S.

No

10

11

12

13
14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30
31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47
48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64
65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81
82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98
99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115
116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131
 Questions

Financial statements need to be prepared in accordance with:

Objective of an audit of financial statements is to enable the auditor to express an opinion

If the financial statements are prepared as per the financial reporting framework, the auditor gives an opinion that the financial sta

The term "General Purpose Financial Statements" never includes

Which of the following errors is an error of omission?

Which of the following errors is an error of principle?

Errors of recording do not allow

Which of the following errors will affect the Trial Balance?

Which of the following errors will not affect the Trial Balance?

The total of Sales Book was not posted to the ledger. This is

Sales Book was overcast by ₹500. This is

The total of a folio in the Sales Book 1,000 was carried forward as 100. This is

Sales to Ram 143 posted to his account as 134. This is

Sales to Meena 143 posted to Meenu as 143. This is

Goods of the value of 376 were returned by Ram and were taken into stock on the same date but no entry was made in the books. T

A credit sale wrongly passed through the purchases book. This is

Repairs of newly purchased second-hand machinery debited to Repairs Expenses Account. This is

Repairs to Machinery had been charged to Machinery A/c. This is

Cartage paid for newly purchased machinery, posted to Cartage Account. This is

Goods taken away by the Proprietor for personal use not recorded anywhere. This is

Which of the following errors will affect the trial balance.

If a purchase return of 84 has been wrongly posted to the debit of the sales return account, but had been correctly entered in the su
of the trial balance would show

A purchase of 1,870 by cheque has been wrongly posted in the cash book as 1,780. This has the effect of

After preparing the trial balance the accountant finds that the total of the credit side is short by ₹1,500. This difference will be

_________Is basically responsible for prevention and detection of errors and frauds.

Which of the Following is not true about opinion on financial statements ?

Which of the following statements is not true ?

As per SA 240, if auditor detects an error then

Which of the following is not a limitation of audit as per SA 240 ?

The risk of fraud increases when

Which of the following factors likely to be identified as a fraud factor by the auditor?

Which of the following statements is not correct about materiality?

State which of the following statements is false

In "auditing" financial accounting data, the primary concern

The most common way for users to obtain reliable information is to

The objective of an audit of the Financial statements is an expression of an opinion on

Auditors accumulate evidence to

The responsibility for the preparation of the financial statements belongs to

The auditor's best defence when material frauds are not discovered is to have conducted the audit

Which of the following statements is the most correct regarding errors and fraud ?

Window-dressing is most likely to be committed by whom ?

An auditor discovers that the company's b0ok-keeper unintentionally made a mistake calculating the amount of the quarterly sales

If it is probable that the judgement of a reasonable person will be changed or influenced by the omission or misstatement of inform
information is

Preparation of the financial statements

Detect material error

Comply with laws and regulations

Determine the known and likely errors or misstatements

Which of the following best defines fraud in a financial statement auditing context ?

Companies may intentionally understate earnings when income is high to create that _______ may be used in future years to increase

______ is fraud that involves theft of an entity's assets.

Which of the following is least likely to uncover fraud?

________is a systematic examination of the books and records or a business.

Audit means _________

A financial audit is intended to give

The Primary objective of a financial audit is to

Which of the following are not objectives of auditing

Providing more or less depreciation on assets is an example of

Secret reserve can be created by

Audit of banks is an example of-

Balance sheet audit includes verification of-

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

Balance sheet audit does not include

Audit under statute means:

The auditor should plan his work to enable him to conduct an effective audit in ________ manner.
Audit Plans should be based on knowledge of the client's _________

An Audit Programme may be ________

_________ Papers is the link between the client's records and the auditor's report.

Working Papers are the property of the ___________.

Which of the following SA deals with Audit Planning?

Audit programme is prepared by __________.

Audit Working Papers record-

Current Audit File relating to audit of a partnership firm will not contain

Which of the following is not an advantage of the preparation of working paper ?

An auditor cannot have any lien on the books of accounts of the company audited by him

Current file and permanent file are together known as

Which of the following forms of evidence is most reliable?

Calculating the gross profit as a percent of sales and comparing it with previous periods is what type of audit method?

When auditors use documents to support recorded transactions, the process is often called

An example of an external document is

An example of a document originating from and held by the entity being audited, is a(n)

Physical examination" is the inspection or count by the auditor of items such as

Audit programme is prepared

Which of the following is not an advantage of the preparation of working paper?

Which of the following statements is false?

The audit working papers contain

‘Audit Sampling' enables the auditor to _________ audit evidence about some characteristic of the items selected

When designing an audit sample, the auditor should consider -

The risk that, although the sample result does not support the auditor's assessment of control risk, the actual compliance rate woul
assessment, is known as

The risk that, although the sample result supports the auditor's assessment of control risk, the actual compliance rate would not su
is known as

The risk that, although me sample result supports me conclusion that a recorded account balance or class of transactions is materia
not materially mis-stated is known as

The risk that, although the sample result supports the conclusion that a recorded account balance or class of transaction is not mate
is materially misstated is known as

In substantive procedures, the tolerable error is the

In tests of control, the tolerable error is the

This method of selecting sample ensures that all items in the population have an equal chance of selection.

This method of sample selection involves selecting items using a constant interval between selections, the first interval having a ran

Letter of Weakness deals with weaknesses in

The following is suitable for test checking.

SA which deals with Audit Sampling

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the

Obtain an understanding of internal controls

Internal control does NOT aim to achieve

Internal auditors are appointed by

If a company has an effective internal audit department

ABC Ltd. maintains a large internal audit staff that reports directly to the accounting department. Audit reports prepared by the inte
that the system is functioning as it should and that the accounting records are reliable. An independent auditor will probably

Responsibilities of internal auditors include all the following except

External auditors would consider internal auditors effective if they are

Auditing Standards ________ use of internal audit reports by the statutory auditor.

Closing stock with consignee is to be shown as the asset of

Stock of Goods on Consignment should be valued at

If the market value of the security is less than the outstanding amount of loan taken,

A mortgage duly registered under the Transfer of Property Act is known as

involves depositing the title deeds of the property with the lender as security.

Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock Holding Corporation of India Limited (SHCIL). The auditor may

While reconciling a client's annual physical inventory with book stock, an auditor observed that for certain items the stock in hand
shown in the books. This could be the result of the client's failure to record -

Goods Received Notes support entries in

Which of the following assets cannot be subjected to physical verification

The overall objective in the audit of creditors is to determine whether balance of creditors

Which of the following is most reliable for verifying the correct balance of creditors ?

The auditor is performing substantive tests of balances for creditors. What documentation would provide the best evidence for the

Which of the following documents is best for verifying the correct balance in creditors ?

When auditors examine supplier's statements or receive confirmations, there must be a reconciliation of the statement or confirma

The auditor needs to check that the no item is omitted in the machinery account. For this purpose, auditor should examine

In order to check additions to fixed assets, auditor should

If the stock book show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded

There must be a periodic physical count by the client of the inventory items on hand

From which ofthe following audit procedures would an auditor obtain most assurance concerning the existence of inventories?

Checking cut-off transactions helps to find out whether goods included in the physical count at the year end were not recorded as a

In order to verify that inventory valuation is proper auditor will

In valuing inventory, the auditor must consider all but which of the following factors?

Which of the following is not an objective of the auditor's verification of loans payable ?

New bank loans will be taken under the authority of

 SUB: AUDITING
CLASS: TYBBI
SEM: FIVE

OPTION A OPTION B OPTION C

Relevant statutory requirements Accounting standards issued Guidance Notes issued by the Institute of
by the Institute of Chartered Chartered Accountants of India
Accountants of India

Whether the financial statements are prepared Whether the financial Whether the financial statements are
in accordance with the system of double- entry statements are prepared in prepared in accordance with an
book-keeping accordance with accounting identified financial reporting
policies laid down by the framework
Are true and correct management
Give a true and fair view Are correct and fair

A cash flow statement Statements and explanatory Statement by chairman

notes which form part
thereof

Sale of ₹500 was written in the purchase Wages paid to Mohan have The total of the sales journal has not
journal been debited to his account been posted to the Sales Account

600 received from Ganpat has been debited to Purchase of ₹2,000 has Repairs to building have been debited to
his account been entered in the sales Building Account
journal

Correct totalling of the Balance Sheet Correct totalling of the Trial The Trial Balance to agree
Balance

Repairs to buildings have been debited to The total of purchases Freight paid on new machinery has been
buildings journal is ₹2,000 short debited to the Freight Account

Wrong balancing of an account Writing an amount in the Wrong totalling of an account

wrong account but on the
correct side

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Commission Error of Principle

Error of Commission Error of Omission None of the above

Error of Omission Error of Commission Error of Principle

Error of Omission Error of Principle Error of Commission

Error of Omission Error of Principle Error of Commission

Repairs to building wrongly debited to Building Total of purchase Journal is Freight paid on purchase of new
A/c short by ₹1000 machinery debited to freight account

the credit side to be 84 more than debit side. the debit side to be 84 more the credit side to be R 168 more than
than credit side debit side.

Increasing the bank balance by ₹90 Decreasing the bank balance Increasing the bank balance by ₹180
by ₹ 90

Credited to suspense account Debited to suspense account Adjusted to any of the debit balance a/c

Auditor Accountant Management

The auditor should express an opinion on His opinion is no guarantee He is responsible for detection and
financial statements to future viability of business prevention of frauds and errors in
financial statements

Management fraud is more difficult to detect Internal control system The management is basically responsible
than employee fraud prevents employee fraud for detection and prevention of errors
and management fraud and frauds

He should submit his resignation He should communicate it to The auditor should ensure financial
the shareholders statements are adjusted for detected
errors

An auditor cannot rely upon experts Auditor cannot check all Audit evidence is not conclusive
transactions

the working capital is high the cash sales are high the auditors remain the same
The company is planning an initial public Bank reconciliation Lawyers are not changed frequently
offer of shares to raise additional capital for statement includes cheques
expansion deposited but not credited

Materiality provides a quantitative cut-off point Materiality is a matter of SA 320 deals with materiality
professional judgement

The detection of errors and frauds is no longer An audit does not guarantee The auditor is not primarily responsible
an audit objective that the accounts are free for all the frauds in the accounts audited
from frauds and errors by him

determining whether recorded information determining if fraud has determining if taxable income has been
properly reflects the economic events that occurred calculated correctly
occurred during the accounting period

have an independent audit have an internal audit verify the information with management

the fairness of the financial statements in all the accuracy of the financial the accuracy of the directors report
materials respects statements

defend themselves in the event of a lawsuit determine if the financial satisfy the requirements of the
statements are correct Companies Act

both management and the auditor equally management for the figures the auditor
in the financial statements
and the auditor for the notes
to the accounts
in accordance with generally accepted as per the audit programme in a timely manner
auditing standards

An error is unintentional, whereas fraud is Frauds occur more often than Errors are always frauds and frauds are
intentional errors in financial statements always errors

Line employees of the company Outside members of the Company management

company's board of directors

Employee fraud An error Misappropriation of assets

Material Insignificant Significant

Auditor is responsible Management is responsible Both are responsible

Auditor is responsible Management is responsible Both are responsible

Auditor is responsible Management is responsible Both are responsible

Auditor is responsible Management is responsible Neither are responsible

Fraud is an unintentional misstatement of the Fraud is an intentional Fraud is either an intentional or
financial statements misstatement of the unintentional misstatement of the
financial statements financial statements, depending on
materiality
Statutory reserves Secret reserves Cash

Manipulation of records Misappropriation of assets secret reserve

External auditors Internal auditors Internal controls

AUDITING Vouching Verification

recording business transactions preparing the final accounts examination of books, accounts,
vouchers etc.

Absolute Assurance Qualified Assurance Positive Assurance

Examine the accounts and records Scrutinise financial Point out overstatements and
statements understatements of account balances

Ascertain the profit and preparation of P/L Detection and prevention of Give a true and fair view of financial
Account, Balance sheet. frauds and errors. amount.

Misappropriation of cash Misappropriation of goods Misappropriation of accounts

Public limited company only Banking companies only Private limited company only

Statutory audit Balance sheet audit Concurrent audit

Assets Liabilities Income and expense accounts where

appropriate

It is conducted at regular interval It may be carried out on daily It is needed when the organization has
basis a good internal control system

Verification of assets and liabilities Vouching of income and Examination of adjusting and closing
expense accounts related to entries
assets and liabilities

An audit ordered by the Government An audit where duties, An audit ordered by the Courts
rights etc. of the s auditor
are laid down by law

A professional A proper A confident

Profits Net worth Business

Statutory Permanent Fixed or Flexible

News Working Loose

Client Client and the auditor Auditor

Client Client and the auditor Auditor

The client and the auditor The client The chief accountant

The audit plan The audit procedures The conclusions drawn from the evidence
performed obtained

Audit Programme Audit Plan Partnership Deed

To provide a basis for review of audit work To provide a basis for To ensure audit work is being carried out
subsequent audits as per programme

As laid down in section 128 of the Companies As laid down by the rules of As laid down in SA 230
Act, 2013 the Inst. of C.A of India

Audit Plan Audit Programme Audit working papers

General ledger account balances Confirmation of accounts Internal memo from Sales manager
receivable balance explaining why credit note is to be issued
received from a customer

Inspection Observation Analytical procedures

Inquiry confirmation Inspection

employees" time reports bank statements purchase order for company purchases

confirmation sales invoice vendor invoice

cash, inventory, and payroll cash, inventory, and sales cash, inventory, and intangible fixed
documents assets
to help the auditor and his staff about the to help the accountant to to help the company to submit its
work to be done while auditing prepare the balance sheet accounts

To provide a basis for review of audit work. To provide a basis for To ensure audit work is being carried out
subsequent audits. as per Program me.

Documentary evidence is more reliable than Evidence, of which the Independent evidence obtained from
oral evidence. auditor has direct personal external sources is more reliable than
knowledge, is the most internal evidence.
reliable evidence
the details of the audit procedures undertaken conclusions drawn and the the record of the reasoning on all
implications for the audit significant matters where the members of
opinion the

Ignore Obtain and evaluate Manipulate

The specific audit objectives The population from which The sample size
the auditor wishes to sample

Risk of Under Reliance Risk of Incorrect Acceptance Risk of Over Reliance

Risk of Incorrect Rejection Risk of Under Reliance Risk of Incorrect Acceptance

Risk of Over Reliance Risk of Incorrect Rejection Risk of Incorrect Acceptance

Risk of Under Reliance Risk of Over Reliance Risk of Incorrect Acceptance

Maximum rate of deviation from a prescribed Minimum monetary error in Minimum rate of deviation from a
account balance that the auditor would be an account balance that the prescribed account balance that the
willing to accept auditor would be willing to auditor would be willing to accept
accept
Maximum rate of deviation from a prescribed Minimum rate of deviation Maximum rate of deviation from a
control procedure that the auditor would be from a prescribed control prescribed control procedure that the
willing to ignore procedure that the auditor auditor would be willing to accept
would be willing to accept
Random Selection Systematic Selection Haphazard selection

Random Selection Systematic Selection None of above

Statutory audit Internal controls Financial Position

Opening and closing entries Bank Reconciliation Transactions on which auditor must
Statements report under the Companies Act

530 400 610

Chief Accountant Company management Financial statement auditor

Auditor is responsible Management is responsible Both are responsible

Reliability of financial reporting Efficiency and effectiveness Compliance with laws and regulations
of operations

Board of Directors in a Board meeting Shareholders in annual The management

general meeting

the internal auditors can express an opinion on their work cannot be used by it can reduce external audit costs by
the fairness of the financial statements the external auditors providing direct assistance to the
external auditors

not perform any audit procedures evaluate in depth only avoid duplicating the work performed by
administrative controls the internal audit staff

reviewing the reliability and integrity of ensuring compliance with the verifying accounting information for
information company's accounting external users
policies

independent of the operating units being competent and well trained have performed relevant audit tests of
evaluated the internal controls and financial
statements

Discourage Prohibit Require

The consignor The consignee None of the above

Invoice price Cost or market price Price at which goods were sent to the
whichever is lower consignee

Difference should be shown as loans and Difference should be shown Difference should be shown as
advances as current liability unsecured loan

Equitable mortgage Legal mortgage Pledge

Equitable mortgage Legal mortgage Hypothecation

Reviewing last year 's working papers. Obtaining a certificate from a Obtaining a certificate from SHCIL
responsible official of the
ABC Ltd.

Purchase returns Sales returns Goods with consignor

Sales book and sales return book Purchase book and sales Cash book and purchase book
return book
Debtors Land Building

is fairly stated and properly disclosed is overstated is understated

Supplier's invoices Supplier's statements Confirmations

Supplier's invoices Goods Received Notes Supplier's statements

Bills of lading Supplier's invoices Confirmations

Creditors list Supplier's invoices Purchase orders

Depreciation expense Repairs and maintenance Profit/ Loss on sales

expense

examine supplier's invoices take physical inventory of the obtain confirmations from suppliers
fixed assets

Sales Sales discounts Purchases

only if the client uses the LIFO method only if the client uses a lower- regardless of the client's inventory
of-cost-or-market method valuation method

Observation of physical inventory counts Written inventory certificate Confirmation of in ven tories with third
from management parties

sale in the subsequent period sale in the current period purchase return in the subsequent period

check the stock register check the supplier invoice obtain confirmation of inventory held by
for prices outside parties

The valuation method must be in accordance The valuation method must The inventory must be valued at the
with the Accounting Standards be applied on a consistent lower of cost or market
basis

To determine whether internal controls are To determine whether To determine whether transactions
adequate loans are obtained at the regarding the principal and interest are
cheapest rate of interest properly authorised

Purchasing department Accounts payable Board of Directors

department
 OPTION D
ANSWER

All the above

D

Whether the financial statements are prepared in

accordance with the provisions of the Income-tax Act C

Are reliable
B

Supplementary schedules and information based on such

statements C

None of these
C

None of these
B

None of these
D

None of these
B

None of these
B

None of the above

A

None of the above

B

None of the above

B

None of the above

B
None of the above
B

None of the above

A

None of the above

B

Error of Principle
D

None of the above

C

None of the above

B

None of the above

A

None of the above

B

the debit side to be R 168 more than credit side.

D

Decreasing the bank balance by ₹180

A

Adjusted to any of the credit balance alc

A

Cashier
C

He should examine whether recognised accounting

principles have been consistently Followed C

All statements are correct

B

None of the above

C

Auditor cannot discover all frauds

A

Management is in the hands of a single person

D
There is under-payment for services
A

Auditor should consider materiality when drafting

the audit report D

The detection of errors and frauds is the primary

audit objective D

analysing the financial information to help management

to earn more profits A

verify all information individually

A

the accuracy of the income-tax returns

A

reach a conclusion about the fairness of the financial

statements D

Management
D

on the assumption that the management is honest

A

Auditors have more responsibility for finding fraud than

errors A

The company's auditors

C

A defalcation
B

Relevant
A

Neither are responsible

B

Neither are responsible

A

Neither are responsible

B

Both are responsible

A
Fraud is either an intentional or unintentional
misstatement of the financial statements,depending on B
consistency

Sales
B

Income smoothing
B

Management
A

Checking
A

preparing final accounts

C

Reasonable assurance
D

Express an opinion on the financial statements

D

To submit the accounts to Government of India.

D

None of the above

D

Co-operative societies
B

All of the above

D

All of the above

D

It is expensive
C

Routine checks
D

An audit under legal contract

B

An efficient and timely

D
Reputation
C

Standard
C

Ruled
B

None of the above

C

None of the above

C

The auditor and his assistants

D

All the above

D

Letters of confirmation
C

To provide a guide for advising another client on

similar issues D

Since the books cannot be removed from the

registered office of the company D

Audit procedures
C

Copy of month-end Journal entries

B

Inquiry
C

Observation
C

carbon copies of cheques

B

bank reconciliation
D

cash, inventory, and tangible fixed assets

D
to help the shareholders to file the returns
A

To provide a guide for advising another client on similar

issues A

Visual evidence (verification) is highly reliable for

confirming the ownership of the assets and their D
value.

All of the above

D

None of the above

B

All the above

D

Risk of Incorrect Rejection

A

Risk of Over Reliance

D

Risk of Under Reliance

B

Risk of Incorrect Rejection

C

Maximum monetary error in an account balance that

the auditor would be willing to accept D

Minimum rate of deviation from a prescribed control

procedure that the auditor would willing to ignore C

None of above
A

Haphazard selection
B

None of the above

B

Payments made by a bank, during audit of a bank

D

None of the above

A
Company's internal audit department
B

Neither are responsible

A

Zero business risk

D

The central government

C

the internal auditors must be CAs in order for the

external auditors to rely on their work C

place limited reliance on the work performed by the

internal audit staff D

ensuring compliance with applicable government

regulations C

All of the above

D

Permit
D

Both the above

A

None of the above

B

None of the above

C

Hypothecation
B

Pledge
A

Obtaining a certificate from XY Ltd.

C

Purchase discounts
B

Sales book and purchase return book

B
Machinery
A

is accurately stated
A

Bills of lading
C

Purchase orders
C

Supplier's statements
D

Goods Received Notes

A

Cash
B

match the supplier's invoices with the payments to

suppliers A

Purchase discounts
C

only if the client uses either the LIFO or FIFO method

C

Auditor's recomputation of inventory computation

sheets A

purchase in the current period

B

conduct physical examination of the inventory

B

LIFO must be used for work-in-process inventory

D

To determine whether the liability for loans and related

interest expense and accrued liabilities are properly B
stated

Accounting department
C