Types of Audit – CS Foundation Fundamentals of Accounting and Auditing Notes

→ In the earlier times audit implies the auditing of accounts but later various types of audit came into existence. Audit can be divided into two categories on the basis of law

Audit which is prescribed by a state/legislation e.g. Company audit as per Companies Act, audit of Banking Companies, electricity supply companies, public and charitable trust, co-operative schemes which have been set up under the Act of Parliament and other audits required as per law
Audit done voluntarily such as audit of proprietorship, partnership firm, HUF etc.
Moreover audit can again be divided on the basis of scope of work such as management audit, internal audit etc.

→ Various Types of audit
(a) Internal audit
(b) Cost audit
(c) Tax audit
(d) Financial audit
(e) Secretarial audit
(f) Bank audit
(g) Co-operative Societies Audit
(h) Trust audit
(i) Insurance audit
(j) Partnership audit
(k) Sole Proprietorship audit
(l) Government audit
(m) Management audit
(n) Functional audit
(o) Propriety audit
(p) Efficiency audit

→ Internal audit
Section 138 of the Companies Act, 2013 contains provisions regarding internal audit. As per Companies Act, 2013, certain class or classes of company as may be prescribed shall appoint an internal auditor who will conduct an audit of the functions and activities of the company and make a report thereon to the Board of Directors.The role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively.

→ According to Rule 13 of The Companies (Accounts) Rules, 2014 following class or classes of companies shall be required to appoint an internal auditor or firm of internal auditors
(a) Every listed company;

(b) Every unlisted public company having:

Paid up share capital of 50 crore rupees or more during the preceding financial year; or
Turnover of 200 crore rupees or more during the preceding financial year; or
Outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore rupees or more at any point of time during the preceding financial year; or
Outstanding deposits of 25 crore rupees or more at any point of time during the preceding financial year; and

Turnover of 200 crore rupees or more during the preceding financial year; or
Outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore rupees or more at any point of time during the preceding financial year.

→ Objectives of Internal audit

Internal audit is an independent appraisal function established by the management of an organisation
It helps in keeping a control over the business activities. The examination and evaluation of the adequacy and effectiveness of internal control systems provide the reasonable assurance to managers and help them to improve the effectiveness of governance.
It helps to determine whether controls over financial and operating data provide managers with reasonable assurance that the financial and operating data is accurate and reliable
It helps to perform special administrative requests, special projects, investigations due to allegations of fraud, theft, waste, abuse etc as requested by management and recommend control improvement.
Purpose of internal audit is To report all internal audit findings to the appropriate level of management and Audit Committee.
It evaluates so there is Proper economic and effective use of resources.
It helps to determine whether controls over compliance with policies, procedures, plans, laws and regulations provide managers with reasonable assurance that proper compliance actually occurs
To coordinate Internal Audit services with the external auditors
To keep the Audit Committee and management aware of emerging trends regarding internal controls, risk management and governance
To check if any errors in the accounting records
To define the duties and liabilities of the staff so that a proper check can be placed if any negligence
to determine whether controls over assets provide managers with reasonable assurance that assets exist and are protected against loss that could result from theft, fire,
to determine whether controls over operations and programs provide managers with reasonable assurance that the operations and programs are being carried out as planned,
to determine whether controls over compliance with policies, procedures, plans, laws and regulations provide managers with reasonable assurance that proper compliance actually occurs
to do performance appraisal
to give new ideas relating to procedures, marketing etc.

→ Benefits of Internal Audit

an internal audit can help to identify risks, which may lead an entity to fail in achieving its performance and profitability targets
It helps in reviewing the progress of the entity
Auditing begins when accounting ends thus auditing helps in finding out the errors in accounting
It aid in preventing a loss of assets and resources
It ensures reliable financial reporting
helps in complying with laws and regulations
is to provide assurance to management and a level of comfort to the Audit Committee, Boards of Directors and external stakeholders that the company has a strong control environment
it helps in investigating any matter which owners or management may be doubtful about
internal auditing helps to encompass all areas of risk management
Companies can assess whether the controls and procedures they have put in place are adequate to mitigate the identified risks
Allows for professional development of people
When management extends the internal audit scope to include evaluation of enterprise risks, this can enhance the effectiveness and efficiency of processes by identifying duplication and redundant activities.
To identify strengths and weaknesses within departments and recommend corrective action
To prevent potential risk of Fraud, Waste and Abuse
Limitations of Internal audit
Staff size limitations may obstruct efforts to properly segregate duties. If adequate staff is not there then the implementation of compensating controls to ensure that objectives are achieved can not be done
A limitation in any system is the element of human error, misunderstandings, fatigue and stress.
The cost of implementing a specific control should not exceed the expected benefit of the control.
A time lag is also a hindrance for effective internal control. As it is known that auditing starts when accounting ends, thus there is a time lag between recording and checking which makes the work a little difficult

→ Financial Audit or Statutory Audit

Statutory Audit is often called financial Audit.
Sections 139 to 147 under chapter X of the Companies Act, 2013 contain provisions regarding statutory audit and auditors.
Section 139 contains that at the first annual general meeting every company shall appoint an individual or firm as it auditor who will hold office from the conclusion of that meeting till the conclusion of the sixth annual general meeting
Section 141 contains that a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant and in case of a firm whereof majority of partners practising in India are qualified for appointment
It uses an independent body to examine a business’ financial transactions and statements
The ultimate purpose of this form of auditing is to present an accurate account of a company’s financial business transactions.
Determines if there are sufficient controls over cash and other assets and if adequate process controls exist for the acquisition and use of resources.
Section 143 which contains provisions regarding powers and duties of auditors

→ Cost Audit
According to Chartered Institute of Management Accountants, London (CIMA), cost audit is “the verification of the correctness of cost accounts and of the adherence to the cost accounting plan”. In simple words the term cost audit means a systematic and accurate verification of the cost accounts and records and checking of adherence to the objectives of the cost accounting. Ministry of Corporate affairs has made cost audit compulsory for companies engaged in fertilizer, bulk drug, sugar, telecommunication, industrial alcohol and electricity & petroleum

→ Duties of cost auditor

Whether the planned expenditure is designed to give optimum results
Whether the return from expenditure on capital and current operations could be improved if some other alternate plan of action is used
Whether the size and channels of expenditure used produced the best results
Examine the correctness of the cost records maintained by the concern

→ Secretarial Audit
Secretarial audit is a compliance audit. It is a process to check compliances made by the Company under Corporate Law & other laws, rules, regulations, procedures
A Company Secretary in Practice has been assigned the role of Secretarial Auditor in section 2(2)(c)(v) of The Company Secretaries Act 1980.

→ Features of secretarial audit

Determines if departments are complying with applicable laws, roles and regulations, and maintaining various records and registers
It assures the owners that management and affairs of the company are being conducted in accordance with requirements of laws, and that the owners’ stake is not being exposed to undue risk.
Recommendations from these audits usually require improvements in processes and controls used to ensure compliance with regulations
The secretarial audit can assist bodies like SEBI, Stock Exchanges, Financial Institutions, Banks, etc. to gauge or measure the levels of compliance and non-compliance by the companies
To provide comfort to investors that the company has been conducting its affairs in accordance with laws

→ Regulations regarding secretarial audit
As per section 204 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, following companies are required to obtain ‘Secretarial Audit Report’ form independent practicing company secretary:

Every listed company
Every public company having a paid-up share capital of Fifty Crore rupees or more; or
Every public company having a turnover of Two Hundred Fifty Crore rupees or more.

→ “Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]

→ Secretarial Audit is also mandatory to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies

→ Other Audits
(1) Tax audit:
In India tax audit is compulsory for certain assessee whose turnover or receipts exceed the specified limit, of Tax audit are

Audit of accounts of assessees having total sales, turnover or gross receipts exceeding the specified Rs. 1 crore for business and Rs.25 lakhs for profession for previous year is compulsory
Objective of this audit is to assist the tax authorities in making the correct tax liability
Tax auditor has to specify transactions which have an effect on tax liability
For availing certain deductions and exemptions audit report is required to be submitted.

(2) Bank Audit
A large amount of public funds are handled by banks thus it is required to assess that statement of accounts reveal a true picture. Features of Bank audit are

auditors have to certify that statement of accounts of the bank as at the closure of the half year/financial year reveal true and fair view of the Bank’ financial position
every provision for non performing asset/bad debts has been made and there is no hidden NPA
Banking Regulation Act, 1949 contains the provisions relating to the maintenance of accounts and their audit.
It acts as a regulatory measure on Banks

(3) Co-Operative Society Audit
Co-Operative Society are just like companies and have separate ownership from its members. Since only a small number of members are managing the Society thus an audit of the accounts is compulsory as per Law. Features of audit are

An auditor Has to check whether provisions related to Co-Operative Act Rules and bye-laws have been followed
As affairs of the society are often handled by non technical people thus auditor is required to report on this aspect also.

(4) Trust Audit
An independent financial audit gives an assurance to the people who create trust that the purpose for which they have created trust is being fulfilled and no fraud is going on. Features of Trust Audit are

In India as per Income Tax Act, 1961 some of the income earned by trust is not included while computing the income earned for tax purpose, thus a true and fair accounts is required so no fraud is done regarding the payment of Income Tax.
Auditor Verifies the accuracy and appropriateness of individual trust accounts
Just to safeguard the interest of the trust beneficiary sometimes a compulsory audit of the trust is mentioned in the trust deed itself

(5) Insurance Audit
The insurance audit is a process common to the insurance industry Features are

An audit to ensure customer has paid no more than the appropriate premium for his exposure
Auditor should be conversant with IRDA,1999
An audit is an examination of insurance company’s operation, records and books of account

(6) Partnership Firm Audit
Audit of partnership firm is not compulsory & even the Partnership Act 1932 is silent about this. Features of audit are

Auditing the accounts of a partnership firm helps in detecting errors & frauds & verification of financial statements
Banks & financial institutions lend money to the firms only on the basis of audited accounts thus an audit is beneficial
Helps in proper calculation of goodwill
Audit should be done as per the partnership deed and Partnership Act

(7) Sole Proprietorship Audit

Audit is not required to be done by an independent auditor
No legal requirement to get the audit done
Audit assures that accountant has managed the books and prepared accounts in a proper way

(8) Government audit
Auditing is essential to government accountability to the public. Features of audit are

Audits provide an independent, objective, nonpartisan assessment of the financial transactions of the Government.
It is the duty of Comptroller and Auditor General of India (C&AG) to audit the receipts and expenditure of the Union Government and Sate Government.
Government audit also includes the audit of Government Companies conducted by C&AG in accordance with the Companies Act, 2013 and other relevant legislations
As Government officials entrusted with public resources are responsible for carrying out public functions legally, effectively, efficiently, economically, ethically, audit provides a check on it.

(9) Management Audit
A management audit can be defined as an audit which analyzes the effectiveness of the management team of a company
Features of audit are:

Evaluation of actual performance with targeted performance
Some of the events that call for a management audit are top management changes, mergers and acquisitions etc.
The objective of a management audit is not to appraise individual executive performance, but to evaluate the management team in relation to their competition.

(10) Functional audit
The objective of a functional audit is to provide an independent evaluation of a function, with respect to system, process, input and output.
Features of audit are:

It is to evaluate the effectiveness of the department process and find out the shortfall.
corrective measures are taken to remove the shortfalls

(11) Propriety audit
It is a form of management audit which helps the management to find the inefficiency in the system.
Features of this audit are:

Expenditure is analyzed so that improper and unnecessary expenditure colud be identified although the expenditure has been done in conformity to rules and regulations

(12) Efficiency audit
Efficiency audit is related to that whether corporate plans are effectively executed.
Features of audit are:

It assess how efficiently the system is being performed
It is also known as performance audit
Auditor investigates the reasons of variances in actual performance and planned performance.
It also investigates that capital resources of company are properly utilized or not.
To identify unprofitable practices, the performance audit is helpful. It may analyze one department or the whole organization as per the requirement
Efficiency audit might analyze the, maintenance and implementation of resources, such as equipment, to identify areas that require improvement.
Program audits analyze performance to determine whether a program or department is effectively accomplishing its goals

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

Question 1.
Statutory audit is to be done by
a. A practicing Chartered Accountant or a firm of practicing Chartered Accountants
b. A practicing Company Secretary or a firm of practicing Company Secretaries.
c. A practicing Cost Accountant or a firm of practicing Cost Accountants
d. None of the above
Answer:
a. A practicing Chartered Accountant or a firm of practicing Chartered Accountants

Hint:
Section 141 contains that a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant and in case of a firm whereof majority of partners practising in India are qualified for appointment.

Question 2.
Balance sheet audit includes verification of:
a. Assets
b. Liabilities
c. Income accounts and expenses accounts wherever appropriate
d. All of the above
Answer:
d. All of the above

Hint:
Balance Sheet audit involves the verification of all the balance sheet items which involves both assets and liabilities as well as verification of income and expenses accounts whenever required.

Question 3.
The audit conducted by Comptroller and Auditor General of India is a form of
a. Bank Audit
b. Financial Audit
c. Routine Audit
d. Government Audit
Answer:
d. Government Audit

Hint:
Government audit also includes the audit of Government Companies conducted by C&AG in accordance with the Companies Act, 2013 and other relevant legislations.

Question 4
……………………………….. is useful for the purpose of cost control, cost reduction and proper utilization of scarce resources
a. Financial Audit
b. Cost Audit
c. Secretarial Audit
d. Tax Audit
Answer:
b. Cost Audit

Hint:
The term cost audit means a systematic and accurate verification of the cost accounts and records and checking of adherence to the objectives of the cost accounting. Ministry of Corporate affairs has made cost audit compulsory for companies engaged in fertilizer, bulk drug, sugar, telecommunication, industrial alcohol and electricity & petroleum

Question 5.
Who can order management audit?
a. Workers of a company
b. Central Government
c. Board of Directors
d. Securities and Exchange Board of India
Answer:
c. Board of Directors

Hint:
A management audit can be defined as an audit which analyzes the effectiveness of the management team of a company. Thus, the Board of Directors in whose hands the management of the company rests can order the management audit.

Question 6.
Cost Audit is
a. Mandatory for all companies
b. Mandatory for manufacturing companies covered by Cost Audit Report Order
c. Mandatory for all trading companies
d. Mandatory for all manufacturing companies
Answer:
b. Mandatory for manufacturing companies covered by Cost Audit Report Order

Hint:
Ministry of Corporate affairs has made cost audit compulsory for companies engaged in fertilizer, bulk drug, sugar, telecommunication, industrial alcohol and electricity & petroleum

Question 7.
Statutory audit of a company is
a. Mandatory
b. Voluntary
c. Recommendatory
d. Voluntary but recommendatory
Answer:
a. Mandatory

Hint:
The ultimate purpose of Statutory audit is to present an accurate account of a company’s financial business transactions. Statutory audit is mandatory for companies.

Question 8.
Who appoints an internal auditor?
a. Shareholders of the company
b. Statutory auditor
c. Institute of the Internal auditors of India
d. Board of Director of the company
Answer:
d. Board of Director of the company

Question 9.
Ram is a chartered accountant working as proprietor. His gross receipts are Rs. 50 Lakhs for the year. Which type of audit will necessarily be applicable for him?
a. Statutory audit
b. Tax audit.
c. Internal audit
d. None of the above.
Answer:
b. Tax audit.

Hint:
As per the Income tax act every person carrying on the business whose turnover or gross receipts exceeds Rs. 1,00,00,000 (Rs. 25,00,000 in case of profession) in the previous year shall get his accounts audited.

Since, Ram is a chartered Accountant which means Ram is carrying on a profession and is gross receipt i.e. Rs. 50,00,000 exceed the limit of Rs. 25,00,000, he is required to get Tax Audit done.

Question 10.
In comparison to the independent auditor, an internal auditor is more likely to be concerned with:
a. Cost accounting system
b. Internal control system
c. Legal compliance
d. Accounting system.
Answer:
b. Internal control system

Hint:
The role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively.

Question 11.
Which of the following is primarily carried out to ascertain the cases of improper, avoidable and infructuous expenditure?
a. Propriety aud.
b. Statutory audit
c. Tax audit
d. Functional audit.
Answer:
a. Propriety aud.

Hint:
Under propriety audit, the expenditure is analysed with a view to ascertain the cases of improper, avoidable and infructuous expenditure. There is no legal requirement to get the audit done but Audit assures that accountant has managed the books and prepared accounts in a proper way.

Question 12.
In general, the scope of management audit is
a. Flexible
b. Rigid
c. Prescribed by law
d. Prescribed by the appointing authority.
Answer:
a. Flexible

Hint:
It is not mandatory but is recommendatory. Thus, its scope is flexible.

Question 13.
The statutory auditor of a company can act as
a. Internal Auditor
b. Cost Auditor
c. Tax Auditor
d. None of the above.
Answer:
c. Tax Auditor

Hint:
Tax auditor and statutory auditor means one and the same thing. Thus, statutory auditor of a company can acts as a tax auditor.

Question 14.
In general, what is the period covered in a statutory audit?
a. 1 Year
b. 2 Year
c. 3 Year
d. Depending upon the auditor’s wish.
Answer:
a. 1 Year

Hint:
Statutory audit covers the period of one financial year thus a period of one year.

Question 15.
As per the Company Act, 2013, which of the following audit is voluntary for all companies in India:
X. Secretarial Audit
Y. Statutory Audit
Z. Cost Audit
W. Internal Audit
Correct option is
a. X and Y
b. X and W
c. X and Z
d. X, Y, Z andW.
Answer:
b. X and W

Hint:
As per Companies Act, 2013, certain class or classes of company as may be prescribed shall appoint an internal auditor who will conduct an audit of the functions and activities of the company.
Statutory Audit is mandatory for the public companies.
Secretarial audit is voluntary
Ministry of Corporate affairs has made cost audit compulsory for companies engaged in fertilizer, bulk drug, sugar, telecommunication, industrial alcohol and electricity & petroleum

Question 16.
Who appoints the auditor for government company
a. Comptroller and Auditor
b. Shareholders
c. Central Government
d. Directors.
Answer:
a. Comptroller and Auditor

Hint:
“Comptroller and Auditor General of India” appoints the auditor for Government company.

Question 17.
Statutory Audit is to be done by
a. A practicing Chartered Accountant or a firm of practicing CA.
b. A practicing CS or a firm of practicing CS
c. A practicing cost accountant or a firm of practicing cost accountant
d. None of the above.
Answer:
a. A practicing Chartered Accountant or a firm of practicing CA.

Hint:
Eligible person to be appointed as auditor – Section 141 contains that a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant and in case of a firm whereof majority of partners practising in India are qualified for appointment.
Statutory audit is done by Chartered accountant.

Question 18.
Which of the following is voluntary audit.
a. Internal Audit
b. Tax Audit
c. Cost Audit
d. Statutory Audit
Answer:
a. Internal Audit

Hint:
Internal audit is voluntary as there is no obligation to conduct this audit. Although As per Companies Act, 2013, certain class or classes of company as may be prescribed shall appoint an internal auditor who will conduct an audit of the functions and activities of the company and make a report thereon to the Board of Directors.

Question 19.
Income tax Audit is conducted under
a. Income Tax Act
b. Banking Regulation Act
c. Companies Act
d. Insurance Act.
Answer:
a. Income Tax Act

Hint:
Tax audit is the audit of accounts required under the Income Tax Act, 1961.

Question 20.
Who can do a Bank Audit?
a. C.A.
b. C.S.
c. CMA
d. All of the above.
Answer:
a. C.A.

Hint:
Bank audit is done by chartered Accountant.

Question 21.
The given statement regarding bank audit “Adequate Provision for nonperforming assets/ Bad debts has to be made in the books” is
a. True
b. False
c. Partly True
d. Partly False.
Answer:
a. True

HInt:
Features of Bank audit are

auditors have to certify that statement of accounts of the bank as at the closure of the half year/financial year reveal true and fair view of the Bank’ financial position
every provision for non performing asset/bad debts has been made and there is no hidden NPA
Banking Regulation Act, 1949 contains the provisions relating to the maintenance of accounts and their audit.
It acts as a regulatory measure on Banks

Question 22.
Tax audit is conducted ……………………… number of times in a year.
a. 1
b. 2
c. 3
d. ‘n’ no. of times.
Answer:
a. 1

Hint:
Tax audit is done for one financial year i.e. one year.

Question 23.
Which type of audit may be conducted by organisation’s staff?
a. Internal Audit
b. External Audit
c. Cost Audit
d. Tax Audit.
Answer:
a. Internal Audit

Hint:

Internal audit is an independent appraisal function established by the management of an organisation
It helps in keeping a control over the business activities. The examination and evaluation of the adequacy and effectiveness of internal control systems provide the reasonable assurance to managers and help them to improve the effectiveness of governance.
It is conducted by internal auditors

Question 24.
Who will be responsible for errors in audit report if external auditor relies on the work of internal auditor?
a. External Auditor
b. Internal Auditor
c. Both (a) and (b)
d. Management.
Answer:
a. External Auditor

Hint:
The opinion of the external auditor, an independent expert assures the owners about the reliability of the financial statements. To prove his utility an external auditor needs to check all the details of the financial statements and will be considered responsible for any errors.

Question 25.
Cost Audit is compulsory for
a. Fertilization Company
b. Sugar Company
c. Tele Communication
d. All of the above.
Answer:
d. All of the above.

Hint:
Ministry of Corporate affairs has made cost audit compulsory for companies engaged in fertilizer, bulk drug, sugar, telecommunication, industrial alcohol and electricity & petroleum.

Question 26.
Why auditing cannot be done by internal audit staff?
a. (a) Biased nature
b. Incapable staff
c. Both (a) & (b)
d. None of the above.
Answer:
a. (a) Biased nature

Question 27.
Provisions related to bank audit is given in:
a. Banking Regulation Act, 1949
b. Companies Act, 2013
c. Income Tax Act, 1961
d. None of the above.
Answer:
a. Banking Regulation Act, 1949

Question 28.
Audit is:
a. Internal
b. External
c. Both (a) and (b)
d. None of the above.
Answer:
c. Both (a) and (b)

Hint:
Audit are Internal as well as External. Internal audit is when the management appoints auditor while external audit comprises of statutory audit, etc as demanded by law.

Question 29.
Which of following audits are done every year?
(i) Tax Audit
(ii) Statutory Audit
(iii) Concurrent Audit
a. (i) & (ii)
b. (ii) & (iii)
c. (i) & (iii)
d. All of the above:
Answer:
a. (i) & (ii)

Hint:
The Tax Audit and Statutory Audit are the audits which are done every year while concurrent audit is voluntary.

Question 30.
The cost auditor is to Judge whether the planned expenditure is designed to give optimum result. This exercise may be categorised as:
a. Operation audit
b. Financial audit
c. Efficiency audit
d. Management audit
Answer:
c. Efficiency audit

Hint:
The cost auditor is to judge whether the planned expenditure is designed to give optimum result. This exercise may be categorised as efficiency audit which refers to comparing the actual results with the desired/projected results.

Question 31.
For a tax audit, the specified limit given under Income tax Act, 1961 for a person carrying on business shall be:
a. Turnover exceeds Rs. 40,00,000 in the previous year
b. Turnover exceeds Rs.1,00,00,000 in the previous year
c. Turnover is below Rs.40,00,000 in the previous year
d. Turnover is below Rs.60,00,000 in the previous year
Answer:
b. Turnover exceeds Rs.1,00,00,000 in the previous year

Hint:
As per the Income Tax Act, 1961, every person carrying on business whose turnover or gross receipts exceeds Rs. 1,00,00,000 (Rs. 25,00,000 if carrying on profession) in the previous year shall get his accounts audited.

Question 32.
Consider the following statements about Bank Audit in India? (X) The Bank audit may be done by any person who possesses the prescribed qualification Le. CA, CS and CMA (Y) one of the objectives of Bank audit is to ascertain the adequacy of the provisions of Non-performing assets in Bank. On the basis of above.
a. Statement X is false and statement Y is true
b. Statement X and statement Y both are false
c. Statement X is true and statement Y is false
d. Statement X and statement Y both are true.
Answer:
a. Statement X is false and statement Y is true

Hint:
Features of Bank audit are

auditors have to certify that statement of accounts of the bank as at the closure of the half year/financial year reveal true and fair view of the Bank1 financial position
every provision for non performing asset/bad debts has been made and there is no hidden NPA
Banking Regulation Act, 1949 contains the provisions relating to the maintenance of accounts and their audit.
It acts as a regulatory measure on Banks

Question 33.
An auditor of a partnership firm is appointed as per ……………………………..
a. Status
b. Agreement
c. Convention
d. Government Orders.
Answer:
b. Agreement

Hint:
Presently partnership firms in India are not legally bound to get their financial statements audited. Thus partnership firm can appoint an auditor for auditing as per their agreement.

Question 34.
Cost audit is useful for the purpose of proper utilization of scarce resources through (i) cost control (i1) cost reduction (iii) cost minimisation. The options are:
a. II and III
b. I and II
c. I, II and III
d. I and III
Answer:
b. I and II

Hint:
Benefits of Cost audit:

It ensures that cost control and cost reduction techniques are followed.
It ensures efficient utilization of scarce resources.
It ensures that unit has been running economically and efficiently
It ensures that proper cost records are maintained.

Question 35.
The statutory auditor is duty bound to enquire whether ……………………………. expenses have been charged to ……………………………… Account.
a. Fixed, Revenue
b. Personal, Revenue
c. Personal, Capital
d. Capital, Profit and Loss
Answer:
c. Personal, Capital

Question 36.
For a tax audit, the specified limit given under Income Tax Act, 1961 for a person carrying on business shall be:
a. Turnover exceeds (Rs. 1,00,00,000 in the previous year
b. Turnover exceeds (Rs.40,00,000 in the previous year
c. Turnover is below (Rs.40,00,000 in the previous year
d. Turnover is below (Rs.60,00,000 in the previous year.
Answer:
a. Turnover exceeds (Rs. 1,00,00,000 in the previous year

Hint:
As per Income Tax Act, every person carrying on business whose turnover or gross receipts exceeds Rs. 1,00,00,000 (25,00,000 if. carrying profession) in previous year shall get his accounts audited.

Question 37.
In India, the audit of co-operative society:
a. Voluntary
b. Mandatory
c. Mandatory on satisfying certain criterion
d. Mandatory for some specified class of societies.
Answer:
b. Mandatory

Hint:
Audit which is prescribed by a state/legislation e.g. Company audit as per Companies Act, audit of Banking Companies, electricity supply companies, public and charitable trust, co-operative schemes which have been set up under the Act of Parliament and other audits required as per law

Question 38.
The audit conducted by CAG (Comptroller Auditor General of India) is a form of:
a. Propriety Audit
b. Statutory Audit
c. Bank Audit
d. Routine Audit
Answer:
b. Statutory Audit

Hint:
Government audit includes the audit of Government Companies conducted by C&AG in accordance with the Companies Act, 2013 and other relevant legislations. It is a statutory audit.