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B. Vouching
C. Verification
D. Checking
B. To examine
C. To hear
D. To investigate
B. Watch dog
D. None of these
B. Testing
C. Vouching
D. Verification
6: Auditing is compulsory for____________?
B. Partnership firms
B. Misappropriation
C. Lapping
D. None of these
B. Are responsible for ensuring that the company pays its tax by the due date
C. Safeguard the company’s assets and manage them on behalf of the shareholders
C. Because the risk to the accounts of their being incorrectly stated is greater
C. He is responsible for detection and prevention of frauds and errors in financial statements
B. Error of commission
C. Compensating error
D. Error of principle
14: When an auditor is proposed for removal from office, which one of the
following is he NOT permitted to do?
A. Circulate representations to members
16: Assuming that it is not the first appointment of the auditor, who is
responsible for the appointment of the auditor?
The shareholders in a general meeting
c. the shareholders
B. A matter is material if the auditor and the directors both decide that further work needs to be done in the area
under question
D. A matter is material if its omission or misstatement would reasonably influence the decisions of an addressee
of the auditors’ report
C. Considering the work to be done by the client staff e.g. internal audit
D. Considering whether the financial statements show a true and fair view
22: Audit risk is composed of 3 factors. Which of the following is NOT one of
those factors?
Compliance risk
B. Detection risk
C. Control risk
D. Inherent risk
23: Which of the following should NOT be considered at the planning stage?
A. The timing of the audit
B. Analytical review
C. The risk that the sample does not reflect the population
D. The risk of the auditor reaching the wrong conclusions from testing
B. Pervasive selection
C. Random selection
D. Haphazard selection
27: Which of the following are you unlikely to see in the current file of
auditors’ working papers?
Memorandum & articles of association
29: Which of the following is normally the most reliable source of audit
evidence?
A. Internal audit
B. Suppliers’ statements
C. Board minutes
D. Analytical review
B. The design of the internal controls and the implementation of the control system
C. The implementation of the controls and the correctness of the accounting records
D. The design of the internal control system and the correctness of the accounting records
31: According to ISA 315, which of the following is NOT an element of the
control environment?
A. Participation of management
B. Information processing
C. Commitment to competence
32: According to ISA 315, which of the following is NOT a control activity?
A. Performance reviews
B. Physical controls
C. Organizational structure
D. Segregation of duties
B. Looping
C. Embezzlement
D. Hacking
34: Goods sent on approval basis’ have been recorded as ‘Credit sales’. This
is an example of____________?
Error of principle
B. Error of commission
C. Error of omission
D. Error of duplication
B. Internal control system reduces the possibility of occurrence of employee fraud and management fraud
C. The auditor’s responsibility for detection and prevention of errors and frauds is similar.
D. By a government auditor
B. Management
C. Government
D. Law
C. Concurrent audit
B. Continuous audit
B. Completed audit
C. Final audit
D. Detailed audit
B. 1956
C. 1961
D. 1972
43: Which of the following statements is not true about continuous audit?
A. It is conducted at regular interval
D. It is expensive
B. Internal auditor
B. Errors of principle
C. Compensating errors
B. Checking of Wastages
C. Under valuation of assets
C. Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of an informed
decision maker who will rely on the financial statements
D. At the planning state, the auditor considers materiality at the financial statement level only
50: When issuing unqualified opinion, the auditor who evaluates the audit
findings should be satisfied that the___________?
A. Amount of known misstatement is documented in working papers
51: In determining the level of materiality for an audit, what should not be
considered?
A. Prior year’s errors
B. Market price
B. Market price
58: Of the following, which is the least persuasive type of audit evidence?
A. Bank statements obtained from the client
59: Which of the following statements is, generally, correct about the
reliability of audit evidence?
A. To be reliable, evidence should conclusive rather than persuasive
C. Will increase proportionately when the auditor decreases the assessed level of control risk
B. Disproportionately
C. Directly
D. Inversely
B. When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
65: What would most appropriately describe the risk of incorrect rejection
in terms of substantive testing?
A. The auditor concludes balance is materially correct when in actual fact it is not
B. The auditor concludes that the balance is materially misstated when in actual fact it not
C. The auditor has rejected an item for sample which was material
D. Both A and C
67: What would most effectively describe the risk of incorrect acceptance in terms of substantive audit testing?
The auditor has ascertained that the balance is materially correct when in actual fact it is not
B. The auditor concludes the balance is materially misstated when in actual fact is not
C. The auditor has rejected an item from sample which was not supported by documentary evidence
B. The client
C. The audit assistants
69: The working papers which auditor prepares for financial statements
audit are___________?
A. Evidence for audit conclusions
C. Auditor’s qualification
D. Control risk
71: Which of the following best describes the primary purpose of audit
programme preparation?
A. To detect errors or fraud
C. To gather sufficient
72: The auditor’s permanent working paper file should not normally,
include__________?
Extracts from client’s bank statements
73: For what minimum period should audit working papers be retained by
audit firm?
A. For the time period the entity remains a client of the audit firm.
74: Which of the following factors would least likely affect the quantity and
content of an auditor’s working papers
A. The assessed level of control risk
B. They should be considered as the principle support for the auditor’s report
C. They should not contain details regarding weaknesses in the internal control system
D. They help the auditor to monitor the effectiveness of the audit firm’s quality control
76: Which of the following statement best describes the understanding with
respect to ownership and custody of working papers prepared by an auditor?
The working papers may be obtained by third parties when they appear to be relevant to issues raised in
litigation
B. The safe custody of working papers is the responsibility of client, if kept at his premises
C. The working papers must be retained by an audit firm for a period of 10 years
D. Successor auditors may have access to working papers of the predecessor auditors. The approval of client is not
required.
77: The current file of the auditor’s working papers, generally, should
include____________?
A. A flowchart of the internal controls
B. Organization charts
C. A copy of financial statements
Introduction to Accounting
Short Questions & Answers
Q.1. DEFINE BUSINESS?
Ans. Any legal activities in a country undertaken for earning profit is called business.
Ans: There are three kinds of business.
1. Manufacturing ii. Merchandise Trading iii. Service.
Q.3. DEFINE BUSINESS TRANSACTION?
Ans. Business transaction means dealing with two persons like acquiring and giving.
Q.4. WHAT IS CASH TRANSATION?
Ans. When cash is received or paid for commodities and goods, called cash transaction.
Q.5. WHAT IS CREDIT TRANSACTION?
Ans. When goods or services are bought or sold on credit it is called credit transaction.
Q.6. WHAT IS CAPITAL?
Ans. That amount and assets like machinery, Furniture invested in business by the owner is called
Capital.
Q.7. DEFINE DRAWINGS?
Ans. Goods or Cash taken away by the owner of the business for his domestic use is called
Drawings.
Q.8. DEFINE TERM PURCHASES?
Ans. Goods are bought in a business for earning profit is called purchases.
Q.9. DEFINE CASH PURCHASES?
Ans. When goods are purchased and Payment is made in cash is called Cash purchases.
Q.10. DEFINE CREDIT PURCHASES?
Ans. When goods are purchased from a business on account is called credit Purchases.
Q.11. DEFINE TERM PURCHASES RETURN?
Ans. When goods are not supplied by the supplier according to the sample. These are returned to
Supplier is called Purchases Return.
Q.12. DEFINE TREM SALES?
Ans. When merchandise are purchased for earning profit and these goods sold on credit or on
Cash is called Sales.
Q.13. DEFINE CASH SALES?
Ans. Goods are sold and Cash received, it is called Cash Sales.
Q.14. DEFINE CREDIT SALES?
Ans. When goods are sold on account to a person is called credit Sales.
Q.15. DEFINE TERM SALES RETURN?
Ans. Defective goods returned by a customer are called sales return.
Q.16. DEFINE TRADE DISCOUNT?
Ans. That amount which is paid or received less than list price is called trade discount. It is not
Recorded in the books of accounts.
Q.17. DEFINE CASH DISCOUNT?
Ans. Fewer amounts received from debtor or paid to creditor are called Cash discount. It is recorded in
The books of accounts.
Q.18. DEFINE COMMISSION?
Ans. When services are performed by one to another person is called commission.
Q.19. DEFINE EXPENDITURE?
Ans. That amount which is paid for purchase of Assets is called expenditure.
Q.20. DEFINE TERM EXPENSES?
Ans. That amount which is paid for operating the business is called expenses.
Q.21. DEFINE TERM DEBTOR/ACCOUNTS RECEIVABLE?
Ans. Total credit amount of a business receivable from different persons is called “Debtor.”
Q.22. DEFINE TERM CREDITOR/ACCOUNTS PAYABLE?
Ans. Total credit amount of a business payable to different peoples is called “Creditor”.
Q.23. DEFINE ASSETS?
Ans. Some goods which are not for sale in a business is called assets like Machinery, Equipment
And furniture etc.
Q.24. DEFINE LIABILITIES?
Ans. That amount which is payable in a business to other and its owner is called liabilities.
Q.25. WHAT IS A VOUCHER?
Ans. All business transactions are recorded on a printed slip. This slip is called voucher and used for
Evidence.
Q.26. DEFINE GOODS OR PURCHASES?
Ans. Those goods which are purchased in a business for earning profit are called goods.
Q.27. DEFINE STOCK?
Ans. Those goods which are remained unsold at the end of each year are called stock.
Q.28. DEFIFNE EQUITY?
Ans. The persons have right to claim against the assets of a business is called equity.
Q.29. DEFINE ACCOUNTING?
Ans. Accounting is an art of recording, classifying and summarizing of a business transactions and
Events of a financial character and interpreting the results there of.
Q.30. WHAT ARE NAMES THE STAGES OR FUNCTIONS OF ACCOUNTING?
Ans. There are four functions of accounting.
Record ii. Classifying Summarizing 4Interpretation
Q.31. DEFINE RECORDING IN ACCOUNTING?
Ans. In this stage the transactions are recorded chronologically in the books of account.
Q.32. DEFINE CLASSIFYING IN ACCOUNTING?
Ans. In this point the transactions of the same or similar nature are classified and recorded
Separately.
Q.33. DEFINE SUMMERIZING IN ACCOUNTING?
Ans. All the necessary date and information are summarized on the basis or classified record of
Transactions and communicated to management and other interested people.
Q.34. DEFINE INTERPRETATION IN ACCOUNTING?
Ans. To k now the true position of a concern all the accounting data and information relating to a
Business is analyzed and interpreted.
Q.35. WHAT DO YOU MEAN BY BOOK KEEPING?
Ans. It is an art of recording business transactions in the books of account in a proper manner.
Q.36. WHAT ARE THE MAIN BRANCHES OF ACCOUNTING?
Ans. Three are three branches of accounting. i. Financial Accounting.
1. Cost Accounting iii. Management accounting
Q.37. DEFINE FINACIAL ACCOUNTING?
Ans. In this, main financial statements are prepared for the use of outsider like banks, financial
Institution and creditors etc.
Q.38. DEFINE COST ACCOUNTING?
Ans. In cost accounting the cost of product is calculated and it helps the management to control of
Price or cost.
Q.39. DEFINE MANAGEMENT ACCOUNTING?
Ans. That accounting which provides important information to the management for discharging its
Function.
Q.40. DEFINE REVENUE?
Ans. Those incomes which are earned, received or receivable in business.
Q.41. WRITE THE SYSTEMS OF ACCOUNTING?
Ans. There are two systems of accounting, i. Cash system. ii. Accrued system.
Q.42. DEFINE CASH SYSTEM OF ACCOUNTING?
Ans. In this system only those accounting entries are recorded when cash is received or paid.
Q.43. DEFINE ACCRUED SYSTEM OF ACCOUNTING?
Ans. In this system only those accounting entries are made on the basis of amount having become due
for payment or receipt.
Q.44. WRITE THE NAME OF PARTIES INTERESTED IN THE BUSINESS INFORMATION?
Ans. There are many parties interested in business information such as followings:
1. Proprietor ii. Creditor’s iii. Investors IV. Customers
2. Management VI. Employee’s vii. Government
Q.45. DEFINE DOUBLE ENTRY BOOK KEEPING?
Ans. When two aspects of a transaction are recorded in a business is called double entry book
Keeping.
Q.46. DEFINE SINGLE ENTRY BOOK KEEPING?
Ans. When only one aspect of a transaction is recorded is called single entry book keeping