Auditing MCQ

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Question Bank of Auditing (MCQ)
Prepared by,
Mr. Sushil B. Bansode
1. The primary objective of financial auditing is ______
a) To detect frauds and errors
b) To check arithmetical accuracy of financial accounts maintained
c) To check and certify that the financial statements show a true and fair view of the financial
statement of affairs
d) None of the above
2. The auditor has to follow _______
a) A professional code b) Instruction of the directors
c) Shareholders d) Management
3. The audit report shall state whether the financial statements are prepared in according with ____
a) Generally accepted accounting principles b) The direction given by the directors
c) The suggestion given by the chief accountant d) The suggestion given by partner
4. Internal auditors are appointed by _____
a) The Shareholders b) The Directors
c) The Government d) The Proprietor
5. Internal audit facilitates____
a) Internal checks b) Internal control
c) Final audit d) All the above
6. An arrangement in which the accounting work of each individual is checked by the other employees
is known as _____
a) Internal check b) Internal audit
c) Internal Control d) External audit
7. The most important objective of internal audit is ____
a) Early detection of errors and frauds b) Facilitate final audit
c) Ensure systematic accounting d) Play supervisory function
8. Tax audit was first introduced in a year _____
a) 1984-85 b) 1985-86
c) 1986-87 d) 1987-88
9. If the assesses fails to give notice of discontinuation of business, payment of penalty Rs._____ per
day till the defaulter continues
a) Rs. 200 b) Rs. 50
c) Rs. 100 d) Rs. 1000
10. The maximum numbers of tax audit that an individual can accept in a financial year is ____
a) 10 b) 20
c) 40 d) 30

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11. The main object of an audit is ___
a) Expression of opinion b) Detection and Prevention of fraud and error
c) Both (a) and (b) d) Depends on the type of audit
12. The title of AAS-2 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
13. 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
14. 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
15. ‘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
16. 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
17. Both auditing and accounting are concerned with financial statements. Which of the following
a) Auditing uses the theory of evidence to verify the financial information made available by
Accountancy
b) Auditing lends credibility dimension and quality dimension to the financial statements prepared
by the accountant.
c) Auditor should have through knowledge of accounting concepts and convention to enable him to
express an opinion on financial statements
d) All of the above
18. 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
19. Which of the following factors likely to be identified as a fraud factor by the auditor?
a) The company is planning a initial public offer of quality shares to raise additional capital for
expansion.
b) Bank reconciliation statement includes deposits-in-transit.
c) Plant and machinery is sold at a loss.
d) The company has made political contributions

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20.The most difficult type of misstatement to detect fraud is based on:
a) Related party purchases b) Related party sales
c) The restatement of sales d) Omission of a sales transaction from being recorded
21. 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
22. The least important element in the evaluation of an audit firm’s system of quality control would
relate to?
a) assignment of audit assistants b) system of determining audit fees
c) consultation with experts d) confidentiality of client’s information
23. An auditor obtains knowledge about a new client’s business and its industry to?
a) Make constructive suggestions concerning improvements to the client’s internal control system. b)
Evaluate the appropriateness of audit evidence obtained
c) Under stand the events and transactions that may have an effect on client’s financial statements.
d) All of the above
24. Which of the following is not a quality control consideration on accepting a new client?
a) Availability of audit assistants with necessary skill and competence.
b) Provision of other services to the client which may impair independence
c) Predecessor auditor’s advice as to whether audit fees were paid promptly
d) Review of audit work done by one partner by the other
25. Audit of banks is an example of _____
a) Statutory audit b) Balance sheet audit
c) Concurrent audit d) All of the above
26. In India, balance sheet audit is synonymous to?
a) Annual audit b) Continuous audit
c) Detailed audit d) Statutory audit
27. Balance sheet audit includes verification of_
a) Assets b) Liabilities
c) Income and expense accounts where appropriate d) All of the above
28. Balance sheet does not include?
a) Verification of assets and liabilities
b) Vouching of income and expense accounts related to assets and liabilities
c) Examination of adjusting and closing entries
d) Routine checks
29. 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

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d) At the planning state, the auditor considers materiality at the financial statement level only
30. ______the audit risk,______ the materiality and____the audit effort
a) Lower, Higher, Lower b) Lower, Lower, Higher
c) Higher, Lower, Lower d) Lower, Higher, Higher
31. 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
32. 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
33. 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
34. 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.
35. 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
36. Audit programme is prepared by?
a) the auditor b) the client
c) the audit assistants d) the auditor and his audit assistants
37. 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.
38. 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
39. 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

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40. 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
41. 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
42. 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
43. In case the directions fail to appoint first auditor, the shareholders shall appoint them at…..by
passing a resolution
a) a general meeting b) first annual general meeting
c) statutory meeting d) annual general meeting
44. Life Insurance Corporation of India holds twenty five percent of subscribed capital of ABC Ltd. The
appointment of statutory auditor in ABC Ltd. Would be by__
a) ordinary resolution b) special resolution
c) (a) or (b) d) none of the above
45. ICICI prudential, a life insurance company, holds thirty-two percent of subscribed share capital of
Aqua Ltd. The statutory auditor of Aqua Ltd. would be appointed by__
a) ordinary resolution b) Special resolution c) either of the above d) none
46. Which of the following statement is not true regarding appointment of statutory auditor 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 Government can be
exercised.
d) None of the above
47. If a casual vacancy in the office of auditor arises by his resignation it should only be filled by the
company in a……..
a) Board meeting b) extraordinary general meeting
c) General meeting d) annual general meeting
48. For the purposes of section 224(IB) the number of partners of a firm which shall be taken 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
49. Which of the following is counted for the purposes of section 224(IB) the number of partners 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) (a) and (b) only

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50. Mr. Narayan, a Charted Accountant, has nineteen audits, Out of following audits which audits
should he accept to ensure he doesn’t violate provisions of section 224(IB) __
a) Audit of Zeba Ltd. a private company
b) Audit of branch of Pointec Ltd. a foreign company
c) Audit of two branches of Virtue Ltd. an Indian company
d) All of them
51.Which audit out of the following would not be regarded as one audit for the purposes of 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
52. The auditor of a Government company is appointed by the C & AG. His remuneration is fixed by__
a) the C & AG b) the shareholders
c) the shareholders at an annual general meeting d) the board of directors
53.The section which contains provisions regarding remuneration of the auditor is_
a) Section 224(9) b) Section224(7) c) Section224(8) d) Section224(6)
54.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
55. Which of the following statements is not correct regarding removal of first auditor before 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)
56.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
57. 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)
58.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

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59. 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)
60. The principal auditor, as per clarification issued by the ICAI, does not have any right to?
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
61. Under which of the following section auditor has a duty to enquire into six specified matters and
report by exception?
a) Section 227(4A) b) Section 227 (IA) c) Section 227 (2) d) Section 227(3)
62. The auditor has to enquire, under section 227 (IA) into different aspects, related to shares 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
63.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)
64. Which of the following statements with regard to rules regarding exemption from 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 form 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
65. 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
66.Auditor of a ……company does not have right to visit foreign branches of the company
a) Unlimited liability b) Manufacturing c) Banking d) Non-profit making
67.Special audit is conducted at the order of the Central Government. Which section gives such
powers?
a) Section 233(A) b) Section 233A c) Section 242(A) d) Section 242A
68.Who among the following can be appointed as special auditor by the Central Government?
a) The statutory auditor b) chartered accountant in practice
c) Any chartered accounted who is not in practice d) Both (a) and (b)

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69. 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 he determine 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
70. When restrictions that significantly affect the scope of the audit are imposed by the 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
71. The inventory consists of about one per cent of all assets. The client has imposed 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
72. If in the above question, the inventory consisted of about ten per cent of total assets, other
conditions remaining same, the auditor should issue __
a) unqualified opinion b) qualified opinion c) disclaimer of opinion d) adverse opinion
73. The auditor has serious concern about the going concern of the company. It is dependent on
company’s obtaining a working capital loan from a bank which has been applied for. The 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
74.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
75. The client changed method of depreciation from straight line to written down value 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
76. The management of a company, to which AS-3. is not applicable, does not include statement 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

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77.In case the auditor gives a disclaimer of opinion in the audit report which of the following
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
78.A departure from recognized accounting principle is disclosed in a note to the financial 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
79.AB & Co, chartered accountant, have been requested by their client XYZ Ltd. not to confirm
accounts receivables because of concerns about creasing conflicts with customers over amounts
owed. The auditors were satisfied concerning receivables after applying alternative audit procedures
AB & Co.’s auditors report likely contained
a) Qualified opinion
b) Disclaimer of opinion
c) Unqualified I opinion with an explanatory paragraph
d) Unqualified opinion
80. Companies exempted from application of CARO, 2003 does not include_
a) a banking company
b) an insurance company
c) a private limited company with paid up capital and reserves not more than fifty five lakh
d) a licensed company
81. Under CARO, 2015, the auditor’s report should include report about maintenance of proper
recording relating to____
a) Fixed assets and cost b) Fixed assets, cost and investments
c) Fixed assets, cost investments and inventories d) Fixed assets, cost and inventory
82. Under CARO, 2015 the auditor is required to report on ____
a) arrears of cumulative preference dividends
b) Preferential allotment of shares to related party
c) disposal of fixed assets and its effect on going concern
d) unsecured loans granted to related party.
83. Who among the following is eligible to be appointed as an audit of Government Company?
a) A chartered accountant in practice b) A chartered accountant whether in practice or not
c) An auditor appointed by the C & AG d) Any of the above
84. 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
85. The auditor should examine subsequent realization of revenue such as dividends, interest,
commission, etc to?
a) identify cases of unrecorded revenue

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b) ensure proper disclosure in the balance sheet
c) recompute accrued income on the data of balance sheet
d) Any of these
86. To test whether sales have been recorded, the auditor should draw a sample from a file of
a) purchase orders b) sales orders
c) sales invoices d) bill of loading
87. 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
88. 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
89. An auditor conducts a surprise check on the pay day (i.e) the day wages and salaries are paid. The
primary purpose of this audit procedures 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
90. 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
91. 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
92. 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
93.In order to vouch, which of the expenses, the auditor will examine Bill of Entry?
a) Custom b) Excise duties c) Sales tax d) Income tax
94. While vouching, how will the auditor ensure himself that all credit sales transactions 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

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c) Counting the number of invoices and matching the number with entries on sales book
d) Both (a) and (b)
95. 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
96. An internal auditor discovered that fictitious purchases have been recorded by the 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
97. 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
98. The auditor is most likely to examine related party transactions very carefully while vouching
a) credit sales b) sales returns c) credit purchases d) cash purchases
99.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 exists b) there are no unrecorded liabilities
c) recorded purchases actually occurred d) to link creditors with cash book entries
100.The creditors 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
101.In case of vouching, the auditor is least likely to examine authorization by appropriate authority
in case of –
a) bad debts written off b) sales return
c) purchase return d) discount allowed to customers as per organizational policy
102. Vendors should be approved by Management before purchase department executes 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 vice-president purchases
d) Any of these
103. 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

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104. 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
105. An auditor is verifying valuation of building which has been self-constructed by the 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
106. 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
107. 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
108. The auditor has noticed existence of recurring losses sale of fixed assets this indicates
a) Depreciation charges are insufficient
b) Policy of sale or disposal of fixed assets needs to be reviewed
c) The sale of assets has not been properly authorized
d) Accounting errors
109. Which of the following financial statements assertions are addressed by testing the cut off for
plant asset addition
a) Existence and ownership b) Valuation and disclosure
c) Possession and ownership d) Completeness and valuation
110. The auditor while verifying prepaid insurance has concluded that there is inadequate 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)
111. While verifying intangible assets, an auditor would recompute amortization charges and
determine whether amortization period is reasonable. The auditor tries to establish ….by doing it
a) valuation b) existence
c) disclosure d) possession
112. When auditing prepaid insurance, an auditor discovers that the insurance policy 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

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113. Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock Holding Corporation of India
Limited. The auditor many verify this investment by –
a) Reviewing last year’s working papers.
b) Obtaining a certificate from a responsible official of the ABC Ltd.
c) Obtaining a certificate from SHCIL
d) Obtaining a certificate from xy ltd.
114. 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 form accounting and from custody of securities
d) All of the above
115.Which of the following is not a proper third party to hold investments on behalf of the client?
a) Regional level custodian b) National level custodian
c) India trills – National level stock broking firm d) AEZ Securities Ltd. a stock broking firm
116. Which of the following would give the assurance that debtors mentioned on the date 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)
117. Analytical procedures are least likely to be use in the audit of –
a) cash balance b) investments c) bills receivables d) debtors
118. Which of the following statements is not true with regard to teeming and lading?
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.
119. The balance of cash in often between one to five percent of total assets. Tick the 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
120. 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
121. Which of the following statement is not true regard to auditor’s attendance at stock 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

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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
122. While observing a client’s annual physical inventory, an auditor conducted test counts 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
123.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
124. Tests of control are not concerned with_
a) Existence of controls b) Effectiveness of controls
c) Continuity of controls d) Designing of controls
125. The sequence of steps in the auditor’s consideration of internal control is as follows –
a) Obtain an understanding, design substantive test, perform tests of control, make a preliminary
assessment of control risk
b) Design substantive tests, obtain an understanding, perform tests of control, make a preliminary
assessment of control risk
c) Obtain an understanding, make a preliminary assessment of control risk, perform tests of control,
design substantive procedures.
d) Perform tests of control, obtain and understanding, make a preliminary assessment of control risk,
design
126. 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
127. 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
128. XYZ Ltd. Conducts quarterly review of operations. It discovers that unrest in a south east Asian
country may affect the supply of raw materials to it the next quarter. This is an example of :
a) risk assessment b) control procedure
c) supervision d) control environment
129. The primary purpose of performing tests of control is to provide reasonable assurance 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
130. 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

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131. The overall attitude and awareness of an entity’s board of directors concerning the importance
of internal control is reflected in?
a) accounting controls b) control environment c) control procedures d) supervision
132. 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
136.Control risk is assessed at?
a) Overall financial statements level b) Fraud risk factor level
c) Financial statement assertion level d) Control environment level
137. Which of the following is not an example of a circumstance, in which additional tests of control
will not be performed after obtaining an understanding to plan the audit?
a) Controls are known to be cost ineffective
b) Controls are effective but auditor opines that performing tests of control and reduced substantive
tests would not be cost effective
c) Controls are effective and evidence already obtained is adequate to support a planned assessed
level of control risk which is less than high
d) Performing extensive substantive testing would not lead to efficiency
138. 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
139. 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)
140.The performance of tests of control is documented in?
a) audit programme b) flow charts c) working papers d) any of the above
141. Which of the following statements is not correct?
a) Intern risk and control risk cannot be controlled by the management i.e are uncontrollable
b) Detection risk is related directly to the effectiveness of the auditor prosecutor
c) Detection risk related inversely to control risk
d) Internet risk and control risk are highly interrelated
142.The independence of an internal auditor will most likely be assured if he reports to the
a) President Finance b) President System c) Managing Director d) CEO
143. In comparison to the independent auditor, an internal auditor is more likely to be concerned
with?
a) cost accounting system b) internal control system
c) legal compliance d) accounting system

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144. When an independent auditor decides that the work performed by internal auditors may have
bearing on the nature, timing and extent of planned audit procedures, the independent auditor should
evaluate objectivity of the internal auditor. The most important factor influencing it would be?
a) organizational level to which he reports
b) system of quality control of his work
c) qualification of internal auditor
d) all of the above
145. When an independent auditor relies on the work of an internal auditor, he or she 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
146.Proper segregation of duties reduces the opportunities in which a person would both?
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.
147. Cost audit is conducted under the direction of ____
a) The central government b) The state government
c) The BOD d) The management
148. Cost auditor submit his report to ____
a) The shareholders b) The board of directors
c) The central government d) The state government
149. Cost auditor is appointed by ____
a) The central government b) The registry of companies
c) The BOD d) The Shareholders
150. Management audit relates to ____
a) Audit of financial accounts b) Managerial performance
c) Managerial Planning d) Audit of manufacturing
151. Management auditor has to submit his report to ____
a) Government b) Shareholders c) Top management d) BOD
152. Management audit covers____
a) One year b) three to five years c) Four months d ) Three months
153. Management audit is an extension of ___
a) Cost audit b) Internal audit c) Special audit d) Financial audit
154. The dividends declare must be paid or dividend warrants must be posted within ____days.
a) 20 days b) 45 days c) 60 days d) 42 days
155. In the case of banking co. before declaration of dividend every year 20% of profits must be
transferred to ____ reserve.

17
a) statutory b) Capital redemption
c) General d) Capital
156. If a company has to pay 15% dividend, the amount to be transferred to general reserve should
not be less than ___
a) 2% b) 3% c) 4% d) 5%
157. In case of the nationalise bank, the auditor shall send his audit report to the____
a) Central Government with a copy to the particular bank
b) Central government with a copy to a reserve bank
c) President of India
d) All the above
158. A banking has to transfer every year to its statutory reserve____
a) 10% of its annual net profits
b) 15% of its annual net profits
c) 20% its annual net profits
d) 50% its annual net profits
159. Which one of the following is generally the largest item on the assets side of the balance sheet
a) Investments b) Fixed Assets c) Loans and Advances d) Current Assets
160. To cover unexpired risk in the case of marine insurance minimum reserve is to be maintained___
of net premium
a) 33% b) 50% c) 100% d) 90%
161. The auditor should note that the expenses of management do not cross the limit laid down under
section_____
a) 14 b) 40 c) 20 d) 50
162. Auditor has to rely on____
a) detailed checking b) Test checking c) Internal auditor d) External auditor
163. ‘EDP’ means____
a) Efficiency Directive Procedure b) Electronic data processing
c) Education development plan d) None of the above
164. Auditing and assurance standards_____ sets the standard on procedure to be followed when an
audit is conducted in a computer information system.
a) 10 b) 19 c) 29 d) 30
165. A company auditor address his auditor report to____
a) BOD b) Members c) Managing director d) Government
166. Every company is required to hold its first statutory meeting after_____
a) One month b) Four months
c) Six months after commencement d) Five months
167. An auditor should consult the following document for knowing company’s rules relating its
internal working_____
a) Prospects b) Memorandum of association

18
c) Articles of association d) All of the above
168. The share applications money should not be less than ____ of the face value of shares.
a) 5 % b) 20% c) 15% d) 25%
169. Profits prior to incorporation are____
a) Capital profits b) Revenue profits
c) Available for dividend d) None of the above
170. Which of the following Auditing Assurance Standard deals with Audit Planning?
a) AAS-7 b) AAS-8 c) AAS-9 d) AAS-3
171. As per C & AG Act, 1971 the tenure of the Comptroller and Auditor General is___Years
a) Four b) five c) six d) seven
172. Which of the following statement is not distinguishing feature for computer based processing
and manual processing?
a) Errors in a CIS environment are less systemic as compared to errors in manual processing
b) The potential for human error in the CIS environment is greater as compared to manual system
c) In a computer-based accounting system, audit trail is in electronic form
d) Computer processing offers management a variety of analytical tools.
173. To avoid invalid data input, a bank added an extra number at the end of each account number
and subjected the new number to an algoritham. This techniques is known as
a) Dual read b) Test for reasonableness c) Check digit d) Occurrence correction
174. When computer programme or files can be accessed from terminals, access can be limited to
authorized individuals by__
a) appointing a librarian b) controlling passwords
c) appointing EDP auditor d) Both (a) and (b)
175. Erroneous data has been detected by computer program controls. It has been excluded from
processing and printed separately “Error Report”. Who should most probability by review and follow
up on this report?
a) system, analyst b) Data control group
c) Programmer d) Computer operator
176. General controls will be ineffective when EDP department?
a) Participates in computer software acquisition decisions
b) Design Documentation for computerized operations
c) Originate changes in master files
d) Provide physical security for programme files
177. Which of the following activities would most likely be performed by EDP department?
a) Authorising transactions b) Parity checks
c) Distributing output d) Correction of transactional errors
178. The completeness of “wages” figure can be tested by comparing the number of time cards to be
processed with transaction on wages sheet. This type of control technique is called
a) check total b) control total c) occurrence correction d) check digit

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179. Which of following will not affect audit in a CIS environment?
a) The objective of expression of opinion on financial statements
b) Compliance procedures adopted by the auditor
c) Performance of substantive procedures
d) Evaluation of inherent risk and control risk
180. Which of the following statements is not true of the test data approach in a test of computerised
accounting system?
a) Test data tests only those controls which the auditor wishes to rely
b) Test data should consist of data related to all controls prevalent in the organization
c) The result of test data indicates that all the application and general controls are functioning properly
d) Test data processed by the client’s computer programme under the auditor’s control
181. Which of the following CAATs allow fictitious transactions planted by the auditor to be processed
along with real ones on client’s system?
a) Integrated test facility b) Test data approach
c) Generalised audit software d) Parallel simulation
182. An auditor is least likely to use computer software to?
a) access client data files b) assess control risk
c) performing analytical producers d) None of the above
186. The fundamental objective of the audit of a company is to:
a) Protect the interests of the minority shareholders
b) Detect and prevent errors and fraud
c) Assess the effectiveness of the company’s performance
d) Attest to the credibility of the company’s accounts
187. Why do auditors concentrate their efforts on material items in accounts?
a) Because they are easier to audit
b) Because it reduces the audit time
c) Because the risk to the accounts of their being incorrectly stated is greater
d) Because the directors have asked for it
188. International auditing standards are issued by the:
a) International Accounting Standards Board b) Financial Accounting Standards Board
c) International Audit and Assurance Standards Board d) Auditing Practices Board
189. Which one of the following is NOT a duty of the auditor?
a) Duty to report to the company’s bankers b) Duty to report to the members
c) Duty to sign the audit report d) Duty to report on any violation of law
190. Assuming that it is not the first appointment of the auditor, who is responsible for the
appointment of the auditor?
a) The shareholders in a general meeting b) The managing director
c) The board of directors in a board meeting d) The audit committee
191. How long is the auditor’s term of office?
a) Until the audit is complete b) Until the financial statements are complete
c) Until the next annual general meeting (AGM) d) Until the directors remove them

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192. __________ is a systematic examination of the books and records or a business
a) Auditing b) Vouching c) Verification d) Checking
193. Which of the following is not a kind of audit?
a) Statutory and private audit.
b) Government and continuous audit.
c) Continuous, final, Interim, Cash, Cost and Management audit.
d) None of these.
194. Instruction of audit issued by controller and auditor general of India ________
a) Statutory audit b) Final audit
c) Management audit d) Government audit
195. Before the work of audit is commenced, the auditor plans out the whole of audit work is called
_________
a) Audit plan b) Audit note.
c) Audit risk d) Audit programme
196. Voucher relates to _________
a) Cash receipt b) Cash payment
c) Credit transactions d) all the above
197. Internal auditor is appointed by ________
a) The management b) The shareholders
c) The government d) The statutory body
198. Auditing begins where ______ ends.
a) Selling b) inventory valuation
c) Accounting d) Purchases
199. The audit that is made compulsory under statute is called _________
a) Statutory audit b) Partial audit
c) Complete audit d) Continuous audit
200. Who among the following can be appointed as auditor of a company?
a) A partner or a director of the company.
b) A person of unsound mind.
C) Mr. Ram who owes Rs. 500 to the company.
d) Mr. Ramesh the holder of C.A certificate.
*****

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