In case of sales return, the auditor should examine which documents?

Credit notes, advice notes and inward return notes

Debit notes, advice notes and inward return notes

Purchase invoices, advice notes and inward return notes

Credit notes, inspection report and inward return notes

An internal auditor discovered that fictitious purchases have been recorded bythe purchase clerk. This indicates absence of which control?

Goods received notes requires the signature of individual who authorized the purchase

Purchase invoices are independently matched with purchase orders and goods received notes

Goods received notes requires the signature of individual who authorized the purchase

Routine checks are performed by internal auditor fortnightly.

Purchase function and production function are clubbed in one department

Which of the following is most crucial to a purchase department?

Reducing the cost of acquisition

Authorizing the acquisition of goods

In order to vouch bought ledger, the auditor obtain confirmations from creditors. The principal reason for the auditor to examine suppliers statements at balance sheet date is to obtain evidence that

Recorded purchases actually occurred

There are no unrecorded liabilities

Recorded purchases actually occurred

To link creditors with cash book entries

In case of vouching, the auditor is least likely to examine authorization byappropriate authority in case of –

Discount allowed to customers as per organizational policy

The creditor’s accounts, generally, have credit balance. Debit balance may be due to

Wrong debit to supplier account

Vendors should be approved by Management before purchase departmentexecutes an order. If this is not done, then which of the following situations may arise?

Purchases could be made from vendors whose product quality may not be good

Purchases may be made from related parties without management’s knowledge

Purchases could be made from vendors who may have offered price to manager purchases

Which of the following is not true with regard to verification of assets?

Its objective is to establish existence, ownership, possession, valuation and disclosure of assets

It invoices substantiation of occurrence of transactions

Its objective is to establish existence, ownership, possession, valuation and disclosure of assets

The auditor has to form an opinion on different aspects

An auditor is verifying valuation of building which has been self constructed bythe client. Which of the following documents is least relevant to the auditor for verification purposes?

Certificates of engineer and architect

Minutes of meeting of board of directors

Certificates of engineer and architect

An analysis of fixed assets account has revealed possibility of unrecorded sale of plant and machinery. Which of the following audit procedures may be adopted to discover it?

Examination of property tax files

Examination of debits to accumulated depreciation

The auditor has noticed existence of recurring losses sale of fixed assets thisindicates

Policy of sale or disposal of fixed assets needs to be reviewed

Depreciation charges are insufficient

Policy of sale or disposal of fixed assets needs to be reviewed

The sale of assets have not been properly authorized

The auditor while verifying prepaid insurance has concluded that there isinadequate insurance of building, He should__

Insist it should be disclosed in the notes to financial statements

When auditing prepaid insurance, an auditor discovers that the insurancepolicy bond on building is not available for inspection. This may indicate__

Insurance premium has not been paid

No insurance has been undertaken for building

Insurance premium has not been paid

Insurance premium paid but not recorded

Which of the following controls would ensure that securities are not lost,stolen or diverted?

Establish physical barriers over investment securities

Maintain files of authorized signatures

Segregate investment approval from accounting and from custody of securities

Which of the following is not an inherent limitation of internal control system?

Inefficiency of internal auditor

Which of the following would give the assurance that debtors mentioned on thedate of balance sheet actually exist?

Sending debtor’s confirmation letters

Reviewing subsequent collection

Verify debtors against sales document

The sequence of steps in the auditor’s consideration of internal control is asfollows –

Perform tests of control, obtain and understanding, make a preliminary assessment of control risk, design

Obtain an understanding, design substantive test, perform tests of control, and make a preliminary assessment of control risk

Design substantive tests, obtain an understanding, perform tests of control, and make a preliminary assessment of control risk

Obtain an understanding, make a preliminary assessment of control risk, perform tests of control, design substantive procedures.

Perform tests of control, obtain and understanding, make a preliminary assessment of control risk, design

Which of the following are included in test of control?

Inquiry and analytical procedures

An auditor should study and evaluate internal controls to

Determine whether assets are safeguarded

Suggest improvements in internal control

The primary purpose of performing tests of control is to provide reasonableassurance that_

There are no material misstatements due to fraud or error in financial statement

Accounting system is well documented

Written evidence is there to support transactions

if internal control is effective

If the auditor assesses control risk as high….

Documents the reasons along with conclusions

Control risk is assessed at

Overall financial statements level

Financial statement assertion level

A flow chart, made by the auditor, of an entity’s internal control system is a graphic representation that depicts the auditor’s.

Understanding of fraud risk factors

Documentation of assessment of control risk

An auditor assesses control risk because it

Helps him to fix materiality level for each financial assertion

Affects the level of detection risk that auditor may accept

Helps him to fix materiality level for each financial assertion

Is directly related to inherent risk

Proper segregation of duties reduces the opportunities in which a person wouldboth

Record the transaction in journal and ledger

Establish controls and executes them

Records cash receipts and cash payments

Perpetuate errors and frauds and conceals them

Record the transaction in journal and ledger

When an independent auditor relies on the work of an internal auditor, he orshe should

Examine the scope of internal auditor’s work

Examine the system of supervising review and documentation of internal auditor’s work

Adequacy of related audit programme

Which of the following statements is not true with regard to teeming andlading ?

To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily agreement so that a bank reconciliation will not detect the irregularity.

It results in the deliberate misappropriation of cash receipts

It is associated with cash receipts

If same individual maintains cash receipts and cash payments teeming and lading is likely to exist

To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily agreement so that a bank reconciliation will not detect the irregularity.

The balance of cash in often between one to five percent of total assets. Tickthe most appropriate statement with regard to verification of cash in context of this

No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a relative concept

Cash in always material as materiality is qualitative concept

No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a relative concept

The cash balance need only be audited if the balance is in overdraft

Cash is to be verified if control risk is assessed as high

When counting cash on hand the auditor should ___

Temporary advances to employees are counted to calculate balance of cash in hand

Ensure presence of somebody from management

Obtain a receipt from custodian as to its return

Ensure postage and revenue stamps are not counted in physical count

Temporary advances to employees are counted to calculate balance of cash in hand

Which of the following statement is not true regard to auditor’s attendance atstock taking?

The primary objective of an auditor’s observation of an entity’s observation of an entity’s stock take is to obtain direct knowledge that the stock and has been property counted

Auditor should attend physical stock taking only if inventory is material

Auditor may not attend physical verification of stock by management, if he does not find it appropriate to rely on it

If inventory is material, even when the auditor is not placing reliance on the physical verification by the management, he should attend it

The primary objective of an auditor’s observation of an entity’s observation of an entity’s stock take is to obtain direct knowledge that the stock and has been property counted

Inspection report/receiving report supports entries in

Sales book and sales return book

Purchase book and sales return book

Sales book and purchase return book

An auditor is held criminally liable for

Offence against statutory provisions

267 + Mcqs in Auditing in Finance & Accounting Page 3 McqOptions

101.	In case of sales return, the auditor should examine which documents?
A.	Credit notes, advice notes and inward return notes
B.	Debit notes, advice notes and inward return notes
C.	Purchase invoices, advice notes and inward return notes
D.	Credit notes, inspection report and inward return notes
Answer» E.

102.	An internal auditor discovered that fictitious purchases have been recorded bythe purchase clerk. This indicates absence of which control?
A.	Purchase invoices are independently matched with purchase orders and goods received notes
B.	Goods received notes requires the signature of individual who authorized the purchase
C.	Routine checks are performed by internal auditor fortnightly.
D.	Purchase function and production function are clubbed in one department
Answer» B. Goods received notes requires the signature of individual who authorized the purchase

103.	Which of the following is most crucial to a purchase department?
A.	Reducing the cost of acquisition
B.	Selecting supplies
C.	Authorizing the acquisition of goods
D.	Assuring the quality of goods
Answer» D. Assuring the quality of goods

104.	The auditor is most likely to examine related party transactions very carefullywhile vouching
A.	Credit sales
B.	Sales returns
C.	Credit purchases
D.	Cash purchases
Answer» D. Cash purchases

105.	In order to vouch bought ledger, the auditor obtain confirmations from creditors. The principal reason for the auditor to examine suppliers statements at balance sheet date is to obtain evidence that
A.	The supplier exist
B.	There are no unrecorded liabilities
C.	Recorded purchases actually occurred
D.	To link creditors with cash book entries
Answer» C. Recorded purchases actually occurred

106.	In case of vouching, the auditor is least likely to examine authorization byappropriate authority in case of –
A.	Bad debts written off
B.	Sales return
C.	Purchase return
D.	Discount allowed to customers as per organizational policy
Answer» E.

107.	The creditor’s accounts, generally, have credit balance. Debit balance may be due to
A.	Advance paid against an order
B.	Goods returned
C.	Wrong debit to supplier account
D.	Any of these
Answer» E.

108.	Vendors should be approved by Management before purchase departmentexecutes an order. If this is not done, then which of the following situations may arise?
A.	Purchases could be made from vendors whose product quality may not be good
B.	Purchases may be made from related parties without management’s knowledge
C.	Purchases could be made from vendors who may have offered price to manager purchases
D.	Any of these
Answer» E.

109.	Which of the following is not true with regard to verification of assets?
A.	It invoices substantiation of occurrence of transactions
B.	Its objective is to establish existence, ownership, possession, valuation and disclosure of assets
C.	The auditor has to form an opinion on different aspects
D.	All are true
Answer» B. Its objective is to establish existence, ownership, possession, valuation and disclosure of assets

110.	An auditor is verifying valuation of building which has been self constructed bythe client. Which of the following documents is least relevant to the auditor for verification purposes?
A.	Bills of contractor
B.	Minutes of meeting of board of directors
C.	Certificates of engineer and architect
D.	Loan agreement
Answer» C. Certificates of engineer and architect

111.	Which of the following assets is least likely to be subjected to lien?
A.	Freehold land
B.	Plant and machinery
C.	Leasehold property
D.	Motor vehicles
Answer» D. Motor vehicles

116.	While verifying intangible assets, an auditor would recomputed amortizationcharges and determines whether amortization period is reasonable. The auditor tries to establish ….by doing it
A.	Valuation
B.	Existence
C.	Disclosure
D.	Possession
Answer» B. Existence

121.	Tests of control are not concerned with_
A.	Existence of controls
B.	Effectiveness of controls
C.	Continuity of controls
D.	Designing of controls
Answer» E.

133.	The independence of an internal auditor will most likely be assured if he reportsto the
A.	President Finance
B.	President System
C.	Managing Director
D.	CEO
Answer» D. CEO

112.	An analysis of fixed assets account has revealed possibility of unrecorded sale of plant and machinery. Which of the following audit procedures may be adopted to discover it?
A.	Examination of property tax files
B.	Inquiry of plant manager
C.	Examination of debits to accumulated depreciation
D.	All of the above
Answer» E.

113.	The auditor has noticed existence of recurring losses sale of fixed assets thisindicates
A.	Depreciation charges are insufficient
B.	Policy of sale or disposal of fixed assets needs to be reviewed
C.	The sale of assets have not been properly authorized
D.	Accounting errors
Answer» B. Policy of sale or disposal of fixed assets needs to be reviewed

114.	Which of the following financial statements assertions are addressed by testingthe cut off for plant asset addition?
A.	Existence and ownership
B.	Valuation and disclosure
C.	Possession and ownership
D.	Completeness and valuation
Answer» E.

115.	The auditor while verifying prepaid insurance has concluded that there isinadequate insurance of building, He should__
A.	Modify his audit report
B.	Insist it should be disclosed in the notes to financial statements
C.	Write it in letter of weakness
D.	Both (b) and (c)
Answer» E.

117.	When auditing prepaid insurance, an auditor discovers that the insurancepolicy bond on building is not available for inspection. This may indicate__
A.	No insurance has been undertaken for building
B.	Lien on building
C.	Insurance premium has not been paid
D.	Insurance premium paid but not recorded
Answer» C. Insurance premium has not been paid

118.	Which of the following controls would ensure that securities are not lost,stolen or diverted?
A.	Establish physical barriers over investment securities
B.	Maintain files of authorized signatures
C.	Segregate investment approval from accounting and from custody of securities
D.	All of the above
Answer» E.

119.	Which of the following is not an inherent limitation of internal control system?
A.	Management override
B.	Collusion among employees
C.	Inefficiency of internal auditor
D.	Abuse of authority
Answer» D. Abuse of authority

120.	Which of the following would give the assurance that debtors mentioned on thedate of balance sheet actually exist?
A.	Sending debtor’s confirmation letters
B.	Reviewing subsequent collection
C.	Verify debtors against sales document
D.	Both (a) and (b)
Answer» E.

122.	The sequence of steps in the auditor’s consideration of internal control is asfollows –
A.	Obtain an understanding, design substantive test, perform tests of control, and make a preliminary assessment of control risk
B.	Design substantive tests, obtain an understanding, perform tests of control, and make a preliminary assessment of control risk
C.	Obtain an understanding, make a preliminary assessment of control risk, perform tests of control, design substantive procedures.
D.	Perform tests of control, obtain and understanding, make a preliminary assessment of control risk, design
Answer» D. Perform tests of control, obtain and understanding, make a preliminary assessment of control risk, design

123.	Which of the following are included in test of control?
A.	Reperformance and observation
B.	Inquiry and analytical procedures
C.	Comparison and conformation
D.	Inspection and verification
Answer» B. Inquiry and analytical procedures

Explore topic-wise MCQs in Finance & Accounting.

In case of sales return, the auditor should examine which documents?

An internal auditor discovered that fictitious purchases have been recorded bythe purchase clerk. This indicates absence of which control?

Which of the following is most crucial to a purchase department?

The auditor is most likely to examine related party transactions very carefullywhile vouching

In order to vouch bought ledger, the auditor obtain confirmations from creditors. The principal reason for the auditor to examine suppliers statements at balance sheet date is to obtain evidence that

In case of vouching, the auditor is least likely to examine authorization byappropriate authority in case of –

The creditor’s accounts, generally, have credit balance. Debit balance may be due to

Vendors should be approved by Management before purchase departmentexecutes an order. If this is not done, then which of the following situations may arise?

Which of the following is not true with regard to verification of assets?

An auditor is verifying valuation of building which has been self constructed bythe client. Which of the following documents is least relevant to the auditor for verification purposes?

Which of the following assets is least likely to be subjected to lien?

An analysis of fixed assets account has revealed possibility of unrecorded sale of plant and machinery. Which of the following audit procedures may be adopted to discover it?

The auditor has noticed existence of recurring losses sale of fixed assets thisindicates

Which of the following financial statements assertions are addressed by testingthe cut off for plant asset addition?

The auditor while verifying prepaid insurance has concluded that there isinadequate insurance of building, He should__

While verifying intangible assets, an auditor would recomputed amortizationcharges and determines whether amortization period is reasonable. The auditor tries to establish ….by doing it

When auditing prepaid insurance, an auditor discovers that the insurancepolicy bond on building is not available for inspection. This may indicate__

Which of the following controls would ensure that securities are not lost,stolen or diverted?

Which of the following is not an inherent limitation of internal control system?

Which of the following would give the assurance that debtors mentioned on thedate of balance sheet actually exist?

Tests of control are not concerned with_

The sequence of steps in the auditor’s consideration of internal control is asfollows –

Which of the following are included in test of control?

An auditor should study and evaluate internal controls to

The primary purpose of performing tests of control is to provide reasonableassurance that_

If the auditor assesses control risk as high….

The overall attitude and awareness of an entity’s board of directors concerningthe importance of internal control is reflected in

Control risk is assessed at

A flow chart, made by the auditor, of an entity’s internal control system is a graphic representation that depicts the auditor’s.

An auditor assesses control risk because it

Proper segregation of duties reduces the opportunities in which a person wouldboth

The performance of tests of control is documented in

The independence of an internal auditor will most likely be assured if he reportsto the

In comparison to the independent auditor, an internal auditor is more likely tobe concerned with

When an independent auditor relies on the work of an internal auditor, he orshe should

Which of the following statements is not true with regard to teeming andlading ?

Analytical procedures are least likely to be use in the audit of –

The balance of cash in often between one to five percent of total assets. Tickthe most appropriate statement with regard to verification of cash in context of this

When counting cash on hand the auditor should ___

Which of the following statement is not true regard to auditor’s attendance atstock taking?

While observing a client’s annual physical inventory, an auditor conducted testcounts for certain test counts were higher than the recorded quantities in the client’s perpetual records. This situation could be the result of the client’s failure to record –

Inspection report/receiving report supports entries in

……………….. Starts where …………….. Ends

............ means “proving the truth or confirmation”

An audit which is compulsory by the law is __________.

An auditor is held criminally liable for

An auditor is held liable under C.A Act 1949 for

__________ is a systematic examination of the books and records or a business.

.Instruction of audit issued by controller and auditor general of India ________.

Audit done by the employees of the business undertaking is called _______.

124.	An auditor should study and evaluate internal controls to
A.	Determine whether assets are safeguarded
B.	Suggest improvements in internal control
C.	Plan audit procedures
D.	Express and opinion
Answer» D. Express and opinion

125.	The primary purpose of performing tests of control is to provide reasonableassurance that_
A.	There are no material misstatements due to fraud or error in financial statement
B.	Accounting system is well documented
C.	Written evidence is there to support transactions
D.	if internal control is effective
Answer» E.

126.	If the auditor assesses control risk as high….
A.	Document the conclusions
B.	Documents the reasons along with conclusions
C.	Perform tests of control
D.	Perform walk through tests
Answer» B. Documents the reasons along with conclusions

127.	The overall attitude and awareness of an entity’s board of directors concerningthe importance of internal control is reflected in
A.	Accounting controls
B.	Control environment
C.	Control procedures
D.	Supervision
Answer» C. Control procedures

128.	Control risk is assessed at
A.	Overall financial statements level
B.	Fraud risk factor level
C.	Financial statement assertion level
D.	Control environment level
Answer» D. Control environment level

129.	A flow chart, made by the auditor, of an entity’s internal control system is a graphic representation that depicts the auditor’s.
A.	Understanding of the system
B.	Understanding of fraud risk factors
C.	Documentation of assessment of control risk
D.	Both (a) and (c)
Answer» B. Understanding of fraud risk factors

130.	An auditor assesses control risk because it
A.	Affects the audit risk
B.	Affects the level of detection risk that auditor may accept
C.	Helps him to fix materiality level for each financial assertion
D.	Is directly related to inherent risk
Answer» C. Helps him to fix materiality level for each financial assertion

131.	Proper segregation of duties reduces the opportunities in which a person wouldboth
A.	Establish controls and executes them
B.	Records cash receipts and cash payments
C.	Perpetuate errors and frauds and conceals them
D.	Record the transaction in journal and ledger
Answer» D. Record the transaction in journal and ledger

132.	The performance of tests of control is documented in
A.	Audit programme
B.	Flow charts
C.	Working papers
D.	Any of the above
Answer» D. Any of the above

134.	In comparison to the independent auditor, an internal auditor is more likely tobe concerned with
A.	Cost accounting system
B.	Internal control system
C.	Legal compliance
D.	Accounting system
Answer» C. Legal compliance