AUDITING AND TAXATION

1. ----------------- take the decision to replace the auditor in a public limited company

a) Management
b) Central Government
c) Members

Answer: c) Member – Shareholders have the powers to appoint, re appoint

and fill up a casual vacancy of an auditor in the annual general meeting

2. If both the Board of Directors and shareholders fail to appoint an auditor in the annual
general meeting -------------- can appoint the auditor

a) Central Government.
b) Common public
c) Managing Director

Answer: a) Central Government – has the authority if the first auditor and
the casual vacancy is not filled by both the BOD and members.

3. The responsibility of Board of Drectors in regards to appointment of Auditor is-----------

-.

a) Appoint the first auditor within 30 days from the date of incorporation.
b) Fill casual vacancies other than resignations
c) Both a and b

Answer c) Both a and b – Board of Directors have the responsibility to

appoint the company’s first auditor and fill up the casual vacancies which
are suddenly caused due to sudden death or removal of an auditor
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4. Controller and Auditor General have the powers to remove the Auditor of -----------.

a) Government Company
b) Deemed Government Company
c) Both a and b

Answer c) Both a and b – CAG have the powers to remove Government

Company Auditor.

5. Examination of books of accounts of a company, by an auditor include ------------

a) Vouching, Checking of postings, checking of arithmetical accuracy,

b) Physical verification of cash, confirmation of balances with the debtors and
creditors, evaluation of internal control system of the enterprise
c) Both a and b

Answer c) Both a and b – Examination and verification of books of accounts

is a complete and comprehensive function and thus includes everything.

6. An External Auditor, always needs to be appointed by the ----------------.

a) Owners
b) Central Government
c) Management

Answer a) Owners – Shareholders or the members of the company have the

powers to appoint or replace or remove or reappoint an auditor of the
company in the annual general meeting with an ordinary resolution.

7. --------------- Audit is done to satisfy the legal obligation.

a) Internal
b) Voluntary
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c) Statutory
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Answer : c) Statutory Audit

8. Following cannot be appointed as the auditor for a company-------------

a) Practicing Chartered Accountant who is not an employee

b) Practicing CA who has purchased goods worth Rupees one Lakh and not yet
settled the dues
c) None of the above

Answer: b) Practicing CA who has purchased goods worth Rupees one Lakh
and not yet settled the dues. – Any person have dues (in any relationship) with a
company cannot be appointed as the auditor of that company

9. -------------------- consists of all policies and procedures adopted by the management of

an entity to assist in achieving the objectives of the enterprise.

a) Internal Check
b) Internal Audit
c) Internal Control

Answer: c) Internal control includes all procedures and policies to achieve the
objectives of the entity

10. Internal Audit is mainly concerned with ------------------

a) Evaluation of Internal Control

b) Quality of actual performance
c) Both a and b

Answer: c) both a and b – Internal audit mainly aims at strengthening

the Audit system. It mainly focuses on improving the overall efficiency and
productivity of the organization.

11. Verification of all transactions or events which occurred during the financial year under
audit take place in the ------------------; process of audit
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a) Vouching
b) Test Checking
c) Valuation

Answer: Vouching – While vouching each and every transaction from the day
book all transactions verification of its trueness is verified.

12. The term Auditing includes ---------------

a) Assessing the significant estimates made by the management in the preparation of

financial statements
b) Assessing accounting principles used in the preparation of the financial statements.
c) Both a and b

Answer: c) both a and b

13. Verification of assets and liabilities mainly focuses on:

a) Existence, Valuation, Completeness

b) Presentation and disclosure
c) Both a and b

Answer: Both a and b – They need to be presented in the financial statements as

per the accounting standards, provisions or all relevant acts.

14. Voucher includes_______________

a) Invoice and Receipt

b) Agreement, Minutes of Meetings
c) Both a and b

Answer: c) Both a and b – Voucher includes and document which is and

evidence for a transaction have taken place. It also includes the supporting
documents which confirm the occurrence of an event.
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15. Following are the main advantages of audit plan---------------

a) Ensure proper attention to the important areas of audit, identify probable

problems.
b) Proper utilization of staff, coordinate work with other auditors and experts.
c) Both a and b

Answer: c) Both a and b – Audit plan is done before the audit work is taken up.
In order to evaluate and assess the quantum of work and systematic execution
audit plan becomes necessary,

16. Audit program mainly focuses on------------------

a) Developing of an overall audit programme showing the nature, timing and

extent of the audit procedures
b) Overall audit plan
c) Both of the above

Answer: a) Developing a program of how, who and by when the audit will
take place.

17. Final audit is also known as -------------------

a) Complete Audit
b) Continuous Audit
c) None of the above

Answer: a) Completed audit – Final audit begins after the completion of the
accounting period when the financial statements are prepared after closing
the books of accounts.

18. Working papers are --------------- by the auditor.

a) Prepared
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b) Obtained

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c) Both a and b

Answer: c) Working papers are all documents required for preparing the audit
report and to defend the auditor of his diligent and complete audit work done. (act
as a evidence of having taken reasonable care and skill in the process of audit)

19. Working papers prepared by the auditor include--------------

a) Audit program, audit note book containing queries and how they were solved,
calculations, check lists prepared by the assistants of the auditor
b) Copy of articles, memorandum, minutes, third party confirmations received from
the management.
c) Both a and b

Answer: c) Both a and b – working papers include all documents prepared by

the auditor, auditors staff while doing audit work and the documents provided
by the client and its management and third parties.

20. Audit note book refers to --------------------

a) Set of documents and books of accounts provided by the management

b) A bound note book in which the auditor and his staff record, enquiries,
observations and clarifications and the explanations given by the client and its
staff
c) Both a and b

Answer: b) It is a record made by the auditor for future references, which assist
in the current and future audits of the client.

21. Audit note book is prepared by --------------------

a) Auditor and his assistant staff

b) Management
c) Government in case of Government Company

Answer: a) Audit note book is prepared only by the auditor and his staff. Even
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in case of Government Company or statutory audit it can be only the appointed

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auditor and his staff

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22. Selecting and checking a predetermined portion on the auditor’s own judgement is
known as --------------

a) Test Checking
b) Vouching
c) Verification

Answer: a) Test Checking – Usually an external audit, in final audit, applies test
checking for confirmations from debtors, verification of stock items and
arithmetical accuracy checks. It is selective or partial checking and not
completes checking of each and every transaction and event.

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