Principles of Auditing MCQ Questions and Answers Part – 3

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

101. In determining the level of materiality for an audit what should not be considered?
A. Prior years errors.
B. The auditor remuneration.
C. Adjusted interim financial statement.
D. Prior year financial statements.
ANSWER: B
102. 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. indicate important aspects of business.
D. all of the above.
ANSWER: D
103. Which of the following statement 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
104. What is the primary objective of analytical procedures used in the overall review stage of an audit?
A. To help to corroborate the conclusions drawn from individual components of financial statements.
B. To reduce specific detection risk.
C. To direct attention to potential risk areas.
D. To satisfy doubts when questions arise about a client ability of continue.
ANSWER: A
105. 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
106. Which of the following statement 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
107. Which of the following Auditing Assurance Standard deals with Audit planning?
A. AAS-7.
B. AAS-8.
C. AAS-9.
D. AAS-3.
ANSWER: B
108. Audit Programme is prepared by ___________.
A. the auditor.
B. the client.
C. the audit assistants.
D. the auditor and his audit assistants.
ANSWER: D
109. 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 office until a change in auditors.
ANSWER: C
110. The quantity of audit working papers complied on engagement would most be affected by ___________.
A. management integrity.
B. auditor experience and professional judgement.
C. Auditor qualification.
D. control risk.
ANSWER: B
111. Which of the following best describes the primary purpose of audit programmed 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
112. 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
113. The auditor permanent working paper file should not normally, include ________
A. extracts from clients bank statements.
B. past years financial statements.
C. attorney letters.
D. debt agreements.
ANSWER: A
114. 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. The state government.
ANSWER: B
115. Which of the following sections deals with qualification of the auditor?
A. Section 226(1) and Section 226(2).
B. Section 224(1) and Section 224(2).
C. Section 226(3) and Section 226(4).
D. Section 224(3) and Section 224(4).
ANSWER: A
116. Which of the following statement is not true?
A. A partnership firm can be appointed as a statutory auditor of limited company.
B. Appointment can be made in the name of the firm.
C. Majority of the partners should be practicing in India.
D. All partners should be chartered account.
ANSWER: C
117. The board of directors shall appoint first auditor of a company ___________.
A. within one month of completion of capital subscription state of the company.
B. within one month of the promotion of the company.
C. within one month of the commencement of the business of the company.
D. within one month of incorporation of the company.
ANSWER: D
118. The term of the auditor ship of first auditor would be from the date of appointment till _.
A. the conclusion of statutory meeting.
B. the conclusion of first general meeting.
C. the conclusion of next annual general meeting.
D. the date of removal.
ANSWER: B
119. In case the directions fail to appoint first auditors, the shareholders shall appoint them at _______ by
passing a resolution.
A. a general meeting.
B. first annual general meeting.
C. statutory meeting.
D. annual general meeting.
ANSWER: A
120. Which of the following statement is not true regarding appointment of statutory auditor by the central government?
A. Such powers have been conferred upon it by section 224(3).
B. If a company fails to appoint an auditor at a general meeting.
C. If an auditor refuses to accept appointment, the powers of the central government can be exercised.
D. Lay man can be appointed as an auditor.
ANSWER: B
121. The auditor of a government company is appointed by the C & AG. His remuneration is fixed by
_____________.
A. the C & AG.
B. the shareholders.
C. the shareholders at an annual general meeting.
D. the board of directors.
ANSWER: B
122. The section which contains provisions regarding remuneration of the auditor is _____.
A. Section 224(9).
B. Section 224(7).
C. Section 224(8).
D. Section 224(6).
ANSWER: C
123. The authority to remove the first auditor before the expiry of term is with ___________.
A. the shareholders in a general meeting.
B. the shareholders in the first annual general meeting.
C. the board of directors.
D. the central government.
ANSWER: A
124. Which of the following statement is not correct regarding removal of first auditor before expiry of the
term?
A. He is removed at a general meeting.
B. The shareholders are authorized to do so.
C. The approval of the central government is required for such removal.
D. The provision for such removal are contained in section 224(7).
ANSWER: C
125. The retiring auditor does not have a right to _________.
A. make written representations.
B. get his representation circulated.
C. be heard at the meeting.
D. speak as a member of the company.
ANSWER: D
126. Who out of the following cannot be appointed as a statutory auditor of the company?
A. Erstwhile director.
B. Internal auditor.
C. Relative of a director.
D. Only (2) and (3).
ANSWER: B
127. A statutory auditor has a right of access at all times to ___________.
A. books and accounts of a company.
B. books, account and documents of the company.
C. books, accounts and vouchers of the company.
D. notices and documents of the company.
ANSWER: C
128. The auditor has a right to _________.
A. obtain information and explanation.
B. obtain information and explanation from the employees and officers.
C. obtain information and explanation necessary for the purpose of audit.
D. both (2) and (3).
ANSWER: A
129. The branch auditor is appointed by ____________.
A. shareholders in an annual general meeting.
B. shareholders in general meeting.
C. board of directors in board meeting.
D. any of the above.
ANSWER: B
130. Auditor of a _______ company does not have right to visit foreign branches of the company.
A. unlimited liability.
B. manufacturing.
C. banking.
D. non-profit making.
ANSWER: B
131. Special audit is conducted at the order of the central government. Which section givers such powers?
A. Section 233(A).
B. section 233(B)
C. Section 242(A).
D. Section 242(B).
ANSWER: C
132. Who among the following can be appointed as special auditor by the central government?
A. The statutory auditor.
B. Chartered accountant in practice.
C. Any chartered accounted who is not in practice.
D. Both (1) and (2).
ANSWER: B
133. As per C & AG Act, 1971 the tenure of the comptroller and Auditor General is ______ a. four years.
A. four years.
B. five years.
C. six years.
D. seven years.
ANSWER: C
134. The part of Government Audit which is concerned with examining whether the money has been spent for the purpose specified in Appropriation Act is called _____________.
A. audit of sanctions
B. audit of provisions of funds.
C. audit of rules and orders.
D. audit of financial property.
ANSWER: B
135. Audit of transactions does not include __________.
A. propriety audit.
B. efficiency cum performance audit.
C. audit of receipts.
D. audit of expenditure.
ANSWER: B
136. The income tax department has sent MR. X refund of Advance tax. The government Auditor detected
this while conducting ____________.
A. audit of expenditure.
B. performance audit.
C. audit of stores and stock.
D. audit of receipts.
ANSWER: A
137. Audit of rent, deposits and remittances does not cover ____________.
A. audit of borrowings.
B. audit of amortization of debt.
C. Audit of sanctions.
D. remittance audit.
ANSWER: C
138. Audit reports on PSU are ____________.
A. submitted to the president/governor for being laid before the parliament
B. sent to concerned ministries/departments.
C. submitted to bod of concerned psu.
D. submitted to pwd department.
ANSWER: B
139. Who among the following is eligible to be appointed as an audit of Government Company?
A. A chartered accountant in practice.
B. A chartered accountant whether in practice or not.
C. An auditor appointed by the A & AG.
D. An unsound mind person.
ANSWER: A
140. The statutory auditor of a Government Company submits his report to _________.
A. the BOD of the company
B. the C & AG.
C. the legislature.
D. the company secretary.
ANSWER: B
141. Which of the following statement is not distinguishing feature for computer based processing and manual processing?
A. Errors in a CIS environment are less systematic as compared to error in manual processing.
B. The potential for human error in the CIS environment is greater as compared to manual system.
C. In a computer based accounting system, audit trail is in electronic form.
D. Computer processing offers management a variety of analytical tools.
ANSWER: A
142. To avoid invalid data input, a bank added an extra number at the end of each account number and subjected the new number to an algorithm. This technique is known as _______.
A. Dual read.
B. Test for reasonableness.
C. Check digit.
D. Occurrence of correction.
ANSWER: C
143. When computer programmed or files can be accessed from terminals, access can be limited to authorized individuals by __________.
A. appointing a librarian.
B. controlling passwords.
C. appointing EEP auditor.
D. Both (a) and (b).
ANSWER: D
144. Erroneous data has been detected by computer program controls. It has been excluded from processing
and printed separately Error Report. Who should most probability by review and follow up on this report?
A. System analyst.
B. Data control group.
C. Programmer.
D. Computer operator.
ANSWER: A
145. General Controls will be ineffective when EDP Department ___________.
A. participates in computer software acquisition decisions.
B. design documentations for computerized operations.
C. originate changes in master files.
D. provide physical security for programme files.
ANSWER: C
146. Which of the following activities would most likely be performed by EDP department?
A. Authorizing transactions.
B. Parity checks.
C. Distributing output.
D. Correction of transaction errors.
ANSWER: C
147. The completeness of wages figure can be tested by comparing the number of time cards to be processed with transaction on wages sheet. This type of control techniques is called ___________.
A. Check total.
B. Control total.
C. Occurrence correction.
D. Check digit.
ANSWER: D
148. Which of the following will not affect audit in a CIS environment?
A. The objective of expression of opinion on financial statements.
B. Compliance procedures adopted by the auditor.
C. Performance of substantive procedures.
D. Evaluation of inherent risk and control risk.
ANSWER: A
149. Which of the following statement is not true of the test data approach in a test of computerized accounting system?
A. Test data tests only those controls which the auditor wished to rely.
B. Test data should consist of data related to all controls prevalent in the organisation.
C. The result of test data indicates that all the application and general controls are functioning properly.
D. Test data processed by the client computer programmed under the auditors control.
ANSWER: B
150. Which of the following CAAT allow fictitious transactions planted by the auditor to be processed along with real ones on client system?
A. Integrated test facility.
B. Test data approach.
C. Generalized audit software.
D. Parallel simulation.
ANSWER: A
151. who is the custodian authority for audit working papers?
A. Shareholders
B. Auditor
C. Auditee
D. Managing director
ANSWER: B
152. Working papers are the property of the auditor
A. AAS5
B. AAS4
C. AAS1
D. AAS3
ANSWER: A