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T.Y. B. Com
Auditing (MCQ’s)
By Asst. Prof. Pravin Kad (M. Com., SET, NET)
8788167249 ([email protected])
1. An auditor is like a

a) Blood haunt b) Watch dog c) May both according to situation d) None of these

2. The term ‘Audit’ is derived from a Latin word “audire” which means;

a) To inspect b) To examine c) To hear d) To investigate

3. Process of verifying the documentary evidences of transactions are known as:

a) Auditing b) Testing c) Vouching d) Verification

4. The main object of an audit is

a) Expression of expert opinion b) Detection and Prevention of fraud and error

c) Both (a) and (b) d) Depends on the type of audit.

5. Concealment of shortage by delaying the recording of cash receipts is known as

a) Embezzlement b) Misappropriation c) Lapping d) None of these

6. The title of AAS2 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

7. Internal audit is undertaken

a) By independent auditor b) Statutorily appointed auditor

c) By a person appointed by the management d) by a government auditor

8. The scope of internal audit is decided by the :

a) Shareholders b) Management c) Government d) Law

9. Audit of banks is an example of –

a) Statutory audit b) Balance sheet audit c) Concurrent audit d) All of the above
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10. Concurrent audit is a part of

a) Internal check system b) Continuous audit c) Internal audit system d) None

11. Which of the following statements is not true about continuous audit?

a) It is conducted at regular interval b) It may be carried out on daily basis

c) It is needed when the organization has a good internal control system

d) It is expensive

12. Internal check is carried on by

a) Staff specially appointed for the purpose b) Internal auditor

c) Supervisor of the staff d) Members of the staff

13. Errors of Omission are

a) Technical errors b) Errors of principle c) Compensating errors d) None of the above

14. Window dressing implies:

a) Curtailment of expenses b) Checking of Wastages

c) Under valuation of assets d) Over Valuation of assets

15. Test Checking refers to

a) Testing of accounts and records b) Checking of selected number of transactions

c) Examination of adjusting and closing entries d) Checking of all transactions recorded

16. 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

d) At the planning state, the auditor considers materiality at the financial statement level only

17. A sale of Rs. 25,000 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

18. ‘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

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19. the audit risks… the materiality and ……the audit effort

a) Lower, Higher, Lower b) Lower, Lower, Higher

c) Higher, Lower, Lower d) Lower, Higher, Higher

20. 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

21. 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

22. Analytical procedures issued in the planning stage of an audit, generally

a) Helps to determine the nature, timing and extent of other audit procedures

b) Directs attention to potential risk areas c) Indicates important aspects of business

d) All of the above

23. Which of the following statements is most closely associated with analytical procedure applied
at substantive stage?

a) It helps to study relationship among balance sheet accounts

b) It helps to discover material misstatements in the financial statements

c) It helps to identify possible oversights

d) It helps to accumulate evidence supporting the validity of a specific account balance

24. Verification refers to:

a) Examining the physical existence and valuation of assets. b) Examining the journal and ledger

c) Examination of vouchers related to assets. d) None of the above.

25. 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.
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c) Carbon copies of sales invoices inspected by the auditor d) Computations made by the auditor

26. 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.

27. 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

28. The nature, timing and extent of substantive procedures is related to assessed level of control
risk

a) Randomly b) Disproportionately c) Directly d) Inversely

29. Which of the following factors is most important in determining the appropriations of audit
evidence?

a) The reliability of audit evidence and its relevance in meeting the audit objective

b) The objectivity and integrity of the auditor

c) The quantity of audit evidence

d) The independence of the source of evidence

30. When is evidential matter, generally, considered sufficient?

a) When it constitutes entire population

b) When it is enough to provide a basis for giving reasonable assurance regarding truthfulness

c) When it is objective and relevant

d) When auditor collects and evaluates it independently

31. Which of the following is not corroborative evidence?

a) Minutes of meetings b) Confirmations from debtors

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c) Information gathered by auditor through observation

d) Worksheet supporting consolidated financial statements

32. Audit programme is prepared by

a) The auditor b) The client c) The audit assistants d) The auditor and his audit assistants

33. The working papers which auditor prepares for financial statements audit are: _

a) Evidence for audit conclusions b) Owned by the client

c) Owned by the auditor d) Retained in auditor’s office until a change in auditors

34. The quantity of audit working papers complied on engagement would most be affected by

a) Management’s integrity b) Auditor’s experience and professional judgment

c) Auditor’s qualification d) Control risk

35. Which of the following best describes the primary purpose of audit programme preparation?

a) To detect errors or fraud. b) To comply with GAAP

c) To gather sufficient appropriate evidence d) To assess audit risk

36. Which of the following is not an advantage of the preparation of working paper?

a) To provide a basis for review of audit work

b) To provide a basis for subsequent audits

c) To ensure audit work is being carried out as per programme

d) To provide a guide for advising another client on similar issues

37. The auditor’s permanent working paper file should not normally, include

a) Extracts from client’s bank statements b) Past year’s financial statements

c) Attorney’s letters d) Debt agreements

38. For what minimum period should audit working papers be retained by audit firm?

a) For the time period the entity remains a client of the audit firm.

b) For a period of ten years

c) For a period auditor opines them to be useful in servicing the client

d) For the period the audit firm is in existence.

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39. Which of the following factors would least likely affect the quantity and content of an auditor’s
working papers?

a) The assessed level of control risk b) The possibility of peer review

c) The nature of auditor’s report d) The content of management representation letter

40. Which of the following statement is true regarding an auditor’s working papers?

a) They document the level of independence maintained by the auditor

b) They should be considered as the principle support for the auditor’s report

c) They should not contain details regarding weaknesses in the internal control system

d) They help the auditor to monitor the effectiveness of the audit firm’s quality control

41. The current file of the auditor’s working papers, generally, should include

a) A flowchart of the internal controls b) Organization charts

c) A copy of financial statements d) Copies of bond and debentures

42. Knowledge of the entity’s business does not help the auditor to

a) Reduce inherent risk b) Identify problem areas

c) Evaluate reasonableness of estimates d) Evaluate appropriates of GAAP.

43. Payment for wages should be vouched with the help of

a) Piece Work Statement. b) Wage sheets c) Minutes book d) Bank pass book.

44. Payment for building purchased should be vouched with the help of

a) Title Deed b) Correspondence with the brokers c) Building Account d) Cash book

45. Purchase returns should be vouched with the help of

a) Bought notes b) Credit notes c) Goods inward book d) Cash book

46. Receipts from sale of investments should be vouched with the help of

a) Brokers bought notes b) Brokers Sold notes c) Minutes book d) Inventory of investment

47. 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
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d) The fees paid to engineer who constructed the plant.

48. Which of the following is not a revenue expense?

a) Cost of raising a loan

b) Cost of accessories of motor vehicles spent at the time of purchase

c) Expenses incurred for lying of sewers on land purchased

d) Insurance premium paid at the time of registration of the ship

49. Depreciation does not arise form

a) Effluxion of time b) Use

c) Obsolescence through technology be market changes d) Remarket expectation

50. 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

51. 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

52. 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)

53. 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;

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54. Which of the following report not result in qualification of the auditor’s opinion due to a scope
limitation?

a) Restrictions the client imposed b) Reliance on the report of other auditor

c) Inability to obtain sufficient appropriate evidential matter

d) Inadequacy of accounting records

55. 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

56. The management of a company, to which AS3 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

57. 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

58. 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

59. 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

60. 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

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61. 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

62. The creditor’s 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

63. 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

64. 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

65. 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 valuer 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

66. Tests of control are not concerned with_

a) Existence of controls b) Effectiveness of controls

c) Continuity of controls d) Designing of controls

67. 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, and make a preliminary
assessment of control risk

b) Design substantive tests, obtain an understanding, perform tests of control, and make a preliminary
assessment of control risk
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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

68. 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

69. 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

70. 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

71. 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

72. 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

73. 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

74. Control risk is assessed at

a) Overall financial statements level b) Fraud risk factor level

c) Financial statement assertion level d) Control environment level

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75. 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

76. 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)

77. The performance of tests of control is documented in

a) Audit programme b) Flow charts

c) Working papers d) Any of the above

78. 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

79. 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

80. 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

81. 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
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82. Analytical procedures are least likely to be use in the audit of –

a) Cash balance b) Investments

c) Bills receivables d) Debtors

83. 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 Programme D. Audit Control

84. A number of checks and controls exercised in a business to ensure its efficient working are
known as

A. Internal Check B. Internal Control C. Internal Audit D. Interim Check

85. A Voucher is a .

A. Document is support of an entry made in books ofaccounts

B. Invoice received from suppliers

C. Receipt issued to a customer for cash D. Dispatch Receipt

86. Voucher relates to .

A. Cash receipt & payments, credit transactions B. Cash payment only

C. Credit transactions only D. Cash receipt only

87. Internal check is meant for .

A. Prevention of frauds B. Detection of frauds C. Helping audit is depth D. Detection of errors

88. Purchase of machinery is a .

A. revenue receipt B. capital receipt C. capital expenditure D. revenue expenditure

89. Sale of land is a .

A. revenue receipt B. capital receipt C. capital expenditure D. revenue expenditure

90. When a transaction has not been recorded in the books of account either wholly or partially
such errors are called as .

A. errors of commission B. errors of omission

C. compensating error D. error of principle

91. Verification of the value of assets, liabilities, the balance of reserves, provision and the amount
of profit earned or loss suffered a firm is called .

A. continuous audit B. balance sheet audit. C. interim audit D. partial audit

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92. A sale of Rs. 50000 to Mr. A was entered as a sale to Mr. B. This is an example of what?

A. Error of omission B. Error of commission

C. Compensating error D. Error of principle

93. Recording a transaction twice in the books of original entry is an error of .

A. principle B. commission C. duplication D. omission

94. Errors and frauds already committed can be discovered under the system of .

A. internal audit, internal check, internal control B. external check

C. statutory audit D. interim audit

95. Treating revenue expenditure as capital expenditure is a case of .

A. fraud B. misappropriation of cash

C. misappropriation of goods D. manipulation of accounts

96. Special audit is necessary for .

A. inefficient concern B. processing concern

C. trading concern D. manufacturing concern

Answer Key:- (Auditing & Assurance)

1-b 11-c 21-b 31-d 41-c 51-c 61-c 71-a 81-c 91-b
2-c 12-d 22-d 32-d 42-a 52-d 62-d 72-b 82-a 92-b
3-c 13-a 23-d 33-c 43-b 53-a 63-d 73-a 83-c 93-c
4-d 14-d 24-a 34-b 44-a 54-b 64-a 74-c 84-b 94-a
5-c 15-b 25-c 35-c 45-b 55-c 65-c 75-a 85-a 95-d
6-b 16-d 26-b 36-d 46-b 56-a 66-d 76-a 86-a 96-a
7-c 17-b 27-d 37-a 47-c 57-c 67-c 77-c 87-a
8-b 18-a 28-c 38-c 48-b 58-b 68-c 78-c 88-c
9-d 19-a 29-a 39-d 49-d 59-a 69-c 79-b 89-b
10-c 20-c 30-b 40-b 50-b 60-c 70-d 80-d 90-b