MCQ ON AUDITING

1.      How many types of opinion could an Auditor express in respect of a set of audited financial statements?

A.      10 possible opinions B. 6 possible opinions C. 5 possible opinions D. 4 possible opinions

2.      Auditing was derived from the Latin word A. Audit. B. Audire. C. Auditory. D. Auditor.

3.      The following may disqualify an auditor from being re-appointed, EXCEPT

A.      If he is not qualified for re-appointment. B. If he has done his work perfectly well. C. If the shareholders agree to appoint another auditor. D. If he informs his clients by writing of his unwillingness to be re-appointed

4.      The removal of an auditor before the expiration of his/her term requires a special resolution and a notice of A. 14 days. B. 21 days. C. 28 days. D. 30 days.

5.      Which of these is NOT true about the removal of an auditor?

A.      Notice of intention to remove auditor must be sent to the auditor B. CAC must be notified within 14 days of removal of company’s auditor C. The auditor has the right to send representations to members who receive notice of AGM D. The auditor can only be removed when he/she has completed his/her tenure

6.      The scope and nature of an auditor’s contractual obligation to a client is set out in the

A.      Management letter. B. Scope paragraph of the auditor’s report. C. Engagement letter. D. Circularization letter

7.      An auditor, who is expected to practice the profession, should be A. A body corporate. B. An officer of the company. C. A member of a recognized professional accountancy body. D. A servant of the company.

8.      Which of the following is NOT part of auditors’ duties during stocktaking?  A. Carrying out test count and recording his sample for subsequent check against sheets. B. Carrying out cut-off tests. C. Taking note of special items like damaged stocks, obsolete stocks and slow-moving items. D. Obtaining photocopies of sheets or extract items from rough stock sheets for comparison with the final stock records.

9.      What should an auditor do when he/she discovers a material misstatement? He/She should A. Disregard the material misstatement. B. Correct the error before he writes the final audit report. C Issue a qualified report. D. Communicate the misstatement to the appropriate level of management on timely basis and consider the need to report it to those charged with governance.

10.   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

11.   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 recognized accounting principle have been consistently

12.   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
d) All of the above.

13.   .__________ is a systematic examination of the books and records or a business A. Auditing. B Vouching. C Verification. D Checking

14.   Which of the following are not objectives of auditing? A  Ascertain the profit and preparation of P/L Account, Balance sheet. B Detection and prevention of frauds and errors. C Give a true and fair view of financial amount. D To submits the accounts to Government

15.   Audit done by the employees of the business undertaking is called _______ .A final audit. B. management audit .C government audit. D government audit

16.  Voucher relates to _________ .A cash receipt B cash payment C credit transactions. D all the above

17.  A kind of audit conducted for a part of the accounting year is called _______ .A Periodical audit. B Partial audit. C Cost audit D Interim audit.

18.  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.

19.  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 recognized accounting principle have been consistently

20.  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

21.  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

22.  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

23.  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

24.  Balance sheet audit includes verification of_ a) Assets b) Liabilities c) Income and expense accounts where appropriate d) All of the above

25.  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

26.  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

27.  Audit programme is prepared by a) the auditor b) the client c) the audit assistants d) the auditor and his audit assistants

28.  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

29.  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

30.  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

31.  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

32.  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

33.  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

34.  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

35.  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)

36.  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

37.  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)

38.  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

39.  The auditor has a right toa) 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

40.  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)

41.  An auditor should study and evaluate internal controls toa) determine whether assets are safeguarded b) Suggest improvements in internal control c) Plan audit procedures d) express and opinion

42.  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

43.  __________ is a systematic examination of the books and records or a business. A. Auditing. B. Vouching. C. Verification. D. Checking

44.  Which of the following are not objectives of auditing? A. Ascertain the profit and preparation of P/L Account, Balance sheet. B. Detection and prevention of frauds and errors. C. Give a true and fair view of financial amount. D. To submits the accounts to Government  ANSWER: D

45.   Which of the following is not a kind of audit? A. Statutory and private audit. B. Government and continuous audit. C. Continuous, final, Interim, Cash, Cost and Management audit. D. None of these. ANSWER: D

46.   An audit which is compulsory by the law __________. A. Government audit. B. Internal audit. C. Cost audit. D. Statutory audit. ANSWER: D

47.   Instruction of audit issued by controller and auditor general of India ________. A. statutory audit. B. final audit. C. management audit. D. government audit. ANSWER: D

48.  Audit done by the employees of the business undertaking is called _______. A. final audit. B. management audit. C. government audit. D. government audit. ANSWER: B

49.   This kind of audit is conducted generally between two annual audit ______. A. internal audit. B. interim audit. C. final audit. D. continuous audit. ANSWER: B

50.   Management audit otherwise called as _______. A. final audit. B. efficiency audit. C. cost audit. D. cash audit. ANSWER: B

51.   A number of checks and controls exercised in a business to ensure its efficient working is known as ________. A. Internal check. B. Internal control. C. Internal audit. D. Interim check. ANSWER: B

52.   Voucher relates to _________. A. cash receipt. B. cash payment. C. credit transactions. D. all the above. ANSWER: D

53.   Internal check is meant for ___________. A. prevention of frauds. B. detection of frauds. C. helping audit is depth. D. detection of errors. ANSWER: A

54.  Internal auditor is appointed by ________. A. the management. B. the shareholders C. the government. D. he statutory body. ANSWER: A

55.  Auditing begins where ______ ends. A. Selling. B. inventory valuation. C. Accounting. D. Purchases. ANSWER: C

56.   A kind of audit conducted for a part of the accounting year is called _______. A. Periodical audit. B. Partial audit. C. Cost audit. D. Interim audit. ANSWER: A

57.   For which of the following, Audit is optional? A. Trusts. B. Joint stock companies. C. Proprietorship concern. D. None of the above. ANSWER: C

58.   The audit that is made compulsory under statute is called _________. A. Statutory audit. B. Partial audit. C. Complete audit. D. Continuous audit. ANSWER: A

59.  The receipt of goods must be entered in _________. A. goods inward book. B. goods outward book C. receipt of Stores. D. receipt issue and balance of stores ANSWER: A

60.  A good audit report must at least meet one of the following qualifications __________. A. it should offer constructive and timely suggestions to the management. B. it should not point out mistakes. C. it should not be based on factual information. D. it should not be based on balance sheet. ANSWER: A

61.  The work of one clerk is automatically check by another clerk is called _________. A. Internal control. B. Internal check. C. Internal audit. D. None of the above. ANSWER: B

62.  Verification is __________. A. the art of recording the business transaction. B. an examination of the books of accounts. C. the act of establishing the accuracy of entries in the books of accounts. D. none of the above. ANSWER: C

63.  The main objectives of investigation are _________. A. to discover errors and frauds. B. to prevent errors and frauds. C. to verify statements. D. all the above. ANSWER: D

64.  Internal controls and internal check are ____________. A. one and the same. B. different. C. internal control includes internal check. D. None of the above. ANSWER: C

65.  The liabilities of an auditor can be _________. A. Civil. B. Criminal. C. Civil and Criminal. D. Official. ANSWER: C

66.  The first auditors appointed hold office ____________. A. for a period of one year. B. for a period of two years. C. for a period of three years. D. till the conclusion of the first annual general meeting. ANSWER: D

67.  The company’s auditor is expected to give _____________. A. his expert opinion about the accounts. B. a factual position about the accounts. C. a critical review of the accounts. D. financial assistance. ANSWER: A

68.   Internal auditor of a company must be _______________. A. Cost accountant. B. Chartered accountant. C. ICWA. D. need not possess any professional qualification. ANSWER: B

69.   Auditors of a joint stock company are appointed by ______________. A. directors of the company. B. annual general meeting. C. election at the annual general meeting. D. debenture holders. ANSWER: C

70.  A company auditor can be removed by _________________. A. board of directors. B. managing director. C. any director. D. general meeting. ANSWER: D

71.   A vacancy caused by resignation of an auditor is filled by _________. A. board of directors. B. managing director. C. general meeting. D. central government. ANSWER: C

72.  Management audit is ___________. A. an independent appraisal of the total a management process. B. a statutory requirement. C. an investigation into the conduct of director. D. an independent appraisal of competitiveness of business. ANSWER: A

73.   Management audit is ordered by the ___________. A. workers of a company. B. government. C. board of directors. D. SEBI. ANSWER: C

74.   The remuneration of an auditor of partnership firm is fixed by _____. A. The Partnership Act. B. The Companies Act. C. The Government. D. None of these. ANSWER: D

75.   As far as a company is concerned, which one of the following pairs is not correctly matched? A. Internal audit - Obligatory. B. Statutory audit - Mandatory. C. Continuous Audit - Optional. D. Management - Voluntary. ANSWER: A

76.  Interim audit refers to an audit conducted ___________. A. in between the two different accounting years. B. in between two statutory annual audits within the same accounting period. C. in between one statutory audit and an internal audit in the same accounting period. D. in between one statutory audit, one management audit and one internal audit. ANSWER: B

77.   Audit techniques are concerned with _____________. A. examination of those evidences which have been traced by audit procedures. B. application of generally accepted accounting principles to particular phases or a financial statement. C. accuracy and validity of management authorization to the account section employees. D. methods of conducting a business affair and reporting in annual report. ANSWER: A

78.   The main purpose of an independent audit is to ___________. A. check and correct frauds and errors. B. help in detecting frauds and errors. C. determines if the financial statements fairly represent the actual financial position and the working results of the organization. D. help in formulating future plans. ANSWER: C

79.  Management refers to ______________. A. examination of books and audit of accounts done by the management. B. The periodic assessment of company’s activities by the statutory auditor. C. periodic assessment of company managerial planning, organizing, actuating and controlling compared to norm of successful operation. D. auditor assessment of the financial statement of the entity ANSWER: C

80.  The most important objective of internal audit is ____________. A. early detection of errors and fraud. B. facilitating final audit. C. early finalization of annual account. D. ensuring systematic accounting. ANSWER: A

81.  Test Checking reduces the _________. A. power of an auditor. B. expenses of auditor. C. work of an auditor. D. liability of an auditor. ANSWER: C

82.  An employee cannot be an auditor of the company because __________. A. he cannot find his own mistakes. B. a person cannot audit his own account. C. he may give bias and subjective views. D. it is prohibited by company law. ANSWER: C

83.  Except in special cases the retiring auditor is automatically _________. A. re-appointed. B. dismissed. C. disqualified. D. suspended. ANSWER: D

84.  An auditor can be held liable under CA act 1949 for _________. A. breach of control. B. negligence. C. criminal officer. D. professional misconduct. ANSWER: A

85.  __________ Audit is a comprehensive critical review of all aspects or processes of management. A. Company. B. Management. C. Conventional. D. Computerized. ANSWER: D

86.  Audit at the end of the year is known as ___________. A. specific audit. B. general audit C. government audit. D. periodical audit. ANSWER: B

87.  Accountancy work is done throughout the accounting period although auditing work is done ____________. A. after the end of accounting period. B. in the middle of accounting period. C. from the second month of accounting period. D. after the end of one month. ANSWER: A

88.   A special auditor has to submit his report to the __________. A. management B. state government. C. central government. D. none of these. ANSWER: D

89.   Balance sheet audit is useful where _____. A. the concern is a small one. B. the internal check is weak. C. the concern is a big one. D. the concern is banned. ANSWER: A

90.   Auditing means where ____ ends. A. accounting. B. inventory valuation. C. business. D. selling. ANSWER: A

91.   A voucher is a document _________. A. it support of an entry made in the books of accounts. B. it is an extra-ordinary meeting C. when all other directors are out of station. D. one person can never constitute the quorum. ANSWER: A

92.  Financial statements are the representations of A. the auditor B. the board of directors C. the AICPA D. management ANSWER D

93.  The definition of auditing states that the auditor  A. objectively obtains evidence B. is independent C. must evaluate internal control D. All of the above ANSWER D

94.  . If an auditor is not independent, he should issue a  A. disclaimer B. unqualified report with explanatory paragraph C. qualified report D. representation letter ANSWER A

95.  The concept of materiality is recognized in the auditor's report  A. in the introductory paragraph

 B. in an explanatory paragraph C. in the scope paragraph  D. materiality is not recognized in the auditor's report ANSWER C

96.   Audit documentation is the property of  A. the client  B. the auditor  C. both the client and the auditor  D. the audit committee ANSWER B

97.  The objective of the audit plan is A. to conduct the audit in accordance with GAAS  B. reduce the risk of material misstatements to an acceptably low level C. prepare an unqualified report D. Both A & B ANSWER D

98.  The following are categories of audit report except A. Adverse B. Qualified C. Unqualified D. none of the above. ANSWER D

99.  A limitation in scope arises when A. a material misstatement is disclosed B. an auditor lack independence C. A client imposes a restriction on the auditor D.  A & C ANSWER D

100.                      Which of the following is correct concerning an auditor’s responsibilities regarding financial statements (A) Making suggestions that are adopted about the form and contents of an entity’s financial statement (B) An auditor may draft an entity’s financial statements based on information from the management accounting system (C) The fair presentation of audited financial statements in conformity with regulation is an implicit part of auditor’s responsibilities. (D) An auditor’s responsibilities for audited financial statement is contained in his letter of engagement (E) The auditor must include in the audited financial statements details of his letter of engagement. ANSWER B

101.                      Which of the following resolutions does not require special notice if put before the members of a company in general meeting? A resolution to: (A) Appoint the first auditors (B) Appoint the new auditors in place of retiring auditors (C) Fill a casual vacancy (D) Remove auditors before expiry of their term of office (E) Appoint a Company Secretary ANSWER A

102.                      In expressing an opinion on the accounts of clients, the auditor does not accept responsibility for which of the following? 25 (A) The consistency of the application of accounting policies (B) The reliability of opening balances (C) The appropriateness of the comparative figures included in the accounts (D) The preparation of financial statements (E) Compliance with legal requirements. ANSWER B

103.                      Which of these departments is NOT normally found in an audit firm? (A) Taxation (B) Audit/Taxation (C) Production (D) Management consultancy (E) Insolvency ANSWER C

104.                      Which of the following professional services is NOT offered by a Chartered Accountant in addition to his service as auditor of a client? (A) Acting as a Reporting Accountant in an initial public offer (B) Keeping client’s accounting books (C) Attending to tax queries (D) Recommending remedial actions to audit committee (E) Participating in annual stock taking ANSWER D

105.                      Which of the following is NOT a specific audit problem in insurance companies?  A. The treatment of premium income 89 B. Unexpired risks C. The calculation of outstanding claims D. Outstanding directors’ remuneration E. Allocation of underwriting claims handling and investment expenses ANSWER D

106.                       Which of the following is NOT required as part of financial statements under Section 334 of CAMA? A. A Statement of Value Added B. Statement of Cash flow C. Statements of Accounting Policies D. Statement of Financial Position as at the end of the year E. The Chairman’s Report ANSWER E

107.                      The statement that shows how the benefits of an effort of an enterprise are shared between employees, providers of capital and the amount of re-investment is known as A. Statement of Cash flow B. Statement of Value Added C. Financial Statement D. Statement of Comprehensive Income E. Auditor’s Report ANSWER B

108.                      Which of the following letters confirms the acceptance and understanding of the audit assignment? A. Comfort Letter B. Letter of Consent C. Engagement Letter D. Management Letter E. Letter of Representation ANSWER C

109.                      Statements which show how the basic procedure contained in the standard is to be applied is described as A. Accounting Standard B Professional Pronouncements C Guidelines D Auditing Standards E International Financial Reporting Standards ANSWER C

110.                      Which of the following is NOT an objective of auditing standard and guidelines?  A. To minimize engagement risk. B. To ensure quality control of an audit. C. To enhance the initiative of the auditor. D. To ensure uniformity in carrying out audit assignment. E. To increase auditors image in the eyes of the users of the financial statements. ANSWER C

111.                       The fundamental principles of professional conduct are as follows EXCEPT A. A member should behave with integrity in all professional and business relationships. B. A member should strive for objectivity in all professional and business judgement. C. A member should not accept or perform work which he or she is not competent to undertake. D. A member should carry out his or her professional work with due skill, care, diligence and expedition. E. A member should always obtain the advice and guideline of senior members in all professional engagement. ANSWER E

112.                      Which of the following is a safeguard created by the profession against threats to independence, objectivity and integrity? A. Continuing professional education requirement B. A corporate governance structure C. Peer pressures towards integrity and objectivity D. Partners high regard for their careers and reputation 99 E. Emphasis on integrity and objectivity as hallmark qualities ANSWER A

113.                      According to the professional code of conduct for members of ICAN, a member who discovers information which adversely affects accounts or statement that he is currently preparing or auditing should A. Stop work on it immediately B. Report to police C. Qualify his report on the accounts D. Report to the tax office E. Resign his appointment as auditors and refund all fees already received for the exercise ANSWER C

 Which of the sanctions listed below is NOT imposed by The Institute of Chartered Accountants of Nigeria for misconduct of its members A. Reprimand B. Payment of costs C. Closure of practising office of the members D. Suspension from membership E. Removal of name from membership register ANSWER C

COMPILED BY MONDAY DESMOND