Auditing Multiple Choice Questions and Answers

AUDITING – MULTIPLE CHOICE QUESTIONS AND ANSWERS

1. Auditing refers to                  2013, 2016 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 2. Main object of auditing is                  2014 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. 3. Auditing is luxury for a                       2013 a)       Joint stock company b)       Partnership firm c)        Small shop-keeper d)       Government company 4. Auditing is compulsory for                 2015 a)       Small scale business enterprises b)       All partnership firms e)       All joint stock companies c)        All proprietary concerns 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 6. Propriety is normally undertaken in case of a)       Joint stock company b)       Government company c)        Statutory corporation  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 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 9. A continuous audit is specially needed for                        2014 a)       Any trading concern b)       Smaller concerns c)        Banking companies d)       Any manufacturing 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 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 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 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 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 15. Detection of errors and fraud in audit is                         2016 a)       Primary object b)       Secondary object c)        Specific object d)       None of the above 16. Internal auditor is appointed and removed by the                          2014, 2015 a)       Management b)       Shareholders c)        Government d)       C & A-G 17. The object of internal check is to                     2015, 2018 a)       Control wastage of resources b)       Prevent errors and frauds c)        Verify the cash receipts and payments d)       Facilitate quick decision by the management 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 19. Internal check is a part of                                                2013, 2016 a)       Internal audit b)       Internal accounting c)        External audit 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 21. Internal check is carried on by a)       Special staff b)       Internal auditor c)        Accountant 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 23. Internal check is essential for a)       Petty traders b)       Cash transactions in a large concern c)        A concern using automatic equipments d)       None of the above 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 25. Window dressing implies a)       Curtailment of expenses b)       Checking wastages c)        Under- valuation of assets d)       Over- valuation of assets 26. Falsification of accounts is undertaken by a)       Auditors b)       Clerks c)        Accountants d)       Responsible officials 27. Errors of omission are                      2013, 2014, 2015 a)       Technical errors b)       Error of principle c)        Compensating errors d)       None of the above 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 29. Test checking should not be applied to a)       Sales book b)       Purchase book c)        Bank reconciliation statement d)       Bills book 30. Test checking should not be applied to a)       Purchase book b)       Sales book c)        Stock book 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 32. The company can buy back its shares only if it is authorized by its Articles of Association. 33. 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. 34. 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 35. Contingent liability is a)       Trade liability b)       Possible liability c)        Outstanding liability d)       None of the above 36. Undervaluation of stock is a)       Technical error b)       Compensatory error c)        Error of principles d)       None of the above 37. Huge Investment in advertisement shown in financial statements as a)       Revenue expenses b)       Capital expenses c)        Deferred revenue expenses d)       None of the above 38. 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 39. 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 40. 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 41. 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 42. Stock should be valued at                                2013, 2014, 2016 a)       Cost b)       Market price c)        Cost price or market price whichever is lower d)       Cost less depreciation 43. Valuation of Fixed Assets is based on the concept a)       Going concern b)       Conservation c)        Money measurement d)       Dual aspect 44. 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 45. “ 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 46. Fixed assets are valued at a)       Cost b)       Market price c)        Cost price or market price whichever is less d)       Cost less depreciation 47. Floating assets are valued at a)       Cost b)       Market price c)        Cost price or market price whichever is less d)       Cost less depreciation 48. 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 49. Outstanding expenses should be verified with the help of a)       Cash book b)       Balance book c)        Journal proper d)       None of the above 50. 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 51. 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 52. First auditor of a company is appointed by the a)       Shareholders b)       Central Govt. c)        Company Law Board d)       Board of Directors 53. 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 54. 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 55. Normally, a company auditor is appointed by the a)       Central Government b)       Shareholders c)        Board of Directors d)       Company Law board 56. An auditor in a casual vacancy is appointed by the a)       Board of Directors b)       Shareholders c)        Central Government d)       Company Law board 57. 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 58. 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 59. A special auditor is appointed by the a)       Shareholders b)       Board of Directors c)        Central Government d)       CAG 60. A government Co. auditor may be appointed by the a)       CAG b)       Shareholders c)        Central Government d)       None of the above 61. A company auditor can be removed before expiry of his term by a)       Shareholders b)       Board of Directors c)        Central Government d)       State Government 62. Remuneration of a company auditor is fixed by the                      2015 a)       Shareholders b)       Board of Directors c)        Central Government d)       Appointing authority 63. A company auditor, in general has to submit his report to a)       Shareholders b)       Board of Directors c)        Central Government d)       CAG 64. An auditor of Government company has to submit his report to the a)       Shareholders b)       Central Government c)        CAG d)       Ministry concerned 65. Internal auditor has to submit report to a)       Shareholders b)       Government c)        Company Law board d)       None of the above 66. Auditor should be dutiful like a a)       A watch dog b)       A blood hound c)        A detective d)       An insurer 67. 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 68. Which of the following percentage of nominal amount of shares should be received with application a)       10                            b)       15                            c)        5                           d)       6 69. 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 70. 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 71. 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 72. 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 73. 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 74. 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 75. 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 76. Shares cannot be issued at discount under section a)       76                            b)       75                             c)        53                           d)       89

77. Interest on calls paid in advance, according to Table A, should not exceed                    2018 a)       12%                             b)       5%                             c)        10%                             d)       14% 78. Shares can be issued at premium, under section a)       76                             b)       75                             c)        52                             d)       79 79. 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 80. 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 81. 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 82. Increase in share capital is permitted by a)       Memorandum of Association b)       Articles of association c)        Court d)       Companies Act, 2013 83. Divisible profit should not include a)       Interest on capital b)       Capital c)        Depreciation d)       None of the above 84. Dividend can not be paid out of a)       Capital profit b)       Capital receipts c)        Revenue receipts d)       None of the above 85. Capital profit imply profit earned a)       Through business transaction b)       From capital c)        From sale of fixed assets d)       From sale of current assets 86. 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 87. 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 88. In his report, the auditor gives his a)       Judgment b)       Opinion c)        Guarantee to correctness of accounts d)       True state of affairs 89. Civil liability of an auditor implies liability for a)       Misappropriation of cash b)       Misappropriation of goods c)        Fraud d)       Misfeasance 90. An auditor can be held liable under companies Act 1949 for a)       Negligence b)       Criminal offence c)        Professional misconduct d)       Breach of contract 91. 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 92. Inflation of closing  stock results is: a)       Inflation of loss b)       Deflation of loss c)        Inflation of profit d)       Deflation of profit 93. Charging excessive provision for depreciation results in a)       Less profit b)       More profit c)        No change in profit d)       No change in loss 94. The main purpose of management  audit is to a)       Review the management operations b)       Check arithmetical accuracy c)        Prevent travel d)       Prevent error 95. Management audit is a)       Compulsory b)       Not compulsory c)        Compulsory under Income Tax Act d)       Compulsory under Indian Contract Act. 96. Special resolution means: a)       1/3 majority b)       2/3 majority c)        ½ majority d)       4/5 Majority 97. Ordinary resolution means: a)       4/5 b)       1/3 majority c)        2/3 majority d)       More than 1/2 98. Institute of chartered Accounts of India was established in the year                        2013, 2015 a)       April 1, 1956 b)       April 1, 1949 c)        July 1, 1956 d)       July 1, 1949 99. Auditor is an ________ of a shareholder a)       Owner b)       Agent c)        Employer d)       Creditor 100. Financial auditor submits reports to the: a)       Shareholder b)       Board of director c)        Debtors d)       Employees 101. Cost auditor submits reports to the: a)       Shareholder b)       Board of directors c)        Employees d)       Creditors 102. 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 103. Audit under any statute in a country is called: a)       Final audit b)       Internal audit c)        Proprietory Audit d)       Statutory audit 104. 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 105. CAATTS is also known as: a)       Cost And Accounts Treatments b)       Computer Assisted Audit Tools and Techniques c)        Classification and Accounting of Tax Tools 106. Auditor has got no lien on: a)       Audit Note Nook b)       Audit working papers c)        Books to Accounts of Client 107. Statutory Report should be sent to registrar before ------------------- days of statutory meeting a)       30 days b)       14 days c)        21 days 108. ________ audit is not a statuary requirement a)       Management b)       Financial c)        Tax Audit  109. ____________ 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 110. Bonus shares are issued to: a)       New members b)       Existing share holders c)        Employees 111. 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 224 112. A company can issue bonus shares if authorized by a)       Memorandum of Association b)       Articles of Association c)        Companies Act 2013 113. Accounting standards are prepared by a)       SEBI b)       RBI c)        ICAI d)       ITA 114. The maximum rate of discount on shares shall not exceed________________ a)       20% b)       15% c)        10% 115. 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 116. Internal audit is conducted a)       Periodically b)       Throughout the year c)        Once in a year 117. 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 118. The auditors are liable under a)       Companies Act Only b)       Income Tax Act Only c)        All above 119. The maximum number of audit assignment  an auditor can accept is limited to ________ companies a)       10 b)       15 c)        20 120. _____________ 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 121. ____________ is the verification of books of accounts from Income tax point of view a)       Cost audit b)       Tax audit c)        Management audit 122. 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 123. Test checking is done when there is an effective system of _________ a)       Internal control b)       Internal audit c)        Internal check 124. Test checking means a)       Checking of all transactions b)       Checking of half of the transactions c)        Checking of selected items 125. Audit working papers are: a)       Important  information about audit b)       Appointment letters regarding audit c)        Letter of notice 126. Current audit file consists of a)       Matters of future importance b)       Matters relations to post years c)        Matters relating to the year of audit 127. ____________ begins where accounting ends a)       Bookkeeping b)       Auditing c)        Internal check 128. ________audit is compulsory for joint stock companies a)       Statutory b)       Final c)        Continuous 129. Treating revenue expenditure as capital expenditure is an example of  error of: a)       Principle b)       Compensating c)        Clerical 130. Financial statements are prepared  by: a)       The accountant b)       The auditor c)        Managing director 131. Preliminary expanses not written off are treated as a)       Fixed assets b)       Intangible assets c)        Fictitious assets 132. Verification of assets involves a critical examination of a)       Ownership b)       Existence c)        All of these 133. 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 134. ________________ includes financial and non-financial control a)       Internal check b)       Internal control c)        Internal audit 135. ____________ is concerned with the allocation of work among employees a)       Internal control b)       Internal check c)        Internal audit 136. The duties of internal auditor is prescribed by a)       Companies act b)       Company law board c)        Management 137. Internal audit is considered as a service to: a)       Share holders b)       Board of directories c)        Management 138. Pre-arranging and coordinating the audit work is called: a)       Audit planning b)       Vouching c)        Verification 139. A fixed audit programme is also called a ________ programme a)       Tailor made b)       Man made c)        Auditor made 140. To forfeit shares  ______________ days notice to the share holder’s given a)       40 b)       14 c)        24 141. A ___________ report is one which contains the opinion of the auditor subject to certain conditions a)       Unqualified b)       Qualified c)        Clean 142. _____________ is made out of reserves or share premium a)       Preference shares b)       Bonus shares c)        Debentures 143. __________shares cannot be issued if the company makes any default in the payment of its obligation a)       Preference b)       Equity c)        Deferred d)       Bonus 144. Capitalization of  reserves means: a)       Creation of provision b)       Capital Reserve c)        Declaration of dividend d)       Issue of bonus shares 145. Provisions regarding bonus issue should be given in ______________ document a)       Memorandum of association b)       Articles of association c)        Prospectus d)       None of the above 146. Balance remaining in the forfeited Account after reissue  is transferred to ___________ account a)       General reserve b)       Capital reserve c)        Premium account 147. 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 148. 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.  149. 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) 150. Auditor under management audit is accountable to the : Board of Directors. 151. Profit on redemption of debenture is transferred to which Account? Capital Reserve Account. 152. Loss on issue of debentures is written off: During the life of debentures. 153. Auditing starts where Accounting ends. 154. Vouching is the backbone of auditing. 155. Issue of Bonus share is a good method of capitalizing large profits or reserves. 156. The subscribed capital of a banking company should not be less than one half of its authorized capital. 157. Internal auditor is under the direct control of management.  False 158. Valuation is a broader term and includes verification of assets and liabilities. False, Vice-versa 159. A debenture is an acknowledgement of ownership.     False, Creditorship securities 160. The true ownership of the company rests in the shareholders but not in the management.                                                                                                               True