Auditing (Set 1)

Auditing
1 of 4 sets
1. Goods purchased but not recorded in the purchase register is ________________

A. an error of omission
B. to reduce profits
C. an error of commission
D. affect on agreement of trial balance
Answer:A
2. Working papers are the property of the ________________

A. client and auditor
B. auditor
o m
C. client
. c
D. equity shareholders
te
Answer:B a
q M
c
3. Which of the following documents is not relevant for vouching of sales
________________
M
A. daily cash sales summary
B. credit memos
C. delivery challans
D. sales department attendance record
Answer:D
4. The main object of an Audit is ________________

A. to ensure that final accounts are prepared
B. expression of an opinion on true and fair view of accounts
C. to ensure the future viability of the enterprise
D. detection and prevention of frauds and errors
Answer:B
5. An Audit Programme must be prepared ________________

A. before commencement of an audit
B. after completion of an audit
C. after submission of an audit report
D. during the conduct of an audit
Answer:A
6. Analytical Review is ________________

A. an audit technique
B. audit in depth
C. a compliance procedure
D. reporting requirement
Answer:A
7. Audit in Depth means ________________

A. none of the above
B. detailed examination of all transactions
C. investigation of all transactions
D. detailed examination of selected transactions
Answer:D
8. Audit programme should be ________________

A. flexible
B. rigid
C. oral and flexible
D. oral
Answer:A
9. ________________ incorporates both Accounting and Administrative Controls.

A. internal control
B. internal check
C. statutory audit
D. internal audit
Answer:A
10. Debtors are valued at ________________

A. realizable value
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B. as per articles of association
C. book value
D. decided by the customer
Answer:C
11. The main objective of Window Dressing is ________________

A. increase liability
B. to mislead investors
C. to reduce tax liability
D. to understate profits
Answer:B
12. ________________ document is not relevant for vouching cash purchases

A. purchase order
B. goods inward register
C. purchase invoice
D. attendance record of cashier
Answer:D
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
14. Secret reserves are shown on ________________

A. assets side of balance sheet
B. none of the above
C. liabilities side of balance sheet
D. credit side of trading account
Answer:B
15. Stock of goods on consignment should be valued at ________________

A. none of the above

B. invoice price
C. cost of realizable value whichever is lower
D. cost price
Answer:C
16. ________________ is not an error of Commission

A. mathematical error
B. compensating error
C. posting error
D. none of the above
Answer:B
17. Telephone charges should be examine on the basis of ________________

A. cash memo
B. telephone bill
C. all the above
D. agreement with telephone department
Answer:B
18. The Auditor examines Bill of Lading in order to vouch ________________

A. sales within the state
B. all the above
C. sales outside the state
D. sales outside the country
Answer:D
19. ________________ Asset, which is not subject to physical verification

A. stock
B. cash
C. furniture
D. debtors
Answer:D
20. Goods sold but not recorded in Sales Register is ________________

A. compensating error

B. an error of commission
C. an error of omission
Answer:C
21. Audit plan should be best on knowledge of the ________________

A. client\s reputation
B. client\s family
C. client\s share capital
D. client\s business
Answer:D
22. Confirmation is ________________

A. a compliance procedure
B. an audit technique
C. a principle of audit
Answer:B
23. ________________ should be checked by the Auditor in verification of

Machinery
A. all the above
B. charge/line
C. the possession
D. ownership
Answer:A
24. Closing stock with the consignee is to be shown as the Asset of

________________
A. consignee
B. customer
C. all the above
D. consignor
Answer:D
25. If a material financial fraud is detected, Auditor should ________________

A. report it to police
B. report it to the institute of ca of india
C. ignore it
D. report it to the owners or shareholders
Answer:D
26. An auditor is like a

A. Blood haunt
B. Watch dog
C. May both according to situation
D. None of these
Answer:B
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
29. Auditing is compulsory for

A. Small scale business
B. Partnership firms
C. Joint stock Companies
D. Proprietary Concerns
Answer:C
30. 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.
Answer:D
31. Concealment of shortage by delaying the recording of cash receipts is known as

A. Embezzlement
B. Misappropriation
C. Lapping
D. None of these
Answer:C
32. 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
Answer:B
33. Lapping is also known as:

A. Teeming and lading
B. Embezzlement
C. Looping
D. Hacking
Answer:A
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
35. 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
Answer:B
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
37. Which of the following statements is not true?

A. Management fraud is more difficult to detect than employee fraud
B. Internal control system reduces the possibility of occurrence of employee fraud and
management fraud
C. The auditor’s responsibility for detection and prevention of errors and frauds is similar.
D. All statements are correct.
Answer:B
38. As per AAS4, if auditor detects an error then –

A. He should inform the management.
B. He should communicate it to the management if it is material
C. The auditor should ensure financial statements are adjusted for detected errors.
D. Both (b) and (c)
Answer:D
39. Which of the following is not a limitation of audit as per AAS4?

A. Objectivity of auditor’s judgment
B. Selective testing
C. Persuasiveness of evidence
D. Limitations of internal control system.
Answer:A

40. 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
Answer:C
41. The scope of internal audit is decided by the :

A. Shareholders
B. Management
C. Government
D. Law
Answer:B
42. Audit of banks is an example of –

A. Statutory audit
B. Balance sheet audit
C. Concurrent audit
D. All of the above
Answer:D
43. Concurrent audit is a part of

A. Internal check system
B. Continuous audit
C. Internal audit system
D. None
Answer:C
44. In India, balance sheet audit is synonymous to

A. Annual audit
B. Continuous audit
C. Detailed audit
D. Statutory audit
Answer:A

45. Audit in depth is synonymous for
A. Complete audit
B. Completed audit
C. Final audit
D. Detailed audit
Answer:D
46. Institute of Chartered Accountants of India was established

A. 1956
B. 1949
C. 1956
D. 1948
Answer:B
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
48. 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
Answer:D
49. Errors of Omission are

A. Technical errors
B. Errors of principle
C. Compensating errors
D. None of the above
Answer:A

50. Window dressing implies:
A. Curtailment of expenses
B. Checking of Wastages
C. Under valuation of assets
D. Over Valuation of assets
Answer:D
51. 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
Answer:B
52. 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
Answer:D
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

Answer:C
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
56. 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
Answer:D
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
59. 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.
Answer:A
60. Stock should be valued at

A. Cost
B. Market price
C. Cost or Market price whichever is lower.
D. Cost less depreciation.
Answer:C
61. ‘Auditor is not a valuer’, was stated in

A. Kingston Cotton Mills case
B. London Oil Storage Co. Case
C. London and General Bank case
Answer:A
62. Floating assets are valued at

A. cost
B. Market price
C. Cost or market price whichever is lower
D. Cost less depreciation
Answer:C
63. Goods sold on the basis of ‘sales or return ‘ should

A. Be included in the stock
B. Not be included in the stock
C. Not be checked by auditor
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.

C. Carbon copies of sales invoices inspected by the auditor
D. Computations made by the auditor
Answer:C
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
68. 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
Answer:A

69. 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
Answer:B
70. Which of the following is not corroborative evidence?

A. Minutes of meetings
B. Confirmations from debtors
C. Information gathered by auditor through observation
D. Worksheet supporting consolidated financial statements
Answer:D
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
Answer:B
73. Which of the following affects audit effectiveness?

A. Risk of over reliance
B. Risk of incorrect rejection
C. Risk of incorrect acceptance
D. Both (a) and (c)

Answer:D
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
76. Audit programme is prepared by

A. The auditor
B. The client
C. The audit assistants
D. The auditor and his audit assistants
Answer:D
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

A. Management’s integrity
B. Auditor’s experience and professional judgment
C. Auditor’s qualification
D. Control risk
Answer:B
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
80. 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
Answer:D
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

83. 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
Answer:D
84. 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
Answer:B
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

C. Evaluate reasonableness of estimates
D. Evaluate appropriates of GAAP.
Answer:A
88. Payment for wage should be vouched with the help of

A. Piece Work Statement.
B. Wage sheets
C. Minutes book
D. Bank pass book.
Answer:B
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
90. Purchase returns should be vouched with the help of

A. Bought notes
B. Credit notes
C. Goods inward book
D. Cash book
Answer:B
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

C. Legal expenses incurred to defend a suit related to title of patent. The suit has been lost
D. The fees paid to engineer who constructed the plant.
Answer:C
93. 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 laying of sewers on land purchased
D. Insurance premium paid at the time of registration of the ship
Answer:B
94. Depreciation does not arise form _______

A. Effluxion of time
B. Use
C. Obsolescence through technology be market changes
D. Remarket expectation
Answer:D
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?

A. SLM
B. WDV
C. Sum of year digits
D. Any of the above
Answer:A
98. Which of the following is a revenue reserve?

A. Capital redemption reserve
B. Security premium account
C. Debenture redemption reserve
D. Capital reserve
Answer:C
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
100. 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
Answer:B

Auditing (Set 1)

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Auditing (Set 1)

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Auditing

1. Goods purchased but not recorded in the purchase register is ________________

2. Working papers are the property of the ________________

4. The main object of an Audit is ________________

5. An Audit Programme must be prepared ________________

6. Analytical Review is ________________

7. Audit in Depth means ________________

8. Audit programme should be ________________

9. ________________ incorporates both Accounting and Administrative Controls.

10. Debtors are valued at ________________

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11. The main objective of Window Dressing is ________________

12. ________________ document is not relevant for vouching cash purchases

14. Secret reserves are shown on ________________

15. Stock of goods on consignment should be valued at ________________

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16. ________________ is not an error of Commission

17. Telephone charges should be examine on the basis of ________________

18. The Auditor examines Bill of Lading in order to vouch ________________

19. ________________ Asset, which is not subject to physical verification

20. Goods sold but not recorded in Sales Register is ________________

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21. Audit plan should be best on knowledge of the ________________

22. Confirmation is ________________

23. ________________ should be checked by the Auditor in verification of

24. Closing stock with the consignee is to be shown as the Asset of

25. If a material financial fraud is detected, Auditor should ________________

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26. An auditor is like a

29. Auditing is compulsory for

30. The main object of an audit is ___

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

32. The title of AAS2 issued by Council of ICAI is ___

33. Lapping is also known as:

35. A sale of Rs. 25,000 to A was entered as a sale to B. This is an example of _

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37. Which of the following statements is not true?

38. As per AAS4, if auditor detects an error then –

39. Which of the following is not a limitation of audit as per AAS4?

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

42. Audit of banks is an example of –

43. Concurrent audit is a part of

44. In India, balance sheet audit is synonymous to

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46. Institute of Chartered Accountants of India was established

48. Internal check is carried on by

49. Errors of Omission are

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51. Test Checking refers to

52. Which of the following statements is not correct about materiality?

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

59. Verification refers to :

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60. Stock should be valued at

61. ‘Auditor is not a valuer’, was stated in

62. Floating assets are valued at

63. Goods sold on the basis of ‘sales or return ‘ should

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68. Which of the following factors is most important in determining the

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