MCQOPTIONS
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MCQOPTIONS
This section includes 267 Mcqs, each offering curated multiple-choice questions to sharpen your Finance & Accounting knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
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 only |
| Answer» E. | |
| 2. |
…...the audit risks… the materiality and ……the audit effort |
| A. | Lower, Higher, Lower |
| B. | Lower, Lower, Higher |
| C. | Higher, Lower, Lower |
| D. | Lower, Higher, Higher |
| Answer» B. Lower, Lower, Higher | |
| 3. |
Test Checking refers to |
| A. | Testing of accounts and records |
| B. | Checking of selected number of transactions |
| C. | Examination of adjusting and closing entries |
| D. | Checking of all transactions recorded |
| Answer» C. Examination of adjusting and closing entries | |
| 4. |
When issuing unqualified opinion, the auditor who evaluates the audit findings shouldbe 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 |
| Answer» D. Estimates of the total likely misstatement cannot be made | |
| 5. |
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 |
| Answer» C. Adjusted interim financial statements | |
| 6. |
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 |
| Answer» E. | |
| 7. |
Which of the following statements is most closely associated with analytical procedureapplied 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 |
| Answer» E. | |
| 8. |
For all audits of financial statements made in accordance with AAS14, the use ofanalytical 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 |
| Answer» B. Planning stage | |
| 9. |
Verification refers to : |
| A. | Examining the physical existence and valuation of assets. |
| B. | Examining the journal and ledger |
| C. | Examination of vouchers related to assets. |
| D. | None of the above. |
| Answer» B. Examining the journal and ledger | |
| 10. |
Stock should be valued at |
| A. | Cost |
| B. | Market price |
| C. | Cost or Market price whichever is lower. |
| D. | Cost less depreciation. |
| Answer» D. Cost less depreciation. | |
| 11. |
‘Auditor is not a valuer’, was stated in |
| A. | Kingston Cotton Mills case |
| B. | London Oil Storage Co. Case |
| C. | London and General Bank case |
| D. | None of the above |
| Answer» B. London Oil Storage Co. Case | |
| 12. |
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 |
| Answer» D. Computations made by the auditor | |
| 13. |
Goods sold on the basis of ‘sales or return ‘ should |
| A. | Be included in the stock |
| B. | Not be included in the stock |
| C. | Not be checked by auditor |
| D. | None of the above |
| Answer» B. Not be included in the stock | |
| 14. |
Floating assets are valued at |
| A. | cost |
| B. | Market price |
| C. | Cost or market price whichever is lower |
| D. | Cost less depreciation |
| Answer» D. Cost less depreciation | |
| 15. |
Which of the following statements is, generally, correct about the reliability of auditevidence? |
| 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. |
| Answer» C. Evidence obtained from outside sources routed through the client | |
| 16. |
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 |
| Answer» E. | |
| 17. |
The nature, timing and extent of substantive procedures is related to assessed level ofcontrol risk |
| A. | Randomly |
| B. | Disproportionately |
| C. | Directly |
| D. | Inversely |
| Answer» D. Inversely | |
| 18. |
Which of the following factors is most important in determining the appropriations ofaudit 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 |
| Answer» B. The objectivity and integrity of the auditor | |
| 19. |
Which of the following is not corroborative evidence? |
| A. | Minutes of meetings |
| B. | Confirmations from debtors |
| C. | Information gathered by auditor through observation |
| D. | Worksheet supporting consolidated financial statements |
| Answer» E. | |
| 20. |
Which of the following statements is not true with respect to managementrepresentations 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 |
| Answer» C. It may be dated prior to the report date | |
| 21. |
Which of the following Auditing Assurance Standard deals with Audit Planning? |
| A. | AAS7 |
| B. | AAS8 |
| C. | AAS9 |
| D. | AAS3 |
| Answer» C. AAS9 | |
| 22. |
What would most appropriately describe the risk of incorrect rejection in terms ofsubstantive 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 |
| Answer» C. The auditor has rejected an item for sample which was material | |
| 23. |
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) |
| Answer» E. | |
| 24. |
What would most effectively describe the risk of incorrect acceptance in terms ofsubstantive 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 |
| D. | He applies random sampling on data which is inaccurate and inconsistent |
| Answer» B. The auditor concludes the balance is materially misstated when in actual fact is not | |
| 25. |
Audit programme is prepared by |
| A. | The auditor |
| B. | The client |
| C. | The audit assistants |
| D. | The auditor and his audit assistants |
| Answer» E. | |
| 26. |
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 |
| Answer» D. Retained in auditor’s office until a change in auditors | |
| 27. |
Which of the following best describes the primary purpose of audit programmepreparation? |
| A. | To detect errors or fraud. |
| B. | To comply with GAAP |
| C. | To gather sufficient appropriate evidence |
| D. | To assess audit risk |
| Answer» D. To assess audit risk | |
| 28. |
The quantity of audit working papers complied on engagement would most be affectedby |
| A. | Management’s integrity |
| B. | Auditor’s experience and professional judgment |
| C. | Auditor’s qualification |
| D. | Control risk |
| Answer» C. Auditor’s qualification | |
| 29. |
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 |
| Answer» E. | |
| 30. |
Which of the following factors would least likely affect the quantity and content of anauditor’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 |
| Answer» E. | |
| 31. |
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 |
| Answer» C. They should not contain details regarding weaknesses in the internal control system | |
| 32. |
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 |
| D. | Debt agreements |
| Answer» B. Past year’s financial statements | |
| 33. |
Which of the following statement best describes the understanding with respect toownership 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. |
| Answer» B. The safe custody of working papers is the responsibility of client, if kept at his premises | |
| 34. |
Payment for wage should be vouched with the help of |
| A. | Piece Work Statement. |
| B. | Wage sheets |
| C. | Minutes book |
| D. | Bank pass book. |
| Answer» C. Minutes book | |
| 35. |
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 |
| Answer» D. Copies of bond and debentures | |
| 36. |
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. |
| Answer» B. Identify problem areas | |
| 37. |
Payment for building purchased should be vouched with the help of |
| A. | Title Deed |
| B. | Correspondence with the brokers |
| C. | Building Account |
| D. | Cash book |
| Answer» B. Correspondence with the brokers | |
| 38. |
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. |
| Answer» D. The fees paid to engineer who constructed the plant. | |
| 39. |
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 |
| Answer» C. Expenses incurred for laying of sewers on land purchased | |
| 40. |
Purchase returns should be vouched with the help of |
| A. | Bought notes |
| B. | Credit notes |
| C. | Goods inward book |
| D. | Cash book |
| Answer» C. Goods inward book | |
| 41. |
Receipts from sale of investments should be vouched with the help of |
| A. | Brokers bought notes |
| B. | Brokers Sold notes |
| C. | Minutes book |
| D. | Inventory of investment |
| Answer» C. Minutes book | |
| 42. |
Depreciation does not arise form _______ |
| A. | Effluxion of time |
| B. | Use |
| C. | Obsolescence through technology be market changes |
| D. | Remarket expectation |
| Answer» E. | |
| 43. |
Schedule XIV has prescribed rates of depreciation for double shift and triple shiftworking for which one of the following assets? |
| A. | Building |
| B. | Plant and Machinery |
| C. | Furniture and fittings |
| D. | Ships |
| Answer» C. Furniture and fittings | |
| 44. |
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 |
| Answer» B. Schedule V | |
| 45. |
A company has bought patents. Which of the following methods is most suitable forproviding depreciation on them? |
| A. | SLM |
| B. | WDV |
| C. | Sum of year digits |
| D. | Any of the above |
| Answer» B. WDV | |
| 46. |
Which of the following is a revenue reserve? |
| A. | Capital redemption reserve |
| B. | Security premium account |
| C. | Debenture redemption reserve |
| D. | Capital reserve |
| Answer» D. Capital reserve | |
| 47. |
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 |
| Answer» D. Charging higher rates of depreciation on fixed assets than actually required | |
| 48. |
As per the requirements of section 226(3) and 226(4) a person is disqualified frombeing appointed as a statutory auditor if he holds |
| A. | Equity shares or debentures of the company |
| B. | Equity shares carrying voting of the company |
| C. | Shares carrying voting rights of the company |
| D. | Security carrying voting rights of the company |
| Answer» E. | |
| 49. |
The board of directors shall appoint first auditor of a company |
| A. | Within one month of completion of capital subscription state of the company |
| B. | Within one month of the promotion of the company |
| C. | Within one month of the commencement of the business of the company |
| D. | Within one month of incorporation of the company |
| Answer» E. | |
| 50. |
The term of the auditor ship of first auditor would be from the date of appointmenttill__ |
| A. | the conclusion of statutory meeting |
| B. | the conclusion of first annual general meeting |
| C. | the conclusion of next annual general meeting |
| D. | the date of removal |
| Answer» C. the conclusion of next annual general meeting | |