FINANCIAL SYSTEM & AUDITING

BBA-3
BB0013
1-Mark
1. Accounting to which sec the remuneration of an auditor is defined.
Sec 248 (4)

Sec 224 (8)

Sec 442 (2)

Sec 448 (8)

2. ___________ refers to seeking information & explanations from knowledgeable persons

inside & outside the entity under audit.
Observation

Inspection

Confirmation

Inquiry

3. A audit programme is a detailed plan of the auditing work to be performed, specifying

the procedure to b followed in verification of each item in the financial statements & giving
the estimated time required. This definition is defined by
Prof. Meigs

Montgomery

Government agency

S K peglar

4. Internet control are established over only financial area

True

False

5. The term audit is derived from the _________ word audire

Latin

French

German

Italian

6. _______ is an act of recording the business transactions on the book of original entry &
the ledgers.
Accounting

Accountancy

Book keeping

Losting

7. When an entry in a book of original entry has been made twice and also been ported twice
is an error of
Compensation Duplication

Principle

Omission

8. Which of the following is the transaction which is not suitable for test checking
Cash book entries
Both a & b

Opening & closing transaction

None of the above

9. Clerical errors are committed in

Posting

Totaling

Balancing

All of the above

10. External & Internal audit is divided on the basis of

Legislative control

Periodicity

Coverage

Relation of auditor and mgt.

11. In _________ audit, there is no statutory compulsion to get the accounts audited.
Private audit

Government audit

Statutory audit

External audit

12. The statutory or external audit is financial audit

True

False

13. _________ audit is that where the auditor checks each and every transactions right from
its origin in the books of prime entries till they are posted.
Balance sheet audit

Statutory audit

Management audit

Vouch & post audit

14. Vouching is meant the verifications of the authority and authenticity of transactions as
recorded in the book of accounts is defined by
Depaula

R B Bose

Joseph Lancaster None of the above

15. Breach of trust or duty means

Liability for negligence
Liability for trust

Liability for misfeasance

Liability for contract

16. Which of the following is secured loan

Capital reserves

Debentures

Fixed deposits

Sinking fund

17. The management audit has been defined as a comprehensive critical review of all
aspects of process of management.
T G Tokhe

Taylor and Perry

Depaula

W P Leonard

18. The system of surprise checks recommended by the council of the ICAI in
Nov 1975

Oct 1972

Dec 1979

Nov 1960

19. Documentary evidence is Documentary evidence is examined by the auditor to evaluate

whether document is
Authentic

Property authorized

Appropriate

All of the above

20. Cash can be misappropriated by

Omitting to enter any cash which has been received
Making fictitious entries n the payment side of the cash book
Entering less amount than actually received
All of the above
21. Auditing is luxury for small concern business but not for large concern.
True

False

22. All the workers must insert ________ into the clock which records the time on it at the
time of workers enter the gate.
Attendance card

Time card

Overtime card

Recording card

23. Which of the following is an example of primary voucher.

Cash memos Copies of receipt issued to debtors
Carbon copies of sale invoice
All of above
24. Auditor is not a valuer and cannot expected to act as such.
True

False

25. The assets which cannot be put to constant uses are ___________.
Wasting assets

Intangible assets

Floating assets

Fixed assets

26. If interest on loan has not been paid, the auditor should see that it is shown as ________.
Direct expense

Indirect expense

Liability

Deferred expenses

27. The document through which the auditor communicates his opinion is known as
Auditing

Auditors opinion

Audit report

Primary document

28. The audit report should be signed by

Top management

Charted accounted

Auditor

CEO

29. Under current assets which of the following items are not disclosed
Stores & spare parts
Neither of above

Interest accrued on investment

Both of above

30. Current liabilities disclosed in balance sheet are

Unclaimed dividend
Uncalled liability in respect of shares
Arrers of dividend in respect of cumulative preference shares
All of the above
31. __________ are those documents which consist details about accounts which are under
audit.
Audit working paper Auditors document

Evidence document Audit note book

32. When a transaction has been recorded but has been wrongly entered in the books of
original entry a posted in the ledger. This have been made an error of
Omission

Commission

Off-setting

Principle

33. The vouching of the Debit side of the cash book is more difficult than that of the
Credit-side since only indirect evidences are available
True

False

34. Concealment of a shortage by delaying the record of cash receipt is known as

Leeming

Lading

Laping

Teeming

35. As regards wages, the auditor has to see that

The wages as recorded in the cash book has actually been paid
Such a payment was duty authorized
Neither of above
Both a & b
36. Brokers bought note, pass book, share certificate are the vouchers used for the
Payment under hire purchase agreement
Remuneration to directors

Purchase of investment
Payment of taxes

37. Which of the following quality is not considered under personal qualities
Impartial

Vigilance

Diligence

Neither of above

38. The main concern of ______ audit is with the examination of past records mainly
financial records.
Statutory audit

Management audit

Cost audit

Public audit

39. Which of the following is the advantages of cost-audit for the shareholder
The system of budgetary control & standard costing will be greatly facilitated
It facilitates settlement of trade disputes
It assured them of a fair return on their investment
All of above
40. Choose correct option given as the objective of management audit
The management audit obtain efficiency & effectiveness of the management
To suggest ways & means for the achievement of objective
To evaluate performance by relating inputs with output
All of the above
-------------------------------------------------------------------------------------------2-Marks
41. The three type of cash sales are
Cashier sale, sale at count, post sale
Pre-sale, on sale, post sale
Sale at counter, postal sale, sale by traveling agents Neither of above
42. ________ audit scope is to check the financial records while _________ audit scope
comprises the operating areas.
Management, cost

Cost, statutory

Statutory, management

Cost, management

43. Cost auditor should pay special attention to the record of

Material, labor

Overheads, labor Depreciation, WIP

All of above

44. Which of the following audit is to be carried out every year

Statutory audit, private audit
Commercial audit, statutory audit

Private audit, public audit

Neither of above

45.
1. Operational audit is carried out by internal auditors
2. Operational credit is review of operations of an entity
1, 2

Only 2

Only 2

Neither 1 & 2

46. The auditor should examine the entries in the cash book with the help of _______ issued
by the _______.
Cash memo, supplier
Cash memo, customer

Purchase receipt, supplier

Receipt invoice, supplier

47. The remuneration is fixed by ________ or by ________.

Owner, shareholder
Agreement, partnership

Agreement, investors
Investor, creditors

48. Which of the following statement is not correct

When the number of investments is very large, the auditor should insist upon asking for a
schedule of investment held by his client
He should verify he existence of investment by his personal inspection
Both 1 & 2

Only 1

Only 2

Neither 1 & 2

49. Which of the following asset are not physically visible

Fictitious assets
Intangible assets
1, 5

Floating assets

2, 5

1, 4, 5

Current assets

wasting assets

1, 2, 4, 5

50. The auditors opinion expressed in the audit report may be

Unqualified, negative, qualified
Adverse, favorable

Positive, negative
All of the above

51. Which of the following are the limitation of management audit

Not regularly undertaken
Costly

Lack of expert knowledge

Lack of suitable standard

1, 2

2, 3, 4

2, 4

1, 2, 3, 4

52. __________ can perform the work of cost audit while ________ can be conducted by an
independence person.
Cost, financial

Cost management

Management, cost

Financial, management

53. If _______ fails to appoint the auditor, the ________ shall appoint the first auditor in
general meeting.
Company, executive

BOD, company

Company, BOD

CEO, company VP

54. An auditor must be very cautious and ________. He must have _______ to accomplish
his task and to set an example before his subordinates.
Methodical, vigilance
Impartial, methodical

Vigilance, diligence
Diligence, vigilance

55. ________ audit is conducted in between the two annual audits with a view to find out
interim profits to enable the co. to declare dividend.
Periodical

Occasional

Interim

Financial

56. Which of the following statement is correct

The book of original entry can be thoroughly checked & the errors can be easily detected
routine checking is a device for audit work
1&2

Only 1

Only 2

Neither 1 & 2

57. If auditor is authorized to issue prospectus, he is also liable for untrue statement in
prospects. This is defined under which sec.
Sec 233

Sec 610

Sec 477

Sec 63

58. _______ audit aim at improving complying with the established policies & procedure &
________ audit aims at ensuring reliability of financial accounts & data external, internal.
External, internal

Internal, independent

Management, cost

Statutory, private

59. The auditor should enquire the system of internal check prevailing for the script &
payment of cash & not down the weak points.
True

False

60. Purchase invoice is _________ voucher and carbon copies of sale invoice is _______
vouchers.
Primary, secondary

Collateral, primary

Secondary, primary Neither of above

61. Match the following

A.
1. It is a price at which a particular asset can be replaced
2. It is a price paid for the acquisition of an asset
3. It is the value which it will bring when sold in the market
4. It is the value at which an asset appears in the book of accounts
B.
1. Book value
1-1, 2-3, 3-4, 4-2

2. Replacement value

3. Cost price

4. Market value

1-3, 2-4, 3-2, 4-1 1-4, 2-3, 3-4, 4-1 1-4, 2-3, 3-1, 4-2

62. Match the following points with appropriate conventions

A.
1. The accounting practices should remain the same person one year to another
2. Secret reserves are not permitted
3. Various type of revenues and expenses properly grouped must also be disclosed
B.
1. Conservatism
1-2, 2-3, 3-1

2. Disclosure

3. Consistency

1-1, 2-3, 3-2

1-3, 2-1, 3-2

1-3, 2-2, 3-1

1-1, 2-3, 3-2

1-3, 2-1, 3-2

1-3, 2-2, 3-1

63.3. Consistency
1-2, 2-3, 3-1

63. Errors are classified into types and they are

Clerical error
Specific errors
1, 2, 3, 4

Errors of duplication
Compensating errors
1, 2, 4, 6

2, 3, 5, 6

Error of deletion
Error of principle
1, 2, 4, 5

64. The auditor should keep in mind which of the following points to control over use of
receipt book
All receipt are on printed forms
All receipt & receipt book should be combined
Along with cash receipt, the rule for granting cash discount should be examined
The receipt to be signed by only foreman
The particulars, as regard date, amount & name etc on receipt should be compared with
book
IF there are entries in the cash book for which receipt have not been issued, they should
be carefully checked
1, 2, 3, 4

2, 3, 5, 6

1, 3, 5, 6

1, 2, 4, 5

65.
1. When evidences in original are not available, copies of the original evidences are
produced in support
2. The auditor should check the salary book & then compares it with the entries I the cash
book
3. Confirmation consists of witnessing a process or procedure bring performed by other
4. Audit programmer server as a guide to juniors who will not need repeated instructions .
Which of the above statements are true
Only 2, 3

3, 4

1, 3, 4

1, 2, 4

66. Arrange the following steps in order for the security of documents & procedure by the
auditor
He should go through the rules& regulations i.e. memorandum of association & articles
of association
The auditor should examine the system of internal check in operation
If there are technical details about the business, they should be inquired
He should examine the method of maintaining accounts
The auditor should go through the P & L A/c & balance sheet of the previous year
1, 2, 4, 3, 5

1, 3, 5, 4, 2

1, 4, 2, 3, 5

2, 1, 3, 5, 4

67. The auditor should examine the articles of association of the company for which of the
following matter
Issue of share capital
Calls in advance
Dividend s& reserves Particulars of any contract
Underwriting of shares
Duties of directors
1, 2, 3, 4, 5, 6 1, 2, 3 4, 7, 8

Forfeiture & reissues of shares

Qualification of director

2, 4, 6, 7, 8 1, 2, 3, 4, 5, 6, 7, 8

68. Which of the following statement has to be considered by the auditor for the postal sale.
The goods returned should be entered in the register
The amount received daily from postal sales should be recorded in the cash book
If some amount received from the customer in advance that should also be entered into
VPP register properly
The VPP register should be frequently examined by some responsible office
1, 2, 3, 4

2, 3, 4

1, 2, 3

1, 3, 4

70. Which of the following given statements are not correct

Government audit can be considered as internal audit
Commercial audit is a periodical audit & is conducted after a fixed period
Private audit is purely optional
The auditor required for private audit need to be a qualified or professional auditor
Neither

Only 2, 4

71.
1. Interim audit
5. Operational audit

Only 4

2. Occasional audit
6. Coast audit

Only 3 & 4

3. Financial audit
7. Standard audit

Choose the above type of audit on the basis of subject matter of audit
1, 2, 3, 5, 7
3, 4, 5, 6, 8 3, 4, 5, 6, 7, 8
1, 2, 3, 6, 8

4. Tax audit
8. Management audit

72. Match the following type of document with the appropriate terms
A.
1. Those papers & documents which consists of details about accounts which are under audit
2. The document in which he note down the important points and enquires which he has to
refer to the officials of his clients
B.
1. Audit note book
2. Audit working papers
1-1, 2-2
1-2, 2-1
1-1, 2-1
1-2, 2-2
73. Match the different method of finding out cost prices of stock.
A.
1. In this method each article, batch & parcel of consignment is valued at its individual cost
2. In this method the whole of the stock is valued at the rate of latest consignment purchased
3. Here, the stock is valued at the rate of earliest purchase were made
4. In this method the stock is valued at a predetermined cost per unit
B.
1. Standard cost
2. LIFO
3. FIFO
4. Unit cost
1-1, 2-3, 3-4, 4-2
1-4, 2-3, 3-2, 4-1 1-4, 2-2, 3-3, 4-1 1-1, 2-2, 3-3, 4-4
74. Arrange the following steps of audit in depth in sequence.
Testing
Ascertainment
Assessment
1, 3, 2
1, 2, 3
2, 3, 1
2, 1, 3
75. Clerical errors are divided into
Embezzlement of cash, misappropriation of goods
Error of omission, error of commission
Answers:
1-B
6-C
11-A
16-B
21-A
26-C
31-A
36-B
41-C
46-C
51-D
56-B
61-C
66-C
71-B

2-D
7-B
12-A
17-A
22-B
27-C
32-B
37-D
42-C
47-C
52-B
57-D
62-C
67-B
72-B

3-A
8-C
13-D
18-A
23-A
28-C
33-A
38-A
43-D
48-D
53-B
58-B
63-B
68-A
73-B

Errors of cash& related items

All of the above
4-B
9-D
14-A
19-D
24-A
29-C
34-C
39-C
44-C
49-A
54-B
59-A
64-C
69-C
74-B

5-A
10-D
15-B
20-D
25-C
30-A
35-D
40-D
45-A
50-A
55-C
60-A
65-D
70-C
75-C