Principles of Auditing MCQ Questions and Answers Part – 2

Principles of Auditing MCQ Questions and Answers Part – 1

Principles of Auditing MCQ Questions and Answers Part – 2

Principles of Auditing MCQ Questions and Answers Part – 3

51. The auditor of a government company shall be appointed by ________.
A. the government company itself.
B. the central government.
C. the share holders.
D. the debenture holders.
ANSWER: B
52. An auditor of a company will be held liable under the companies act _________.
A. if the destroys, mutilates, secrets etc., any documents, vouchers, books etc., with a view to deceive any
person.
B. if he has examined all the documents of the company.
C. if he has not contravened the provisions of sec.227.
D. if he is an auditor of the company.
ANSWER: A
53. The main object of the audit of the cash book may be ________.
A. to verify the assets and liabilities.
B. to know that all receipts and payments have been properly recorded.
C. to check the internal control system in business.
D. to check the bank balance.
ANSWER: B
54. The purpose of the audit of wage payment is to determine that __________.
A. the work is executed completely for which the workers are paid wages.
B. the workers are paid the correct amount of wages under proper authorization.
C. the workers are working regularly.
D. none of the above.
ANSWER: B
55. One of the audit procedures to check the issue of share capital of the newly formed company is
__________.
A. the memorandum of association and articles of association.
B. the share transfer register.
C. the issue of debenture.
D. none of the above.
ANSWER: A
56. Capital reserves are created out of profits of __________.
A. a revenue nature.
B. a capital nature.
C. a secret reserve.
D. contingency reserve.
ANSWER: B
57. A good audit report must at least meet one of the following qualifications __________.
A. it should offer constructive and timely suggestions to the management.
B. it should not point out mistakes.
C. it should not be based on factual information.
D. it should not be based on balance sheet.
ANSWER: A
58. The work of one clerk is automatically check by another clerk is called _________.
A. Internal control.
B. Internal check.
C. Internal audit.
D. None of the above.
ANSWER: B
59. The owners of the company are called __________.
A. Debenture holders.
B. Debtors.
C. Shareholders.
D. None of the above.
ANSWER: C
60. Verification is __________.
A. the art of recording the business transaction.
B. an examination of the books of accounts.
C. the act of establishing the accuracy of entries in the books of accounts.
D. none of the above.
ANSWER: C
61. Depreciation is _________.
A. the decrease in the value of an asset.
B. the increase in the value of an asset.
C. an appreciation to the company.
D. a credit to shareholders.
ANSWER: A
62. The main objects of investigation is _________.
A. to discover errors and frauds.
B. to prevent errors and frauds.
C. to verify statements.
D. all the above.
ANSWER: D
63. Internal controls and internal check are ____________.
A. one and the same.
B. different.
C. internal control includes internal check.
D. None of the above.
ANSWER: C
64. Share may be issued _____________.
A. at par.
B. at premium.
C. at discount.
D. all the above.
ANSWER: D
65. The liabilities of an auditor can be _________.
A. Civil.
B. Criminal.
C. Civil and Criminal.
D. Official.
ANSWER: C
66. An auditor is like a ______.
A. Watchman.
B. foolish dog.
C. mad dog.
D. watch dog.
ANSWER: B
67. Special audit is necessary for _________.
A. inefficient concern.
B. processing concern.
C. trading concern.
D. manufacturing concern.
ANSWER: A
68. The first auditors appointed hold office ____________.
A. for a period of one year.
B. for a period of two years.
C. for a period of three years.
D. till the conclusion of the first annual general meeting.
ANSWER: D
69. Audit of company account is _____________.
A. compulsory.
B. unnecessary.
C. avoidable.
D. depends upon directors.
ANSWER: A
70. The companys auditor is expected to give _____________.
A. his expert opinion about the accounts.
B. a factual position about the accounts.
C. a critical review of the accounts.
D. financial assistance.
ANSWER: A
71. Internal auditor of a company must be _______________.
A. Cost accountant.
B. Chartered accountant.
C. ICWA.
D. need not possess any professional qualification.
ANSWER: B
72. Auditors of a joint stock company are appointed by ______________.
A. directors of the company.
B. annual general meeting.
C. election at the annual general meeting.
D. debenture holders.
ANSWER: C
73. A company auditor can be removed by _________________.
A. board of directors.
B. managing director.
C. any director.
D. general meeting.
ANSWER: D
74. A vacancy caused by resignation of an auditor is filled by _________.
A. board of directors.
B. managing director.
C. general meeting.
D. central government.
ANSWER: C
75. Cost audit under section 233(b) of the companies act is ___________.
A. voluntary.
B. compulsory.
C. advisable.
D. avoidable.
ANSWER: C
76. Duties of a company auditor are defined by __________.
A. Memorandum of Association.
B. Articles of Association.
C. Companies Act 1956.
D. Agreement between company and the auditor.
ANSWER: C
77. When at an annual general meeting of a company no auditor is appointed or reappointed. In that case
________.
A. the central government appoints a person to fill the vacancy.
B. the board of directors appoints a person to fill the vacancy.
C. the managing director of the company appoints a person to fill the vacancy.
D. none of these can appoint a person to fill the vacancy.
ANSWER: A
78. Audit in depth means __________.
A. audit of each and every item.
B. intensive audit of each and every item.
C. intensive audit of a few items.
D. audit of a few selected items.
ANSWER: C
79. When a company engages a Chartered Accountant as its internal auditor, the external auditor
_____________.
A. need not check the areas covered by internal audit.
B. should ignore the existence of internal audit.
C. should incorporate the internal auditors report with his own.
D. should examine the system and efficiency of internal audit and devise a suitable audit programme.
ANSWER: D
80. Which of the following factors likely to be identified as a fraud factor by the auditor?
A. initial public offer of quality shares to raise additional capital for expansion
B. Bank reconciliation statement includes deposits-in-transit.
C. Plant and machinery is sold at a loss.
D. The company has made political contributions.
ANSWER: A
81. The most difficult type of misstatement to detect fraud is based on __________.
A. related party purchases.
B. related party sales.
C. the restatement of sales.
D. omission of a sales transaction from being recorded.
ANSWER: D
82. Which of the following is not likely to be a fraud risk factor relating to management characteristics?
A. Tax evasion.
B. Failure to correct known weakness in internal control system.
C. Adoption of conservative accounting principles.
D. High management turnover.
ANSWER: C
83. Professional skepticism requires that the auditor assume that management is _________.
A. reasonably honest.
B. neither honest nor dishonest.
C. not necessarily honest.
D. dishonest unless proved otherwise.
ANSWER: B
84. Which of the following information should a successor auditor obtain during the inquiry of the
predecessor auditor before accepting engagement?
A. Information about integrity of management.
B. Disagreement with management concerning auditing procedures.
C. Review of internal control system.
D. Organization structure.
ANSWER: A
85. The audit engagement letter generally should include a reference to each of the following except
___________.
A. limitations of auditing
B. responsibilities of management with respect to audit work.
C. expectation of receiving a written management representation letter.
D. a description of the auditors method of sample selection.
ANSWER: D
86. The use of an audit engagement letter is the best method of assuring the auditor will have which of the
following?
A. Auditor will obtain sufficient appropriate audit evidence.
B. Management representation letter.
C. Access to all books, accounts and vouchers required for audit purpose.
D. Co-operation from other auditors.
ANSWER: C
87. The use of an audit engagement letter is the best method of documenting ________.
A. The required communication of significant deficiencies in internal control.
B. Significantly higher control risk than that assessed in prior audit.
C. Objective and scope of auditors work.
D. Notification of any changes in the original arrangements of the audit.
ANSWER: D
88. An auditor who accepts an audit but does not posses the industry expertise of the business entity should
______________.
A. engage experts.
B. obtain knowledge of matters that relate to the nature of entity business.
C. inform management about it.
D. take help of other auditors.
ANSWER: B
89. The least import element in the evaluation of an audit firm system of quality control would relate to
___________.
A. assignment of audit assistants.
B. system of determining audit fees.
C. consultation with experts.
D. confidentiality of clients information.
ANSWER: B
90. The primary purpose of establishing quality control policies and procedures for deciding on client
evaluation to ___________.
A. ensure adherence to generally accepted auditing standards.
B. acceptance or retention of clients whose management does not lack integrity.
C. ensure audit fees is charged according to the type of audit work assigned.
D. medical policies.
ANSWER: B
91. Which of the following is not a quality control consideration on accepting a new client?
A. Availability of audit assistants with necessary skill and competence.
B. Provision of other services to the client which may impair independence.
C. Predecessor auditor advice as to whether audit fees were paid promptly.
D. Review of audit work done by one partner by the other.
ANSWER: C
92. Audit of banks is an example of __________.
A. Statutory audit.
B. Balance sheet audit.
C. Concurrent audit.
D. All of the above.
ANSWER: D
93. Concurrent audit is a part of ______________.
A. internal check system.
B. continuous audit.
C. internal audit system.
D. final audit.
ANSWER: C
94. In India balance sheet audit is synonymous to _______________.
A. Annual audit.
B. Continuous audit.
C. Detailed audit.
D. Statutory audit.
ANSWER: A
95. Audit in depth is synonymous for ____________.
A. complete audit.
B. completed audit.
C. final audit.
D. detailed audit.
ANSWER: D
96. Balance sheet audit included verification of ________.
A. assets.
B. liabilities.
C. income and expenditure accounts where appropriate.
D. all of the above.
ANSWER: D
97. Which of the following statements is not true about the continuous audit?
A. It is conducted at regular interval.
B. It may be carried out on daily basis.
C. It is needed when the organisation has a good internal control system.
D. It is expensive.
ANSWER: C
98. Which of the following is not a fact of EPA?
A. Economic audit.
B. Efficiency audit.
C. Expenditure audit.
D. Effectiveness audit.
ANSWER: C
99. Balance sheet does not include ___________.
A. verification of assets and liabilities.
B. vouching of income and expense accounts related to assets and liabilities.
C. examination of adjusting and closing entries.
D. routine checks.
ANSWER: D
100. When issuing an unqualified opinion the auditor who evaluated 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 are less than the materiality level.
C. estimated of the total likely misstatement is more than the materiality level.
D. estimates of the total likely misstatement cannot be made.
ANSWER: B

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Author and Assistant Professor in Finance, Ardent fan of Arsenal FC. Always believe "The only good is knowledge and the only evil is ignorance - Socrates"
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