Auditing MCQs Multiple Choice Questions and Answers | Auditing MCQs For B.Com, CA, CS and CMA Exams

auditing mcqs

AUDITING MCQS
MULTIPLE CHOICE QUESTIONS AND ANSWERS
FOR B.COM/CA/CS/CMA EXAM

In this page, you will get Auditing MCQs Multiple Choice Questions and Answers which are useful for B. Com and Various Professional Exams Like CA/CMA and CS.

We update this page frequently to add new questions. Chapter wise Auditing MCQs are also included in this post. 

Introduction to Auditing

The word audit is derived from the Latin word “AUDIRE” which means to hear. Initially auditor was a person appointed by the owners to check account whenever the suspected fraud, he was to hear explanation given by the person responsible for financial transactions. Emergence of joint stock companies changed the approach of auditing as ownership was pestered from management. The emphasis now is clearly on the verification of accounting date with a view on the reliability of accounting statement.

Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify and report upon the facts regarding its financial operation and the result thereof.

auditing mcqs

Auditing MCQs (Multiple Choice Questions and Answers)

Choose the Correct Alternative

1. 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.

Ans: c) Examination of accounts of professional accountants.

2. Main object of auditing is                 

a) Detection of errors.

b) To find out whether P&L a/c & B/S show true and fair state affairs.

c) Detection of frauds.

d) Detection and prevention of frauds and errors.

Ans: b) To find out whether P&L a/c & B/S show true and fair state affairs.

3. Auditing is luxury for a                       2013

a) Joint stock company.

b) Partnership firm.

c) Small shop-keeper.

d) Government company.

Ans: c) Small shop-keeper.

4. Auditing is compulsory for                 2015

a) Small scale business enterprises.

b) All partnership firms.

c) All joint stock companies.

d) All proprietary concerns.

Ans: c) All joint stock companies.

5. Propriety audit refers to

a) Verification of accounts.

b) Examination accounts of propriety concerns.

c) Enquiry against justification and necessity of expresses.

d) Audit of Govt. companies.

Ans: c) Enquiry against justification and necessity of expresses.

6. Propriety is normally undertaken in case of

a) Joint stock company.

b) Government company.

c) Statutory corporation .

d) Govt. departments.

Ans: d) Govt. departments.

7. Interim audit refers to             2015, 2018

a) Examination of accounts continuously.

b) Examination of accounts intermittently.

c) Audit work to find out and check interim profits of a company.

d) Carrying on audit for bonus purposes at the end of the year.

Ans: c) Audit work to find out and check interim profits of a company.

8. Final audit implies

a) Audit of accounts at the end of the year.

b) Finally checking of accounts to reveal frauds.

c) Audit for submitting report immediately at the end of the year.

d) Audit of banking companies.

Ans: a) Audit of accounts at the end of the year.

9. A continuous audit is specially needed for              2014

a)  Any trading concern.

b) Smaller concerns.

c) Banking companies.

d) Any manufacturing companies.

Ans: c) Banking companies.

10. Joint audit implies

a) Audit of two concerns together.

b) Audit of joint stock companies.

c)  Audit of joint sector companies.

d) Audit by two firms of C.A.

Ans: d) Audit by two firms of C.A.

11. Management audit means

a) Audit undertaken on behalf of the management.

b) Evaluating performance of various management processes and functions.

c) Audit undertaken on behalf of Govt. to punish management.

d) Compulsory audit.

Ans: b) Evaluating performance of various management processes and functions.

12. Systems audit implies

a) Systematic examination of accounts.

b) Audit undertaken to improve auditing systems.

c) Enquiring accounting and control systems.

d) Checking the performance of management.

Ans: c) Enquiring accounting and control systems.

13. Internal audit means

a) Audit undertaken to ascertain truth and fairness of state of affairs.

b) Audit undertaken internally to evaluate management functions.

c) Audit undertaken by employees of the organization to check financial irregularities.

d) Audit by independent auditor to improve internal affairs.

Ans: c) Audit undertaken by employees of the organization to check financial irregularities.

14. Internal audit is

a) Compulsory for a company with paid-up capital of Rs. 25 lakh and above.

b) Voluntary for a company.

c) Not necessary for a company.

d) Necessary for a company.

Ans: b) Voluntary for a company.

15. Detection of errors and fraud in audit is                    

a) Primary object.

b) Secondary object.

c) Specific object.

d) None of the above.

Ans: b) Secondary object.

16. Internal auditor is appointed and removed by the                          

a) Management.

b) Shareholders.

c) Government.

d) C & A-G.

Ans: a) Management.

17. The object of internal check is to                

a) Control wastage of resources.

b) Prevent errors and frauds.

c) Verify the cash receipts and payments.

d) Facilitate quick decision by the management.

Ans: b) Prevent errors and frauds.

18. Effective internal check system reduces

a) The liability of auditor.

b) Work of auditor.

c) Both work as well as auditor.

d) Responsibilities of an auditor.

Ans: b) Work of auditor.

19. Internal check is a part of                     

a) Internal audit.

b) Internal accounting.

c) External audit.

d) Internal control.

Ans: d) Internal control.

20. The objective of internal audit is

a) To prevent error and fraud.

b) To detect error and fraud.

c) To improve financial control.

d) All of the above.

Ans: d) All of the above.

Also Read: Chapterwise Auditing MCQs

👉 Introduction to Auditing MCQS

👉 Types of Auditing MCQS

21. Internal check is carried on by

a) Special staff.

b) Internal auditor.

c) Accountant.

d) The members of the staff among themselves.

Ans: d) The members of the staff among themselves.

22. Internal check is suitable for

a) Larger concerns.

b) Smaller concerns.

c) Petty shop- keepers.

d) None of the above.

Ans: a) Larger concerns.

23. Internal check is essential for

a) Petty traders.

b) Cash transactions in a large concern.

c) A concern using automatic equipment.

d) None of the above.

Ans: b) Cash transactions in a large concern.

24. Misappropriation of goods may be checked by

a) Proper supervision over stock.

b) Checking of employees.

c) Punishment of employees.

d) None of the above.

Ans: a) Proper supervision over stock.

25. Window dressing implies

a) Curtailment of expenses.

b) Checking wastages.

c) Under- valuation of assets.

d) Over- valuation of assets.

Ans: d) Over- valuation of assets.

26. Falsification of accounts is undertaken by

a) Auditors.

b) Clerks.

c) Accountants.

d) Responsible officials.

Ans: d) Responsible officials.

27. Errors of omission are                    

a) Technical errors.

b) Error of principle.

c) Compensating errors.

d) None of the above.

Ans: a) Technical errors.

[Hint: There are mainly two types of errors - errors of principles and and clerical errors which is also known as technical errors. Technical errors are of three types - errors of omission, errors of comission and compensating errors]

28. Test checking refers to

a) Testing of accounting records.

b) Testing of honesty of employees.

c) Intensive checking of a selected number of transactions.

d) Checking of all transactions recorded.

Ans: c) Intensive checking of a selected number of transactions.

29. Test checking should not be applied to

a) Sales book.

b) Purchase book.

c) Bank reconciliation statement.

d) Bills book.

Ans: c) Bank reconciliation statement.

30. Test checking should not be applied to

a) Purchase book.

b) Sales book.

c) Stock book.

d) Cash book.

Ans: d) Cash book.

31. Vouching implies

a) Inspection of receipts.

b) Examination of vouchers to check authenticity of records.

c) Surprise checking of accounting records.

d) Examining the various assets.

Ans: b) Examination of vouchers to check authenticity of records.

32. A person qualified for appointment as a Company Auditor is

a) a graduate.

b) a body corporate.

c) officer or employee of company.

d) None of them.

Ans: d) None of them.

33. Contingent liability is

a) Trade liability.

b) Possible liability.

c) Outstanding liability.

d) None of the above.

Ans: d) None of the above.

[Hint: Contingent liability are not shown in balance sheet. It is shown as a footnote.]

34. Undervaluation of stock is

a) Technical error.

b) Compensatory error.

c) Error of principles.

d) None of the above.

Ans: c) Error of principles.

35. Huge Investment in advertisement shown in financial statements as

a) Revenue expenses.

b) Capital expenses.

c) Deferred revenue expenses.

d) None of the above.

Ans: c) Deferred revenue expenses.

36. Provisions regarding redemption of preference shares are in Companies Act, 2013 under

a) Section 180.

b) Section 56.

c) Section 55.

d) None of the above.                  Sec. 90 of the Companies Act, 2013

Ans: d) None of the above.         Sec. 90 of the Companies Act, 2013

37. Verification refers to

a) Examination of journal and ledger.

b) Examination of vouchers related to assets.

c) Examining the physical existence and valuation of assets.

d) Calculation of value of assets.

Ans: c) Examining the physical existence and valuation of assets.

38. Object of verification of assets

a) Physical verification of assets.

b) Checking value of assets.

c) Examining the authority of their acquisition.

d) All of the above.

Ans: d) All of the above.

39. Which of the following statements is correct?

a) Valuation is a part of verification.

b) Verification is a part of valuation.

c) Valuation has nothing to do with verification.

d) Auditor is a valuer.

Ans: a) Valuation is a part of verification.

40. Stock should be valued at                              

a) Cost.

b) Market price.

c) Cost price or market price whichever is lower.

d) Cost less depreciation.

Ans: c) Cost price or market price whichever is lower.

41. Valuation of Fixed Assets is based on the concept

a) Going concern.

b) Conservation.

c) Money measurement.

d) Dual aspect.

Ans: a) Going concern.

42. Valuation means

a) Calculating value of assets.

b) Checking the value of assets.

c) Checking the physical existence of assets.

d) Examining the authenticity of assets.

Ans: b) Checking the value of assets.

43. “Auditor is not valuer” was stated in

a) Kingston Cotton Mills case.

b) London & General Bank case.

c) Lee. V. Neuchatel Co. Ltd case.

d) London oil Storage Co. case.

Ans: a) Kingston Cotton Mills case.

44. Fixed assets are valued at

a) Cost.

b) Market price.

c) Cost price or market price whichever is less.

d) Cost less depreciation.

Ans: d) Cost less depreciation.

45. Floating assets are valued at

a) Cost.

b) Market price.

c) Cost price or market price whichever is less.

d) Cost less depreciation.

Ans: c) Cost price or market price whichever is less.

46. The scope of work of internal audit is decided by the             2013, 2016

a) Share holders.

b) Management.

c) To improve financial control.

d) All of the above.

Ans: b) Management.

47. Outstanding expenses should be verified with the help of

a) Cash book.

b) Balance book.

c) Journal proper.

d) None of the above.

Ans: c) Journal proper.

48. Book debts should be verified with the help of

a) Balance sheet.

b) Amount received from Debtors.

c) Debtors schedule.

d) Certificate from the management.

Ans: c) Debtors schedule.

49. Investments in hand should be verified with the help of

a) Schedule of investments.

b) Balance sheet.

c) Inspection of securities.

d) Certificate from the bank.

Ans: c) Inspection of securities.

50. First auditor of a company is appointed by the

a) Shareholders.

b) Central Govt.

c) Company Law Board.

d) Board of Directors.

Ans: d) Board of Directors.

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

a) An employee of the company.

b) A body corporate.

c) A person who is indebted to the company for an amount exceeding Rs. 1000.

d) A practicing chartered accountant.

Ans: d) A practicing chartered accountant.

52. The first auditor of a company will hold office

a) For a period of one year.

b) Till holding of statutory meeting.

c) Till the conclusion of first annual general meeting.

d) Till a new auditor is appointed.

Ans: c) Till the conclusion of first annual general meeting.

53. Normally, a company auditor is appointed by the

a) Central Government.

b) Shareholders.

c) Board of Directors.

d) Company Law board.

Ans: b) Shareholders.

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

a) Board of Directors.

b) Shareholders.

c) Central Government.

d) Company Law board.

Ans: a) Board of Directors.

55. If an auditor is not appointed at annual general meeting, he is appointed by the

a) The Central Government.

b) Board of Directors.

c) Shareholders.

d) The existing auditor shall continue to be auditor of the company.

Ans: d) The existing auditor shall continue to be auditor of the company.

56. A vacancy caused by resignation of the auditor is filled by

a) Board of Directors.

b) At the general meeting of shareholders.

c) By the Central Government.

d) By the Company Law board.

Ans: b) At the general meeting of shareholders.

57. A special auditor is appointed by the

a) Shareholders.

b) Board of Directors.

c) Central Government.

d) CAG.

Ans: c) Central Government.

58. A government Co. auditor may be appointed by the

a) CAG.

b) Shareholders.

c) Central Government.

d) None of the above.

Ans: a) CAG.

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

a) Shareholders.

b) Board of Directors.

c) Central Government.

d) State Government.

Ans: a) Shareholders.

60. Remuneration of a company auditor is fixed by the              

a) Shareholders.

b) Board of Directors.

c) Central Government.

d) Appointing authority.

Ans: d) Appointing authority.

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

a) Shareholders.

b) Board of Directors.

c) Central Government.

d) CAG.

Ans: a) Shareholders.

62. An auditor of Government company has to submit his report to the

a) Shareholders.

b) Central Government.

c) CAG.

d) Ministry concerned.

Ans: b) Central Government.

63. Internal auditor has to submit report to

a) Shareholders.

b) Government.

c) Company Law board.

d) None of the above.

Ans: d) None of the above.

64. Auditor should be dutiful like a

a) A watch dog.

b) A blood hound.

c) A detective.

d) An insurer.

Ans: a) A watch dog.

65. 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.

Ans: c) Agent of the shareholders.

Also Read: Chapterwise Auditing MCQs

👉 Introduction to Auditing MCQS

👉 Types of Auditing MCQS

66. Which of the following percentage of nominal amount of shares should be received with application

a) 10.                           

b) 15.

c) 5.

d) 6.

Ans: c) 5.

67. While checking allotment, auditor should see that amount

a) Equal to estimated fixed capital is received.

b) Equal to estimated working capital is received.

c) Necessary for purchase of land & building has been received.

d) None of the above.

Ans: d) None of the above.

68. Application money should not be withdrawn unless

a) Allotment is made.

b) Cash book has been prepared.

c) Certificate to commence business obtained.

d) Certificate of incorporation obtained.

Ans: c) Certificate to commence business obtained.

69. Shares issued for consideration other than cash should be vouched with the help of

a) Directors minutes book.

b) Shareholders minutes book.

c) Contract with the party concerned.

d) Cash book.

Ans: c) Contract with the party concerned.

70. A company can issue Redeemable Preference shares, if authorized by              2015

a) Memorandum of association.

b) Articles of association.

c) Companies Act, 1956.

d) None of the above.

Ans: b) Articles of association.

71. Auditor should see that amount received for premium on issue of shares should be shown in

a) Subscribed capital.

b) Capital Reserve Account.

c) Securities Premium Reserve account.

d) Paid- up capital account.

Ans: c) Securities Premium Reserve account.

72. Securities Premium Reserve account should be shown in the Balance sheet under

a) Paid-up capital.

b) Subscribed capital.

c) Reserves & surplus.

d) Reserved capital.

Ans: c) Reserves & surplus.

73. Amount of share premium may be utilized for

a) Payment of dividend.

b) Writing of preliminary expenses.

c) Routine expenses.

d) Purchase of fixed assets.

Ans: b) Writing of preliminary expenses.

74. Shares cannot be issued at discount under section

a) 76.

b) 75.

c) 53.

d) 89.

Ans: c) 53.

75. Interest on calls paid in advance, according to Table A, should not exceed                  

a) 12%.

b) 5%.

c) 10%.

d) 14%.

Ans: a) 12%.

[Hint: Interest on calls in arrear is @ 10% p.a.]

76. Shares can be issued at premium, under section

a) 76.                            

b) 75.

c) 52.

d) 79.

Ans: c) 52.

77. Shares can be issued at discount only after

a) 2 years of the commencement of the business.

b) 1 year of the commencement of the business.

c) 3 years of the commencement of the business.

d) 5 years of the commencement of the business.

Ans: b) 1 year of the commencement of the business.

78. With regard to issue of share warrants to the bearers, the auditor should see that is it

a) Permitted by Memorandum of Association.

b) Sanctioned by the Central Government.

c) Permitted by the Board of Directors.

d) None of the above.

Ans: b) Sanctioned by the Central Government.

79. For the forfeiture of shares, the auditor should check that it is permitted

a) by Memorandum of Association.

b) by articles of association.

c)  under Companies Act, 1956.

d) None of the above.

Ans: b) by articles of association.

80. Increase in share capital is permitted by

a) Memorandum of Association.

b) Articles of association.

c) Court.

d) Companies Act, 2013.

Ans: b) Articles of association.

81. Divisible profit should not include

a) Interest on capital.

b) Capital.

c) Depreciation.

d) None of the above.

Ans: d) None of the above.

82. Dividend cannot be paid out of

a) Capital profit.

b) Capital receipts.

c) Revenue receipts.

d) None of the above.

Ans: b) Capital receipts.

83. Capital profit imply profit earned

a) Through business transaction.

b) From capital.

c) From sale of fixed assets.

d) From sale of current assets.

Ans: c) From sale of fixed assets.

84. Capital profits

a) Can be paid by way of dividends.

b) Cannot paid by way of dividends.

c) Can be paid by way of dividend under certain conditions.

d) None of the above.

Ans: c) Can be paid by way of dividend under certain conditions.

85. A company auditor should see that the dividend should be paid

a) After charging depreciation.

b) Without charging depreciation.

c) Out of capital.

d) None of the above.

Ans: a) After charging depreciation.

86. In his report, the auditor gives his

a) Judgment.

b) Opinion.

c) Guarantee to correctness of accounts.

d) True state of affairs.

Ans: b) Opinion.

87. Civil liability of an auditor implies liability for

a) Misappropriation of cash.

b) Misappropriation of goods.

c) Fraud.

d) Misfeasance.

Ans: d) Misfeasance.

88. An auditor can be held liable under The Chartered Accountant Act 1949 for

a) Negligence.

b) Criminal offence.

c) Professional misconduct.

d) Breach of contract.

Ans: c) Professional misconduct.

89. Investigation of books of accounts and records is :

a) Not legally compulsory.

b) Compulsory.

c) Compulsory as per companies act.

d) Compulsory as Income Tax Act.

Ans: a) Not legally compulsory.

90. Inflation of closing stock results is:

a) Inflation of loss.

b) Deflation of loss.

c) Inflation of profit.

d) Deflation of profit.

Ans: c) Inflation of profit.

91. Charging excessive provision for depreciation results in

a) Less profit.

b) More profit.

c) No change in profit.

d) No change in loss.

Ans: a) Less profit.

92. The main purpose of management audit is to

a) Review the management operations.

b) Check arithmetical accuracy.

c) Prevent travel.

d) Prevent error.

Ans: a) Review the management operations.

93. Management audit is

a) Compulsory.

b) Not compulsory.

c) Compulsory under Income Tax Act.

d) Compulsory under Indian Contract Act.

Ans: b) Not compulsory.

94. Special resolution means:

a) 1/3 majority.

b) 2/3 majority.

c) 1/2 majority.

d) 4/5 Majority.

Ans: b) 2/3 majority.

95. Ordinary resolution means:

a) 4/5.

b) 1/3 majority.

c) 2/3 majority.

d) More than 1/2.

Ans: d) More than 1/2.

96. Institute of chartered Accounts of India was established in the year                       

a) April 1, 1956.

b) April 1, 1949.

c) July 1, 1956.

d) July 1, 1949.

Ans: d) July 1, 1949.

97. Auditor is an ________ of a shareholder

a) Owner.

b) Agent.

c) Employer.

d) Creditor.

Ans: b) Agent.

98. Financial auditor submits reports to the:

a) Shareholder.

b) Board of director.

c) Debtors.

d) Employees.

Ans: a) Shareholder.

99. Cost auditor submits reports to the:

a) Shareholder.

b) Board of directors.

c) Employees.

d) Creditors.

Ans: b) Board of directors.

100. Auditor finds that there is change in the method of valuation of stock whether he should

a) Allow it.

b) Disallow it.

c) Allow it with a note to this effect.

d) None of the above.

Ans: c) Allow it with a note to this effect.

101. Audit under any statute in a country is called:

a) Final audit.

b) Internal audit.

c) Proprietary Audit.

d) Statutory audit.

Ans: d) Statutory audit.

102. Books of Accounts are prepared and audited as per the provisions of the:

a) Income Tax Act, 1961.

b) Companies Act 2013.

c) Chartered Accountants Act 1949.

Ans: b) Companies Act 2013.

103. CAATTS is also known as:

a) Cost and Accounts Treatments.

b) Computer Assisted Audit Tools and Techniques.

c) Classification and Accounting of Tax Tools.

Ans: b) Computer Assisted Audit Tools and Techniques.

104. Auditor has got no lien on:

a) Audit Note Nook.

b) Audit working papers.

c) Books to Accounts of Client.

Ans: c) Books to Accounts of Client.

105. Statutory Report should be sent to registrar before ------------------- days of statutory meeting

a) 30 days.

b) 14 days.

c) 21 days.

Ans: c) 21 days.

106. ________ audit is not a statuary requirement

a) Management.

b) Financial.

c) Tax Audit.

Ans: a) Management.

 107. ____________ audit refers to the evaluation of company’s performance against planned goals in the areas of social responsibility.

a) Cost audit.

b) Social audit.

c) Management audit.

Ans: b) Social audit.

108. Bonus shares are issued to:

a) New members.

b) Existing share holders.

c) Employees.

Ans: b) Existing share holders.

109. Government may order for cost audit under the

a) Section 227.

b) Section 223A.

c) Section 223B (Old).         Section 148 of Companies Act, 2013

d) Section 224.

Ans: c) Section 223B (Old).         Section 148 of Companies Act, 2013

110. A company can issue bonus shares if authorized by

a) Memorandum of Association.

b) Articles of Association.

c) Companies Act 2013.

Ans: b) Articles of Association.

111. Accounting standards are prepared by

a) SEBI.

b) RBI.

c) ICAI.

d) ITA.

Ans: c) ICAI.

112. The maximum rate of discount on shares shall not exceed________________

a) 20%.

b) 15%.

c) 10%.

Ans: c) 10%.

113. Which among the following is not a function of the auditor:

a) Checking errors and frauds.

b) Correcting errors and frauds.

c) Vouching with original documents.

d) Preparing final Accounts.

Ans: d) Preparing final Accounts.

114. Internal audit is conducted

a) Periodically.

b) Throughout the year.

c) Once in a year.

Ans: b) Throughout the year.

115. The amount of application money received shall be deposited in a scheduled bank until________

a) Annual general meeting.

b) General meeting.

c) Certificate to commencement obtained.

Ans: c) Certificate to commencement obtained.

116. The auditors are liable under

a) Companies Act Only.

b) Income Tax Act Only.

c) All above.

Ans: c) All above.

117. The maximum number of audit assignment  an auditor can accept is limited to ________ companies

a) 10.

b) 15.

c) 20.

Ans: c) 20.

118. _____________ is a  written plan containing details with regard to the conduct of  a particular audit

a) Audit Note book.

b) Audit Programme.

c) Audit files.

Ans: b) Audit Programme.

119. ____________ is the verification of books of accounts from Income tax point of view

a) Cost audit.

b) Tax audit.

c) Management audit.

Ans: b) Tax audit.

120. Which among the following is not a right  of company auditors

a) Right to access the book accounts.

b) Right to seek explanations.

c) Right to lies on books of accounts.

Ans: c) Right to lies on books of accounts.

121. Test checking is done when there is an effective system of _________

a) Internal control.

b) Internal audit.

c) Internal check.

Ans: c) Internal check.

122. Test checking means

a) Checking of all transactions.

b) Checking of half of the transactions.

c) Checking of selected items.

Ans: c) Checking of selected items.

123. Audit working papers are:

a) Important  information about audit.

b) Appointment letters regarding audit.

c) Letter of notice.

Ans: a) Important information about audit.

124. Current audit file consists of

a) Matters of future importance.

b) Matters relations to post years.

c) Matters relating to the year of audit.

Ans: c) Matters relating to the year of audit.

125. ____________ begins where accounting ends

a) Bookkeeping.

b) Auditing.

c) Internal check.

Ans: b) Auditing.

126. ________audit is compulsory for joint stock companies

a) Statutory.

b) Final.

c) Continuous.

Ans: a) Statutory.

127. Treating revenue expenditure as capital expenditure is an example of  error of:

a) Principle.

b) Compensating.

c) Clerical.

Ans: a) Principle.

128. Financial statements are prepared  by:

a) The accountant.

b) The auditor.

c) Managing director.

Ans: a) The accountant.

129. Preliminary expanses not written off are treated as

a) Fixed assets.

b) Intangible assets.

c) Fictitious assets.

Ans: c) Fictitious assets.

130. Verification of assets involves a critical examination of

a) Ownership.

b) Existence.

c) All of these.

Ans: c) All of these.

131. Finished goods are valued for a balance sheet purpose

a) At cost price.

b) At market price.

c) At lower of cost or market price.

Ans: c) At lower of cost or market price.

132. ________________ includes financial and non-financial control

a) Internal check.

b) Internal control.

c) Internal audit.

Ans: b) Internal control.

133. ____________ is concerned with the allocation of work among employees

a) Internal control.

b) Internal check.

c) Internal audit.

Ans: b) Internal check.

134. The duties of internal auditor is prescribed by

a) Companies act.

b) Company law board.

c) Management.

Ans: c) Management.

135. Internal audit is considered as a service to:

a) Share holders.

b) Board of directories.

c) Management.

Ans: c) Management.

136. Pre-arranging and coordinating the audit work is called:

a) Audit planning.

b) Vouching.

c) Verification.

Ans: a) Audit planning.

137. A fixed audit programme is also called a ________ programme

a) Tailor made.

b) Man made.

c) Auditor made.

Ans: a) Tailor made.

138. To forfeit shares  ______________ days notice to the share holder’s given

a) 40.

b) 14.

c) 24.

Ans: b) 14.

139. A ___________ report is one which contains the opinion of the auditor subject to certain conditions

a) Unqualified.

b) Qualified.

c) Clean.

Ans: b) Qualified.

140. _____________ is made out of reserves or share premium

a) Preference shares.

b) Bonus shares.

c) Debentures.

Ans: b) Bonus shares.

141. __________shares cannot be issued if the company makes any default in the payment of its obligation

a) Preference.

b) Equity.

c) Deferred.

d) Bonus.

Ans: d) Bonus.

142. Capitalization of reserves means:

a) Creation of provision.

b) Capital Reserve.

c) Declaration of dividend.

d) Issue of bonus shares.

Ans: d) Issue of bonus shares.

143. Provisions regarding bonus issue should be given in ______________ document

a) Memorandum of association.

b) Articles of association.

c) Prospectus.

d) None of the above.

Ans: b) Articles of association.

144. Balance remaining in the forfeited Account after reissue is transferred to ___________ account

a) General reserve.

b) Capital reserve.

c) Premium account.

Ans: b) Capital reserve.

145. If reissue of shares are more than face value of shares, the excess amount is transferred to :.

a) General reserve.

b) Capital reserve.

c) Securities Premium Reserve account.

Ans: c) Securities Premium Reserve account.

146. Errors and frauds already committed can be discovered under the system of

a) Internal audit, internal check, internal control

b) External check

c) Statutory audit

d) Interim audit

Ans: a) Internal audit, internal check, internal control

Types of Auditing MCQs
Auditing MCQs (Multiple Choice Questions and Answers)

146. When audit is conducted at regular intervals or irregular intervals throughout the year, it is called:

a) Statutory Audit.

b) Internal Audit.

c) Interim Audit.

d) Continuous Audit.

Ans: d) Continuous Audit.

147. Audit at the end of the year is known as:

a) Periodical audit.

b) Standard audit.

c) Efficiency audit.

d) Operational audit.

Ans: a) Periodical audit.

148. An audit, which is conducted between two annual audits is known as:

a) Periodical audit.

b) Standard audit.

c) Interim audit.

d) Operational audit.

Ans:

149. The audit which is not a statutory requirement, but is conducted at the desire of owners, is known as:

a) Private audit.

b) Balance sheet audit.

c) Operational Audit.

d) Efficiency audit.

[Private audit is conducted mainly by Sole traders, firms, BOI etc]

Ans: a) Private audit.

150. Audit of government offices and departments is known as:

a) Tax audit.

b) Periodical audit.

c) Government audit.

d) Efficiency audit.

Ans: c) Government audit.

151. Government audit is conducted by the department maintained by government of India is known as:

a) Cost and Audit Department.

b) Accounts and Audit Department.

c) Tax and Audit Department.

d) GST and Audit Department.

Ans: b) Accounts and Audit Department.

152. Accounts and audit department is headed by:

a) Ministry of finance.

b) Home Minister.

c) Comptroller and Auditor General of India.

d) Prime Minister.

Ans: c) Comptroller and Auditor General of India.

153. Audit of accounts by the staff of the business is known as:

a) Statutory Audit.

b) Internal Audit.

c) Interim Audit.

d) Continuous Audit.

Ans: b) Internal Audit.

154. Audit is Compulsory for:

a) Companies.

b) Trust and Co-operative societies.

c) Companies formed under Special Act of Parliament.

d) All of the above.

Ans: d) All of the above.

155. Statutory audit is also known as:

a) Compulsory audit.

b) Financial Audit.

c) Financial statements audit.

d) All of the above.

Ans: d) All of the above.

156. Continuous audit is suitable for organisations where:

a) Business is very large and large numbers of transactions are needed to be checked.

b) Audited statements are required immediately after the close of financial year.

c) Banks

d) All of the above.

Ans: d) All of the above.

157. Early detection of frauds and errors are possible in which type of audit?

a) Statutory Audit.

b) Internal Audit.

c) Interim Audit.

d) Continuous Audit.

Ans: d) Continuous Audit.

158. Management audit is also known as:

a) Efficiency audit.

b) Performance audit.

c) Propriety audit.

d) Standard audit.

Ans: a) Efficiency audit.

159. Management audit involves:

a) Examination of organisational structure.

b) Review the performance of each functions and department of the management.

c) To help various levels of management in the effective discharge of their duties.

d) All of the above.

Ans: d) All of the above.

160. Cost audit is compulsory for:

a) Companies Specified under Table A and B.

b) Companies engaged in production of goods and services (regulated sector) and annual turnover is more than Rs. 25 crores for a single product.

c) Companies engaged in production of goods and services (non regulated sector) and annual turnover is more than Rs. 35 crores for a single product.

d) Overall turnover of the companies from all its products and services should be equal to or more than 35 Crore in the immediately preceding financial year.

e) All of the above.

Ans: e) All of the above.

161. Cost audit is not applicable to:

a) Companies operating in SEZ.

b) Companies whose revenue from export is more than 75%.

c) Trading entities.

d) All of the above.

Ans: d) All of the above.

162. Audit conducted to know whether or not books of accounts are maintained as per the Companies Act’ 2013:

a) Performance audit.

b) Balance Sheet audit.

c) Secretarial audit.

d) Tax audit.

Ans: c) Secretarial audit.

163. Audit in depth is:

a) Sample Checking.

b) Complete checking.

Ans: a) Sample Checking.

164. Which audit is conducted to declare interim dividend?

a) Internal audit.

b) Interim audit.

c) Balance sheet audit.

d) Periodical audit.

Ans: b) Interim audit.

165. Audit conducted to check whether the various activities of the organisation are carried out efficiently is known as:

a) Internal audit.

b) Interim audit.

c) Balance sheet audit.

d) Performance audit.

Ans: d) Performance audit.

166. The word auditing is derived from the Latin word:

a) Autire.

b) Audire.

c) Aukire.

d) Aufire.

Hint: Audire means to “hear.”

Ans: b) Audire.

167. Double entry system was introduced in the year:

a) 1493.

b) 1494.

c) 1495.

d) 1496.

Ans: b) 1494.

168. Who is called father of modern accountancy who also described the duties and responsibilities of auditor?

a) FW Taylor.

b) Spicer and Pegler.

c) Luca Paciolo.

d) Batliboi.

Ans: c) Luca Paciolo.

169. Which Act prescribed the qualification for an auditor for the first time?

a) Companies Act, 2013.

b) Companies Act, 1956.

c) Companies Act, 1947.

d) Companies Act, 1913.

Ans: d) Companies Act, 1913.

170. The Chartered Accountants Act was passed in the year:

a) 1947.

b) 1948.

c) 1949.

d) 1950.

Ans: c) 1949.

171. 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.

Ans: c) Examination of accounts of professional accountants.

172. Auditing is compulsory for            

a) Small scale business enterprises.

b) All partnership firms.

c) All joint stock companies.

d) All proprietary concerns.

Ans: c) All joint stock companies.

173. Auditing is luxury for a                 

a) Joint stock company.

b) Partnership firm.

c) Small shop-keeper.

d) Government company.

Ans: c) Small shop-keeper.

174. Main object of auditing is                 

a) Detection of errors.

b) To find out whether P&L a/c & B/S show true and fair state affairs.

c) Detection of frauds.

d) Detection and prevention of frauds and errors.

Ans: b) To find out whether P&L a/c & B/S show true and fair state affairs.

175. Which one the following statement is true?

a) Audit is a systematic and Independent examination of books of accounts.

b) The audit should be conducted in unbiased manner.

c) Audit report is the final product of the whole audit work.

d) All of the above.

Ans: d) All of the above.

176. Auditor is mainly concerned with:

a) Critical examination of books of accounts.

b) Verification of accounts prepared by others.

c) Preparation of audit report.

d) All of the above.

Ans: d) All of the above.

177. Accounting is necessity where as auditing is a luxury but for whom?

a) Joint stock company.

b) Partnership firm.

c) Small shop-keeper.

d) Government company.

Ans: c) Small shop-keeper.

178. The main purpose of audit is to see whether:

a) The balance sheet shows true and fair view of statement of affairs of the business.

b) The profit and loss accounts show true and fair operating results.

c) All of the above.

d) None of the above.

Ans: c) All of the above.

179. Which one of the following are not the secondary objects of an audit?                 

a) Detection of errors.

b) To find out whether P&L a/c & B/S show true and fair state affairs.

c) Detection of frauds.

d) Detection and prevention of frauds and errors.

Ans: b) To find out whether P&L a/c & B/S show true and fair state affairs.

180. Which one of the following statement is true?

a) Audit of sole proprietorship is voluntary.

b) Audit of partnership firm is mandatory if turnover exceed Rs.1 Crore (business) or Rs. 50 lakhs (profession).

c) Audit of companies is compulsory.

d) All of the above.

Ans: d) All of the above.

181. An in depth examination to detect a suspected fraud is termed as:

a) Auditing.

b) Investigation.

c) Internal Check.

d) In depth analysis.

Ans: b) Investigation.

182. Audit conducted between two annual audits is knows as:

a) Efficiency audit.

b) Internal Audit.

c) Interim audit.

d) Special Audit.

Ans: c) Interim audit.

183. Which audit is conducted every month on a progressive manner?

a) Efficiency audit.

b) Internal Audit.

c) Interim audit.

d) Continuous audit.

Ans: d) Continuous audit.

184. When the auditor is an employee of the organization being audited (auditee), the audit is classified as a__ Quality audit.

a) Internal.

b) External.

c) C. Compliance.

d) D. Both A & B.

Ans: a) Internal.

185. The_____ is also expected to provide the resources needed and select staff members to accompany the auditors.

a) Auditor.

b) Client.

c) Internal auditor.

d) Auditee.

Ans: d) Auditee.

186. Each of the three parties involved in an audit______ plays a role that contributes to its success.

a) The client, the auditor, and the auditeer.

b) The client, the auditor, and the audite.

c) The client, the moderator, and the auditee.

d) The client, the auditor, and the auditee.

Ans: d) The client, the auditor, and the auditee.

MCQ on Audit Report
Auditing MCQs
MCQS for UGC NET, B.Com, M.Com

187. Audit committee is mandatory for:

a) All listed public companies.

b) For unlisted companies having paid up of Rs. 10 crores or more.

c) For unlisted companies having turnover or Rs. 100 crores or more or having outstanding long term payments exceeding Rs. 50 crores or more.

d) All of the above.

Ans: d) All of the above.

188. Audit committee shall constitute minimum __________ 3 directors where independent directors forming majority.

a) Three.

b) Four.

c) Five.

d) Six.

Ans: a) Three.

189. The meetings of Audit committee should be _____ in a year.

a) Three.

b) Four.

c) Five.

d) Six.

Ans: b) Four.

190. SA 700 stands for:

a) True and fair view of the company.

b) Forming an opinion and reporting on Financial Statement.

c) Qualified report.

d) Disclaimer of opinion.

Ans: b) Forming an opinion and reporting on Financial Statement.

191. Audit report is meant for the _________ of the company.

a) Shareholders.

b) Creditors.

c) Employees.

d) Bankers.

Ans: a) Shareholders.

192. Sec. 143 (12) of the Companies Act state that any ____ of the company has to be reported to central government.

a) Fraud by officers or employees.

b) Errors in books of account.

c) Incomplete books of accounts.

d) Qualified report.

Ans: a) Fraud by officers or employees.

193. Violation of section 143 (12) imply a fine of Rs. ___ lakh.

a) One.

b) Two.

c) Three.

d) Four.

Ans: a) One.

194. An audit report is the final product of audit work by:

a) Audit staff.

b) Auditor.

c) Management.

d) Internal auditor.

Ans: b) Auditor.

195. Caro 2016 is applicable to the:

a) Banking Companies.

b) Insurance Companies.

c) One person Companies.

d) None of the above.

Ans: d) None of the above.

196. CARO 2016 is applicable to the following private companies:

a) Not a holding or subsidiary of a public company.

b) Shareholder’s fund is less than 1 crore.

c) Revenue less than or equal to Rs. 10 crores.

d) Borrowing more than Rs. 1 crores in any time during financial year.

Ans: d) Borrowing more than Rs. 1 crores in any time during financial year.

197. The audit report should be signed in the personal name of the:

a) Audit staff.

b) Auditor.

c) Management.

d) Internal auditor.

Ans: b) Auditor.

198. A clean report is issued when, the auditor is satisfied with the:

a) Fairness of Balance Sheet and Profit and Loss account.

b) All the contents of the financial statements.

c) Evidences, documents and explanation given by his clients.

d) All of the above.

Ans: d) All of the above.

199.  Audit report with reservations is knows as:

a) Clean Report.

b) Qualified Report.

c) Adverse opinion.

d) Disclaimer of Opinion.

Ans: b) Qualified Report.

200. Disclaimer of opinion is made when auditor is:

a) Satisfied with the fairness of Balance Sheet and Profit and Loss account.

b) Not agree with affirmation made by the management in the books.

c) Unable to form overall opinion on Financial Statement.

d) All of the above.

Ans: c) Unable to form overall opinion on Financial Statement

201. Negative report is made when auditor is:

a) Satisfied with the fairness of Balance Sheet and Profit and Loss account.

b) Not agree with affirmation made by the management in the books.

c) Unable to form overall opinion on Financial Statement.

d) All of the above.

Ans: b) Not agree with affirmation made by the management in the books.

Auditing MCQs Asked in Mumbai University TYBCOM
 5th Semester Examination

True and False:

1.       An Audit notebook is a bound book in which a large variety of matters observed during the course of audit are recorded. True

2.       The concept of true and fair is a fundamental concept in auditing. True

3.       First auditor of the company is appointed by the Board of Directors within 45 days from the date of first AGM. False

4.       A Statutory Audit is an official investigation into alleged wrong doing. False

5.       Section 70 deals with the Audit of Debenture. False

6.       An Audit Committee should have 4 directors. False

7.       CARO-Companies (Auditor's Report) order, 2016 is applicable to Banking Companies. False

8.       Internal Check is part of Accounting Control. True

9.       The Branch Auditor shall prepare report on the Accounts of the Branch examined by him and send it to Audit Committee. False

10.   Maintenance of Cost Accounting Standards is mandatory as per Section 143 of Companies Act. False

11.   Routine checking is a substitute of vouching. False

12.   Casual vacancy in the office of Cost Auditor is filled by Board of Directors. True

13.   As per Section 138 of Companies Act 2013, no private company or unlisted company is required to appoint an internal auditor. False

14.   Audit Memorandum is a detailed plan of audit work clearly specifying the responsibilities of the audit staff and time allotted to perform the same. False

15.   Substantive procedure is also known as test of control. False

16.   Cut-off procedures are adopted to allocate revenues and costs to the proper accounting period. True

17.   Audit Programme is a part of Current Audit File. True

18.   Internal audit is conducted by the staff of the entity or by an independent professional appointed for that purpose. True

19.   The first auditor of a company is appointed by the shareholders of the company at the general meeting. False

20.   A company auditor can render actuarial services to his client. False

Auditing MCQs Asked in Mumbai University TYBCOM
 5th Semester Examination

Q. 1. (A) State whether the following statements are true or false: (any 8)             8

21. The primary objective of auditing is detection and prevention of errors and frauds.    False, Secondary objective

22. Auditing can be done by an employee of the company.     False, Qualified auditors

23. Continuous audit and internal audit are one and the same.      False

24. For declaring interim dividend, interim audit is compulsory.     True

25. Audit Planning is a continuous process.      True

26. Audit working papers are the property of the client.      False, Auditors

27. Test checking reduces the liability of the auditor.       True

28. Developing the internal control system is auditor’s responsibility.   False, Management

29. Vouching help to know the nature of transactions.        False

30. All errors and detected in test check.       False

Q. 1. (B) State whether the following statements are true or false (Any 7)            7

31. Audit Programme should be flexible.     True

32. Routine checking is a mechanical process.      True

33. All errors are detected in test check.       False

34. Vouching means examining the documentary evidence.     True

35. Auditing Means Examination Of Accounting Records.          False

36. The Primary objective of Auditing is Reporting on the Financial Statements.       True

37. Audit working papers are the property of the client.             False, Auditors

38. Audit Planning is a Continuous process.      True

39. Audit notebook is maintained by audit staff.         True

40. There is always sampling risk for the Auditor.        True

41. The term “Internal audit” and “Interim audit” convey the same meaning.      False

42. Periodical audit is an external audit undertaken by an independent auditor.  True

43. An internal auditor within the organisation undertakes interim audit.        True

44. Internal audit may be done by independent auditor.      True

45. Scope of duties and responsibilities of internal auditor is determined by the Companies Act’ 2013.   False, Management

46. Compulsory audit is conducted by a practicing chartered accountant.         True

47. Continuous audit is expensive and not suitable for small organisation.        True

48. Continuous audit is suitable for all types of institutions.      False, suitable for small organisations

49. Environmental audit is a process to review the effectiveness of environmental management.   True

50. A successful energy management programme begins with a thorough energy audit.       True

51. Auditing is a post-mortem examination of books of accounts.       True

52. Power of audit of government audit lies with comptroller and auditor general of India (CAG).     True

53. Auditor has right to disclose the client information to a third party.        False

54. CARO 2016 is not applicable for foreign companies.         False

55. An audit report is addressed to the authority appointing the Auditor.     True

56. The auditor gives a clean report when he doesn’t have any significant reservation in respect of matters contained in the Financial Statements.     True

57. A piecemeal opinion is issued when whole of the matters contained in the financial statement is true and fair. False, it is issued when complete information is not available.

58. A piecemeal opinion is issued when whole of the matters contained in the financial statement is true and fair.    True

Fill in the blanks:

1. The company can buy back its shares only if it is authorized by its Articles of Association.

2. The Constitution of India has envisaged the office of the Comptroller and Auditor General of India to be the Supreme Audit Institution in the country.

3. Which one of the following examples is not contingent asset? Claim from the acceptor of bill receivable which has been discounted by the client from the bank but might be dishonoured. 

4. The amount of securities premium reserve may be used only for some specific purposes as per provisions of the Companies Act, 2013 under the: Section 52(2)

5. Auditor under management audit is accountable to the: Board of Directors.

6. Profit on redemption of debenture is transferred to which Account? Capital Reserve Account.

7. Loss on issue of debentures is written off: During the life of debentures.

8. Auditing starts where Accounting ends.

9. Vouching is the backbone of auditing.

10. Issue of Bonus share is a good method of capitalizing large profits or reserves.

11. The subscribed capital of a banking company should not be less than one half of its authorized capital.

(B) Fill in the blanks: (any 7)               7

12. Audit has been derived from the Latin word Audire which means to Hear.

13. Window Dressing means showing the books of accounts more attractive.

14. Errors are unintentional mistake.

15. Internal audit is a part of Internal Control system.

16. Statutory auditor is responsible to shareholders.

17. First auditor is appointed by board of directors of the company.

18. Memorandum of Association is the part of permanent audit file.

19. Tolerable error is the maximum error in the population that the auditor would be willing to accept.

20. The auditor has to evaluate the internal controls system.

21. Internal check and audit is a part of internal control system.

22. Final audit is less expensive and suitable particularly for small-scale business concerns. (Final audit/Continuous audit)

23. Continuous audit is compulsory for a banking organisation. (Periodical audit/Continuous audit)

24. Internal audit facilitates the work of final audit. (Hampers/facilitates)

25. Internal audit ascertains the degree of compliance with predetermined policies, plans and procedures.  (Interim audit/Internal audit)

26. Balance sheet audit means verification of items appearing in the position statement. (Management/Balance sheet audit)

27. Periodical Audit is suitable for small business organisations. (Periodical audit/Continuous audit)

28. Auditing begins, where accountancy ends.

29. An auditor is a watch dog, not a blood hound.

30.  A sole trader goes for audit to know that his business is conducted efficiently.

31. Partners go for audit to know that their partnership is conducted efficiently.

***

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