VERIFICATION & VALUATION OF ASSETS
1. 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
2. Which of the following statements is not true ?
a) Valuation of assets is the responsibility of management
b) The auditor can rely on a certificate issued by an authorized valuationer as to the
valuation of assets in the balance sheet
c) The auditor should value the asset as per generally accepted accounting principle
d) Valuation is no part of auditor’s duty
3. An auditor is verifying valuation of building which has been self constructed
by the 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
4. 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
5. 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
6. The auditor has noticed existence of recurring losses sale of fixed assets this indicates
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
7. Which of the following financial statements assertions are addressed by testing the cut off
for plant asset addition
a) Existence and ownership b) Valuation and disclosure
c) Possession and ownership d) Completeness and valuation
8. The auditor while verifying prepaid insurance has concluded that there is inadequate
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)
9. While verifying intangible assets, an auditor would recompute amortization charges and
determine whether amortization period is reasonable. The auditor tries to establish ….by
doing it
a) valuation b) existence c) disclosure d) possession
10.When auditing prepaid insurance, an auditor discovers that the insurance policy 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
11.Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock Holding Corporation of
India Limited. The auditor many verify this investment by a)
Reviewing last year’s working papers.
b) Obtaining a certificate from a responsible official of the ABC Ltd.
c) Obtaining a certificate from SHCIL d) Obtaining a certificate from xy ltd.
12.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 form accounting and from custody of securities
d) All of the above
13.Which of the following is not a proper third party to hold investments on behalf of the client?
a) Regional level custodian b) National level custodian
c) India trills – National level stock broking firm d) AEZ Securities Ltd. a stock broking firm
14.Which of the following would give the assurance that debtors mentioned on the date 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)
15.Analytical procedures are least likely to be use in the audit of –
a) cash balance b) investments c) bills receivables d) debtors
16.Which of the following statements is not true with regard to teeming and lading ?
a) It results in the deliberate misappropriation of cash receipts
b) It is associated with cash receipts
c) If same individual maintains cash receipts and cash payments teeming and lading is likely
to exist
d) 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.
17.The balance of cash in often between one to five percent of total assets. Tick the most
appropriate statement with regard to verification of cash in context of this
a) Cash in always material as materiality is qualitative concept
b) No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a
relative concept
c) The cash balance need only be audited if the balance is in overdraft
d) Cash is to be verified if control risk is assessed as high
18.When counting cash on hand the auditor should ___
a) ensure presence of somebody from management
b) obtain a receipt from custodian as to its return
c) ensure postage and revenue stamps are not counted in physical count
d) temporary advances to employees are counted to calculate balance of cash in hand
19.Which of the following statement is not true regard to auditor’s attendance at stock taking?
a) Auditor should attend physical stock taking only if inventory is material
b) Auditor may not attend physical verification of stock by management, if he does not find it
appropriate to rely on it
c) If inventory is material, even when the auditor is not placing reliance on the physical
verification by the management, he should attend it
d) 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
20.While observing a client’s annual physical inventory, an auditor conducted test counts 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 –
a) purchase returns b) sales returns c) goods with consignor d) purchase discounts
21.Inspection report/receiving report supports entries in
a) sales book and sales return book b) purchase book and sales return book
c) cash book and purchase book d) Sales book and purchase return book
Answers
1. a 2. c 3. b 4. c 5. d
6. a 7. d 8. d 9. a 10. b
11. c 12. d 13. c 14. d 15. a
16. c 17. a 18. c 19. c 20. B
21. B
1. 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
2. Which of the following statements is not true ?
a) Valuation of assets is the responsibility of management
b) The auditor can rely on a certificate issued by an authorized valuationer as to the
valuation of assets in the balance sheet
c) The auditor should value the asset as per generally accepted accounting principle
d) Valuation is no part of auditor’s duty
3. An auditor is verifying valuation of building which has been self constructed
by the 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
4. 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
5. 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
6. The auditor has noticed existence of recurring losses sale of fixed assets this indicates
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
7. Which of the following financial statements assertions are addressed by testing the cut off
for plant asset addition
a) Existence and ownership b) Valuation and disclosure
c) Possession and ownership d) Completeness and valuation
8. The auditor while verifying prepaid insurance has concluded that there is inadequate
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)
9. While verifying intangible assets, an auditor would recompute amortization charges and
determine whether amortization period is reasonable. The auditor tries to establish ….by
doing it
a) valuation b) existence c) disclosure d) possession
10.When auditing prepaid insurance, an auditor discovers that the insurance policy 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
11.Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock Holding Corporation of
India Limited. The auditor many verify this investment by a)
Reviewing last year’s working papers.
b) Obtaining a certificate from a responsible official of the ABC Ltd.
c) Obtaining a certificate from SHCIL d) Obtaining a certificate from xy ltd.
12.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 form accounting and from custody of securities
d) All of the above
13.Which of the following is not a proper third party to hold investments on behalf of the client?
a) Regional level custodian b) National level custodian
c) India trills – National level stock broking firm d) AEZ Securities Ltd. a stock broking firm
14.Which of the following would give the assurance that debtors mentioned on the date 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)
15.Analytical procedures are least likely to be use in the audit of –
a) cash balance b) investments c) bills receivables d) debtors
16.Which of the following statements is not true with regard to teeming and lading ?
a) It results in the deliberate misappropriation of cash receipts
b) It is associated with cash receipts
c) If same individual maintains cash receipts and cash payments teeming and lading is likely
to exist
d) 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.
17.The balance of cash in often between one to five percent of total assets. Tick the most
appropriate statement with regard to verification of cash in context of this
a) Cash in always material as materiality is qualitative concept
b) No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a
relative concept
c) The cash balance need only be audited if the balance is in overdraft
d) Cash is to be verified if control risk is assessed as high
18.When counting cash on hand the auditor should ___
a) ensure presence of somebody from management
b) obtain a receipt from custodian as to its return
c) ensure postage and revenue stamps are not counted in physical count
d) temporary advances to employees are counted to calculate balance of cash in hand
19.Which of the following statement is not true regard to auditor’s attendance at stock taking?
a) Auditor should attend physical stock taking only if inventory is material
b) Auditor may not attend physical verification of stock by management, if he does not find it
appropriate to rely on it
c) If inventory is material, even when the auditor is not placing reliance on the physical
verification by the management, he should attend it
d) 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
20.While observing a client’s annual physical inventory, an auditor conducted test counts 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 –
a) purchase returns b) sales returns c) goods with consignor d) purchase discounts
21.Inspection report/receiving report supports entries in
a) sales book and sales return book b) purchase book and sales return book
c) cash book and purchase book d) Sales book and purchase return book
Answers
1. a 2. c 3. b 4. c 5. d
6. a 7. d 8. d 9. a 10. b
11. c 12. d 13. c 14. d 15. a
16. c 17. a 18. c 19. c 20. B
21. B
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