100+Important Auditing, Accounting, Finance
Solved (MCQS) For Senior Auditor Test
1. 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
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
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 AAS11? 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
12. Which of the following Auditing Assurance Standard deals with Audit Planning? a) AAS7 b) AAS8 c) AAS9 d) AAS3
13. Audit programme is prepared by a) the auditor b) the client c) the audit assistants d) the auditor and his audit assistants
14. 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
15. 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
16. 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
17. 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
18. 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
19. 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.
20. 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
21.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
22.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.
23.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
24 .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.
25.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.
26.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
27.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
28.Which of the following features is most important for randombased 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
29.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)
30.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)
31.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
32. 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.
33. 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
34. Depreciation does not arise form _______ a) effluxion of time b) use c) obsolescence through technology be market changes d) remarket expectation
35. 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
36. 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
37. 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
38. A company has bought patents. Which of the following methods is most suitable for providing depreciation on them? a) SLM b) WDV c) Sumof year digits d) Any of the above
39. Which of the following is a revenue reserve? a) Capital redemption reserve b) Security premium account c) Debenture redemption reserve d) Capital reserve
40. 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
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
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 includea) 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
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
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 specific account balance
17.For all audits of financial statements made in accordance with AAS14, 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
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 nonfinancial
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
a) To help to corroborate the conclusions drawn from individual components of financial
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
23. 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
24. Which of the following statements is, generally, correct about the reliability of audit
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.
25. 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
26. The nature, timing and extent of substantive procedures is related to assessed level of
a) randomly b) disproportionately c) directly d) inversely
27. Which of the following factors is most important in determining the appropriations of audit
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
28. 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
c) When it is objective and relevant
d) When auditor collects and evaluates it independently
29. 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
30. Which of the following statements is not true with respect to management representations
obtained as per AAS11?
a) Authenticated copy of relevant minutes of meetings may be regarded as management
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
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 AAS2 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
c) The auditor’s responsibility for detection and prevention of errors and frauds is similar. d) All statements are correct.
7. As per AAS4 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 AAS4?
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
a) Auditing uses the theory of evidence to verify the financial information made available by
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.
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
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
b) Bank reconciliation statement includes depositsintransit.
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 AAS4, 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 yearend
c) Vouch goods sent on approval very carefully
d) Perform analytical procedures.
17.Which of the following is not likely to be a fraud risk factor relating to management’s
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
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
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 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
d) All of the above
- ——– are the third persons/parties, who owe money from the business.
2. At times, we receive discounts from our creditors. This discount is either treated as income of the business or as a reduction in the cost of
3. When an expense or other payable is accrued it is
4. ———— is made when it is known that an expense will arise but the exact amount is not known.
5. Accounting Treatment of Provision
Relevant Expense Account (Dr) Provisions (Cr)
cash (Dr) Provisions (Cr)
Account payable (Dr) Provisions (Cr)
Provisions (Dr) Relevant Expense Account (Cr)
6. Debtors is also called
none of them
7. Receivables are the ———-
long term assets
all of above
8. When a debtor does not pay the amount due to him, it is said
9. Recording of Bad Debts
Bad Debts (Dr) Debtors a/c (Cr)
Drawings (Dr) Debtors a/c (Cr)
Bad Debts (Dr) Drawings (Dr)
Debtors a/c(Dr) Bad Debts (Cr)
10. Debtors 100,000 Provision for Bad Debts 5,000 so the net receivable income is
none of them
11. Provision for bad debts is also ——— deboters
12. Debtors are 15000 and the provision is 37% calculate net Debtors
13. which one of them is current asset
14. Sales Ledger Control Account is also called
Debtors Control Account
Creditors Control Account
15. In General Ledger one account is kept for all the ——– Creditors Control Account.
Debtors Control Account,
Creditors Control Account.
16. List of debtors balances drawn up to the end of previous period is ——–
Opening balance of debtors
Opening balance of account payable
Closing Balance of debtors
none of these
17. Opening balance of recorded on the ———- side of Debtors Control Accounts
18. Credit Sales ———- the debtors balance
no effect on
19. Sales Return means
customer returned the goods
Supplier returned the goods
Store returned the goods
all of these
20. Cheques/Cash Received from the customer —— the debter balance
A & C
21. Which is the simple formula of calculating closing balance of deboter
Opening balance + Credit Sales +(Sales Return + Cheques/Cash Received)=
Opening balance + Credit Sales – (Sales Return – Cheques/Cash Received)=
Opening balance – Credit Sales – (Sales Return + Cheques/Cash Received)=
Opening balance + Credit Sales – (Sales Return + Cheques/Cash Received)=
22. List of creditors balances drawn up to the end of previous period is ———— balance of creditor for this year
23. Cheques/Cash Paid — the creditor balance
24. The formula for calculating closing balance of creditor is
Opening balance + Credit Purchases – (Purchase Return- Cheques/Cash Paid)
Opening balance – Credit Purchases – (Purchase Return + Cheques/Cash Paid)
Opening balance + Credit Purchases + (Purchase Return + Cheques/Cash Paid)
Opening balance + Credit Purchases – (Purchase Return + Cheques/Cash)
25. calculate closing balance of debter Opening Balance 50000 cash received 70000 Opening balance 30000 sale returned 2000
26. Prepare a Creditors Control Account from the following data Opening Balance 40000 Purchase Return 6000 Cheques and Cash paid 34000 Discounts received 2000 Total Credit Purchases 32,000
27. A number of books are opened in connection with control accounts to reduce the volume of general ledger these books are called
A & C
28. Sale return is recorded on the —— of Debtors control Account
29. Discounts allowed is ——
30. In Debtors control Account the Debit Side is greater then—-
Debtors control Account
Cheques and Cash received
31. Debtor 45,000, amount received ——- closing balance is 19825
32. Individual purchases are recorded in ——
Purchase Journal / Purchase Day Book
Purchase Return / Return outward Journal
all of these
33. ——– ledger maintains record of individual creditors
Purchase Journal / Purchase Day Book
Purchase Return / Return outward Journal
none of these
34.Purchase Return is recorded on the ——- side of creditor control account.
35. Bad Debts are ——- expenses
36. When the Provision for Bad Debts increases Debtors
none of these
37. Individual invoice wise sales are recorded in this Journal. This book serves as source for all the recording of Credit sales.
Sales Return / Return Inward
Sales Journal / Sales Day Book
none of above
38. which one of them is current asset
all of the following
39. which one is current liability?
40. which one is long term liability?
loan from mr A
all of these
41. which one is liability?
UN earned income
none of these
42. Creditor account increase with
A & B`
43. Debtor account increase with
44. Creditor control account decreased when
Cheques / Cash paid
Cheques / Cash received
A & B
45. Debtors control account decreased with
Opening balance of debtors
Cheques / Cash Received
46. Discount allowed showed on the ——– of debtors control account
47. sales return is also called
return to supplier
none of these
48. —— this ledger maintains record of individual creditors.
Purchase Day Book
Return outward Journal
49. 2nd name of Purchase Return is
return to customer
50. —– this ledger maintains record of individual debtor.
Sales Day Book
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