Auditing MCQs

Option A: works on cost.

Option B: selling overhead.

Option C: distribution overhead.

Option D: administration overhead

Correct Answer: administration overhead ✔

Option A: Inventory

Option B: Accounts Payable

Option C: Accounts Receivable

Option D: Expenses

Correct Answer: Accounts Receivable ✔

Option A: Financial information

Option B: Non-financial information

Option C: Both (a) and (b)

Option D: None of these

Correct Answer: Financial information ✔

Option A: Profit making entity

Option B: Non-profit making entity

Option C: Corporate entity only

Option D: Any entity

Correct Answer: Any entity ✔

Option A: 32

Option B: 34

Option C: 36

Option D: 38

Correct Answer: 38 ✔

Option A: Standards on Auditing

Option B: Standard on Quality Control

Option C: Standards on Review Engagement

Option D: Standards on Assurance Engagement

Correct Answer: Standard on Quality Control ✔

Option A: Checking the vouchers

Option B: Preparation of vouchers

Option C: Evaluation of internal control

Option D: None of the above

Correct Answer: Preparation of vouchers ✔

Option A: Unqualified opinion

Option B: Qualified opinion

Option C: Adverse opinion

Option D: Disclaimer of opinion.

Correct Answer: All of above  ✔

Option A: Obtain the client’s permission to communicate with the existing auditor

Option B: Obtain the existing auditor’s working papers

Option C: Obtain a copy of the company’s most recent board minutes

Option D: Obtain a copy of the existing auditor’s letter of engagement

Correct Answer: Obtain the client’s permission to communicate with the existing auditor ✔

Option A: Taking management decisions

Option B: Preparation of accounting records

Option C: Preparing tax computations

Option D: Advising on weaknesses in the internal control systems

Correct Answer: Taking management decisions ✔

Option A: 1, 2 and 3 only

Option B: 1, 3 and 4 only

Option C: 2, 3 and 4 only

Option D: 1, 2 and 4 only

Correct Answer: 1, 3 and 4 only ✔

Option A: Self-interest threat

Option B: Self-review threat

Option C: Advocacy threat

Option D: Familiarity threat

Correct Answer: Self-interest threat ✔

Option A: An auditor may serve on the board of directors of an audit client.

Option B: An auditor who is an immediate family member of the director of an audit client must not be assigned to the audit team.

Option C: Purchasing goods from an audit client on normal commercial terms does not create a threat to the auditor’s independence.

Option D: An auditor who was recently a director of an audit client must not be assigned to the audit team for that client.

Correct Answer: An auditor may serve on the board of directors of an audit client. ✔

Option A: They are the best source of audit evidence

Option B: They should be used only when there is a lack of other substantive audit evidence

Option C: They should be used only when there is other substantive audit evidence to complement it

Option D: Shareholders receive a copy of all material written representations

Correct Answer: They should be used only when there is a lack of other substantive audit evidence ✔

Option A: Other audit clients

Option B: Previous years

Option C: Other companies in the same industry

Option D: Budget

Correct Answer: Other audit clients ✔

Option A: The gap between how the directors of a company perform their duties and how the shareholders expect them to perform

Option B: The gap between how the directors of a company perform their duties and how the general public expects them to perform

Option C: The gap between the public perception of the role of company auditors and their statutory role and responsibilities

Option D: The gap between the auditors’ own perception of their duties and how they are set out in the Companies Act

Correct Answer: The gap between the public perception of the role of company auditors and their statutory role and responsibilities ✔

Option A: Introductory paragraph specifying the pages to which the report relates and the accounting convention adopted

Option B: Basis of the opinion

Option C: Involvement of any specialist

Option D: Statement of responsibilities of directors and auditors

Correct Answer: Involvement of any specialist ✔

Option A: Conducting the inventory count

Option B: Obtaining and evaluating audit evidence on the financial statements

Option C: Calculating the year-end accruals figure for inclusion in the accounts

Option D: Providing representations to management

Correct Answer: Obtaining and evaluating audit evidence on the financial statements ✔

Option A: Positive assurance

Option B: Negative assurance

Option C: High level of assurance

Option D: No assurance

Correct Answer: Negative assurance ✔

Option A: When a company negotiates a ‘friendly’ takeover, it usually appoints a firm of accountants to carry out due diligence on the takeover target.

Option B: In an attestation engagement, the accountant is required to report on the quality of work performed.

Option C: In a review engagement, evidence is gathered mainly by means of computation and inspection.

Option D: In an engagement to review financial statements, the amount of work required is the same as for an audit

Correct Answer: When a company negotiates a ‘friendly’ takeover, it usually appoints a firm of accountants to carry out due diligence on the takeover target. ✔

Option A: one audit firm should audit the IFI and a different firm should audit the financial statements for the year as a whole.

Option B: one accountancy firm should review the IFI and a different firm should audit the financial statements for the year as a whole.

Option C: the same firm should audit the IFI and the financial statements for the year as a whole.

Option D: the same firm should review the IFI and the financial statements for the year as a whole.

Correct Answer: the same firm should review the IFI and the financial statements for the year as a whole. ✔

Option A: The auditor cannot give an opinion due to lack of evidence.

Option B: The client’s financial statements were found to be materially misstated.

Option C: The auditor could not conduct any tests due to lack of controls.

Option D: The auditor did not find anything to indicate that a material misstatement exists.

Correct Answer: The auditor did not find anything to indicate that a material misstatement exists. ✔

Option A: identify cases of unrecorded revenue

Option B: ensure proper disclosure in the balance sheet

Option C: recompute accrued income on the data of balance sheet

Option D: Any of these

Correct Answer: identify cases of unrecorded revenue ✔

Option A: purchase orders

Option B: sales orders

Option C: sales invoices

Option D: bill of loading

Correct Answer: sales invoices ✔

Option A: Daily cash sales summary

Option B: Salesmen’s summary

Option C: Monthly statements sent to customers

Option D: Bank statement

Correct Answer: Monthly statements sent to customers ✔

Option A: Unqualified opinion

Option B: Qualified opinion

Option C: Disclaimer of opinion

Option D: Adverse opinion

Correct Answer: Unqualified opinion ✔

Option A: These are given by the directors of the company

Option B: These are given to adhere to requirements of section 211.

Option C: These are given by auditors of the company in auditor’s report

Option D: All of the above

Correct Answer: These are given by the directors of the company ✔

Option A: unqualified opinion

Option B: unqualified opinion with reference to notes to the accounts

Option C: qualified opinion

Option D: disclaimer of opinion

Correct Answer: unqualified opinion ✔

Option A: Qualified opinion

Option B: Disclaimer of opinion

Option C: Adverse opinion

Option D: Unqualified report with ‘an emphasis of matter’ paragraph;

Correct Answer: Qualified opinion ✔

Option A: the data of AGM

Option B: later than the date on which the accounts are approved in board’s meeting

Option C: earlier than the date on which the accounts are approved by the management

Option D: Both A. and B.

Correct Answer: earlier than the date on which the accounts are approved by the management ✔

Option A: Unlimited liability

Option B: Manufacturing

Option C: Banking

Option D: Non­profit making

Correct Answer: Manufacturing ✔

Option A: Shareholders in an annual general meeting

Option B: Shareholders in general meeting

Option C: Board of directors in board meeting

Option D: Any of the above

Correct Answer: Shareholders in general meeting ✔

Option A: Obtain information and explanation

Option B: Obtain information and explanation from the employees and officers

Option C: Obtain information and explanation necessary for the purpose of audit

Option D: Both B. and C.

Correct Answer: D. Both B. and C. ✔

Option A: Books and accounts of a company

Option B: Books, accounts and documents of the company

Option C: Books, accounts and vouchers of the company

Option D: Notices and documents of the company

Correct Answer: Books, accounts and vouchers of the company ✔

Option A: Erstwhile director

Option B: Internal auditor

Option C: Relative of a director

Option D: Only (B. and (C.

Correct Answer: Internal auditor ✔

Option A: the shareholders in a general meeting

Option B: the shareholders in the first annual General meeting

Option C: the board of directors

Option D: the Central Government

Correct Answer: the shareholders in a general meeting ✔

Option A: Board meeting

Option B: extraordinary general meeting

Option C: General meeting

Option D: annual general meeting

Correct Answer: General meeting ✔

Option A: the conclusion of statutory meeting

Option B: the conclusion of first annual general meeting

Option C: the conclusion of next annual general meeting

Option D: the date of removal

Correct Answer: the conclusion of first annual general meeting ✔

Option A: Directors of the company

Option B: Members of the company

Option C: The Central Government

Option D: All of the above

Correct Answer: Members of the company ✔

Option A: To help to corroborate the conclusions drawn from individual components of financial statements

Option B: To reduce specific detection risk

Option C: To direct attention to potential risk areas

Option D: To satisfy doubts when questions arise about a client’s ability to continue

Correct Answer: To help to corroborate the conclusions drawn from individual components of financial statements ✔

Option A: client’s unedited account balance

Option B: client’s unedited account balance adjusted for trends in the industry

Option C: Prior year audited balance

Option D: Prior year audited balance adjusted for trends in the industry

Correct Answer: Prior year audited balance ✔

Option A: Tracing of purchases recurred in the purchase book to purchase invoices.

Option B: Comparing aggregate wages paid to number of employees

Option C: Comparing the actual costs with standard costs

Option D: All of them are analytical procedure

Correct Answer: Tracing of purchases recurred in the purchase book to purchase invoices. ✔

Option A: Substantive tests designed to assess control risk

Option B: Substantive tests designed to evaluate the validity of management’s representation letter

Option C: Substantive tests designed to study relationships between financial and non­financial

Option D: All of the above

Correct Answer: Substantive tests designed to study relationships between financial and non­financial ✔

Option A: It helps the auditor to study relationship among elements of financial information

Option B: Relationship among data exist and continue in the absence of known condition to the contrary

Option C: Analytical procedures will not be able to detect unusual relationships

Option D: None of the above.

Correct Answer: Relationship among data exist and continue in the absence of known condition to the contrary ✔

Option A: It helps to study relationship among balance sheet accounts

Option B: It helps to discover material misstatements in the financial statements

Option C: It helps to identify possible oversights

Option D: It helps to accumulate evidence supporting the validity of a specific account balance

Correct Answer: It helps to accumulate evidence supporting the validity of a specific account balance ✔

Option A: helps to determine the nature, timing and extent of other audit procedures

Option B: directs attention to potential risk areas

Option C: indicates important aspects of business

Option D: All of the above

Correct Answer: All of the above ✔

Option A: Prior year’s errors

Option B: The auditor’s remuneration

Option C: Adjusted interim financial statements

Option D: Prior year’s financial statements

Correct Answer: The auditor’s remuneration ✔

Option A: Amount of known misstatement is documented in working papers

Option B: Estimates of the total likely misstatement is less than materiality level

Option C: Estimate of the total likely misstatement is more than materially level

Option D: Estimates of the total likely misstatement cannot be made

Correct Answer: Estimates of the total likely misstatement is less than materiality level ✔

Option A: Lower, Higher, Lower

Option B: Lower, Lower, Higher

Option C: Higher, Lower, Lower

Option D: Lower, Higher, Higher

Correct Answer: Lower, Higher, Lower ✔

Option A: Materiality is a relative concept

Option B: Materiality judgments involve both quantitative and qualitative judgments

Option 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

Option D: At the planning state, the auditor considers materiality at the financial statement level

Correct Answer: D. At the planning state, the auditor considers materiality at the financial statement level
only ✔

Option A: Verification of assets and liabilities

Option B: Vouching of income and expense accounts related to assets and liabilities

Option C: Examination of adjusting and closing entries

Option D: Routine checks

Correct Answer: Routine checks ✔

Option A: It is conducted at regular interval

Option B: It may be carried out on daily basis

Option C: It is needed when the organization has a good internal control system

Option D: It is expensive

Correct Answer: It is needed when the organization has a good internal control system ✔

Option A: Assets

Option B: Income and expense accounts where appropriate

Option C: Liabilities

Option D: All of the above

Correct Answer: All of the above ✔

Option A: Complete audit

Option B: Completed audit

Option C: Final audit

Option D: Detailed audit

Correct Answer: Detailed audit ✔

Option A: Annual audit

Option B: Continuous audit

Option C: Detailed audit

Option D: Statutory audit

Correct Answer: Annual audit ✔

Option A: Statutory audit

Option B: Balance sheet audit

Option C: Concurrent audit

Option D: Both (A. and (B.

Correct Answer: All of the above ✔

Option A: Reporting the financial information

Option B: Examination of financial statements

Option C: Preparation financial statements

Option D: maintaining the ledger records

Correct Answer: Examination of financial statements ✔

Option A: A flowchart of the internal controls

Option B: Organisation charts

Option C: A copy of financial statements

Option D: Copies of bond and debentures

Correct Answer: A copy of financial statements ✔

Option A: The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation

Option B: The safe custody of working papers is the responsibility of client, if kept at his premises

Option C: The working papers must be retained by an audit firm for a period of 10 years

Option D: Successor auditors may have access to working papers of the predecessor auditors. The approval of client is not required.

Correct Answer: The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation ✔

Option A: They document the level of independence maintained by the auditor

Option B: They should be considered as the principle support for the auditor’s report

Option C: They should not contain details regarding weaknesses in the internal control system

Option D: They help the auditor to monitor the effectiveness of the audit firm’s quality control

Correct Answer: They should be considered as the principle support for the auditor’s report ✔

Option A: The assessed level of control risk

Option B: The possibility of peer review

Option C: The nature of auditor’s report

Option D: The content of management representation letter

Correct Answer: The content of management representation letter ✔

Option A: For the time period the entity remains a client of the audit firm.

Option B: For a period of ten years

Option C: For a period auditor opines them to be useful in servicing the client

Option D: For the period the audit firm is in existence.

Correct Answer: For a period auditor opines them to be useful in servicing the client ✔

Option A: Extracts from client’s bank statements

Option B: Past year’s financial statements

Option C: Attorney’s letters

Option D: Debt agreements

Correct Answer: Extracts from client’s bank statements ✔

Option A: To provide a basis for review of audit work

Option B: To provide a basis for subsequent audits

Option C: To ensure audit work is being carried out as per programme

Option D: To provide a guide for advising another client on similar issues

Correct Answer: To provide a guide for advising another client on similar issues ✔

Option A: To detect errors or fraud

Option B: To comply with GAAP appropriate evidence

Option C: To gather sufficient

Option D: To assess audit risk

Correct Answer: To gather sufficient ✔

Option A: Management’s integrity

Option B: Auditor’s experience and professional judgment

Option C: Auditor’s qualification

Option D: Control risk

Correct Answer: Auditor’s experience and professional judgment ✔

Option A: Evidence for audit conclusions

Option B: Owned by the client

Option C: Owned by the auditor

Option D: Retained in auditor’s office until a change in auditors

Correct Answer: Owned by the auditor ✔

Option A: The auditor

Option B: The client

Option C: The audit assistants

Option D: The auditor and his audit assistants

Correct Answer: The auditor ✔

Option A: The auditor has ascertained that the balance is materially correct when in actual fact it is not

Option B: The auditor concludes the balance is materially misstated when in actual fact is not

Option C: The auditor has rejected an item from sample which was not supported by documentary evidence

Option D: He applies random sampling on data which is inaccurate and inconsistent

Correct Answer: The auditor has ascertained that the balance is materially correct when in actual fact it is not ✔

Option A: Risk of over reliance

Option B: Risk of incorrect rejection

Option C: Risk of incorrect acceptance

Option D: Both A and C

Correct Answer: Both A and C ✔

Option A: The auditor concludes balance is materially correct when in actual fact it is not

Option B: The auditor concludes that the balance is materially misstated when in actual fact it not

Option C: The auditor has rejected an item for sample which was material

Option D: None of the above

Correct Answer: The auditor concludes that the balance is materially misstated when in actual fact it not ✔

Option A: Minutes of meetings

Option B: Confirmations from debtors

Option C: Information gathered by auditor through observation

Option D: Worksheet supporting consolidated financial statements

Correct Answer: D. Worksheet supporting consolidated financial statements ✔

Option A: When it constitutes entire population

Option B: When it is enough to provide a basis for giving reasonable assurance regarding truthfulness

Option C: When it is objective and relevant

Option D: When auditor collects and evaluates it independently

Correct Answer: When it is enough to provide a basis for giving reasonable assurance regarding truthfulness ✔

Option A: The reliability of audit evidence and its relevance in meeting the audit objective

Option B: The objectivity and integrity of the auditor

Option C: The quantity of audit evidence

Option D: The independence of the source of evidence

Correct Answer: The reliability of audit evidence and its relevance in meeting the audit objective ✔

Option A: Randomly

Option B: Disproportionately

Option C: Directly

Option D: Inversely

Correct Answer: Directly ✔

Option A: May be eliminated for an account balance under certain conditions

Option B: Are designed to discover significant subsequent events

Option C: Will increase proportionately when the auditor decreases the assessed level of control risk

Option D: May be test of transactions, test of balance and analytical procedures

Correct Answer: D. May be test of transactions, test of balance and analytical procedures ✔

Option A: To be reliable, evidence should conclusive rather than persuasive

Option B: Effective internal control system provides reliable audit evidence

Option C: Evidence obtained from outside sources routed through the client

Option D: All are correct.

Correct Answer: Effective internal control system provides reliable audit evidence ✔

Option A: Bank statements obtained from the client

Option B: Documents obtained by auditor from third parties directly.

Option C: Carbon copies of sales invoices inspected by the auditor

Option D: Computations made by the auditor

Correct Answer: Carbon copies of sales invoices inspected by the auditor ✔

Option A: Be included in the stock

Option B: Not be included in the stock

Option C: Not be checked by auditor

Option D: None of the above

Correct Answer: Be included in the stock ✔

Option A: cost

Option B: Market price

Option C: Cost or market price whichever is lower

Option D: Cost less depreciation

Correct Answer: Cost or market price whichever is lower ✔

Option A: Cost

Option B: Market price

Option C: Cost or Market price whichever is lower.

Option D: Cost less depreciation.

Correct Answer: Cost ✔

Option A: Examining the physical existence and valuation of assets.

Option B: Examining the journal and ledger

Option C: Examination of vouchers related to assets.

Option D: None of the above.

Correct Answer: Examining the physical existence and valuation of assets. ✔

Option A: It helps to study relationship among balance sheet accounts

Option B: It helps to discover material misstatements in the financial statements

Option C: It helps to identify possible oversights

Option D: It helps to accumulate evidence supporting the validity of a specific account balance

Correct Answer: It helps to accumulate evidence supporting the validity of a specific account balance ✔

Option A: Helps to determine the nature, timing and extent of other audit procedures

Option B: Directs attention to potential risk areas

Option C: Indicates important aspects of business

Option D: All of the above

Correct Answer: All of the above ✔

Option A: Prior year’s errors

Option B: The auditor’s remuneration

Option C: Adjusted interim financial statements

Option D: Prior year’s financial statements

Correct Answer: The auditor’s remuneration ✔

Option A: Amount of known misstatement is documented in working papers

Option B: Estimates of the total likely misstatement is less than materiality level

Option C: Estimate of the total likely misstatement is more than materially level

Option D: Estimates of the total likely misstatement cannot be made

Correct Answer: Estimates of the total likely misstatement is less than materiality level ✔

Option A: Lower, Higher, Lower

Option B: Lower, Lower, Higher

Option C: Higher, Lower, Lower

Option D: Lower, Higher, Higher

Correct Answer: Lower, Higher, Lower ✔

Option A: Materiality is a relative concept

Option B: Materiality judgments involve both quantitative and qualitative judgments

Option 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

Option D: At the planning state, the auditor considers materiality at the financial statement level only

Correct Answer: At the planning state, the auditor considers materiality at the financial statement level only ✔

Option A: Testing of accounts and records

Option B: Checking of selected number of transactions

Option C: Examination of adjusting and closing entries

Option D: Checking of all transactions recorded

Correct Answer: Checking of selected number of transactions ✔

Option A: Curtailment of expenses

Option B: Checking of Wastages

Option C: Under valuation of assets

Option D: Over Valuation of assets

Correct Answer: Over Valuation of assets ✔

Option A: Technical errors

Option B: Errors of principle

Option C: Compensating errors

Option D: None of the above

Correct Answer: Technical errors ✔

Option A: Staff specially appointed for the purpose

Option B: Internal auditor

Option C: Supervisor of the staff

Option D: Members of the staff

Correct Answer: Members of the staff ✔

Option A: It is conducted at regular interval

Option B: It may be carried out on daily basis

Option C: It is needed when the organization has a good internal control system

Option D: It is expensive

Correct Answer: It is needed when the organization has a good internal control system ✔

Option A: 1949

Option B: 1956

Option C: 1961

Option D: 1972

Correct Answer: 1961 ✔

Option A: Complete audit

Option B: Completed audit

Option C: Final audit

Option D: Detailed audit

Correct Answer: Detailed audit ✔

Option A: Internal check system

Option B: Continuous audit

Option C: Internal audit system

Option D: None of these

Correct Answer: Internal audit system ✔

Option A: Statutory audit

Option B: Balance sheet audit

Option C: Concurrent audit

Option D: All of the above

Correct Answer: All of the above ✔

Option A: Shareholders

Option B: Management

Option C: Government

Option D: Law

Correct Answer: Management ✔

Option A: By independent auditor

Option B: Statutorily appointed auditor

Option C: By a person appointed by the management

Option D: By a government auditor

Correct Answer: By a person appointed by the management ✔

Option A: Management fraud is more difficult to detect than employee fraud

Option B: Internal control system reduces the possibility of occurrence of employee fraud and management fraud

Option C: The auditor’s responsibility for detection and prevention of errors and frauds is similar.

Option D: All statements are correct.

Correct Answer: Internal control system reduces the possibility of occurrence of employee fraud and management fraud ✔