Professional Documents
Culture Documents
Auditing (Set 1)
Auditing (Set 1)
1 of 4 sets
13. To select a sample for Audit, the auditor should consider ________________
A. all the above
B. the size of the sample
C. the volume of transactions
D. adequacy of internal control system
Answer:A
27. The term ‘Audit’ is derived from a Latin word “audire” which means;
A. To inspect
B. To examine
C. To hear
D. To investigate
Answer:C
28. Process of verifying the documentary evidences of transactions are known as:
A. Auditing
B. Testing
C. Vouching
D. Verification
Answer:C
34. Which of the following is not true about opinion on financial statements?
A. The auditor should express an opinion on financial statements.
B. His opinion is no guarantee to future viability of business
C. He is responsible for detection and prevention of frauds and errors in financial statements
D. He should examine whether recognised accounting principle have been consistently
Answer:C
36. ‘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
Answer:A
47. 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
Answer:C
53. …...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
Answer:A
54. 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
55. 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
Answer:B
57. 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
Answer:D
58. For all audits of financial statements made in accordance with AAS14, the use
of analytical procedures is at the discretion of the auditor in which stage?
A. Substantive testing
B. Planning stage
C. Overall review stage
D. All of the above
Answer:A
64. 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.
65. 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.
Answer:B
66. 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
Answer:D
67. The nature, timing and extent of substantive procedures is related to assessed
level of control risk
A. Randomly
B. Disproportionately
C. Directly
D. Inversely
Answer:C
71. Which of the following statements is not true with respect to management
representations obtained as per AAS11?
A. Authenticated copy of relevant minutes of meetings may be regarded as management
representation
B. It should always be in working
C. It may be dated prior to the report date
D. It should be addressed to the auditor
Answer:B
72. What would most appropriately describe the risk of incorrect rejection in
terms of substantive testing?
A. The auditor concludes balance is materially correct when in actual fact it is not
B. The auditor concludes that the balance is materially misstated when in actual fact it not
C. The auditor has rejected an item for sample which was material
D. None of the above
Answer:B
74. What would most effectively describe the risk of incorrect acceptance in terms
of substantive audit testing?
A. The auditor has ascertained that the balance is materially correct when in actual fact it is not
B. The auditor concludes the balance is materially misstated when in actual fact is not
C. The auditor has rejected an item from sample which was not supported by documentary
evidence
D. He applies random sampling on data which is inaccurate and inconsistent
Answer:A
75. Which of the following Auditing Assurance Standard deals with Audit
Planning?
A. AAS7
B. AAS8
C. AAS9
D. AAS3
Answer:B
77. 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
Answer:C
78. The quantity of audit working papers complied on engagement would most be
affected by
79. 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
Answer:C
81. 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
Answer:A
82. 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.
Answer:C
85. Which of the following statement best describes the understanding with respect
to ownership and custody of working papers prepared by an auditor?
A. The working papers may be obtained by third parties when they appear to be relevant to
issues raised in litigation
B. The safe custody of working papers is the responsibility of client, if kept at his premises
C. The working papers must be retained by an audit firm for a period of 10 years
D. Successor auditors may have access to working papers of the predecessor auditors. The
approval of client is not required.
Answer:A
86. The current file of the auditor’s working papers, generally, should include
A. A flowchart of the internal controls
B. Organisation charts
C. A copy of financial statements
D. Copies of bond and debentures
Answer:C
87. Knowledge of the entity’s business does not help the auditor to
A. Reduce inherent risk
B. Identify problem areas
89. 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
Answer:A
91. 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
Answer:B
92. 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
95. Which of the following Schedule of the Companies Act, 1956 deals with
depreciations?
A. Schedule XIV
B. Schedule V
C. Schedule XIII
D. Schedule X
Answer:A
96. Schedule XIV has prescribed rates of depreciation for double shift and triple
shift working for which one of the following assets?
A. Building
B. Plant and Machinery
C. Furniture and fittings
D. Ships
Answer:B
97. A company has bought patents. Which of the following methods is most
suitable for providing depreciation on them?
99. Which of the following will not lead to creation of secret reserve?
A. Undervaluation of closing stock
B. Charging capital expenditure to revenue
C. Goods sent on consignment being shown as actual sales
D. Charging higher rates of depreciation on fixed assets than actually required
Answer:C