CONCEPTS OF AUDITING
1. Audit of banks is an example of –
a) Statutory audit b) Balance sheet audit c) Concurrent audit
d) Both (a) and (b) e) All of the above
2. Concurrent audit is a part ofa)
Internal check system b) Continuous audit c) Internal audit system d) None
3. In India, balance sheet audit is synonymous toa)
Annual audit b) Continuous audit c) Detailed audit d) Statutory audit
4. Audit in depth is synonymous fora)
Complete audit b) Completed audit c) Final audit d) Detailed audit
5. Balance sheet audit includes verification of_
a) Assets b) Liabilities
c) Income and expense accounts where appropriate d) All of the above
6. Which of the following statements is not true about continuous audit?
a) It is conducted at regular interval b) It may be carried out on daily basis
c) It is needed when the organization has a good internal control system
d) It is expensive
7. Which of the following is not a fact of EPA?
a) Economic audit b) Efficiency audit c) Expenditure audit d) Effectiveness audit
8. The Delhi Government had constructed six bungalows for its ministers. They are lying
unoccupied for last three years. This would be a matter of concern fora)
Propriety Auditor b) Performance Auditor c) Financial Auditor d) None of the above
9. Financial auditor is not concerned with propriety of business transactions. However, the
exceptions to this rule are contained for audit of limited companies in_
a) Section 227 (IA) of the Companies Act, 1956
b) Section 227 (IA) and section 227(4A) of the Act
c) CARO, 2003 d) Section 227 (IA) and CARO, 2003
10.Balance sheet does not includea)
Verification of assets and liabilities
b) Vouching of income and expense accounts related to assets and liabilities
c) Examination of adjusting and closing entries d) Routine checks
11.Which of the following statements is not correct about materiality?
a) Materiality is a relative concept
b) Materiality judgments involve both quantitative and qualitative judgments
c) Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs
of an informed decision maker who will rely on the financial statements
d) At the planning state, the auditor considers materiality at the financial statement level
only
12.…..the audit risk,….. the materiality and ……the audit effort
a) Lower, Higher, Lower b) Lower, Lower, Higher
c) Higher, Lower, Lower d) Lower, Higher, Higher
13.When issuing unqualified opinion, the auditor who evaluates the audit findings should be
satisfied that the
a) Amount of known misstatement is documented in working papers
b) Estimates of the total likely misstatement is less than materiality level
c) Estimate of the total likely misstatement is more than materially level
d) Estimates of the total likely misstatement cannot be made
14. In determining the level of materiality for an audit, what should not be considered?
a) Prior year’s errors b) The auditor’s remuneration
c) Adjusted interim financial statements d) Prior year’s financial statements
15. Analytical procedures issued in the planning stage of an audit, generally
a) helps to determine the nature, timing and extent of other audit procedures
b) directs attention to potential risk areas
c) indicates important aspects of business d) All of the above
16.Which of the following statements is most closely associated with analytical procedure
applied at substantive stage?
a) It helps to study relationship among balance sheet accounts
b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific account balance
17.For all audits of financial statements made in accordance with AAS14,
the use of analytical
procedures is at the discretion of the auditor in which stage?
a) Substantive testing b) Planning stage c) Overall review stage d) All of the above
18.The basic assumption underlying the use of analytical procedures is :
a) It helps the auditor to study relationship among elements of financial information
b) Relationship among data exist and continue in the absence of known condition to the
contrary
c) Analytical procedures will not be able to detect unusual relationships
d) None of the above.
19.What are analytical procedures?
a) Substantive tests designed to assess control risk
b) Substantive tests designed to evaluate the validity of management’s representation letter
c) Substantive tests designed to study relationships between financial and nonfinancial
d) All of the above
20.Which of the following is not an analytical procedure?
a) Tracing of purchases recurred in the purchase book to purchase invoices.
b) Comparing aggregate wages paid to number of employees
c) Comparing the actual costs with standard costs
d) All of them are analytical procedure
21.When applying analytical procedures, an auditor could develop independent estimate of an
account balance to compare it toa)
client’s unedited account balance
b) client’s unedited account balance adjusted for trends in the industry
c) Prior year audited balance
d) Prior year audited balance adjusted for trends in the industry
22.What is the primary objective of analytical procedures used in the overall review stage of an
audit?
a) To help to corroborate the conclusions drawn from individual components of financial
statements
b) To reduce specific detection risk
c) To direct attention to potential risk areas
d) To satisfy doubts when questions arise about a client’s ability to continue
Answers
1. e 2. c 3. a 4. d 5. d
6. c 7. c 8. d 9. d 10. d
11. d 12. a 13. b 14. b 15. d
16. d 17. a 18. b 19. c 20. a
21. d 22. a
1. Audit of banks is an example of –
a) Statutory audit b) Balance sheet audit c) Concurrent audit
d) Both (a) and (b) e) All of the above
2. Concurrent audit is a part ofa)
Internal check system b) Continuous audit c) Internal audit system d) None
3. In India, balance sheet audit is synonymous toa)
Annual audit b) Continuous audit c) Detailed audit d) Statutory audit
4. Audit in depth is synonymous fora)
Complete audit b) Completed audit c) Final audit d) Detailed audit
5. Balance sheet audit includes verification of_
a) Assets b) Liabilities
c) Income and expense accounts where appropriate d) All of the above
6. Which of the following statements is not true about continuous audit?
a) It is conducted at regular interval b) It may be carried out on daily basis
c) It is needed when the organization has a good internal control system
d) It is expensive
7. Which of the following is not a fact of EPA?
a) Economic audit b) Efficiency audit c) Expenditure audit d) Effectiveness audit
8. The Delhi Government had constructed six bungalows for its ministers. They are lying
unoccupied for last three years. This would be a matter of concern fora)
Propriety Auditor b) Performance Auditor c) Financial Auditor d) None of the above
9. Financial auditor is not concerned with propriety of business transactions. However, the
exceptions to this rule are contained for audit of limited companies in_
a) Section 227 (IA) of the Companies Act, 1956
b) Section 227 (IA) and section 227(4A) of the Act
c) CARO, 2003 d) Section 227 (IA) and CARO, 2003
10.Balance sheet does not includea)
Verification of assets and liabilities
b) Vouching of income and expense accounts related to assets and liabilities
c) Examination of adjusting and closing entries d) Routine checks
11.Which of the following statements is not correct about materiality?
a) Materiality is a relative concept
b) Materiality judgments involve both quantitative and qualitative judgments
c) Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs
of an informed decision maker who will rely on the financial statements
d) At the planning state, the auditor considers materiality at the financial statement level
only
12.…..the audit risk,….. the materiality and ……the audit effort
a) Lower, Higher, Lower b) Lower, Lower, Higher
c) Higher, Lower, Lower d) Lower, Higher, Higher
13.When issuing unqualified opinion, the auditor who evaluates the audit findings should be
satisfied that the
a) Amount of known misstatement is documented in working papers
b) Estimates of the total likely misstatement is less than materiality level
c) Estimate of the total likely misstatement is more than materially level
d) Estimates of the total likely misstatement cannot be made
14. In determining the level of materiality for an audit, what should not be considered?
a) Prior year’s errors b) The auditor’s remuneration
c) Adjusted interim financial statements d) Prior year’s financial statements
15. Analytical procedures issued in the planning stage of an audit, generally
a) helps to determine the nature, timing and extent of other audit procedures
b) directs attention to potential risk areas
c) indicates important aspects of business d) All of the above
16.Which of the following statements is most closely associated with analytical procedure
applied at substantive stage?
a) It helps to study relationship among balance sheet accounts
b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific account balance
17.For all audits of financial statements made in accordance with AAS14,
the use of analytical
procedures is at the discretion of the auditor in which stage?
a) Substantive testing b) Planning stage c) Overall review stage d) All of the above
18.The basic assumption underlying the use of analytical procedures is :
a) It helps the auditor to study relationship among elements of financial information
b) Relationship among data exist and continue in the absence of known condition to the
contrary
c) Analytical procedures will not be able to detect unusual relationships
d) None of the above.
19.What are analytical procedures?
a) Substantive tests designed to assess control risk
b) Substantive tests designed to evaluate the validity of management’s representation letter
c) Substantive tests designed to study relationships between financial and nonfinancial
d) All of the above
20.Which of the following is not an analytical procedure?
a) Tracing of purchases recurred in the purchase book to purchase invoices.
b) Comparing aggregate wages paid to number of employees
c) Comparing the actual costs with standard costs
d) All of them are analytical procedure
21.When applying analytical procedures, an auditor could develop independent estimate of an
account balance to compare it toa)
client’s unedited account balance
b) client’s unedited account balance adjusted for trends in the industry
c) Prior year audited balance
d) Prior year audited balance adjusted for trends in the industry
22.What is the primary objective of analytical procedures used in the overall review stage of an
audit?
a) To help to corroborate the conclusions drawn from individual components of financial
statements
b) To reduce specific detection risk
c) To direct attention to potential risk areas
d) To satisfy doubts when questions arise about a client’s ability to continue
Answers
1. e 2. c 3. a 4. d 5. d
6. c 7. c 8. d 9. d 10. d
11. d 12. a 13. b 14. b 15. d
16. d 17. a 18. b 19. c 20. a
21. d 22. a
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