Chapter: Introduction Principles of Auditing and Audit Process
1.
An independent audit is important to readers of financial statements because it
A.
Provides a measure of management's stewardship function.
B.
Measures and communicates the financial data included in financial statements.
C.
Objectively examines and reports on management's financial statements.
D.
Reports on the accuracy of information in the financial statements.
Answer»
C. Objectively examines and reports on management's financial statements.
2.
The evidence available to auditor is _______ in nature, rather _______ in nature.
A.
pervasive, conclusive
B.
Conclusive, pervasive
C.
limited, unlimited
D.
None of the above
Answer»
A. pervasive, conclusive
3.
Compliance with the Standard of Auditing is the responsibility of
A.
Management
B.
Those charged with governance
C.
Auditor
D.
Audit committee
Answer»
C. Auditor
4.
An auditor is required to determine the ____ of his audit procedures according to the requirements of Standards of Auditing.
A.
Conduct
B.
Nature ,timing and extent
C.
Limitation
D.
Planning
Answer»
B. Nature ,timing and extent
5.
The main object of an audit is
A.
Expression of opinion
B.
Detection and Prevention of fraud and error
C.
Both (1) and (2)
D.
Depends on the type of Business
Answer»
D. Depends on the type of Business
6.
The audit process is
A.
special application of the scientific method of inquiry.
B.
Regulated by the PICPA .c.
C.
The only service a CPA is allowed to perform by law.
D.
Performed only by CPAs
Answer»
A. special application of the scientific method of inquiry.
7.
Appropriateness means _______ of audit evidence.
A.
Quantity.
B.
Quality.
C.
Appropriateness.
D.
Sufficient.
Answer»
B. Quality.
8.
Professional judgment means a judgment taken by the auditor out of his ______
in an audit situation
A.
Past experience.
B.
Relation with the management
C.
Professional experience.
D.
Work experience.
Answer»
C. Professional experience.
9.
A sale of Rs. 50.000 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.
10.
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.
11.
What is the main objectives of Auditing?
A.
To give an opinion as to the truth and fairness of Financial statement.
B.
To finds errors.
C.
To help taxation departments.
D.
To help customers.
Answer»
A. To give an opinion as to the truth and fairness of Financial statement.
12.
Meaning of Interim Audit:
A.
Audit of 12 months
B.
Audit for more than 12 months.
C.
Audit for less than 12 months.
D.
Audit for long period.
Answer»
C. Audit for less than 12 months.
13.
Internal Audit is conducted by :
A.
Employees of an Organization.
B.
Customers
C.
Government
D.
Employees of other Organization.
Answer»
A. Employees of an Organization.
14.
Audit Evidence is obtained by:
A.
Inspection.
B.
Observation.
C.
Inquiry and Confirmation.
D.
All of the above.
Answer»
D. All of the above.
15.
Which Audit is conducted to check the cost records of the company?
A.
Financial Audit.
B.
Operational Audit.
C.
Management Audit.
D.
Cost Audit
Answer»
D. Cost Audit
16.
Which of the following is not a kind of audit?
A.
Statutory and private.
B.
Government and continuous audit.
C.
Interim audit.
D.
None of these
Answer»
D. None of these
17.
This kind of audit is conducted generally between two annual audits.
A.
Internal audit.
B.
Interim audit.
C.
Final audit.
D.
Continuous audit.
Answer»
B. Interim audit.
18.
Voucher relates to ______.
A.
Cash receipt.
B.
Cash payment.
C.
Credit transactions
D.
All of the above.
Answer»
D. All of the above.
19.
Auditing begins where _____ends.
A.
Selling.
B.
Inventory valuation.
C.
Accounting.
D.
Purchases.
Answer»
C. Accounting.
20.
In the case of a company in which not less than _______% of the subscribed share capital is held whether singly or in combination by certain special institutions and bodies, the appointment or re-appointment of auditors shall be made at each annual general meeting by a special resolution.
A.
25%
B.
30%
C.
20%
D.
15%
Answer»
A. 25%
21.
Which of the following persons is qualified to be a company auditor?
A.
An employee of the company
B.
A body corporate
C.
A person who is indebted to the company for an amount exceeding Rs. 1000
D.
A practicing-chartered accountant
Answer»
D. A practicing-chartered accountant
22.
When the auditor is an employee of the organization being audited, the audit is classified as _____
A.
Internal
B.
External
C.
Compliance
D.
Both A&B
Answer»
A. Internal
23.
If there is capital loss, the auditor should
A.
Not allow payment of dividend
B.
Allow payment of dividends
C.
Allow payment of dividends after making such losses good
D.
None of the above
Answer»
B. Allow payment of dividends
24.
Auditor should see that amount received for premium on issue of shares should be
shown in ______
A.
Subscribed capital
B.
Capital Reserve Account
C.
Share Premium account
D.
Paid- up capital account
Answer»
C. Share Premium account
25.
Sec.143 of Companies Act 20913 deals with _____
A.
Powers and rights of an auditor
B.
Removal of an auditor
C.
Appointment of an auditor
D.
Remuneration of an auditor
Answer»
A. Powers and rights of an auditor
26.
Internal auditor is appointed by______
A.
Management
B.
Shareholders
C.
Government
D.
Statutory body
Answer»
A. Management
27.
……………….is the medium through which an auditor expresses his opinion on the
state of affairs of the client’s business.
A.
Audit report
B.
Audit certificate
C.
Audit programme
D.
Audit planning
Answer»
A. Audit report
28.
………………… is the specific guidelines and directions for efficient and effective
completion of the audit work on timely and daily basis, so as to minimise audit risk.
A.
Audit planning
B.
Audit report
C.
Audit programme
D.
Audit certificate
Answer»
A. Audit planning
29.
……………….. is a method of organising the accounting system of a business concern or a factory by which the duties of various clerks are arranged in such a way that the work of one person is automatically checked by another.
A.
Internal control
B.
Internal check
C.
Internal audit
D.
All of the above
Answer»
B. Internal check
30.
Internal check is a part of
A.
Internal audit
B.
Internal accounting
C.
External audit
D.
Internal control
Answer»
D. Internal control
31.
Civil liability of an auditor implies liability for
A.
Misappropriation of cash
B.
Misappropriation of goods
C.
Fraud
D.
Misfeasance
Answer»
D. Misfeasance
32.
If an auditor is not appointed at annual general meeting, he is appointed by the
A.
The Central Government
B.
Board of Directors
C.
Shareholders
D.
Company Law board
Answer»
A. The Central Government
33.
The audit that is made compulsory under statute is called ________
A.
Statutory audit
B.
Partial audit
C.
Complete audit
D.
Continuous audit
Answer»
A. Statutory audit
34.
Audit means _______.
A.
Recording business transactions
B.
Preparing final accounts
C.
Examination of books, accounts or vouchers
D.
Decision making
Answer»
C. Examination of books, accounts or vouchers
35.
When a transaction has not been recorded in the books of account either wholly or
partially such errors are called _______.
A.
Error of commission
B.
Error of omission
C.
Compensating error
D.
None of the above
Answer»
B. Error of omission
36.
The liabilities of an auditor can be ________.
A.
Civil
B.
Criminal
C.
Civil & Criminal
D.
Financial
Answer»
C. Civil & Criminal
37.
Duties of an auditor is _______.
A.
Statutory duties imposed by the Companies Act
B.
Duties imposed by legal or court decisions
C.
Duties arising out of professional etiquette
D.
All of the above
Answer»
D. All of the above
38.
Internal auditor of a company must be _______.
A.
Cost accountant
B.
Chartered accountant
C.
ICWA
D.
Need not possess any professional qualification
Answer»
D. Need not possess any professional qualification
39.
Sec.139 (7) provides that in the case of a Government Company or any other company owned or controlled by the Central Government, or by any State Government, the first auditor shall be appointed by _________
A.
Comptroller and Auditor-General of India
B.
Central Government
C.
State Government
D.
None of the above
Answer»
A. Comptroller and Auditor-General of India
40.
Objectives of internal audit includes _________.
A.
Proper control
B.
Perfect accounting system
C.
Asset protection
D.
All of the above
Answer»
D. All of the above
41.
Internal control includes ________.
A.
Internal audit
B.
Internal check
C.
Both internal audit and internal check
D.
Internal check and external audit
Answer»
C. Both internal audit and internal check
42.
…………. is the examination of all documentary evidence which are available to
support the authenticity of transactions entered in the client’s records.
A.
Accounting
B.
Vouching
C.
Internal check
D.
None of the above
Answer»
B. Vouching
43.
Audit done by the employees of the business undertaking is called ______.
A.
Final audit
B.
Internal audit
C.
Company audit
D.
Statutory audit
Answer»
B. Internal audit
44.
Which of the following is not a kind of audit?
A.
Statutory and private audit
B.
Government and continuous audit
C.
Final, Interim, management audit
D.
None of the above
Answer»
D. None of the above
45.
Effective internal check system reduces
A.
The liability of auditor
B.
Work of auditor
C.
Responsibilities of an auditor
D.
None of the above
Answer»
B. Work of auditor
46.
Misappropriation of goods may be checked by
A.
Proper supervision over stock
B.
Checking of employees
C.
Punishment of employees
D.
None of the above
Answer»
B. Checking of employees
47.
Internal check is suitable for _______.
A.
Larger concerns
B.
Smaller concerns
C.
Petty-shop keepers
D.
None of the above
Answer»
A. Larger concerns
48.
Final audit implies
A.
Finally checking of accounts to reveal frauds
B.
Audit for submitting report immediately at the end of the year
C.
Audit of banking companies
D.
Audit of accounts at the end of the year
Answer»
D. Audit of accounts at the end of the year
49.
Remuneration of an internal auditor is fixed by ______.
A.
Management
B.
Shareholders
C.
Government
D.
Statutory body
Answer»
A. Management
50.
The objective of the audit planning is ________
A.
To give appropriate attention to all important areas of audit
B.
To identify potential problems
C.
To coordinate work with other auditors and experts
D.
All of the above
Answer»
D. All of the above
51.
Audit papers are the property of ______.
A.
Client
B.
Auditor
C.
Both the client and the auditor
D.
The audit committee
Answer»
B. Auditor
52.
Sole proprietary concerns are ______ to get their financial statements audited by
independent financial auditors.
A.
Legally required
B.
Not legally required
C.
Ethically required
D.
Not ethically required
Answer»
B. Not legally required
53.
The performance audit may be initiated by the organisation or by ____.
A.
Government
B.
Employees & Management
C.
Shareholders
D.
External interested parties
Answer»
D. External interested parties
54.
Balance sheet audit is also known as …………
A.
Continues audit
B.
Annual audit
C.
Internal audit
D.
Financial audit
Answer»
D. Financial audit
55.
…. lays out the strategies to be followed to conduct an audit.
A.
An action plan
B.
An audit plan
C.
An audit programme
D.
All of the above
Answer»
A. An action plan
56.
Auditor should determine the ______ and the timing of the audit report
A.
Nature
B.
Actual
C.
Nature & actual
D.
Form
Answer»
D. Form
57.
……………..followed by the enterprise affect the audit plan.
A.
Accounting policies
B.
Audit policies
C.
Accounting and Audit policies
D.
Management policies
Answer»
C. Accounting and Audit policies
58.
While framing an audit plan auditor should ascertain his _____ cast by various
legislations on him.
A.
Limitations
B.
Duties and obligations
C.
Rights and powers
D.
Term of appointment & responsibilities
Answer»
D. Term of appointment & responsibilities
59.
An audit programme is a set of _______ which are to be followed for proper
execution of audit.
A.
Rules
B.
Policies
C.
Instructions
D.
Actions
Answer»
C. Instructions
60.
Audit programme provides instructions to the audit staff and reduces scope for
A.
Understanding
B.
Misunderstanding
C.
Negligence
D.
Liabilities
Answer»
C. Negligence
61.
Audit programme helps in fixing the ______for the work done among the audit staff
as work done may be traced back to the individual staff members.
A.
Remuneration
B.
Liabilities
C.
Negligence
D.
Responsibility
Answer»
D. Responsibility
62.
On completion of an audit _______serves the purpose of audit record which may be
useful for future reference.
A.
Audit programme
B.
Audit working papers
C.
Audit plan
D.
Audit notes
Answer»
A. Audit programme
63.
Audit programme is prepared by _____
A.
The auditor
B.
The client
C.
The audit assistant
D.
The auditor and his audit assistants
Answer»
A. The auditor
64.
The auditor has to obtain _______ to substantiate his opinion on the financial
statements.
A.
Internal evidence
B.
External evidence
C.
Internal and external evidence
D.
Sufficient and appropriate evidence
Answer»
D. Sufficient and appropriate evidence
65.
The quality of information generated by the audited organization is directly related to
the strength of the organization’s ______
A.
Internal check
B.
Internal control
C.
Internal audit
D.
All of the above
Answer»
D. All of the above
66.
_______ are the documents prepared or obtained by the auditors in connection with
the audit.
A.
Audit notes
B.
Audit working papers
C.
Audit report
D.
All of the above
Answer»
D. All of the above
67.
Working papers helps in proper _______ of audit.
A.
Planning
B.
Performance
C.
Planning and performance
D.
Execution
Answer»
C. Planning and performance
68.
The Auditors Working Papers are divided into two parts
A.
Permanent audit file and current audit file
B.
Permanent audit file and temporary audit file
C.
temporary audit file and current audit file
D.
current audit file and transitory audit file
Answer»
A. Permanent audit file and current audit file
69.
A statutory auditor-------- also as internal auditor of the company
A.
Can act
B.
Cannot act
C.
Though can act but ethically should not act
D.
None of the above
Answer»
B. Cannot act
Chapter: Tax Audit
70.
A company auditor can be removed before expiry of his term by
A.
Shareholders
B.
Board of Directors
C.
Central Government
D.
State Government
Answer»
A. Shareholders
71.
A continuous audit is specially needed for
A.
Any trading concern
B.
Smaller concerns
C.
Banking companies
D.
Any manufacturing companies
Answer»
C. Banking companies
72.
Propriety audit refers to
A.
Verification of accounts
B.
Examination accounts of propriety concerns
C.
Enquiry against justification and necessity of expresses
D.
Audit of Govt. companies
Answer»
C. Enquiry against justification and necessity of expresses
73.
Final audit implies
A.
Audit of accounts at the end of the year
B.
Finally checking of accounts to reveal frauds
C.
Audit for submitting report immediately at the end of the year
D.
Audit of banking companies
Answer»
A. Audit of accounts at the end of the year
74.
Management audit means
A.
Audit undertaken on behalf of the management
B.
Evaluating performance of various management processes and functions
C.
Audit undertaken on behalf of Govt. to punish management
D.
Compulsory audit
Answer»
B. Evaluating performance of various management processes and functions
75.
A special auditor is appointed by the
A.
Shareholders
B.
Board of Directors
C.
Central Government
D.
C & A – G
Answer»
C. Central Government
76.
A government Co. auditor may be appointed by the
A.
C & A – G
B.
Shareholders
C.
Central Government
D.
None of the above
Answer»
A. C & A – G
77.
Auditor should be dutiful like a
A.
A watch dog
B.
A blood hound
C.
A detective
D.
An insurer
Answer»
A. A watch dog
78.
--------------- audit is forward looking –
A.
Financial
B.
Cost
C.
Tax
D.
none
Answer»
B. Cost
79.
Audit under any statute in a country is called ------------------
A.
Final audit
B.
Internal audit
C.
Statutory audit
D.
none
Answer»
C. Statutory audit
80.
-------------------- audit is not a statuary requirement
A.
Management
B.
Financial
C.
Tax Audit
D.
none
Answer»
A. Management
81.
---------------- audit is compulsory for joint stock companies
A.
Statutory
B.
Final
C.
Continuous
D.
none
Answer»
A. Statutory
82.
Deduction under section 80-HHE is related to :
A.
Export of computer software, technical services outside India.
B.
Foreign projects.
C.
Business of exports.
D.
Backwards industries
Answer»
A. Export of computer software, technical services outside India.
83.
Form 3-CB is used for :
A.
Truth and fairness of Accounts.
B.
Filled in the case of compulsory Audit.
C.
Filled by Special Business.
D.
Filled by government organizations.
Answer»
A. Truth and fairness of Accounts.
84.
Deduction under section 35-D is related to:
A.
Preliminary Expenses
B.
Foreign projects.
C.
Business of exports.
D.
Backwards industries.
Answer»
A. Preliminary Expenses
Chapter: Checking, Vouching and Audit Report
85.
Audit of a bank is generally conducted through:
A.
Routine checking
B.
Couching
C.
Balance sheet audit
D.
Profit & Loss.
Answer»
C. Balance sheet audit
86.
An auditor is liable for his annual audit of accounts o:
A.
Creditors
B.
Bankers
C.
Owners
D.
Debtors.
Answer»
C. Owners
87.
Which of the following is not true about opinion on financial statements?
A.
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
88.
Auditing standards differ from audit procedures in that procedures relate to
A.
Audit assumptions
B.
acts to be performed
C.
quality criterion
D.
methods of work.
Answer»
B. acts to be performed
89.
Which of the following is the most appropriate potential reaction of the auditor to his assessment that the risk of material misstatement due to fraud is high in relation to existence of inventory?
A.
Visit location on surprise basis to observe test counts
B.
Request inventory count at a date close to year end
C.
Vouch goods sent on approval very carefully
D.
Perform analytical procedures.
Answer»
D. Perform analytical procedures.
90.
An auditor who accepts an audit but does not possess the industry expertise
of the business entity should
A.
engage experts
B.
obtain knowledge of matters that relate to the nature of entity’s business
C.
inform management about it
D.
take help of other auditors.
Answer»
A. engage experts
91.
Audit in depth is synonymous for
A.
Complete audit
B.
Completed audit
C.
Final audit
D.
Detailed audit.
Answer»
B. Completed audit
92.
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 of the Above.
Answer»
C. Evidence obtained from outside sources routed through the client
93.
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
94.
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
Chapter: Company Auditor
95.
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.
96.
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.
Answer»
A. Section 226 (1) and section 226(2).
97.
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.
Answer»
C. Majority of the partners should be practicing in India.
98.
As per the requirements of section 226(3) and 226(4) a person is disqualified
from being 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.
Answer»
D. Security carrying voting rights of the company.
99.
The board of directors shall appoint first auditor of a company.
A.
With in one month of completion of capital subscription state of the company.
B.
With in one month of the promotion of the company.
C.
With in one month of the commencement of the business of the company.
D.
With in one month of incorporation of the company.
Answer»
D. With in one month of incorporation of the company.
100.
The term of the auditor ship of first auditor would be from the date of appointment
till………………………….
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.
Answer»
B. the conclusion of first annual general meeting.
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