer» B. Objective and Scope of the Audit of Financial Statements
33.

Lapping is also known as:

A. Teeming and lading
B. Embezzlement
C. Looping
D. Hacking
Answer» A. Teeming and lading
34.

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
Answer» C. He is responsible for detection and prevention of frauds and errors in financial statements
35.

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
Answer» B. Error of commission
36.

‘Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example of _

A. Error of principle
B. Error of commission
C. Error of omission
D. Error of duplication
Answer» A. Error of principle
37.

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.
Answer» B. Internal control system reduces the possibility of occurrence of employee fraud and management fraud
38.

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)
Answer» D. Both (b) and (c)
39.

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.
Answer» A. Objectivity of auditor’s judgment
40.

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
Answer» C. By a person appointed by the management
41.

The scope of internal audit is decided by the :

A. Shareholders
B. Management
C. Government
D. Law
Answer» B. Management
42.

Audit of banks is an example of –

A. Statutory audit
B. Balance sheet audit
C. Concurrent audit
D. All of the above
Answer» D. All of the above
43.

Concurrent audit is a part of

A. Internal check system
B. Continuous audit
C. Internal audit system
D. None
Answer» C. Internal audit system
44.

In India, balance sheet audit is synonymous to

A. Annual audit
B. Continuous audit
C. Detailed audit
D. Statutory audit
Answer» A. Annual audit
45.

Audit in depth is synonymous for

A. Complete audit
B. Completed audit
C. Final audit
D. Detailed audit
Answer» D. Detailed audit
46.

Institute of Chartered Accountants of India was established

A. 1956
B. 1949
C. 1956
D. 1948
Answer» B. 1949
47.

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
Answer» C. It is needed when the organization has a good internal control system
48.

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
Answer» D. Members of the staff
49.

Errors of Omission are

A. Technical errors
B. Errors of principle
C. Compensating errors
D. None of the above
Answer» A. Technical errors
50.

Window dressing implies:

A. Curtailment of expenses
B. Checking of Wastages
C. Under valuation of assets
D. Over Valuation of assets
Answer» D. Over Valuation of assets
51.

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
Answer» B. Checking of selected number of transactions
52.

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
Answer» D. At the planning state, the auditor considers materiality at the financial statement level only
53.

…...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
Answer» A. Lower, Higher, Lower
54.

When issuing unqualified opinion, the auditor who evaluates the audit findings should be 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
Answer» C. Estimate of the total likely misstatement is more than materially level
55.

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
Answer» B. The auditor’s remuneration
56.

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
Answer» D. All of the above
57.

Which of the following statements is most closely associated with analytical procedure applied 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
Answer» D. It helps to accumulate evidence supporting the validity of a specific account balance
58.

For all audits of financial statements made in accordance with AAS14, the use of analytical 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
Answer» A. Substantive testing
59.

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.
Answer» A. Examining the physical existence and valuation of assets.
60.

Stock should be valued at

A. Cost
B. Market price
C. Cost or Market price whichever is lower.
D. Cost less depreciation.
Answer» C. Cost or Market price whichever is lower.
61.

‘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
Answer» A. Kingston Cotton Mills case
62.

Floating assets are valued at

A. cost
B. Market price
C. Cost or market price whichever is lower
D. Cost less depreciation
Answer» C. Cost or market price whichever is lower
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
Answer» A. Be included in the stock
64.

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
Answer» C. Carbon copies of sales invoices inspected by the auditor
65.

Which of the following statements is, generally, correct about the reliability of audit evidence?

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.
Answer» B. Effective internal control system provides reliable audit evidence
66.

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
Answer» D. May be test of transactions, test of balance and analytical procedures
67.

The nature, timing and extent of substantive procedures is related to assessed level of control risk

A. Randomly
B. Disproportionately
C. Directly
D. Inversely
Answer» C. Directly
68.

Which of the following factors is most important in determining the appropriations of audit 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
Answer» A. The reliability of audit evidence and its relevance in meeting the audit objective
69.

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
Answer» B. When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
70.

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
Answer» D. Worksheet supporting consolidated financial statements
71.

Which of the following statements is not true with respect to management representations 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
Answer» B. It should always be in working
72.

What would most appropriately describe the risk of incorrect rejection in terms of substantive 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
Answer» B. The auditor concludes that the balance is materially misstated when in actual fact it not
73.

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)
Answer» D. Both (a) and (c)
74.

What would most effectively describe the risk of incorrect acceptance in terms of substantive 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
Answer» A. The auditor has ascertained that the balance is materially correct when in actual fact it is not
75.

Which of the following Auditing Assurance Standard deals with Audit Planning?

A. AAS7
B. AAS8
C. AAS9
D. AAS3
Answer» B. AAS8
76.

Audit programme is prepared by

A. The auditor
B. The client
C. The audit assistants
D. The auditor and his audit assistants
Answer» D. The auditor and his audit assistants
77.

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
Answer» C. Owned by the auditor
78.

The quantity of audit working papers complied on engagement would most be affected by

A. Management’s integrity
B. Auditor’s experience and professional judgment
C. Auditor’s qualification
D. Control risk
Answer» B. Auditor’s experience and professional judgment
79.

Which of the following best describes the primary purpose of audit programme preparation?

A. To detect errors or fraud.
B. To comply with GAAP
C. To gather sufficient appropriate evidence
D. To assess audit risk
Answer» C. To gather sufficient appropriate evidence
80.

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
Answer» D. To provide a guide for advising another client on similar issues
81.

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
Answer» A. Extracts from client’s bank statements
82.

For what minimum period should audit working papers be retained by audit firm?

A. For the time period the entity remains a client of the audit firm.
B. For a period of ten years
C. For a period auditor opines them to be useful in servicing the client
D. For the period the audit firm is in existence.
Answer» C. For a period auditor opines them to be useful in servicing the client
83.

Which of the following factors would least likely affect the quantity and content of an auditor’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
Answer» D. The content of management representation letter
84.

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
Answer» B. They should be considered as the principle support for the auditor’s report
85.

Which of the following statement best describes the understanding with respect to ownership 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.
Answer» A. The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation
86.

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
Answer» C. A copy of financial statements
87.

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.
Answer» A. Reduce inherent risk
88.

Payment for wage should be vouched with the help of

A. Piece Work Statement.
B. Wage sheets
C. Minutes book
D. Bank pass book.
Answer» B. Wage sheets
89.

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
Answer» A. Title Deed
90.

Purchase returns should be vouched with the help of

A. Bought notes
B. Credit notes
C. Goods inward book
D. Cash book
Answer» B. Credit notes
91.

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
Answer» B. Brokers Sold notes
92.

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.
Answer» C. Legal expenses incurred to defend a suit related to title of patent. The suit has been lost
93.

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
Answer» B. Cost of accessories of motor vehicles spent at the time of purchase
94.

Depreciation does not arise form _______

A. Effluxion of time
B. Use
C. Obsolescence through technology be market changes
D. Remarket expectation
Answer» D. Remarket expectation
95.

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
Answer» A. Schedule XIV
96.

Schedule XIV has prescribed rates of depreciation for double shift and triple shift working for which one of the following assets?

A. Building
B. Plant and Machinery
C. Furniture and fittings
D. Ships
Answer» B. Plant and Machinery
97.

A company has bought patents. Which of the following methods is most suitable for providing depreciation on them?

A. SLM
B. WDV
C. Sum of year digits
D. Any of the above
Answer» A. SLM
98.

Which of the following is a revenue reserve?

A. Capital redemption reserve
B. Security premium account
C. Debenture redemption reserve
D. Capital reserve
Answer» C. Debenture redemption reserve
99.

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
Answer» C. Goods sent on consignment being shown as actual sales
100.

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
Answer» B. Members of the company
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