Audit MCQ Book201025122140

AUDIT MCQ QUESTION BANK – Compilation by CA
HARSHAD JAJU (CA INTERMEDIATE)

CHAPTER 1: Nature, Objective and Scope of Audit
1. Direct financial interest or materially significant indirect financial interest in a client is
an example of
(a) Self-review threats
(b) Self-interest threats
(c) Advocacy threats
(d) Intimidation threats
2. are self-evident, and occur when auditors form relationships with the client where they
end up being too sympathetic to the client’s interests.
(a) Familiarity threats
(b) Self-interest threats
(c) Advocacy threats
(d) Intimidation threats
3. If the auditor concludes that there is reasonable justification to change the engagement
and if the audit work performed complied with the SAs applicable to the changed
engagement, the report issued would be appropriate for the revised terms of
engagement. In order to avoid confusion, the report would not include reference to:
a. The original engagement or any procedures that may have been performed in the
original engagement.
b. The original engagement;
c. Any procedures that may have been performed in the original engagement
d. The original engagement and any procedures that may have been performed in the
4. As explained in SA 200, “Overall Objectives of the Independent Auditor and the Conduct
of an Audit in Accordance with Standards on Auditing”, is obtained when the auditor
has obtained sufficient appropriate audit evidence to reduce audit risk (i.e., the risk that the
auditor expresses an inappropriate opinion when the financial statements are materially
misstated) to an acceptably low level.
(a) Absolute assurance
(b) Limited assurance
(c) Reasonable assurance
(d) Reasonable or absolute assurance
5. A request from the client for the auditor to change the engagement may result from-
1. A change in circumstances affecting the need for the service,
2. A misunderstanding as to the nature of an audit or related service originally requested
3. A restriction on the scope of the engagement, whether imposed by management or
caused by circum stances.
(a) (1) only
(b) (1) and (2)
(c) (1), (2) and (3)
(d) (1) or (2) or (3)
6. If the auditor is unable to agree to a change of the terms of the audit engagement and is not
permitted by management to continue the original audit engagement, the auditor shall:
(a) Withdraw from the audit engagement where possible under applicable law or
regulation;
(b) Determine whether there is any obligation, either contractual or otherwise, to report the
circumstances to other parties, such as those charged with governance, owners or
regulators.
(c) Withdraw from the audit engagement where possible under applicable law or regulation
and determine whether there is any obligation, either contractual or otherwise, to report
the circumstances to other parties, such as those charged with governance, owners or
regulators.
(d)Withdraw from the audit engagement where possible under applicable law or regulation
or determine whether there is any obligation, either contractual or otherwise, to report
the circumstances to other parties, such as those charged with governance, owners or
regulators.
7. If the auditor concludes that there is reasonable justification to change the engagement and
if the audit work performed complied with the SAs applicable to the changed engagement,
the report issued would be appropriate for the revised terms of engagement. In order to
avoid confusion, the report would not include reference to:
(a) The original engagement; or any procedures that may have been performed in the
(b) The original engagement ;
(c) Any procedures that may have been performed in the original engagement
(d) The original engagement and any procedures that may have been performed in the
8. There are two interlinked perspectives of independence of auditors, one, independence

of mind; and two,
(a) Objectivity
(b) Professional competence
(c) Integrity
(d) Independence in appearance.
1. A change in circumstances affecting the need for the service,
2. A misunderstanding as to the nature of an audit or related service originally
requested
3. A restriction on the scope of the engagement, whether imposed by management or
caused by circumstances.
4. All of the above
10. According to SA 210 “Agreeing the Terms of Audit Engagements”, The auditor shall
agree the terms of the audit engagement with :
(a) Management
(b) Those charged with governance
(c) Management or those charged with governance, as appropriate.
(d) Audit committee
11. The agreed terms of the audit engagement shall be recorded in

a. An audit engagement letter
b. An audit engagement letter or other suitable form of written agreement
c. Any suitable form of written agreement
d. None of the above
12. If law or regulation prescribes in sufficient detail the terms of the audit engagement ,
a. The auditor need not record them in a written agreement, except for the fact that
such law or regulation applies and that management acknowledges and
understands its responsibilities.
b. The auditor need not record them in a written agreement
c. The auditor needs to record them in a written agreement
(a) A change in circumstances affecting the need for the service,
(b) A misunderstanding as to the nature of an audit or related service originally
requested
(c) A restriction on the scope of the engagement, whether imposed by management or
caused by circumstances.
(d) All of the above
14. According to SA 210 “Agreeing the Terms of Audit Engagements”, The auditor
shall agree the terms of the audit engagement:
a. With management and those charged with governance, as appropriate.
b. With management
c. With those charged with governance
d. With management or those charged with governance, as appropriate.
15. If law or regulation prescribes in sufficient detail the terms of the audit engagement,
(a) The auditor need not record them in a written agreement, except for the fact that
such law or regulation applies and that management acknowledges and
understands its responsibilities.
(b) The auditor need not record them in a written agreement
(c) The auditor needs to record them in a written agreement
(d) None of the above
16. The agreed terms of the audit engagement shall be recorded in
(a) An audit engagement letter
(b) An audit engagement letter or other suitable form of written agreement
(c) Any suitable form of written agreement
17. SA 220 sets out the _ responsibilities with respect to relevant ethical requirements.
(a) Firm’s
(b) Senior Audit Assistant
(c) Engagement partner’s
(d) All the above
18. SA 220 recognizes that the _is entitled to rely on a firm’s systems in meeting its
responsibilities with respect to quality control procedures.
(a) Engagement partner
(b) Engagement team
(c) Firm
(d) Senior Audit Assistant
19. If the auditor concludes that there is reasonable justification to change the
engagement and if the audit work performed complied with the SAs applicable to
the changed engagement, the report issued would be appropriate for the revised
terms of engagement. In order to avoid confusion, the report would not include
reference to:
a. The original engagement; or any procedures that may have been performed in the
20. If the auditor concludes that there is reasonable justification to change the engagement
and if the audit work performed complied with the SAs applicable to the changed
engagement, the report issued would be appropriate for the revised terms of
engagement. In order to avoid confusion, the report would not include reference to:
a. The original engagement; or any procedures that may have been performed in the
CHAPTER 2: Audit Strategy, Planning and Audit Programme
1. When planning the audit,
(a) The auditor considers what would make the financial information materially misstated.
(b) The auditor need not consider what would make the financial information materially
misstated.
(c) The auditor need not consider what would make the financial information materially
misstated at planning stage
(d) The auditor needs to consider what would make the financial information materially
misstated while conducting audit only
2. SA 320 on “Materiality in Planning and Performing an Audit” requires that an auditor

(a) Should not consider materiality and its relationship with audit risk while conducting an
audit.
(b) Should consider materiality and its relationship with audit risk while conducting an
audit.
(c) Should not consider materiality but should consider its relationship with audit risk
while conducting an audit.
(d) Should consider materiality but need not consider its relationship with audit risk while
conducting an audit.
3. Determining a percentage to be applied to a chosen benchmark (in relation to

materiality) involves the exercise of
a. Independence
b. Professional Judgment
c. Professional skepticism
d. All of the above
4. Once the overall audit strategy has been established, _can be developed to address
the various matters identified in the overall audit strategy, taking into account the need
to achieve the audit objectives through the efficient use of the auditor’s resources.
a. Audit strategy
b. Audit plan
c. Audit plan and audit strategy
d. Audit note book
5. With reference to SA 300, the auditor shall document:

(a) The overall audit strategy
(b) The audit plan
(c) Any significant changes made during the audit engagement to the overall audit
strategy or the audit plan, and the reasons for such changes.
6. Once the overall audit strategy has been established, _ can be developed to address
the various matters identified in the overall audit strategy, taking into account the need
to achieve the audit objectives through the efficient use of the auditor’s resources.
a. Audit strategy
b. Audit plan
c. Audit plan and audit strategy
d. Audit note book
7. The auditor shall develop an audit plan that shall include a description of:
a. The nature, timing and extent of planned risk assessment procedures
b. The nature, timing and extent of planned further audit procedures at the
assertion level.
c. Other planned audit procedures that are required to be carried out so that the
engagement complies with SAs.
d. All of the above
8. Planning an audit involves establishing the overall audit strategy for the engagement
and
(a) Developing an audit plan.
(b) Enveloping an audit program
(c) Developing detailed strategy
(e) Any of the above
9. Coyote Ltd. is dealing in trading of electronic goods. Huge inventory (60%

approximately) of the company is lying on consignment (i.e. under the custody of third
party). CA. Star, the auditor of the company, wants to obtain sufficient appropriate
audit evidence regarding the existence and condition of the inventory lying on
consignment. Thus, he requested & obtained confirmation from the third party as to the
quantities and condition of inventory held on behalf of the entity, however, it raised
doubts about the integrity and objectivity of the third party. Which of the following
other audit procedures may be performed by CA. Star to obtain sufficient appropriate
audit evidence regarding the existence and condition of the inventory under the custody
of third party?
i. Attend third party’s physical counting of inventory.
ii. Arrange for another auditor to attend third party’s physical counting of inventory.
iii. Inspect warehouse receipts regarding inventory held by third parties.
iv. All of the above.
10. SA 320 on “Materiality in Planning and Performing an Audit” requires that an auditor
a. Should not consider materiality and its relationship with audit risk while
conducting an audit.
b. Should consider materiality and its relationship with audit risk while conducting
an audit.
c. Should not consider materiality but should consider its relationship with audit risk
d. Should consider materiality but need not consider its relationship with audit risk
11. When planning the audit,
a. The auditor considers what would make the financial information materially
misstated.
b. The auditor need not consider what would make the financial information
materially misstated.
c. The auditor need not consider what would make the financial information
materially misstated at planning stage
d. The auditor needs to consider what would make the financial information
materially misstated while conducting audit only
12. With reference to SA 300, the auditor shall document:

a. The overall audit strategy
b. The audit plan
c. Any significant changes made during the audit engagement to the overall audit
strategy or the audit plan, and the reasons for such changes.
d. All of the above
CHAPTER 3: Audit Documentation and Audit Evidence
1. which of the following is incorrect :
a. In terms of the general principles of law, any person having the lawful possession
of somebody else’s property, on which he has worked, may retain the property for
non-payment of his dues on account of the work done on the property.
b. Under section 128 of the Act, books of account of a company must be kept at the
registered office. These provisions ordinarily make it impracticable for the auditor
to have possession of the books and documents.
c. The company provides reasonable facility to auditor for inspection of the books of
account by directors and others authorized to inspect under the Act.
d. Working papers not being his own property, auditor can exercise lien on working
papers.
2. refers to a difference between the amount, classification, presentation, or

disclosure of a reported financial statement item and the amount, classification,
presentation, or disclosure that is required for the item to be in accordance with the
applicable financial reporting framework.
a. Misstatement
b. Error
c. Fraud
d. Any of the above
3. Audit evidence includes

a. Information contained in the accounting records underlying the financial
statements
b. Both information contained in the accounting records underlying the financial
statements and other information.
c. Other information.
d. Information contained in the accounting records underlying the financial
statements or other information.
4. Most of the auditor’s work in forming the auditor’s opinion consists of :

a. Obtaining audit evidence.
b. Evaluating audit evidence.
c. Obtaining or evaluating audit evidence.
d. Obtaining and evaluating audit evidence.
5. Audit documentation provides:

a. Evidence of the auditor’s basis for a conclusion about the achievement of the
overall objectives of the auditor; or evidence that the audit was planned and
performed in accordance with SAs and applicable legal and regulatory
requirements.
b. Evidence of the auditor’s basis for a conclusion about the achievement of the
overall objectives of the auditor; and evidence that the audit was planned and
performed in accordance with SAs and applicable legal and regulatory
requirements.
c. Evidence of the auditor’s basis for a conclusion about the achievement of the
overall objectives of the auditor
d. Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
6. Which of the following is not an example of audit documentation:

a. Audit programmes
b. Summaries of significant matters
c. Audit file
d. Checklists.
7. Minnie Ltd., a listed company, appointed CA. Kranny for auditing complete set of
consolidated financial statements of the company. CA. Kranny is unable to obtain
sufficient appropriate audit evidence regarding an investment in a foreign associate.
The possible effects of the inability to obtain sufficient appropriate audit evidence are
deemed to be material but not pervasive to the consolidated financial statements. Based
on the audit evidence obtained, CA. Kranny concludes that a material uncertainty does
not exist related to events or conditions that may cast significant doubt on the
company’s ability to continue as a going concern in accordance with SA 570. State
what type of opinion CA. Kranny must have provided in the given scenario?
i. Unmodified opinion.
ii. Qualified opinion.
iii. Adverse opinion.
iv. Disclaimer of opinion.
8. CA. Bobby is a recently qualified Chartered Accountant. He is appointed as an auditor

of Droopy Ltd. for the current Financial Year 2017-18. He is quite conservative in
nature which is also replicated in his professional work. CA. Bobby is of the view that
he shall record all the matters related to audit, audit procedures to be performed, audit
evidence obtained and conclusions reached. Thus, he maintained a file and recorded
each and every of his findings during the audit. His audit file, besides other thing,
includes audit programmes, notes reflecting preliminary thinking, letters of
confirmation, e-mails concerning significant matters, etc. State which of the following
need not be included in the audit documentation?
i. Audit programmes.
ii. Notes reflecting preliminary thinking.
iii. Letters of confirmation.
iv. E-mails concerning significant matters.
9. Which of the following is correct :

(a) The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date
of the auditor’s report.
(b) The auditor shall assemble the audit documentation in an audit file and shall not
complete the administrative process of assembling the final audit file.
(c) The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis before the
date of the auditor’s report.
(d) The auditor shall not assemble the audit documentation in an audit file.
10. Which of the following is not an example of audit documentation:

(a) Audit programmes
(b) Summaries of significant matters
(c) Audit file
(d) Checklists.
11. Audit documentation provides:

(a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; or evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory requirements.
(b) Evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; and evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory requirements.
(c) Evidence of the auditor’s basis for a conclusion about the achievement of the
overall objectives of the auditor
(d) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
12. Which statement is correct regarding written representations

(a) Although written representations provide necessary audit evidence, they do not
provide sufficient appropriate audit evidence on their own about any of the matters
with which they deal.
(b) Written representations provide sufficient appropriate audit evidence on their own
about any of the matters with which they deal.
(c) Written representations neither provide necessary audit evidence nor provide
sufficient appropriate audit evidence.
(d) Written representations are not related to audit evidence.
13. _ refers to the record of audit procedures performed, relevant audit

evidence obtained, and conclusions the auditor reached.
(a) Audit documentation
(b) Audit File
(c) Audit Note Book
(d) Completion Memorandum
14. refer to an attitude that includes a questioning mind, being alert to

conditions which may indicate possible misstatement due to error or fraud, and a
critical assessment of audit evidence.
a. Professional skepticism
c. Integrity
d. Objectivity
15. _ refers to the record of audit procedures performed, relevant audit evidence
obtained, and conclusions the auditor reached.
a. Audit documentation
b. Audit File
c. Audit Note Book
d. Completion Memorandum
16. Audit programs, Analyses, Issues memorandum, Summaries of significant matters.

are examples of :
(a) Audit Evidence
(b) Audit Documentation
(c) Audit File
(d) Final Audit File
17.
 Audit programmes.
 Analyses.
 Issues memoranda.
 Summaries of significant matters.
Are examples of:
(a) Audit Evidence
(b) Audit Documentation
(c) Audit File
(d) Final Audit File
18. Audit evidence is necessary to support the auditor’s opinion and report. It is_ _in
Nature and is primarily obtained from audit procedures performed during the course of
the audit.
(a) Cumulative
(b) Regressive
(c) Selective
(d) Objective
19. Professional skepticism is necessary to the critical assessment of

(a) Audit documentation
(b) Audit evidence.
(c) Audit procedures
20. After the assembly of the final audit file has been completed
(a) The auditor shall delete or discard the audit documentation of any nature before
the end of its retention period.
(b) The auditor may delete or discard audit documentation of any nature before the
end of its retention period.
(c) The auditor may not delete or discard audit documentation of any nature before
(d) The auditor shall not delete or discard audit documentation of any nature before
21. CA. Goofy has been appointed as an auditor for audit of a complete set of financial
statements of Dippy Ltd., a listed company. The financial statements of the company
are prepared by the management in accordance with the Accounting Standards
prescribed under section 133 of the Companies Act, 2013. However, the inventories are
misstated which is deemed to be material but not pervasive to the financial statements.
Based on the audit evidences obtained, CA. Goofy has concluded that a material
uncertainty does not exist related to events or conditions that may cast significant doubt
on the entity’s ability to continue as a going concern in accordance with SA 570.
Further, CA. Goofy is also aware of the fact that a qualified opinion would be
appropriate due to a material misstatement of the Financial Statements. State what
phrases should the auditor use while drafting such opinion paragraph?
i. In our opinion and to the best of our information and according to the explanations
given to us, except for the effects of the matter described in the Basis for Qualified
Opinion section of our report, the aforesaid financial statements present fairly, in
all material respects, or give a true and fair view in conformity with the applicable
financial reporting framework.
ii. In our opinion and to the best of our information and according to the explanations
given to us, with the foregoing explanation, the aforesaid financial statements
present fairly, in all material respects, or give a true and fair view in conformity
with the applicable financial reporting framework.
iii. In our opinion and to the best of our information and according to the explanations
given to us, subject to the misstatement regarding inventories, the aforesaid
financial statements present fairly, in all material respects, or give a true and fair
view in conformity with the applicable financial reporting framework.
iv. In our opinion and to the best of our information and according to the explanations
given to us, with the explanation described in the Basis for Qualified Opinion
section of our report, the aforesaid financial statements present fairly, in all
material respects, or give a true and fair view in conformity with the applicable
financial reporting framework.

a. Inquiry consists of seeking information of unknown persons, both financial and
non- financial, within the entity or outside the entity.
b. Inquiry is used extensively throughout the audit in addition to other audit
procedures.
c. Inquiries may range from formal written inquiries to informal oral inquiries.
Evaluating responses to inquiries is an integral part of the inquiry process.
d. Responses to inquiries may provide the auditor with information not previously
possessed or with corroborative audit evidence.
23. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the
opening balances, the auditor shall express :
a. A disclaimer opinion
b. A qualified opinion
c. A qualified opinion or a disclaimer of opinion, as appropriate, in accordance with
SA 705.
d. Unmodified opinion
24. Audit evidence includes

a. Information contained in the accounting records underlying the financial
statements
b. Both information contained in the accounting records underlying the financial
statements and other information.
c. Other information.
d. Information contained in the accounting records underlying the financial
statements or other information.
25. Most of the auditor’s work in forming the auditor’s opinion consists of :
a. Obtaining audit evidence.
b. Evaluating audit evidence.
c. Obtaining or evaluating audit evidence.
d. Obtaining and evaluating audit evidence.

a. The auditor shall assemble the audit documentation in an audit file and complete
the administrative process of assembling the final audit file on a timely basis after
the date of the auditor’s report.
b. The auditor shall assemble the audit documentation in an audit file and shall not
c. The auditor shall assemble the audit documentation in an audit file and complete
the administrative process of assembling the final audit file on a timely basis
before the date of the auditor’s report.
d. The auditor shall not assemble the audit documentation in an audit file.
CHAPTER 4: Risk Assessment and Internal Control
1. Audit risk is a function of the
a. Risks of material misstatement and detection risk.
b. Audit risk and detection risk.
c. Control risk and detection risk.
d. Inherent risk and detection risk.
2. The auditor shall design and perform audit procedures in order to identify litigation and
claims involving the entity which may give rise to a risk of material misstatement,
including:
a. Inquiry of management and, where applicable, others within the entity, including
in-house legal counsel.
b. Reviewing minutes of meetings of those charged with governance and
correspondence between the entity and its external legal counsel.
c. Reviewing legal expense accounts.
d. All of the above.
3. SA 315 establishes requirements and provides guidance on identifying and assessing

the risks of material misstatement -
a. At the financial statement levels only.
b. At the assertion levels only.
c. At the financial statement and assertion levels.
d. At the financial statement or assertion levels.
4. Auditor’s judgment as to sufficiency may be affected by the factors such as:

(a) Materiality
(b) Risk of material misstatement
(c) Size and characteristics of the population.

(a) Risks of material misstatement and detection risk.
(b) Audit risk and detection risk.
(c) Control risk and detection risk.
(d) Inherent risk and detection risk.
6. Risk of material misstatement may be defined as the risk

(a) That the financial statements are materially misstated after audit.
(b) That the financial statements are materially misstated during audit.
(c) That the financial statements are materially misstated prior to audit.
7. Standard on Quality Control (SQC) 1 provides that,

(a) Unless otherwise specified by law or regulation, audit documentation is the property
of the management.
(b) Unless otherwise specified by law or regulation, audit documentation is the property
of those charged with governance.
(c) Unless otherwise specified by law or regulation, audit documentation is the property
of the management or those charged with governance.
(d) Standard on Quality Control (SQC) 1 provides that, unless otherwise specified by law
or regulation, audit documentation is the property of the auditor.
8. Determining a percentage to be applied to a chosen benchmark (in relation to

materiality) involves the exercise of
a. Independence
c. Professional skepticism
d. All of the above
9. Components of risk of material misstatement at the assertion level are :

(a) Inherent risk and detection risk
(b) Inherent risk and control risk
(c) Control risk and detection risk
(d) Inherent risk, control risk and detection risk
10. refer to the audit procedures performed to obtain an understanding of the

entity and its environment, including the entity’s internal control, to identify and
assess the risks of material misstatement, whether due to fraud or error, at the
financial statement and assertion levels.
a. Audit assessment procedures
b. Substantive procedures
c. Test of control
d. Risk assessment procedures
11. When more persuasive audit evidence is needed regarding the effectiveness of a
control,
(a) It may be appropriate to increase the extent of testing of the control and reduce the
extent of the degree of reliance on controls.
(b) It may be appropriate to decrease the extent of testing of the control as well as the
degree of reliance on controls.
(c) It may be appropriate to decrease the extent of testing of the control and increase
the extent of the degree of reliance on controls.
(d) It may be appropriate to increase the extent of testing of the control as well as the
degree of reliance on controls.
12. The susceptibility of an assertion about a class of transaction, account balance or disclosure
to a misstatement that could be material, either individually or when aggregated with other
misstatements, before consideration of any related controls is-
(a) Control Risk
(b) Inherent Risk
(c) Detection Risk
(d) Audit Risk
13. The management of Magoo Ltd. has developed a strong internal control in its
accounting system in such a way that the work of one person is reviewed by another.
Since no individual employee is allowed to handle a task alone from the beginning to
the end, the chances of early detection of frauds and errors are high. CA. Olive has
been appointed as an auditor of the company for current Financial Year 2017-18.
Before starting the audit, she wants to evaluate the internal control system of Magoo
Ltd. To facilitate the accumulation of the information necessary for the proper review
and evaluation of internal controls, CA. Olive decided to use internal control
questionnaire to know and assimilate the system and evaluate the same. Which of the
following questions need not be framed under internal control questionnaire relating to
purchases?
i. Are authorized signatories for purchases limited to elected officials?
ii. Are payments approved only on original invoices?
iii. Does authorized official thoroughly review the documents before signing cheques?
iv. Are monthly bank reconciliations implemented for each and every bank accounts
of the company?
14. The risks of material misstatement at the assertion level consist of two components:
a. Inherent risk and detection risk
b. Control risk and detection risk
c. Audit risk and detection risk
d. Inherent risk and control risk

a. Risks of material misstatement and detection risk.
b. Audit risk and detection risk.
c. Control risk and detection risk.
d. Inherent risk and detection risk.

a. That the financial statements are materially misstated after audit.
b. That the financial statements are materially misstated during audit.
c. That the financial statements are materially misstated prior to audit.
17. The auditor shall design and perform audit procedures in order to identify litigation
and claims involving the entity which may give rise to a risk of material misstatement,
including:
a. Inquiry of management and, where applicable, others within the entity, including
in-house legal counsel.
b. Reviewing minutes of meetings of those charged with governance and
correspondence between the entity and its external legal counsel.
c. Reviewing legal expense accounts.
d. All of the above
a. That the financial statements are materially misstated after audit.
b. That the financial statements are materially misstated during audit.
c. That the financial statements are materially misstated prior to audit.
d. All of the above

a. The auditor is not expected to, and cannot, reduce audit risk to zero and cannot
therefore obtain absolute assurance that the financial statements are free from
material misstatement due to fraud or error.
b. The auditor is expected to and can reduce audit risk to zero and can therefore
obtain absolute assurance.
c. The auditor is not expected to, and cannot, reduce audit risk to zero and cannot
therefore obtain reasonable assurance that the financial statements are free from
material misstatement due to fraud or error.
d. The auditor is expected to and can reduce audit risk to zero and can therefore
obtain reasonable assurance that the financial statements are free from material
misstatement due to fraud or error.
CHAPTER 5: Fraud and Responsibilities of the Auditor
1. If, as a result of a misstatement resulting from fraud, the auditor encounters exceptional
circumstances that bring into question his ability to continue performing the audit, he
shall-
a. Withdraw from the engagement immediately.
b. Report to Audit team regarding withdrawal.
c. Determine the professional and legal responsibilities applicable in the
circumstances.
d. Ask the management for his withdrawal.
2. One of your junior audit team members is confused with the term ‘material
misstatement’. You explain him that a material misstatement is untrue information in a
financial statement that could affect the financial decisions of one who relies on the
statement. Which of the following would constitute material misstatement?
(1) An error of Rs.5,000 in relation to assets of Rs.20 lakhs.
(2) A payroll fraud of Rs.100 in a company where profit before tax is Rs.11,000.
(3) Non-disclosure of a material uncertainty.
(4) Financial statements have been prepared on a going concern basis when the
company is in the process of being liquidated.
(a) 1 and 2
(b) 3 and 4
(c) 2 and 3
(d) 1 and 4
3. The standard that requires auditors to analyses journal entries in an audit is?
a. SA 260
b. SA 230
c. SA 315
d. SA 240
4. Misstatements in the financial statements can arise either from fraud or error. The
auditor is concerned with fraud that causes a material misstatement in the financial
statements which may further be classified as fraudulent financial reporting or
misappropriation of assets.
There are certain events or conditions that indicate an incentive or pressure to commit
fraud or provide an opportunity to commit fraud which may be termed as fraud risk
factors. Which of the following is an example of fraud risk factor relating to
misstatements arising from misappropriation of assets?
a. Known history of violations of laws and regulations.
b. Management failing to remedy known significant deficiencies in internal control on
a timely basis.
c. Inventory items that are small in size, but of high value or in high demand.
d. An interest by management in employing inappropriate means to minimize
reported earnings for tax- motivated reasons.
5. The type of errors, existence of which becomes apparent in the process of compilation
of accounts is known as-
a. Self-revealing errors.
b. Intentional errors.
c. Concealed errors.
d. Unconcealed errors.
6. Tolerable error, is the maximum monetary error that the auditor is prepared to accept
in the population and still conclude that audit objective has been achieved, is directly
related to
a. Sample size
b. Audit risk
c. Materiality
d. Expected error
7. __ refers to a difference between the amount, classification, presentation, or disclosure of

a reported financial statement item and the amount, classification, presentation, or
disclosure that is required for the item to be in accordance with the applicable financial
reporting framework.
(a) Misstatement
(b) Error
(c) Fraud
(d) Any of the above
8. The assessment of risks is a

(a) Matter capable of precise measurement rather than matter of professional judgment
(b) Matter of professional judgment, rather than a matter capable of precise
measurement.
(c) Matter of professional judgment as well as capable of precise measurement sometimes.
9. The assessment of the risks of material misstatement may be expressed in

a. Quantitative terms, such as in percentages, or in non-quantitative terms.
b. Quantitative terms, such as in percentages,
c. Non-quantitative terms.

a. The auditor shall express a qualified opinion when the auditor, having obtained
sufficient appropriate audit evidence, concludes that misstatements, individually
or in the aggregate, are both material and pervasive to the financial statements.
b. The auditor shall express a disclaimer opinion when the auditor, having obtained
c. The auditor shall express an adverse opinion when the auditor, having obtained
d. The auditor shall express an adverse opinion when the auditor, having obtained
or in the aggregate, are material, but not pervasive, to the financial statements.
CHAPTER 6: Audit in an Automated Environment
1. When deviations from controls upon which the auditor intends to rely are detected,
(a) The auditor shall not make any inquiries to understand these matters and their
potential consequences
(b) The auditor shall make specific inquiries to understand these matters and their
(c) The auditor shall make general inquiries to understand these matters and their
(d) The auditor shall make both general as well as specific inquiries to understand
these matters and their potential consequences
CHAPTER 7: Audit Sampling

1. Which of the following factors is (are) considered in determining the sample size for
tests of control?
(a) Projected error
(b) Tolerable error
(c) Expected error
(d) Both (b) and (c)
2. Which of the following is source of Non Sampling risk :

a. Human Mistakes
b. Applying audit procedures not appropriate to the objectives of audit
c. Misinterpreting the sample results
d. All of the above
3. While auditing TEN Ltd., CA. Porky divided the whole population of trade receivables
balances to be tested in a few separate groups called ‘strata’ and started taking a sample
from each of them. He treated each stratum as if it was a separate population. He
divided the trade receivables balances of TEN Ltd. for the Financial Year 2017-18 into
groups on the basis of personal judgment as follows:
S. No. Particulars
1 Balances in excess of Rs. 10,00,000;
2 Balances in the range of Rs. 7,75,001 to Rs. 10,00,000;
5 Balances Rs. 2,25,000 and below
Form the above mentioned groups, CA. Porky picked up different percentage of items
for examination from each of the groups, for example, from the top group i.e. balances
in excess of Rs.10,00,000, he selected all the items to be examined; from the second
group, he opted for 25 % of the items to be examined; from the lowest group, he
selected 2% of the items for examination; and so on from rest of the groups. Which one
of the following methods of sample selection is he following?
i. Systematic sampling.
ii. Stratified sampling.
iii. Section sampling.
iv. Selection sampling.
4. In the case of tests of details

a. The projected misstatement plus anomalous misstatement, if any, is the auditor’s best
estimate of misstatement in the population.
b. The projected misstatement is the auditor’s best estimate of misstatement in the
population.
c. The anomalous misstatement is the auditor’s best estimate of misstatement in the
population.
d. The projected misstatement plus anomalous misstatement, if any, cannot be the
auditor’s best estimate of misstatement in the population.

a. When the projected misstatement exceeds tolerable misstatement, the sample does
not provide a reasonable basis for conclusions about the population that has been
tested.
b. When the projected misstatement plus anomalous misstatement, if any, exceeds
tolerable misstatement, the sample does not provide a reasonable basis for
conclusions about the population that has been tested.
c. When the anomalous misstatement exceeds tolerable misstatement, the sample does
not provide a reasonable basis for conclusions about the population that has been
tested.
d. When the projected misstatement plus anomalous misstatement, if any, exceeds
tolerable misstatement, the sample provides a reasonable basis for conclusions about
the population that has been tested.
6. It is a type of value-weighted selection in which sample size, selection and evaluation

results in a conclusion in monetary amounts :
a. Haphazard sampling
b. Monetary Unit Sampling
c. Stratified Sampling
d. Interval sampling
CHAPTER 8: Analytical Procedures
1. The matter of difficulty, time, or cost involved is :
a. Not in itself a valid basis for the auditor to omit an audit procedure for which there
is no alternative.
b. In itself a valid basis for the auditor to omit an audit procedure for which there is no
alternative.
c. Not in itself a valid basis for the auditor to omit an audit procedure for which
alternative exists.
d. Not in itself a valid basis for the auditor to omit an audit procedure.
2. Judging the significance of a matter requires of the facts and circumstances

(a) Objective analysis
(b) Subjective analysis
(c) Both subjective and objective analysis
(d) Qualitative analysis
3. Which of the following is not an analytical procedure?

a. Tracing of purchases recurred in the purchase book to purchase invoices.
b. Comparing aggregate wages paid to number of employees
c. Comparing the actual costs with standard costs
d. All of them are analytical procedure
4. What are analytical procedures?

a. Substantive tests designed to assess control risk
b. Substantive tests designed to evaluate the validity of management’s representation
letter
c. Substantive tests designed to study relationships between financial and non-
financial data
d. All of the above
5. 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
6. Which of the following statement is correct :

(a) Substantive analytical procedures are generally more applicable to large volumes
of transactions that tend to be predictable over time
(b) Substantive analytical procedures are generally less applicable to large volumes of
transactions that tend to be predictable over time
(c) Substantive analytical procedures are generally more applicable to small volumes
of transactions that tend to be predictable over time
(d) All statements are correct
7. Because the assessment of the risk of material misstatement takes account of internal
control,
(a) The extent of substantive procedures may need to be increased irrespective of the
results from tests of controls.
(b) The extent of substantive procedures may need to be increased when the results
from tests of controls are satisfactory.
(c) The extent of substantive procedures may need to be decreased when the results
from tests of controls are unsatisfactory.
(d) The extent of substantive procedures may need to be increased when the results
from tests of controls are unsatisfactory.
8. The auditor shall assemble the audit documentation in and complete the administrative
process of assembling the final audit file on a timely basis after the date of the auditor’s
report.
a. Audit note book
b. Completion memorandum
c. Audit file
d. Any of the above
9. The auditor shall assemble the audit documentation in and complete the administrative
process of assembling the final audit file on a timely basis after the date of the auditor’s
report.
(a) Audit note book
(b) Completion memorandum
(c) Audit file
(d) Any of the above
10. Marvin Ltd. is a renowned food chain supplier in a posh area providing restaurant
facility along with food delivering. CA. Felix was appointed as an auditor of the
company for the Financial Year 2017-18. While examining the books of account of the
company, CA. Felix came to know about one of the major expenses of the company i.e.
rent expense of Rs. 1,20,000 per month, for which he applied substantive analytical
procedure for verification purpose. Explain, how would CA. Felix perform substantive
analytical procedure in the given scenario?
i. CA. Felix would inspect every single rent invoice per month of Rs. 1,20,000 and
verify other elements appropriately.
ii. CA. Felix would compare the rental expense of the company with that of another
nearby company having corresponding dimensions, for high degree of accuracy.
iii. CA. Felix would select the first month rent invoice of Rs. 1,20,000 and
appropriately verifying other elements would predict that the rent for the whole
year would be Rs. 14,40,000 (i.e. Rs. 1,20,000 * 12). Thereafter, he would
compare the actual with his prediction and follow-up for any fluctuation.
iv. (a) and (b), both.
a. As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term
“analytical procedures” means evaluations of financial information through
analysis of financial data.
b. As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term
analysis of non-financial data.
c. As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term
analysis of plausible relationships among both financial and non-financial data.
d. As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term
“analytical procedures” means evaluations of financial information through ratio
analysis.
CHAPTER 9: Audit of Items of Financial Statements

1. Which of the following is an example of inflating cash payments?
a. Making payments against purchase vouchers.
b. Teeming and lading.
c. Not accounting for cash sales fully.
d. Making payments against inflated vouchers.
2. The management of BOB Ltd. could not differentiate between any obligation for which
either provisions need to be made or the contingent liability to be shown. The auditor of
the company clarifies the management that the provisions are the amounts charged
against revenue to provide for a known liability, the amount whereof cannot be
determined with substantial accuracy. On the other hand, a contingent liability is a
possible obligation that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the entity; or a present obligation that arises from past
events but is not recognized because it is not probable that an out flow of resources
embodying economic benefits will be required to settle the obligation or the amount of
the obligation cannot be measured with sufficient reliability. The auditor further
explains the concept with the help of examples. State which of the following examples
the auditor must have provided in respect of contingent liability?
i. Depreciation.
ii. Clean-up costs for unlawful environmental damage.
iii. Product warranties.
iv. Lawsuit against the company where it is more likely that no present obligation
exists.
3. While auditing the books of accounts of QHMP Ltd., CA. Ranker, the statutory auditor
of the company, came to know that the management of the company has recognized
internally generated goodwill as a fixed asset. CA. Ranker discussed with the
management that according to accounting standards, internally generated goodwill is
not recognized as an asset because it is not an identifiable resource controlled by the
enterprise that can be measured reliably at cost. However, the management is quite rigid
to the accounting treatment followed for internally generated goodwill and not paying
attention to the auditor. Thus, through an example, CA. Ranker explained which type of
goodwill may be recognized as a fixed asset for which the management got justified.
State which of the following examples the auditor must have given to the management?
i. If an item meeting the definition of an intangible asset is acquired in a business
combination, it forms part of the goodwill to be recognized at the date of the
amalgamation.
ii. Only those goodwill needs to be recognized as a fixed asset which can be touched
like physical assets, for example, land and buildings.
iii. Goodwill is recognized only when there is a contractual or other legal rights for a
physical asset which shall not be amortized over the period.
4. Which of the following Assertion is not related to assertion about presentation and
disclosure:
a. Occurrence and rights and obligations
b. Completeness
c. Classification and understandability
d. Valuation and allocation
5. While auditing the accounts of Thought Co Ltd., CA. Bliss, the auditor of the company
came across certain accounts payable balances for which direct confirmation procedure
needs to be applied. Thus, for the year ending 31st March, 2018, he sent positive
confirmation requests wherein the trade payables are requested to respond whether or
not they are in agreement with the balance shown. The auditor received all the
confirmation replies from the trade payables on time as correct except from five of
them. What other option the auditor is left with regard to trade payables from which no
reply for confirmation requests received?
i. Perform additional testing which may include agreeing the balance to subsequent
cash paid.
ii. Accept the balances as it is assuming other replies against received confirmation
requests being correct.
iii. Accept the balances as it is assuming that the trade payables must have replied in
case of any discrepancies.
iv. None of the above.
6. The notes to the account statement of ASD Ltd. shows the break-up of accounts
payable for the Financial Year 2016-17 as follows:
Accounts Payable Amount (in Rs.)
Mr. Kraby 1,20,000
Mr. Runny 40,000
Mr. Bluffy 14,56,000
Total 16,16,000
CA. Sandy, the auditor of ASD Ltd., wants to investigate the valuation of accounts
payable of Mr. Bluffy amounting to Rs. 14,56,000. Which of the following procedures
is best fitted & more reliable to be followed by CA. Sandy to get more reliable evidence
for the existence of such balance as on 31 st March, 2017?
i. Inspect each and every journal entry passed in the books of ASD Ltd.
ii. Ask ASD Ltd. to provide the details of payment made during the year 2017-18.
iii. Inspect the invoices issued by Mr. Bluffy and the payments made.
iv. Interrogate the cash manager of ASD Ltd.
7. Which of the following is incorrect :

a. Written representations are necessary information that the auditor requires in
connection with the audit of the entity’s financial statements.
b. Similar to responses to inquiries, written representations are audit evidence.
c. Written representations are requested from those responsible for the preparation
and presentation of the financial statements.
d. Written representations provide necessary audit evidence and also they provide
sufficient appropriate audit evidence on their own about any of the matters with
which they deal.

a. In terms of the general principles of law, any person having the lawful possession
of somebody else’s property, on which he has worked, may retain the property for
non-payment of his dues on account of the work done on the property.
b. Under section 128 of the Act, books of account of a company must be kept at the
registered office. These provisions ordinarily make it impracticable for the auditor
to have possession of the books and documents.
c. The company provides reasonable facility to auditor for inspection of the books of
account by directors and others authorized to inspect under the Act.
d. Working papers not being his own property, auditor can exercise lien on working
papers.
9. The auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of the auditor’s report. However, when, after the date of the
auditor’s report but before the date the financial statements are issued, a fact becomes
known to the auditor that, had it been known to the auditor at the date of the auditor’s
report, may have caused the auditor to amend the auditor’s report, the auditor shall:
a. Discuss the matter with management and, where appropriate, those charged with
governance.
b. Determine whether the financial statements need amendment.
c. Inquire how management intends to address the matter in the financial statements.
d. All of the above
CHAPTER 10: The Company Audit
1. As per Section 139(6), the first auditor of a company, other than a Government
company, shall be appointed
a. By the Board of Directors within 30 days from the date of registration of the
company.
b. By the audit committee within 30 days from the date of registration of the
company.
c. By the Managing Director within 30 days from the date of registration of the
company.
d. By the shareholders within 30 days from the date of registration of the company.
2. Where a company is required to constitute an Audit Committee under section 177,

a. All appointments, including the filling of a casual vacancy of an auditor under this
section shall be made after taking into account the recommendations of such
committee.
b. All appointments, excluding the filling of a casual vacancy of an auditor under this
committee.
c. Appointment of first auditors shall be made after taking into account the
recommendations of such committee.
d. Appointment of subsequent auditors shall be made after taking into account the
3. CA. Donald was appointed as the auditor of PS Ltd. at the remuneration of Rs. 30,000.
However, after 4 months of continuing his services, he could not continue to hold his
office of the auditor as his wife got a government job at a distant place and he needs to
shift along with her to the new place. Thus, he resigned from the company and did not
perform his responsibilities relating to filing of statement to the company and the
registrar indicating the reasons and other facts as may be relevant with regard to his
resignation. How much fine may he be punishable with under Companies Act, 2013?
(a) Nothing.
(b) Rs. 30,000.
(c) Not less than Rs. 50,000 but which may extend to Rs. 5,00,000.
(d) Not less than Rs. 30,000 but which may extend to Rs. 5,00,000.
4. Eeyore Pvt. Ltd. is incorporated on 1st July, 2017. During the Financial Year ending on
31st March, 2018, the company did not opt for any borrowing at any point of time and
have a total revenue of Rs.60 Lakh. At the year end, it provides the following
information regarding its paid-up capital and reserve & surplus-
Particular Amount(in Rs)
Paid- Up Capital
- Consideration received in cash for equity shares(including unpaid 40,00,000
calls of Rs. 5,00,000)
- Consideration received in cash for preference shares 25,00,000
- Bonus shares allotted 7,00,000
- Share application money received pending allotment 10,00,000
Sub-Total 82,00,000
Reserve & Surplus
- Balance in Statement of Profit and Loss 15,00,000
- Capital Reserves 10,00,000
Sub-Total 25,00,000
GRAND TOTAL 1,07,00,000
You are provided with the provisions regarding applicability of Companies (Auditor’s
Report) Order, 2016, (CARO, 2016) issued under section 143(11) of the Companies
Act, 2013 to a private limited company that it specifically exempts a private limited
company having a paid up capital and reserves and surplus not more than Rs. 1 crore as
on the Balance Sheet date and which does not have total borrowings exceeding Rs. 1
crore from any bank at any point of time during the financial year and which does not
have a total revenue as disclosed in Scheduled III to the Companies Act, 2013
exceeding Rs. 10 crore during the financial year.
Considering the information given above, which of the following shall be considered as
a reason regarding applicability or non-applicability of CARO, 2016?
i. Reporting under CARO, 2016 shall be applicable as the company is having a paid up
capital and reserves and surplus of Rs. 1.07 crore i.e. more than Rs. 1 crore as on the
Balance Sheet date.
ii. Reporting under CARO, 2016 shall be applicable as the company is having a paid up
capital and reserves and surplus of Rs. 1.02 crore i.e. more than Rs. 1 crore as on the
Balance Sheet date.
iii. Reporting under CARO, 2016 shall not be applicable as the company is having a paid
up capital and reserves and surplus of Rs. 0.92 crore i.e. not more than Rs. 1 crore as
on the Balance Sheet date.
iv. Reporting under CARO, 2016 shall not be applicable as the company is having a paid
up capital and reserves and surplus of Rs. 0.82 crore i.e. not more than Rs. 1 crore as
on the Balance Sheet date.
5. CA. Daffy is the auditor of xBose Ltd. for the previous 2 years. However, due to
certain unavoidable circumstances, no Annual General Meeting (AGM) was held for
the current Financial Year ending on 31st March, 2018 within every possible time limit
and thus, the ratification procedure for her appointment in the AGM could not be
performed. Whether she may continue to hold the office of the auditor?
i. CA. Daffy may continue to hold the office of the auditor for the current Financial
Year only and thereafter shall resign herself as the ratification procedure could not
be completed.
ii. CA. Daffy shall continue to hold the office of the auditor and ask the Board to re-
appoint her in a private meeting.
iii. CA. Daffy shall continue to hold the office of the auditor as no such ratification
provisions for appointment by members at every AGM exist.
iv. CA. Daffy shall not continue to hold office of the auditor as the ratification
procedure could not be completed as per proviso to section 139(1) of the
Companies Act, 2013.
6. An entity in addition to undertaking purchases and incurring employee benefit expenses
also spends on other expenditure that are essential and incidental to running of business
operations. One of such expenses is the legal and professional expenses. These are the
fees paid for professional advices regarding specific deals.
Iconic Ltd. is having a retainer ship agreement with a lawyer, Mr. Avi, to whom the
company is paying a huge sum as legal and professional expenses on monthly basis.
While vouching such expenses, what should be kept in mind by the auditor?
i. In case of monthly retainer ship agreements, only verify if the expenditure for all
12 months has been recorded correctly.
ii. The auditor should verify that the payments have been only through bank
vouchers.
iii. The auditor should be cautious while vouching for legal expenses as the same may
highlight a dispute for which the entity may not have made any provision and the
matter may also not have been discussed/ highlighted to the auditor for his specific
consideration.
iv. In case of monthly retainer ship agreements, only verify that all the payments have
been made and there is no outstanding balance to be shown as liability in the
Balance Sheet.
7. CA. Sylvester, the statutory auditor of Yosemitee Pvt. Ltd., encountered unavoidable
circumstances that bring into question his ability to continue holding office of the
auditor. Considering it appropriate, CA. Sylvester resigned from the office of auditor of
Yosemitee Pvt. Ltd. and thus, the Board of Directors itself appointed CA. Granny, a
practicing Chartered Accountant, as the statutory auditor of the company to hold office
of the auditor till the conclusion of 6th meeting. Which of the following statement is
true in the given scenario?
(a) The appointment of CA. Granny made by the Board of Directors is invalid.
(b) Casual vacancy can be filled by the Board of Directors subject to approval by the
company at a general meeting convened within 3 months of the recommendation
of the Board.
(c) CA. Granny cannot hold the office of auditor till the conclusion of 6th meeting i.e.
the appointment cannot be made for five years. The auditor can hold office only till
the conclusion of the next AGM.
(d) All of the above.
8. Miss Betty, relative of CA. Tweety (one of the partners of M/s AB & Co.), owed Rs.
1,50,000 to Satyan Ltd. for goods purchased in the normal course of business. Later on,
M/s AB & Co. was appointed as statutory auditors of Prakash Ltd. (which holds 51%
shares in Satyan Ltd.). On discovering the said fact, Miss Betty cleared the dues to
Satyan Ltd. on 59th day following the date of appointment of M/s AB & Co. as
statutory auditors of Prakash Ltd. Which of the following statement is true in the given
scenario with respect to validity of appointment of M/s AB & Co.?
i. Miss Betty, relative of CA. Tweety (one of the partners of M/s AB & Co.) is
indebted to the subsidiary of Prakash Ltd. but not to the company itself. Thus, the
appointment of M/s AB & Co. as the statutory auditors of Prakash Ltd. is valid.
ii. M/s AB & Co. is not eligible for appointment as an auditor of Prakash Ltd. as
Miss Betty, relative of CA. Tweety (one of the partners of M/s AB & Co.) is
indebted to Satyan Ltd. (subsidiary of Prakash Ltd.) Thus, the appointment made
is not valid.
iii. As the corrective action has been taken regarding indebtness to Satyan Ltd.
(subsidiary of Prakash Ltd.) within 60 days of such appointment, the appointment
of M/s AB & Co. is valid.
iv. There is no such contravention of the provisions of the Companies Act, 2013 in
the given scenario. Thus, the appointment of M/s AB & Co. as the statutory
auditors of Prakash Ltd. is valid.
9. Section 139(7) provides that in the case of a Government company or any other
company owned or controlled, directly or indirectly, by the Central Government, or by
any State Government, or Governments, or partly by the Central Government and partly
by one or more State Governments, the first auditor shall be appointed by the
Comptroller and Auditor-General of India from the date of
registration of the company.
a. Within 60 days
b. Within 30 days
c. Within 90 days
d. Within 45 days
10. As per Section 139(8), any casual vacancy in the office of an auditor shall in the case
of a company other than a company whose accounts are subject to audit by an auditor
appointed by the Comptroller and Auditor-General of India,
a. Be filled by the Audit committee within 60 days.
b. Be filled by the Audit committee within 30 days.
c. Be filled by the Board of Directors within 60days.
d. Be filled by the Board of Directors within 30days.
11. As per section 140(2) the auditor who has resigned from the company shall-
a. File within a period of 60 days from the date of resignation, a statement in the
prescribed Form ADT– 3 (as per Rule 8 of CAAR) with the company and the
Registrar
b. File within a period of 30 days from the date of resignation, a statement in the
prescribed Form ADT– 3 (as per Rule 8 of CAAR) with the company and the
Registrar
c. File within a period of 30 days from the date of resignation, a statement in the
prescribed Form ADT– 3 (as per Rule 8 of CAAR) with the company.
d. File within a period of 60 days from the date of resignation, a statement in the
prescribed Form ADT– 3 (as per Rule 8 of CAAR) with the company.

a. As per section 142 of the Act, the remuneration of the auditor of a company shall
be fixed in its general meeting or in such manner as may be determined therein.
b. As per section 142 of the Act, the remuneration of the auditor of a company shall
be fixed in its general meeting.
c. As per section 142 of the Act, the remuneration of the auditor of a company shall
be fixed in its extra ordinary general meeting.
d. As per section 142 of the Act, the remuneration of the auditor of a company shall
be fixed in its Board meeting or in such manner as may be determined therein.
13. In case of a fraud involving less than ` 1 crore, the auditor shall
a. Report the matter to the audit committee constituted under section 177 or to the
Board in other cases within such time and in such manner as prescribed.
b. Report the matter to the audit committee constituted under section 177 within such
time and in such manner as prescribed.
c. Report the matter to the Board within such time and in such manner as prescribed.
d. Report the matter to the audit committee constituted under section 177 and also to
the Board within such time and in such manner as prescribed.
14. Which of the following is incorrect :

a. According to Section 140(1), the auditor appointed under section 139 may be
removed from his office before the expiry of his term only by a special resolution
of the company, after obtaining the previous approval of the Central Government
in that behalf as per Rule 7 of CAAR, 2014-
b. The application to the Central Government for removal of auditor shall be made in
Form ADT-2 and shall be accompanied with fees as provided for this purpose
under the Companies (Registration Offices and Fees) Rules, 2014.
c. The application shall be made to the Central Government within 30 days of the
resolution passed by the Board.
d. The company shall hold the general meeting within 30 days of receipt of approval
of the Central Government for passing the special resolution.
15. As per Section 139(6), the first auditor of a company, other than a Government
company, shall be appointed
a. By the Board of Directors within 30 days from the date of registration of the
company.
b. By the audit committee within 30 days from the date of registration of the
company.
c. By the Managing Director within 30 days from the date of registration of the
company.
d. By the shareholders within 30 days from the date of registration of the company.
16. Where a company is required to constitute an Audit Committee under section 177 ,
a. All appointments, including the filling of a casual vacancy of an auditor under this
committee.
b. All appointments, excluding the filling of a casual vacancy of an auditor under this
committee.
c. Appointment of first auditors shall be made after taking into account the
d. Appointment of subsequent auditors shall be made after taking into account the
recommendation of such committee.
CHAPTER 11: Audit Report

1. The Guidance Note on Audit of Internal Financial Controls over Financial Reporting
has been issued by?
a. ICAI
b. SEBI
c. MCA
d. RBI
2. An important factor in determining the form, content and extent of audit

documentation of significant matters is the extent of exercise in performing the
work and evaluating the results.
(a) Professional skepticism
(b) Professional integrity
(c) Professional judgment
(d) Professional sincerity
3. Which of the following is not an assertion about presentation and disclosure:

a. Occurrence and rights and obligations
b. Completeness
c. Classification and understandability
d. Existence
4. SA-700 requires the use of specific headings, which are intended to assist in making
auditor’s reports that refer to audits that have been conducted in accordance with SAs
more recognizable. Which of the following is that specific heading :
a. Key audit matters
b. Basis of opinion
c. Date
d. All of the above
5. The auditor shall express opinion when the auditor, having obtained
sufficient appropriate audit evidence, concludes that misstatements, individually or in
the aggregate, are both material and pervasive to the financial statements.
a. Adverse
b. Qualified
c. Disclaimer
6. The completion of the assembly of the final audit file after the date of the auditor’s
report is
a. An administrative process that does not involve the performance of new audit
procedures but certainly involves the drawing of new conclusions.
b. An administrative process that involves the performance of new audit procedures
or the drawing of new conclusions.
c. An administrative process that does not involve the performance of new audit
procedures or the drawing of new conclusions.
d. A statutory process.

a. When reporting on prior period financial statements in connection with the current
period’s audit, if the auditor’s opinion on such prior period financial statements
differs from the opinion the auditor previously expressed, the auditor need not
disclose the substantive reasons for the different opinion.
b. When reporting on prior period financial statements in connection with the current
differs from the opinion the auditor previously expressed, the auditor shall disclose
the substantive reasons for the different opinion in an Other Matter paragraph in
accordance with SA 706.
c. When reporting on prior period financial statements in connection with the current
the substantive reasons for the different opinion in an emphasis of Matter
paragraph in accordance with SA 706.
d. When reporting on prior period financial statements in connection with the current
the substantive reasons for the different opinion in an Other Matter paragraph or
emphasis of matter paragraph in accordance with SA 706.
8. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the
opening balances, the auditor shall express :
a. A disclaimer opinion
b. A qualified opinion
c. A qualified opinion or a disclaimer of opinion, as appropriate, in accordance with
SA 705.
d. Unmodified opinion
9. The auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of the auditor’s report. However, when, after the date of the
auditor’s report but before the date the financial statements are issued, a fact becomes
known to the auditor that, had it been known to the auditor at the date of the auditor’s
report, may have caused the auditor to amend the auditor’s report, the auditor shall:
a. Discuss the matter with management and, where appropriate, those charged with
governance.
b. Determine whether the financial statements need amendment.
c. Inquire how management intends to address the matter in the financial statements.
a. The auditor shall assemble the audit documentation in an audit file and complete
the administrative process of assembling the final audit file on a timely basis after
b. The auditor shall assemble the audit documentation in an audit file and shall not
c. The auditor shall assemble the audit documentation in an audit file and complete
the administrative process of assembling the final audit file on a timely basis before
d. The auditor shall not assemble the audit documentation in an audit file.
CHAPTER 12: Audit of Banks

1. You are at the planning stage for one of your firm’s client XYZ Bank for the year ended
31 March 2018. The bank is a commercial bank that provides a number of products
and services to the general public and other segments of the economy in the area of
South Mumbai. You are assigned the audit of one of the branches of XYZ Bank. The
audit engagement team was called to have a detailed discussion on the following
matters. Which one of the following should not be included in the discussion for the
audit of banks?
a. Discuss on the error of last year in the application of accounting policies of the
bank.
b. Discuss on the method of fraud if any perpetrated by the bank employee within
particular balances and/or disclosures
c. Discuss with the team the appointment and remuneration to be received on this
bank audit.
d. Discuss the effect of the results of the risk assessment procedures on other aspects
to decide the nature, timing and extent of further audit procedures.
2. You are at the planning stage for one of your firm’s client XYZ Bank for the year ended
31 March 2018. The bank is a commercial bank that provides a number of products
and services to the general public and other segments of the economy in the area of
South Mumbai. You are assigned the audit of one of the branches of XYZ Bank. The
audit engagement team was called to have a detailed discussion on the following
matters. Which one of the following should not be included in the discussion for the
audit of banks?
a. Discuss on the error of last year in the application of accounting policies of the
bank.
b. Discuss on the method of fraud if any perpetrated by the bank employee within
particular balances and/or disclosures
c. Discuss with the team the appointment and remuneration to be received on this
bank audit.
d. Discuss the effect of the results of the risk assessment procedures on other aspects
to decide the nature, timing and extent of further audit procedures.
CHAPTER 13: Audit of Different Types of Entities
1. Springfield Hospital located in the rural area of Lonawala region is a government
hospital run by the local doctors who are appointed by the government. The hospital was
registered on 1 October 2018. Which of the following is correct in respect of the
appointment of the first auditor for Springfield Hospital?
a. The Board of Directors of the hospital has appointed the first auditor on 5th
November 2018.
b. The Comptroller Auditor-General of India appointed the first auditor on 15th
December 2018.
c. Since the Comptroller Auditor-General of India did not appoint the first auditor, the
Board of Director appointed the first auditor on 15th December 2018.
d. Since the Comptroller Auditor-General of India did not appoint the first auditor, the
Board of Director appointed the first auditor on 10th November 2018.
2. Which of the following is incorrect:

a. The provisions relating to eligibility, qualifications and disqualifications of an
auditor are governed by section 141 of the Companies Act, 2013
b. A person shall be eligible for appointment as an auditor of a company only if he is
a chartered accountant.
c. A firm whereof majority of partners practicing in India are qualified for may be
appointed by its firm name to be auditor of a company.
d. Where a firm including a limited liability partnership is appointed as an auditor of
a company, all the partners who are chartered accountants shall be authorised to
act and sign on behalf of the firm.
3. In July, 2018, M/s Tom & Co. entered into an agreement with M/s Jerry & Co. under
which machinery would be let on hire and M/s Jerry & Co. would have the option to
purchase the machinery in accordance with the terms of the agreement. Thus, M/s Jerry
& Co. agreed to pay M/s Tom & Co. a settled amount in periodical installments. The
property in the goods shall be passed to M/s Jerry & Co. on the payment of last of such
installments. While checking such hire-purchase transaction, what would the auditor
examine?
i. That the periodical installments paid are charged as an expenditure by M/s Jerry &
Co.
ii. That the hire purchase agreement specifics clearly the hire-purchase price of the
machinery to which the agreement relates.
iii. That M/s Tom & Co. charges depreciation throughout the life of the machinery.
4. MeLeredian is a renowned hotel operating in the city. The charge for room sales is
posted to guest bills by Mr. Charlie, the night auditor. He has the responsibility for
balancing the revenue and expense transactions, occurring during the day. He is also
required to respond to guests’ complaints and handling emergencies that may arise.
While vouching the room sales, what special points may be considered by you as an
auditor of the hotel?
i. Audit tests to be carried out to ensure that the correct numbers of guests are
charged for the correct period.
ii. Any deviation between the charged rates used on the guests’ bills and the standard
room rate should be investigated to ensure that they have been properly authorized.
iii. Testing of reports, containing details of the rooms which were occupied the
previous night and the number of beds kept in each room, with the guests’ register
and with the individual guest’s bill.

a. A firm whereof all the partners practicing anywhere are qualified for appointment
may be appointed by its firm name to be auditor of a company.
b. A firm whereof majority of partners practicing anywhere are qualified for
appointment may be appointed by its firm name to be auditor of a company.
c. A firm whereof all the partners practicing in India are qualified for appointment
may be appointed by its firm name to be auditor of a company.
d. A firm whereof majority of partners practicing in India are qualified for
appointment may be appointed by its firm name to be auditor of a company.
6. A request that the confirming party respond directly to the auditor only if the
confirming party disagrees with the information provided in the request is-
a. Positive confirmation request
b. Non-response
c. Exception
d. Negative confirmation request
MCQ ANSWER:
CHAPTER 1: Nature, Objective and Scope of Audit
1 B 2 A 3 A
4 C 5 D 6 C
7 A 8 D 9 D
10 C 11 B 12 A
13 D 14 D 15 A
16 B 17 C 18 B
19 A 20 A
CHAPTER 2: Audit Strategy, Audit Planning and Audit Programme

1 A 2 B 3 B
4 B 5 D 6 B
7 D 8 A 9 D
10 B 11 A 12 D
CHAPTER 3: Audit Documentation and Audit Evidence

1 D 2 A 3 B
4 D 5 B 6 C
7 B 8 B 9 A
10 C 11 B 12 A
13 A 14 A 15 A
16 B 17 B 18 A
19 B 20 D 21 A
22 A 23 C 24 B
25 D 26 A
CHAPTER 4: Risk Assessment and Internal Control

1 A 2 D 3 C
4 D 5 A 6 C
7 D 8 B 9 B
10 D 11 D 12 B
13 D 14 D 15 A
16 C 17 D 18 C
19 A
CHAPTER 5: Fraud and Responsibilities of the Auditor in this Regard

1 C 2 B 3 D
4 C 5 A 6 C
7 A 8 B 9 A
10 C
CHAPTER 6: Audit in an Automated Environment

1 B
CHAPTER 7: Audit Sampling

1 D 2 D 3 B
4 A 5 B 6 B
CHAPTER 8: Analytical Procedures

1 A 2 A 3 A
4 C 5 D 6 A
7 D 8 C 9 C
10 C 11 C
CHAPTER 9: Audit of Items of Financial Statements

1 D 2 D 3 A
4 D 5 A 6 C
7 D 8 D 9 D
CHAPTER 10: The Company Audit
1 A 2 A 3 D
4 C 5 C 6 C
7 D 8 D 9 A
10 D 11 B 12 A
13 A 14 D 15 A
16 A
CHAPTER 11: Audit Report

1 A 2 C 3 D
4 D 5 A 6 C
7 B 8 C 9 D
10 A
CHAPTER 12: Audit of Banks

1 C 2 C
CHAPTER 13: Audit of Different Types of Entities

1 C 2 D 3 B
4 D 5 D 6 D
Hi Guys,
Hope you all are in good health and doing best of your studies!
This MCQ Bank is for your further practice along with Koun Banega Auditor Part1 and Part2.
Enjoy Solving =) Do share this with your friends as we say sharing is caring! Love you <3
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AUDIT MCQ QUESTION BANK – Compilation by CA

HARSHAD JAJU (CA INTERMEDIATE)

8. There are two interlinked perspectives of independence of auditors, one, independence

11. The agreed terms of the audit engagement shall be recorded in

2. SA 320 on “Materiality in Planning and Performing an Audit” requires that an auditor

3. Determining a percentage to be applied to a chosen benchmark (in relation to

5. With reference to SA 300, the auditor shall document:

9. Coyote Ltd. is dealing in trading of electronic goods. Huge inventory (60%

12. With reference to SA 300, the auditor shall document:

2. refers to a difference between the amount, classification, presentation, or

3. Audit evidence includes

4. Most of the auditor’s work in forming the auditor’s opinion consists of :

5. Audit documentation provides:

6. Which of the following is not an example of audit documentation:

8. CA. Bobby is a recently qualified Chartered Accountant. He is appointed as an auditor

9. Which of the following is correct :

10. Which of the following is not an example of audit documentation:

11. Audit documentation provides:

12. Which statement is correct regarding written representations

13. _ refers to the record of audit procedures performed, relevant audit

14. refer to an attitude that includes a questioning mind, being alert to

16. Audit programs, Analyses, Issues memorandum, Summaries of significant matters.

19. Professional skepticism is necessary to the critical assessment of

22. which of the following is incorrect :

24. Audit evidence includes

26. Which of the following is correct :

3. SA 315 establishes requirements and provides guidance on identifying and assessing

4. Auditor’s judgment as to sufficiency may be affected by the factors such as:

5. Audit risk is a function of the

6. Risk of material misstatement may be defined as the risk

7. Standard on Quality Control (SQC) 1 provides that,

8. Determining a percentage to be applied to a chosen benchmark (in relation to

9. Components of risk of material misstatement at the assertion level are :

10. refer to the audit procedures performed to obtain an understanding of the

15. Audit risk is a function of the

16. Risk of material misstatement may be defined as the risk

19. Which of the following is correct :

7. __ refers to a difference between the amount, classification, presentation, or disclosure of

8. The assessment of risks is a

9. The assessment of the risks of material misstatement may be expressed in

10. Which of the following is correct :

CHAPTER 7: Audit Sampling

2. Which of the following is source of Non Sampling risk :

4. In the case of tests of details

5. Which of the following is correct :

6. It is a type of value-weighted selection in which sample size, selection and evaluation

2. Judging the significance of a matter requires of the facts and circumstances

3. Which of the following is not an analytical procedure?

4. What are analytical procedures?

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

6. Which of the following statement is correct :

CHAPTER 9: Audit of Items of Financial Statements

7. Which of the following is incorrect :

8. which of the following is incorrect :

2. Where a company is required to constitute an Audit Committee under section 177,

12. Which of the following is correct :

14. Which of the following is incorrect :

CHAPTER 11: Audit Report

2. An important factor in determining the form, content and extent of audit

3. Which of the following is not an assertion about presentation and disclosure:

7. Which of the following is correct :

CHAPTER 12: Audit of Banks