1. The main object of an audit is …………………….

a. Expression of opinion
b. Detection and Prevention of fraud and error
c. Both (a) and (b)
d. Depends on the type of audit

2. Both auditing and accounting are concerned with financial statements. Which of the following
is/are true
a. Auditing uses the theory of evidence to verify the financial information made available by
Accountancy
b. Auditing lends credibility dimension and quality dimension to the financial statements
prepared by the accountant.
c. Auditor should have through knowledge of accounting concepts and convention to enable him
to express an opinion on financial statements d. All of the above.

3. Audit of banks is an example of ……………………………

a. Statutory audit
b. Balance sheet audit
c. Concurrent audit
d. Both (a) and (b)
e. All of the above

4. Concurrent audit is a part of

a. Internal check system
b. Continuous audit
c. Internal audit system
d. None

5. Audit in depth is synonymous for

a. Complete audit
b. Completed audit
c. Final audit
d. Detailed audit

6. Balance sheet audit includes verification of ……………………………………..

a. Assets
b. Liabilities
c. Income and expense accounts where appropriate
d. All of the above

7. Which of the following statements is not true about continuous audit?

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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

8. Audit of transaction does not include ………………………….

a. Propriety audit
b. efficiency –cum performance audit
c. audit of receipts
d. audit of expenditure

9. Which of the following best describes the relationship between assurance services and attest
services?
a. While attest services involve financial data, assurance services involve nonfinancial data.
b. While attest services require objectivity, assurance services do not require objectivity.
c. Attest services are a subset of assurance services.
d. Attest and assurance services are different terms referring to the same types of services.

10. The most important benefit of having an annual audit by a public accounting firm is to:
a. Provide assurance to investors and other outsiders that the financial statements are reliable.
b. Enable officers and directors to avoid personal responsibility for any misstatements in the
financial statements.
c. Meet the requirements of government agencies.
d. Provide assurance that illegal acts, if any exist, will be brought to light.

11. Governmental auditing, in addition to including audits of financial statements, often includes
audits of efficiency, effectiveness, and: a. Adequacy.
b. Evaluation.
c. Accuracy.
d. Compliance.

12. Which one of the following is NOT required as part of the audit process?
a. Substantive procedures
b. Tests of control
c. Assessment of materiality
d. Procedures to obtain an understanding of the internal control structure

13. Which one of the following helps to achieve reasonable assurance about the fairness of
financial statements during an audit process?
a. Audit report
b. Audit evidence
c. Audit engagement
d. Audit program

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14. Auditing standards differ from audit procedures in that procedures relate to
a. audit assumptions
b. methods of work
c. quality criterion
d. acts to be performed

15. 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 auditor’s method of sample selection.

16. 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)

17. The fundamental objective of the audit of a company is to

a. Protect the interests of the minority shareholders
b. Detect and prevent errors and fraud
c. Assess the effectiveness of the company’s performance
d. Attest to the credibility of the company’s accounts

18. The concept of stewardship means that a company’s directors

a. Are responsible for ensuring that the company complies with the law
b. Are responsible for ensuring that the company pays its tax by the due date
c. Safeguard the company’s assets and manage them on behalf of the shareholders
d. Report suspected fraud and money laundering to the authorities

19. Which of the following is NOT the responsibility of a company’s directors?

a. Reporting to the shareholders on the accuracy of the accounts
b. Establishment of internal controls
c. Keeping proper accounting records
d. Supplying information and explanations to the auditor

20.International auditing standards are issued by the:

a. International Accounting Standards Board
b. Financial Accounting Standards Board

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c. International Audit and Assurance Standards Board
d. Auditing Practices Board

21. The independent auditor's primary responsibility is to:

a. the directors
b. the company's creditors (payables)
c. the company's bank
d. the shareholders
22. What sort of assurance is provided in a review engagement?
a. Positive assurance
b. Negative assurance
c. High level of assurance
d. No assurance

23. What is meant by negative assurance?

a. The auditor cannot give an opinion due to lack of evidence.
b. The client's financial statements were found to be materially misstated.
c. The auditor could not conduct any tests due to lack of controls.
d. The auditor did not find anything to indicate that a material misstatement exists.

24. Which of the following is not one of the three phases in an financial statement audit?
a. Planning.
b. Training and supervising employees.
c. Evidence accumulation and evaluation.
d. Reporting and follow-up.

25. Auditing should be done by

a. a professional accountant.
b. a certified management accountant.
c. a competent and independent person.
d. a chartered accountant.

26. Joe is recording sales transactions in the accounting system so that they can be summarized in
a logical manner for the purpose of providing financial information for decision-making. Joe is
doing
a. management consulting.
b. review.
c. accounting.
d. auditing.

27. What type of organizations use auditing services?

a. Non-for-profit organizations

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b. Businesses
c. Governments
d. All of the above

28. The objective of the audit of financial statements by the auditor is the expression of an
opinion on
a. the accuracy of the financial statements.
b. the fairness of the financial statements.
c. the balance sheet and income statement.
d. the annual report.

29. The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to
a. both management and the auditor equally.
b. management for the statements and the auditor for the notes.
c. the auditor.
d. management.

30. Which of the following parties is responsible for establishing an entity’s internal controls?
a. Management.
b. Auditors.
c. Management and auditors.
d. Committee of Sponsoring Organizations.

31. Which two of the following are elements of an assurance engagement?

1 A three- party relationship
2 Suitable criteria
3 Determination of materiality 4 An engagement letter a. (1) and (2) only
b. (1) and (3) only
c. (2) and (3) only
d. (2) and (4) only

32. Which of the following is the most appropriate definition of the external audit
a. The external audit is an exercise carried out by auditors in order to give an opinion on
whether the financial statement of a company is materially misstated.
b. The external audit is an exercise carried out in order to give an opinion on the
effectiveness of a company’s internal control system.
c. The external audit is performed by management to identify areas of deficiency within a
company and make recommendations to mitigate such deficiency.

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d. The external audit provides negative assurance on the truth and fairness of the financial
statement of a company.

33. Ethically, an auditor of a Company can as well be a receiver of the same company if the
company cannot continue its operations.
a. On application to the Governor of the State
b. Yes
c. No
d. On application to audit committee

34. Management responsibility as to the preparation of financial statements is reemphasized in

a. Bank Letter
b. Comfort Letter
c. Letter of Representation
d. Circularization Letter

35. The major objective of any statutory audit is to

a. Detect fraud and errors
b. Prevent fraud and errors
c. Ascertain material misstatement in the financial statements
d. Express an opinion on whether or not the financial statements show a true and fair view

36. Auditors can minimise liability arising from professional duties with the following
precautions EXCEPT:
a. Quality control as regards audit assignment
b. Avoiding risky audits or carrying out more extensive work
c. Minimising reliance on client’s representation or even third-party confirmation
d. Completion of audit assignments within short period of time so as to maximise gains

37. Limitation in audit scope involves the following aspects with EXCEPTION of
a. Lack of cooperation from the entity’s management and staff
b. Submission of all financial documents, books, records, schedules and other necessary
evidences humanly possible
c. Restrictive clauses in the terms of the audit engagement
d. Poor accounting and internal control procedures

38. A reason for private companies to be audited is

a. having a professional accountant perform their bookkeeping.
b. facilitating access to capital.

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c. complying with the laws requiring them to be audited.
d. ensuring that their financial statement do not contain errors.

39. The requirement for an attitude of scepticism means that the auditor should
a. plan and conduct the audit with an attitude of distrust in management.
b. not be blind to evidence that suggests the documents, books or records have been
altered or are incorrect.
c. perform additional tests of controls to increase the probability of discovering
fraud or errors.
d. not consider management's explanation as evidence on any subject.

40. The factor which distinguishes an error from fraud and other irregularity is
a. whether it is a dollar amount or a process.
b. intent.
c. materiality.
d. whether it is a caused by the auditor or the client.

41. After the auditor has completed all the procedures, it is necessary to combine the
information obtained to reach an overall conclusion as to whether the financial statements
are fairly presented. This is a highly subjective process that relies heavily on a. the
auditor's professional judgment.
b. generally accepted accounting principles.
c. the provincial institutes' Rules of Professional Conduct.
d. generally accepted auditing standards.

42. The type of audit that is carried out during the financial year of a company is known as ..................
Interim Audit

43. Auditors’ involvement in an all year-round review of client`s transactions and account balances which
occur within a particular year is best described as............................
Continuous Audit

44. Independent professional services that improve the quality of information or its context for decision
makers are referred to as...............................
Assurance services

45. The extent to which rules, policies, laws, covenants or government regulations are followed by the
entity being audited is determined by............................ test.
Compliance

46. An independent appraisal unit established within an entity to examine and make available its activities
as a service to management is known as..................... Internal audit

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47. An assurance given by the auditor that nothing has come to his attention which indicate that financial
statements have not been prepared according to the generally accepted accounting principles is called
..... Negative assurance

48. Schedules prepared by auditors setting out those procedures to be executed during the course of the
audit in order to obtain audit evidence from which the auditors draw conclusions on the financial
statements are called.
Audit programs

49. A person or firm possessing special skills, knowledge and experience in a particular field other than
auditing or accounting is called ..........................
An expert

50. 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

51. Which of the following statements best describes the term ‘assurance services’?
a. Services designed to express an independent opinion on the truth and fairness of a financial
report.
b. Services designed to provide confidence as to the integrity and security of e-commerce
business to consumers undertaking internet transactions.
c. Independent professional services that improve the quality of information for decision-
makers.
d. Services that result in better outcomes through the improvement of operation

52. Assurance services differ from consulting services in that they:

I. focus on providing advice.
II. involve primarily the monitoring of one party by another.
a. I. Yes II. Yes
b. I. Yes II. No
c. I. No II. Yes
d. I. No II. No

53. Which of the following is not an essential element of an assurance engagement under the
Framework for Assurance Engagements?
a. A two-party relationship between an assurance practitioner and the intended user.
b. An underlying subject matter.
c. A suitable criterion.
d. A conclusion by an assurance practitioner.

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54. The subject matter of an assurance engagement may be:
a. financial position and performance.
b. systems and processes.
c. non-financial performance.
d. All of the given answers are correct

55. What level of assurance is provided by the auditor in a review engagement?

a. Limited.
b. Low.
c. Reasonable.
d. None.

56. Which of the following items is a component of the expectation gap?

a. The fraud gap.
b. The accounting standards gap.
c. Performance gap.
d. All of the given answers are correct.

57. The major international audit firms are now known as:
a. the Big Four.
b. the Big Eight.
c. the Forum of Firms
d. the Transnational Audit Committee

58. Financial report auditing is the process of:

a. recording, classifying and measuring accounting data.
b. obtaining sufficient appropriate audit evidence of the propriety and accuracy of information
included in an entity’s financial report.
c. checking invoices back to supporting documentation.
d. ensuring compliance with the Company’s Act 1963 (act 179)

59. The financial report assertion of existence is concerned with ensuring that:
a. a transaction or event that relates to the entity actually took place during the period.
b. assets, liabilities and equity interests exist at the balance date.
c. the entity owns and has clear title to the assets of the entity.
d. assets and liabilities are recorded at an appropriate carrying value.

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60. Which of the following procedures for establishing whether to accept a client should the
auditor follow?
a. Reviewing available financial information about the prospective client
b. Evaluating the audit firm’s independence status concerning the prospective client
c. Evaluating the audit firm’s technical skills to undertake the audit
d. All of the given answers are correct

61. An audit firm may use which of the following methods of advertising to obtain clients?
a. Advertising that promotes the firm as having the lowest auditor’s report modification rate.
b. Direct mailing together with persistent follow-up of recipients.
c. Advertising that promises a low set fee
d. Brochures indicating the range of services that the audit firm offers.

62. Auditing refers to

a. Preparation and checking of account
b. Examination of accounts of business units only
c. Examination of accounts of professional accountants
d. Checking of vouchers

63. Main object of auditing is

a. Detection of errors
b. To find out whether financial statement show true and fair state of affairs c.
Detection of frauds
d. Detection and prevention of frauds and errors.

64. Auditing is luxury for a

a. Joint stock company
b. Partnership firm
c. Small shop-keeper
d. Government company

65. An auditor’s responsibility extends to both evaluating the overall presentation of the financial
statements AND evaluating the reasonableness of accounting estimates made by management. Is
this statement true or false? a. True
b. False

1. Professional skepticism requires that the auditor assume that management is a.

reasonably honest
b. Neither honest nor dishonest
c. Not necessarily honest

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d. Dishonest unless proved otherwise

2. Which of the following information should a successor auditor obtain during the inquiry of the
predecessor auditor before accepting engagement? i. Information about integrity of management
ii. Disagreement with management concerning auditing procedures iii.
Review of internal control system.
iv. Organisation structure a.
(i) and (ii)
b. (ii) and (iii)
c. (i) , (ii) and (iii)
d. i) and (iii)

3. 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 auditor’s method of sample selection.

4. 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. Cooperation from other auditors

5. The use of an audit engagement letter is the best method of documenting

i. the required communication of significant deficiencies in internal control ii.
significantly higher control risk than that assessed in prior audit.
iii. Objective and scope of auditor’s work iv. Notification of any changes
in the original arrangements of the audit. a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iv)
d. (iii) and (iv)

6. An auditor who accepts an audit but does not possess the industry expertise of the business
entity should
a. engage experts
b. obtain knowledge of matters that relate to the nature of entity’s business
c. inform management about it

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d. take help of other auditors

7. An auditor obtains knowledge about a new client’s business and its industry to
a. Make constructive suggestions concerning improvements to the client’s internal control
system.
b. Evaluate the appropriateness of audit evidence obtained
c. Understand the events and transactions that may have an effect on client’s financial statements.
d. All of the above

8. The Ghana Government had constructed six bungalows for its ministers. They are lying
unoccupied for last three years. This would be a matter of concern for a. Propriety Auditor
b. Performance Auditor
c. Financial Auditor
d. None of the above

9. 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

10. 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 annual general meeting
c. the conclusion of next annual general meeting
d. the date of removal

11. In case the directors fail to appoint first auditor (s), 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

12. 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.

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d. None of the above

13. If a casual vacancy in the office of auditor arises by his resignation it should only be filled by
the company in a……..
a. Board meeting
b. extraordinary general meeting
c. General meeting
d. annual general meeting

14. The auditor of a Government company is appointed by the C & AG Ltd. His remuneration is
fixed by ……………………………….
a. the C & AG Ltd
b. the shareholders
c. the shareholders at an annual general meeting
d. the board of directors

15. 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

16. Which of the following statements 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 provisions for such removal are contained in the companies’ code

17. The retiring auditor does not have a right to …………………………

a. make written representations
b. get his representations circulated.
c. be heard at the meeting
d. speak as a member of the company

18. 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 (b) and (c)

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19. A statutory auditor has a right of access at all times to
a. Books and accounts of a company
b. Books, accounts and documents of the company
c. Books, accounts and vouchers of the company
d. Notices and documents of the company

20. 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. All the above

21. The 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

22. Auditor of a ………… company does not have right to visit foreign branches of the company
a. Unlimited liability
b. Manufacturing
c. Banking
d. Nonprofit making

23. 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 (a) and (b)

24. The independence of an internal auditor will most likely be assured if he reports to the a.
President Finance
b. President System
c. Board Chairman
d. Managing Director

27. The audit committee of a company must be made up of:

a. Representatives from the client’s management, investors, suppliers, and customers.
b. The audit partner, the chief financial officer, the legal counsel, and at least one outsider.
c. Representatives of the major equity interests, such as preferred and common stockholders.

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d. Members of the board of directors who are not officers or employees.

28. Which of the following should not normally be included in the engageme nt letter for an audit?
a. A description of the responsibilities of client personnel to provide assistance.
b. An indication of the amount of the audit fee.
c. A description of the limitations of an audit.
d. A listing of the client’s branch offices selected for testing.

29. Which of the following should the auditors obtain from the predecessor auditors before
accepting an audit engagement?
a. Analysis of balance sheet accounts.
b. Analysis of income statement accounts.
c. All matters of continuing accounting significance.
d. Facts that might bear on the integrity of management.

30. 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 auditor’s method of sample selection.

31. 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. Cooperation from other auditors

32. The use of an audit engagement letter is the best method of documenting
i) the required communication of significant deficiencies in internal control ii)
significantly higher control risk than that assessed in prior audit.
iii) Objective and scope of auditor’s work iv) Notification of any changes
in the original arrangements of the audit. a. (i) and (ii)
b. (i) and (iii)
c. ii and (iv)
d. (iii and (iv)

33. An auditor who accepts an audit but does not possess the industry expertise of the
business entity should a. engage experts

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b. obtain knowledge of matters that relate to the nature of entity’s business
c. inform management about it
d. take help of other auditors

34. 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

36. 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 (b) and (c)

37. A statutory auditor has a right of access at all times to

a. Books and accounts of a company
b. Books, accounts and documents of the company
c. Books, accounts and vouchers of the company
d. Notices and documents of the company

38. 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 (b) and (c)

39. Which of the following has primary responsibility for the fairness of the representations made
in financial statements?
a. Client’s management.
b. Independent auditor.
c. Audit committee.
d. AICPA.

40. An auditor who accepts an audit but does not possess the industry expertise of the business
entity should
a. engage experts
b. obtain knowledge of matters that relate to the nature of entity’s business
c. inform management about it
d. take help of other auditors

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41. Auditors conduct auditing in accordance with:
a. International Financial Reporting Standards
b. Local pronouncements/Legislations
c. Financial Accounting Standards Board
d. All of the given options

42. True and fair presentation means that the financial statement are prepared and presented in
accordance with the requirements of the applicable International Financial Reporting Standards
(IFRS) and local pronouncements/legislations.
Which of the following primary assertions is satisfied when an auditor ensures that there are no
unrecorded assets, liabilities, transactions or events or undisclosed items in the client s financial
records?
a. Valuation
b. Completeness
c. Existence
d. Rights and obligations

43. External audit of the accounts of a limited company is required

a. because it is demanded by the company’s bankers
b. at the discretion of the shareholders
c. to detect fraud
d. by the Companies Code

44. The goal of corporate governance and business ethics education is to

a. Teach students their professional accountability and to uphold their personal Integrity to
society.
b. Change the way in which ethics is taught to students.
c. Create more ethics standards by which corporate professionals must operate.
d. Increase the workload for accounting students.

45. The internal audit function is least effective when the department:
a. Is non-independent.
b. Is competent.
c. Is objective.
d. Exhibits integrity

46. An independent director is one who:

a. Did not attend a school supported by the company.
b. Does not have outside relationships with other directors.

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c. Does not have any other relationships with the company other than his or her directorship. d.
All of the above.

47. Internal auditors are responsible to:

a. the board of directors.
b. management.
c. both a and b.
d. neither a nor b.

48. When an auditor is proposed for removal from office, which one of the following is he NOT
permitted to do?
a. Circulate representations to members
b. Apply to the court to have the proposal removed
c. Speak at the AGM/EGM where the removal is proposed
d. Receive notification of the AGM/EGM where the removal is proposed

49. Which one of the following is NOT a duty of the auditor?

a. Duty to report to the company’s bankers
b. Duty to report to the members
c. Duty to sign the audit report
d. Duty to report on any violation of law

50. Assuming that it is not the first appointment of the auditor, who is responsible for the
appointment of the auditor?
a. The shareholders in a general meeting
b. The managing director
c. The board of directors in a board meeting
d. The audit committee

51. You have been proposed as auditor of a company. What is the first step that you should
take?
a. Obtain the client’s permission to communicate with the existing auditor
b. Obtain the existing auditor’s working papers
c. Obtain a copy of the company’s most recent board minutes
d. Obtain a copy of the existing auditor’s letter of engagement

52. Which one of the following may auditors NOT perform for their client?
a. Taking management decisions

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b. Preparation of accounting records
c. Preparing tax computations
d. Advising on weaknesses in the internal control systems

53. Which of the following are fundamental ethical principles for professional accountants? 1
Competence
2 Compliance
3 Integrity 4 Objectivity
a. 1, 2 and 3 only
b. 1, 3 and 4 only
c. 2, 3 and 4 only
d. 1, 2 and 4 only

54. Which of the following statements is INCORRECT?

a. An auditor may serve on the board of directors of an audit client.
b. An auditor who is an immediate family member of the director of an audit client
must not be assigned to the audit team.
c. Purchasing goods from an audit client on normal commercial terms does not create
a threat to the auditor’s independence.
d. An auditor who was recently a director of an audit client must not be assigned to the
audit team for that client.

55. Who normally appoints the external auditors of a company?

a. Directors
b. Shareholders
c. Audit Committee
d. Senior management

56. Which of the following is NOT the responsibility of the auditor?

a. To provide an opinion on the truth and fairness of the financial statement
b. To conduct an audit in accordance to the International Standards on auditing
c. To express an opinion on the companies going concern status
d. To assess the accurateness of management assumption of going concern status
57. Persons disqualified to act as an auditor include the following EXCEPT:
a. A body corporate
b. A retired civil servant with Practising Certificate
c. A partner or employee or officer/servant of the Company
d. A person who has been disqualified to act as auditor of a subsidiary company

58. Which one of the following is not a duty of the auditor?

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a. Duty to report to the company’s bankers
b. Duty to report to the members
c. Duty to sign the audit report
d. Duty to report on any violation of law

59. Which of the following is NOT a potential duty of an audit committee?

a. Review of financial statements
b. Review of shareholders register
c. Review of Internal Audit
d. Liaison with external auditors

60. One of the following is NOT relevant as to the qualities that an auditor must possess
a. Painstakingness
b. Tactfulness
c. Deceit
d. Courage

61. The audit committee should focus its activities on the following functions EXCEPT:
a. Reliability and accuracy of the financial information provided to management and external
users
b. any accounting or auditing concerns identified as a result of an audit
c. the appointment of a new director in replacing the outgoing director on account of age
d. the company’s compliance with legal and regulatory provisions.

62. In the audit of historical financial statements by Accounting firms, the

criteria used are
a. regulations of the Canada Revenue Agency.
b. generally accepted auditing standards.
c. generally accepted accounting principles.
d. regulations of the provincial securities commissions.

63. The auditor has considerable responsibility for notifying users as to whether or not the
statements are properly stated. This imposes upon the auditor a duty to
a. be equally responsible with management for the preparation of the financial statements.
b. be a guarantor of the fairness in the statements.
c. be an insurer of the fairness in the statements.
d. provide reasonable assurance that material misstatements will be detected.

64. State any ONE main feature each member of The Institute of Chartered Accountants of your
Country must possess.

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Integrity
Independence and objectivity
Confidentiality
Technical competence
Conformity with technical competence
Maintenance of accepted ethical conduct
Restraint on advertisement of technical ability and publicity.

65. The system by which the affairs of companies are directed and controlled by those charged
with the responsibility of managing them is known as....................................
Corporate Governance

66. Rules and regulations guiding the implementation of accounting and auditing functions
within an enterprise are embedded in ............................
Regulatory Framework

67. State TWO circumstances when the directors of a company can appoint an auditor. First
auditors and casual vacancy

68. Who is responsible for overall quality control on an audit engagement?

a. Audit engagement partner.
b. Audit engagement team.
c. Quality control reviewer.
d. Audit manager.

69. An auditor has a duty to:

a. inform shareholders of directors’ remuneration.
b. prepare the financial report for presentation to shareholders.
c. exercise reasonable care and skills
d. exercise perfect judgment.

70. Corporate governance procedures are primarily concerned with ensuring:

a. the company will not be sued by its shareholders for inappropriate behaviour.
b. the entity operates at high levels of efficiency and effectiveness.
c. all members of the board of directors attend all directors’ meetings.
d. All of the given answers are correct.

71. Which of the following persons is qualified to be a company auditor?

a. An employee of the company
b. A body corporate

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c. A person who is indebted to the company for an amount exceeding GH¢1,000
d. A practicing chartered accountant
72. Normally, a company auditor is appointed by the
a. Central Government
b. Shareholders
c. Board of Directors
d. Company Law board

73. An auditor in a casual vacancy is appointed by the

a. Board of Directors
b. Shareholders
c. Central Government
d. Company Law board

74. A company auditor can be removed before expiry of his term by

a. Shareholders
b. Board of Directors
c. Central Government
d. State Government

75. Remuneration of a company auditor is fixed by the

a. Shareholders
b. Board of Directors
c. Central Government
d. Appointing authority

76. A company auditor, in general has to submit his report to

a. Shareholders
b. Board of Directors
c. Central Government
d. None of the above

77. Auditor, in general is an a.

Employee of the company
b. Agent of the company
c. Agent of the shareholders
d. None of the above

78. Which of the following is NOT a statutory right of the auditors of a limited company?

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 (1) A right to attend all directors’ meetings and receive all notices and
communications relating to such meetings.
(2) A right to speak at general meetings on any part of the business that concerns them
as auditors.
(3) A right to attend any general meeting and receive all notices and communications
relating to such meetings.
a. (1) only
b. (1) and (3)
c. (2) only
d. (2) and (3)

1. 1Which of the following is not correct about independence of mind?

a. It is the exercise of objectivity and professional skepticism.
b. It permits the provision of an opinion without being affected by influences that compromise
professional judgement
c. It allows an individual to act with integrity
d. It is the state of mind that creates confidence in the auditor

2. Which of the following is not a safeguard created by the profession, legislation or regulation?
a. Peer review of quality control.
b. Continuing education requirements.
c. Internal policies to monitor compliance with independence ethics.
d. Professional monitoring processes.

3. The generally accepted auditing standard that requires “Adequate technical training and
proficiency” is normally interpreted as requiring the auditor to have
a. formal education in auditing and accounting.
b. adequate practical experience for the work being performed.
c. continuing professional education.
d. all of the above.

4. Providing certain non-assurance services to an audit client may create a threat to independence
so significant that no safeguards could reduce the threat to an acceptable level.
All the following are examples of this type of non-assurance services except: a.
Internal audit services.
b. Services that assume a management responsibility.
c. Tax preparation for chief executives.

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d. Tax planning that impacts the financial statements.

5. If a member of the audit team, a member of that individual’s immediate family, or a firm has a
direct financial interest or a material indirect financial interest in the audit client then:
a. The auditor may have to create new safeguards to counteract the threat.
b. The auditors should not participate in the audit, but only act as supervisors.
c. The auditor would have to hire outside auditors to help in the audit.
d. The self-interest threat created would be so significant that no safeguards could reduce the
threat to an acceptable level.

6. Which of the following would be considered a self-interest threat?

a. When a member of the assurance team was previously a director or officer of the assurance
client.
b. Acting as the client’s advocate in a legal proceeding.
c. Potential employment with an assurance client.
d. A member of the assurance team has a close family member who is a director or officer of the
assurance client.
7. Which fundamental principle of professional and ethical conduct is described by the phrase
‘having the courage to pursue one’s convictions’?
a. integrity
b. objectivity
c. confidentiality
d. professional competence and due care

8. In a conflict of interest situation, to whom is the accountant’s first obligation? a.

the client
b. the public
c. themselves
d. the government

9. In which one of the following situations is the duty of confidentiality most likely to be
breached?
a. When information is disclosed in a court of law.
b. When information is disclosed in response to a formal investigation by ICAG.
c. If the auditor obtains authorization from the client before disclosing the information.
d. If information is disclosed after the accountant has resigned from their position with the
employer.

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10. Financial involvement with a client will affect independence and may lead a reasonable
observer to conclude that independence has been impaired. Which of the following is not a
form of financial involvement with a client?
a. Loans to or from the client.
b. Fees paid for audit engagement.
c. Financial interest in a joint venture with a client.
d. Financial interest resulting from being an administrator of a trust with a financial interest in the
client.

11. ‘A professional accountant should not allow bias, conflict of interest or undue influence of
others to override professional or business judgments’ is the definition of what ethics
principle?
a. Integrity.
b. Professional Behaviour.
c. Professional competence and due care.
d. Objectivity.

12. Safeguards for accepting an audit engagement shall be applied to eliminate any threats or
reduce them to an acceptable level. Which of the following is not a reasonable safeguard for
accepting an audit engagement?
a. Requesting a background check of key employees.
b. Obtaining necessary information from other sources.
c. Asking the existing accountant to provide known information on any facts or circumstances
that the proposed accountant needs to be aware of before deciding whether to accept the
engagement.
d. Before accepting the engagement state that contact with the existing accountant will be
requested.

13. Regarding auditor remuneration, a self-interest threat to professional competence and due
care is created if:
a. A professional accountant in public practice solicits new work through advertising or other
forms of marketing.
b. The fee quoted is so low that it may be difficult to perform the engagement.
c. The auditor accepts a referral of a new client from an existing client.
d. A gift from a client is accepted.

14. To safeguard against a self-interest threat to objectivity, a professional accountant in public

practice entrusted with money (or other assets) belonging to others should do all the
following except:
a. Use such assets only for the purpose for which they are intended.

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b. Report all transactions to the person whose money is being held on a periodic basis.
c. At all times, be ready to account for those assets, and any income, dividends or gains
generated.
d. Keep such assets separately from personal or firm assets.

15. The state of mind that permits the expression of a conclusion without being affected by
influences that compromise professional judgement, thereby allowing an individual to act
with integrity and exercise objectivity and professional scepticism, is called:
a. Professional behaviour.
b. Independence of mind.
c. Independence in appearance.
d. Objectivity.

16. An auditor should not accept a loan on favourable commercial terms from an audit client
because of the threat to his or her independence. The threat would be a:
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat

17. The audit procedures that ensure that transactions are recorded in the period to which they
relate could be best described as a. Border line
b. Deadline procedures
c. Leverage test
d. Cut off procedure

18. Independence and objectivity of an auditor cannot be impaired if

a. He accepts undue hospitality from the client
b. He has direct/Indirect beneficial interest in any capacity in an organization for which he is
acting as auditor
c. He is related by blood or by marriage to the directors of the company
d. He rejects appointment on the ground of technical incompetence

19. What is the responsibility of an incoming auditor with respect to communicating with the
outgoing auditor in connection with a prospective new audit client?
a. the incoming auditor has no responsibility to contact the outgoing auditor
b. the incoming auditor should obtain permission from the prospective client to contact the
predecessor auditor
c. the incoming auditor should contact the outgoing auditor regardless of whether the prospective
client authorized contact

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d. the incoming auditor need not contact the outgoing auditor if the incoming auditor is aware of
all available relevant facts.

20. A letter issued by an auditor to management or another party at the request of management,
expressing an opinion as to management`s compliance with regulations or requirements
concerning financial matters, is called...........letter.
Letter of weakness
Management Letter

21. Which of the following is not a threat to independence?

a. Self-interest.
b. Familiarity.
c. Public interest.
d. Advocacy.

22. In which of the following situations do you believe the auditor has upheld the fundamental
principle of independence?
a. An auditor has been appointed to audit a company in which he/she is a major shareholder.
b. An auditor has been appointed to audit a major manufacturing company that has lent him/her
GH¢300,000 for the purchase of a house.
c. The auditor of VIP Travel Ltd currently has a travel account with VIP Travel that operates on
the same terms and conditions as all other travel accounts with the travel agent.
d. The auditor of ABCD Ltd is the spouse of the chairman of the board of directors of ABCD
Ltd.

23. An audit independence issue might be raised by the auditor’s participation in consulting
services engagements. Which of the following statements is most consistent with the profession’s
attitude towards this issue?
a. Information obtained as a result of a consulting engagement is confidential to that engagement
and should not influence the performance of the attest function.
b. The decision as to loss of independence must be made by the client, based on the facts of the
particular case.
c. The auditor should not make management decisions for an audit client.
d. An auditor who is asked to review management decisions is competent to make these decisions
and can do so without loss of their independence.

24. Audit fees should be determined by:

a. the amount of time taken to perform the audit.
b. the least expensive tender in an audit tender process.
c. the knowledge and skill required and the responsibility accepted by the auditor.

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d. the time, skill and responsibility required to complete the audit.

1. Audit information is usually considered relevant when it is:

a. derived from valid statistical sampling
b. objective and unbiased
c. factual, adequate and convincing
d. consistent with the audit objectives

2. 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

3. Audit programme is prepared by

a. the auditor
b. the client
c. the audit assistants
d. the auditor and his audit assistants

4. 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

5. In planning and performing an audit, auditors are concerned abou t risk factors for two distinct
types of fraud: fraudulent financial reporting and misappropriation of assets. Which of the
following is a risk factor for misappropriation of assets? a. Generous performance-based
compensation systems.
b. Management preoccupation with increased financial performance.
c. An unreliable accounting system.
d. Strained relationships between management and the auditors.

6. 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

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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

6. ………. the audit risk…….., the materiality and ……the audit effort
a. Lower, Higher, Lower
b. Lower, Lower, Higher
c. Higher, Lower, Lower
d. Lower, Higher, Higher

7. 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

8. Which of the following is not an objective of the audit planning procedure?

a. To set out the way in which the objectives and other priorities will be achieved
b. To define how the audit evidence necessary to achieve the objectives will be obtained
c. To perform data analysis to identify major weaknesses
d. To identify the resources that will be needed and actually employed in audits

9. Materiality threshold is defined as the maximum tolerance level of errors identified after
verification of a sample. Audit risk is the probability of existing errors not being identified by the
auditors. Which of the following statements is not correct?
a. The higher the materiality threshold, the lower the audit risk
b. Materiality and audit risk are inversely proportional
c. The lower the materiality threshold, the higher the audit risk
d. Materiality and audit risk are not related

10. 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

11. Which of the following is one of the procedures in the planning phase?
a. Determine need for other professionals
b. Prepare clients proposal
c. Determine materiality

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d. Select staff to perform the audit

12.The standards given in ‘Understanding the Entity and Its Environment and Assessing the
Risks of Material Misstatement’ (ISA 315) emphasizes:
a. Obtaining an understanding of business risks and significant risks.
b. Procedures for sampling audit tests.
c. Reports to federal regulators.
d. Obtaining an understanding of control risk.

13. Information acquired during the planning phase about business operations may include all of
the following except:
a. Nature of revenue sources.
b. Acquisition and disposals of business divisions.
c. Market.
d. Employment.

14. Which of the following is not a procedure to obtain an understanding of risk in the planning
stage (described in ISA 315)?
a. Procedures for sampling audit tests.
b. Inquiries of management.
c. Observation and inspection.
d. Analytical procedures.

15. Misstatements or omissions are material if they could reasonably be expected to influence
_____________ taken on the basis of the financial statements. a. Primary qualitative
characteristics.
b. Economic decisions of users.
c. Pervasiveness of the item.
d. The content of the item or error

16. Judgements about materiality are made in light of surrounding circumstances, and are
affected by the ______________ of a misstatement, or a combination of both. a.
Significance or nature.
b. Significance or size.
c. Size or characteristics.
d. Size or nature.

17. Business operations, types of investments, capital structure and financing, and ownership
structures are areas that are considered when obtaining an understanding of: a. Accounting
policies.

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b. Objectives and strategies.
c. The nature of the entity.
d. Measurement and review of financial performance.

18. Which of the following might be a commonly used guideline related to a financial statement
materiality base?
a. 5% to 10% of long-term liabilities.
b. 2% to 4% of net income before taxes.
c. 1/2% to 2% of total assets.
d. 15% to 20% of current assets.

19. Typically, an audit planning memorandum would contain the following sections except: a.
Background information.
b. Objectives of the audit.
c. Assessment of business risk.
d. Audit approach.

20. Why do auditors concentrate their efforts on material items in accounts?

a. Because they are easier to audit
b. Because it reduces the audit time
c. Because the risk to the accounts of their being incorrectly stated is greater
d. Because the directors have asked for it
21. Which one of the following is NOT considered to be part of planning?
a. Background i.e. industry
b. Previous year’s audit i.e. any qualifications in the report
c. Considering the work to be done by the client staff e.g. internal audit
d. Considering whether the financial statements show a true and fair view

22. Which of the following should NOT be considered at the planning stage?
a. The timing of the audit
b. Analytical review
c. Last year’s written representation letter
d. Obtaining written representations

23. At the planning stage you would NOT consider:

a. the timing of the audit
b. whether corrections from the inventory count have been implemented c.
last year's audit
d. the potential use of internal audit

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24. The auditor must have a thorough understanding of the entity and its environment. The
auditor must also consider the client's business strategies, processes, and measurement indicators
for critical success factors related to those strategies. This analysis helps the auditor a. decide if
they want to accept the engagement.
b. identify risks associated with the client's strategy that could affect the financial statements.
c. assess the level of materiality that is appropriate for the audit.
d. identify the potential for fraud in the financial reporting process.

25. When considering each material type (or class) of transactions during the audit, which
general transaction-related audit objectives are assessed during the audit? a. all five
transaction-related audit objectives
b. those transaction-related audit objectives where there are poor internal
controls
c. those transaction-related audit objectives where there is the highest risk of
error
d. primarily completeness, existence and valuation, since this is where most
errors occur

26. Materiality in planning and performing an audit defines materiality in terms of three key
concepts. The first and second concepts are that a material misstatement should be considered in
the context of knowledgeable users and the effect on decision making and that material is relative
to circumstances surrounding the decision and nature of the information. The third concept is
a. that the auditor should consider users of financial statements as a group.
b. that the auditor should consider users of financial statements individually.
c. that the auditor should be conservative in setting the materiality level.
d. that the users should be informed and approve of the materiality used by the auditor.

27. Ms. Nyame is in the process of performing the audit. In this process, Sika decided to change
the materiality. A valid reason for this would be
a. the reviewing partner indicated he would feel more comfortable if additional tests were
performed and materiality was lower.
b. a new user of the financial statement was identified in the process.
c. the planning materiality required the auditors to perform too many tests.
d. a fraud was discovered in the accounts payable section.

28. If the auditor sets a low dollar amount as the preliminary judgment about materiality,
a. less evidence is required than for a high amount.
b. more evidence is required than for a high amount.
c. the same amount of evidence is required as for a high dollar amount.
d. it has no effect on the amount of evidence required.

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29. The auditors have decided upon a materiality level of GH¢100,000 for their audit of ABC
Manufacturing. Which one of the following errors would be considered more important by the
auditors? An
a. error in accounts receivable cut-off of GH¢50,000
b. error in allocation between accounts receivable and accounts payable by
GH¢75,000
c. illegal payment of GH¢5,000
d. overstatement of accounts payable by GH¢15,000

20. The purpose of allocating planning materiality to balance sheet accounts is to

a. assess the appropriate evidence to accumulate for each account on both the
balance sheet and income statement.
b. reduce the amount of procedures done in the course of the audit.
c. increase the possibility that fraud or illegal activities would be detected by audit
procedures.
d. assess the appropriate evidence to accumulate for each account on the balance
sheet.

21. Which of the following items must the auditor comply with in the planning, conduct and
reporting of all audit engagements? a. Guidance statements.
b. Companies Act 1963 (Act 179).
c. Requirements of auditing standards.
d. All of the given answers are correct.

22. Which of the following statements concerning professional indemnity insurance is correct?
a. Professional indemnity insurance is one of the major costs for audit firms.
b. Professional indemnity insurance is readily available.
c. Professional indemnity insurance provides complete protection from negligence claims.
d. All of the given answers are correct.

23. The level of materiality that the auditor determines:

a. is the same for all clients.
b. should always be based on the net profit after tax.
c. is dependent on the auditor’s judgment.
d. should always equal 5 percent of a relevant base

24. Which of the following statements concerning communication with the previous auditor is
incorrect?

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a. The prospective auditor should obtain the client’s permission to communicate with the
previous auditor.
b. In their communication with the previous auditor, the prospective auditor should ask the
previous auditor for any information necessary to make a decision on acceptance.
c. The previous auditor must obtain the client’s permission to discuss the client’s affairs with the
prospective auditor.
d. The prospective auditor should discuss with management any issues raised in the previous
auditor’s response before deciding whether to accept the appointment.

25. Which of the following statements about scheduling of audit staff is correct?
a. The number of audit staff required for an engagement is always the same.
b. The quality of audit staff needed on an engagement depends on the complexity of audit work
anticipated.
c. When scheduling the staff for an engagement the auditor needs to consider confidentiality.
d. There should always be at least three audit staff on an engagement.

26. A properly planned and performed audit may fail to detect a material misstatement resulting
from fraud because:
a. audit procedures that are effective for detecting an error may be ineffective for fraud that
is concealed through collusion.
b. an audit is planned and performed to provide reasonable assurance of detecting material
misstatements caused by errors but not by fraud
c. the factors considered in assessing control risk indicated an increased risk of error but
only a low risk of fraud in the financial report.
d. the auditor did not consider factors influencing audit risk for account balances that have
effects pervasive to the financial report taken as a whole.

27. Ms. Nyame is in the process of performing the audit. In this process, Sika decided to change
the materiality. A valid reason for this would be
a. the reviewing partner indicated he would feel more comfortable if additional tests were
performed and materiality was lower.
b. a new user of the financial statement was identified in the process.
c. the planning materiality required the auditors to perform too many tests.
d. a fraud was discovered in the accounts payable section.

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28. If the auditor sets a low dollar amount as the preliminary judgment about materiality,
a. less evidence is required than for a high amount.
b. more evidence is required than for a high amount.
c. the same amount of evidence is required as for a high dollar amount.
d. it has no effect on the amount of evidence required.

29. The auditors have decided upon a materiality level of GH¢100,000 for their audit of ABC
Manufacturing. Which one of the following errors would be considered more important by the
auditors? An
a. error in accounts receivable cut-off of GH¢50,000
b. error in allocation between accounts receivable and accounts payable by
GH¢75,000
c. illegal payment of GH¢5,000
d. overstatement of accounts payable by GH¢15,000

20. The purpose of allocating planning materiality to balance sheet accounts is to

a. assess the appropriate evidence to accumulate for each account on both the
balance sheet and income statement.
b. reduce the amount of procedures done in the course of the audit.
c. increase the possibility that fraud or illegal activities would be detected by audit
procedures.
d. assess the appropriate evidence to accumulate for each account on the balance
sheet.

21. Which of the following items must the auditor comply with in the planning, conduct and
reporting of all audit engagements? a. Guidance statements.
b. Companies Act 1963 (Act 179).
c. Requirements of auditing standards.
d. All of the given answers are correct.

22. Which of the following statements concerning professional indemnity insurance is correct?
a. Professional indemnity insurance is one of the major costs for audit firms.
b. Professional indemnity insurance is readily available.
c. Professional indemnity insurance provides complete protection from negligence claims.
d. All of the given answers are correct.

23. The level of materiality that the auditor determines:

a. is the same for all clients.
b. should always be based on the net profit after tax.

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c. is dependent on the auditor’s judgment.
d. should always equal 5 percent of a relevant base

24. Which of the following statements concerning communication with the previous auditor is
incorrect?
a. The prospective auditor should obtain the client’s permission to communicate with the
previous auditor.
b. In their communication with the previous auditor, the prospective auditor should ask the
previous auditor for any information necessary to make a decision on acceptance.
c. The previous auditor must obtain the client’s permission to discuss the client’s affairs with the
prospective auditor.
d. The prospective auditor should discuss with management any issues raised in the previous
auditor’s response before deciding whether to accept the appointment.

25. Which of the following statements about scheduling of audit staff is correct?
a. The number of audit staff required for an engagement is always the same.
b. The quality of audit staff needed on an engagement depends on the complexity of audit work
anticipated.
c. When scheduling the staff for an engagement the auditor needs to consider confidentiality.
d. There should always be at least three audit staff on an engagement.

26. A properly planned and performed audit may fail to detect a material misstatement resulting
from fraud because:
a. audit procedures that are effective for detecting an error may be ineffective for fraud that
is concealed through collusion.
b. an audit is planned and performed to provide reasonable assurance of detecting material
misstatements caused by errors but not by fraud
c. the factors considered in assessing control risk indicated an increased risk of error but
only a low risk of fraud in the financial report.
d. the auditor did not consider factors influencing audit risk for account balances that have
effects pervasive to the financial report taken as a whole.

1. 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

36 | P a g e
c. The auditor’s responsibility for detection and prevention of errors and frauds is similar. d. All
statements are correct.

2. Which of the following business characteristics is not indicative of high inherent risk?
a. Operating results that are highly sensitive to economic factors.
b. Large likely misstatements detected in prior audits.
c. Substantial turnover of management.
d. A large amount of assets.

3. The least important element in the evaluation of an audit firm’s 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 client’s information

4. The primary purpose of establishing quality control policies and procedures for deciding on
client evaluation is 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. all of the above

5. 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’s advice as to whether audit fees were paid promptly
d. Review of audit work done by one partner by the other

5. Tests of control are not concerned with ………………………….

a. Existence of controls
b. Effectiveness of controls
c. Continuity of controls
d. Designing of controls

6. The sequence of steps in the auditor’s consideration of internal control is as follows ………….
a. Obtain an understanding, design substantive test, perform tests of control, make a
preliminary assessment of control risk
b. Design substantive tests, obtain an understanding, perform tests of control, make a
preliminary assessment of control risk

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c. Obtain an understanding, make a preliminary assessment of control risk, perform tests of
control, design substantive procedures.
d. Perform tests of control, obtain and understanding, make a preliminary assessment of
control risk, design substantive test

7. An auditor should study and evaluate internal controls to

a. determine whether assets are safeguarded
b. Suggest improvements in internal control
c. Plan audit procedures
d. express and opinion

8. XYZ Ltd. Conducts quarterly review of operations. It discovers that unrest in a South east Asian
country may affect the supply of raw materials to it the next quarter. This is an example of a. risk
assessment
b. control procedure
c. supervision
d. control environment

9. The primary purpose of performing tests of control is to provide reasonable assurance that …..
a. there are no material misstatements due to fraud or error in financial statement
b. accounting system is well documented
c. Written evidence is there to support transactions
d. internal control is effective

10. The overall attitude and awareness of an entity’s board of directors concerning the
importance of internal control is reflected in a. accounting controls
b. control environment
c. control procedures
d. supervision

11. Which of the following are included in test of control?

a. Reperformance and observation
b. Inquiry and analytical procedures
c. Comparison and conformation
d. Inspection and verification

12. Which of the following is not an example of a circumstance, in which additional tests of
control will not be performed after obtaining an understanding to plan the audit? a. Controls
are known to be cost ineffective

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b. Controls are effective but auditor opines that performing tests of control and reduced
substantive tests would not be cost effective
c. Controls are effective and evidence already obtained is adequate to support a planned assessed
level of control risk which is less than high
d. Performing extensive substantive testing would not lead to efficiency

13. The performance of tests of control is documented in

a. audit programme
b. flow charts
c. working papers
d. any of the above

14. Which of the following are included in test of control?

a. Reperformance and observation
b. Inquiry and analytical procedures
c. Comparison and conformation
d. Inspection and verification

15. Which of the following are included in test of control?

a. Reperformance and observation
b. Inquiry and analytical procedures
c. Comparison and conformation
d. Inspection and verification

16. An auditor assesses control risk because it

a. affects the audit risk
b. affects the level of detection risk that auditor may accept
c. helps him to fix materiality level for each financial assertion
d. is directly related to inherent risk

17. In general, internal auditors’ independence will be greatest when they report directly to
the:
a. Financial vice president.
b. Corporate controller.
c. Audit committee of the board of directors.
d. Chief executive officer.

18. The least important element in the evaluation of an audit firm’s system of quality control
would relate to
a. assignment of audit assistants

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b. system of determining audit fees
c. consultation with experts
d. confidentiality of client’s information

19. 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’s advice as to whether audit fees were paid promptly
d. Review of audit work done by one partner by the other

20. An auditor obtains knowledge about a new client’s business and its industry to
a. Make constructive suggestions concerning improvements to the client’s internal control
system.
b. Evaluate the appropriateness of audit evidence obtained
c. Understand the events and transactions that may have an effect on client’s financial statements.
d. All of the above

21. Tests of control are not concerned with ……………………

a. Existence of controls
b. Effectiveness of controls
c. Continuity of controls
d. Designing of controls

22. The sequence of steps in the auditor’s consideration of internal control is as follows –
a. Obtain an understanding, design substantive test, perform tests of control, make a
preliminary assessment of control risk
b. Design substantive tests, obtain an understanding, perform tests of control, make a
preliminary assessment of control risk
c. Obtain an understanding, make a preliminary assessment of control risk, perform tests of
control, design substantive procedures.
d. Perform tests of control, obtain and understanding, make a preliminary assessment of
control risk, design

23. An auditor should study and evaluate internal controls to

a. determine whether assets are safeguarded
b. Suggest improvements in internal control
c. Plan audit procedures
d. express and opinion

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24. A flow chart, made by the auditor, of an entity’s internal control system is a graphic
representation that depicts the auditor’s.
a. understanding of the system
b. understanding of fraud risk factors
c. documentation of assessment of control risk
d. Both (a) and (c)

25. The performance of tests of control is documented in

a. audit programme
b. flow charts
c. working papers
d. any of the above

26. In comparison to the independent auditor, an internal auditor is more likely to be concerned
with
a. cost accounting system
b. internal control system
c. legal compliance
d. accounting system

27. When an independent auditor decides that the work performed by internal auditors may have
bearing on the nature, timing and extent of planned audit procedures, the independent auditor
should evaluate objectivity of the internal auditor. The most important factor influencing it would
be
a. organizational level to which he reports
b. qualification of internal auditor
c. system of quality control of his work
d. all of the above

28. When an independent auditor relies on the work of an internal auditor, he or she should
a. examine the scope of internal auditor’s work
b. examine the system of supervising review and documentation of internal auditor’s work
c. adequacy of related audit programme
d. all of the above

29. Proper segregation of duties reduces the opportunities in which a person would both
a. establish controls and executes them
b. records cash receipts and cash payments
c. perpetuate errors and frauds and conceals them
d. record the transaction in journal and ledger.

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30. Indicate which statement is not correct:
Internal Audit is:
a. an independent and objective assurance activity designed to add value and to improve an
organisation's operations
b. the whole system of financial and other controls, including the organisational structure,
methods and procedures, to assist in conducting the business of the controlled entity
c. an assurance from internal sources that the internal controls are achieving their objectives
d. a help to an organisation to achieve its objectives by bringing a systematic approach to
evaluating and to improving the effectiveness of risk management and control

31. Which one of the following audit techniques ordinarily provides an auditor with the least
assurance about the operating effectiveness of an internal control activity? a. Inquiry of client
personnel
b. Inspection of documents and reports
c. Observation of client personnel
d. Preparation of system flowcharts

32. 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’s advice as to whether audit fees were paid promptly
d. Review of audit work done by one partner by the other

33. Which of the following is not an inherent limitation of internal control system?
a. Management override
b. Collusion among employees
c. Inefficiency of internal auditor
d. Abuse of authority

34. The degree of effectiveness of an internal control system depends on:

a. The design of the internal control system and the implementation of the controls
b. The design of the internal controls and the implementation of the control system
c. The implementation of the controls and the correctness of the accounting records
d. The design of the internal control system and the correctness of the accounting records

35. According to ISA 315, which of the following is NOT an element of the control
environment?
a. Participation of management
b. Information processing

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c. Commitment to competence
d. Human resource policies and practices

36. According to ISA 315, which of the following is NOT a control activity?
a. Performance reviews
b. Physical controls
c. Organisational structure
d. Segregation of duties

37. Which of the following is NOT an internal control?

a. Authorising purchase orders
b. Ensuring cash is locked away
c. Performing external confirmation of receivables
d. The opening of the post should not be the same person who banks the cheques

38. A walk-through test is designed to do what?

a. To check that materiality levels are acceptable
b. As a checklist to see if all substantive tests have been performed
c. To provide assurance within a letter of representation
d. To confirm that the auditor’s understanding of the internal control system is correct

39. Internal auditors are responsible to:

a. the board of directors.
b. management.
c. both a and b.
d. neither a nor b.

40. Which of the following is not a similarity between external and internal auditors?
a. Both must be independent of the company.
b. Both must be competent.
c. Both use similar methodologies in performing their work.
d. Both consider risk and materiality in their work.

41. External auditors consider internal auditors effective if they are:

a. independent of the operating units being evaluated.
b. competent and well trained.
c. have performed relevant audit tests of the internal controls and financial statements. d. all of
the above.

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42. Auditing standards _______ external auditors to use the internal auditors for direct assistance
on the audit.
a. discourage
b. prohibit
c. encourage
d. permit

43. Independence is a fundamental ethical principle for internal auditors.

a. True
b. False

43. Current professional auditing standards prohibit external auditors from using internal auditors
for direct assistance on external audits. a. True
b. False

44. Current professional auditing standards require external auditors to use internal auditors for
direct assistance on external audits. a. True
b. False

45. The objectives of internal auditors are considerably broader than the objectives of external
auditors. a. True
b. False

46. The two most important qualities for an internal auditor to possess are independence and
competence. a. True
b. False

47. The internal auditor typically reports directly to

a. the management of the company.
b. the audit committee and the management of the company.
c. the audit committee and the board of director.
d. the board of director and the external auditor

48. Which of the following is not an advantage of a company outsourcing its internal audit
function?
a. There would always be reduction in costs
b. Provide access to specialist skills
c. Can provide access to an internal audit team immediately.
a. It is good to do

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49. The pictorial presentation of the internal control system of an entity is known as a.
Flowchart
b. MAP
c. Diagram
d. Artistic

50. To operate effectively, an internal auditor must be independent of

a. the line functions of the organizations.
b. the employer-employee relationship which exists for other employees in the
organization. c. the entity.
d. all of the above.

51. Internal control includes the following components

a. Control activities and inherent risks.
b. Information systems and external influences.
c. The control environment and risk assessment processes.
d. Financial reporting and control activities.

52. State any ONE type of Internal Control.

Physical controls
Authorization and Approval controls
Personal controls,
Arithmetic and Accounting controls,
Management controls
Organisational controls
Supervision controls and Segregation of duties controls.

53. An independent appraisal unit established within an entity to examine and make available its activities
as a service to management is known as.....................
Internal audit

54. Which of the following factors would indicate that there is a higher possibility of a fraud
occurring for a client?
a. An audit committee is introduced.
b. There is no segregation of duties.
c. The entity is involved in a high-technology industry.
d. There are no related parties.
55. The primary purpose of an auditor evaluating and testing the internal controls of a limited
company, is to enable the auditor to advise management of the deficiencies in the internal
controls. Is this statement true or false? a. True

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b. False

UNIVERSITY OF GHANA BUSINESS SCHOOL

BSC ADMINISTRATION [ACCOUNTING]

AUDIT AND ASSURANCE (ACCT 304)

PRACTICE QUESTIONS

MULTIPLE CHOICE QUESTIONS/SOLUTIONS

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 LET’S DO MORE TOGETHER @ DISCIPLINE & ASSOCIATES

1 Which two of the following are elements of an assurance engagement?

(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter

A (1) and (2) only

B (1) and (3) only
C (2) and (3) only
D (1) and (4) only

Ans. There are five elements in total: Criteria, Report, Evidence, Subject matter and Three-party
relationship (remember CREST).

2 What is the correct order of the following stages involved in the development of an International
Standards on Auditing [ISA]?
(1) Distribution of exposure draft for public comment
(2) Consideration of comments received as a result of the exposure draft
(3) Approval by IAASB members
(4) Establishment of task force to develop draft standard
(5) Discussion of proposed standard at a public meeting

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A (1), (5), (4), (3), (2)
B (3), (4), (1), (2), (5)
C (4), (5), (1), (2), (3)
D (5), (4), (2), (1), (3)

3 Which of the following is the most appropriate definition of the external audit?
A The external audit is an exercise carried out by auditors in order to give an opinion on whether
the financial statements of a company are materially misstated
B The external audit is an exercise carried out in order to give an opinion on the effectiveness of a
company's internal control system
C The external audit is performed by management to identify areas of deficiency within a company
and to make recommendations to mitigate those deficiencies
D The external audit provides negative assurance on the truth and fairness of a company's financial
statements

Ans. A The external audit is carried out by external auditors who are independent of the company so that
they can provide an independent opinion on whether the company's financial statements are materially
misstated. The principal aim of the audit is not in relation to the control system in place, although
deficiencies and recommendations may be suggested by the external auditors as a byproduct of the
external audit in a report to management at the conclusion of the audit. 6

4 Which of the following is/are not a statutory right of the auditors of a limited liability company?
(1) A right to attend all directors' meetings and receive all notices and communications relating to such
meetings
(2) A right to speak at general meetings on any part of the business that concerns them as auditors
(3) A right to attend any general meeting and receive all notices and communications relating to such
meetings A (1) only
B (1) and (3) C
(2) only
D (2) and (3)
Ans. The correct answer is option A. The auditor does not have the right to attend and speak at directors'
meetings and should not make or take part in any executive decisions on behalf of the company.
Auditors do have the rights stated at (2) and (3).

5 In which of the following situations would the auditor be able to disclose confidential information
about a client?
(1) Disclosure is required by law

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(2) Disclosure is permitted by law but the auditor has not requested the client's permission
(3) The auditor suspects that the client has committed money-laundering offences A (1) and (2) only B
(1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
Ans. Where disclosure is permitted rather than required by law the auditor must obtain permission from
the client. Where money-laundering is suspected the auditor is obliged to disclose this to the relevant
authority.

6 AB & Co audits DEF Ltd. Which two of the following circumstances would constitute a threat to
objectivity?
(1) An employee of AB & Co owns shares in DEF Ltd but is not part of the audit team
(2) The best friend of the engagement partner owns a significant indirect financial interest in DEF Ltd
(3) The audit manager of DEF Ltd owns a small number of shares in DEF Ltd
(4) The husband of the audit partner owns shares in DEF Ltd
A (1) and (2) B
(1) and (4)
C (2) and (3)
D (3) and (4)
The ACCA Code does not allow the following to have a direct or indirect material financial interest in a
client: the audit firm, a member of the audit team and an immediate family member of a member of the
audit team.

7 Which of the following internal audit assignments is described below?

The examination of the economy, efficiency and effectiveness of activities and processes. A
Regulatory compliance audit
B Value for money audit
C Financial audit
D IT audit
B Economy, efficiency and effectiveness are sometimes referred to as the '3E's' of VFM audits

8 Which of the following internal audit assignments aims to monitor management's performance
and ensure that company policy is followed?
A Value for money
B Fraud investigation
C Financial D Operational

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9 A private company has requested that its auditor prepare a valuation report on a prospective
acquisition target in order to help it obtain finance for the acquisition from its bank.

Which two of the following threats may arise if the auditor agrees to take on this assignment? A
Self-review threat
B Familiarity threat
C Advocacy threat
D Self-interest threat
The advocacy threat arises because the bank may be given the impression that the auditor supports the
client's proposed acquisition. The self-interest threat arises because the valuation work is likely to result
in additional, and higher, income for the audit firm.

5
10 Which of the following statements best reflects the auditor's duty of confidentiality?
A Auditors must never, under any circumstances, disclose any matters of which they become
aware during the course of the audit to third parties, without the permission of the client
B Auditors may disclose any matters in relation to criminal activities to the police or taxation
authorities, if requested to do so by the police or a tax inspector
C Auditors may disclose matters to third parties without their client's consent if it is in the public
interest, and they must do so if there is a statutory duty to do so
D Auditors may only disclose matters to third parties without their client's consent if the public
interest or national security is involved
Reason: There is no blanket prohibition on disclosure, nor is there any general right of the police or
taxation authorities to demand information. Auditors have an implied contractual duty of
confidentiality. There is no statutory duty of confidentiality

11 When gaining an understanding of the specific business operations of an audit client which of the
following matters would an auditor need to consider?
A Accounting principles and industry specific practices relevant to the client's business
B Acquisitions or disposals of the client's business activities
C Leasing of property, plant or equipment for use in the client's business
D Products or services and markets of the client's business
Reason: The matters mentioned in option D relate specifically to business operations. The matters
mentioned in the other options relate specifically to financial reporting A, investments B and
financing C. 2

12 Which of the following statements about materiality are correct?

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(1) Information is material if its omission or misstatement could influence the economic decisions of
users of the financial statements
(2) Materiality is based on the auditor's experience and judgement
(3) Materiality is always based on revenue
(4) Materiality should only be calculated at the planning stage of the audit

A (1), (2) and (3)

B (1), (3) and (4)
C (1) and (2) D (2) and (4)
Reason: Statements 1 and 2 only are correct. Materiality may be based on other criteria, not just
revenue, such as net assets and profit before tax. Materiality should be revisited throughout the
audit and revised if necessary. 3

13 What are the purposes of planning the audit?

(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
A (1), (2), (3) and (4)
B (1), (3) and (4)
C (1), (2) and (3)
D (2) and (3)
Reason: The main aim of planning is not to ensure the audit is completed within cost and time restraints
but that it is carried out in an effective manner. All the other statements comprise the aims of planning.

14 Which of the following factors influence the form and content of audit working papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit

A (1), (2) and (4) B

(1) and (2)
C (1), (3) and (4)
D (2) and (4)

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Reason: Risk and exceptions identified influence the form and content of audit working papers. Other
factors which do so are the nature of the procedures to be performed, extent of judgement required,
significance of audit evidence obtained, and the need to document a conclusion not readily determinable
from the documentation of work done or audit evidence obtained. Cost and the system used to
document work are not valid factors. 7 9
15 'Audit risk' represents the risk that the auditor will give an inappropriate opinion on the financial
statements when the financial statements are materially misstated.

Which of the following categories of risk can be controlled by the auditor? (1)
Control risk
(2) Detection risk
(3) Sampling risk

A (1) and (2) B

(2) only
C (1) and (3)
D (2) and (3)
Reason: Control risk (together with inherent risk) are components of the risk of material misstatement,
which is governed by the circumstances of the audit client and therefore is outside the control of the
auditor. Sampling risk is a component of detection risk, which is controlled by the auditor. The correct
answer is therefore option D.

16 Which of the following statements are correct with regard to the relationship between the audit
plan and the audit strategy for an external audit engagement?
(1) The audit plan should be developed before the audit strategy is established
(2) The audit plan and the audit strategy should be established and developed at the same time
(3) The overall audit strategy should be more detailed than the audit plan
(4) The audit strategy should be established before the audit plan is developed

A (1) and (3) B

(2) only
C (3) and (4)
D (4) only
Reason: The audit strategy should be established before the audit plan is developed. The plan is more
detailed than the overall audit strategy in that it includes the nature, timing and extent of audit
procedures to be performed by engagement team members

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17 Which of the following correctly describes the auditors' responsibilities in accordance with ISA
240 The auditor's responsibilities relating to fraud in an audit of financial statements?
A The auditor is responsible for the prevention and detection of fraud and error
B The auditor is not responsible for the prevention of fraud and error but is responsible for
detection C The auditor is responsible for obtaining reasonable assurance that the financial
statements are free from material misstatement whether caused by fraud or error D The
auditor is responsible for detecting all errors and should attempt to detect fraud where
information comes to light as a result of standard audit procedures
Reason: The directors are ultimately responsible for the prevention and detection of fraud and error. The
auditor needs to obtain reasonable assurance that the financial statements are not materially misstated.

18 When determining whether the preconditions for an audit are present the auditor obtains
management's agreement that it acknowledges and understands its responsibilities. Which of the
following is not included in the agreement obtained by the auditor?
A Management's responsibility for preparing the financial statements
B Management's responsibility for internal control to enable the preparation of financial statements
which are free from material misstatement
C Management's responsibility to provide the auditor with all information relevant to the preparation of
the financial statements
D Management's responsibility to prevent and detect fraud

19 Which of the following must be included in an audit engagement letter?

A Arrangements concerning the use of experts
B Obligations to make audit working papers available to other parties
C Expected form and content of any reports
D Basis on which fees are computed
Reason: In accordance with ISA 210 Agreeing the terms of audit engagements the expected form and
content of any reports must be included. A, B and D however may be included but there is no
requirement to do so.

20 In accordance with ISA 250 Consideration of laws and regulations in an audit of financial
statements what are the responsibilities of the external auditor?
A To prevent and detect all non-compliance with laws and regulations which affect the business
B To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have a
direct effect on the financial statements only
C To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have an
indirect effect on the financial statements only

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D To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have
both a direct and indirect effect on the financial statements
Reason: ISA 250 distinguishes between laws and regulations which have a direct effect and those which
have an indirect effect on the financial statements. The auditor must undertake specified audit
procedures to help identify non-compliance with laws and regulations that may have a material effect on
the financial statements

21 Application controls relate to procedures used to initiate, record, process and report transactions
and other financial data. Which two of the following are application controls?
(1) Records of program changes
(2) Virus checks
(3) Batch reconciliations
(4) Document counts
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
Reason: Records of program changes and virus checks are general IT controls

22 General IT controls are policies and procedures that relate to many applications and support the
effective functioning of application controls.

Which two of the following are general IT controls?

(1) Testing procedures using test data
(2) One for one checking
(3) Disaster recovery procedures
(4) Hash totals

A (1) and (3)

B (1) and (4)
C (2) and (3)
D (2) and (4)
One for one checking and hash totals are application controls.

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23 One of the control objectives of the sales system of B Co is to ensure that goods and services are sold
to credit-worthy customers.

Which of the following control activities would assist B Co in achieving this objective?
A All sales orders are based on authorised price lists
B Credit limits are checked before sales orders are accepted
C Overdue debts are chased each month by the credit controller
D The aged-debt listing is reviewed by the finance director on a monthly basis
Reason: This means that customers are not able to exceed their credit limits and are therefore more
likely to be able to pay. A helps to ensure that goods are sold at the right price. C & D are effective
controls regarding the recovery of debts but do not prevent sales being made to customers who are
unlikely to pay as the sale has already been made by this stage.

24 A control objective of the purchases system of D Co is to ensure that all liabilities for purchases are
valid obligations of the company.

Which of the following control activities would help to ensure that this objective is achieved?
A Reconciliation of the payables control account to the purchase ledger
B Matching of suppliers' invoices to purchase orders and goods received notes
C Checking of the mathematical accuracy of the supplier invoice
D Sequential numbering of goods received notes
Matching of suppliers' invoices to purchase orders and goods received notes ensures that liabilities are
only recognised for goods which have been received by the company. The reconciliation of the payables
control account and purchase ledger and checking of calculation of invoices are accuracy checks.
Sequential numbering of documentation helps to ensure completeness.

15
25 Which of the following controls helps to ensure that payroll payments are only made to bona fide
employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in human resources and payroll functions (4)
Reperformance of the calculation of a sample of payroll deductions
A (1) and (2)
B (1) and (3)

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C (2) and (4) D (3) and (4)
Reason: Personnel records are documentary evidence of the existence of an employee. Segregation
of duties between staff involved in HR and payroll helps to prevent the creation of bogus employees
with subsequent payroll payments being made

26 B Ltd maintains perpetual inventory records. Which of the following control activities would
contribute to the auditor's confidence that inventory recorded in the financial statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
A (1) and (2)
B (1) and (3)
C (2) and (3)
D (2) and (4)
Reason: Counting inventory is one of the key controls for ensuring the existence of inventory. Controls to
protect inventory from theft reduce the risk that inventory is recorded in the inventory records but is no
longer held by the company. Sequential documentation provides confidence regarding completeness.
Procedures to identify obsolete and damaged inventory provide confidence regarding valuation 27
Which control objective would be satisfied by the authorisation of capital expenditure by the
board?
A To ensure that investment in non-current assets is made for valid business purposes B To
ensure that expenditure is correctly classified as capital expenditure
C To ensure that all non-current assets are recognised in the non-current asset register
D To ensure that non-current assets are valued correctly
Reason: Capital expenditure will often involve significant amounts. It is important therefore that it is for
valid business purposes and that appropriate decisions are made by senior individuals

28 Which of the following is not a test of control?

A Inspection of purchase order documentation to confirm that it has been uthorized
B Review of monthly bank reconciliations performed by the audit client
C Examination of purchase invoices for evidence of mathematical accuracy checks
D Agreement of the cost of non-current asset additions to purchase documentation Reason: D is a
substantive procedure

29 The external auditor has identified a deficiency in the internal controls of S Co.

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Which of the following factors would indicate that the deficiency is a significant deficiency in
accordance with ISA 265 Communicating deficiencies in internal control to those charged with
governance and management?
(1) The likelihood of the deficiency leading to material misstatement is low
(2) There is a risk of fraud
(3) The number of transactions affected by the deficiency is low
(4) The deficiency interacts with other deficiencies identified
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
Reason: This is in accordance with guidance given in ISA 265.

30 Which of the following statements is true regarding the controls in a small company?
(1) The external auditor will never be able to rely on the controls in a small company
(2) Segregation of duties may be inadequate due to staff numbers
(3) Evidence of the operation of controls is more likely to be available in documentary form (4) The
external auditor will assess the attitudes, awareness and actions of management A (1) and (3) B (1)
and (4)
C (2) and (3)
D (2) and (4)
Reason: Staff numbers are likely to be lower in a small company making segregation of duties more
difficult. The external auditor will assess the attitudes, awareness and actions of management as part of
the assessment of the control environment. Although controls may be less sophisticated in a small
company the auditor may be able to rely on controls in some areas depending on the overall assessment
and results of tests of controls (Option 1). Controls are likely to be operated less formally therefore
documentary evidence is less likely to exist (Option 3).

31 The draft financial statements of T Co show the following information:

GHS'000
Revenue 420
Cost of sales 270
Gross profit 150 Trade receivables 160

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Trade payables 130

What is the receivables collection period?

A 139 days
B 175 days
C 758 days D 958 days
Solution: (160/420) 365

32 X Ltd has an internal audit function. The external auditor has concluded that the internal audit
function does not apply a systematic and disciplined approach to its work.

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
Of Information System

How does this affect the extent to which the external auditor can rely on the work of
the internal audit function?
A The external auditor must not use the work of the internal audit function
B The external auditor can use the work of the internal audit function provided the
individuals have been assessed as competent.
C The external auditor can use the work of the internal audit function provided the
organisational status of the function supports its objectivity
D The external auditor can use work performed by the internal audit function which relates
to low risk areas of the external audit only
Reason: In accordance with ISA 610 Using the work of internal auditors the external auditor
is prohibited from using the work of internal audit in this situation as the risks to the quality
of the evidence provided are too great.

33 The auditor of G Co is performing audit procedures to confirm the company's ownership

of motor vehicles. Which of the following would provide the most persuasive evidence of
this?
A Physical inspection of the motor vehicles
B Inspection of vehicle registration documents
C Checking that the motor vehicles are recorded in the non-current asset register
D Review of vehicle insurance documentation
Reason: The vehicle registration document records the details of the legal registered owner
of the vehicle.

34 Which of the following audit procedures would provide the auditor with evidence of
completeness of inventory?
A Tracing test counts performed at the inventory count to the detailed inventory listing
B Reviewing the physical condition of inventory when attending the inventory count C
Casting the inventory listing
D Vouching the cost of a sample of inventory items to suppliers' invoices
Reason: If the inventory listing does not include the items test counted by the auditor at
the inventory count this indicates that the final inventory figure is not complete.

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35 The auditor of Q Co has performed purchases cut-off procedures and has identified that
in two material instances goods received prior to the inventory count have not been
included on the schedule of 'goods received not invoiced'. At the period end purchase
invoices have not been received

. What is the auditor's conclusion based on this evidence?

A Inventory is overstated
B Trade payables are understated
C Inventory is understated
D Trade payables are overstated
Reason: As the goods have been received, the goods must be recognised as an asset and
the liability for the goods must be recognised at the period end. As a purchase invoice has
not been received and the invoice amount has not been accrued for, liabilities are
understated. This implies that the corresponding asset (inventory) is also understated

36 Which of the following statements is/are true regarding direct confirmation of

accounts receivable?
(1) Responses from the customer must be returned directly to the client
(2) Under the positive method the customer only replies if the amount stated is agrees
with the customer's records A (1) only
B (2) only
C (1) and (2)
D Neither (1) nor (2)
Responses must be sent directly to the auditor. Under the positive method the customer
confirms the accuracy of the balance or details the extent to which there is a disagreement.

37 The key audit risk associated with trade payables is understatement. Which of the
following procedures would provide the most reliable evidence of the completeness of
amounts due?
A Tracing of amounts due per the payables ledger to purchase invoices
B Matching of purchase invoices to goods received notes
C Reconciliation of year-end supplier statements

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D Reconciliation of the payables ledger with the payables ledger control account Reason: If
supplier statements do not agree with the payables ledger balance any discrepancies will
be investigated and any understatement identified. A and B provide evidence that
liabilities recognised are valid. D provides evidence of the accuracy of recording of
liabilities

38 The auditor of M Ltd has agreed a sample of non-current assets selected by physical
inspection back to the non-current asset register. For which of the following assertions
does this test provide assurance? A Completeness
B Existence
C Rights and obligations
D Accuracy and valuation

For the test to provide evidence of existence the sample should be selected from the asset
register ie the auditor would be looking to confirm that all assets recorded on the register
exist. Rights and obligations (ownership) would be tested by reference to purchase/legal
documentation. Accuracy and valuation relates to presentation and disclosure

39 Which of the following assertions about classes of transactions and events for the
period under audit is defined below: 'Amounts and other data relating to recorded
transactions and events have been recorded appropriately.' A Cut-off
B Accuracy
C Occurrence
D Classification
This is defined in ISA 315.

40 As the audit senior on the year end audit of Z Ltd, you have instructed the audit junior to
obtain and inspect supporting sales contracts for large sales transactions. Which of the
following assertions are you seeking to test with this audit procedure?
A Cut-off
B Accuracy
C Occurrence
D Completeness

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Reason: Inspecting supporting documentation tests whether a transaction has occurred.

41 Which of the following procedures will be performed by the auditor as part of a

subsequent events review?
(1) Request for written representations from management
(2) Review of minutes of board meetings held after the date of the financial statements
A (1) only
B (2) only
C (1) and (2)
D Neither (1) nor (2)
Reason: ISA 560 also requires the auditor to obtain an understanding of procedures
put in place by management to ensure that subsequent events are identified and to
read the entity's latest subsequent interim financial statements

42 The auditor of S Ltd has concluded that the use of the going concern assumption is
appropriate and that the material uncertainty has been adequately disclosed. What is the
impact of this conclusion on the audit report?
A Adverse opinion

B Modified opinion
C Unmodified opinion without an emphasis of matter paragraph
D Unmodified opinion with an emphasis of matter paragraph
Reason: The emphasis of matter paragraph is an explanatory paragraph detailing the
uncertainty. The inclusion of an emphasis of matter paragraph does not modify the audit
opinion

43 The auditor of Y Ltd has concluded that Y Ltd is not a going concern. The financial
statements have been prepared on a going concern basis and management has refused to
change them. What form of audit opinion will be issued by the auditor?
A An unmodified opinion
B A modified opinion due to material misstatement
C A modified opinion due to insufficient appropriate audit evidence
D An adverse opinion

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Reason: In accordance with ISA 570 Going concern where the going concern basis of
preparation of the financial statements is adopted inappropriately the auditor issues an
adverse opinion.

44 For which of the following matters must written representations be sought?

(1) That management has fulfilled its responsibility for the preparation of the financial
statements
(2) That management has provided the auditor with all the information relevant to the
audit
(3) That accounts receivable are recoverable
(4) That inventory is correctly valued at the lower of cost and net realisable value A (1) and
(2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
Reason: In accordance with ISA 580 Written representations, written representations from
management must be sought regarding the preparation of financial statements and
information provided and completeness of transactions. Other representations may be
sought to support other audit evidence where the auditor judges this to be necessary. In
normal circumstances, alternative sufficient appropriate evidence regarding the
recoverability of accounts receivable and valuation of inventory should be available. 45
ISA 700 Forming an opinion and reporting on financial statements sets out the basic
elements of an auditor's report.
Which of the following is not included in an unmodified auditor's report?
A Management's responsibility for the financial statements
B Auditors' responsibilities
C Audit opinion,
D Deficiencies of internal controls
Reason: The basic elements of the auditor's report are title, addressee, introductory
paragraph, management's responsibility for financial statements, auditor's responsibility,
opinion paragraph, other reporting responsibilities, auditor's signature, date of the report
and auditor's address.

26

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46 The auditor of Q Ltd has completed the audit and has concluded that sufficient
appropriate evidence has been obtained, which confirms that the financial statements are
not materially misstated. Which form of audit opinion will the auditor issue?
A Adverse opinion
B Qualified opinion
C Unmodified opinion
D A disclaimer of opinion
An unmodified opinion is expressed when the auditor concludes that the financial
statements are prepared, in all material respects, in accordance with the applicable
financial reporting framework

47 ISA 705 Modification to the opinion in the independent auditor's report identifies three
possible types of modification. In which of the following circumstances would a
disclaimer of opinion be issued? A The auditor concludes that the financial statements
include misstatements which are material but not pervasive to the financial statements B
The auditor concludes that the financial statements include misstatements which are both
material and pervasive to the financial statements
C The auditor has not been able to obtain sufficient appropriate audit evidence on
which to base an opinion but has concluded that the possible effects of any undetected
misstatements could be material but not pervasive
D The auditor has not been able to obtain sufficient appropriate audit evidence on
which to base an opinion and has concluded that the possible effects of any undetected
misstatements could be both material and not pervasive NOTE:
NO ANSWER TO 47.

48 The financial statements of Z Ltd include a receivables balance of GHS20,000 which the
auditors do not believe will be recovered. Materiality has been set at GHS100,000. There
are no other unadjusted misstatements.

What form of audit opinion would be issued by the auditor?

A Adverse opinion
B Unmodified opinion

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C Disclaimer of opinion
D Qualified opinion due to overstatement of receivables
Reason: Although the receivables balance is overstated, the amount involved is not
material

49 P Co is being sued by a customer for the supply of faulty products. At the year end the
outcome of the legal case is still uncertain. The directors have fully disclosed the matter as
a contingent liability and the auditors are satisfied with the treatment and the level of
disclosure. The auditors have concluded that the uncertainty is fundamental to the
understanding of the financial statements.
What form of audit opinion would the auditor give?
A Disclaimer
B Unmodified opinion with an emphasis of matter paragraph
C Unmodified opinion without an emphasis of matter paragraph D Qualified opinion
Reason: An emphasis of matter paragraph is used to draw the readers attention to
matters which are referred to in the financial statements but which are fundamental to
the users' understanding of the financial statements.

50 The auditor may wish to draw the users' attention to a matter which is not presented
or disclosed in the financial statements but which is relevant to the users'
understanding of the auditor's report. How would this affect the auditor's report?
A An emphasis of matter paragraph would be included
B The audit opinion would be qualified
C An other matters paragraph would be included
D The auditor's report would not be affected as the auditor's report only refers to matters
presented or disclosed in the financial statements

This is in accordance with ISA 706 Emphasis of matter paragraphs and other matter
paragraphs in the independent auditor's report.

51 Which of the following bodies regulates audit practice in Ghana?

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A Ghana Audit Service
B Internal Audit Agency
C International Audit and Assurance Board
D Institute of Chartered Accountants (Ghana)

52 The audit partner responsible for the audit of Letham, a limited liability company, has
completed the overall review of the financial statements and discussed all significant
matters arising with the directors. Her conclusions are as follows.
A. The company cannot continue in operational existence for the foreseeable future.
B. Full disclosure of the company's trading difficulties has been made in the notes to the
financial statements.
C. The financial statements have been prepared on the going concern basis.
D. The directors have refused to make any further adjustments to the financial statements
and the break-up value of the assets would be significantly lower than their carrying
amount.

What type of auditor's report should be issued?

A Unmodified as full disclosure has been given
B Unmodified opinion but with an emphasis of matter paragraph explaining the trading
difficulties
C Disclaimer of opinion on the grounds of uncertainty D Adverse opinion

53 Which of the following relationships is unlikely to impair the independence of a

nonexecutive director?
A Being an executive director of another company, which trades with the company
B Holding ordinary shares in the company
C Having once been an operational manager of the company nine years ago
D Entering into a GHS2m construction contract with the company five years ago in a
previous employment E Being the husband of the finance director

54 Who is primarily responsible for ensuring that a company complies with all relevant
legal provisions? A The directors
B The auditor

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C The regulatory authorities D
All of the other options

55 Which of the following statements is true in respect of auditors' duties?

A Auditors must prepare a report for the shareholders on whether the financial statements
are presented fairly in accordance with the financial reporting framework
B Auditors are responsible for the preparation of the financial statements
C Auditors are responsible for the effective operation of the accounting systems and
internal control D Auditors owe a statutory duty of care to creditors of a company

56 Which of the following statements is true in respect of audit committees?

A Audit committees should be made of non-executive directors
B Audit committees liaise between shareholders and directors
C There is a statutory requirement for all companies that are not small or medium-sized to
establish an audit committee
D Audit committees are responsible for recommending directors' remuneration

57 Good corporate governance covers a range of areas. Which of the following areas does
not constitute a major element of corporate governance?
A Accountability and audit
B The board
C Relations with shareholders
D Relations with creditors and other stakeholders

58 Which of the following statements is true regarding International Standards on

Auditing?
A They only apply to audits which include international companies
B They are issued by the IAASB
C They are issued by the FRC

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D They only apply to audits of financial statements which have been prepared in
accordance with IFRSs

59 Hugh has recently set up in business as a Chartered Accountant. He has a few clients
already, and is looking to expand. Which of the following possibilities is it most likely
that Hugh would be able to accept?
A An offer to take over the audit of the company of which Hugh's father is managing
director
B An offer from a large private company to carry out the annual audit for a fee which
represents 20% of Hugh's total fee income
C An offer from a client interested in a tax avoidance scheme to pay Hugh on the basis of
10% of any tax saving

D An offer from Hugh's only public company audit client to prepare the year end accounts
for the company

60 Mr Brown is a senior manager in a small firm of Chartered Accountants, ABC and Co, and
has been asked by Mr Smith, the managing director of Ahafo Ltd, to become their financial
director. Initially, it is not expected that this will take up much of Mr Brown's time and so he
will remain an employee of ABC and Co for the foreseeable future. Which of the following
Chartered Accountants could then act as auditor of Ahafo Ltd without infringing the
provisions of the IESBA Code of Ethics?

A Mr Jones, who retired as managing director of Ahafo Ltd four years ago B
A partner in ABC and Co
C Mr Black, whose wife has a beneficial shareholding in Ahafo Ltd
D Mr Brown's wife, who works part-time from home

61 Which of the following is most likely to be ethically unacceptable?

A Sending a brochure to the MDs of the largest companies in your area advertising your
services
B Holding clients' monies in trust for a long period of time

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C Receiving a bonus for performing the audit of a client within a prescribed time frame D
Performing internal and external audit services for the same client

62 The directors of SAR, a limited liability company, have failed to write off a bad debt in the
financial statements relating to ABC Ltd, a company which went bankrupt on 14 July 2015.
SAR's year end is 30 June 2015 and included in receivables is an amount of GHS100,000 owed
by ABC. This amount is material to the financial statements. If the directors do not amend
the financial statements, which of the following auditor's opinions will be expressed?
A Qualified due to inability to obtain sufficient appropriate audit evidence
B Adverse opinion
C Unmodified as bankruptcy occurred after year end D Qualified due to material
misstatement

____________ is a systematic examination of the books and records or a business?

A. Auditing

B. Vouching

C. Verification

D. Checking

The term ‘Audit’ is derived from a Latin word “audire” which means___________?

A. To inspect

B. To examine

C. To hear

D. To investigate

The main object of an audit is _____________?

A. Expression of opinion

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B. Detection and Prevention of fraud and error

C. Both (A) and (B)

D. Depends on the type of audit.

An auditor is like a_______________?

A. Blood haunt

B. Watch dog

C. May both according to situation

D. None of these

Process of verifying the documentary evidences of transactions are known as___________?

A. Auditing

B. Testing

C. Vouching

D. Verification

Auditing is compulsory for____________?

A. Small scale business

B. Partnership firms

C. Joint stock Companies

D. Proprietary Concerns

Concealment of shortage by delaying the recording of cash receipts is known

as_____________?
A. Embezzlement

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B. Misappropriation

C. Lapping

D. None of these

The fundamental objective of the audit of a company is to_____________?

A. Protect the interests of the minority shareholders

B. Detect and prevent errors and fraud

C. Assess the effectiveness of the company’s performance

D. Attest to the credibility of the company’s accounts

The concept of stewardship means that a company’s directors________________?

A. Are responsible for ensuring that the company complies with the law

B. Are responsible for ensuring that the company pays its tax by the due date

C. Safeguard the company’s assets and manage them on behalf of the shareholders D.

Report suspected fraud and money laundering to the authorities

Why do auditors concentrate their efforts on material items in accounts?

A. Because they are easier to audit

B. Because it reduces the audit time

C. Because the risk to the accounts of their being incorrectly stated is greater D. Because

the directors have asked for it

Which of the following is NOT the responsibility of a company’s directors?

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A. Reporting to the shareholders on the accuracy of the accounts
B. Establishment of internal controls

C. Keeping proper accounting records

D. Supplying information and explanations to the auditor

International auditing standards are issued by the______________?

A. International Accounting Standards Board

B. International Federation of Accountants

C. International Standards Board

D. Auditing Practices Board

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

A sale of Rs. 50.000 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

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When an auditor is proposed for removal from office, which one of the following is he NOT
permitted to do?
A. Circulate representations to members

B. Apply to the court to have the proposal removed

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

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

Which one of the following is NOT a duty of the auditor?

A. Duty to report to the company’s bankers
B. Duty to report to the members

C. Duty to sign the audit report

D. Duty to report on any violation of law

Assuming that it is not the first appointment of the auditor, who is responsible for the
appointment of the auditor?
A. The shareholders in a general meeting

B. The managing director

C. The board of directors in a board meeting

D. The audit committee

The independent auditor’s primary responsibility is to______________?

A. the directors

B. the company’s creditors (payables)

C. the company’s bank

D. the shareholders

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How long is the auditor’s term of office?

A. Until the audit is complete

B. Until the financial statements are complete

C. Until the next AGM (Annual General Meeting)

D. Until the directors remove them

Which of the following is correct in relation to materiality?

A. A matter is material only if it changes the audit report

B. A matter is material if the auditor and the directors both decide that further work needs
to be done in the area under question

C. A matter is material only if it affects directors’ emoluments

D. A matter is material if its omission or misstatement would reasonably influence the

decisions of an addressee of the auditors’ report

Which one of the following is NOT considered to be part of planning?

A. Background i.e. industry

B. Previous year’s audit i.e. any qualifications in the report

C. Considering the work to be done by the client staff e.g. internal audit

D. Considering whether the financial statements show a true and fair view

Audit risk is composed of 3 factors. Which of the following is NOT one of those factors?
A. Compliance risk

B. Detection risk

C. Control risk

D. Inherent risk

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Which of the following should NOT be considered at the planning stage?

A. The timing of the audit

B. Analytical review

C. Last year’s written representation letter

D. Obtaining written representations

At the planning stage you would NOT consider____________?

A. the timing of the audit

B. whether corrections from the inventory count have been implemented

C. last year’s audit

D. the potential use of internal audit

Which of the following describes sampling risk?

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

B. The risk of reliance on unsuitable audit evidence

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

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

Which of the following is NOT an accepted method of selection in sampling?

A. Systematic selection
B. Pervasive selection

C. Random selection

D. Haphazard selection

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Which of the following are you unlikely to see in the current file of auditors’ working
papers?

A. Memorandum & articles of association

B. Audit planning memorandum

C. Summary of unadjusted errors

D. Details of the work done on the inventory count

According to ISA 500, the strength of audit evidence is determined by which two qualities?
A. Appropriateness & competence

B. Sufficiency & appropriateness

C. Reliability & extensiveness

D. Objectivity & independence

Which of the following is normally the most reliable source of audit evidence?
A. Internal audit

B. Suppliers’ statements

C. Board minutes

D. Analytical review

The degree of effectiveness of an internal control system depends on:

A. The design of the internal control system and the implementation of the controls

B. The design of the internal controls and the implementation of the control system

C. The implementation of the controls and the correctness of the accounting records

D. The design of the internal control system and the correctness of the accounting records

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According to ISA 315, which of the following is NOT an element of the control
environment?
A. Participation of management

B. Information processing
C. Commitment to competence

D. Human resource policies and practices

According to ISA 315, which of the following is NOT a control activity?

A. Performance reviews

B. Physical controls

C. Organizational structure

D. Segregation of duties

Lapping is also known as___________?

A. Teeming and lading

B. Looping

C. Embezzlement

D. Hacking

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

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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.

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

The scope of internal audit is decided by the___________?

A. Shareholders

B. Management

C. Government

D. Law

Audit of banks is an example of_____________?

A. Statutory audit

B. Balance sheet audit

C. Concurrent audit

D. All of the above

Concurrent audit is a part of____________?

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A. Internal check system

B. Continuous audit

C. Internal audit system

D. None of these

Audit in depth is synonymous for____________?

A. Complete audit

B. Completed audit

C. Final audit

D. Detailed audit

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

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

Errors of Omission are_____________?

A. Technical errors

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B. Errors of principle

C. Compensating errors

D. None of the above

Window dressing implies_______________?

A. Curtailment of expenses

B. Checking of Wastages

C. Under valuation of assets

D. Over Valuation of assets

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

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

______the audit risks_______the materiality and_________the audit effort.

A. Lower, Higher, Lower

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B. Lower, Lower, Higher

C. Higher, Lower, Lower

D. Lower, Higher, Higher

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

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

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

Which of the following statements is most closely associated with analytical procedure
applied at substantive stage?

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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

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.

Stock should be valued at_________?

A. Cost

B. Market price

C. Cost or Market price whichever is lower.

D. Cost less depreciation.

Floating assets are valued at____________?

A. cost

B. Market price

C. Cost or market price whichever is lower

D. Cost less depreciation

Goods sold on the basis of ‘sales or return ‘ should:

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A. Be included in the stock

B. Not be included in the stock

C. Not be checked by auditor

D. None of the above

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

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.

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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The nature, timing and extent of substantive procedures is related to assessed level of

control risk A. Randomly

B. Disproportionately

C. Directly

D. Inversely

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

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

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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

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

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

Audit programme is prepared by____________?

A. The auditor

B. The client

C. The audit assistants

D. The auditor and his audit assistants

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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

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

Which of the following best describes the primary purpose of audit programme
preparation?
A. To detect errors or fraud

B. To comply with GAAP appropriate evidence

C. To gather sufficient

D. To assess audit risk

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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
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.

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

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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.

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

Auditing is what?
A. Reporting the financial information

B. Examination of financial statements

C. Preparation financial statements

D. maintaining the ledger records

Audit of banks is an example of__________?

A. Statutory audit

B. Balance sheet audit

C. Concurrent audit

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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D. Both (A. and (B.

E. All of the above

In Pakistan, balance sheet audit is synonymous to___________?

A. Annual audit

B. Continuous audit

C. Detailed audit

D. Statutory audit

Audit in depth is synonymous for-_____________?

A. Complete audit

B. Completed audit

C. Final audit

D. Detailed audit

Balance sheet audit includes verification of____________?

A. Assets
C. Income and expense accounts where appropriate
B. Liabilities
D. All of the above

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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

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

_______the audit risk,_______the materiality and _______the audit effort?

A. Lower, Higher, Lower

B. Lower, Lower, Higher

C. Higher, Lower, Lower

D. Lower, Higher, Higher

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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

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

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

The basic assumption underlying the use of analytical procedures is:____________?

A. It helps the auditor to study relationship among elements of financial information

B. Relationship among data exist and continue in the absence of known condition to the

contrary C. Analytical procedures will not be able to detect unusual relationships

D. None of the above.

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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What are analytical procedures?

A. Substantive tests designed to assess control risk
B. Substantive tests designed to evaluate the validity of management’s representation
letter

C. Substantive tests designed to study relationships between financial and non-financial D.

All of the above

Which of the following is not an analytical procedure?

A. Tracing of purchases recurred in the purchase book to purchase invoices.

B. Comparing aggregate wages paid to number of employees

C. Comparing the actual costs with standard costs

D. All of them are analytical procedure

When applying analytical procedures, an auditor could develop independent estimate of an

account balance to compare it to-___________?
A. client’s unedited account balance

B. client’s unedited account balance adjusted for trends in the industry

C. Prior year audited balance

D. Prior year audited balance adjusted for trends in the industry

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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D. To satisfy doubts when questions arise about a client’s ability to continue

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

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

The nature, timing and extent of substantive procedures is _________ related to assessed
level of control risk?
A. randomly

B. disproportionately

C. directly

D. inversely

Which of the following statements is, generally, correct about the reliability of audit
evidence?
A. To be reliable, evidence should conclusive rather than
persuasive

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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B. Effective internal control system provides reliable audit

evidence C. Evidence obtained from outside sources

routed through the client

D. All are correct.

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

Which of the following is not a corroborative evidence?

A. Minutes of meetings

B. Confirmations from debtors

C. Information gathered by auditor through observation

D. Worksheet supporting consolidated financial statements

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.

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
Of Information System

Which of the following statements is not true with respect to management representations
obtained as per AAS-11?
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

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

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

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

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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B. The objectivity and integrity of the auditor

C. The quantity of audit evidence

D. The independence of the source of evidence

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

Depreciation does not arise form _______

A. effluxion of time

B. use

C. obsolescence through technology be market changes

D. remarket expectation

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

Which of the following is a revenue reserve?

A. Capital redemption reserve

B. Security premium account

C. Debenture redemption reserve

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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D. Capital reserve

If the book value of an asset stands at________per cent of the original cost, a company
need not provide depreciation on it.
A. two

B. fifteen

C. five

D. ten
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.

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

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

The board of directors shall appoint first auditor of a company

A. With in one month of completion of capital subscription state of the company

B. With in one month of the promotion of the company

C. With in one month of the commencement of the business of the company D. With in one

month of incorporation of the company

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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 annual general meeting

C. the conclusion of next annual general meeting

D. the date of removal

In case the directions fail to appoint first auditor (s), 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

If a casual vacancy in the office of auditor arises by his resignation it should only be filled by
the company in a_________?
A. Board meeting

B. extraordinary general meeting

C. General meeting

D. annual general meeting

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

V. Rajaraman/IISc. Bangalore M12/V1/July 04/98

System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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 (B. and (C.

A statutory auditor has a right of access at all times to___________?

A. Books and accounts of a company

B. Books, accounts and documents of the company

C. Books, accounts and vouchers of the company

D. Notices and documents of the company

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 B. and C.
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

V. Rajaraman/IISc. Bangalore M12/V1/July 04/99

System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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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

The date on auditor’s report should not be____________?

A. the data of AGM

B. later than the date on which the accounts are approved in board’s

meeting C. earlier than the date on which the accounts are approved

by the management

D. Both A. and B.

When restrictions that significantly affect the scope of the audit are imposed by the client,
the auditor generally should issue which of the following opinion?
A. Qualified opinion

B. Disclaimer of opinion

C. Adverse opinion

D. Unqualified report with ‘an emphasis of matter’ paragraph;

The auditor has serious concern about the going concern of the company. It is dependent
on company’s 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___________?
A. unqualified opinion

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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B. unqualified opinion with reference to notes to the accounts

C. qualified opinion
D. disclaimer of opinion

Which of the following is true about explanatory notes?

A. These are given by the directors of the company

B. These are given to adhere to requirements of section 211.

C. These are given by auditors of the company in auditor’s report

D. All of the above

The client changed method of depreciation from straight line to written down value
method. This has been disclosed as a note to the financial statements. It has an immaterial
effect on the current financial statements. It is expected, however, that the change will
have a significant effect on future periods. Which of the following option should the auditor
express?
A. Unqualified opinion

B. Qualified opinion

C. Disclaimer of opinion

D. Adverse opinion

Which of the following documents is not relevant for vouching cash sales?
A. Daily cash sales summary

B. Salesmen’s summary

C. Monthly statements sent to customers

D. Bank statement

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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To test whether sales have been recorded, the auditor should draw a sample from a file
of__________?
A. purchase orders

B. sales orders

C. sales invoices

D. bill of loading

The auditor should examine subsequent realization of revenue such as dividends,

interest,commission, etc to:-_____________?
A. identify cases of unrecorded revenue
B. ensure proper disclosure in the balance sheet

C. recompute accrued income on the data of balance sheet

D. Any of these

What is meant by negative assurance?

A. The auditor cannot give an opinion due to lack of evidence.

B. The client’s financial statements were found to be materially misstated.

C. The auditor could not conduct any tests due to lack of controls.

D. The auditor did not find anything to indicate that a material misstatement exists.

For companies required to produce interim financial statements (IFI):

A. one audit firm should audit the IFI and a different firm should audit the financial
statements for the year as a whole.

B. one accountancy firm should review the IFI and a different firm should audit the financial
statements for the year as a whole.

C. the same firm should audit the IFI and the financial statements for the year as a whole.

D. the same firm should review the IFI and the financial statements for the year as a whole.

V. Rajaraman/IISc. Bangalore M12/V1/July 04/102

System Analysis and Design/Control, Audit And Security Multiple Choice Questions
Of Information System

Which of the following statements is correct?

A. When a company negotiates a ‘friendly’ takeover, it usually appoints a firm of
accountants to carry out due diligence on the takeover target.

B. In an attestation engagement, the accountant is required to report on the quality of

work performed.

C. In a review engagement, evidence is gathered mainly by means of computation and

inspection.

D. In an engagement to review financial statements, the amount of work required is the

same as for an audit

What sort of assurance is provided in a review engagement?

A. Positive assurance

B. Negative assurance

C. High level of assurance

D. No assurance

Which one of the following is part of the auditor’s function?

A. Conducting the inventory count

B. Obtaining and evaluating audit evidence on the financial statements

C. Calculating the year-end accruals figure for inclusion in the accounts

D. Providing representations to management

Which of the following does NOT belong in the auditors’ report?

A. Introductory paragraph specifying the pages to which the report relates and the
accounting convention adopted

B. Basis of the opinion

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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C. Involvement of any specialist

D. Statement of responsibilities of directors and auditors

What is meant by the expression ‘expectation gap’?

A. The gap between how the directors of a company perform their duties and how the
shareholders expect them to perform

B. The gap between how the directors of a company perform their duties and how the
general public expects them to perform

C. The gap between the public perception of the role of company auditors and their
statutory role and responsibilities

D. The gap between the auditors’ own perception of their duties and how they are set
out in the Companies Act

Which of the following would you not use as a benchmark for comparison when
undertaking analytical procedures?
A. Other audit clients

B. Previous years

C. Other companies in the same industry

D. Budget

Which of the following is true about written representations?

A. They are the best source of audit evidence

B. They should be used only when there is a lack of other substantive audit evidence
C. They should be used only when there is other substantive audit evidence to complement

it D. Shareholders receive a copy of all material written representations

Which of the following statements is INCORRECT?

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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A. An auditor may serve on the board of directors of an audit client.

B. An auditor who is an immediate family member of the director of an audit client must
not be assigned to the audit team.

C. Purchasing goods from an audit client on normal commercial terms does not create a
threat to the auditor’s independence.

D. An auditor who was recently a director of an audit client must not be assigned to the
audit team for that client.

An auditor should not accept a loan on favourable commercial terms from an audit client
because of the threat to his or her independence. The threat would be a___________?
A. Self-interest threat

B. Self-review threat

C. Advocacy threat

D. Familiarity threat

Which of the following are fundamental ethical principles for professional accountants?
1 Competence

2 Compliance

3 Integrity

4 Objectivity

A. 1, 2 and 3 only

B. 1, 3 and 4 only

C. 2, 3 and 4 only

D. 1, 2 and 4 only

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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Which one of the following may auditors NOT perform for their client?
A. Taking management decisions
B. Preparation of accounting records

C. Preparing tax computations

D. Advising on weaknesses in the internal control systems

You have been proposed as auditor of a company. What is the first step that you should
take?
A. Obtain the client’s permission to communicate with the existing auditor

B. Obtain the existing auditor’s working papers

C. Obtain a copy of the company’s most recent board minutes

D. Obtain a copy of the existing auditor’s letter of engagement

Which of these are types of Audit Report?

A. Unqualified opinion

B. Qualified opinion

C. Adverse opinion

D. Disclaimer of opinion.

All of above

V. Rajaraman/IISc. Bangalore M12/V1/July 04/106

System Analysis and Design/Control, Audit And Security Multiple Choice Questions
Of Information System

2 12.1 Control in design of an information system is used to

a. inspect the system and check that it is built as per specifications

b. protect data from accidental or intentional loss

c. ensure that the system processes data as it was designed to and that the
results are reliable

d. ensure privacy of data processed by it

3 12.2 Controls are necessary in information systems as
(i) massive amounts of data are processed and human errors are expected in data
entry

(ii) accidental errors can lead to loss of money and credibility in a system (iii) to
protect the system from virus attack

(iv) data may be lost due to disk crashes

a. i and ii

b. i and iii

c. i and iv

d. ii and iii

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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4 12.3 The major objectives of control are

(i)guard against frauds in data entry/processing

(ii)check clerical handling of data before it enters a computer

(iii)to provide a method to trace the steps and find where error has

occurred

(iv)automatically correct errors in data entry/processing a.

i, ii and iv

b. i, ii, iii and iv

c. i, ii and iii

d. i and iii
5 12.4 Organizational measures in control mean
a. a set of well organized methods

b. assignment of appropriate responsibilities to individuals in data processing in

an organization

c. proper organization of data

d. creation of an organization for controlling system
6 12.5 Proof figures are used to check
(i) arithmetic errors in processing

(ii)data entry errors in processing

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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(iii)loop errors in program

(iv)proof of program correctness

a. i and ii

b. i and iii

c. ii and iv

d. iii and iv
7 12.6 A proof figure is
a. a figure used to prove the correctness of data entry

b. an additional data entered with each record to facilitate detection of

arithmetic error

c. a number used during data entry

d. a modulus-11 check digit

8 12.7 A two way check
a. calculates the same quantity in two different ways and compares them for
equality

b. calculates the quantities and compares them for equality

c. checks a data item in two different ways

d. enters data two times and cross-checks them

9 12.8 A two-way check is used to

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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(i)check program correctness

(ii)find data entry errors

(iii)find multiplication errors

(iv)find arithmetic error in processing

a. i and ii

b. ii and iii

c. ii and iv

d. i and iv
10 12.9 A relationship check
a. is concerned with checking a relation

b. uses an entity-relationship model for checking

c. finds out if a relationship is satisfied in computation

d. uses the fact that a known relationship exists between two data elements and
checks if it is satisfied during computation

11 12.10 A check-point procedure

a. checks program correctness at certain points

b. divides a program into smaller parts

c. breaks a programs into portions at the end of each of which a check point
program is executed

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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d. finds points in a program where it is convenient to check it
12 12.11 At each check-point
(i)quantities such as control totals and proof figures are checked
for correctness

(ii)process state is stored in secondary storage

(iii)a program halts for check by programmers

(iv) a self-checking system is invoked by the analyst

a. i and iv

b. ii and iii

c. i and ii

d. i and iii
13 12.12 Audit in the design of information system is used to
a. inspect the system and check that it is built as per specifications

b. protect data from accidental or intentional loss

c. ensure that the system processes data as it was designed to and that the
results are reliable

d. ensure privacy of data processed by it

14 12.13 Auditing of information systems is primarily required to ensure the
(i)all input records are correct and are included in processing

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(ii)the system has ample protection against frauds

(iii)the processing performance is reliable

(iv)the system is developed at low cost

a. i and ii

b. iii and iv

c. ii and iii

d. i, ii and iii
15 12.14 By auditing around the computer we mean
a. the inputs and the corresponding outputs are compared and checked for
correctness

b. the programs and procedures are checked for correctness

c. special synthetic data is input and outputs checked for correctness

d. programs are written to check the functioning of the computer har

16 12.15 By auditing with a computer we mean

a. the inputs and the corresponding outputs are compared and checked for
correctness

b. the programs and procedures are checked for correctness

c. special synthetic data is input and outputs checked for correctness

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d. programs are written to check the functioning of the computer hardware
17 12.16 By auditing through the computer we mean
a. the inputs and the corresponding outputs are compared and checked for
correctness

b. the programs and procedures are checked for correctness

c. special synthetic data is input and outputs checked for correctness

d. programs are written to check the functioning of the computer hardware

18 12.17 An audit trail is established in a system to
a. detect errors in a system

b. enable auditing of a system

c. localize the source of an error in a system

d. trail a program

19 12.18 Some audit and control procedures in a system

(i)detect and correct errors in programs
(ii)selectively print records in a system which meet certain

criteria

(iii)examine credit and debit balances in an accounting system

and check if they balance

(iv)provide a facility to trace a variable value through

processing steps and print intermediate values when required a. i and ii b. ii and iii c.

i, ii, iii

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d. ii, iii, iv
20 12.19 It is advisable for an auditor to require an operational information
system to

(i)keep logs of all system runs and people involved

(ii)ensure that the programs and system operation are well

documented

(iii)ensure that no changes are allowed

(iv)ensure that the inputs and batch controls are properly

designed

a. i, ii, iii

b. ii, iii, iv

c. i, ii, iv

d. i, ii
21 12.20 In auditing with a computer
a. auditing programs are designed and used to check a system

b. the hardware of the computer is thoroughly checked for malfunctions

c. system software is thoroughly checked to ensure error free operations

d. auditors check system with a computer

22 12.21 Some of the features of audit package used to check systems are:
(i)facility to total specified items based on some criteria

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(ii) extracting items based on some criteria for checking

(iii)check-pointing and restart facility

(iv) Hardware faults recovery

a. i, ii

b. i, ii, iii

c. i, ii, iii, iv

d. i, ii, iv
23 12.22 By information system testing we mean
a. testing an information system correctly

b. determining whether a system is performing as per specifications

c. determining whether a system is performing optimally

d. ensuring proper function of a system

24 12.23 The main objectives of testing are
(i)when correct inputs are fed to the system the outputs are

correct

(ii)when incorrect inputs are fed to the system they are detected

and rejected

(iii)the requirement specifications are correct

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(iv) verify that the controls incorporated in the system function

correctly

a. i, ii

b. i, ii, iii

c. i, ii, iii, iv

d. i, ii, iv
25 12.24 The scope of the system test includes
a. both computerized and manual procedures

b. only test of computer procedures

c. computerized procedures, manual procedures, computer operations and

controls

d. mainly computerized procedures and operations controls

26 12.25 Program tests use test data to

(i) exercise all paths taken by a program

(ii)test loop counters

(iii)test with values which change state of logical variables

(iv)comprehensively exercise program

a. i, ii

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b. i, ii, iii

c. i, ii, iii, iv

d. i, ii, iv
27 12.26 By string test we mean
a. a test which tests operations with strings

b. a string of tests on programs

c. Test on related programs

d. The output of a program is sent as input to related program(s) to see if data is

transferred correctly

28 12.27 Parallel runs are used

a. during regular operation of an information system

b. when a system is initially implemented

c. whenever errors are found in a computerized system

d. whenever management insists

29 12.28 The purpose of parallel run is to
a. to see whether outputs of a newly computerized system matches those of
currently running manual or legacy system

b. have redundancy for reliability

c. test an operational information system

d. test a system being newly designed

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30 12.29 Security in the design of information system is used to
a. inspect the system and check that it is built as per the specifications

b. protect data and programs from accidental or intentional loss

c. ensure that the system processes data as it was designed to and that the
results are reliable

d. ensure privacy of data processed by it

31 12.30 By security of an information system we mean
protecting
(i)data from accidental or intentional damage or loss
(ii)programs from accidental or intentional corruption or loss

(iii)programs and data from unauthorized disclosure or change

(iv)individual private data from disclosure

a. i and ii

b. i and iii

c. i, ii, iii

d. i, ii, iii, iv
32 12.31 It is necessary to protect information system from the following

(i)natural disasters like fire, floods etc

(ii)disgruntled employees

(iii)poorly trained employees

(iv)hackers

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(v)industrial spies

(vi)data entry operators

a. ii, iii, iv, v

b. i, ii, iii, iv, v

c. i, iv, v

d. i, ii, iii, iv, v, vi

33 12.32 The following measures are taken to ensure security of information
systems:

(i)duplicate copies of data/programs are kept in a different place

preferably in fire-proof vault

(ii)password protection is used to prevent unauthorized access

(iii)no one is allowed to alter data in the database

(iv)no one is allowed alter programs

a. i and ii

b. i, ii, iii

c. ii, iii, iv

d. iii and iv
34 12.33 Some security measures commonly used are

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(i)data encryption
(ii)logging of all accesses to an

information system and recording changes made (if any)

(iii)data compression

(iv)copying of files

a. ii and iii

b. i and iii

c. i and ii

d. ii and iv
35 12.34 To protect a system from viruses one should
(i)not allow unauthorized use of floppy disks

(ii)scan viruses in files received via a network or floppies

(iii)isolate a system from networks

(iv)install a roll-back recovery program in the system a.

i and iii

b. i and ii

c. ii and iv

d. i, iii, iv
36 12.35 A firewall is used in a system connected to a wide area network to
a. prevent spread of fire in the network

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b. prevent unauthorized access by hackers

c. to scan for viruses in files

d. to extinguish fire spreading via network cables

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Key to Objective Questions

37 12.1 c 12.2a 12.3 c 12.4 c 12.5 a 12.6 b

38 12.7 a 12.8 c 12.9 d 12.10 c 12.11 c 12.12 a
39 12.13 d 12.14 a 12.15 c 12.16 b 12.17 c 12.18 d

40 12.19 c 12.22 a 12.21 b 12.22 b 12.23 d 12.24 c

41 12.25 b 12.26 d 12.27 b 12.28 a 12.29 b 12.30 c
12.31 d 12.32 a 12.33 c 12.34 b 12.35 b

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M12/V1/July 04/10

1. Commerce Pk - QUALITY EDUCATION BEYOND YOUR IMAGINATION MCQ‛S

QUESTION BANK - AUDITING INTRODUCTION TO AUDITING 1. The main object of an

audit is ___ a) Expression of opinion b) Detection and Prevention of fraud and error c) Both (a) and (b) d)
Depends on the type of audit. 2. The title of AAS-2 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 3. 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 4. A
sale of Rs. 50.000 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 5. ‘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 6. 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. 7. As per AAS-4 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) 8. Which of the following is not a limitation of audit as per AAS-4? a) Objectivity of
auditor’s judgment b) Selective testing c) Persuasiveness of evidence d) Limitations of internal control
system. 9. How many principles are listed in AAS1 which govern auditor’s professional obligation? a)
Nine b) Fourteen c) Seven d) Eight 10. Both auditing and accounting are concerned with financial
statements. Which of the following a) Auditing uses the theory of evidence to verify the financial
information made available by Accountancy b) Auditing lends credibility dimension and quality
dimension to the financial statements prepared by the accountant. c) Auditor should have through
knowledge of accounting concepts and convention to enable him to express an opinion on financial
statements

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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d) All of the above. 11. The risk of management fraud increases in the presence of : a) Frequent changes
in supplies b) Improved internal control system c) Substantial increases in sales d)

Management incentive system based on sales done in a quarter AUDITING

MCQS________________________1

• 2. www.commercepk.com 12.Auditing standards differ from audit procedures in that procedures

relate to a) Audit assumptions b) acts to be performed c) quality criterion d) methods of work 13. Which

of the following factors likely to be identified as a fraud factor by the auditor? a) The company is

planning 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. 14.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. 15. Which of the following statements is correct concerning the

required documentation in working papers of fraud risk assessment undertaken by the auditor? a) All

risk factors as mentioned in AAS-4, should be considered and documented along with response to them.

b) Document the identification of fraud risk factors along with response to them. c) Document material

fraud, risk factors and response to them. d) No documentation in required. 16. Which of the following is

the most appropriate potential reaction of the auditor to his assessment that the risk of material

misstatement due to fraud is high in relation to existence of inventory? a) Visit location on surprise basis

to observe test counts b) Request inventory count at a date close to year-end c) Vouch goods sent on

approval very carefully d) Perform analytical procedures. 17.

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Which of the following is not likely to be a fraud risk factor relating to management’s characteristics a)
Tax evasion b) Failure to correct known weakness in internal control system c) Adoption of conservative
accounting principles d) High management turnover 18. 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 19. Which of the following information should a successor
auditor obtain during the inquiry of the predecessor auditor before accepting engagement? i)
Information about integrity of management ii) Disagreement with management concerning auditing
procedures iii) Review of internal control system. iv) Organisation structure a) (i) and (ii) b) (ii) and (iii) c)
(i) , (ii) and (iii) d) i) and (iii) 20.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 auditor’s method of sample selection. 21. 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) Cooperation from other auditors

AUDITING MCQS_______________________2

• 3. www.commercepk.com 22. The use of an audit engagement letter is the best method of

documenting i) the required communication of significant deficiencies in internal control ii) significantly

higher control risk than that assessed in prior audit. iii) Objective and scope of auditor’s work iv)

Notification of any changes in the original arrangements of the audit. a) (i) and (ii) b) (i) and (iii) c) ii and

(iv) d) (iii and (iv) 23. An auditor who accepts an audit but does not possess the industry expertise of the

business entity should a) engage experts b) obtain knowledge of matters that relate to the nature of

entity’s business c) inform management about it

d) take help of other auditors 24. The least important element in the evaluation of an audit firm’s 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 client’s information 25. The primary purpose of
establishing quality control policies and procedures for deciding on client evaluation is to- a) ensure

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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) all of the above 26. 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’s advice as to whether
audit fees were paid promptly d) Review of audit work done by one partner by the other 27. An auditor
obtains knowledge about a new client’s business and its industry to a) Make constructive suggestions
concerning improvements to the client’s internal control system. b) Evaluate the appropriateness of
audit evidence obtained c) Under stand the events and transactions that may have an effect on client’s
financial statements. d) All of the above CONCEPTS OF AUDITING 1. Audit of banks is an example of – a)
Statutory audit b) Balance sheet audit c) Concurrent audit d) Both (a) and (b) e) All of the above 2.
Concurrent audit is a part of- a) Internal check system b) Continuous audit c) Internal audit system d)
None 3. In India, balance sheet audit is synonymous to- a) Annual audit b) Continuous audit c) Detailed
audit d) Statutory audit 4. Audit in depth is synonymous for- a) Complete audit b) Completed audit c)
Final audit d) Detailed audit 5. Balance sheet audit includes verification of_ a) Assets b) Liabilities c)
Income and expense accounts where appropriate d) All of the above AUDITING

MCQS________________________3

4. WWW.COMMERCEPK.COM 6. 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 7. Which of the following is not a fact
of EPA? a) Economic audit b) Efficiency audit c) Expenditure audit d)

Effectiveness audit 8. The Delhi Government had constructed six bungalows for its ministers.

They are lying unoccupied for last three years. This would be a matter of concern for- a) Propriety
Auditor b) Performance Auditor c) Financial Auditor d) None of the above 9. Financial auditor is not
concerned with propriety of business transactions. However, the exceptions to this rule are contained
for audit of limited companies in_ a) Section 227 (IA) of the Companies Act, 1956 b) Section 227 (IA) and
section 227(4A) of the Act c) CARO, 2003 d) Section 227 (IA) and CARO, 2003 10. 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 11. 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 12. …..the audit risk,….. the materiality and ……the audit effort a)

Lower, Higher, Lower b) Lower, Lower, Higher c) Higher, Lower, Lower d) Lower, Higher, Higher 13.
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

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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 14. 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 15. 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 16. 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 COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION 17

specific
account balance AUDITING MCQS_______________________4

5. . For

all audits of financial statements made in accordance with AAS-14, 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 18.The basic assumption underlying the use of analytical procedures is : a) It
helps the auditor to study relationship among elements of financial information b) Relationship among
data exist and continue in the absence of known condition to the contrary c) Analytical procedures will
not be able to detect unusual relationships d) None of the above. 19. What are analytical procedures? a)
Substantive tests designed to assess control risk b) Substantive tests designed to evaluate the validity of
management’s representation letter

c) Substantive tests designed to study relationships between financial and non-financial d) All of
the above 20. Which of the following is not an analytical procedure? a) Tracing of purchases recurred in
the purchase book to purchase invoices. b) Comparing aggregate wages paid to number of employees c)
Comparing the actual costs with standard costs d) All of them are analytical procedure 21. When
applying analytical procedures, an auditor could develop independent estimate of an account balance to
compare it to- a) client’s unedited account balance

b) client’s unedited account balance adjusted for trends in the industry c) Prior year audited balance d)
Prior year audited balance adjusted for trends in the industry 22. 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’s ability to continue AUDIT EVIDENCE 1. Of the following, which is the least persuasive type of
audit evidence? a) Bank statements obtained from the client

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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 2. 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. 3. 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 AUDITING
MCQS________________________5

6. WWW.COMMERCEPK.COM 4. The nature, timing and extent of substantive procedures is related to

assessed level of control risk a) randomly b) disproportionately c) directly d) inversely 5. 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
6. 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 7. Which of the
following is not a corroborative evidence? a) Minutes of meetings b) Confirmations from debtors c)
Information gathered by auditor through observation d) Worksheet supporting consolidated financial
statements 8. Which of the following statements is not true with respect to management
representations obtained as per AAS-11? 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 9. 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 10.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) 11.
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 AUDIT PREPARATION 1. Which of the following
Auditing Assurance Standard deals with Audit Planning? a) AAS-7 b) AAS-8 c) AAS-9 d) AAS-3 2. Audit
programme is prepared by- a) the auditor b) the client c) the audit assistants d) the auditor and his audit
assistants AUDITING MCQS_______________________6

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3.
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 4. 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 5. Which of the following best describes the primary purpose of audit programme
preparation? a) To detect errors or fraud. b) To comply with GAAP
7. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION
c) To
gather sufficient appropriate evidence d) To assess audit risk 6. 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 7. 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 b) debt agreements 8. 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. 9. 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 10.

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 11. 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. 12.
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
13.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. 14.The main
advantage of using statistical sampling techniques is that such techniques: a) mathematically measure
risk b) eliminate the need for judgmental sampling c) defines the values of tolerable error d) all of the
them. AUDITING

WWW.COMMERCEPK.COM 15

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MCQS________________________7 8. .
Which of the following methods of sample selection is

least suitable for extrapolating results to the population? a) Systematic sampling b) Random sampling c)
Haphazard sampling d) None 16. Which of the following statements is correct? a) Lower the sampling
risk greater the sample size b) Smaller the tolerable error, greater the sample size c) Lower the expected
error, smaller the sample size d) All are correct 17. Which of the following features is most important for
random-based selection? a) Sample should be drawn form population b) Every strata of population
should be represented in the sample c) Every item in the population has an equal chance of being
selected in the sample d) Items should be selected at ‘n’ th interval 18. Risk of under reliance is the risk
that the sample selected to test controls___

a) Does not support the auditor’s planned assessed level of control risk when the true operating
effectiveness of the control structure justifies such an assessment b) Supports the auditor’s planned
assessed level of control risk when the actual position does not warrant such reliance c)

Is not supported by adequate documents d) both (a) & (c) 19. Which of the following factors is

(are) considered in determining the sample size for tests of control? a) Projected error b) Tolerable error
c) Expected error d) Both (b) and (c) 20.Tolerable error, is the maximum monetary error that the auditor
is prepared to accept in the population and still conclude that audit objective has been achieved, is
directly related to a) Sample size b) Audit risk c)

Materiality d) Expected error CAPTIAL AND REVENUE EXPENDITURE 1. 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. 2. 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 3.
Depreciation does not arise form _______ a) effluxion of time b) use c) obsolescence through technology
be market changes d) remarket expectation 4. 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 5. 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 6. If the book value
of an asset stands at ……..per cent of the original cost, a company need not provide depreciation on it. a)
two b) fifteen c) five d) ten AUDITING MCQS_______________________8

9. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION 7. 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 8. Which of the following is a revenue reserve? a) Capital
redemption reserve b) Security premium account c) Debenture redemption reserve d) Capital reserve 9.
Which of the following will not lead to creation of secret reserve? a) Undervaluation of closing stock b)

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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 COMPANY AUDITOR 1. 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 2. Which of the following sections deal with qualifications 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) & Sec.224 3.
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 accountants 4. As per the
requirements of section 226(3) and 226(4) a person is disqualified from being appointed as a statutory
auditor if he holds- a) Equity shares or debentures of the company

b) Equity shares carrying voting of the company c) Shares carrying voting rights of the company

d) Security carrying voting rights of the company 5. The board of directors shall appoint first auditor of a
company a) With in one month of completion of capital subscription state of the company b) With in one
month of the promotion of the company c) With in one month of the commencement of the business of
the company d) With in one month of incorporation of the company 6. 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 annual general meeting c) the conclusion of next annual general meeting d) the date
of removal 7. In case the directions fail to appoint first auditor (s), 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 8.

Life Insurance Corporation of India holds twenty five percent of subscribed capital of XYZ Ltd. The
appointment of statutory auditor in XYZ Ltd. Would be by__ a) ordinary resolution b) special resolution
c) (a) or (b) d) none of the above 9. ICICI prudential, a life insurance company, holds thirty-two percent
of subscribed share capital of Delta Ltd. The statutory auditor of Delta Ltd. would be appointed by__ a)
ordinary resolution b) Special resolution c) either of the above d) none AUDITING
MCQS________________________9

10. WWW.COMMERCEPK.COM 10. 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) None of the above

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11. If a casual vacancy in the office of auditor arises by his resignation it should only be filled by the

company in a……..

a) Board meeting b) extraordinary general meeting c) General meeting d) annual general meeting 12. For

the purposes of section 224(IB) the number of partners of a firm which shall be taken into account would

be as on the date of _ a) completion of audit b) auditor’s report c) acceptance of audit d) Starting of

audit work 13. Which of the following is counted for the purposes of section 224(IB) the number of

partners of a firm which shall be taken into account would be as on the data of ___

a) Joint audit b) Audit to non-profit companies c) Audit of unlimited companies d) All of the above e) (a)
and (b) only 14. Mr. Narayan, a Charted Accountant, has nineteen audits, Out of following audits which
audits should he accept to ensure he doesn’t violate provisions of section 224(IB) __ a) Audit of Zeba Ltd.
a private company b) Audit of branch of Pointec Ltd. a foreign company c) Audit of two branches of
Virtue Ltd. an Indian company d) All of them 15.Which audit out of the following would not be regarded
as one audit for the purposes of section 224(IB)? a) Audit of one branch each of two different companies
b) Joint audit c) Audit head office & branches d) Audit of one or more branches of a company 16. 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

17.The section which contains provisions regarding remuneration of the auditor is_ a) Section 224(9) b)
Section224(7) c) Section224(8) d) Section224(6) 18.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 19. Which of the following
statements 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 provisions for such removal are contained in section
224(7) 20. The retiring auditor does not have a right to___ a) make written representations b) get his
representations circulated. c) be heard at the meeting d) speak as a member of the company AUDITING

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MCQS_______________________10

11. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION 21.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 (b) and (c) 22.A statutory auditor has a right of access at all times to a)
Books and accounts of a company b) Books, accounts and documents of the company c) Books, accounts
and vouchers of the company d) Notices and documents of the company 23. 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 (b) and (c) 24. The principal auditor, as per
clarification issued by the ICAI, does not have any right to- a) Inspect working papers of the branch
auditor b) Visit branches c) Seek information necessary for audit purposes d) Incorporate the branch
audit report in his audit report 25. Under which of the following section auditor has a duty to enquire
into six specified matters and report by exception? a) Section 227(4A) b) Section 227 (IA) c) Section 227
(2) d) Section 227(3) 26. The auditor has to enquire, under section 227 (IA) into different aspects, related
to shares allotted for cash for the purpose of auditor include- a) Shares against whose allotment cash has
actually been received b) Shares allotted for consideration other than cash c) Shares allotted against a
debt payable d) All of them 27.Right to visit branches has been given to the auditor under which section?
a) Section 222(3)

b) Section 228(2) c) Section 228(4) d) Section 228(3) 28. Which of the following statements with regard
to rules regarding exemption from branch audit is not true? a) A branch office of a company can be
granted exemption on the basis of quantum of activity criterion b) If a satisfactory arrangement of
scrutiny check of the books of account of a branch office of a manufacturing company has been made, it
can be exempted form branch audit c) Cost consideration should be considered as an important
factor/ground for exemption from branch audit d) The auditor should state in his audit report that
branch office is exempted by virtue of quantum of activity or any other basis 29. 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 30.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 31.Special audit is conducted at the order of the Central Government. Which section gives such
powers? a) Section 233(A) b) Section 233A c) Section 242(A) d) Section 242A

32.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 (a) and (b) 33. The scope of the audit including reference to the pronouncements of the ICAI,
which the auditor adheres to, generally is communicated to the client in the ____ AUDITING
MCQS________________________11

• 12. WWW.COMMERCEPK.COM i) auditor’s report ii) engagement letter iii) representation letter a) i)

only b) Both (i) and (ii) c) Both (i) and (iii) d) All the above 34. If any director is disqualified from being

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appointed under section 274(1) (g), the auditor should mention this fact in his audit report. For this

purpose, how does he determine their eligibility : a) He obtains a representation from each director

b) He obtains a management representation c) He enquiries from Registrar of Companies d) Any one

of the above 35. As per the ‘Statement on Qualification in Auditor’s Report’s issued by the ICAI, the

auditor, Under section 227(3) has to gave a statement of fact on_ a) proper books of account b)

accounting standards c) cess payable under section 441A d) None of the above 36. The date on

auditor’s report should not be__ a) the data of AGM b) later than the date on which the accounts are

approved in board’s meeting c) earlier than the date on which the accounts are approved by the

management d) Both (a) and (b) 37. Section 227(2) of the Companies Act, requires the auditor to give

his report to the members of the company on certain matters. Which of the following is not included

in the above? a) Accounts examined by him b) Every balance sheet and profit and loss account laid

before a general meeting during his tenure c) Every document that is a part of or ‘annexed to’ the

balance sheet d) Every document which is attached to the profit and loss account 38.When

restrictions that significantly affect the scope of the audit are imposed by the client, the auditor

generally should issue which of the following opinion? a) Qualified opinion b) Disclaimer of opinion c)

Adverse opinion d) Unqualified report with ‘an emphasis of matter’ paragraph; 39. Which of the
following report not result in qualification of the auditor’s opinion due to a scope limitation? a)
Restrictions the client imposed b) Reliance on the report of other auditor c) Inability to obtain sufficient
appropriate evidential matter d) Inadequacy of accounting records 40. The inventory consists of about
one per cent of all assets. The client has imposed restriction on auditor to prohibit observation of stock
take. The auditor cannot apply alternate audit procedures. a) unqualified opinion b) qualified opinion c)
disclaimer of opinion d) adverse opinion 41.If in the above question, the inventory consisted of about

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ten per cent of total assets, other conditions remaining same, the auditor should issue __ a) unqualified
opinion b) qualified opinion c) disclaimer of opinion d) adverse opinion 42. The auditor has serious
concern about the going concern of the company. It is dependent on company’s 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_ a) unqualified opinion b) unqualified opinion with reference to notes to the
accounts c) qualified opinion d) disclaimer of opinion 43.Which of the following is true about explanatory
notes? a) These are given by the directors of the company b) These are given to adhere to
requirements of section 211. c) These are given by auditors of the company in auditor’s report d) All of
the above AUDITING MCQS_______________________12

• 13. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION 44. The

client changed method of depreciation from straight line to written down value method. This has been
disclosed as a note to the financial statements. It has an immaterial effect on the current financial
statements. It is expected, however, that the change will have a significant effect on future periods.
Which of the following option should the auditor express? a) Unqualified opinion

b) Qualified opinion c) Disclaimer of opinion d) Adverse opinion 45. Which of the following is not true
regarding requirements under section 227(3) (f) of the Companies Act, 1956? a) The auditor has to
satisfy himself whether any of the directors of the company, whether public or private, are disqualified
from being appointed as directors as per section 274(1) (g). b) Section 274(1) (g) is applicable to
appointment of directors both in public and private companies but reporting is limited to only those
directors of a company who are also directors of a public company c) The auditor requires every director
to submit a written representation in respect of each public company, of which the is a director, as to
whether such company has defaulted in terms of provisions of sections 274(1) (g) d) The disqualification
should be considered on the date of audit report. 46. The management of a company, to which AS-3. is
not applicable, does not include statement of cash flows in its annual report. The auditor should express-
a) Unqualified opinion b) Qualified opinion c) Adverse opinion d) Any of these depending upon
materiality and pervasiveness and adequacy of disclosure 47. In case the auditor gives a disclaimer of
opinion in the audit report which of the following paragraph(s) of a standard unqualified audit report are
modified? a) Scope paragraph b) Opinion paragraph c) Scope and opinion paragraphs d) Introductory,
scope and opinion paragraph 48.A departure from recognized accounting principle is disclosed in a note
to the financial statements. The auditor should a) issue a standard unqualified audit report b) issue a
qualified report c) issue an unqualified report with ‘emphasis of matter’ paragraph d) disclaim opinion
49. AB & Co, chartered accountant, have been requested by their client XYZ Ltd. not to confirm accounts
receivables because of concerns about creasing conflicts with customers over amounts owed.

The auditors were satisfied concerning receivables after applying alternative audit procedures

AB & Co.’s auditors report likely contained a) Qualified opinion b) Disclaimer of opinion c) Unqualified I
opinion with an explanatory paragraph d) Unqualified opinion 50.The auditor should state the reasons
for his reservations in audit report and should try to quantify the effect on them. This should be done in

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case he has expressed _ i) a qualified opinion ii) an unqualified opinion with emphasis of matter
paragraph iii) an adverse opinion iv) a disclaimer of opinion a)

i) only b) i) and (iv) only c) i), iii) and (iv) only d) All of the above 51.Companies exempted from
application of CARO, 2003 does not include_ a) a banking company b) an insurance company c) a private
limited company with paid up capital and reserves not more than fifty five lakh d) a licensed company
52. Under CARO, 2003, the auditor’s report should include report about maintenance of proper
recording relating to____ a) Fixed assets and cost b) Fixed assets, cost and investments c) Fixed assets ,
cost investments and inventories d) Fixed assets, cost and

inventory AUDITING MCQS________________________13

14. WWW.COMMERCEPK.COM 53. Under CARO, 2003 the auditor is required to report on __ a)
arrears of cumulative preference dividends b) Preferential allotment of shares to related party c)
disposal of fixed assets and its effect on going concern. d) unsecured loans granted to related party.
GOVERNMENT AUDIT 1. As per C & AG Act, 1971 the tenure of the

Comptroller and Auditor General is …….Years a) Four b) five c) six d) seven 2. 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 provision of funds c) audit of rules and
orders d) audit of financial propriety 3. Audit of transaction does not include – a) Propriety audit b)
efficiency –cum performance audit c) audit of receipts d) audit of expenditure 4. The income Tax
Department has sent Mr. X double 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 5. Audit of debt, deposits and remittances does not
cover- a) audit of borrowings b) audit of amortization of debt c) audit of sanctions d) remittance audit 6.
A state Government spent rupees fifty lakhs on renovation of Raj Bhavan’ for its Governor. In the C &
AG’s opinion, this expenditure was more than what occasion demanded? It is an exampled of – a)
Propriety audit b) Performance audit c) Audit against provision of funds d) None of the above 7. 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) Any of the above 8. The
C & AG, some years ago, gave adverse comments on expenditure incurred on buying coffins for soldiers
killed in a war. In his opinion, the coffins cases imported could have been replace with less expensive,
domestically produced ones. This is an aspect of – a) Audit of sanctions b) Audit of stores and stocks c)
Propriety audit d) Both (b) and (c) 9. 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 C & AG d) Any of the above 10.The statutory auditor of a
Government Company submits his report to_ a) the

BODs of the company b) the C & AG c) the Legislature d) the company secretary AUDITING

MCQS_______________________14

15. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION EDP

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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AUDIT 1. Which of the following statement is not distinguishing feature for computer based processing
and manual processing? a) Errors in a CIS environment are less systemic as compared to errors 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. 2. 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 algoritham.
This techniques is known as a) Dual read b) Test for reasonableness c) Check digit d) Occurrence
correction 3. When computer programme or files can be accessed from terminals, access can be limited
to authorized individuals by__ a) appointing a librarian b) controlling passwords c) appointing EDP
auditor d) Both (a) and (b) 4. 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 5. General controls will be ineffective when EDP department- a) Participates in
computer software acquisition decisions b) Design Documentation for computerized operations.

c) Originate changes in master files. d) Provide physical security for programme files. 6. Which of the
following activities would most likely be performed by EDP department? a) Authorising transactions b)
Parity checks c) Distributing output d) Correction of transactional errors 7. 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 technique is called a) check total

b) control total c) occurrence correction d) check digit 8. Which of 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 9. Which of the following statements is not true of the test data
approach in a test of computerised accounting system? a) Test data tests only those controls which the
auditor wishes to rely b) Test data should consist of data related to all controls prevalent in the
organization c) The result of test data indicates that all the application and general controls are
functioning properly d) Test data processed by the client’s computer programme under the auditor’s
control 10. Which of the following CAATs allow fictitious transactions planted by the auditor to be
processed along with real ones on client’s system? a)

Integrated test facility b) Test data approach c) Generalised audit software d) Parallel simulation 11.An
auditor is least likely to use computer software to- a) access client data files b) assess control risk c)
performing analytical producers d) None of the above AUDITING

MCQS________________________15

16. WWW.COMMERCEPK.COM AUDIT OF CASH TRANSACTION 1. Which of the following

documents is not relevant for vouching cash sales? a) Daily cash sales summary b)

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Salesmen’s summary c) Monthly statements sent to customers d) Bank statement 2. The auditor should
examine subsequent realization of revenue such as dividends, interest, commission, etc to- a) identify
cases of unrecorded revenue b) ensure proper disclosure in the balance sheet c) recompute accrued
income on the data of balance sheet d) Any of these 3. To test whether sales have been recorded, the
auditor should draw a sample from a file of a) purchase orders b) sales orders c) sales invoices d) bill of
loading 4. For vouching of which item, the auditor is most likely to examine cost records? a) Commission
earned b) Bad debts recorded c) Credit sales d)

Sale of scrap 5. The “Guidance Note on Revenue” issued by the ICAI does not deal with a) Sales revenue
b) Revenue rendering service c) Revenue from sale of fixed assets d) Income from interest, dividend 6.
An auditor conducts a surprise check on the pay day (i.e) the day wages and salaries are paid. The
primary purpose of this audit procedures is a) to ensure that there are no ghost workers b) to ensure the
casual workers employed are authorized by the supervisor c) to test procedures for distributing pay
cheques d) to obtain understanding of internal control system 7. Which of the following would prevent
double payment of the same voucher? a) The person signing the cheque should cancel the supporting
documents b) Cheques should be signed by at best two persons c) The data of payment of vouchers of
similar nature should be the same or close to each other d) All of the above 8. In case of unclaimed
wages, the auditor should examine whether- a) the amount has been deposited in a separate bank
account b) deposited with the cashier c) held in a safe deposit box d) All of these 9. While vouching
wages, auditor should examine whether there is proper segregation of duties. Which of the following
activities should not be done by same department? a) Maintaining personnel records and approving
changing in wages rates b) Proposing pay roll summary and disbursement of wages c) Making salary
statements and filing tax returns d) Comparing time clock records with time reports prepared by
supervisors and preparing list of workers employed along with the units of production for each one of
them 10. In order to vouch, which of the expenses, the auditor will examine Bill of Entry?

a) Custom b) Excise duties c) Sales tax d) Income tax 11. While vouching, how will the auditor ensure
himself that all credit sales transactions have been recorded by the entity? a) Examining cut-off points b)
Matching entries in the sales book against renumbered sales invoices and goods outward notes c)
Counting the number of invoices and matching the number with entries on sales book d) Both (a) and (b)
AUDITING MCQS_______________________16

17. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION 12. In case of sales return,
the auditor should examine which documents? a) Credit notes, advice notes and inward return notes b)
Debit notes, advice notes and inward return notes c) Purchase invoices, advice notes and inward return
notes d) Credit notes, inspection report and inward return notes 13. An internal auditor discovered that
fictitious purchases have been recorded by the purchase clerk. This indicates absence of which control?
a) Purchase invoices are independently matched with purchase orders and goods received notes b)
Goods received notes requires the signature of individual who authorized the purchase c) Routine checks
are performed by internal auditor fortnightly. d) Purchase function and production function are clubbed
in one department 14. Which of the following is most crucial to a purchase department?

a) Reducing the cost of acquisition b) Selecting supplies c) Authorizing the acquisition of goods

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d) Assuring the quality of goods 15. The auditor is most likely to examine related party transactions very
carefully while vouching a) credit sales b) sales returns c) credit purchases d) cash purchases 16. In order
to vouch bought ledger, the auditor obtain confirmations from creditors. The principal reason for the
auditor to examine suppliers statements at balance sheet date is to obtain evidence that a) the supplier
exist b) there are no unrecorded liabilities c) recorded purchases actually occurred d) to link creditors
with cash book entries 17.The creditors accounts, generally, have credit balance. Debit balance may be
due to- a) advance paid against an order b) goods returned c) wrong debit to supplier account d) Any of
these 18.In case of vouching, the auditor is least likely to examine authorization by appropriate authority
in case of –
a) bad bads written off b) sales return c) purchase return d) discount allowed to customers as per
organizational policy 19. Vendors should be approved by Management before purchase department
executes an order. If this is not done, then which of the following situations may arise- a) purchases
could be made from vendors whose product quality may not be good b)

Purchases may be made from related parties without management’s knowledge c) Purchases could be
made from vendors who may have offered price to vice-president purchases d) Any of these
VERIFICATION & VALUATION OF ASSETS 1. Which of the following is not true with

regard to verification of assets? a) It invoices substantiation of occurrence of transactions b) Its objective

is to establish existence, ownership, possession, valuation and disclosure of assets c) The auditor has to
form an opinion on different aspects d) All are true 2. Which of the following statements is not true ? a)
Valuation of assets is the responsibility of management b) The auditor can rely on a certificate issued by
an authorized valuationer as to the valuation of assets in the balance sheet c) The auditor should value
the asset as per generally accepted accounting principle d) Valuation is no part of auditor’s duty
AUDITING

MCQS________________________17

18. WWW.COMMERCEPK.COM 3. An auditor is verifying valuation of building which has been

selfconstructed by the client. Which of the following documents is least relevant to the auditor for
verification purposes? a) Bills of contractor b) Minutes of meeting of board of directors c) Certificates of
engineer and architect d) Loan agreement 4. Which of the following assets is least likely to be subjected
to lien? a) Freehold land b) Plant and machinery c) Leasehold property d) Motor vehicles 5. An analysis of
fixed assets account has revealed possibility of unrecorded sale of plant and machinery. Which of the
following audit procedures may be adopted to discover it? a) Examination of property tax files b) Inquiry
of plant manager

c) Examination of debits to accumulated depreciation d) All of the above 6. The auditor has noticed
existence of recurring losses sale of fixed assets this indicates a) Depreciation charges are insufficient b)
Policy of sale or disposal of fixed assets needs to be reviewed c) The sale of assets have not been
properly authorized d) Accounting errors 7. Which of the following financial statements assertions are

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addressed by testing the cut off for plant asset addition a) Existence and ownership b) Valuation and
disclosure c) Possession and ownership d)

Completeness and valuation 8. The auditor while verifying prepaid insurance has concluded that there is
inadequate insurance of building He should__ a) Modify his audit report b) Insist it should be disclosed in
the notes to financial statements c) Write it in letter of weakness d) Both (b) and (c) 9. While verifying
intangible assets, an auditor would recompute amortization charges and determine whether
amortization period is reasonable. The auditor tries to establish

….by doing it a) valuation b) existence c) disclosure d) possession 10. When auditing prepaid insurance,
an auditor discovers that the insurance policy bond on building is not available for inspection. This may
indicate__ a) No insurance has been undertaken for building b) Lien on building c) Insurance premium
has not been paid d) Insurance premium paid but not recorded 11. Equity shares of XY Ltd. held by ABC
Ltd. are in the custody of Stock Holding Corporation of India Limited. The auditor many verify this
investment by - a) Reviewing last year’s working papers. b) Obtaining a certificate from a responsible
official of the ABC Ltd. c) Obtaining a certificate from SHCIL d) Obtaining a certificate from xy ltd. 12.
Which of the following controls would ensure that securities are not lost, stolen or diverted? a) Establish
physical barriers over investment securities b) Maintain files of authorized signatures c) Segregate
investment approval form accounting and from custody of securities d) All of the above

13.Which of the following is not a proper third party to hold investments on behalf of the client?
a) Regional level custodian b) National level custodian c) India trills – National level stock broking firm d)
AEZ Securities Ltd. a stock broking firm 14. Which of the following would give the assurance that debtors
mentioned on the date of balance sheet actually exist? a) Sending debtor’s confirmation letters b)
Reviewing subsequent collection c) Verify debtors against sales document d) Both (a) and (b) AUDITING
MCQS_______________________18

19. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION

15.Analytical procedures are least likely to be use in the audit of – a) cash balance b) investments

c) bills receivables d) debtors 16. Which of the following statements is not true with regard to teeming
and lading ? a) It results in the deliberate misappropriation of cash receipts b) It is associated with cash
receipts c) If same individual maintains cash receipts and cash payments teeming and lading is likely to
exist d) To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily
agreement so that a bank reconciliation will not detect the irregularity. 17. The balance of cash in often
between one to five percent of total assets. Tick the most appropriate statement with regard to
verification of cash in context of this a) Cash in always material as materiality is qualitative concept b) No
audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a relative concept c)
The cash balance need only be audited if the balance is in overdraft d) Cash is to be verified if control risk
is assessed as high 18. When counting cash on hand the auditor should ___ a) ensure presence of
somebody from management b) obtain a receipt from custodian as to its return c) ensure postage and
revenue stamps are not counted in physical count d) temporary advances to employees are counted to
calculate balance of cash in hand 19. Which of the following statement is not true regard to auditor’s
attendance at stock taking? a) Auditor should attend physical stock taking only if inventory is material b)
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Auditor may not attend physical verification of stock by management, if he does not find it appropriate
to rely on it c) If inventory is material, even when the auditor is not placing reliance on the physical
verification by the management, he should attend it d) The primary objective of an auditor’s observation
of an entity’s observation of an entity’s stock take is to obtain direct knowledge that the stock and has
been property counted 20. While observing a client’s annual physical inventory, an auditor conducted
test counts for certain test counts were higher than the recorded quantities in the client’s perpetual
records. This situation could be the result of the client’s failure to record – a) purchase returns b) sales
returns c) goods with consignor d) purchase discounts 21.Inspection report/receiving report supports
entries in a) sales book and sales return book b) purchase book and sales return book c) cash book and
purchase book d) Sales book and purchase return book INTERNAL CONTROL 1. Tests of control are not
concerned with_ a) Existence of controls b) Effectiveness of controls c) Continuity of controls d)

Designing of controls 2. The sequence of steps in the auditor’s consideration of internal control is as
follows – a) Obtain an understanding, design substantive test, perform tests of control, make a
preliminary assessment of control risk b) Design substantive tests, obtain an understanding, perform
tests of control, make a preliminary assessment of control risk c) Obtain an understanding, make a
preliminary assessment of control risk, perform tests of control, design substantive procedures. d)
Perform tests of control, obtain and understanding, make a preliminary assessment of control risk,
design AUDITING

MCQS________________________19
20. WWW.COMMERCEPK.COM 3. Which of the following is not an inherent limitation of internal
control system? a) Management override b) Collusion among employees c) Inefficiency of internal
auditor d) Abuse of authority 4. An auditor should study and evaluate internal controls to- a) determine
whether assets are safeguarded b) Suggest improvements in internal control c) Plan audit procedures d)
express and opinion 5. XYZ Ltd. Conducts quarterly review of operations. It discovers that unrest in a
south east Asian country may affect the supply of raw materials to it the next quarter. This is an example
of : a) risk assessment b) control procedure c) supervision d) control environment 6. The primary
purpose of performing tests of control is to provide reasonable assurance that_ a) there are no material
misstatements due to fraud or error in financial statement b) accounting system is well documented c)
Written evidence is there to support transactions d) if internal control is effective 7. If the auditor
assesses control risk as high…. a) Document the conclusions b) documents the reasons along with
conclusions c) perform tests of control d) perform walk through tests 8. The overall attitude and
awareness of an entity’s board of directors concerning the importance of internal control is reflected in-
a) accounting controls b) control environment c) control procedures d) supervision 9. Which of the
following are included in test of control? a) Reperformance and observation b) Inquiry and analytical
procedures c) Comparison and conformation d) Inspection and verification 10.Control risk is assessed at-
a) Overall financial statements level b) Fraud risk factor level c) Financial statement assertion level d)
Control environment level 11. Which of the following is not an example of a circumstance, in which
additional tests of control will not be performed after obtaining an understanding to plan the audit? a)
Controls are known to be cost ineffective b) Controls are effective but auditor opines that performing
tests of control and reduced substantive tests would not be cost effective c) Controls are effective and
evidence already obtained is adequate to support a planned assessed level of control risk which is less
than high d) Performing extensive substantive testing would not lead to efficiency 12. An auditor
assesses control risk because it- a) affects the audit risk b) affects the level of detection risk that auditor
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may accept c) helps him to fix materiality level for each financial assertion d) is directly related to
inherent risk
13. A flow chart, made by the auditor, of an entity’s internal control system is a graphic representation
that depicts the auditor’s. a) understanding of the system b) understanding of fraud risk factors c)
documentation of assessment of control risk d) Both (a) and (c) 14.The performance of tests of control is
documented in- a) audit programme b) flow charts c) working papers d) any of the above 15. Which of
the following statements is not correct? a) Intern risk and control risk cannot be controlled by the
management i.e are uncontrollable AUDITING

MCQS_______________________20

21. COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION b)

Detection risk is related directly to they effectiveness of the auditor prosecutor c) Detection risk related
inversely to control risk d) Internet risk and control risk are highly interrelated 16.The independence of
an internal auditor will most likely be assured if he reports to the a) President Finance b) President
System c) Managing Director d) CEO 17. In comparison to the independent auditor, an internal auditor is
more likely to be concerned with- a) cost accounting system b) internal control system c) legal
compliance d) accounting system 18. When an independent auditor decides that the work performed by
internal auditors may have bearing on the nature, timing and extent of planned audit procedures, the
independent auditor should evaluate objectivity of the internal auditor. The most important factor
influencing it would be- a) organizational level to which he reports c) system of quality control of his
work b) qualification of internal auditor d) all of the above 19. When an independent auditor relies on
the work of an internal auditor, he or she should- a) examine the scope of internal auditor’s work b)
examine the system of supervising review and documentation of internal auditor’s work c) adequacy of
related audit programme d) all of the above 20.Proper segregation of duties reduces the opportunities in
which a person would both- a) establish controls and executes them b) records cash receipts and cash
payments c) perpetuate errors and frauds and conceals them d) record the transaction in journal and
ledger. INTRODUCTION TO AUDITING 1. d 2. b 3. c 4. b 5. a 6. b

7. d 8. a 9. a 10. b 11. d 12. b 13. a 14. d 15. b 16. a 17. c 18. b 19. a 20. d 21. c 22. d 23. b 24. b

25. b 26. c 27. c CONCEPTS OF AUDITING 1. e 2. c 3. a 4. d 5. d 6. c 7. c 8. d 9. d 10. d 11. d

12. a 13. b 14. b 15. d 16. d 17. a 18. b 19. c 20. a 21. d 22. a AUDIT EVIDENCE 1. c 2. b 3. d

4. c 5. a 6. b 7. d 8. b 9. b 10. d 11. a AUDIT PREPARATION 1. b 2. d 3. c 4. b 5. c 6. d 7. a 8. c

9. d 10. b 11. a 12. c 13. a 14. a 15. c 16. d 17. c 18. a 19. d 20. c AUDITING

MCQS________________________21

22. WWW.COMMERCEPK.COM CAPTIAL AND REVENUE EXPENDITURE 1. b 2. d 3.

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System Analysis and Design/Control, Audit And Security Multiple Choice Questions
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c 4. b 5. c 6. d 7. a 8. c 9. d 10. b COMPANY AUDITOR 1. b 2. a 3. c 4. d 5. d 6. b 7. a 8. b 9. a 10. b 11. c
12. c 13. e 14. d 15. a 16. b 17. c 18. a 19. c 20. d 21. b 22. c 23. d 24. a 25. b 26. d 27. c 28. b 29. b 30. b
31. c 32. b 33. b 34. a 35. c 36. c 37. d 38. a 39. b 40. a 41. c 42. b 43. a 44. a

45. d 46. a 47. c 48. b 49. c 50. a 51. c 52. c 53. a GOVERNMENT AUDIT 1. c 2. b 3. b 4. d 5. c

6. a 7. b 8. d 9. a 10. b EDP AUDIT 1. a 2. c 3. d 4. a 5. c 6. c 7. d 8. a 9. b 10. a 11. d AUDIT

OF CASHTRANSACTION 1. c 2. a 3. c 4. d 5. c 6. c 7. a 8. a 9. b 10. a 11. d 12. d 13. a 14. c

15. c 16. b 17. d 18. d 19. d VERIFICATION AND VALUATION OF ASSETS 1. a 2. c 3. b 4. c 5.

d 6. a 7. d 8. d 9. a 10. b 11. c 12. d 13. c 14. d 15. a 16. c 17. a 18. c 19. c 20. B 21. B

INTERNAL CONTROL 1. d 2. c 3. c 4. c 5. a 6. d 7. a 8. b 9. a 10. c 11. c 12. b 13. a 14. c 15. a

16. c 17. b 18. a 19. d 20. c AUDITING MCQS_______________________22

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