Introduction To Auditing MCQs

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 ✔

A. Lower, Higher, Lower
B. Lower, Lower, Higher
C. Higher, Lower, Lower
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 ✔