auditing MCQs – Page 3

Practise multiple-choice questions from auditing for competitive examinations and subject revision. Review each marked answer and report any item that may be outdated or unclear.

auditing Mcqs
101. Of the following, which is the least persuasive type of audit evidence?
comments icon0

A. Computations made by the auditor

B. Documents obtained by auditor from third parties directly.

C. Carbon copies of sales invoices inspected by the auditor

D. Bank statements obtained from the client

102. Which of the following is not true about opinion on financial statements?
comments icon0

A. He should examine whether recognised accounting principle have been consistently

B. His opinion is no guarantee to future viability of business

C. The auditor should express an opinion on financial statements.

D. He is responsible for detection and prevention of frauds and errors in financial statements
103. What would most effectively describe the risk of incorrect acceptance in terms of substantive audit testing?
comments icon0

A. The auditor concludes the balance is materially misstated when in actual fact is not

B. The auditor has ascertained that the balance is materially correct when in actual fact it is not

C. He applies random sampling on data which is inaccurate and inconsistent

D. The auditor has rejected an item from sample which was not supported by documentary evidence

104. Which of the following expenses should not be treated as capital expenditure?
comments icon0
A. Legal expenses incurred to defend a suit related to title of patent.

B. Expenses paid on installation of a plant.

C. The fees paid to engineer who constructed the plant.

D. Cost of dismantling a building in case a new building is to be constructed on the land

105. Which of the following factors would least likely affect the quantity and content of an auditors working papers
comments icon0

A. The nature of auditors report

B. The assessed level of control risk

C. The possibility of peer review

D. The content of management representation letter
106. Concurrent audit is a part of____________?
comments icon0
A. Internal audit system

B. None of these

C. Continuous audit

D. Internal check system

107. Which of the following is not type of engagement standard?
comments icon0
A. Standard on Quality Control

B. Standards on Review Engagement

C. Standards on Assurance Engagement

D. Standards on Auditing

108. Which of the following factors is most important in determining the appropriations of audit evidence?
comments icon0
A. The reliability of audit evidence and its relevance in meeting the audit objective

B. The quantity of audit evidence

C. The objectivity and integrity of the auditor

D. The independence of the source of evidence

109. Goods sold on the basis of sales or return should:
comments icon0

A. None of the above

B. Be included in the stock

C. Not be included in the stock

D. Not be checked by auditor

110. Which of the following statement best describes the understanding with respect to ownership and custody of working papers prepared by an auditor?
comments icon0

A. The safe custody of working papers is the responsibility of client, if kept at his premises

B. The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation

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.

111. In determining the level of materiality for an audit, what should not be considered?
comments icon0

A. Adjusted interim financial statements

B. The auditors remuneration

C. Prior years financial statements

D. Prior years errors

112. Who is responsible for the appointment of statutory auditor of a limited company ?
comments icon0

A. All of the above

B. Directors of the company

C. Members of the company

D. The Central Government

113. Which of the following is not an analytical procedure?
comments icon0

A. Comparing the actual costs with standard costs

B. Comparing aggregate wages paid to number of employees

C. All of them are analytical procedure

D. Tracing of purchases recurred in the purchase book to purchase invoices.
114. Which of the following statements is most closely associated with analytical procedure applied at substantive stage?
comments icon0

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
115. Internal audit is undertaken:
comments icon0

A. By independent auditor

B. By a government auditor

C. Statutorily appointed auditor

D. By a person appointed by the management
116. The quantity of audit working papers complied on engagement would most be affected by__________?
comments icon0

A. Managements integrity

B. Auditors qualification

C. Control risk

D. Auditors experience and professional judgment
117. A statutory auditor has a right of access at all times to___________?
comments icon0
A. Books, accounts and vouchers of the company

B. Books and accounts of a company

C. Notices and documents of the company

D. Books, accounts and documents of the company

118. Which of the following is not a revenue expense?
comments icon0

A. Cost of raising a loan

B. Expenses incurred for laying of sewers on land purchased

C. Insurance premium paid at the time of registration of the ship

D. Cost of accessories of motor vehicles spent at the time of purchase
119. Audit fess is a part of__________.
comments icon0

A. distribution overhead.

B. works on cost.

C. administration overhead

D. selling overhead.

120. At the planning stage you would NOT consider____________?
comments icon0

A. the potential use of internal audit

B. whether corrections from the inventory count have been implemented

C. the timing of the audit

D. last years audit

121. Audit programme is prepared by____________?
comments icon0

A. The audit assistants

B. The auditor and his audit assistants

C. The client

D. The auditor

122. The main object of an audit is _____________?
comments icon0

A. Expression of opinion

B. Detection and Prevention of fraud and error

C. Both (A) and (B)

D. Depends on the type of audit.
123. What would most effectively describe the risk of incorrect acceptance in terms of substantive audit testing?
comments icon0

A. The auditor has rejected an item from sample which was not supported by documentary evidence

B. He applies random sampling on data which is inaccurate and inconsistent

C. The auditor has ascertained that the balance is materially correct when in actual fact it is not

D. The auditor concludes the balance is materially misstated when in actual fact is not

124. Which of the following statement is true regarding an auditors working papers?
comments icon0

A. They should not contain details regarding weaknesses in the internal control system

B. They should be considered as the principle support for the auditors report

C. They document the level of independence maintained by the auditor

D. They help the auditor to monitor the effectiveness of the audit firms quality control

125. Which of the following will not lead to creation of secret reserve?
comments icon0
A. Goods sent on consignment being shown as actual sales

B. Undervaluation of closing stock

C. Charging higher rates of depreciation on fixed assets than actually required

D. Charging capital expenditure to revenue

126. The auditor has serious concern about the going concern of the company. It is dependent on companys obtaining a working capital loan from a bank which has been applied for. The management of the company has made full disclosure of these facts in the notes to the balance sheet. The auditor is satisfied with the level of disclosure. He should issue___________?
comments icon0

A. unqualified opinion

B. unqualified opinion with reference to notes to the accounts

C. disclaimer of opinion

D. qualified opinion

127. The nature, timing and extent of substantive procedures is related to assessed level of control risk
comments icon0

A. Disproportionately

B. Directly

C. Inversely

D. Randomly

128. The fundamental objective of the audit of a company is to_____________?
comments icon0

A. Protect the interests of the minority shareholders

B. Detect and prevent errors and fraud

C. Assess the effectiveness of the companys performance

D. Attest to the credibility of the companys accounts
129. IFRS 9 explains about?
comments icon0
A. Accounts Receivable

B. Accounts Payable

C. Inventory

D. Expenses

130. Which of the following statements is not true?
comments icon0
A. Internal control system reduces the possibility of occurrence of employee fraud and management fraud

B. The auditors responsibility for detection and prevention of errors and frauds is similar.

C. All statements are correct.

D. Management fraud is more difficult to detect than employee fraud

131. The authority to remove the first auditor before the expiry of term is with__________?
comments icon0

A. the Central Government

B. the shareholders in a general meeting

C. the shareholders in the first annual General meeting

D. the board of directors

132. Which of the following should NOT be considered at the planning stage?
comments icon0

A. The timing of the audit

B. Analytical review

C. Obtaining written representations

D. Last years written representation letter

133. The date on auditors report should not be____________?
comments icon0

A. the data of AGM

B. later than the date on which the accounts are approved in boards meeting

C. earlier than the date on which the accounts are approved by the management

D. Both A. and B.

134. Balance sheet audit includes verification of____________?
comments icon0

A. Income and expense accounts where appropriate

B. Assets

C. Liabilities

D. All of the above
135. The working papers which auditor prepares for financial statements audit are___________?
comments icon0

A. Retained in auditors office until a change in auditors

B. Owned by the client

C. Evidence for audit conclusions

D. Owned by the auditor
136. When applying analytical procedures, an auditor could develop independent estimate of an account balance to compare it to___________?
comments icon0

A. Prior year audited balance

B. clients unedited account balance adjusted for trends in the industry

C. clients unedited account balance

D. Prior year audited balance adjusted for trends in the industry
137. Which of the following statements is not true about continuous audit?
comments icon0

A. It may be carried out on daily basis

B. It is expensive

C. It is needed when the organization has a good internal control system

D. It is conducted at regular interval

138. When is evidential matter, generally, considered sufficient?
comments icon0

A. When auditor collects and evaluates it independently

B. When it constitutes entire population

C. When it is objective and relevant

D. When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
139. Which of the following documents is not relevant for vouching cash sales?
comments icon0

A. Daily cash sales summary

B. Salesmens summary

C. Monthly statements sent to customers

D. Bank statement

140. Which of the following statements is not true with respect to management representations obtained as per AAS11?
comments icon0

A. Authenticated copy of relevant minutes of meetings may be regarded as management representation

B. It should be addressed to the auditor

C. It may be dated prior to the report date

D. It should always be in working
141. In an audit of financial statements, substantive tests are audit procedures that __________?
comments icon0
A. May be test of transactions, test of balance and analytical procedures

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 eliminated for an account balance under certain conditions

142. What is the primary objective of analytical procedures used in the overall review stage of an audit?
comments icon0

A. To reduce specific detection risk

B. To help to corroborate the conclusions drawn from individual components of financial statements

C. To direct attention to potential risk areas

D. To satisfy doubts when questions arise about a clients ability to continue

143. What would most appropriately describe the risk of incorrect rejection in terms of substantive testing?
comments icon0
A. The auditor concludes that the balance is materially misstated when in actual fact it not

B. The auditor has rejected an item for sample which was material

C. None of the above

D. The auditor concludes balance is materially correct when in actual fact it is not

144. Which of the following describes sampling risk?
comments icon0

A. The risk of the auditor carrying out a test the wrong way round

B. The risk that the sample does not reflect the population

C. The risk of the auditor reaching the wrong conclusions from testing

D. The risk of reliance on unsuitable audit evidence

145. Window dressing implies_______________?
comments icon0
A. Over Valuation of assets

B. Checking of Wastages

C. Curtailment of expenses

D. Under valuation of assets

146. ______the audit risks_______the materiality and_________the audit effort.
comments icon0

A. Lower, Lower, Higher

B. Lower, Higher, Higher

C. Lower, Higher, Lower

D. Higher, Lower, Lower

147. To test whether sales have been recorded, the auditor should draw a sample from a file of__________?
comments icon0
A. sales invoices

B. sales orders

C. bill of loading

D. purchase orders

148. When an auditor is proposed for removal from office, which one of the following is he NOT permitted to do?
comments icon0
A. Apply to the court to have the proposal removed

B. Speak at the AGM/EGM where the removal is proposed

C. Receive notification of the AGM/EGM where the removal is proposed

D. Circulate representations to members

149. When issuing unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the___________?
comments icon0
A. Estimates of the total likely misstatement is less than materiality level

B. Estimate of the total likely misstatement is more than materially level

C. Amount of known misstatement is documented in working papers

D. Estimates of the total likely misstatement cannot be made

150. The nature, timing and extent of substantive procedures is _________ related to assessed level of control risk?
comments icon0

A. randomly

B. directly

C. disproportionately

D. inversely