Audit Plan – CS Foundation Fundamentals of Accounting and Auditing Notes

→ Audit planning procedures are the first and perhaps the most important step in carrying out a successful audit. While developing an audit plan auditor should see that audit procedures should compliy with the Standard on Auditing (SAs) Matters to be considered before planning an audit are

The auditor should check the nature of the engagement and the client’s business and industry trends at the beginning of planning.
Should keep a check on various responsibilities levied on him under various legislations
Auditor should determine the form and timing of the report
The auditor should check about recent developments like merger etc. in the company that may cause the audit to differ from prior years.
If accounting policies followed by company do affect the audit plan then confirm if there has been any change in the policy
Prepare a complete list of items needed from the client
Identify the areas which have greater audit risk so that the planning can be done accordingly
Prepare drafts of footnotes for new accounting standards so that there is smooth working while doing the audit and it becomes easy to explain the client regarding the new standards.
As each and every accounting entry can not be checked thus make some materiality level for example examining all entries where expense is more than Rs 10000.
To assess the internal control so that auditor can decide how much reliable is the information that is provided to him
Review the work of internal auditors
Auditor has to assess how much staff is required and how much time is required from each staff.

→ Audit Program: An audit program is a set of policies and procedures that dictate how an evaluation of a business is done. This generally involves specific instructions as to what, and how much, evidence must be collected and evaluated, as well as who will collect and analyze the data and when this should be done. Audit program depends on the size of the organization and there is no standard audit program. Audit plan is followed by audit program which has the set of instructions to be followed when doing audit. Audit program is documented in the audit working papers.

→ Advantages of Audit Program

Every essential part of the work of audit can be duly carried on and there is less chance of its being overlooked or omitted.
It gives a set of instructions to the audit team
It gives specific responsibility to each of the staff doing audit
It is a mean to control and record the proper execution of the audit work and also to review the audit work.
Complete coverage of audit work without any duplication.
Supervision and control of the work can be undertaken in a planned manner.
It serves as a guide for future references.
On completion of audit it works as audit record
It serves as a ready checklist of procedures to be applied

→ Disadvantages of Audit Program

The audit work conducted becomes too mechanical.
Auditors may have covered the whole field but it can not be said with certainty that all the necessary work have been done
It kills the initiative of capable persons assistant can not suggest any improvement in the plan.
It needs change every year and if changes not made it may become too rigid in nature
Audit program is suitable only for large audits
New areas may be overlooked.

→ Remedy of disadvantage

To introduce flexibility in the audit program
To encourage audit staff to tell if any defects in the audit program
To encourage audit staff to explore unusual transactions when required and not to adhere literally to the audit program

→ Audit evidence: Audit evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria. The amount and type of auditing evidence considered varies considerably based on the type of firm being audited as well as the required scope of the audit.

→ Essentials of good evidence: some of the essential requirements which make evidence good enough are

Sufficient – Sufficiency is a measure of the quantity of audit evidence required, thus evidence that are obtained should be sufficient
Relevant – must pertain to the audit objective being tested.
Independent – evidence from outside the client is a stronger form of evidence
Appropriate- The quality of all audit evidence is affected by the quality and reliability of the information it is based on.
Effectiveness of client internal controls – good internal controls can mean better information
Auditor direct knowledge – auditor determinations are stronger that client comnts
Degree of objectivity – objective evidence is stronger than subjective evidence

→ Rules that determine the appropriateness of the evidence

Documentary evidence are better than testimonial evidence
Original documents are better than photocopy
Information from audited organizations is more reliable
Evidences from creditworthy third party is better than evidence generated within the organization.
Evidences obtained by auditor are better than evidence obtained indirectly

→ Techniques of obtaining evidence

enquiry – seeking information from knowledgeable people within and outside the entity, ranging from formal written enquiries to informal discussions
observation – observing the information
inspection – examining records or documents in paper or electronic form observation—looking at a process or procedure being performed by others
external confirmation – obtaining a written confirmation directly from a third party, such as a bank or debtor
recalculation – checking the mathematical accuracy of documents or records
Independent execution – independently re-performing procedures or controls that were originally performed as part of the entity’s internal control
analytical procedures – evaluating financial information made by a study of plausible relationships among both financial and non-financial data.

→ Working Papers: Audit working papers contain information from accounting and statistical records, personal observations, the results of interviews and inquiries, and other available sources. These papers are support to the audit work and provide assurance that audit was performed with the relevant auditing standards. Audit working papers are generally prepared at the time audit work is performed. Audit papers are link between clients records and audited accounts. Information in working papers is required to be kept confidential and if disclosed then it is a professional misconduct.

→ Importance of working papers

Working papers are important because they are necessary for audit quality control purposes
provide assurance that the work delegated by the audit partner has been properly completed as per audit programme.
in future if client files any suit against the auditor for negligence then such papers are useful for auditor to defend himself as working papers are the property of auditor and remains with him.
provide evidence that an effective audit has been carried out ,
increase the economy, efficiency, and effectiveness of the audit
contain sufficiently detailed and up-to-date facts which justify the reasonableness of the auditor’s conclusions
retain a record of matters of continuing significance to future audits

→ Types of working papers
There are two types of Working papers
A. Permanent Audit file
B. Current Audit file

→ Permanent files composed of documents, scheduled and other data that will be of continuing significance to several years audit. It is kept to record all data of a permanent nature which provides the necessary background information to the auditor from year to year.

→ Whereas current Audit files composed of the evidence gathered and conclusions reached in the audit for that year. It is kept to record all audit work programs and working papers for the year under review.

→ Documents contained in each file
A. Permanent audit file- Below mentioned are permanent audit file

the memorandum and Articles of Association.
The nature of the business.
Loan agreements
Documents related to internal control
The management set up.
The organization’s major Accounting policies
Leases
Significant audit observation of earlier years
Copies of important documents including title deed, agreements,, debentures deeds and letters of engagement.

B. Current Audit file – Below mentioned are current audit file

An index to the file which guides its orderly compilation.
A copy of the duly signed financial statement being Audited and the trial balance.
Extract of minutes of meetings and correspondences relevant to the year under review.
adjusting journal entries
completion check list.
Letter of representation of attorneys
Audit programs
Internal control questionnaires
A scheduled of each major items in the balance sheet.
A schedule of each major items in the profit and loss account.
List of queries and their dispositions.

Recommended Reading On: Banking and Insurance Notes

Audit Plan MCQ Questions – CS Foundation Fundamentals of Accounting and Auditing

Question 1.
Auditing should be
a. Independent
b. Compulsory
c. On the request of government
d. None of the above
Answer:
a. Independent

Question 2.
Function of audit is to
a. Detect errors
b. Detect fraud
c. t Safeguard the interest of now management persons
d. All of the above
Answer:
d. All of the above

Question 3.
Which of the following is least likely to be required in an audit?
a. Test appropriateness of journal entries and adjustment
b. Review accounting estimates for biases
c. Evaluate the business rationale for significant, unusual transactions
d. Make a legal determination of whether fraud has occurred
Answer:
d. Make a legal determination of whether fraud has occurred

Question 4.
Which of the following is most likely to be an overall response to fraud risks identified in an audit?
a. Supervise members of the audit team less closely and rely more upon judgment.
b. Use less predictable audit procedures.
c. Only use certified public accountants on the engagement.
d. Place increased emphasis on the audit of objective transactions rather than subjective transactions
Answer:
b. Use less predictable audit procedures.

Question 5.
Responsibility fixing is a feature of
a. Audit plan
b. Audit
c. Audit programme
d. All of the above
Answer:
c. Audit programme

Question 6.
Auditing gives ___________ regarding the financial statements
a. True & fair view
b. Correct view
c. Fair view
d. Completely true
Answer:
a. True & fair view

Question 7.
Which is NOT the function of an auditor?
a. To give a true & fair view
b. To take care of ail the statutory acts applicable
c. To do arithmetic checking
d. To prepare accounts
Answer:
d. To prepare accounts

Question 8.
It is not uncommon in auditing
a. Giving the satisfaction to the owner regarding the profits made.
b. Protecting the rights of shareholders
c. Helping to give true & fair profits of the organization
d. All of the above
Answer:
d. All of the above

Question 9.
The basic requirement which is absent in auditing is
a. Exact accounts
b. Certainty in financial statements
c. Conclusive evidence
d. All of the above
Answer:
d. All of the above

Question 10.
To check a lapse that is present in the reports _____________ is done.
a. Auditing
b. Investigation
c. Checking
d. Correction
Answer:
b. Investigation

Question 11.
It is always voluntary
a. Auditing
b. Investigating
c. Both a & b
d. None of the above
Answer:
b. Investigating

Question 12.
Auditing is done to protect the interest of
a. Shareholders
b. Owners of the company
c. Directors of the company
d. Both a & b
Answer:
d. Both a & b

Question 13.
Auditing has all features except
a. Done every financial year
b. Based on conclusive evidence
c. Mandatory for companies
d. None of the above
Answer:
b. Based on conclusive evidence

Question 14.
Verification of assets in case of auditing is the work of
a. Chartered accountant
b. Management
c. Accounts department
d. None of the above
Answer:
a. Chartered accountant

Question 15.
Investigation is
a. For specific purpose
b. Systematic
c. Voluntary
d. All of the above
Answer:
d. All of the above

Question 16.
GAAP tells
a. Accounting policies
b. Accounting procedures
c. Accounting statements
d. Both a & b
Answer:
d. Both a & b

Question 17.
The area of work is determined by registration pattern of the company. It is
a. Co-operative society audit
b. Insurance audit
c. Internal audit
d. Both a & b
Answer:
d. Both a & b

Question 18.
The area of work is determined by management.
a. Insurance audit
b. Sole proprietorship audit
c. Internal audit
d. Bank audit
Answer:
c. Internal audit

Question 19.
Internal audit is required for below mentioned areas of an enterprise.
a. Financial statements
b. Business practices
c. Both a & b
d. None of the above
Answer:
c. Both a & b

Question 20.
Internal audit has an objective
a. to the see the effectiveness of the internal control
b. to check on the organizational business process
c. to detect any fraud in the financial system
d. all of the above
Answer:
d. all of the above

Question 21.
Internal audit is
a. Negative in nature
b. positive in nature
c. a liability for an organization
d. a compulsion for all enterprise
Answer:
b. positive in nature

Question 22.
Internal audit is a helpful tool as
a. it pinpoint the place where the lacuna is there
b. it helps the external auditor
c. it determines the liability of an employee
d. all of the above
Answer:
d. all of the above

Question 23.
_______________ audit helps in finding out the weak points of an organization by other auditor
a. Financial audit
b. Internal audit
c. Cost audit
d. Tax audit
Answer:
b. Internal audit

Question 24.
_______________ audit assists the management in finding out new ideas for marketing and other business areas.
a. Secretarial audit
b. Insurance audit
c. Internal audit
d. Tax audit
Answer:
c. Internal audit

Question 25.
The first general standard rule observed is that regardless of how capable an individual may be in other fields, the individual can not meet the requirements of the auditing standards without the proper
a. Business and finance course.
b. Quality control and peer review.
c. Education & experience in auditing.
d. Supervision and review skills.
Answer:
c. Education & experience in auditing.

Question 26.
_________________ audit assists in the maximunrv utilization of assets
a. Internal audit
b. Secretarial audit
c. Cost audit
d. None of the above
Answer:
a. Internal audit

Question 27.
Audit papers are
a. Documents showing audit was adequately supervised
b. Documents given by company to auditors
c. Documents.that show vouchers
d. Documents showing trial balance and belong to company
Answer:
a. Documents showing audit was adequately supervised

Question 28.
Internal audit starts
a. When the year ends
b. When accounting ends
c. When year begins
d. All of the above
Answer:
b. When accounting ends

Question 29.
Financial audit is good tool as it assists in
a. Investment from inventory
b. Taking loans from banks
c. Both a & b
d. Good management control
Answer:
c. Both a & b

Question 30.
Auditors can only be appointed by
a. Shareholders
b. Directors
c. Government
d. All of the above
Answer:
d. All of the above

Question 31.
Which Act deals regarding the appointment of auditor?
a. Companies Act 2013
b. Chartered Accountants Act 1952
c. ICAI
d. All of the above
Answer:
a. Companies Act 2013

Question 32.
Which amongst the below mentioned is not a compulsory audit.
a. Cost audit
b. Secretarial audit
c. Both a & b
d. Tax audit
Answer:
b. Secretarial audit

Question 33.
The auditor must have a thorough understanding of the entity, the client’s business strategies, processes, and measurement indicators for critical success. This analysis helps the auditor
a. Decide if they want to accept the engagement.
b. identify risks associated with the client’s strategy that could affect the financial statements.
c. assess the level of materiality that is appropriate for the audit.
d. identify the potential for fraud in the financial reporting process.
Answer:
b. identify risks associated with the client’s strategy that could affect the financial statements.

Question 34.
Cost audit is compulsory for
a. Sugar Industry
b. Bulk drugs
c. Soap
d. Both a & b
Answer:
d. Both a & b

Question 35.
Tax audit is compulsory if turnover or gross receipts of a business are
a. Rs. 60,000
b. Exceeds Rs. 60,000
c. Rs. 50,000
d. Net compulsory
Answer:
b. Exceeds Rs. 60,000

Question 36.
It is a compliance audit. Select from the below mentioned.
a. Cost audit
b. Tax audit
c. Secretarial audit
d. None of the above
Answer:
c. Secretarial audit

Question 37.
For an auditor doing the bank audit following are of significant importance
a. Bad assets of the bank
b. NPA
c. Fair view of financial books
d. All of the above
Answer:
d. All of the above

Question 38.
Co-operative society
a. has a separate legal identity
b. has no separate legal identity
c. owners have the ultimate authority
d. none of the above
Answer:
a. has a separate legal identity

Question 39.
Management of the co-operative society is in the hands of
a. elected members
b. all members
c. government
d. all of the above
Answer:
a. elected members

Question 40.
Auditor auditing the financial statement has to report ____________ for co-operative society
a. management skills of the elected members
b. technical skills of the management
c. accounting skills of the management
d. all of the above
Answer:
d. all of the above

Question 41.
The factor that makes the audit of co-operative society a compulsion is
a. Management is in the lands of governments
b. Management is in the hands of elected members
C. Management is in the hands of selected members
d. Management is in the hands of all members
Answer:
b. Management is in the hands of elected members

Question 42.
Who all are benefited from the audit of the trust?
a. Beneficiary
b. Trusted
c. Both a & b
d. Employees
Answer:
c. Both a & b

Question 43.
Auditor doing the audit of insurance company should be aware of
a. Companies Act
b. Insurance Act 1999
c. Insurance Regulatory and Development Act 1999
d. Insurance Regulatory Act 1999
Answer:
c. Insurance Regulatory and Development Act 1999

Question 44.
Insurance audit checks whether insurance company
a. has made appropriate number of insurance policies for a financial year
b. No of insurance policies issued during the financial year are not less than prescribed
c. Insurance premium has been received
d. All of the above
Answer:
c. Insurance premium has been received

Question 45.
Which of the following is least likely to be required in an audit?
a. Test appropriateness of journal entries and adjustment
b. Review accounting estimates for biases
c. Evaluate the business rationale for significant, unusual transactions
d. Make a legal determination of whether fraud has occurred
Answer:
d. Make a legal determination of whether fraud has occurred

Question 46.
Partnership audit assists in
a. Getting loans
b. Proper distribution of profits amongst partners
c. Valuation of goodwill
d. All of the above
Answer:
d. All of the above

Question 47.
Which is not true for partnership audit?
a. It is done on financial year basis
b. It is compulsory
c. It is carried out as per the terms of partnership deed.
d. Useful for raking loans.
Answer:
b. It is compulsory

Question 48.
Which is of relevance in case of partnership audit?
a. Partnership deed
b. Partnership
c. Both a & b
d. None of the above
Answer:
c. Both a & b

Question 49.
For proprietor, audit gives him
a. Moral support
b. That financial statement are property prepared
c. He has done all the work
d. None of the above
Answer:
b. That financial statement are property prepared

Question 50.
Which of the following is least likely to be included in an auditor’s inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?
a. Are financial reporting operations controlled by and limited to one location?
b. Does it have knowledge of fraud or suspect fraud?
c. Does it have programs to mitigate fraud risks?
d. Has it reported to the audit committee the nature of the company’s internal control?
Answer:
a. Are financial reporting operations controlled by and limited to one location?

Question 51.
Union government audit is the duty of
a. ICAI
b. Chartered accountants association
c. Cost accountants associations
d. Comptroller and auditor general of India.
Answer:
d. Comptroller and auditor general of India.

Question 52.
Secretarial audit is most useful for
a. Independent directors
b. Shareholders
c. Management
d. All of the above
Answer:
d. All of the above

Question 53.
C & AG are doing audits for
a. State government
b. Union government
c. Government companies
d. All of the above
Answer:
d. All of the above

Question 54.
Actual performance versus targeted performance of management is the part of
a. Internal audit
b. Management audit
c. Functional audit
d. All of the above
Answer:
b. Management audit

Question 55.
Audit which helps in finding fractious expenditure is
a. Functional audit
b. Propriety audit
c. Efficiency audit
d. Management audit
Answer:
b. Propriety audit

Question 56.
For finding out the efficiency of a system _____________ type of audit is not uncommonly done.
a. Efficiency audit
b. Functional audit
c. Management audit
d. None of the above
Answer:
a. Efficiency audit

Question 57.
The work of an auditor is
a. To prepare the statement
b. To check the management policies
c. To plan the audit
d. All of the above
Answer:
c. To plan the audit

Question 58.
Auditor doing any audit should check all of the below mentioned except
a. Time schedule of the audit
b. To streamline the area only on that area and leave the other areas
c. To keep a track on all the rules and regulations applicable
d. To keep a track if there has any changes in the accounting policies and standards.
Answer:
b. To streamline the area only on that area and leave the other areas

Question 59.
_________________ is an effective tool for audit plan
a. Internal control of company
b. Amount of work load
c. Both a & b
d. None of the above
Answer:
a. Internal control of company

Question 60.
Only test check is required if
a. Internal control is good in a company
b. Internal control is not good in a company
c. Statutory auditors are able and efficient people
d. None of the above
Answer:
a. Internal control is good in a company

Question 61.
Audit programme is
a. Detailed audit plan
b. Instructions for the audit
c. People involved in audit
d. Mental ability of people doing audit
Answer:
b. Instructions for the audit

Question 62.
Pick the odd one
a. Audit programme helps in distribution of work amongst the people doing audit
b. Audit programme is mechanical
c. Audit programme acts as a evidence against change of negligence
d. Audit programme helps in covering all the areas where audit is required
Answer:
b. Audit programme is mechanical

Question 63.
It is uncommon in audit programme
a. That the staff gives any improvement plan
b. It ignores internal control of the organization
c. It is rigid
d. All of the above
Answer:
d. All of the above

Question 64.
Audit programme is a failure if
a. Instructions are not followed property
b. Audit plan is not made correctly
c. The instructions are ambiguous
d. All of the above
Answer:
d. All of the above

Question 65.
Strategy development is the part of
a. Audit plan
b. Audit programme
c. Auditing
d. Making the financial statements
Answer:
a. Audit plan

Question 66.
Pick the odd one
a. Checking the vouchers
b. Preparation of vouchers
c. Evaluation of internal control
d. None of the above
Answer:
b. Preparation of vouchers

Question 67.
For a good evidence of audit it should have following characteristic
a. Source of evidence reliable
b. Evidence is relevant
c. Evidence is immaterial in nature
d. Both a & b
Answer:
d. Both a & b

Question 68.
Pick the most appropriate. Auditing evidence is more reliable when
a. Received from third party
b. Received from reliable third party
c. Received from audited organization resources
d. Both a & b
Answer:
b. Received from reliable third party

Question 69.
Which is NOT a technique of obtaining evidence?
a. Correction
b. Computation
c. Confirmation
d. Both a & b
Answer:
a. Correction

Question 70.
Accounting is BEST described as:
a. The use of financial data
b. The collection of financial data
c. The collection and use of financial data only
d. The collection and use of financial and non- financial data
Answer:
d. The collection and use of financial and non- financial data

Question 71.
Audit papers are
a. Documents that belong to auditors
b. Evidence showing the procedure used by the auditor for doing auditing
c. Both a & b
d. Papers prepared by company for the auditors
Answer:
c. Both a & b

Question 72.
Checking the internal control of an organization is
a. Compulsory
b. Aids in the auditing
c. Is the wish of auditor
d. Both a & c
Answer:
d. Both a & c

Question 73.
Loan agreement are the integral parts of
a. Permanent audit file
b. Current audit file
c. Temporary audit file
d. None of the above
Answer:
a. Permanent audit file

Question 74.
Working trial balance is the part of
a. Permanent audit
b. Current audit file
c. Temporary audit file
d. None of the above
Answer:
b. Current audit file

Question 75.
Which is NOT a current audit file?
a. Audit report
b. Leases
c. Letters of attorneys
d. Record of audit exceptions
Answer:
b. Leases

Question 76.
The first standard of field work recognizes that early appointment of the independent auditor has many advantages to the auditor and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditor?
a. The auditor will be able to complete the audit work in less time.
b. The auditor will be able to perform the examination more efficiently.
c. The auditor will be able to better plan for the observation of the physical inventories.
d. The auditor will be able to plan the audit work so that it may be done expeditiously.
Answer:
a. The auditor will be able to complete the audit work in less time.

Question 77.
The primary objective of the ordinary examination of financial statement by an auditor is the expression of an opinion on
a. The competence of management in accounting matters which is implied by whether the opinion is qualified or not.
b. The conformity of the statements with the book of account.
c. The conformity of the financial statements with generally accepted auditing standards applied on a basis consistent with that of the prior year.
d. The fairness with which the financial statements present cash flows and results of operations.
Answer:
d. The fairness with which the financial statements present cash flows and results of operations.

Question 78.
Auditing firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that
a. Employees promoted possess the appropriate characteristics to perform competently.
b. Personnel will have the knowledge required to fulfill responsibilities assigned.
c. The extent of supervision and review in a given instance will be appropriate.
d. All of the above are reasons.
Answer:
b. Personnel will have the knowledge required to fulfill responsibilities assigned.

Question 79.
In pursuing its quality control objectives with respect to independence, an auditing firm may use policies and procedures such as
a. Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.
b. Prohibiting employees from owning stock of public companies.
c. Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms.
d. Assigning employees who may lack independence to research positions that do not require participation in field audit work:
Answer:
a. Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.

Question 80.
Which of the following is an element of quality control?
a. Supervision
b. Inspection
c. Personnel management
d. Consultation
Answer:
c. Personnel management

Question 81.
Adequate planning and design of an audit is necessary for an auditor to restrict which type of audit risk?
a. Control Risk
b. Detection Risk
c. Sufficiency Risk
d. Inherent Risk
Answer:
a. Control Risk

Question 82.
Which of the following is most likely to be presumed to present a fraud risk on an audit?
a. Capitalization of repairs and maintenance expense into the property, plant and equipment asset account
b. Improper revenue recognition
c. Improper interest expense accrual
d. Introduction of significant new products
Answer:
b. Improper revenue recognition

Question 83.
An audit plan is a:
a. Detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit.
b. document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit.
c. Generic document that auditing firms have developed to lead the process C) of the audit through a systematic and logical process.
d. Budget of the time that should be necessary to complete each phase of the audit procedures.
Answer:
b. document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit.

Question 84.
Which statement best describes the interaction of the systems and substantive approaches in the audit plan?
a. The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy.
b. The systems approach focuses on detailed testing of specific accounts for accuracy, while the substantive approach is the testing controls to make sure they are effective.
c. The systems approach focuses on the use of computer systems to aid in the audit while the substantive approach focuses on more manual tests.
d. A thoroughly designed systems approach to auditing can eliminate
Answer:
a. The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy.

Question 85.
Tracing from source documents to journals, most directly addresses which financial statement assertion?
a. Completeness
b. Existence
c. Valuation
d. Rights
Answer:
b. Existence

Question 86.
Internal sources of audit evidence for an entity includes the following EXCEPT:
a. associated companies of the entity
b. Accounting systems, records and documents
c. Non-financial data and records
d. Management representation and discussion
Answer:
b. Accounting systems, records and documents

Question 87.
Which of the following is NOT true about the procedure for the final audit?
a. Comparisons
b. Reviews
c. investigation
d. Representations
Answer:
c. investigation

Question 88.
The principal objective of an audit is the examination of financial statements of an enterprise with a view for the auditor to form and express an independent opinion on the truth and fairness for the benefit of which one of the following?
a. The members
b. Corporate Governance
c. The Corporate Affairs Commission
d. Government authorities
Answer:
a. The members

Question 89.
Which of the following is NOT a matter to be considered in determining whether confidential information may be disclosed?
a. When disclosure is authorized
b. When disclosure is required by law
c. When there is a professional duty or right to disclose
d. Public duty demands it
Answer:
b. When disclosure is required by law

Question 90.
The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to
a. both management and the auditor equally.
b. management for the statements and the auditor for the notes.
c. the auditor
d. management.
Answer:
d. management.

Question 91.
The factor which distinguishes an error from fraud and other irregularity is
a. whether it is a dollar amount or a process.
b. Intent.
c. materiality.
d. whether it is a caused by the auditor or the client.
Answer:
b. Intent.

Question 92.
XYZ Limited decided that it wanted to improve earnings. To do this, they understated their expenses by omitting unpaid expenses from the accrued liabilities account at year end. Which management assertion has been violated?
a. rights and obligations
b. completeness
c. existence
d. disclosure
Answer:
b. completeness

Question 93.
After testing a client’s internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client’s internal controls. Under these circumstances the auditor most likely would
a. Issue a disclaimer of opinion about the internal controls as part of the auditor’s report.
b. Increase the assessment of control risk and increase the extent of substantive tests.
c. Issue a qualified opinion of this finding as part of the auditor’s report.
d. Withdraw from the audit because the internal controls are ineffective.
Answer:
b. Increase the assessment of control risk and increase the extent of substantive tests.

Question 94.
Which of the following procedures would be most effective in reducing attestation risk?
a. Discussion with responsible individuals.
b. Examination of evidence.
c. Inquiries of senior management.
d. Analytical procedures.
Answer:
b. Examination of evidence.

Question 95.
Which of the following is an inherent imitation in internal control?
a. Incompatible duties.
b. Lack of segregation of duties.
c. faulty human judgment.
d. Lack of an audit committee.
Answer:
c. faulty human judgment.

Question 96.
Secretarial Audit is
a. compulsory in companies having paid-up share capital of less than Rs. 50 lakhs
b. compulsory where the statutory audit reveals inadequacy of internal check in secretarial department
c. optional and would help the Board of Directors and the Registrar of Companies in regard to compliance aspects, mainly under the Companies Act, 1956
d. compulsory in such companies as may be notified by the Central Government
Answer:
c. optional and would help the Board of Directors and the Registrar of Companies in regard to compliance aspects, mainly under the Companies Act, 1956

Question 97.
Various types of quality audits are:
a. process
b. management (system)
c. registration (certification)
d. All of above
Answer:
d. All of above

Question 98.
When the auditor is an employee of the organization being audited, the audit is classified as a quality audit.
a. internal
b. external
c. compliance
d. Both A & B
Answer:
a. internal

Question 99.
The most comprehensive of audit is the system audit, which examines suitability and effectiveness of the system as a whole.
a. Quantity
b. quality
c. Preliminary
d. Sequential
Answer:
b. quality

Question 100.
Each of the three parties involved in an audit ____________. plays a role that contributes to its
success.
a. the client, the auditor, and the auditor
b. the client, the auditor, and the audite
c. the client, the moderator, and the audite
d. the client, the auditor, and the audite
Answer:
d. the client, the auditor, and the audite

Question 101.
Audit is usually conducted in three steps:
1. a pre-examination or opening meeting with the audite marks the beginning of the process.
2. involves a suitability audit of the documented procedures against the selected reference standard.
3. the auditor examines in depth the implementation of the quality system.
a. True
b. False
c. partially false
d. none of the above
Answer:
a. True

Question 102.
The time required and costs involved in an external audit are much higher as compared to internal audits.
a. True
b. False
c. Not known
d. Irrelevant
Answer:
a. True

Question 103.
Audit is a fact-finding process that compares actual results with
a. Specified standards and plans
b. expected results
c. premature results
d. preliminary results
Answer:
a. Specified standards and plans

Question 104.
Which of the following statement is TRUE?
a. An external auditor is required for all types of entity
b. External auditors are appointed by an entity’s management
c. Staff auditors make a report for the baseline employees
d. Staff auditors work is to identify potential risk areas for a company
Answer:
d. Staff auditors work is to identify potential risk areas for a company

Question 105.
The risk for the company that an auditor may issue an unqualified report due to auditor’s failure to detect some misstatement either due to fraud or error is
a. Financial accounting risk
b. Analytical risk
c. Taxation risk
d. Audit risk
Answer:
d. Audit risk

Question 106.
From the initial client interview to the preparation of audit report an auditor must keep a record of all the work you do in
a. Audit file
b. Audit report
c. Audit papers
d. None of the above
Answer:
a. Audit file

Question 107.
The small audit firms provide the following services EXCEPT:
a. Liquidation and receivership work, fraud auditing
b. financial management and system consultancy
c. Financial system planning and preparation
d. Tax management and statutory form filling
Answer:
c. Financial system planning and preparation

Question 108.
Which of the following is one of the major professional accountancy bodies in the India?
a. Institute of Chartered Accountants of India
b. Chartered Association of Accountants
c. Indian Institute of Chartered Accountants
d. Institute of Company Accountants
Answer:
a. Institute of Chartered Accountants of India

Question 109.
Which of the following activities is not an accounting function?
a. Auditing
b. Costing
c. Annual general meeting
d. Taxation
Answer:
c. Annual general meeting

Question 110.
Auditing should be done by
a. A professional accountant.
b. a certified management accountant
c. a competent and independent person.
d. a chartered accountant.
Answer:
c. a competent and independent person.

Question 111.
Which of the following characteristics of accounting information primarily allows user of financial statements to generate predictions about an organization?
a. Reliability
b. Timeliness
c. Neutrality.
d. relevance.
Answer:
d. relevance.

Question 112.
An accountant records information. But an auditor requires, the abilities such as
a. requirement to possess education beyond the bachelor’s degree.
b. accumulation and interpretation of evidence.
c. ability to interpret generally accepted accounting principles.
d. organize and summarize economic events
Answer:
b. accumulation and interpretation of evidence.

Question 113.
A reason for private companies to be audited is
a. having a professional accountant perform their bookkeeping
b. facilitating access to capital.
c. complying with the laws requiring them to be audited.
d. ensuring that their financial statement do not contain errors.
Answer:
b. facilitating access to capital.

Question 114.
Amit is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making. Amit is doing
a. management consulting.
b. review.
c. accounting.
d. auditing
Answer:
c. accounting.

Question 115.
What type of organizations use auditing services?
a. Non-for-profit organizations
b. Businesses
c. Governments
d. All of the above
Answer:
d. All of the above

Question 116.
To operate effectively, an internal auditor must be independent of
a. the line functions of the organizations.
b. the employer-employee relationship, which exists for other employees in the organization.
c. the entity
d. all of the above
Answer:
a. the line functions of the organizations.

Question 117.
The internal auditor typically reports directly to
a. the management of the company
b. the audit committee and the management of the company
c. the audit committee and the board of director
d. the board of director and the external auditor
Answer:
c. the audit committee and the board of director

Question 118.
Which of the following functions listed below is NOT the role of an accountant?
a. Directing and co-coordinating the work of book-keeping staff.
b. Taking vital decisions within the organization.
c. Providing periodic financial statements for decision making.
d. Safeguarding and controlling the assets of an organization
Answer:
b. Taking vital decisions within the organization.

Question 119.
The overall responsibility for the accounting information contained in the financial statements of a business organization rests with the
a. Financial Controller
b. Auditor
c. Managing Director
d. Board of Directors
Answer:
d. Board of Directors

Question 120.
All of the following refer to an internal auditor’s competence except
a. The party in the entity to which the internal Auditor reports
b. The quality of internal audit documents and reports
c. Professional certification
d. Supervision and review of internal audit activities
Answer:
a. The party in the entity to which the internal Auditor reports

Question 121.
Which of the following is not a typical analytical procedure?
a. Study of relationships of the financial information with relevant nonfinancial information
b. Comparison of the financial information with similar information regarding the industry in which the entity operates
c. Comparison of recorded amounts of major disbursements with appropriate invoices
d. Comparison of the financial information with budgeted amounts
Answer:
c. Comparison of recorded amounts of major disbursements with appropriate invoices

Question 122.
Select the main object of an audit
a. to show the exact position of the company
b. Detection and Prevention of fraud and error
c. Both (a) and (b)
d. Depends on the type of audit
Answer:
d. Depends on the type of audit

Question 123.
For better assessing the audit risk, auditor inquires different groups in the organizations EXCEPT:
a. Board of governance and top level management
b. Legal counsel
c. Middle level management
d. Stakeholders
Answer:
d. Stakeholders

Question 124.
internal sources of audit evidence for an entity includes the following EXCEPT:
a. associated companies of the entity
b. Accounting systems, records and documents
c. Non-financial data and records
d. Management representation and discussion
Answer:
a. associated companies of the entity

Question 125.
The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement actually does exist is
a. Audit risk
b. Sampling risk.
c. Control risk
d. Detection risk.
Answer:
d. Detection risk.

Question 126.
Obtaining an understanding of an internal control involves evaluating the design of the control and determining whether the control has been
a. Authorized
b. Implemented
c. Tested
d. Monitored
Answer:
b. Implemented

Question 127.
Prior to commencing field work, an auditor usually discusses the general audit strategy with the client’s management. Which of the following details do management and the auditor usually agree upon at this time?
a. The specific matters to be included in the communication with the audit committee.
b. The minimum amount of misstatements that may be considered to be reportable conditions.
c. The schedules and analyses that the client’s staff should prepare.
d. The effects that inadequate controls may have over the safeguarding of assets.
Answer:
c. The schedules and analyses that the client’s staff should prepare.

Question 128.
Which of the following is NOT part of the planning phase of auditing?
a. Internal control review
b. Evaluation of audit risk
c. Developing the audit programme
d. Audit testing
Answer:
d. Audit testing

Question 129.
Which of the following is the least concern to an auditor regarding the client’s internal control system?
a. efficiency and effectiveness of operations
b. Controls related to the reliability of financial reporting
c. Controls over classes of transactions
d. Auditors are equally concern with each of the given issues
Answer:
a. efficiency and effectiveness of operations

Question 130.
For measuring the quality of audit evidence auditors used the tool of appropriateness; in case if auditor wants to measure quantity of audit evidence which tools from the following should be adopted?
a. Relevance
b. Reliability
c. Sufficiency
d. Effectiveness
Answer:
c. Sufficiency

Question 131.
Which of the following is NOT a compulsory audit?
a. Co-operative societal audit
b. Audit of HUF
c. Both a&b
d. None of the above
Answer:
b. Audit of HUF

Question 132.
Cost audit pinpoints at
a. Lacunae at the production point
b. Efficiency of a unit
c. Optimum utilization of expenditure
d. All of the above
Answer:
d. All of the above

Question 133.
Primary responsibility for the adequacy of financial statements disclosures rests with-
a. Auditor
b. Management
c. Auditor’s Staff
d. Central Government
Answer:
b. Management

Hint:
The primary responsibility for the adequacy of disclosure in the financial statements of a company rests with the management, Matters to be considered before planning an audit are

The auditor should check the nature of the engagement and the client’s business and industry trends at the beginning of planning.
Should keep a check on various responsibilities levied on him under various legislations
Auditor should determine the form and timing of the report
The auditor should check about recent developments like merger etc. in the company that may cause the audit to differ from prior years.
If accounting policies followed by company do affect the audit plan then confirm if there has been any change in the policy
Prepare a complete list of items needed from the client
Identify the areas which have greater audit risk so that the planning can be done accordingly
Prepare drafts of footnotes for new accounting standards so that there is smooth working while doing the audit and it becomes easy to explain the client regarding the new standards.
As each and every accounting entry can not be checked thus make some materiality level for example examining all entries where expense is more than Rs 10000.
To assess the internal control so that auditor can decide how much reliable is the information that is provided to him
Review the work of internal auditors
Auditor has to assess how much staff is required and how much time is required from each staff

Question 134.
Which one shall be kept in mind while carrying out audit?
a. High risk areas should be checked as others
b. High risk areas should be checked in detail
c. High risk areas should not be checked
d. High risk areas should be checked briefly
Answer:
c. High risk areas should not be checked

Hint:
Techniques of obtaining evidence

enquiry
observation
inspection
external confirmation
recalculation
Independent execution
analytical procedures

Question 135.
Which of the following is not a method of obtaining evidence
a. Observation
b. Confirmation
c. Declaration
d. Analytical review
Answer:
a. Observation

Hint:
Permanent files composed of documents, scheduled and other data that will be of continuing significance to several years audit. It is kept to record all data of a permanent nature which provides the necessary background information to the auditor from year to year.
Permanent audit file – Below mentioned are permanent audit file

the memorandum and Articles of Association.
The nature of the business.
Loan agreements
Documents related to internal control
The management set up.
The organization’s major Accounting policies
Leases
Significant audit observation of earlier years
Copies of important documents including title deed, agreements,, debentures deeds and letters of engagement,

Question 136.
Articles of Association of a company should be stored in a ………………………………..
a. Permanent audit file
b. Current audit’ file
c. System audit file
d. None of the above
Answer:
c. System audit file

Hint:
At the planning stage, the auditor sets the materiality levels.

Question 137.
In audit assignment, who among the following set the level of materiality?
a. Shareholders
b. Board of Directors
c. Auditor
d. Manager of the entity/department concerned.
Answer:
c. Auditor

Question 138.
Audit working papers are the property of:
a. Owner
b. Government
c. Auditor
d. Income Tax Department.
Answer:
c. Auditor

Question 139.
Primary responsibility for the adequacy of financial statement disclosures rest with The:
a. Auditor
b. Management
c. Auditor’s staff
d. Central Government.
Answer:
b. Management

Hint:
The primary responsibility for the adequacy of disclosure in the financial statements of a company rests with the management,

Question 140.
Which of the following is not an advantage of the preparation of audit 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 program
d. To provide a guide for advising another client on similar issues.
Answer:
d. To provide a guide for advising another client on similar issues.

Hint:
Importance of working papers

Working papers are important because they are necessary for audit quality control purposes
provide assurance that the work delegated by the audit partner has been properly completed as per audit programme.
in future if client files any Suit against the auditor for negligence then such papers are useful for auditor to defend himself as working papers are the property of auditor and remains with him.
provide evidence that an effective audit has been carried out
increase the economy, efficiency, and effectiveness of the audit
contain sufficiently detailed and up-to-date facts which justify the reasonableness of the auditor’s conclusions
retain a record of matters of continuing significance to future audits

Question 141.
Which of the following is not true about audit plan?
a. Audit plan lays out the strategies to be followed to conduct an audit
b. Audit plan is made to ensure that audit assignment is done smoothly
c. Audit plan is not made from audit programme
d. Audit plan is prepared considering the terms of engagement and statutory responsibilities.
Answer:
c. Audit plan is not made from audit programme

Hint:
Audit planning procedures are the first and perhaps the most important step in carrying out a successful audit.
Audit plan is followed by audit program which has the set of instructions to be followed when doing audit.
Following are the features of audit plan:

It lays out the strategies to be followed to conduct an audit.
Audit plan is made to ensure that audit assignment is done smoothly
Audit plan is prepared considering the terms of engagement and statutory responsibilities.

Question 142.
The nature, time and extent of audit procedure are covered under –
a. Audit Programme
b. Audit Execution
c. Audit Plan
d. None of the above.
Answer:
c. Audit Plan

Hint:
Audit Plan covers, the nature, timing and extent of audit procedure for conducting audit by engagement of team members.

Question 143.
Which of the following technique is used to ascertain the correctness of debtors balance in books?
a. Observation
b. Enquiry
c. Computation
d. Confirmation.
Answer:
d. Confirmation.

Hint:
Confirmation is a technique to obtain audit evidences.
External confirmation: obtaining a written confirmation directly from a third party, such as a bank or debtor.

Question 144.
For auditors, which of the following document generally contains the scope of work
a. Appointment letter
b. Terms of engagement
c. Offer letter
d. None of the above.
Answer:
b. Terms of engagement

Hint:
Before planning for an audit, the auditor form the terms of engagement.

Question 145.
Which of the following are techniques of gathering audit evidence?
X. Inspection
Y. Enquiry
Z. Observation
Correct option is
a. X and Y
b. Y and Z
c. X and Z
d. X, Y and Z.
Answer:
d. X, Y and Z.

Hint:
Techniques of obtaining evidence

enquiry
observation
inspection
external confirmation
recalculation
Independent execution
analytical procedures

Question 146.
Who is the custodian authority for audit working papers?
a. Shareholders
b. Managing Director
c. Company Secretary
d. Auditor.
Answer:
d. Auditor.

Hint:
Audit working papers are the property of auditor.

Question 147.
Audit working papers acts as a link between
a. Client records and audit reports
b. Audit report and financial statements
c. Auditor and his staff
d. None of these.
Answer:
a. Client records and audit reports

Hint:
Importance of working papers

Working papers are important because they are necessary for audit quality control purposes
provide assurance that the work delegated by the audit partner has been properly completed as per audit programme.
in future if client files any suit against the auditor for negligence then such papers are useful for auditor to defend himself as working papers are the property of auditor and remains with him

Question 148.
Which of the following is not recorded in current Audit Working file?
a. Financial statement in audit report
b. Audit programme
c. Confirmation responses
d. Articles of Incorporation
Answer:
d. Articles of Incorporation

Hint:
Current Audit file -Below mentioned are current audit file

An index to the file which guides its orderly compilation.
A copy of the duly signed financial statement being Audited and the trial balance.
Extract of minutes of meetings and correspondences relevant to the year under review.
adjusting journal entries
completion check list.
Letter of representation of attorneys
Audit programs
Internal control questionnaires
A scheduled of each major items in the balance sheet.
A schedule of each major items in the profit and loss account.
List of queries and their dispositions

Question 17.
Which of the following is dis-advantage of Audit programme?
a. Reduces scope of misunderstanding
b. Serve as evidence
c. Against charge of negligence
d. New area may be overlooked.
Answer:
d. New area may be overlooked.

Hint:
Disadvantages of Audit Program:

The audit work conducted becomes too mechanical.
Auditors may have covered the whole field but it can not be said with certainty that all the necessary work have been done
It kills the initiative of capable persons assistant can not suggest any improvement in the plan.
It needs change every year and if changes not made it may become too rigid in nature
Audit program is suitable only for large audits
New areas may be overlooked

Question 18.
Terms of engagement between auditor and client are given in
a. Audit Engagement Letter
b. Audit Plan
c. Audit Programme
d. None of these.
Answer:
a. Audit Engagement Letter

Hint:
The auditor and the client should agree on the terms of the engagement. The agreed terms would need to be recorded in an audit engagement letter

Question 19.
Which of the following is an example of external:
a. Carbon Copies of cheques
b. Bank statements
c. Employees time reports
d. Purchase order of company purchases
Answer:
b. Bank statements

Hint:
Bank statements are the statement which are given by the bank of a customer of his banking transactions. So, it is an example of external source.

Question 20.
Which of the following factors would least likely affect the quantity and content of an auditors working papers.
a. The nature of auditors report
b. The assessed level of control risk
c. The possibility of peer review
d. The content of management representation letter
Answer:
a. The nature of auditors report

Hint:
Audit working papers contain information from accounting and statistical records, personal observations, the results of interviews and inquiries, and other available sources. These papers are support to the audit work and provide assurance that audit was performed with the relevant auditing standards. Audit working papers are generally prepared at the time audit work is performed. Audit papers are link between clients records and audited accounts. Information in working papers is required to be kept confidential and if disclosed then it is a professional misconduct

Question 21.
An audit plan is an integral part of which of the:
a. Closing
b. Initiation
c. Reporting
d. Preparation
Answer:
b. Initiation

Hint:
Audit planning procedures are the first and perhaps the most important step in carrying out a successful audit. While developing an audit plan auditor should see that audit procedures should compliy with the Standard on Auditing (SAs)

Question 22.
The format of Audit programme is:
a. Prescribed in Companies Act
b. Prescribed in Chartered Accountants Act
c. Prescribed by appointing authority
d. Not prescribed in any law.
Answer:
d. Not prescribed in any law.

Hint:
Audit program depends on the size of the organization and there is no standard audit program.

Question 23.
The evidence gathered during investigation exercise are:
a. Corroborative
b. Corroborative and conclusive
c. Persuasive
d. Corroborative and Persuasive.
Answer:
b. Corroborative and conclusive

Question 24.
The methodology of audit planning is:
a. Not prescribed in any law
b. Prescribed in Companies Act, 2013
c. Prescribed in Chartered Accountants Act, 1949
d. Prescribed by the appointing authority.
Answer:
a. Not prescribed in any law

Question 25.
Which of the following are techniques of gathering audit evidence? (x) Inspection (y) Enquiry (z) Observation. Correct option is:
a. x and z only
b. y and z only
c. x and y only
d. x, y and z.
Answer:
d. x, y and z.

Hint:
Techniques of obtaining evidence

enquiry
observation
inspection
external confirmation
recalculation
Independent execution
analytical procedures