MODEL QUESTION PAPER SUBJECT CODE : MF0013 SUBJECT : Internal Audit and Control

SECTION A 1. Who issues Accounting Standards (AS) and Standards on Auditing (SAs) in India? a. The Institute of Chartered Accountants of India (ICAI) b. The Institute of Cost and Works Accountants of India (ICWAI) c. The Institute of Companies Secretaries of India (ICSI) d. All of the above

2. Normally, in case of a limited company, an auditor is appointed by the................. a. Shareholders b. Board of Directors c. Chairman d. Government of India

3. Who can act as an auditor of a company? a. Cost Accountants b. Chartered Accountants c. Company Secretaries d. M.B.As

4. Which one is a kind of General Audit? a. Cost audit b. Internal audit c. Tax audit d. Interim audit

5. Which one is a kind of Specific Audit? a. Management audit b. Independent audit c. Government audit d. Internal audit

6. The statutory auditor is a representative of -----------a. Shareholders of the company. b. Board of Directors c. Employees d. Government

7. Internal Audit is an examination carried out by the-------a. Employee of the organization. b. Outside audit firm specially appointed for the purpose . c. Chief Finance officer (CFO) d. The employee of the organization or outside audit firm specially appointed for the purpose

8. Which one is the ultimate objective of internal audit? a. Suggesting improvements b. Safeguarding and adequate utilization of business assets c. Enhancing reliability of Management Information System (MIS) d. Evaluation of business control system

9. In an ideal situation, to whom an internal auditor should report in an organization? a. External auditor b. Chief Finance officer c. Company secretary d. Highest authority

10. Who determines the scope and objectives of an internal audit? a. Management b. Statutory auditor c. Shareholders d. Internal auditor himself

11. Which of the following is one of the principles of code of ethics for Internal Auditors? a. Confidentiality b. Independence c. Honesty d. Tactfulness

12. Name the tool which auditors use to communicate of audit directions to their assistants. a. Audit programme b. Audit procedure c. Audit policy d. Audit manual 13. What is last phase of Internal Audit Planning? a. Internal audit programme. b. Acquiring of knowledge of internal control processes c. Development of an overall internal audit plan d. Development of internal audit policies 14. What is the full form of GAAPs? a. Generally Accepted Accounting Principles b. Generally Accepted Accounting Practices c. Generally Accepted Accounting Policies d. Generally Accepted Accounting Programmes 15. Which matters from the following, an internal auditor must consider in developing his overall audit plan? a. The terms of his engagement and any statutory responsibilities or professional obligations. b. The companys annual reports to shareholders. c. New or closed premises and plant facilities. d. Relevance of the audit reports given by the statutory auditors. 16. What is the utility of audit programme? a. Evaluation of internal control system. b. Study of existing accounting practices of the organization. c. To achieve the audit objectives within a scheduled time frame. d. Collection of all necessary information regarding business of the organization 17. When designing an audit sample, the auditor should consider the specific audit -------a. techniques b. policies c. objectives d. programme

18. Tolerable error is considered during the -------a. Planning stage b. Execution stage c. Reporting stage d. Follow up stage

19. 'Authorization and approval of transactions' is a specific example of: a. Preventive Controls b. Detective Controls c. Accounting Controls d. Administrative Controls

20. Based on functions internal controls can be classified into two those are: a. Preventive Controls and Accounting Controls b. Preventive Controls and Detective Controls c. Accounting Controls and Detective Controls d. Accounting Controls and Administrative Controls

21. Who is ultimately responsible for establishing an effective internal control in a company? a. Internal auditor b. Statutory auditor c. Management d. Shareholders

22. Upon receipt of a requisition, the purchase department should send inquiry letter to the listed suppliers for quotation of -------a. Price b. Delivery terms c. Price and Delivery terms d. Price, freight and delivery terms.

23. What are the appropriate basis for Proper division of work amongst employes? a. Qualification and experiences b. Aptitude and attitude c. Qualification , experiences, aptitude and attitude d. Qualification, experiences and attitude

24. The mechanism of compulsory checking of every individuals work, by another, helps directly in -------a. increasing the reliability of books of account and records b. early detection of errors and frauds c. increasing the profitability of Business d. appropriate division of work

25. What is the full form of RDBMS? a. Relative Database Management Systems b. Rotational Database Management Systems c. Relational Database Management Systems d. Reverse Database Management Systems

26. How many types of Application controls are there ? a. Five b. Four c. Three d. Two

27. Which one is a kind of General Electronic Data Process Control? a. Hardware controls b. Output controls c. Processing controls d. Input controls

28. For having an effective internal control system for cash and bank balances, who should carried out surprise verification of cash periodically? a. Cashier b. Accounts officer c. Internal auditor d. Manager

29. Into how many categories, Stocks can be classified? a. Four b. Three c. Two d. Five

30. Whose payment out of the following should be made out of petty cash? a. Wages b. Rent c. Interest d. Postage 31. Which Section of the Sarbanes-Oxley Act is known as the claw back provision. a. 304 b. 305 c. 306 d. 307

32. If the requirement for narration is slightly bigger, where the narration should be given on the flow chart? a. At the top of the chart b. At the bottom of the chart c. At the left of the chart d. At the right of the chart

33. 'Reporting and reviewing reconciliations' is related to which component of Internal control system in banks? a. Control Environment b. Risk Recognition and Assessment c. Control Activities d. Segregation and Rotation of Duties

34. Name the letter through which the communication of inadequacies and weaknesses in the internal control system is made by the auditor. a. A .Letter of weaknesses b. Letter of inadequacies and weaknesses c. Letter of inadequacies d. Letter from auditor 35. Through which Standard Auditing Practices (SAP) , ICAI has issued Basic Principles Governing an Audit . a. SAP 4 b. SAP 3

c. SAP 2 d. SAP 1

36. Which one is not an inherent limitation of internal control? a. managements consideration that a control be cost-effective b. It cannot prevent all frauds c. the potential for human error d. the possibility that a person responsible for exercising control could abuse that authority

37. In case of Related party transactions, an auditor has to report whether reasonable steps have been taken by the company for recovery of the principal and interest, in case If overdue amount is more than ----------a. Rs. 4,00,000 b. Rs. 3,00,000 c. Rs. 2,00,000 d. Rs.1,00,000

38. What is the full form of NCLT? a. New Company Law Tribunal b. National Company Law Tribunal c. National Corporate Law Tribunal d. New Corporate Law Tribunal

39. Which one out of the following is not a requirement for a computer audit program system? a. Simplicity b. Adaptability c. Highly technical d. Understandability

40. What is the full form of CAATs? a. Computer Assisted Audit Technology b. Computer Assisted Accounting Techniques c. Computer Assisted Audit Tools d. Computer Assisted Audit Techniques

SECTION B 41. In early days, what was the primary objective of Auditing? a. Detection of fraud b. Prevention of error c. Correctness of Accounts d. Safeguarding of assets 42. Which one is not a primary concept of philosophy of Auditing? a. Evidence b. Due audit care c. Good presentation d. Independence 43. Which one is a different audit in nature with rests? a. Internal audit b. Independent audit c. Cost audit d. Governmental Audit 44. Who is primary responsible for the selection and application of accounting policies? a. Statutory auditors b. Management c. Internal auditors d. Shareholders 45. Who determines the scope of internal audit in an organization? a. Management b. External auditor c. Internal auditor d. Shareholders 46. Upon receipt of a requisition, the purchase department should send inquiry letter to the listed suppliers for --------a. Quotation of the price b. Freight c. Delivery terms d. Quotation of the price, freight and delivery terms.

47. The internal auditor should possess necessary expertise to evaluate: a. business control systems b. financial control systems c. accounting control systems d. business control systems, especially financial and accounting controls

48. The internal auditor should necessarily follow the key fundamental principles of audit namely: a. integrity b. objectivity c. professional diligence d. all of the above

49. Why the stages of internal audit planning may be different for in house internal audit department and outside audit firm conducting internal audit? a. The in house internal audit departments have less independence than an outside audit firm. b. The in house internal audit departments have less expertise than an outside audit firm. c. The in house internal audit department will have more knowledge about the business of the organization than an outside audit firm. d. The in house internal audit department has more time to conduct the audit than an outside audit firm.

50. The form and extent of the overall audit plan of an internal auditor depends upon ----a. The size of the audit b. The complexity of the audit c. The size and complexity of the audit d. The size , complexity and nature of the audit 51. Under which SA, ICAI has described regarding Audit Evidence. a. SA 500 b. SA 400 c. SA 300 d. SA 200

52. "Mr. X who had custody over incoming cash receipts with the help of B, who was responsible for processing and recording those receipts, to misappropriate cash by non-recording of cash receipts." This is an example of which type of inherent limitations of internal control? a. Manipulation by Management b. Human error c. Possibility of collusion d. Managements consideration that a control be cost effective

53. In an effective internal check system, which department should check and authenticated all the prepared wages sheets? a. Accounts department b. Personnel department c. Internal audit department d. Production department

54. In a well-designed computer systems. Audit trails are often -------a. More intensive than those maintained in manual systems. b. More extensive than those maintained in manual systems. c. More accurate than those maintained in manual systems. d. More authentic than those maintained in manual systems.

55. For having an effective internal control system for cash and bank balances, The cashier should not have control over : a. Books of Account b. Securities and negotiable instruments c. Sales invoices and credit notes d. Any of the above

56. Which point out of the following is the most crucial for formulating a scheme of internal control? a. Distribution of duties b. Rotation of duties c. Understanding various stages of a transaction d. Review

57. A risk that signifies a material misstatement could occur but would not be prevented or detected by internal control system is called . a. Control risk b. Inherent risk c. Business risk d. Financial risk

58. An accounting system can be defined as the series of tasks in an entity by which transactions are processed as a means of maintaining --------a. Statistical records b. Production records c. Financial records d. Operational records

59. Under which section of the Companies Act 1956, the auditor is required to make a report to the members of the company ? a. 227(2) b. 227(3) c. 227(4) d. 227(5)

60. An auditor want to calculate the bad debts to sales ratio for the present year and compare it with the past years , which function he should perform under GAS ? a. Examination and review of records based on auditors criteria b. Summarizing data and performing analysis c. Testing calculations and making computations d. Comparing data on separate files

SECTION C 61. Who is primarily responsible for safeguarding the assets of a company? a. Directors b. Internal Auditors c. Shareholders d. Statutory Auditor

62. Which of the following item is an important part of Balance sheet audit? a. Wages and Salaries b. Printing and Stationary c. Advertisement d. Inventories 63. Out of the following objectives of internal audit, which one is the modern objective? a. Evaluation of business control system b. Compliance with standard policies and procedures c. Cost benefit analysis d. Safeguarding and adequate utilization of business assets 64. Which of the following is one of the actions for achieving compliance of security integrity? a. Avoid taking part in activities or relations which may damage his/her unbiased assessment. b. Perform his/her job honestly, diligently and with responsibility. c. Avoid accepting anything that may damage his/her objective professional assessment. d. Protect his/her objectivity against political influence. 65. Inherent risk is a function of ----a. the entitys business and its environment b. the nature of the account balance c. class of transactions d. all of above

66. When designing an audit sample, the auditor should consider the specific audit -------a. techniques b. policies c. objectives d. programme 67. Name the stated objectives of internal control. a. Reliability of financial reporting b. Effectiveness and efficiency of operations c. Safeguarding of assets d. All of the above

68. Which one of the following is a disadvantage of internal check? a. Expensive b. Complacency among high official c. Does not reduce the risk of the auditor d. All of the above 69. If you are using a minicomputer or microcomputer, how you will determine whether any incompatible functions have been performed by system users? a. By frequently changing the systems users. b. By creating an inbuilt capability to provide a secure record of changes. c. By maintaining a strong internal audit department d. By appointing accounting personnel who has better computer knowledge 70. Who should check records regarding time and piece wages of permanent and casual workers? a. Production department b. Internal audit department c. Personnel department d. Accounts department 71. Which questionnaire, regarding fixed assets, given below is not required? a. Who authorize the sale, or transfer of fixed assets? b. Who authorize revenue expenditure? c. How it is being ensured that capital and revenue expenditure are separately recorded? d. Who maintain fixed assets registers? 72. The nature and extent of the procedures performed by the auditor to obtain an understanding of the accounting and internal control systems generally depend on: a. Nature of policies or kind of procedures b. Changes in operating environment c. Size and complexity of the business d. All of the above 73. Which one of the following is not a direct objective of Internal Control? a. The orderly and efficient conduct of its business b. Maximization of profit c. The safeguarding of assets d. Prevention and detection of fraud and error

74. According to SA 230, Documentation, issued by the Institute of Chartered Accountants of India, which one is not a part of audit working papers? a. Evidence obtained during the audit examination b. Details of the methods and procedures followed by the auditor during such examination c. Appointment letter of auditor d. Conclusions reached by him as regards the objects of the audit

75. Which one of the following is a common weakness related to the nature of EDP processing? a. Computerized data may not be retained for as long as manually prepared accounting data. b. Poor security for master files- they may be tempered with or lost. c. Poor facilities in case of misfortunes e.g. fire, breakdowns etc. d. Lack of control over computer service personnel.