Chapter 1 Nature of Auditing MCQs Rohit Sir PDF

Chapter 1 Nature of Auditing
Multiple Choice Question:-

1. ……………….. is an independent examination of financial information of any
entity, Whether profit oriented or not, and irrespective of its size or legal
form, when such an examination is conducted with a view to expressing an
opinion.
a. Auditing
b. Investigation
c. Verification
d. Checking 2.
2. Which of the following are not the objectives of auditing?

a. Expression of opinion
b. Detection of frauds and errors
c. Financial statements provide true and fair view
d. To submits the accounts to Government of India
3. The objective of the audit is

a. to finalise the accounts of the audit client.
b. to provide investment advisory and other management service.
c. to express opinion on the financial statement.
d. all the above
4. The financial statement includes

a. Profit and loss account, Balance sheet
b. Cash Flow statement, Notes to accounts
c. Receipts and payments account
d. all the above
5. Users of financial statement includes

a. Management, Shareholders, Employees
b. Financial institutions, Suppliers, Customers
c. Government
d. all the above
6. …………………….. is defined as a systematic and independent examination of

data, statements, records, operations and Performances (financial or
otherwise) of an entity for a stated purpose.
a. Investigation
b. Auditing
c. Verification
d. Checking
7. External Auditors are appointed by .............

a. Shareholders
b. management
c. financial institutions
d. all the above
8. Internal Auditors are appointed by ................

a. Shareholders b.
b. management
c. financial institutions
d. all the above
9. The scope or me alum work is specified by the management for

a. external auditor
b. branch auditor
c. joint auditor
d. internal auditor
10. Who is responsible to express opinion on the true and fair view of the
financial statement?
a. external auditor
b. joint auditor
c. internal auditor
d. both a and b
11. Who is responsible to report to the management on the compliance of

procedures with accounting, financial and administrative controls?
a. branch auditor
b. joint auditor
c. internal auditor
d. both a and b
12. Fraud does not comes into picture due to, due to auditor was not negligent
a. Constructed as failure of audit
b. Not constructed as failure of audit
c. Draw management attention
d. None
13. To ensure the financial statements as a whole are free from material
misstatement is the
a. scope of audit.
b. aspects to be covered under the audit.
c. objectives of audit.
d. all the above
14. The audit should be organized to cover adequately all aspects of the
enterprise relevant to the financial statements being audited, is one of the
merit consideration in regard to
a. scope of audit.
c. objectives of audit.
d. None
15. In forming his opinion, the auditor should also decide whether the relevant
information is properly disclosed in the financial statements subject to
statutory requirements, where applicable. Is one of the merit consideration
in
a. score of audit.
c. overall objectives of audit.
d. it the above
16. State which of the following statement is not true with reference to the
scope of audit?
a. To form an opinion, the auditor should be satisfied accounting information is
reliable and sufficient as the of the financial statements.
b. all & aspects of the enterprise to be covered in audit.
c. the professional skill required of an auditor includes that of a technical expert
for determining physical condition of certain assets.
d. None
17. The principal aspects to be covered in an audit concerning final statements
of account are
i. An examination of the system of accounting and internal control.
ii. Reviewing the system and procedures.
iii. Checking of the arithmetical accuracy of the books of account.
iv. The audit should be organized to cover adequately all aspects of the
enterprise relevant to the financial statements being audited.
a. Only (iv)
b. Both (iii) and (iv)
c. Except (iv)
18. Which of the following involves detailed examination of some specific areas?
a. Auditing
b. Vouching
c. Investigation
d. Verification
19. Which of the following governed by Standards on related services?

a. Auditing b.
b. Vouching
c. Investigation
d. Compilation engagements
20. Which of the following two options are not correct with reference to audit?
a. The objective here is to establish a fact.
b. The inherent limitation of auditing are more.
c. Scope of the audit is derived from the terms of engagement.
d. The evidence are persuasive in nature.
21. Which of the following audit is not required under law?

a. Companies governed by the Companies Act, 2013,
b. Partnership firm, HUF
c. Specified entities under various section of the Income Tax Act 1961
d. Public and charitable trust
22. The chief utility of audit lies in reliable financial statements on the basis of
which the state of affairs may be easy to understand. Apart from this obvious
utility, other advantages of audit are
a. It safeguards the financial interest of persons who are not associated with the
management.
b. Audit ascertains whether the necessary books of account and allied records
have been properly kept.
c. Government may require audited and certified statement before it gives
assistance or issues a license for a particular trade.
d. All the above
23. Relationship of auditing with other disciplines includes

i. Auditing and Production
ii. Auditing and Data Processing
iii. Auditing and Law
iv. Auditing and Accounting
v. Auditing and Statistics & Mathematics
a. Except (ii)
b. All (iii) ,(iv), (v)
c. Except (i)
d. All the above
24. It naturally calls on the part of the auditor to have a thorough and sound
knowledge of generally accepted principles of accounting before he can
review the financial statements which of the following discipline matches
the above statement?
a. Auditing and Financial Management
b. Auditing and Statistics & Mathematics
c. Auditing and Accounting
d. All the above
25. ................................... along with other disciplines such as accounting and

law, equips you with all the knowledge that is required to enter into auditing
as a profession.
a. Auditing
b. Taxation
c. Finance
d. Taxation and Finance both
26. The IAASB achieves this objective by

a. Establishing high quality auditing standards and guidance for financial
statement audits.
b. Establishing high quality standards and guidance for other types of assurance
services on both financial and non-financial matters.
c. Establishing high quality standards and guidance for other related services.
d. All the above
27. Publishing other pronouncements on auditing and assurance matters,

thereby advancing public understanding of the roles and responsibility of
professional auditors and assurance service providers State which of the
following achieves the objectives with reference to the above
a. ICAI b.
b. IAASB
c. AASB
d. None
28. ICAI constituted the ………………….(erstwhile Auditing Practices Committee)

to review the existing auditing practices in India and to develop Engagement
and Quality Control Standards
a. AASB
b. IFAC
c. IAASB
d. None
29. The IFAC Board has established the IAASB to develop and issue, in the
…………………… and under its own authority, high quality auditing standards
for use around the world.
a. own interest
b. public interest
c. guideliness issued
d. All the above
30. Who has established the IAASB?

a. ICAI
b. IFAC
c. Central government
d. None
31. …………………. is a member of the IFAC and is committed to work towards
the implementation of the guidelines issued by the IFAC.
a. The Institute of Chartered Accountants of India
b. Auditing Practices Committee
c. Auditing and Assurance Standards Board
d. All the above
32. Auditing Practices Committee has been converted into

a. IFAC
b. ICSI
c. AASB
d. IAASB
33. The IAASB aims to set ………………. international auditing and assurance
standards that are understandable, clear and capable of consistent
application, thereby serving to enhance the quality and uniformity of
practice worldwide
a. easy use of
b. high quality
c. guidance for
d. assurance service on
34. Standards on auditing aspects covered in the series SA 300-499 is

a. Introductory matters
b. Risk assessment and response to assessed risk
c. Specialised areas
d. General principles and responsibilities
35. Standards on auditing aspects covered in the series SA 100 - 199 is



a. Audit evidence
d. Using work of others

a. Audit conclusions and reporting

a. Audit conclusions and reporting
41. Which of the following apply in the audit of historical financial information?
a. SREs
b. SAEs
c. SRSs
d. SAs
42. Which of the following apply in the assurance engagements, dealing with
subject matters other than historical financial information?
a. SREs
b. SAEs
c. SRSs
d. SAs
43. Which of the following apply in the review of historical financial

information?
a. SREs
b. SAEs
c. SRSs
d. SAs
44. Which of the following apply to engagements to apply agreed upon

procedures to information and other related service engagements such as
compilations engagements?
a. SREs
b. SAEs
c. SRSs
d. SAs
45. Which of the following is mandatory, with a view to securing compliance by

members on matters which, in the opinion of the Council, are critical for
the proper discharge of their functions.
a. Statements
b. Guidance Notes
c. Both a and b
d. None
46. Guidance Notes are in nature.

a. recommendatory b.
b. mandatory
c. critical for the proper discharge
d. all the above
47. Scope of audit of financial statement will be determined by

a. Terms of engagement
b. Requirement of relevant legislation
c. Pronouncements of ICAI
d. All the above
General Questions related to Audit:
48. Which of the following is not a kind of audit?
a. Statutory audit
b. Government audit
c. Management audit
d. None
49. An audit which is compulsory by the law
a. Government audit
b. Internal audit
c. Cost audit
d. Statutory audit
50. Instruction of audit issued by controller and auditor general of India

a. statutory audit
b. final audit
c. management audit
d. government audit
51. Audit done by the employees of the business undertaking is called

a. statutory audit.
b. final audit.
c. management audit
d. government audit
52. This kind of audit is conducted generally between two annual audit
a. internal audit
b. interim audit
c. final audit
d. continuous audit
53. Management audit otherwise called as

a. final audit
b. efficiency audit
c. cost audit
d. cash audit
54. Before the work of audit is commenced, the auditor plans out the whole of
audit work is called
a. Audit plan
b. Audit note
c. Audit programme
d. Audit Sampling
55. Auditing begins where ..... Ends

a. Selling.
b. inventory valuation
c. Accounting
d. Purchases
Answers to MCQs:
1. a. Auditing.
2. d. To submits the accounts to Government of India.
3. c. to express opinion on the financial statement.
4. d. all the above
5. d. all the above
6. b. Auditing.
7. a. Shareholders. 8.
8. b. management.
9. d. internal auditor.
10. d. both a and b
11. c. internal auditor.
12. b. Not constructed as failure of audit.
13. c. objectives of audit.
14. a. scope of audit.
15. a. scope of audit.
16. c. the professional skill required of an auditor includes that of a technical expert
for determining physical condition of certain assets.
17. c. Except (iv)
18. c. Investigation
19. d. Compilation engagements.
20. a. The objective here is to establish a fact And c. Scope of the audit is derived
from the terms of engagement.
21. b. Partnership firm, HUF
22. d. All the above
24. c. Auditing and Accounting.
25. a. Auditing.
27. b. IAASB
28. a. AASB
29. b. public interest.
30. b. IFAC
31. a. The Institute of Chartered Accountants of India
32. c. AASB
33. b. high quality.
34. b. Risk assessment and response to assessed risk.
35. a. Introductory matters.
36. d. General principles and responsibilities.
37. c. Specialised areas.
38. a. Audit evidence.
39. d. Using work of others.
40. a. Audit conclusions and reporting.
41. d. SAs
42. b. SAEs
43. a. SREs
44. c. SRSs
45. a. Statements.
46. a. recommendatory.
General Questions related to Audit:

48. None
49. d. Statutory audit.
50. d. government audit.
51. c. management audit.
52. b. interim audit.
53. b. efficiency audit.
54. d. Audit programme.
55. c. Accounting.
Chapter – 2
Basic Concepts of Auditing

1. Chartered Accountants have an important role in
a. Entity
b. Society
c. Audit firm
d. Audit Committee
2. Which of the following categories of people use the work of a Chartered

Accountant
a. Investors
b. Government
c. The public at large
d. all the above
e. Both a and c
3. The term financial statement shall exclude

a. Notes
b. annexure
c. Both a and b
d. None of the above
4. State which of the following will be exempt on complying with schedule III
requirements
a. Banking Companies
b. Unlisted Companies
c. Private limited Companies having turnover less than 10 Crores
d. All the above
5. Which of the following requires that the auditor should examine the
accounts with a view to verify that all assets, liabilities, income and
expenses are stated as amounts which are in accordance with accounting
principles and policies which are relevant and no material amount, item
or transaction has been omitted.
a. Going concern
b. Consistency
c. The concept of true and fair
d. Auditor's Independence
6. What constitutes a 'true and fair' view is a matter of an auditor's judgment

in the particular circumstances of a case. In more specific terms, to ensure
true and fair view, an auditor has to see
a. accounting policies have been followed consistently
b. the charge, if any, on assets are disclosed
c. material liabilities should not be omitted
d. Both a and c
e. All a, b and c
7. Fundamental accounting assumptions does not include

a. Accrual
b. Going Concern
c. Assertions
d. Consistency
8. …………………… which occurs when an auditing firm, its partner or
associate could benefit from a financial interest in an audit client.
a. Self-interest threats
b. Self-review threats
c. Advocacy threats
d. Familiarity threats
9. Which of the following occurs when a member of the audit team was
previously a director or senior employee of the client..........
c. Advocacy threats
10. Which of the following occurs when former partner of the audit firm being
a director or senior employee of the client
c. Advocacy threats
11. Which of the following occurs when an auditor deals with shares or
securities of the audited company, or becomes the client's advocate in
litigation and third party disputes?
c. Advocacy threats
12. Which of the following refers to Self-interest threats? State which of the
two options are correct.
a. when auditors perform services that are themselves subject matters of
audit.
b. potential employment with the client.
c. contingent fees for the audit engagement.
d. becomes the client's advocate in litigation and third party disputes.
13. Which of the following refers to Familiarity threats?

a. close relative of the audit team working in a senior position in the client
company.
b. when an auditor having recently been a director or senior officer of the
company.
c. potential employment with the client.
d. when auditors perform services that are themselves subject matters of audit.
14. Which of the following refers to Advocacy threats?

a. when the auditor promotes, or is perceived to promote, a client's opinion to
a point where people may believe that objectivity is getting compromised.
b. when an auditing firm, its partner or associate could benefit from a financial
interest in an audit client.
c. when auditors form relationships with the client where they end up being
too sympathetic to the client's.
d. Both b and c
15. Auditor's is the keystone upon which the respect and dignity of a
profession is based.
a. Integrity
b. Professional competence
c. Objectivity
d. Independence
16. Which of the following concept ensures that the entity will continue for
the foreseeable future?
a. Accrual
b. Going Concern
c. Assertions
d. Consistency
17. Which of the following helps in better understanding of accounting

information and meaningful comparison?
a. Accrual
b. Going Concern
c. Assertions
d. Consistency
18. When fundamental accounting assumptions are followed in the financial

statements?
a. Specific disclosure is not required.
b. Specific disclosure is required.
c. the fact should be disclosed.
19. There is no single list of accounting policies which are applicable to all
circumstances.
a. True
b. False
20. State the applicable accounting standard; Selling and distribution cost
included in the cost of inventories.
a. AS 3
b. AS 6
c. AS 2
d. AS 26
21. A kind of audit conducted for a part of the accounting year is called
a. Periodical audit.
b. Partial audit.
c. Cost audit.
d. Interim audit
22. For which of the following, Audit is optional?

a. Trusts.
b. Joint stock companies.
c. Proprietorship concern.
23. Audit programme is prepared

a. to help the auditor and his staff about the work to be done while auditing.
b. to help the accountant to prepare the balance sheet.
c. to help the company to submit its accounts.
d. to help the shareholders to file the returns.
24. Auditor shall report on the accounts examined by him

a. to the shareholders.
b. to the court.
c. to the bank.
d. to the general public.
25. Which of the following statements is not true?

a. Management fraud is more difficult to detect than employee fraud.
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. All statements are correct.
Answers to MCQs:
1. Society.
2. d. all the above
3. d. None of the above
4. a. Banking Companies.
5. c. The concept of true and fair.
6. e. All a, b and c
7. c. Assertions
8. a. Self-interest threats.
9. b. Self-review threats.
10. d. Familiarity threats.
11. c. Advocacy threats.
12. b. potential employment with the client And c. contingent fees for the audit
engagement.
13. a. close relative of the audit team working in a senior position in the client
company.
14. a. when the auditor promotes, or is perceived to promote, a client's opinion to a
point where people may believe that objectivity is getting compromised.
15. d. Independence.
16. b. Going Concern.
17. d. Consistency.
18. a. Specific disclosure is not required.
19. a. True
20. c. AS 2
21. a. Periodical audit.
22. c. Proprietorship concern.
23. a. to help the auditor and his staff about the work to be done while auditing.
24. a. to the shareholders.
25. b. Internal control system reduces the possibility of occurrence of employee
Chapter 3
Preparation for an Audit
(Auditing Concept, SA 300(Revised) Planning an Audit of Financial Statement)

1. Which of the following enable the auditor to conduct an effective audit in
an efficient and timely manner?
a. Audit Strategy
b. Audit Plan
c. Audit programme
d. knowledge of the client's accounting systems
2. Audit Plans should be based on

a. knowledge of the client's business.
b. knowledge of the applicable financial reporting standards.
c. knowledge of the required accounting and auditing standards.
d. Nature and size of the business.
e. policies and internal control procedures.
3. Audit Plans should be made to cover

a. acquiring knowledge of the client's accounting systems, policies and internal
control procedures.
b. establishing the expected degree of reliance to be placed on internal control.
c. determining and programming the nature, timing, and extent of the audit
procedures to be performed.
d. All the above
4. Which of the following assisting in the selection of engagement team

members with appropriate levels of capabilities and competence to respond
to anticipated risks, and the proper assignment of work to them.
a. overall audit strategy
b. Adequate planning
c. Audit programme
d. None
5. ………………….. sets the scope, timing and direction of the audit.

a. overall audit strategy
b. Adequate planning
c. Audit programme
d. overall objective of the audit
6. Which of the following guides the development of the audit plan?

a. Audit Strategy
b. Audit Plan
c. Audit programme
d. knowledge of the client's accounting systems
7. Audit programme is prepared by

a. The auditor.
b. The client.
c. The audit assistants.
d. The auditor and his audit assistants.
8. Which of the following best describes the primary purpose of audit

programme preparation?
a. To detect errors or fraud.
b. To comply with GAAP
c. To gather sufficient appropriate evidence
d. To assess audit risk
9. Knowledge of the entity's business does not help the auditor to

a. reduce inherent risk.
b. identify problem areas.
c. evaluate reasonableness of estimates.
d. evaluate appropriates of GAAP.
10. Before the work of audit is commenced, the auditor plans out the whole of
audit work is called
a. Audit Strategy.
b. Audit Plan.
c. Audit programme.
d. Audit note.
11. An audit programme is

a. a description, memorandum or an outline of the work to be done in a
business.
b. the rules and regulations prescribed for writing up the books of accounts.
c. to gain knowledge of clients accounting system.
d. a trial work.
12. When a company engages a Chartered Accountant as its internal auditor,
the external auditor
a. need not check the areas covered by internal audit.
b. should ignore the existence of internal audit.
c. should incorporate the internal auditors report with his own.
d. should examine the system and efficiency of internal audit and devise a
suitable audit programme.
13. Audit programme is prepared

a. to help the auditor and his staff about the work to be done while auditing.
b. to help the accountant to prepare the balance sheet.
c. to help the company to submit its accounts.
d. to help the shareholders to file the returns.
14. Surprise checks are part of

a. an auditor's working papers.
b. an audit programme.
c. an auditor's report.
d. an accounting standard.
15. ……………….. refers to such audit programme where plans for the auditor
are not fixed.
a. Special audit
b. Fixed audit
c. Pre-determined audit
d. none of above
16. Benefits of Planning in the Audit of Financial Statements

a. to devote appropriate attention to important areas of the audit.
b. to identify and resolve potential problems on a timely basis.
c. Assisting in the selection of engagement team members with appropriate
levels of capabilities and competence to respond to anticipated risks, and
the proper assignment of work to them.
d. Both a and c
e. All a, b and c
17. The auditor shall consider the factors that, in the auditor's professional
judgment, are significant in directing the engagement team's efforts, while
a. establishing the overall audit strategy.
b. developing audit plan.
c. designing the audit programme.
d. All the above
18. The establishment of the overall audit strategy and the detailed audit plan
are
a. not necessarily discrete or sequential processes.
b. necessarily discrete or sequential processes.
c. not closely inter related.
d. Both b and c
19. The audit plan is

a. more detailed than the overall audit strategy.
b. the execution of further audit procedures.
c. a part of audit strategy.
d. a detailed audit procedures.
20. The nature of the entity, including

i. its operations.
ii. its ownership and governance structures.
iii. the types of investments that the entity is making and plans to make,
including investments in special-purpose.
iv. the way that the entity is structured and how it is financed.
a. Both i and ii
b. Only i, ii and iii
c. Both iii and iv
d. All the above
21. potential business risks does not include

a. Failure to keep up to date with new products.
b. Excessive reliance on a key supplier.
c. Lack of personnel with expertise to react to changes in the industry.
d. Both a and b e. None of the above
22. Planning is ……………………. often begins shortly after (or in connection

with) the completion of the previous audit and continues until the
completion of the current audit engagement.
i. not a discrete phase of an audit
ii. not continual and iterative process
iii. a discrete phase of an audit
iv. continual and iterative process
a. Both i and iv
b. Both ii and iii
c. Only i
d. only iv
23. A, the auditor of B Ltd asks its finance and audit head to prepare audit
strategy for conducting audit of B Ltd. A also insist him to draw detailed
audit procedures also. On the request of auditor A, complete audit strategy
as well as audit procedures are prepared by finance head of the company.
Auditor realizes that effectiveness of the audit is compromised, find who
is responsible for the same?
a. Management is responsible, as it was prepared by its employee.
b. Only finance head is responsible, as it was prepared by himself.
c. Auditor is responsible and he should have prepared overall audit strategy.
d. all are responsible
24. The auditor shall document
i. the overall audit strategy.
ii. the audit plan.
iii. any significant changes made during the audit engagement and reason for
such change.
a. Both i and iii
b. Both ii and iii
c. All i, ii and iii
d. Only iii
25. The auditor may summarize …………………….. in the form of a

memorandum that contains key decisions regarding the overall scope,
timing and conduct of the audit.
a. the overall audit plan
b. the overall audit strategy
c. audit programme
d. audit note
26. An audit programme consists of ………………….. to be applied to the

financial statements and accounts of a given Company
a. a series of verification procedures
b. key decisions
c. a non detailed plan of applying the audit procedures in the given
circumstances
d. all the above
27. State which of the following statement is not true?

a. Evolving one audit programme applicable to all business under all
circumstances is not practicable.
b. an audit programme is a detailed plan of applying the audit procedures in
the given circumstances with Instructions for the appropriate techniques to
be adopted for accomplishing the audit objectives.
c. An audit programme consists of a series of verification procedures to be
applied to the financial statements and accounts of a given company for the
purpose of obtaining sufficient evidence to enable the auditor to express an
informed opinion on such statements.
d. The auditor may summarize the audit note in the form of a memorandum
that contains key decisions regarding the overall scope, timing and conduct
of the audit.
28. State the applicable standards that deals with the auditor's responsibility
to plan an audit of financial
a. SA 315
b. SA 505
c. SA 300
d. SA 265
29. In establishing the overall audit strategy, the auditor shall

i. Identify the characteristics of the engagement that define its scope.
ii. Ascertain the nature, timing and extent of resources necessary to
perform the engagement.
iii. Ascertain the reporting objectives of the engagement to plan the timing
of the audit and the nature of the communications required.
iv. Consider the factors that, in the auditor's professional judgment, are
significant in directing the engagement tea.
a. Both i and ii
b. All i, ii and iii
c. Both ii and iv
d. All the above
30. State which of the following statement is not true with reference to SA
300?
a. The nature and extent of planning activities will not vary according to the
size and complexity of the entity the key engagement team members'
previous experience with the entity, and changes in circumstances that
occur the audit engagement.
b. Planning is not a discrete phase of an audit, but rather a continual and
iterative process that often begins shortly after (or in connection with) the
completion of the previous audit and continues until the completion c: the
current audit engagement.
c. Planning an audit involves establishing the overall audit strategy for the
engagement and developing an audit plan. Adequate planning .g benefits the
audit of financial statements in several ways.
d. The auditor may decide to discuss elements of planning with the entity's
management to facilitate the conduct and management of the audit
engagement.
31. Performing the preliminary engagement activities specified at the

beginning of the current audit engagement assists the auditor in
identifying and evaluating events or circumstances that may
a. improve the management ability to plan and perform the audit engagement.
b. improve the auditor's ability to plan and perform the audit engagement.
c. adversely affect the auditor's ability to plan and perform the audit
engagement.
d. adversely affect the Management and TCWG's ability to plan and perform
the audit engagement.
32. State which of the following statement is true as per SA 300

a. The audit plan is not more detailed than the overall audit strategy that
includes the nature, timing and extent of audit procedures to be performed
by engagement team members.
b. The audit plan is more detailed than the overall audit strategy excluding the
nature, timing and extent of audit procedures to be performed by
engagement team members.
c. The audit plan is more detailed than the overall audit strategy that includes
the nature, timing and extent of audit procedures to be performed by
d. The audit plan is comparatively less detailed than the overall audit strategy
that includes the nature, timing and extent of audit procedures to be
performed by engagement team members.
33. The nature, timing and extent of the direction and supervision of
engagement team members and review of their work vary depending on
many factors, excluding
a. The size and complexity of the entity.
b. The area of the audit.
c. The capabilities and competence of the individual team members performing
the audit work.
34. State the additional matters the auditor may consider in establishing the
overall audit strategy and audit plan for initial audit as per SA 300?
a. Unless prohibited by law or regulation, arrangements to be made with the
predecessor auditor.
b. The audit procedures necessary to obtain sufficient appropriate audit
evidence regarding opening balance as per SA 510.
c. Any major issues be discussed with management in connection with the
initial selection as auditor, the communication of these matters to those
charged with governance.
d. All the above
35. If the audit programme for the audit of a branch of a financing house,
drawn up few years ago, fails to take into consideration that the previous
policy of financing of a vehicle has been changed to financing of real estate
acquisition, the whole audit conducted there under.
i. entirely misdirected.
ii. the auditor may have to face legal consequences.
iii. the whole audit may be held as negligently conducted.
iv. none of the above
a. Both i and ii
c. Both iii and iv
d. All the above
36. To assess whether the audit programme continues to be adequate for
obtaining requisite knowledge and evidence about the transactions.
a. The capabilities and competence of the individual team members performing
the audit work to be review.
b. The audit procedures necessary to obtain sufficient appropriate audit
evidence regarding opening balance as per SA 510.
c. There should be periodic review of the audit programme.
d. All the above.
37. The utility of the audit programme can be retained and enhanced only by
i. client's operations and internal control under periodic review.
ii. keeping the audit programme under periodic review.
iii. every assistant deputed on the job should unfailingly carry out the
detailed work according to the instructions governing the work.
iv. improve the management ability to plan and perform the audit
engagement.
a. Both i and ii
c. Only iii and iv
d. All the above
38. State which one of the following does not specifically include while
Constructing an Audit Programme?
a. Scope and limitation of the assignment.
b. Determine the evidence reasonably available and identify the best evidence
for deriving the necessary satisfaction.
c. Consider all possibilities of fraud.
d. Co-ordinate the procedures to be applied to related errors.
e. Apply only those steps and procedures which are useful in accomplishing
the verification purpose in the specific situation.
39. Which of the following is designed to provide Audit Evidence

a. Audit Plan
b. Audit Note
c. Audit Strategy
d. Audit Programme
40. An auditor picks up evidence from a variety of fields, including

i. Inter-relationship of the various accounting data.
ii. Arithmetical calculations by the auditor.
iii. Subsequent action by the client and by others.
iv. Physical and Documentary examination.
a. Both i and ii
b. All i, ii and iii
c. Both iii and iv
d. All the above
41. The audit planning ideally commences at the conclusion of the

a. Overall audit strategy.
b. Previous year's audit.
c. Interim audit.
d. Final audit.
42. Which one of the following is not the disadvantages of an Audit

Programme?
a. Defend deficiencies in their work on the ground that no instruction in the
matter is contained therein. b.
b. A hard and fast audit programme may kill the initiative of efficient and
enterprising assistants.
c. Selection of assistants for the jobs on the basis of capability becomes easier
when the work is rationally planned, defined and segregated.
d. The programme often tends to become rigid and inflexible following set
grooves; the business may change in its operation of conduct, but the old
programme may still be carried on.

a. The auditor would naturally have to depend upon number of technical
experts as well.
b. An audit is a complex task involving number of people at different levels.
c. The audit planning ideally commences at the conclusion of the previous
year's audit, and along with the related programme, it should be
reconsidered for modification as the audit progresses.
Answers to MCQs
1. Audit Plan.
2. a. knowledge of the client’s business
3. d. All the above
4. b. Adequate planning.
5. overall audit strategy.
6. a. Audit Strategy.
7. d. The auditor and his audit assistants. 8.
8. c. To gather sufficient appropriate evidence.
9. a. reduce inherent risk. 10.
10. c. Audit programme.
11. b. the rules and regulations prescribed for writing up the books of accounts.
12. d. should examine the system and efficiency of internal audit and devise a
suitable audit programme.
13. a. to help the auditor and his staff about the work to be done while auditing.
14.
14. b. an audit programme. 15.
15. d. none of these.
17. a. establishing the overall audit strategy. 18.
18. a. not necessarily discrete or sequential processes.
19. a. more detailed than the overall audit strategy.
21. e. None of the above
22. a. Both i and iv
23. c. Auditor is responsible and he should have prepared overall audit strategy.
24. d. All i, ii and iii
25. b. the overall audit strategy.
26. a. a series of verification procedures.
27. d. The auditor may summarize the audit note in the form of a memorandum
that contains key decisions regarding the overall scope, timing and conduct of
the audit.
28. c. SA 300
29. d. All the above 30.
30. a. The nature and extent of planning activities will not vary according to the size
and complexity of the entity, the key engagement team members' previous
experience with the entity, and changes in circumstances that occur during the
audit engagement. 31.
31. c. adversely affect the auditor's ability to plan and perform the audit
engagement.
32. c. The audit plan is more detailed than the overall audit strategy that includes
the nature, timing and extent of audit procedures to be performed by
35. b. All i, ii and iii
36. c. There should be periodic review of the audit programme.
38. c. Consider all possibilities of fraud.
39. d. Audit Programme. 40.
41. b. previous year's audit.
42. c. Selection of assistants for the jobs on the basis of capability becomes easier
when the work is rationally planned, defined and segregated. 43.
Chapter 4
Risk Assessment and Internal Control
Multiple Choice Question:
1. The sequence of steps in the auditor's consideration of internal control is

as follows:
a. Obtain an understanding, design substantive test, perform tests of control,
make a preliminary assessment of control risk.
b. Design substantive tests, obtain an understanding, perform tests of control,
make a preliminary assessment of control risk.
c. Obtain an understanding, make a preliminary assessment of control risk,
perform tests of control, design substantive procedures.
d. Perform tests of control, obtain and understanding, make a preliminary
assessment of control risk, design substantive tests.
2. Which of the following is not an inherent limitation of internal control

system?
a. Management override
b. Collusion among employees
c. Inefficiency of internal auditor
d. Abuse of authority
3. An auditor should study and evaluate internal controls to

a. determine whether assets are safeguarded.
b. Suggest improvements in internal control.
c. Plan audit procedures.
d. express and opinion.
4. The overall attitude and awareness of an entity's board of directors

concerning the importance of internal control is reflected in
a. accounting controls.
b. control environment.
c. control procedures.
d. supervision.
5. Objective of internal control excluding

a. Transactions are executed in accordance with managements general or
specific authorization.
b. Internal control is designed, implemented and maintained to address
unidentified business risks.
c. The recorded assets are compared with the existing assets at reasonable
intervals and appropriate action is taken with regard to any differences.
d. Assets are safeguarded from unauthorized access, use or disposition,
maintain accountability for assets.
6. A number of checks and controls exercised in a business to ensure its

efficient working is known as
a. Internal check.
b. Internal control.
c. Internal audit.
d. Interim check.
7. Internal check is meant for

a. prevention of frauds.
b. detection of frauds.
c. helping audit is depth.
d. detection of errors.
8. If the auditor assesses control risk as high....

a. Document the conclusions.
b. Documents the reasons along with conclusions.
c. Perform tests of control.
d. Perform walk through tests.
9. Control risk is assessed at

a. Overall financial statements level.
b. Fraud risk factor level.
c. Financial statement assertion level.
d. Control environment level.
10. An auditor assesses control risk because it

a. affects the audit risk.
b. affects the level of detection risk that auditor may accept.
c. helps him to fix materiality level for each financial assertion.
d. is directly related to inherent risk.
11. The SAs do not ordinarily refer to inherent risk and control risk separately,
but rather to a combined assessment of the "risks of material
misstatement"
a. The management may make separate or combined assessments depending
on methodologies and practical considerations.
b. The auditor may make separate or combined assessments depending on
methodologies and practical considerations.
c. The management and Those charged with governance may make separate
or combined assessments depending on methodologies and practical
considerations.
12. 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.
13. When an independent auditor decides that the work performed by internal
auditors may have bearing on the nature, timing and extent of planned
audit procedures, the independent auditor should evaluate objectivity of
the internal auditor. The most important factor influencing it would be
a. organizational level to which he reports.
b. qualification of internal auditor.
c. system of quality control of his work.
d. all of the above
14. When an independent auditor relies on the work of an internal auditor, he

or she should
a. examine the scope of internal auditor's work.
b. examine the system of supervising review and documentation of internal
auditor's work.
c. adequacy of related audit programme.
d. all of the above
15. Internal auditor is appointed by

a. the management.
b. the shareholders.
c. the government.
d. the statutory body.
16. The independence of an internal auditor will most likely be assured if he

reports to the
a. President Finance.
b. President System.
c. Managing Director.
d. CEO.
17. A flow chart, made by the auditor, of an entity's internal control system is
a graphic representation that depicts the auditor's......
a. understanding of the system.
b. understanding of fraud risk factors.
c. documentation of assessment of control risk.
d. Both a and c.
18. An identified and assessed risk of material misstatement that, in the
auditor's judgment, requires special audit consideration, For purposes of
the SAs which of the following term have the meaning attributed as above
a. Assertions
b. Significant risk
c. Business risk
d. Risk assessment procedures
19. In respect of some risks, the auditor may judge that it is not possible or
practicable to obtain sufficient appropriate audit evidence only from
a. Test of control
b. substantive procedures
c. Both a and b
d. All the above
20. Mano Ltd. Conducts quarterly review of operations. It discovers that

unrest in a Middle east country may affect the supply of raw materials to
it the next quarter. This is an example of:
a. risk assessment
b. control procedure
c. supervision
d. control environment
21. Which one of the following statements is correct?

a. Audit risk is the risk of a material misstatement in the financial statements.
b. The risk of a material misstatement in the financial statements consists of
control risk.
c. Audit risk is the risk that the auditor will not detect a material misstatement
that exists in the financial statements.
d. Audit risk is the risk of a material misstatement in the financial statements
and that the auditor did not detect the material misstatement.
22. Which of the following statements is not correct?

a. Intern risk and control risk cannot be controlled by the management i.e are
uncontrollable.
b. Detection risk is related directly to the effectiveness of the auditor
prosecutor.
c. Detection risk related inversely to control risk.
d. Internet risk and control risk are highly interrelated.
23. Proper segregation of duties reduces the opportunities in which a person

would both
a. establish controls and executes them.
b. records cash receipts and cash payments.
c. perpetuate errors and frauds and conceals them.
d. record the transaction in journal and ledger.
24. The risk assessment procedures shall include the following, except
a. Inquiries of management and of others within the entity.
b. regular reconciliation.
c. Analytical procedures.
d. Observation and inspection.
25. An entity may rely on a sophisticated system of automated controls to

provide efficient and effective operations (such as an airline's system of
automated controls to maintain flight schedules) is the best example for
a. The statute may require the auditor to report on compliance with certain
internal controls.
b. Controls relating to objectives that are not relevant to an audit.
c. Both a and b
26. Which of the following is not likely to be a fraud risk factor relating to
management characteristics?
a. Tax evasion.
b. Failure to correct known weakness in internal control system.
c. Adoption of conservative accounting principles.
d. High management turnover.
27. AGS Ltd is engaged in the business and running several stores dealing in variety
of items such as ready made garments for all seasons, shoes, gift items, watches
etc. There are security tags on each and every item. Moreover, inventory records
are physically verified on monthly basis. State which of the following is not true
a. Items may have been misappropriated by employees, therefore, risk to the
auditor is that inventory record:, would be inaccurate.
b. Despite various controls being implemented at the stores, still collusion
among employees may be there and risk to auditor would again be that
inventory records would be inaccurate.
c. Auditor checks the efficiency and effectiveness of various control systems in
place. However, despite all these procedures, the auditor may not detect the
items which have been stolen or misappropriated.
d. None of the above.
28. Factors relevant to the auditor's judgment about whether a control,

individually or in combination with others, is relevant to the audit may
include such matters as the following
a. Materiality.
b. The significance of the related risk.
c. The nature and complexity of the systems that are part of the entity's
internal control, including the use service organizations.
d. The diversity and complexity of the entity's operations.
e. All the above
29. The auditor can formulate his entire audit programme only after......
a. how far the weaknesses have been removed at a interim date.
b. he has had a satisfactory understanding of the internal control system and
their actual operation.
c. the existence and operation of internal control.
d. none of the above
30. The auditor uses the following techniques to evaluate internal control.
a. Narrative record and questionnaire
b. checklist and flowchart
c. Both a and b
d. None
31. …………………… refers to a complete and exhaustive description of the

system as found in operation by auditor.
a. Checklist
b. Narrative record
c. flow chart
d. questionnaire
32. …………….. refers to a series of instructions or questions which a member

of the auditing staff must follow or answer
a. Checklist
b. Narrative record
c. flow chart
d. questionnaire
33. State which of the following two options are correct with reference to
disadvantages of narrative records?
a. inspection of inventory.
b. find weakness or gaps in the system.
c. understand the system in operation.
d. more suited to small business.
34. Which of the following is used for collecting information about the
existence, operation and efficiency of internal control in an organization?
a. Checklist
b. Narrative record
c. flow chart
d. questionnaire
35. Which of the following shows the area where weakness occur or likely to
occur but do not give any idea of the importance of those weaknesses?
a. Internal control evaluation
b. Narrative record
c. control checklist
d. internal control questionnaire
36. Procedural error arises..........

a. as a result of transactions have been recorded in a fundamentally incorrect
manner.
b. where there is error in implementation of the procedure.
c. Both a and b
d. None
37. Letter of weakness is issued by...

a. management.
b. those charged with governance.
c. auditor.
d. Both a and b
38. Which of the following is not fall under general considerations in framing
a system of internal check?
a. During the year-end stock taking, trading activities should be suspended.
b. checks on day to day transactions which operate continuously as a part of
routine system.
c. Persons having physical custody of assets must not be permitted to have
access to the books of accounts.
d. Both a and c.
39. Audit risk is a function of the risks of material misstatement and

a. detection risk.
b. inherent risk
c. control risk
d. business risk
40. For a given level of audit risk, the acceptable level of detection risk
bears.......relationship to the assessed risks of material misstatement at
the assertion level.
a. direct.
b. Inverse
c. no d.
41. Risk of material misstatement has ........... components.

a. one
b. two
c. three
d. four
42. Controls can be ................related to an assertion.

a. directly
b. indirectly
c. directly or indirectly
43. Control activities, whether within IT or manual systems, have various

objectives and are applied at various organisational and functional levels.
Which of the following is an example of control activities?
a. Authorization.
b. Performance reviews. c.
c. Information processing.
d. All of the above
SA 265 Communicating Deficiencies in Internal Control to Those Charged With

Governance and Management
to communicate appropriately to those charged with governance and
management deficiencies in internal control that the auditor has
identified in an audit of financial statements.
a. SA 260
b. SA 315
c. SA 265
d. SA 505
45. Deficiency in internal control - This exists when....

a. A control is designed, implemented or operated in such a way that it is
unable to prevent, or detect and correct, misstatements in the financial
statements on a timely basis.
b. A control necessary to prevent, or detect and correct, misstatements in the
financial statements on a timely basis is missing.
c. Both a and b.
46. A deficiency or combination of deficiencies in internal control that, in the

auditor's professional judgment, is of sufficient importance to merit the
attention of those charged with governance, is known as
a. Deficiency in internal control.
b. Significant Deficiency in internal control.
c. Deficiency in professional judgement.
47. Possibility of deficiencies leading to material misstatement in the

financial statement in future, is the best
a. Risk of material misstatement.
b. Significant deficiencies in internal control.
c. issue of unqualified report.
d. issue of unmodified report.
48. When the auditor finds deficiency in the internal control and found it is
significant, then the auditor shat report to
a. Central government.
b. Engagement team.
c. Those charged with governance.
d. All the above
49. Which of the following does not refers to significant deficiency in internal
control?
a. susceptibility to loss or fraud of the related assets or liability.
b. Amount in financial statements exposed to deficiency.
c. subjectivity and complexity of determining estimated amounts.
d. Transactions are executed in accordance with managements general or
50. Which of the following statements explains the importance of the controls
to the financial reporting process, state which of the two options are
correct?
a. susceptibility to loss or fraud of the related assets or liability.
b. General monitoring controls.
c. Controls over significant transactions with related party.
d. subjectivity and complexity of determining estimated amounts.
51. Parameters for significant deficiency to be reported to those charged with

governance, State which of the following is not correct with reference to
the above?
a. Disclosure of material misstatement due to fraud or error where the
management is involved.
b. Evidence of ineffective response by management.
c. Identification of fraud where management is also involved, which entity's
internal controls are unable to prevent.
d. Transactions are executed in accordance with managements general or
52. Evaluation and assessment of audit findings and control deficiencies

involves applying …….
a. Professional Skeptisim.
b. Professional judgement.
c. Both a and b
d. None
53. Which of the following includes in written communication in respect of

deficiencies of internal control?
a. Description of deficiencies.
b. Explanation of their potential effects.
c. sufficient information to understand the context of communication.
d. All the above
SA 315 Identifying and Assessing the Risks of Material Misstatement through

Understanding the Entity and its Environment
54. The auditor shall not require to documenting the following as per SA 315
a. The sources of information from which the understanding was obtained; and
the risk assessment procedures.
b. The discussion among the engagement team and the significant decisions
reached.
c. The identified and assessed risks of material misstatement at the financial
statement level and at the assertion level as required by paragraph 25.
55. In assessing which risks are significant risks under SA 315 (revised.
Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment, which one of the following
is not required to be considered by the auditor?
a. the complexity of transactions.
b. whether the risk is a risk of fraud.
c. whether the firm has an internal audit department.
d. The degree of subjectivity in the measurement of financial information.
56. Business risk may arise from which of the following?

a. globalization.
b. industry and economic factors.
c. corporate objectives and strategies.
d. when the CFO fails to ensure bank reconciliations are completed.
e. Both a, b and c
57. Which one of the following would result in an increase in the entity's
business risk?
a. increase in interest rates.
b. decrease in sample sizes.
c. decrease in inflation rate.
d. increase in economic growth.
58. As the auditor of Lofty Ltd., you have just completed an analysis of the
company's balanced scorecard. You note an increase in the volume of
customer complaints.
a. This is likely to indicate an increase in the risk of.
b. Overstatement of sales.
c. Overstatement of inventory.
d. Understatement of purchases.
e. Overstatement of warranty expenses.
59. What technique should the auditor use in assessing the risk of material
misstatement?
a. The auditor should obtain written representation from the entity's
management.
b. The auditor should relate the identified risks to what can go wrong at the
assertion level.
c. The auditor should consider the implications of the identified risks for the
auditor's report.
d. The auditor should familiarise themselves with the client's industry and
current market conditions.
60. Which one of the following is not one of the categories of assertions
identified in ISA 315 (revised). Identifying and Assessing the Risks of
Material Misstatement through Understanding the Entity and Its
Environment?
a. Accounting policies.
b. Presentation and disclosure.
c. Account balances at the period end.
d. Classes of transactions and events for the period under audit.
to identify and assess the risks of material misstatement in the financial
statements, through understanding the entity and its environment,
including the entity's internal control.
a. SA 300
b. SA 315
c. SA 505
d. SA 610
62. For purposes of the SAs, which of the following meaning attributed to the
term "Assertions"
a. Representations by management, explicit or otherwise, that are embodied in
the financial statements, as use by the auditor to consider the different types
of potential misstatements that may occur.
b. A risk resulting from significant conditions, events, circumstances, actions
or inactions that could adverse. affect an entity's ability to achieve its
objectives and execute its strategies, or from the setting of inappropriate
objectives and strategies.
c. An identified and assessed risk of material misstatement that, in the
auditor's judgment, requires special au consideration.
d. The audit procedures performed to obtain an understanding of the entity
and its environment, including entity's internal control, to identify and
assess the risks of material misstatement, whether due to fraud error, at the
financial statement and assertion levels.
63. The auditor shall identify and assess the risks of material misstatement at
…….
a. the financial statement level.
b. the assertion level for classes of transactions account balances, and
disclosures.
c. both a and B
64. Obtaining an understanding of the entity and its environment, including

the entity's internal control is a…………………
a. Initial process of gathering, updating and analysing information of an audit.
b. Continuous, dynamic process of gathering, updating and analysing
information throughout the audit.
c. Dynamic process of gathering, updating and analysing information at the
time of initial audit engagement.
65. The discussion among the engagement team about the susceptibility of
the entity's financial statements
a. To initial engagement
b. To material misstatement
c. Both a and b
66. An understanding of the entity's selection and application of accounting

policies may encompass such matters
a. The methods the entity uses to account for significant and unusual
transactions.
b. Financial reporting standards and laws and regulations that are new to the
entity, and when and how the entity will adopt such requirements.
c. Changes in the entity's accounting policies.
d. All the Above
315?
a. Monitoring of controls is directed at whether business performance is
meeting the objectives set by.
b. The measurement and review of performance specifically concerned with the
effective operation of internal.
c. The measurement and review of financial performance is same as the
monitoring of controls (discussed as a component of internal control in
paragraphs A98-A104), though their purposes may overlap.
d. All the above
68. Manual elements in internal control may be more suitable where judgment
and discretion are required such as for the following circumstances, but
excluding
a. Large, unusual or non-recurring transactions.
b. Circumstances where errors are difficult to define, anticipate or predict.
c. Inappropriate manual intervention.
d. In monitoring the effectiveness of automated controls.
69. The risk hits the organisation which implies that

a. Internal control is not effective.
b. There is no Internal Control to check the risk.
c. The auditor did not perform any additional procedures to check the risk.
d. The management did not perform any additional procedures to check the
risk.
70. Which of the following is not the components of internal control

a. Risk Assessment procedure.
b. Monitoring and Control activity.
c. Entity & its environment.
d. Risk of material misstatement.
71. Which of the following is the objective of the auditor?

a. Identify the risk of material misstatement due to fraud or error at financial
statement.
b. Asses the risk of material misstatement due to fraud or error at financial
statement.
c. Both a and b
d. None
72. Objective of internal control is to provide reasonable assurance about the

achievement of an entity’s objective with respect to the following?
a. Reliability of financial reporting.
b. Safeguarding of assets.
c. Monitoring and control activity.
d. Both a and c
e. Both a and b
73. RR & Associates, Chartered Accountants, while evaluating the operating

effectiveness of internal controls detects deviation from controls. State
which of the following option is not correct in respect of specific inquiries
to be made by an auditor to understand the matters and potential
consequences?
a. Inquiries directed to information systems personnel, those charged with
governance.
b. Inquiries directed to the risk management , marketing and sales personnel.
c. Inquiries directed to the in house legal personnel.
d. Inquiries directed to the banking personnel and vendors.
74. In the audit of accounts payable the auditor is normally most concerned
with..
a. existence.
b. completeness.
c. rights and obligations.
d. valuation and allocation.
75. Your audit client has a debt covenant that requires a 3:2 interest cover
ratio. With respect to interest expense, the auditor would be most
interested in......
a. cut-off.
b. accuracy.
c. occurrence.
d. completeness.
76. M/s Rathan P ltd, is in a highly competitive industry with the majority of
the competition coming from middle east countries. The companies
products have a relatively short life cycle and product development is
continuous in order to keep up with competitors. For the inventory
account, the assertion upon which most audit effort should be
concentrated is
a. existence.
b. completeness.
c. rights and obligations.
d. valuation and allocation.
77. Your client is a manufacturer of data cables and pen drive. Theft of
inventory has been an ongoing problem.
The key audit risk to be addressed at year end in relation to inventory is
a. existence.
b. valuation.
c. completeness.
d. rights and obligations.
78. Rag,uram & co is engaged in business of selling accessories for laptops

through online, as an auditor how would you proceed in this regard as to
understanding the entity and its environment.
a. Spending substantial time
b. Extensive audit procedures
c. Both a and b
d. Monitoring
79. Management review does not include

a. Bank reconciliation are being prepared on a timely basis.
b. Internal auditors evaluation of sales personnel compliance with the entity's
policies on terms of sales contracts
c. Legal departments oversight of compliance with the entity's ethical or
business practice policies.
d. None
80. The use of manual or automated elements in internal control affects the
manner in which transactions are
a. Initiated
b. recorded
c. processed and reported
d. all the above
81. An entity's mix of manual and automated elements in internal control

varies with the................ of the entity's use of Information Technology
a. Nature and Size
b. Nature and Complexity
c. Business rules
d. None
82. Benefits of IT in an entity's internal control

a. Easy processing of large volume of transaction or data.
b. Enhance the ability to monitor the performance of the entity's activities and
its policies and procedures.
c. Reduce the risk that controls will be circumvented and effective segregation
of duties through security control.
d. All the above.
83. State which of the two options are not correct with reference to specific
IT risks to an entity's internal control?
a. Unauthorised changes to system or program or data in master file.
b. Reliance on system or program that are accurately processing data.
c. Appropriate manual intervention.
d. Failure to make necessary changes to system or programs.
SA 330 The Auditor's Responses to Assessed Risks

to assessed risk.
a. SA 300
b. SA 315
c. SA 320
d. SA 330
85. As per SA 330, the objective of the auditor is to obtain sufficient and
appropriate audit evidence about the
a. Misappropriation of assets.
b. Assessed risks of material misstatement.
c. Financial statements.
86. An audit procedure designed to detect material misstatements at the

assertion level
a. Substantive procedure
b. Test of control
c. Assessed risk
87. An audit procedure designed to evaluate the operating effectiveness of

controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
b. Test of control
c. Assessed risk
88. Overall response to address the assed risk of material misstatement at the
financial statement level include
a. Incorporating additional elements of unpredictability in the selection of
further audit procedures to be.
b. Providing more supervision.
c. Neither a nor b
d. Both a and b
89. Substantive procedure does not comprises which of the following

procedures
a. Test of Control
b. Test of details
c. Substantive analytical procedure
d. All the above
90. Designing test of controls to obtain relevant audit evidence includes

identifying conditions that indicate
a. presence or absence of those conditions can then be tested by the auditor.
b. performance of a control.
c. operating effectiveness.
d. Both a and c
91. Tests of control are not concerned with

a. Existence of controls.
b. Effectiveness of controls.
c. Continuity of controls.
d. Designing of controls.
92. The primary purpose of performing tests of control is to provide reasonable

assurance that
a. there are no material misstatements due to fraud or error in financial
statement.
b. accounting system is well documented.
c. written evidence is there to support transactions.
d. if internal control is effective.
93. Which of the following refers to the auditor's responses to assessed risk for
audit of financial statement
a. Nature of audit techniques & audit procedures.
b. Extent of audit procedure.
c. Timing of audit procedure.
d. All the above
94. Which of the following is not an example of a circumstance, in which

additional tests of control will not be performed after obtaining an
understanding to plan the audit?
a. Controls are known to be cost ineffective.
b. Controls are effective but auditor opines that performing tests of control and
reduced substantive tests would not be cost effective.
c. Controls are effective and evidence already obtained is adequate to support
a planned assessed level of control risk which is less than high.
d. Performing extensive substantive testing would not lead to efficiency.
95. The performance of tests of control is documented in
a. audit programme
b. flow charts
c. working papers
d. any of the above
96. Deviation in conditions which indicates......

a. departures from adequate performance.
b. performance of a control.
c. operating effectiveness.
d. Both a and c
97. ………………… alone cannot provide sufficient appropriate audit evidence

at the assertion level.
a. Test of Control
b. Test of details
c. Substantive procedure d.
d. None
98. Which of the following are included in test of control?

a. Reperformance and observation.
b. Inquiry and analytical procedures.
c. Comparison and conformation.
d. Inspection and verification.
99. State the circumstance where extent of test of control to be increased

a. More conclusive audit evidence needed regarding the effectiveness of
internal control.
b. less conclusive audit evidence needed regarding the effectiveness of internal
control.
c. More persuasive audit evidence needed regarding the effectiveness of
internal control.
d. Less persuasive audit evidence needed regarding the effectiveness of internal
control.
100. State the factors to be considered to determine extent of test of control

a. Frequency, Deviation, length of time period.
b. Nature of risk, Complete assertion.
c. Relevance and other control.
d. Both a and b
e. Both a and c
101. Substantive procedures comprise of

a. Test of Control, Risk Assessment.
b. Test of details , Substantive analytical procedure.
c. Degree of reliance on controls, Extent of test of control.
d. None
102. Irrespective of assed risk of material misstatement, the auditor shall
design and perform for each material class of transaction, account balance
and disclosure
a. Test of control
b. Substantive procedure
c. Test of details
d. Substantive analytical procedure
103. Risk assessment procedures to obtain audit evidence about the design and
implementation of relevant controls may include
a. providing more supervisions.
b. inquiry of entity personnel.
c. changes in audit procedure.
d. All the above
104. Overall responses to risk of material misstatement at financial statement

level include
a. observing the application of specific controls.
b. inquiry of entity personnel.
c. providing more supervision, and making changes to audit procedures.
d. Both a and b
Answers to MCQs:
1. c. Obtain an understanding, make a preliminary assessment of control risk,
perform tests of control, design substantive procedures.
2. c. Inefficiency of internal auditor.
3. e. Plan audit procedures.
4. b. control environment.
5. b. Internal control is designed, implemented and maintained to address
unidentified business risks.
6. b. Internal control.
7. a. prevention of frauds.
8. a. Document the conclusions.
9. c. Financial statement assertion level.
10. b. Affects the level of detection risk that auditor may accept.
11. b. The auditor may make separate or combined assessments depending on
methodologies and practical.
12. b. Internal control system.
13. a. Organizational level to which he reports.
14. d. All of the above
15. a. The management.
16. c. Managing Director
17. a. Understanding of the system
18. b. Significant risk
19. b. substantive procedures
20. a. risk assessment
21. d. Audit risk is the risk of a material misstatement in the financial statements
22. a. Intern risk and control risk cannot be controlled by the management i.e are
uncontrollable.
23. c. perpetuate errors and frauds and conceals them.
24. b. regular reconciliation.
25. b. Controls relating to objectives that are not relevant to an audit.
26. C. Adoption of conservative accounting principles.
28. e. All the above
29. b. he has had a satisfactory understanding of the internal control system and
their actual operation.
30. c. Both a and b
31. b. Narrative record
32. a. Checklist
33. b. find weakness or gaps in the systemc and c. understand the system in
operation.
34. d. questionnaire
35. d. internal control questionnaire.
36. b. where there is error in implementation of the procedure.
37. c. auditor
38. b. checks on day to day transactions which operate continuously as a part of
routine system.
39. a. detection risk.
40. b. Inverse
41. b. two
42. c. directly or indirectly
SA 265 Communicating Deficiencies in Internal Control to Those Charged With

Governance and Management
44. SA 265
45. c. Both a and b
46. b. Significant Deficiency in internal control.
47. b. Significant deficiencies in internal control.
48. c. Those charged with governance.
49. d. Transactions are executed in accordance with managements general or
50. b. General monitoring controls. Amd c.Controls over significant transactions
with related party.
51. d. Transactions are executed in accordance with managements general or
52. b. Professional judgement.
SA 315 Identifying and Assessing the Risks of Material. Misstatement through
Understanding the Entity and its Environment
54. None of the above
55. c. whether the firm has an internal audit department.
56. Both a, b and c
57. a. increase in interest rates.
58. b. overstatement of sales.
59. b. The auditor should relate the identified risks to what can go wrong at the
assertion level.
60. a. accounting policies.
61. b. SA 315
62. a. Representations by management, explicit or otherwise, that are embodied in
the financial statements, as used by the auditor to consider the different types
of potential misstatements that may occur.
63. c. Both a and B
64. b. continuous, dynamic process of gathering, updating and analysing
information throughout the audit.
65. b. To material misstatement.
66. c. Changes in the entity's accounting policies.
68. c. Inappropriate manual intervention.
69. b. There is no Internal Control to check the risk.
70. d. Risk of material misstatement.
71. c. Both a and b
72. e. Both a and b
73. d. Inquiries directed to the banking personnel and vendors.
74. b. completeness.
75. d. completeness.
76. d. valuation and allocation.
77. a. existence.
78. c. Both a and b
79. d. None
80. d. all the above
81. b. Nature and Complexity
83. b. reliance on system or program that are accurately processing data and c.
appropriate manual intervention.
SA 330 The Auditor's Responses to Assessed Risks

84. SA 330
85. b. assessed risks of material misstatement.
86. a. Substantive procedure.
87. b. Test of control.
88. d. Both a and b
89. a. Test of Control
90. b. performance of a control.
91. d. Designing of controls
92. d. if internal control is effective.
94. d. Performing extensive substantive testing would not lead to efficiency.
95. c. working papers
96. a. departures from adequate performance.
97. c. Substantive procedure.
98. a. Re-performance and observation.
99. c. More persuasive audit evidence needed regarding the effectiveness of internal
control.
100. e. Both a and c
101. b. Test of details, Substantive analytical procedure.
102. b. Substantive procedure.
103. b. inquiry of entity personnel.
104. c. providing more supervision, and making changes to audit procedures.
Chapter 5
Standards on Auditing
Multiple Choice Questions
SA 200- Overall objective of the independent auditor and the conduct of an

audit in accordance with standards auditing.
1. In accordance with SA 200 the objective of an audit of a financial report is

to enable the auditor to:
a. express an opinion about whether the financial report is prepared in all
respects in accordance with an identified financial reporting framework.
b. express an opinion as to whether the financial report is prepared. in all
material respects, accurately and in accordance with an identified financial
reporting framework.
c. to express an opinion about whether the financial report is prepared in all
material respects in accordance with a financial reporting framework.
d. determine whether the financial report is prepared in all material respects
in accordance with a financial reporting framework.
2. The main purpose of an independent audit is to

a. check and correct frauds and errors.
b. help in detecting frauds and errors.
c. determine if the financial statements fairly represent the actual financial
position and the working results of the.
d. help in formulating future plans.
3. According to SA 200 Overall Objectives of the Independent Auditor and

the Conduct of an Audit in Accordance with Standards on Auditing,
reasonable assurance is obtained when the auditor has reduced audit risk
to
a. a reasonable level.
b. an acceptable level.
c. a reasonably low level.
d. an acceptably low level.
4. Which of the following is not a basic principles governing audit or ethical

requirement to be followed by auditor
a. Independence, Integrity, confidentiality.
b. Compliance framework, Fair presentation framework.
c. Audit documentation, accounting system & Internal control.
d. Reporting requirements, skills, using the work of others.
5. Which of the following is the inherent limitation of audit.

a. Audit evidence being conclusive rather than persuasive.
b. compliance of laws and regulation.
c. Audit is done on test check basis or sampling basis.
d. Using the works of others.
6. Which of the following statement is true with respect of inherent

limitation of audit?
a. The auditor cannot reduce the audit risk to Zero but can obtain absolute
assurance that the financial statements are free from material
misstatement.
b. The auditor can reduce the audit risk to Zero but cannot obtain absolute
misstatement.
c. The auditor cannot reduce the audit risk to Zero and cannot obtain absolute
assurance that the financial statements are not free from material
misstatement.
d. The auditor cannot reduce the audit risk to Zero and cannot obtain absolute
misstatement.
7. The risk that the procedures performed by the auditor to reduce audit risk
to an acceptably low level will not detect a misstatement that exists and
that could be material, either individually or when aggregated with other
a. Audit risk
b. Management risk
c. Control risk
d. Detection risk
8. The risk that the auditor expresses an inappropriate audit opinion when
the financial statements are materially misstated.
a. Audit risk
b. Management risk
c. Control risk
d. Detection risk
9. Audit risk is a function of

a. the risks of material misstatement.
b. the risks of material misstatement and detection risk.
c. the risk of not detect a misstatement that exists and that could be material.
d. procedures performed by the auditor to reduce audit risk to an acceptably
low level.
10. An attitude that includes a questioning mind, being alert to conditions

which may indicate possible misstatement due to error or fraud and a
critical assessment of audit evidence refers to
a. Reasonable assurance
b. Risk of material misstatement
c. Professional judgment
d. Professional skepticism
11. The susceptibility of an assertion about a class of transaction, account

balance or disclosure to misstatement that could be material, either
individually or when aggregated with other misstatements before
consideration of any related controls.
a. Inherent risk
b. Control risk
c. Inherent Limitation of audit
d. Reasonable assurance
12. The risk that a misstatement that could occur in an assertion about a class
of transaction, account balance or disclosure and that could be material,
either individually or when aggregated with other misstatements, will not
be prevented or detected and corrected on a timely basis by the entity
a. Inherent risk
b. Control risk
c. Inherent Limitation of audit
d. Reasonable assurance
13. Which of the following is the responsibilities of management?

a. Preparation and presentation of the financial statement in accordance with
applicable financial reporting.
b. Design, implement and maintain of internal control.
c. safeguard the assets.
d. all the above
14. If inherent risk and control risk are assed as high, then
a. audit risk should be higher so that overall detection risk can be controlled.
b. detection risk should be lower so that overall audit risk can be controlled.
c. audit risk should be lower so that overall detection risk can be controlled.
d. detection risk should be higher so that overall audit risk can be controlled.
15. If inherent risk and control risk are assed as low, then
a. audit risk should be higher so that overall detection risk can be controlled.
b. detection risk should be higher so that overall audit risk can be controlled.
c. audit risk should be lower so that overall detection risk can be controlled.
d. detection risk should be lower so that overall audit risk can be controlled.
16. As part of their responsibility for the preparation and presentation of the
financial statements, management and where appropriate, those charged
with governance are responsible for the following except:
a. The identification of the applicable financial reporting framework, in the
context of any relevant laws or.
b. The preparation and presentation of the financial statements in accordance
with that framework.
c. An adequate description of that framework in the financial statements.
d. express an opinion on the compliance with Accounting standards.
17. The combined level of the inherent and control risk is also known as
a. Risk of material misstatement
b. Audit Risk
c. Detection risk
18. The combined level of the inherent and detection risk is also known as
a. Risk of material misstatement
b. Audit Risk
c. control risk
19. Inherent risk and control risk are inversely proportion to
a. Audit risk
b. Detection risk
c. Risk of material misstatement
d. All the above
20. Combined level of control risk, detection risk and inherent risk is also
known as
a. Risk of material misstatement.
b. Audit risk.
c. Inversely proportion to inherent and control risk.
21. Which of the following is not true about opinion on financial statements?
a. The auditor should express an opinion on financial statements.
b. His opinion is no guarantee to future viability of business.
c. He is responsible for detection and prevention of frauds and errors in
financial statements.
d. He should examine whether recognised accounting principle have been
consistently.
22. Which one of the following statements is correct?

a. Audit risk is the risk of a material misstatement in the financial statements.
b. The risk of a material misstatement in the financial statements consists of
control risk.
c. Audit risk is the risk that the auditor will not detect a material misstatement
that exists in the financial statements.
d. Audit risk is the risk of a material misstatement in the financial statements
23. Which of the following increase control risk? Select which two options are
correct?
a. lack of segregation of duties.
b. optimistic forecasts presented to analysts.
c. reduction in sample size for substantive tests.
d. reduction in the size of the internal audit group.
24. Which one of the following does not impact on inherent risk?
a. The auditor has reduced the sample sizes for testing of purchases for the
entity.
b. The entity has purchased its raw materials from the United States at
discounted prices.
c. During the year, the entity converted its computer system to a new improved
online system.
d. Management has introduced a new bonus scheme for sales employees who
meet their monthly target.
25. The balance date for the auditee is 30th August 2017 based on preliminary
work carried out at the planning stage, the auditor decides to move all
substantive testing of inventory to 30 August, instead of the original
planned date of 31 May. Which of the following risks would be reduced? to
move all substantive testing of inventory to 30th August, instead of the
original planned date of 31 May. Select which two options are correct.
a. audit
b. control
c. inherent
d. detection
26. Which of the following reasons are provided by the auditing standards to
explain why an audit does not provide absolute assurance?
Select which three options are correct.
a. Most evidence is persuasive, not conclusive.
b. Fraud may involve sophisticated attempts to conceal it.
c. Difficulties exist in operationalizing professional skepticism.
d. Some financial statement items are subject to an inherent level of variability,
which cannot be eliminated by additional audit procedures.
27. The matter of difficulty, time, or cost involved is not in itself a valid basis
for the auditor to omit an audit procedure for which there is no alternative
or to be satisfied with audit evidence that is less than persuasive, as
a. SA 501
b. SA 200
c. SA 520
d. SA 402
28. What is not included in Audit risk?

a. ordinarily insignificant
b. adverse publicity
c. loss from litigation
d. All the above
29. Professional judgements is based on

a. Skills
b. Knowledge
c. Experience
d. All the above
30. The auditor shall excise professional judgement in planning and

performing an audit of financial statements. State which of the following
arears judgements are made?
a. Risk of misstatement
b. Sampling, Materiality and Audit Risk
c. Conclusion to be drawn based upon evidence
d. All the above
31. The risk of misstatement will happen at
a. Consolidated financial statement level.
b. Overall Financial statement level.
c. Assertion level at account balance, class of transactions & disclosure.
d. Both b and c
SA 210 Agreeing the Terms of Audit Engagements
32. The audit engagement letter, generally, should include a reference to each
of the following except
a. limitations of auditing.
b. responsibilities of management with respect to audit work.
c. expectation of receiving a written management representation letter.
d. a description of the Auditor's method of sample selection.
33. The use of an audit engagement letter is the best method of assuring the
auditor will have
a. Auditor will obtain sufficient appropriate audit evidence.
b. Management representation letter.
c. Access to all books, accounts and vouchers required for audit purpose.
d. Cooperation from other auditors.
34. The use of an audit engagement letter is the best method of documenting
i. The required communication of significant deficiencies in internal control
ii. Significantly higher control risk than that assessed in prior audit.
iii. Objective and scope of auditor's work
iv. Notification of any changes in the original arrangements of the audit.
a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iv)
d. (iii) and (iv)
35. Which of the following circumstance in case of recurring audits, The

auditor will send the engagement letter?
a. Significant changes in senior management.
b. Revision in the terms of engagement.
c. Changes in the legal or regulatory requirements.
d. Insignificant changes in nature/ size of business entity.
36. The scope of the audit including reference to the pronouncements of the
ICAI, which the auditor adheres to, generally is communicated to the
client in the
i. Auditor's report
ii. Engagement letter
iii. Representation letter
iv. Director's report
a. only
b. Both (i) and (ii)
c. Both (i) and (iii)
d. All the above
37. When restrictions that significantly affect the scope of the audit are
imposed by the client, the auditor generally should issue which of the
following opinion?
a. Qualified opinion
b. Disclaimer of opinion
c. Adverse opinion
d. Unqualified report with „an emphasis of matter" paragraph;
38. Which of the following report not result in qualification of the auditor's
opinion due to a scope limitation?
a. Restrictions the client imposed.
b. Reliance on the report of other auditor.
c. Inability to obtain sufficient appropriate evidential matter.
d. Inadequacy of accounting records.
39. Pre conditions to the engagement letter are?

a. Financial statements are to be prepared by the client.
b. Accounting principles and the applicable AS have been applied while
preparing such financial statement.
c. Both a and b
d. None
40. The primary purpose of establishing quality control policies and

procedures for deciding on client evaluation is
a. ensure adherence to generally accepted auditing standards.
b. acceptance or retention of clients whose management does not lack integrity.
c. ensure audit fees is charged according to the type of audit work assigned.
d. all of the above.
41. Which of the following is not a quality control consideration on accepting

a new client?
a. Availability of audit assistants with necessary skill and competence.
b. Provision of other services to the client which may impair independence.
c. Predecessor auditor's advice as to whether audit fees were paid promptly.
d. Review of audit work done by one partner by the other.
42. An auditor obtains knowledge about a new client's business and its
industry to –
a. Make constructive suggestions concerning improvements to the client's
internal control system.
b. Evaluate the appropriateness of audit evidence obtained.
c. Understand the events and transactions that may have an effect on client's
d. All of the above
43. If the management imposes a limitation on scope of auditor's work in terms of
a proposed audit engagement, state the applicable Standards on Auditing
a. SA 315
b. SA 210
c. SA 200
d. SA 220
44. In which of the circumstances below would an auditor be able to change

the terms of engagement from an audit to a review engagement? Select
which two options are correct.
a. A change in circumstances affects the entity's requirements.
b. There is a misunderstanding concerning the nature of the service originally
requested.
c. During the audit, the auditor is unable to obtain sufficient appropriate
evidence with respect to receivables.
d. The client has substantial assets in Iraq. Due to an ongoing conflict, the
auditor is unable to test the existence or value of the assets.
45. Prior to accepting an appointment as auditor, the audit firm is informed

by management that management does not believe it is responsible for the
internal control system. As a result of this information
a. Auditor cannot accept the audit engagement unless required to do so by law
or regulation.
b. Auditor will not be able to rely on internal controls and will need to carry out
substantive tests of details an analytical procedures.
c. Auditor will need to increase the extent of tests of controls, as well as
consider the nature and timing of these tests in order to rely on internal
controls.
d. Auditor must inform management that unless management acknowledges
its responsibility for the inter control system it will be considered a
“limitation of scope" on the audit.
46. In order to establish whether the preconditions for an audit are present,
the auditor shall
a. Determine whether the financial reporting framework is acceptable.
b. Obtain the agreement of management that it acknowledges and understands
its responsibility for preparation of the financial statements in accordance
with the applicable financial reporting framework.
c. To provide the auditor with Access to all information such as records,
documentation and other matters.
d. Both b and c
e. All a, b and c
47. In the case of Partnership Firm, the appointment of the auditor is normally
governed by
a. Partnership deed.
b. Partnership Act
c. Income Tax Act
d. Both b and c
48. Audit engagement letter is a communication issued by

a. auditee to auditor
b. auditee to Government
c. auditor to auditee
d. auditor to government
49. The agreed terms of the audit engagement ..................

i. shall be recorded in the engagement letter
ii. need not be recorded in written agreement.
iii. recorded in any suitable form of written agreement
iv. Shall be discussed with the auditee in oral form
a. (i) and (iii)
b. (ii) and (iv)
c. (iv) only d.
50. As per SA 210, "Agreeing the term of Audit Engagement" When Law or
regulation prescribes in sufficient detail, the terms of the audit
engagement
a. shall be recorded in the engagement letter.
b. need not be recorded in written agreement.
c. Other suitable form of written agreement.
d. Either a or c
51. If the auditor is unable to agree to a change of the terms of the audit
engagement and it is not permitted by management to continue the
original audit engagement, the auditor shall
a. Withdraw from the audit engagement where possible under applicable law
or regulation.
b. Determine whether there is any obligation, either contractual or otherwise,
to report the circumstances to other parties, such as those charged with
governance, owners or regulators.
c. combination of both a and b
d. Either a or b
52. If the auditor concludes that there is reasonable justification to change

the engagement and if the audit work performed in compliance with SAs
applicable to the changed engagement then
a. the report issued would be appropriate for the revised terms of engagement.
b. in order to avoid confusion, the report would not include the original
engagement.
c. combination of both a and b
d. Either a or b
53. Legal requirement to get the accounts audited so far extends only to a.
a. Companies
b. Registered societies
c. Partnership firms
d. Both a and b
e. Both a and c
54. Which of the following reduce the possibility of misunderstanding to a

great extent.
a. Statements issued by ICAI
b. Guidance notes issued by ICAI
c. Engagement letter
d. All the above
SA 220 Quality Control for an Audit of Financial Statements / Standard on

Quality Control 1
55. State the applicable standards for "quality control for an audit of financial
statements"
a. SA 250
b. SA 200
c. SA 210
d. SA 220
56. Which of the following is the responsibility of engagement partner

i. direction, supervision and performance of the audit engagement
ii. Preparation and presentation of the financial statement in accordance with
applicable financial reporting
iii. Design ,implement and maintain of internal control
iv. undertaking appropriate consultation on difficult or contentious matters
a. Only (i) , (ii) and (iii)
b. Both (ii) and (iii)
c. Both (i) and (iv)
d. All the above
57. Engagement team shall follow the firm’s policies and procedures for dealing with
and resolving
a. Difference of evidence
b. Difference of opinion
c. Both a and b
58. The auditor shall document:

i. Issues identified with respect to compliance with relevant ethical requirements
and how they were resolved.
ii. Conclusions on compliance with independence requirements that apply to the
audit engagement, and am-relevant discussions with the firm that support
these conclusions.
iii. Conclusions reached regarding the acceptance and continuance of client
relationships and audit engagements.
iv. The nature and scope of, and conclusions resulting from, consultations
undertaken during the course of the audit engagement.
a. only i
b. Both (iii) and (iv)
c. Only (i), (ii) and (iv)
d. All the above
59. SQC 1 deals with the firms responsibilities to establish and maintain its
a. Internal control.
b. system of quality control for audit engagements.
c. Profession judgement.
d. All the above
60. The engagement partner may identify a threat to independence regarding

the audit engagement that safeguards may not be able to eliminate or
reduce to an acceptable level. In that case
a. the engagement partner reports to the relevant person(s) within the firm to
determine appropriate action.
b. withdrawing from the audit engagement, where withdrawal is legally
permitted.
c. Where applicable law or regulation does not permit withdrawal of the auditor
from the engagement disclosure through a public report.
d. All the above
61. An auditors external expert is not subject to

a. Quality control policies & procedures of client.
b. Standards on Auditing Chapter 5
c. Quality control policies & procedures of audit firm.
d. Quality control policies & procedures of ICAI
e. None of the above
62. State the information which assists the auditor in accepting and
continuing of relationship with the client as per SA 220.
a. The integrity of the principal owners, key management and TCWG
b. Whether the engagement team is competent to perform the audit
engagement.
c. whether the firm and the engagement team can comply with relevant ethical
requirements.
d. All the above
63. The least important element in the evaluation of an audit firms system of
quality control would relate to
a. assignment of audit assistants.
b. system of determining audit fees.
c. consultation with experts.
d. confidentiality of client's information.
64. Partners and members of ICAI who evaluates the work of engagement team
specifically on listed entities are
a. Engagement Partner.
b. Principle auditor of Listed Entities.
c. Engagement Quality Control Reviewer.
d. None
65. Duties of Engagement Quality Control Reviewer

a. Whether to accept the client or not.
b. Discuss significant matter with engagement partner.
c. To resolve issues of engagement team.
d. Both a and c
66. Which of the following is not the functions of engagement partner?

a. Design and implementing internal control.
b. Compliance with professional standards.
c. Whether to accept the client or not.
d. Monitoring of Quality Control system of firm.
67. …………… which occurs when an auditing firm, its partner or associate
could benefit from a financial interest in an audit client.
c. Advocacy threats
68. Which of the following occurs when a member of the audit team was
previously a director or senior employee of the client.
c. Advocacy threats
69. Which of the following occurs when former partner of the audit firm being
a director or senior employee of the
a. Self-interest threats b.
c. Advocacy threats
70. Which of the following occurs when an auditor deals with shares or
securities of the audited company, or becomes the client's advocate in
litigation and third party disputes.
c. Advocacy threats
71. Which of the following refers to Self-interest threats? State which of the
two options are correct?
a. when auditors perform services that are themselves subject matters of audit.
b. potential employment with the client.
c. contingent fees for the audit engagement.
d. becomes the client's advocate in litigation and third party disputes.
72. Which of the following refers to Familiarity threats?

a. close relative of the audit team working in a senior position in the client
company.
b. when an auditor having recently been a director or senior officer of the
company.
c. potential employment with the client.
d. when auditors perform services that are themselves subject matters of audit.
73. Which of the following refers to Advocacy threats?

a. When the auditor promotes, or is perceived to promote, a client's opinion to
a point where people may believe that objectivity is getting compromised.
b. When an auditing firm, its partner or associate could benefit from a financial
interest in an audit client.
c. When auditors form relationships with the client where they end up being
too sympathetic to the client's interests.
d. Both b and c
74. Basically, these could happen because of threat of replacement over
disagreements with the application of accounting principles, or pressure
to disproportionately reduce work in response to reduced audit fees
c. Advocacy threats
e. Intimidation threats
75. ............... and ………….. are considered essential characteristics of all the
professions but are more so in the case of accountancy profession.
a. Professional integrity, independence
b. Skills, Knowledge
c. Honest, Straight forward
d. All the above
76. Standard on Quality Control (SQC) 1 sets out

a. the responsibilities of the firm for establishing policies and procedures
regarding compliance with relevant ethical requirements.
b. the engagement partner's responsibilities with respect to relevant ethical
requirements.
c. Both a and b
d. None
77. …………. safeguards the auditor's ability to form an audit opinion without being
affected by any influences.
a. The engagement partner's responsibilities.
b. The auditor's independence.
c. Both a and b
d. None
78. The Code of Ethics for Professional Accountants issued by International

Federation of Accountants (IFAC) defines the term 'Independence" as
follows
a. The state of mind that permits the provision of an opinion without being
affected by influences allowing an individual to act with integrity, and
exercise objectivity and professional skepticism.
b. The avoidance of facts and circumstances that are so significant that a third
party would reasonably conclude an auditor's integrity, objectivity or
professional skepticism had been compromised.
c. Both a and b
d. None
79. The firm should establish policies and procedures designed to provide it
with reasonable assurance that the policies and procedures relating to the
system of quality control are relevant, adequate, operating effectively and
complied with in practice. which refers to
a. Engagement Performance
b. Human Resources
c. Monitoring
d. Firm's quality control policies
SA 230 Audit Documentation
80. State the applicable standard for Audit Documentation

a. SA 210
b. SA 220
c. SA 230
d. SA 240
81. State the Purpose of working papers as per SA 230

i. Assisting the engagement team to plan and perform the audit.
ii. Enabling the engagement team to be accountable for its work.
iii. Retaining a record of matters of continuing significance to future audits
iv. Enabling the conduct of quality control reviews and inspections in
accordance with SQC 1.
a. Both i and iii
b. Both i. ii and iii
c. All the above
82. The auditor may include abstracts or copies of the entity's record as a part
of
a. Substitute for the entity's accounting record.
b. Audit documentation.
c. Scope and objective of audit engagement.
83. State the Retention period of working papers as per SA 230

a. Six years
b. Eight years
c. Seven Years
d. Five Years
84. The auditor shall not document the following

a. Overall audit strategy.
b. Changes made during the audit engagement which are insignificant.
c. Audit plan and reason for such change.
d. Audit plan.
85. The client had received an assessment order from income tax department.
Mr. A. the auditor was approached for the same. However. A did not retain
the working papers relating to his audit findings for that particular period.
a. He failed to comply with the requirements of SA 220
b. He failed to comply with the requirements of SA 210
c. He failed to comply with the requirements of SA 230
d. He failed to comply with the requirements of SA 200
86. Branch auditor of the company should give photocopies of his working
papers on demand by company auditor. State which of the following
statement is not true
a. Company auditor have the right of access of working papers of branch
auditor.
b. Company auditor does not have the right of access of working papers of
branch auditor.
c. Branch auditor is under no compulsion to give photo copies.
d. Company auditor has to consider the report of the branch auditor and has
a right to seek clarification.
87. Preparing sufficient and appropriate audit documentation

…………………….. helps to enhance the quality of the audit and facilitates
the effective review and evaluation of the audit evidence obtained and
conclusions reached before the auditor's report is finalized
a. Based on engagement
b. Based on time
c. Based on objective
d. Based on the audit plan
88. Documentation prepared after the audit work has been performed is likely
to be
a. More accurate than documentation prepared at the time such work is
performed.
b. Less accurate than documentation prepared at the time such work is
performed.
c. More appropriate than documentation prepared at the time such work is
performed.
89. An appropriate time limit within which to complete the assembly of the
final audit file is ordinarily not more than …………… after the date of the
auditor's report
a. 90 days
b. 60 days
c. 45 days
d. 120 days
90. In exceptional circumstances include facts which become known to the auditor
after the date of the auditor's report but which existed at the date of auditor's
report , then ____________
a. The financial statements are not to be amended.
b. The auditor to modify the opinion in the auditor's report.
c. The auditor to issue unmodified the opinion in the auditor's report.
91. Working paper may be recorded in

a. Electronic Mode
b. Paper Mode
c. Other Media
d. Both b and c only
e. Both a and b only
92. The auditor shall prepare audit documentation

a. on periodical basis.
b. on timely basis.
c. depends on the audit requirement.
d. depends on tfshe statutory requirement.
93. In documenting the nature, timing and extent of audit procedure

performed, which one of the following shall be recorded by auditor?
a. The identified risk of material misstatements.
b. The nature and extent of exceptions identified.
c. The identifying characteristics of the specific items or matter tested.
d. All of above
94. If the auditor identified information that is inconsistent with the auditor's
final conclusion regarding a significant matter. The auditor shall
a. document the identified inconsistency.
b. document the nature and extent of exceptions and inconsistency identified.
c. document the identifying characteristics of the specific items or matter
tested.
d. document how the auditor addressed the inconsistency.
a. audit documents acts as on evidence that the auditor was not negligent.
b. audit documents helps the auditor to monitor and supervise the work of
audit engagement team.
c. audit documentation provides reasonable understanding of the business
environment in which the entity.
d. auditor shall prepare the audit documentation on a periodical basis.
96. The completion of the assembly of the final audit after the date of auditor's
report is
a. an assurance related process.
b. an administrative process.
c. policies and retention related process.
d. Both a and c
97. Administrative process does not involve the performance of

a. New audit procedures.
b. Existing audit procedures.
c. drawing of new conclusions.
d. Both a and c
e. Both b and c
98. During the final assembly process. if they are administrative in nature
a. the auditor shall not delete or discard audit documentation of any nature.
b. the auditor shall delete or discarding superseded documentation.
c. changes cannot be made before the end of its retention period.
d. none
99. After the assembly of the final audit file has been completed
a. the auditor shall not delete or discard audit documentation of any nature.
b. the auditor shall delete or discarding superseded documentation.
c. changes can be made before the end of its retention period.
d. none
100. The auditor shall assemble the audit documentation in an audit file and
complete the administrative process of assembling the final audit file
a. on a timely basis after the date of the auditor's report.
b. on a timely basis before the date of the auditor's report.
c. on a timely basis during the date of the auditor's report.
d. none
101. An important factor in determining the form, content and extent of audit
documentation of significant matters is the extent of
a. auditor's conclusion.
b. management request.
c. professional judgement.
d. auditor's responsiveness.
102. Judging the significance of a matter requires............. of the facts and

circumstances
a. the detailed analysis.
b. an objective analysis.
c. the reasonable analysis.
d. none
103. A large variety of matters observed during the course of audit are recorded
in
a. audit programme
b. audit note
c. audit documents
d. audit plan
104. Significant matters observed during the audit which should be recorded in
audit notebook does not include
i. case of failure to comply with the requirements of the Companies Act 2013
ii. The provisions contained in the memorandum or articles
iii. In computation of depreciation. failure to provide adequate depreciation
iv. Audit queries not cleared immediately
a. Only ii
b. Both ii and iv
c. Except i. iii and iv
105. State which one of the following falls under permanent audit file?
a. Significant analysis of trends and ratios.
b. Letter of representation.
c. Analysis of transaction and balances.
d. Significant evidence of planning process of the audit and audit programmes.
106. State which one of the following falls under current audit file
a. Significant analysis of trends and ratios.
b. notes regarding significant accounting policies.
c. a record of the study & evaluation of internal controls to accounting system.
d. Significant evidence of planning process of the audit and audit programmes.
107. Audit documentation does not include

a. issues memoranda.
b. correspondence including mail. concerning significant matters.
c. letter of confirmation and representation.
d. None of the above e. Both a and c
108. State which of the following statement is true?

a. Auditor is bound to provide copies of the working papers to the CEO of the
Company.
b. Extracts & copies of important legal documents, agreements relevant to the
audit is a part of current audit file.
c. The auditee firm has no rights to comple the auditor to provide copies of the
working papers.
e. All a, b and c are true
SA 240 (Revised)The Auditor's Responsibilities Relating to Fraud in an Audit of

Financial Statements
109. Primary responsibility for the prevention and detection of fraud rests with
a. Auditor
b. Audit Assistant
c. Management and TCWG
d. All the above
110. State which of the following statement is not true as per SA 240 Auditors
responsibility relating to fraud in an audit of the financial statement
a. Management is responsible for identification of fraud.
b. Auditor is appointed for the sole purpose to identify the fraud.
c. TCWG supplies capital & takes major decision about the company.
d. Management is involved in operation of the company.
111. Where auditors comes across a situation where any misstatement due to
fraud or error exist then
a. The auditor shall issue modified report.
b. The auditor should discuss significant matter with engagement partner.
c. The auditor should apply additional procedures to confirm or dispel his
suspicion.
d. The auditor shall qualify the report.
112. Circumstances relating to possibility of fraud including

a. Accounting policies that appear to be at variance with industry norms.
b. Yearly changes in accounting estimates that do not appear to result from
changed circumstances.
c. short period provided by management to resolve complex or contentious
issues.
d. All the above
113. The management may override the controls in order to take advantage of
the situation, whereby, they may pass false entries in the book, is known
as
b. Fraudulent financial reporting.
c. Pilferage/ misappropriation of receipts.
114. State which of the following statement is misappropriation of assets
a. ledger alteration.
b. Concealment of facts.
c. Significant alteration.
d. pilferage/ misappropriation of receipts.
115. The risk of not finding of fraud is more than the risk of not finding an error
a. this is because of existence of more unintentional errors.
b. Because fraud may involves sophisticated and carefully organised schemes
designed to conceal it.
c. because fraud is always accompanied by an act which is not conceals its
existence.
116. The companies (Audit and Auditors) Rules, 2014 states that the company
is required to disclose in the Board's report the following details of each of
the fraud reported to the audit committee
a. Nature of fraud.
b. Amount involved.
c. Parties involved, and remedial action not taken.
d. All the above
117. When TCWG have committed fraud then the auditor shall
a. Resign
b. Issue modified opinion
c. Seek legal opinion
d. All the above
118. The accountant receives money from customer 2 but adjust it to customer
l's account. This process goes on and at no point of time will the customer
balance be shown properly, it refers to
a. Misapplication of accounting principal.
b. Intentional Omission.
c. Teeming & Lading.
d. Engaging in complex transaction.
119. When a transaction has been wrongly recorded either wholly or partly is
known as
a. Error of omission
b. Error of principal
c. Error of Commission
120. If an auditor of the company has a reason to believe that the fraud is
committed against the company by It’s officer or employees of the
company, then
a. The auditor shall report on such fraud within 2 days of his knowledge to the
audit committee/board.
b. The auditor shall report on such fraud within 5 days of his knowledge to the
c. The auditor shall report on such fraud within 3 days of his knowledge to the
d. The auditor shall report on such fraud within 7 days of his knowledge to the
121. Where the amount involved in fraud is of Rs. 1 crore or above then, the
auditor shall report to the government
a. Within 45 days
b. Within 60 days
c. with in 15 days
d. with in 75 days
122. Where the amount involved in fraud is of Rs. 1.2 crore and the same has
been reported to the audit committee within 2 days for seeking reply, the
reply is duly received from the audit committee with in 45 days, state
which of the following is correct
a. Reporting central government is not required.
b. Reporting central government is required with in 15 days of receipt of reply.
c. Report shall be sent to the secretary, ministry of finance.
123. Fraud to be reported by auditor, where

a. Fraud first noted by Company Secretary.
b. Fraud first noted by Branch auditor.
c. Fraud first noted by Company Auditor.
d. Fraud first noted by management.
124. State whether the auditor require to report central government for Fraud
already reported by the management
a. Consider reporting to central government.
b. No reporting required.
c. Auditor shall report with the prior permission of management.
125. which of the following statement is not correct in respect of fraud already
reported by other person i.e., Company secretary, branch auditor,
management
a. If the auditor is not satisfied, he shall request management to perform
additional procedures.
b. Review the steps taken by management.
c. since the fraud is already reported no further action required.
d. None
126. If the auditor requested management to perform procedures, then the
management will do additional procedures with in
a. 15 days
b. 60 days
c. 45 days
127. State who is responsible to ensure that the entity's operations are
conducted in accordance with the provisions of laws and regulations
a. Company Auditor
b. Branch Auditor
c. Company secretary
d. Management
128. A sale of Rs. 1,50,000 to Raguram was entered as a sale to Ram. This is an
example of –
b. Error of commission
c. Compensating error
d. Error of principle
129. "Goods sent on approval basis" have been recorded as "Credit sales". This
is an example of –
a. Error of principle
b. Error of commission
c. Error of omission
d. Error of duplication

a. Management fraud is more difficult to detect than employee fraud.
b. Internal control system reduces the possibility of occurrence of employee
c. The Auditor's responsibility for detection and prevention of errors and frauds
is similar.
d. All statements are correct.
131. If auditor detects an error then

a. He should inform the management.
b. He should communicate it to the management if it is material.
c. The auditor should ensure financial statements are adjusted for detected
errors.
d. Both b and c
132. The risk of management fraud increases in the presence of

a. Frequent changes in supplies.
b. Improved internal control system.
c. Substantial increases in sales.
d. Management incentive system based on sales done in a quarter.
133. Which of the following factors likely to be identified as a fraud factor by
the auditor?
a. The company is planning a initial public offer of quality shares to raise
additional capital for expansion.
b. Bank reconciliation statement includes deposits in transit.
c. Plant and machinery is sold at a loss.
d. The company has made political contributions.
134. The most difficult type of misstatement to detect fraud is based on:
a. Related party purchases.
b. Related party sales.
c. The restatement of sales.
d. Omission of a sales transaction from being recorded.
135. Which of the following statements is correct concerning the required

documentation in working papers of fraud risk assessment undertaken by
the auditor?
a. All risk factors should be considered and documented along with response
to them.
b. Document the identification of fraud risk factors along with response to
them.
c. Document material fraud, risk factors and response to them.
d. No documentation in required.
136. Which of the following is the most appropriate potential reaction of the
auditor to his assessment that the risk of material misstatement due to
fraud is high in relation to existence of inventory?
a. Visit location on surprise basis to observe test counts.
b. Request inventory count at a date close to yearend.
c. Vouch goods sent on approval very carefully.
d. Perform analytical procedures.
137. Which of the following is not likely to be a fraud risk factor relating to
management's characteristics
a. Tax evasion.
b. Failure to correct known weakness in internal control system.
c. Adoption of conservative accounting principles.
d. High management turnover.
138. State which of the following constitutes Possibility of Fraud?

a. Discrepancies in accounting records.
b. Conflicting or missing evidence.
c. Problematic or unusual relation-ship between auditor and management.
d. Only b and c
e. All a, b and c 140.
139. Incentive or pressure to commit fraudulent financial reporting may exist
when.........
a. an individual believes internal control can be overridden.
b. management is under pressure.
c. some individuals possess an attitude, character or set of ethical values that
allow them knowingly and - intentionally to commit a dishonest act.
d. Both a and c
140. A perceived opportunity to commit fraud may exist when......

b. management is under pressure.
allow them knowingly and intentionally to commit a dishonest act.
d. Both b and c
141. Individuals may be able to rationalize commiting a fraudulent act.......

b. Even honest individuals can commit fraud in an environment that imposes
sufficient pressure on them.
allow them knowingly and intentionally to commit a dishonest act.
d. Both b and c
142. Fraudulent financial reporting may be accomplished by …………….. , State

which of the two options are
a. Manipulation/ Falsification.
b. Inflating cash payments /casting wrong totals in the cashbook.
c. Intentional omission / misapplication of accounting principles.
d. Teeming and lading.
143. Charging items of capital expenditure to revenue or by capitalizing

revenue expenses. The type of fraud involves?
b. Manipulation of accounts.
c. Teeming and lading.
d. None
144. Fraud can be committed by management overriding controls using the

following techniques. State which of the two options are correct?
a. Inflating cash payments.
b. Recording fictitious journal entries.
c. Concealing or not disclosing facts.
d. Causing an entity to pay for goods and service not received.
145. Misappropriation of assets is often accompanied by

a. False or misleading records.
b. Documents in order to conceal the fact that the assets are missing.
c. Documents in order to conceal the fact that the assets have been pledged
without proper authorization.
d. All the above
146. 'Fraud' deals with ................... but, 'error', on the other hand, refers to in
financial information.
a. unintentional mistake, misrepresentation.
b. Intentional misrepresentation, unintentional mistake.
c. unintentional misrepresentation, intentional mistake.
d. misapplication, misrepresentation.
147. Even though the audit is properly planned and performed in accordance
with SAss, some material misstatements of the financial statements will
not be detected, this is due to
a. Internal control is not effective
b. Inherent limitation of an audit
c. Inherent limitation of an internal control
d. Deficiencies in internal control
148. Which of the following statement is not true, in respect of risk factors
relating to misstatements arising from fraudulent financial reporting?
a. Financial stability or profitability is threatened by economic, industry, or
entity operating conditions, as indicated by, high degree of competition or
market saturation, accompanied by declining margins.
b. The nature of the industry or the entity's operations provides opportunities
to engage in fraudulent financial reporting that can arise from, recurring
negative cash flows from operations or an inability to generate cash flows
from operations while reporting earnings and earnings growth.
c. The relationship between management and the current or predecessor
auditor is strained, as exhibited by, frequent disputes with the current or
predecessor auditor on accounting, auditing, or reporting matters.
d. Both a and c
149. Discrepancies in the accounting records, including

a. Unsupported or unauthorized balances or transactions.
b. Missing documents.
c. Significant unexplained items on reconciliations.
d. Both b and c
150. Conflicting or missing evidence, does not includes

a. Transactions that are not recorded in a complete or timely manner or are
improperly recorded as to amount, accounting period, classification, or
entity policy.
b. Unusual discrepancies between the entity's records and confirmation
replies.
c. Significant unexplained items on reconciliations.
d. Both b and c
151. Problematic or unusual relationships between the auditor and
management, including
a. Unwillingness to facilitate auditor access to key electronic files for testing
through the use of computer assisted audit techniques.
b. Undue time pressures imposed by management to resolve complex or
contentious issues.
c. An unwillingness to add or revise disclosures in the financial statements to
make them more complete and understandable.
d. All the above
152. Which of the following reasons are provided by the auditing standards to
explain why an audit does not provide absolute assurance?
Select which three options are correct.
a. Most evidence is persuasive, not conclusive.
b. Fraud may involve sophisticated attempts to conceal it.
c. Difficulties exist in operationalizing professional scepticism.
d. Some financial statement items are subject to an inherent level of variability,
which cannot be eliminated by additional audit procedures.
153. Which one of the following circumstances would not be included in the
Auditor's communication with those charged with governance about
matters related to fraud?
a. a failure by management to respond to an identified fraud.
b. the absence of a risk assessment process for violations of labour laws.
c. a list of store locations where inventory turnover is significantly higher than
average.
d. a failure by management to address identified material weaknesses in
internal control.
154. Which one of the following statements about fraud is correct?

a. Fraud can be intentional or unintentional.
b. Fraud always involves misappropriation of assets.
c. Fraud always involves the use of deception to obtain an unjust or illegal
advantage.
d. Fraud is always perpetrated by management, those charged with governance
or employees.
155. Which one of the following does not necessarily constitute fraud?
a. Alteration of accounting records from which the financial statements are
prepared.
b. Overriding internal controls to record transactions outside the usual course
of an entity's business.
c. Intentional omission from the financial statements of transactions or other
significant information.
d. Intentional misapplication of accounting principles relating to amounts,
classification, manner of presentation or disclosure.
156. Which one of the following fraudulent activities constitutes
misappropriation of assets?
a. causing an entity to pay for goods and services not received.
b. omitting, advancing or delaying recognition of events and transactions.
c. concealing, or not disclosing, facts that could affect the recorded amounts.
d. engaging in complex transactions that misrepresent the financial position of
the entity.
157. You are the auditor of Client LKS and have commenced planning for the
20X9 audit engagement. As part of your planning activities, you have
asked the CEO about important events during the year that might have an
impact on the audit. In response, he has asked you to 'take it easy" on the
chief financial officer because his daughter is seriously ill. Apparently, the
child must travel regularly to the UK for expensive medical treatments.
What fraud risk factors are present in this situation?
a. incentive and opportunity
b. incentive and rationalization
c. opportunity and rationalization
d. incentive, opportunity and rationalization
158. Which one of the following does not constitute an appropriate audit
planning procedure that the auditor should employ relating to the risk of
fraud?
a. Increase the level of professional skepticism.
b. Make enquiries to obtain information and so identify the risks of material
misstatement due to fraud.
c. Incorporate an element of unpredictability in the selection of the nature,
timing and extent of the audit procedures to be performed.
d. The engagement team needs to discuss the susceptibility of the entity's
financial statements to material misstatement due to fraud.
159. The auditor of Client GK has made enquiries about a related party
transaction identified in the notes to the financial statements. The auditor
has discovered that the CEO of Client GK is the owner of a manufacturing
company that is a major supplier to Client GK. What is your assessment of
the risk of fraud associated with this
a. medium, because incentive is absent.
b. medium, because opportunity is absent.
c. medium, because rationalization is absent.
d. high, because incentive, opportunity and rationalization are all present.
160. When planning the audit, the auditor must make enquiries of management.
Which one of the following is not an appropriate enquiry of management
about fraud?
a. The auditor should ask about management's communications with
employees about ethical behaviour.
b. The auditor should ask management about their assessment of the risk that
the financial statements may be materially misstated due to fraud.
c. The auditor should ask management if they are personally engaged in
fraudulent activity, including fraudulent financial reporting and
misappropriation of assets.
d. The auditor should ask management about any communications with those
charged with governance regarding its processes for identifying and
responding to the risks of fraud in the entity.
161. SA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of

Financial Statements specifically requires the auditor, when identifying
and assessing the risk of material misstatement due to fraud, to presume
there is a risk
a. revenue recognition.
b. weak internal controls.
c. liability understatement.
d. misappropriation of assets.
162. With respect to financial statement fraud, which one of the following
statements is not correct?
a. Enquiries of management are more useful for detecting management fraud
than employee fraud.
b. The auditor must consider the risk of material fraud at both the financial
statement level and the assertion level.
c. Excessive pressure on management to meet expectations of third parties
creates incentives for management fraud.
d. The auditor needs to consider the likelihood of collusion in determining the
appropriate level to report suspicions of fraud.
163. Which of the following are financial statement frauds? Select which three
options are correct?
a. forging of accounting records.
b. unintentional omission from the financial statements of transactions.
c. intentional misapplication of accounting principles related to amounts.
d. intentional misapplication of accounting principles related to disclosure.
SA 250 Consideration of Laws and Regulations in an Audit of Financial

Statements
164. State who is responsible to ensure that the entity's operations are
conducted in accordance with the provisions of laws and regulations
a. Company Auditor
b. Branch Auditor
c. Company secretary
d. Management
165. Which of the following statement is not true as per SA 250?

a. The auditor is responsible for preventing non-compliance and can be
expected to detect non-compliance with all laws and regulations.
b. Non-compliance with laws and regulations may result in fines, litigation or
other consequences for the entity that may have a material effect on the
c. SA 250 are designed to assist the auditor in identifying material
misstatement of the financial statements due to non-compliance with laws
and regulations.
d. Management is responsible to ensure that the entity's operations are
conducted in accordance with the provisions of laws and regulations.
166. Which of the following statement is not true as per SA 250?

a. Non compliance does not include personal misconduct by TCWG,
Management, or employee of the entity.
b. Non compliance include personal misconduct by TCWG, Management, or
employee of the entity.
c. Non compliance include act of omission or commission by the entity which
are intentional or unintentional.
167. State which of the following is an example for direct impact on financial
statement for non compliance of law?
a. Non-payment of service tax
b. fines paid for Child labour engaged
c. Both A and B
168. When Auditor suspect non compliance of Law, he shall

a. inform to central government
b. inform to MCA
c. inform to Management and TCWG
d. All the above
169. Management is responsible for compliance with laws and regulation,

except
a. Monitoring legal requirements.
b. Ensure the employees are properly trained and understand the code of
conduct.
c. obtaining reasonable assurance.
d. Registers of significant laws are maintained.
170. State which of the following is not true with reference to SA250, matters
indicating to the auditors about non compliance of laws & regulation by
management?
a. Matters related to transaction with company in Tax Havens.
b. litigation and claims as per the legal counsel.
c. Both a and B
171. State which of the following is true in reporting responsibility of auditor
in case of non compliance of law
a. No issues when management agrees, and disclose the same.
b. Qualify the report if TCWG disagree.
c. Seek legal opinion if TCWG disagree.
d. All the above
172. When the auditor becomes aware of the existence of, or information about,
the which of the following matters, it may be an indication of non-
compliance with laws and regulations
i. Purchasing at prices significantly above or below market price.
ii. Investigations by regulatory organisations and government departments
or payment of fines or penalties
iii. Payments for goods or services made other than to the country from
which the goods or services originated
iv. Unusual transactions with companies registered in tax havens
a. Only (i),(ii) and (iii)
b. Both(ii), (iii)
c. (iv) only
d. All the above
173. The Auditor's documentation of findings regarding identified or suspected

non- compliance with laws and regulations may include
a. Copies of records or documents.
b. Minutes of discussions held with management, those charged with
governance or parties outside the entity.
c. Both a and B
SA 260(Revised) Communication with Those Charged with Governance
174. State the applicable Sa for Auditor's responsibility to communicate with those
charged with governance in relation to an audit of financial statement,
a. SA 265
b. SA 260
c. SA 240
d. SA 315
175. State which of the following is not the function of TCWG

a. Strategic decision about the company.
b. Run the operations in the company.
c. Infuse Capital in the enterprise.
d. policymakers in the company.
176. State which of the following is the function of TCWG

a. Run the operations in the enterprise.
b. Safeguard the assets and prepare financial statements.
c. Both a and b
177. The auditor shall communicate the overview of the planned scope and
timing of audit with
a. Management
b. Article Assistant
c. TCWG
d. All the above
178. State the circumstances where communication is not required with TCWG
a. Scope of audit in case of listed company.
b. Management and auditor disagree on the provision.
c. Accounting policy undergoing significant changes.
179. As per SA 250 & SA 260 The management of the company failed to conduct
the minimum number of board meeting as per the statutory requirement
and the minutes of the same were also not recorded for the meeting held,
in this case the auditor should escalate the fact to
a. Central government and accordingly take the action.
b. Registrar and accordingly take the action.
c. TCWG and accordingly take the action.
180. Factors governing modes of communication of auditor with those charged

with governance includes
a. Size, operating structure and control environment.
b. Legal requirements.
c. Significant changes in the membership of a governing body.
d. All the above
181. Significant difficulties encountered during audit with reference to SA 260

a. Delay in providing required information by management.
b. Restriction imposed on the audit.
c. unavailability of expected information.
d. All the above
182. Circumstances in which the auditor is required or may otherwise consider

it necessary to include additional information in the Auditor's report in
accordance with the SAs, and for which communication with those
charged with governance is required, include when
i. The auditor expects to modify the opinion in the Auditor's report in
accordance with SA 705 (Revised)
ii. A material uncertainty related to going concern is reported in accordance
with SA 570 (Revised)
iii. Key audit matters are communicated in accordance with SA 701
iv. The auditor considers it necessary to include an Emphasis of Matter
paragraph or Other Matters paragraph in accordance with SA 706
(Revised) or is required to do so by other SAs
a. Only (i),(ii) and (iv)
b. Both(iii), (iv)
c. (iii) only
d. All the above
183. Unless required by law or regulation to provide a third party with a copy
of the Auditor's written communications with those charged with
governance, the auditor
a. may need the prior consent of central government before doing so.
b. may need the prior consent of those charged with governance before doing
so.
c. may need the prior consent of registrar of the company before doing so.
d. may need the prior consent of ICAI before doing so.
184. Specific Requirements in SQC 1 and Other SAs that Refer to

Communications with Those Charged With Governance includes
i. SQC 1, Quality Control for Firms that Perform Audits and Reviews of
Historical Financial Information, and Other Assurance and Related Services
Engagements
ii. SA 265, Communicating Deficiencies in Internal Control to Those Charged
with Governance and Management
iii. SA 701, Communicating Key Audit Matters in the Independent Auditor's
Report
iv. SA 610 (Revised), Using the Work of Internal Auditors
a. Only (i),(ii) and (iv)
b. Both(ii), (iii)
c. (iv) only
d. All the above
SA 299 Responsibility of Joint Auditors
185. State the applicable standards for responsibilities of joint auditors

a. SA 600
b. SA 315
c. SA 265
d. SA 299
186. Where more than one CA is appointed to conduct the audit of an entity,
they are known as
a. Branch auditors
b. Internal Auditors
c. statutory auditors
187. Joint auditor are appointed in the following circumstance

a. Complexity of transaction.
b. Volume of transaction are high.
c. Both a and b
188. State which of the following is not true about dividing the works among
the joint auditor
a. Based on Time
b. Based on location
c. Based on fact
d. Based on nature
189. State which of the following statement is not true as per SA 299
responsibilities of joint auditors
a. Joint auditor should issue the report jointly if they have difference opinion.
b. Joint auditors are responsible for the area which is been allocated to them.
c. There should be co-ordination between joint auditors and they should share
information with each-others.
d. Where the areas are not divided, all the joint auditors will be jointly or
severally responsible for such undivided.
190. Appointment of more than one auditor to conduct the audit of large
entities
a. Voluntarily by the shareholders.
b. Voluntarily by the board of directors.
c. Voluntarily by the management.
d. Voluntarily by the audit committee.
191. The joint auditors shall obtain .........

a. common engagement letter.
b. common management representation letter.
c. Both a and b
d. Neither a nor b
192. It is the individual responsibility of each joint auditor to study and

evaluate the prevailing system of internal control and assessment of
............
a. risk relating to the areas of work allocated to said joint auditor.
b. specific pattern of distribution of his responsibility.
c. significant observation that are relevant to their responsibilities noticed in
the course of the audit.
193. A joint auditor is not bound by the views of the majority of the joint
auditors regarding matter to be covered in the report.
a. True
b. False
194. A branch auditor is a joint auditor according to SA 299 and his relationship
with the company auditor is governed by the said standard.
a. True
b. False
195. It is not necessary for a joint auditor to

a. review the work performed by other joint auditors.
b. perform any test in order to ascertain whether the work has actually been
performed in such a manner.
c. Both a and
d. Neither a nor b
SA 320 Materiality in Planning and Performing an Audit
196. State the applicable standards that deals with the Auditor's responsibility
to apply the concept of materiality in planning and performing an audit of
financial statements
a. SA 450
b. SA 320
c. SA 315
d. SA 505
197. If the misstatement influences the decision of the user of financial

statement, then
a. the item is said to be material.
b. the auditor shall apply additional procedures.
c. Both a and b
198. State which of the following is not true with reference to SA 320?
a. Audit materiality is not inversely proportional to the audit risk.
b. Higher the audit materiality, lower is the audit risk.
c. An item is said to be material, If the misstatement influences the decision of
the user of financial statement, then.
d. Even a small value items can be considered material if taken on cumulative
basis.

a. Inherent risk refers to wrong evaluation of internal control or internal control
is unable to check the misstatement.
b. Detection risk refers to the risk which is unavoidable in nature.
c. Control risk refers to audit is unable to find any misstatement.
200. The materiality differs from client to client and transaction to transaction,
the auditor fixes the materiality level in the following ways, except
a. Disclosure
b. Class of transaction
c. Account Balance
d. Nature and size of audit
201. Factors which affects benchmark as per SA 320

a. Nature of entity, lifecycle, & economic environment.
b. Relative volatility of the benchmark.
c. elements of financial statement.
d. All the above
202. Benchmark approach may not include

a. Net Asset value
b. Total revenue
c. Net Liability value
d. Gross profit
203. In the audit world we take a benchmark of …………….. of turnover as material
a. 0.5% to 1%
b. 2.5%to 3%
c. Less than 5%
d. 2.5% to 5%
204. State which of the following statement is true as per SA 320?

a. Benchmark will be 1% to 2% of net assets is not considered as material.
b. Benchmark will be 5% to 1% of turnover is not considered as material.
c. Both a and b
205. The concept of materiality is applied by the auditor for both

i. planning and performing the audit,
ii. evaluating the effect of identified misstatements on the audit
iii. uncorrected misstatements
iv. None of the above
a. Both i and ii
c. Both iii and iv
d. All the above
206. Which of the following is an important consideration for an auditor to

evaluate whether the financial statements reflect a true or fair view or not.
a. Materiality
b. Benchmark
c. Audit plan
d. Audit note
207. The auditor shall determine materiality for the financial statements as a
whole. When,
a. at the time of initially planning of the audit.
b. at the time of evaluating the results of audit procedures.
c. establishing the overall audit strategy.
d. there is one or more particular classes of transactions.
208. …………… also refers to the amount or amounts set by the auditor at less
than the materiality level or levels for particular classes of transactions,
account balances or disclosures.
a. Benchmark
b. Undetected misstatements
c. Performance materiality
d. Overall audit strategy
209. Determining materiality involves the exercise of .....
a. accounting estimate
b. professional judgment.
c. checking the efficiency of internal control.
d. none
210. If an entity is financed solely by debt rather than equity, users may put
more emphasis on…………
a. entity's gross earnings
b. entity's net earnings
c. assets, and claims on them
d. Both a and c
211. …………… from continuing operations is often used for profit-oriented

entities.
a. total equity or net asset value.
b. profit before tax.
c. gross profit and total expenses.
d. total revenue.
212. There is a relationship between the percentage and the chosen benchmark,
such that a percentage applied to profit before tax from continuing
operations will normally be
a. higher than a percentage applied to net asset value.
b. higher than a percentage applied to total equity.
c. higher than a percentage applied to net liability value.
d. higher than a percentage applied to total revenue.
213. Whether attention is focused on a particular aspect of the entity's business

that is separately disclosed in the financial statements. Which one of the
following is the best example with reference to the above
a. Research and development costs for a pharmaceutical company.
b. Related party transactions, and the remuneration of management and those
c. A newly acquired business.
d. None
214. State the best example for, the key disclosures in relation to the industry
in which the entity operates?
d. None
215. Whether law, regulations or the applicable financial reporting framework

affect users' expectations regarding the measurement or disclosure of
certain items. State the best example with reference to the above?
d. All
216. If during the audit it appears as though actual financial results are likely
to be substantially different from the anticipated period end financial
results that were used initially to determine materiality for the financial
statements as a whole
a. the auditor shall determine whether it is necessary to revise performance
materiality.
b. the auditor revises that materiality.
c. the auditor revises performance materiality.
d. None
217. If the auditor concludes that a lower materiality for the financial
statements as a whole (and, if applicable, materiality level or levels for
particular classes of transactions, account balances or disclosures) than
that initially determined is appropriate.
a. the auditor shall determine whether it is necessary to revise performance
materiality.
b. the auditor revises that materiality.
c. the auditor revises performance materiality.
d. None
218. For the purpose of assessing the risk of material misstatement and
determining the nature, timing and extent of further audit procedure, the
auditor shall determine
a. Performance materiality.
b. Materiality.
c. Overall audit strategy.
d. the audit programme.
219. Performance materiality refers to

a. the limit fixed by the auditor which is above the actual materiality level.
b. the limit fixed by the auditor which is below the actual materiality level.
c. the limit fixed by the management which is above the actual materiality level.
d. the limit fixed by the management which is below the actual materiality level.
SA 450 Evaluation of Misstatements identified During the Audit
220. State the applicable Standard on Auditing (SA) deals with the Auditor's
responsibility to evaluate the effect of identified misstatements on the
audit and of uncorrected misstatements, on the financial statements
a. SA 402
b. SA 450
c. SA 315
d. SA 550
221. Misstatements can arise from

a. Error
b. Fraud
c. Both a and b
222. The auditor shall communicate on a timely basis all misstatements

accumulated during the audit with the appropriate level of management
a. with the prior permission from central government.
b. unless prohibited by law or regulation.
c. with the permission of engagement partner.
223. The auditor shall communicate on a timely basis all misstatements

accumulated during the audit with the appropriate level of management,
the auditor shall request management
a. to disclose those misstatements in the financial statement.
b. to correct those misstatements.
c. to disclose in board report.
d. All the above
224. If management refuses to correct some or all of the misstatements

communicated by the auditor,
i. the auditor shall obtain an understanding of management's reasons for
not making the corrections
ii. the auditor shall take that understanding into account when evaluating
whether the financial statements as a whole are free from material
misstatement
iii. the auditor shall issue unqualified report
iv. The auditor shall determine whether uncorrected misstatements are
material, individually or in aggregate
a. (iii) only
b. Both (i) and (ii)
c. All (i), (ii) and (iv)
d. All the above.
225. Management and, where appropriate, TCWG are responsible for adjusting
the financial statements to correct material misstatements, the auditor is
required to request them
a. to provide a written representation about corrected misstatements.
b. to provide a written representation about uncorrected misstatements.
c. Both a and b
226. When auditor detects the misstatement and escalate to TCWG, the same
is not rectify and the effect of uncorrected misstatement is material, then
the auditor shall
a. Escalate to Management
b. To issue unqualified report
c. To seek legal opinion
d. Qualify the report
227. An omission of an amount or disclosure results in

b. Misrepresentation
c. Misappropriation
d. Misstatement
228. The objective of auditor with reference to SA 450 is to evaluate

a. The effect of identified misstatement on the audit.
b. To obtain sufficient and appropriate audit evidence regarding compliance
with the provisions of those laws and regulations.
c. Both a and b
d. Neither a nor b
229. Misstatement in financial statement is the difference in presentation,

classification, disclosure and valuation of the items of financial statement
between
a. Reported financial statement and Applicable financial reporting framework.
b. Reported financial statement and Discrepancies in accounting record.
c. Discrepancies in accounting record and applicable financial reporting
framework.
d. None
230. Misstatement in the financial statements can arise from fraud only
a. True
b. False
SA 500 Audit Evidence AND. SA 501 Audit Evidence Specific Consideration for
selected items
231. State the applicable standards that deals with the information used by the
auditor in arriving at the conclusion on which the auditors opinion is based
a. SA 560
b. SA 500
c. SA 402
d. SA 510
232. Appropriate audit evidence refers to

a. Sufficient evidence.
b. Quality of audit evidence.
c. Reliability of audit evidence.
d. All the above
233. In auditing most of the time we deal with persuasive audit evidence which
helps the auditor.
a. to understand the nature of audit.
b. to understand the source of audit evidence.
c. for conclusion of the audit.

a. External audit evidence is more reliable that the internal audit evidence.
b. Internal audit evidence is more reliable. if the internal control are
functioning properly.
c. In auditing most of the time we deal with conclusive audit evidence.
235. Interim audit evidence is known as

a. Conclusive audit evidence.
b. Reliability of audit evidence.
c. persuasive audit evidence.
d. Sufficient and appropriate audit evidence.
236. State which of the following techniques which are not used for obtaining
audit evidence?
a. Questioning the management with objective to get suitable response.
b. Involves examining records or documents internal or external.
c. Detailed examination of some specific areas.
d. Trend analysis.
237. Re-performance involves

a. Evaluation of financial information using financial and non financial data.
b. Questioning the management with objective to get suitable response.
c. Auditor's independent execution of procedure or controls that were originally
performed by Management.
d. Checking the mathematical accuracy documents or records. It can be
manually or electronically.

a. Audit evidence are persuasive in nature.
b. Audit evidence are conclusive in nature.
c. Both a and b
239. Which of the following involves investigation in fluctuation or significant

deviation in finance information?
a. Compliance procedure.
b. Substantive procedure.
c. Specific consideration for selected items.
d. Analytical procedure.
240. Which of the following are designed to obtain audit evidence as to the
completeness, accuracy and validity of the data produced by the
accounting system?
a. Compliance procedure
b. Substantive procedure
c. Analytical procedure
d. Test of control
241. Substantive procedure does not involves in

a. Checking of transaction
b. Analytical review
c. Checking of balance
d. checking whether internal control is working without break
242. Compliance procedure or Test of control involves in

a. Testing of transaction and balance
b. Analytical review
c. Check the internal control is exist and effective
d. All the above
243. Which of the following are designed to obtain reasonable assurance that
internal control on which audit reliance is to be placed are in effect?
i. Compliance procedure
ii. Substantive procedure
iii. Analytical procedure
iv. Test of control
a. Only ii
b. Both i and iv
c. Except i. iii and iv
244. The reliability of audit evidence is influenced by its

a. Source
b. Nature
c. Circumstances
d. Scope
a. Only iii.
b. Both i and ii
c. Both ii. and iv
d. Except ii and iv

i. Substantive procedure seeks to test the internal control
ii. Test of control involves testing of transaction and balances
iii. Analytical procedures comprise of evaluation of financial information using
financial and non financial data
iv. Compliance procedure involves analytical review
a. Except ii
b. Except i
c. Except iii
d. Except iv
246. If the auditor fails to obtain sufficient and appropriate audit evidence as
per SA 500, to form overall opinion on the matter contained in the
financial statement, then he shall issue
a. Qualified opinion
b. Disclaimer of opinion
c. Unqualified opinion
d. Adverse opinion
247. State the applicable Standard on Auditing (SA) deals with specific
considerations by the auditor in obtaining Sufficient appropriate audit
evidence in accordance with SA 330, SA 500 and other relevant SAs. with
respect to certain aspects of inventory, litigation and claims involving the
entity and segment information in an audit of financial statement
a. SA 402
b. SA 315
c. SA 265
d. SA 501
248. The auditor shall design and perform audit procedures in order to identify
litigation and claims involving the entity which may give rise to a risk of
material misstatement as per
a. SA 501
b. SA 402
c. SA 299
249. When the audit procedures performed indicated that other material
litigation or claims may exist, then the auditor shall in addition to the
above the following , procedures are required by other SAs
a. seek direct communication with the entity's internal legal counsel through
a letter of inquiry. prepared by auditor and sent by the management.
b. seek direct communication with the entity's external legal counsel through
a letter of inquiry. prepared by management and sent by the auditor.
c. seek direct communication with the entity's external legal counsel through
a letter of inquiry. prepared by auditor and sent by the management.
d. seek direct communication with the entity's internal legal counsel through
a letter of inquiry. prepared by management and sent by the auditor.
250. When inventory under the custody and control of a third party is material
to the financial statements, the auditor shall obtain sufficient appropriate
audit evidence regarding the existence and condition of that inventory by
a. Request confirmation from the third party as to the quantities and condition
of inventory held on behalf of the.
b. Perform inspection or other audit procedures appropriate in the
circumstances.
c. Both a and
251. Litigation and claims involving the entity may have a material effect on
the financial statements and thus may be required
a. to be disclosed in the financial statements.
b. to be accounted in the financial statements.
c. Either a or b
d. Both a and b

a. the auditor is required to perform audit procedures that would be necessary
to express an opinion on the segment information presented on a standalone
basis.
b. the entity may be required or permitted to disclose segment information in
the financial statements depending on the applicable financial reporting
framework.
c. Both a and b
253. State which of the following is covered under AS 17 and SA 501

a. Claims & litigation
b. Segment Reporting
c. Both a and b
254. As per SA 501 Audit evidence- Specific consideration for selected item.
who is responsible to verify inventory physically
a. Management
b. Statutory Auditor
c. Engagement team
d. All the above
255. Of the following, which is the least persuasive type of audit evidence?
a. Bank statements obtained from the client.
b. Documents obtained by auditor from third parties directly.
c. Carbon copies of sales invoices inspected by the auditor.
d. Computations made by the auditor.
256. Which of the following statements is, generally, correct about the
reliability of audit evidence?
a. To be reliable, evidence should conclusive rather than persuasive.
b. Effective internal control system provides reliable audit evidence.
c. Evidence obtained from outside sources routed through the client.
d. All are correct.
257. In an audit of financial statements, substantive tests are audit procedures

that by
a. may be eliminated for an account balance under certain conditions.
b. are designed to discover significant subsequent events.
c. will increase proportionately when the auditor decreases the assessed level
of control risk. by
d. may be test of transactions, test of balance and analytical procedures.
258. The nature, timing and extent of substantive procedures is related to

assessed level of control risk
a. randomly
b. disproportionately
c. directly
d. inversely
259. Which of the following factors is most important in determining the

appropriations of audit evidence?
a. The reliability of audit evidence and its relevance in meeting the audit
objective.
b. The objectivity and integrity of the auditor.
c. The quantity of audit evidence.
d. The independence of the source of evidence.
260. When is evidential matter, generally, considered sufficient?

a. When it constitutes entire population.
b. When it is enough to provide a basis for giving reasonable assurance
regarding truthfulness.
c. When it is objective and relevant.
d. When auditor collects and evaluates it independently.
261. Which of the following is not a corroborative evidence?

a. Minutes of meetings.
b. Confirmations from debtors.
c. Information gathered by auditor through observation.
d. Worksheet supporting consolidated financial statements.
262. Which of the following statements is not true with respect to management
representations?
a. Authenticated copy of relevant minutes of meetings may be regarded as
management representation.
b. It should always be in working.
c. It may be dated prior to the report date.
d. It should be addressed to the auditor.
263. 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.
264. Which of the following affects audit effectiveness?

a. Risk of over reliance
b. Risk of incorrect rejection
c. Risk of incorrect acceptance
d. Both a and c
e. Both a and b
265. What would most effectively describe the risk of incorrect acceptance in
terms of substantive audit testing?
a. 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.
d. He applies random sampling on data which is inaccurate and inconsistent.
266. Auditor's judgement as to sufficiency may be affected by the factors

i. Materials
ii. Risk of material misstatement
iii. Size of population
iv. Risk of over reliance
a. Except ii
b. Except i
c. Except iii
d. Except iv
267. As per SA 500, the sufficiency and appropriateness of audit evidence are
a. interrelated
b. disassociated
c. directly related
d. inversely proportional
268. SA 330 requires the auditor to conclude, whether sufficient and

appropriate audit evidence has been obtained to reduce audit risk to
a. an acceptable level
b. reasonable level
c. an acceptably low level
d. reasonably low level
269. State under which circumstance the audit evidence is more reliable?
a. copies of sales challan and forwarding note.
b. copies of cash memo.
c. supplier's challan and forwarde note.
d. goods received notes.
270. State under which circumstance the audit evidence is less reliable?
a. purchase invoice.
b. debit notes and credit notes corning from parties.
c. quotations.
d. sales invoices.

a. In case of evidence which originates within the organization, the possibility
of manipulation by client is high.
b. Sufficiency is the measure of the quantity of audit evidence.
c. Inquiry is one of the audit procedures to obtain audit evidence.
d. substantive procedures involves, checking of transactions and balances and
analytical review.
272. Which one of the following is used by the auditor to consider the different
types of potential misstatements?
a. audit procedure
b. assertion
c. audit evidence
d. sampling technique
273. Assertions about classes of transactions and events for the period under audit
does not include
a. Existence
b. Occurrence
c. Cut-off
e. All the above
274. Assertions about account balances includes

a. Accuracy
b. Occurrence
c. Cut-off
e. All the above
275. Assertions about presentation and disclosure includes

a. Occurrence and rights and obligations
b. Completeness
c. Accuracy and valuation
e. All the above
276. If the Auditor is unable to Attend Physical Inventory Counting due to

Unforeseen Circumstances
a. the auditor shall make or observe some physical counts on an alternative
date.
b. perform audit procedures on intervening transactions.
c. the auditor shall assess the risks of material misstatement related to
inventory.
d. Both a and b Both b and c
277. If attendance at physical inventory counting is impracticable, the auditor

shall perform alternative audit procedures to obtain sufficient appropriate
audit evidence regarding the existence and condition of inventory. If it is
a. the auditor shall modify the opinion in the Auditor's report in accordance
with SA 705.
b. the auditor shall modify the opinion in the Auditor's report in accordance
with SA 700.
c. the auditor shall modify the opinion in the Auditor's report in accordance
with SA 706.
d. None of the above is applicable
278. SA 501 Audit evidence- Specific consideration for selected item applicable
for
a. Existence and condition of inventory.
b. Presentation and disclosure of litigation and claims involving the entity.
c. Completeness of segment information in accordance with the applicable
financial reporting framework.
d. all the above
279. The auditor should obtain proper evidence for

a. segment revenue •
b. segment assets
c. segment result
d. Both a and c
e. All a, b and c
280. State the available options, when attendance at physical counting is

impracticable
a. The auditor shall perform alternative procedures.
b. Modify the opinion.
c. Request confirmation from third party.
d. All the above
SA 505 External Confirmations
281. State the applicable Standard on Auditing (SA) deals with the Auditor's use
of external confirmation procedures to obtain audit evidence in
accordance with the requirements of SA 330 and SA 500
a. SA 315
b. SA 505
c. SA 265
d. SA 402
282. A request that the confirming party respond directly to the auditor only if
the confirming party disagrees with the information provided in the
request
a. Positive confirmation request.
b. Negative confirmation request.
c. Positive confirmation request with exception.
d. Negative confirmation request with exception.
283. A request that the confirming party respond directly to the auditor
indicating whether the confirming party agrees or disagrees with the
information in the request, or providing the requested information
a. Positive confirmation request.
284. A response that indicates a difference between information requested to

be confirmed, or contained in the entity's records, and information
provided by the confirming party
a. Exception.
285. A failure of the confirming party to respond, or fully respond, to a positive
confirmation request, or confirmation request returned undelivered
a. Exception.
b. Non-response.
c. Negative confirmation request with exception.
d. All the above
286. Which of the following statement is not true, If management refuses to

allow the auditor to send confirmation request?
a. Inquire as to management's reasons for the refusal, and seek audit evidence
as to their validity and reasonableness.
b. The auditor also shall determine the implications for the audit and the
Auditor's opinion in accordance SA
c. Evaluate the implications of management's refusal on the Auditor's
assessment of the relevant risks material misstatement, including the risk
of fraud, and on the nature, timing and extent of other au procedures.
d. In the case of each non-response, the auditor shall perform alternative audit
procedures to obtain relevant and reliable audit evidence.
287. Which of the following statement is true, If the auditor has determined
that a response to a positive confirmation request is necessary to obtain
sufficient appropriate audit evidence,
a. When alternative audit procedures will provide the audit evidence the
auditor requires.
b. the risk of collusion which can involve employee(s) and/or management.
c. the auditor shall perform alternative audit procedures to obtain relevant and
reliable audit evidence.
d. All the above
288. The auditor shall investigate exceptions to determine whether or not

a. they are indicative of misstatements.
b. the audit evidence is sufficient and appropriate.
c. provide less persuasive audit evidence than positive confirmations.
289. State Which of the following statement is true, with the Auditor's use of
external confirmation procedures to obtain audit evidence as per SA 505
a. Positive confirmations provide less persuasive audit evidence than negative
confirmations.
b. Positive confirmations provide less Conclusive audit evidence than negative
confirmations.
c. Negative confirmations provide less Conclusive audit evidence than positive
confirmations.
d. Negative confirmations provide less persuasive audit evidence than positive
confirmations.
290. The auditor shall not use negative confirmation requests as the sole
substantive audit procedure to address an assessed risk of material
misstatement at
a. At initial audit engagement level.
b. the time, when the auditor is aware of circumstances or conditions that
would cause recipients of negative confirmation requests to disregard such
requests.
c. the assertion level.
d. All the above
291. The auditor shall not use negative confirmation requests as the sole
substantive audit procedure to address an assessed risk of material
misstatement at the assertion level unless all of the following are present
i. The auditor has assessed the risk of material misstatement as low and
has obtained sufficient appropriate audit evidence regarding the
operating effectiveness of controls relevant to the assertion
ii. The population of items subject to negative confirmation procedures
comprises a large number of small, homogeneous, account balances,
transactions or conditions
iii. The auditor is not aware of circumstances or conditions that would cause
recipients of negative confirmation requests to disregard such requests
iv. High exception rate is expected
a. Except i
b. Except ii
c. Except iii
d. Except iv
292. A refusal by management to allow the auditor to send a confirmation

request ……………………
a. is a limitation on the Scope of audit.
b. is a limitation on the audit evidence.
c. is a limitation on the audit documentation.
d. All the above
293. State which of the following circumstance, refusal by management to allow

the auditor confirmation request is reasonableness as per SA 505
a. existence of a legal dispute.
b. ongoing negotiation with the Those charged with governance.
c. When the reason for exception available.
d. All the above
294. Confirmation received by the auditor directly from the third parties are
………………. in support of transaction
a. Conclusive evidence
b. exception
c. Both a and b
295. When using external confirmation procedures, the auditor shall maintain
control over external confirmation requests, including
i. Determining the information to be confirmed or requested
ii. Selecting the appropriate confirming party
iii. Designing the confirmation requests
iv. Sending the requests, including follow-up requests when applicable, to the
confirming party.
a. Except c
b. None of the above
c. All the above
d. Only b and d
296. The design of a confirmation request may directly affect …………. and the
reliability and the nature of the audit evidence obtained from responses.
a. the confirmation response rate.
b. the ongoing negotiation.
c. the information to be confirmed or requested.
d. Both a and c
297. Factors to consider when designing confirmation requests include

a. Management's authorization.
b. Prior experience on the audit.
c. The ability of the intended confirming party.
d. all the above
e. Both a and c
298. While conducting the audit of X Ltd, the auditor Y of ZAB and Associates,
Chartered Accountants observes that there are large number of Trade
payables and receivables standing in the books of account as on 31st
March. The auditor wanted to send confirmation request to few trade
receivables but the management refused the auditor to send confirmation
request with out a proper reason, the auditor is unable to obtain relevant
and reliable audit evidence from alternative audit procedures. State which
of the following options are available to the auditor?
i. The auditor shall communicate with those charged with governance in
accordance with SA 260
ii. The auditor also shall determine the implications for the audit and the
Auditor's opinion in accordance with SA
iii. The auditor also shall determine the implications for the audit and the
iv. The auditor also shall determine the implications for the audit and the
a. Both i and ii
b. Both i and iii
c. Both i and iv
d. Except i
299. When the auditor evaluates the evidence obtained and response received
from the third party unreliable, then which one of the best option available
to the auditor
a. perform alternative audit procedure to relevant and reliable audit evidence.
b. to revise the assessment of the risk of material misstatement at the assertion
level and modify planned audit.
c. the auditor shall communicate with those charged with governance in
accordance with SA 260.
d. The auditor also shall determine the implications for the audit and the
Auditor's opinion in accordance with SA.
300. State the circumstance where the auditor can issue qualified opinion
a. response deemed to be unreliable.
b. response with exception with available reason.
c. response without exception.
d. where evidence available for dispute between client and confirming party.
301. State the circumstance where the auditor can issue unqualified opinion
i. response deemed to be unreliable
ii. response with exception, with available reason
iii. response without exception
iv. where evidence available for dispute between client and confirming party
a. Except i
b. Except ii
c. Except iii
d. Except iv
SA 510 Initial Audit Engagements - Opening Balances

responsibilities relating to opening balances when conducting an initial
audit engagement
a. SA 500
b. SA 501
c. SA 505
d. SA 510
303. For the purposes of the SA 510, Initial audit engagement - An engagement
in which –
a. The financial statements for the prior period were not audited.
b. The financial statements for the prior period were audited by a predecessor
auditor.
c. Either A or B
d. Neither A nor B
304. For information relevant to opening balances, the auditor shall read
the……………….
i. most recent financial statements
ii. Most recent Board's report
iii. Disclosure
iv. predecessor Auditor's report
a. All i, ii and iii
b. Both ii, iii and iv
c. Both iii, iv and i
d. Both iv, i and ii
305. The auditor shall evaluate the effect of the matter giving rise to the
modification in assessing the risks of material misstatement in the current
period's financial statements, if
a. The financial statements for the prior period were not audited.
b. audited by a predecessor auditor and there was a modification to the
opinion.
c. Both a and b
306. If the auditor concludes that the opening balances contain a misstatement
that materially affects the current period's financial statements, and the
effect of the misstatement is not properly accounted for or not adequately
presented or disclosed
a. the auditor shall express a unqualified opinion.
b. the auditor shall express a adverse opinion.
c. the auditor shall express a Disclaimer opinion.
d. All the above
307. If the auditor is unable to obtain sufficient appropriate audit evidence

regarding the opening balances, the auditor shall express
a. Disclaimer opinion
b. Adverse opinion
c. Emphasis of matter paragraph
d. Other matter paragraph
308. The auditor shall express a qualified opinion or an adverse opinion as

appropriate in accordance with SA 705,
i. If the auditor is unable to obtain sufficient appropriate audit evidence
regarding the opening balances
ii. the current period's accounting policies are not consistently applied in
relation to opening balances it accordance with the applicable financial
reporting framework
iii. a change in accounting policies is not properly accounted for or not
adequately presented or disclosed it accordance with the applicable
financial reporting framework
iv. If the auditor concludes that the opening balances contain a
misstatement that materially affects the current period's financial
statements, and the effect of the misstatement is not properly accounted
for or no: adequately presented or disclosed
a. Only i, ii and iii
b. Only ii, iii and iv
c. Only iii, iv and i
d. Only iv, i and ii
309. Circumstances described in paragraph A5 (a) include the following

a. The auditor did not observe the counting of the physical inventory at the
beginning of the current period and was unable to obtain sufficient
appropriate audit evidence regarding the opening balances of inventory.
b. The possible effects of the inability to obtain sufficient appropriate audit
evidence regarding opening balances of inventory are deemed to be material
but not pervasive to the entity's results of operations and cash flows.
c. The State of Affairs at year end gives a true and fair view.
d. All the above
310. The auditor shall obtain sufficient appropriate audit evidence about
whether the opening balances contain misstatements that
a. materially affect the current period's financial statements.
b. materially affect the prior period's financial statements.
c. materially affects one or more prior period's financial statements.
d. all the above
311. The auditor shall obtain sufficient appropriate audit evidence about
whether the.............. reflected in the opening balances have been
consistently applied in the current period's financial statements
a. accounting policies.
b. accounting estimates.
c. fundamental accounting assumption.
d. applicable financial reporting framework.
SA 520 (Revised)Analytical Procedures

312. What are analytical procedures?
a. Substantive tests designed to assess control risk.
b. Substantive tests designed to evaluate the validity of management's
representation letter.
c. Substantive tests designed to study relationships between financial and
non- financial.
d. All of the above
313. Which of the following is not an analytical procedure?

a. Tracing of purchases recurred in the purchase book to purchase invoices.
b. Comparing aggregate wages paid to number of employees.
c. Comparing the actual costs with standard costs.
d. All of them are analytical procedures.
314. Analytical procedures issued in the planning stage of an audit, generally:

a. helps to determine the nature, timing and extent of other audit procedures.
b. directs attention to potential risk areas.
c. indicates important aspects of business.
d. All of the above
315. The basic assumption underlying the use of analytical procedures is:
a. It helps the auditor to study relationship among elements of financial
information.
b. Relationship among data exist and continue in the absence of known
condition to the contrary.
c. Analytical procedures will not be able to detect unusual relationships.
316. What is the primary objective of analytical procedures used in the overall
review stage of an audit?
a. To help to corroborate the conclusions drawn from individual components
of financial statements.
b. To reduce specific detection risk.
c. To direct attention to potential risk areas.
d. To satisfy doubts when questions arise about a client's ability to continue.
317. ……………. refers to evaluation of financial information through plausible
relationship among both financial and non financial data.
b. Test of details
c. Analytical procedures
d. Test of control
318. Analytical procedures encompass such investigation as is necessary of

identified fluctuations or relationships that are ………………….. with other
relevant information.
a. Inconsistent
b. Consistent
c. Reliable
d. Both b and c
319. Analytical procedures include the consideration of ……………….. with as

well as consideration of
a. comparisons of various internal control, relationship
b. relationship, various risk assessment procedures
c. test of details, substantive analytical procedure
d. comparisons of entity's financial information, relationship
320. Analytical Procedures having consideration of comparisons of the entity's

financial information does not
a. Comparable information for prior periods.
b. Anticipated results of the entity, such as budgets or forecasts, or
expectations of the auditor, such as an estimation of depreciation.
c. Financial information and relevant non-financial information, such as
payroll costs to number of employees.
d. comparison of the entity's ratio of sales to accounts receivable with industry
averages or with other entities of comparable size in the same industry.
321. State which of the two options are correct with reference to analytical
procedures having consideration of
a. Financial information and relevant non-financial information, such as
payroll costs to number of employees.
b. comparison of the entity's ratio of sales to accounts receivable with industry
averages or with other entities comparable size in the same industry.
c. Anticipated results of the entity, such as budgets or forecasts, or
expectations of the auditor, such as a estimation of depreciation.
d. Among elements of financial information that would be expected to conform
to a predictable pattern based on the entity's experience, such as gross
margin percentages.
322. The application of analytical procedures is based on the expectation that

relationship among data exist and continue in the absence of
a. known conditions to the contrary.
b. appropriate corroborative evidence.
c. adequate explanation.
d. substantive procedure.
323. When analytical procedures identify significant fluctuations or

relationship that are inconsistent with other relevant information or that
deviate from predicted amounts, then the auditor
a. should apply test of details.
b. should review the stages of the audit as well while applying substantive
procedures.
c. Should investigate and obtain adequate explanations and appropriate
corroborative evidence.
d. Both a and b
324. The auditor uses the analytical procedures at various stages of audit
a. to critically analyse the financial statement.
b. evaluate each item of such financial statements.
c. to obtain adequate explanation.
d. Both a and b
325. Analytical procedures are used to

a. obtain relevant and reliable audit evidence.
b. design and perform analytical procedures near the end of the audit that
assist the auditor when forming an overall conclusion as to whether the
financial statements are consistent with the Auditor's understanding the.
c. critically analyse the financial statement and evaluate each item of such
d. All the above
326. Analytical procedures are helpful in

a. the detection of deficiency in internal control.
b. detection of operating effectiveness.
c. detection of unusual state of affairs and mistake in accounts.
d. Both a and b
327. In Rana Ltd., after applying analytical procedures as comparison of the

gross profit ratio with that of the previous year, it is discovered that there
has been fall in the ratio. With reference to the above, state whit of the
following reason which may result in such fall in the ratio.
a. pilferage of inventories.
b. misappropriation of a part of the sale proceeds.
c. change in the cost of sales without a corresponding increase in the sales
price.
d. All the above
328. Discrepancy in the balance is due to the failure to debit his account with
the cost of goods supplied to him or is the result of non-adjustment of a
remittance received from him, State which of the following account is
affected?
a. account payable
b. account receivables
c. Both a and
d. None
329. Discrepancy is due to failure to afford him credit for one or more
consignments of goods supplied by him or failure to debit him with an
amount of remittance. State which of the following account is affected?
a. account payable
b. account receivables
c. Both a and b
d. None
330. When the analytical procedures should be applied?

a. Planning phase
b. Testing phase
c. Completion phase
d. All the above
331. Analytical procedures assist the auditor in understanding the client's

business and in identifying areas of ....................... by indicating aspects
of and developments in the entity's business of which he was previously
unaware.
a. Potential risk
b. misstatement
c. mistake
d. All the above
332. The Auditor's substantive procedures at the assertion level may be

a. tests of details
b. substantive analytical procedures
c. a combination of both a and b
d. test of control
333. The decision about which audit procedures to perform, including whether
to use substantive analytical procedures, is based on the Auditor's
judgment about the expected effectiveness and efficiency of the available
audit procedures to reduce audit risk at the assertion level …………………
a. to an acceptably low level
b. to Zero level
c. to reasonabily
d. possible none
334. The auditor should consider the following factors for Substantive Audit
Procedures
a. Reasonableness tests
b. Structural modeling
c. Ratio analysis
d. Predictability
335. Which of the following are the techniques available as substantive

analytical procedures, state which of the two options are correct
a. Structural modelling,
b. Predictability
c. Assertion
d. Reasonableness tests
336. Substantive analytical procedures are more appropriate when an account

balance or relationships between items of data.
a. providing evidence for some assertions.
b. are predictable.
c. are consist of numerous and similar transactions.
d. None
337. Substantive analytical procedures may be more effective in providing

evidence
a. for similar transactions
b. for some classes of transactions
c. for some assertions
338. Some classes of transactions tend to be more predictable because they

consist of numerous, similar transactions. Whereas the transactions
recorded by non-routine and estimation SCOTS are often subject to
management judgment and therefore more difficult to predict. state which
of the following factor considered by auditor
a. Nature of Assertion
b. Predictability
c. Inherent Risk or "What Can Go Wrong"
d. Source
339. State which of the following techniques is useful for analysing asset and
liability accounts as well as revenue and expense accounts
a. Trend analysis
b. Ratio analysis
c. Reasonableness tests
d. Structural modeling
340. State which of the following techniques is a commonly used technique for
the comparison of current data with the prior period balance
a. Trend analysis
b. Ratio analysis
341. State which of the following techniques is generally more applicable to
income statement accounts and certain accrual or prepayment accounts
a. Trend analysis
b. Ratio analysis
342. State which of the following techniques constructs a statistical model from
financial and/or non-financial data of prior accounting periods to predict
current account balances
a. Trend analysis
b. Ratio analysis
343. When designing and performing substantive analytical procedures, either

alone or in combination with tests of details, as substantive procedures in
accordance with SA 330, the auditor shall
a. Determine the suitability of particular substantive analytical procedures
b. Evaluate the reliability of data
c. Determine the nature and relevance of the information available
d. Both a and b
e. Both b and c
344. Substantive analytical procedures are generally more applicable to

……………… that tend to be predictable over time
a. High value transactions
b. large volumes of transactions
c. low volumes of transactions
d. None
345. The determination of the suitability of particular substantive analytical

procedure is influenced by the…………… and the Auditor's assessment of
the risk of material misstatement.
a. comparability of the information available
b. nature of the assertion
c. reliability of data
d. source of information
346. If controls over sales order processing are weak in Ms. X Ltd, the auditor may
place more reliance on ............. rather than ……………. for assertions related to
receivables of X ltd.
a. test of control, analytical procedure.
b. substantive analytical procedures, tests of details.
c. tests of details, substantive analytical procedures.
d. None
347. Analytical procedures may also be considered suitable when …………… are
performed on the same
a. test of control
b. tests of details
c. Both and b
d. None
348. The reliability of data is influenced by its ……………….. and is dependent

on the circumstances under which it is obtained.
a. source and nature
b. nature of the assertion
c. source of information
d. suitability of particular substantive analytical procedures
349. The auditor may consider testing the operating effectiveness of controls,
if any, over the entity's preparation of information used by the auditor in
performing substantive analytical procedures in response to
a. Material misstatement
b. assessed risks
c. weakness in internal control
d. all the above
350. If analytical procedures performed in accordance with SA 520 identify

fluctuations or relationships that are inconsistent with other relevant
information or that differ from expected values by a significant amount,
then
a. the auditor shall investigate such differences.
b. the auditor shall obtain appropriate audit evidence.
c. performing other audit procedure.
d. all the above
351. The auditor need to perform other audit procedures may arise when,
a. management is unable to provide an explanation.
b. the explanation, together with the audit evidence obtained relevant to
management's response, is not considered adequate.
c. Both a and b
d. comparability of the information available
352. Which of the following assisting for forming an overall conclusion

a. Audit procedure
b. Sampling techniques
c. Analytical procedure
d. None
353. Which of the following statement is correct?

a. Analytical procedures are required in the planning phase only.
b. Substantive analytical procedure are generally less applicable to large
volumes of transactions that tend to b predictable over time.
c. only purpose of analytical procedures is to obtain relevant and reliable audit
evidence when using substantive analytical procedures.
354. Auditor cannot depend on to disclose all the mistake or manipulation that
may exist is accounts.
a. trend analysis
b. ratio analysis
c. routine check
d. none
355. A modelling tool constructs a statistical model from ………………. of prior

accounting periods to predict current account balance.
a. financial data
b. non financial data
c. financial and/ or non financial
d. ratio analysis
356. The term "analytical procedures" means evaluations of financial
information through analysis of plausible relationships among both
financial and non-financial data. With reference to the said statement,
identify the applicable standards on auditing
a. SA 500
b. SA 520
c. SA 505
d. SA 501
SA 530 Audit Sampling

357. According to SA 530 "Audit sampling", refers to the application of audit
procedures to within population of audit relevance such that all sampling
units have a chance of selection in order to provide the auditor with a
reasonable basis on which to draw conclusions about the entire population.
a. less than 90% of items
b. less than 100% of items
c. More than 90% of items
d. None
358. The objective of the auditor when using audit sampling is to provide a for
the auditor to draw conclusions about the population from which the
sample is selected.
a. reasonable basis
b. acceptable basis
c. conclusive evidence
d. None
359. ……………… refers to the entire set of data from which a sample is selected
and about which the auditor wishes to draw conclusions.
a. Audit sample
b. Population
c. Sampling unit
d. Approaches to sampling
360. Characteristics of Population includes

a. Appropriateness
b. Reliable
c. Completeness
d. All the above
361. Audit sampling can be applied using ………………… approaches.

a. statistical sampling
b. non-statistical
c. random sampling
d. either non-statistical or statistical sampling
362. A sampling approach that does not have the following characteristics is
considered non-statistical sampling.
a. random selection
b. use of probability theory
c. measurement of sampling risk
d. all the above
e. Both a and b
363. The decision whether to use a statistical or non-statistical sampling

approach is a matter for the ...........
a. Management judgment
b. Auditor's judgment
c. Both a and b
d. Engagement team
364. Which of the following is not a valid criterion to distinguish between

statistical and non-statistical approaches.
a. Auditor's judgment
b. sample size
c. Sampling unit
d. Approaches to sampling
365. Whatever may be the approach non-statistical or statistical sampling,

a. the sample must be representative.
b. it need not be closely similar to the whole population.
c. it must be exactly same to the whole population.
d. the sample not necessarily representative.
366. Which of the following audit approach is more scientific

a. Test of details
b. Statistical Sampling
c. Non-Statistical Sampling
d. Both a and b
367. Under Non statistical sampling approach, the sample size and its
composition are determined on the basis of
a. probability theory.
b. mathematical laws.
c. personal experience and knowledge of the auditor.
d. all the above
368. The non-statistical sampling is criticized on the grounds that it is
a. either objective or scientific.
b. only the degree of objectivity is assured.
c. neither objective nor scientific.
d. not more scientific.
369. The expected degree of objectivity cannot be assured in

a. stratification sampling techniques.
b. value-weighted sampling techniques.
c. non-statistical sampling technique.
d. None
370. Risk of personal bias in selection of sample items cannot be eliminated in

a. Test of details
b. Statistical Sampling
c. Non-Statistical Sampling
d. Both a and b

a. The decision whether to use a statistical or non-statistical sampling
approach is a matter for the Auditor's judgement.
b. Whatever may be the approach non-statistical or statistical sampling, the
sample must be representative.
c. the auditor with his experience and knowledge of the client's business can
evaluate accurately enough the sample findings to make audit decision and
the mathematical proof of accuracy in some cases may be a luxury which
the auditor cannot afford.
d. The expected degree of objectivity cannot be assured in statistical sampling.
372. Which of the following sampling technique can never bring complete
reliability?
a. Non-Statistical Sampling.
b. Statistical Sampling.
c. Both a and b
373. The auditor shall determine a sample size sufficient to reduce sampling
risk to .............
a. an acceptable level.
b. an acceptably low level.
c. reasonable level.
d. Zero
374. The auditor shall select items for the sample in such a way that..........
a. determine a sample size sufficient to reduce sampling risk.
b. each sampling unit in the population has a chance of selection.
c. those conditions that are relevant to the purpose of the audit procedure
are included in the evaluation of.
d. None
375. The main advantage of using statistical sampling techniques is that such
techniques:
a. mathematically measure risk.
b. eliminate the need for judgmental sampling.
c. defines the values of tolerable error.
d. all of the them.
376. Which of the following statements is correct?

a. Lower the sampling risk greater the sample size.
b. Smaller the tolerable error, greater the sample size.
c. Lower the expected error, smaller the sample size.
d. All are correct
377. Risk of under reliance is the risk that the sample selected to test controls
a. Does not support the Auditor's planned assessed level of control risk when
the true operating effectiveness c: the control structure justifies such an
assessment.
b. Supports the Auditor's planned assessed level of control risk when the actual
position does not warrant such.
c. Is not supported by adequate documents.
d. both a and c
378. Which of the following factors is (are) considered in determining the

sample size for tests of control?
a. Projected error
b. Tolerable error
c. Expected error
d. Both b and c
379. If the expected rate of deviation is unacceptably high, the auditor will
normally decide not to perform..........
a. tests of details.
b. tests of controls.
c. Sampling technique.
d. all the above
380. In considering the characteristics of the population from which the sample
will be drawn, the auditor may determine that ……………….. is appropriate.
a. Simple Random Sampling.
b. Interval Sampling or Systematic Sampling.
c. Stratification or value-weighted selection.
d. Haphazard sampling.
381. In stratification sampling technique, when testing the allowance for

doubtful accounts in the valuation of accounts receivable, balances may
be.........
a. stratified by monetary value.
b. stratified by age.
c. stratified by specific monetary units.
d. stratified by individual monetary units.
382. If a class of transactions or account balance has been divided into

strata……..
a. the auditor will need to consider the risk of material misstatement in
relation to whatever other strata make up the entire population.
b. the misstatement is projected for each stratum separately.
c. Projected misstatements for each stratum are combined when considering
the possible effect of misstatements on the total class of transactions or
account balance.
d. Both c and d
383. When performing tests of details in Value-Weighted Selection, it may be

efficient to identify the sampling unit as ........... that make up the
population.
a. the stratified by monetary value.
b. the stratified by age.
c. the individual monetary units.
d. all the above technique.
384. Value Weighted Selection approach may be used in conjunction with the
systematic method of sample selection and is most efficient when
selecting items using .................
a. random selection.
b. interval Sampling selection.
c. haphazard sampling.
d. None
385. The sample size can be determined by the application of ………….

a. statistically-based formula.
b. through exercise of professional judgment.
c. Either a or b
d. Neither a nor b
386. When the Auditor's assessment of the risk of material misstatement

expectation of the operating effectiveness of controls ......
a. the auditor is required to perform tests of controls.
b. the auditor is required to perform tests of details.
c. the auditor is required to perform statistical sampling technique.
d. any of the above

a. If there is an increase in the tolerable rate of deviation. Then sample size will
decrease, as lower the tolerable rate of deviation, larger the sample size
needs to be.
b. When there is an increase in the expected rate of deviation of the population
to be tested then sample size will increase, as higher the expected rate of
deviation, larger the sample size needs to be.
c. Both a and b
d. None of the above statement is true
388. The Auditor's assessment of the risk of material misstatement is affected

by
a. inherent risk and audit risk.
b. inherent risk and control risk.
c. detection risk and control risk.
d. detection risk and audit risk.
389. In order to reduce audit risk to an acceptably low level, the auditor needs ...........
a. a high detection risk and will rely more on substantive procedures.
b. a low detection risk and will rely less on substantive procedures.
c. to rely more on substantive procedures.
d. a low detection risk and will rely more on substantive procedures.
390. Which of the following methods of sample selection is least suitable for
extrapolating results to the population?
a. Systematic sampling.
b. Random sampling.
c. Haphazard sampling.
d. None
391. Which of the following features is most important for random-based selection?
a. Sample should be drawn form population.
b. Every strata of population should be represented in the sample.
c. Every item in the population has an equal chance of being selected in the
sample.
d. Items should be selected at 'N' th interval.
392. Tolerable error, is the maximum monetary error that the auditor is
prepared to accept in the population and still conclude that audit objective
has been achieved, is directly related to
a. Sample size
b. Audit risk
c. Materiality
d. Expected error
393. Simple Random Sampling method is considered appropriate provided the
population to be sampled consists of
i. few separate groups
ii. reasonably similar units
iii. contiguous items
iv. homogeneous
a. only i
b. both ii and iv
c. only iii
d. except i
394. Systematic selection is a selection method in which the number of

sampling units in the population is divided by the sample size to
a. give a sampling interval.
b. few separate groups.
c. reasonably similar units.
d. fall within a reasonable range.
395. Which of the following sample technique is a type of value-weighted

selection?
a. Block Sampling.
d. Monetary Unit Sampling.
396. The auditor selects the sample without following a structured technique
in
a. Block Sampling.
397. Which of the following sampling technique is a close similarity with non-
statistical sampling.
a. Block Sampling.
398. Which of the following sampling risk lead to an inappropriate audit

opinion. State which of the two options are correct?
a. In the case of a test of controls, that controls are less effective than they
actually are.
b. In the case of a test of controls, that controls are more effective than they
actually are.
c. In the case of a test of details, that a material misstatement exists when in
fact it does not.
d. In the case of a test of details, that a material misstatement does not exist
when in fact it does.
399. Which of the following sampling risk usually lead to additional work to
establish that initial conclusions were incorrect?
a. In the case of a test of controls, that controls are less effective than they
actually are.
b. In the case of a test of controls, that controls are more effective than they
actually are.
c. In the case of a test of details, that a material misstatement exists when in
fact it does not.
d. In the case of a test of details, that a material misstatement does not exist
400. ………….. include use of inappropriate audit procedures, or misinterpretation

of audit evidence and failure to recognize a misstatement or deviation.
a. Sampling risk .
b. Non sampling risk
c. Control risk d.
d. Audit risk
401. If the auditor is unable to apply the designed audit procedures, or suitable
alternative procedures, to a selected item, the auditor shall treat that item
as a deviation from the prescribed control, in the case of
a. tests of controls.
b. a misstatement, in the case of tests of details.'
c. tests of controls or a misstatement, in the case of tests of details.'
d. a misstatement in case of test of control.
402. An example for when it is necessary to perform the procedure on a
replacement item is
a. when a voided check is selected while testing for evidence of payment
authorization.
b. when documentation relating to that item has been lost.
c. when no reply has been received in response to a positive confirmation
request.
d. none
403. An example of when the auditor is unable to apply the designed audit
procedures to a selected item is
authorization.
c. when no reply has been received in response to a positive confirmation
request.
d. all the above
404. An example of a suitable alternative procedure might be the examination

of subsequent cash receipts together with evidence of their source and the
items they are intended to settle
authorization.
c. Both a and b
d. when no reply has been received in response to a positive confirmation
request.
405. Which of the following risk can never be mathematically measured.

a. Detection risk
b. Non sampling risk
c. Sampling risk
d. Audit risk
406. Which of the following is source of Non Sampling risk?

a. Human Mistakes.
b. Applying audit procedures not appropriate to the objectives of audit.
c. Misinterpreting the sample results.
d. All of the above
407. Which of the following is more scientific?

a. Statistical
b. Non- statistical
c. both (a) and (b)
408. In the extremely rare circumstances when the auditor considers a

misstatement or deviation discovered in a sample to be an anomaly, in
such case
a. the auditor shall obtain a high degree of certainty that such misstatement
or deviation is not representative the population.
b. The auditor shall obtain high degree of certainty by performing additional
audit procedures to obtain sufficient appropriate audit evidence that the
misstatement or deviation does not affect the remainder of the population.
c. Both a and b
d. None
409. The auditor is required to for……………………. the population to obtain a

broad view of the scale of misstatement
a. project misstatements.
b. determine an amount to be recorded.
c. applying audit procedures not appropriate to the objectives of audit.
d. none
410. When a misstatement has been established as an anomaly, it may be when

projecting misstatements to the population.
a. included
b. excluded
c. evaluated d.
d. both a and c
411. The auditor shall evaluate………………

a. The results of the sample.
b. Whether the use of audit sampling has provided a reasonable basis for
conclusions about the population that has been tested.
c. Both a and b
d. projected misstatements.
412. Unexpectedly high sample deviation rate may lead to an increase in the
assessed risk of material misstatement, unless further audit evidence
substantiating the initial assessment is obtained in case of
a. Test of details
b. Test of controls
c. Non sampling technique
d. None
413. Unexpectedly high misstatement amount in a sample may cause the
auditor to believe that a class of transactions or account balance is
materially misstated, in the absence of further audit evidence that no
material
a. Test of details
b. Test of controls
c. Non sampling technique
d. None
414. When the projected misstatement plus anomalous misstatement, if any,

exceeds tolerable misstatement?
a. the sample does not provide a reasonable basis for conclusions about the
sampling unit that has been tested.
b. the sample does not provide a reasonable basis for conclusions about the
audit sample that has been tested.
c. the sample does not provide a reasonable basis for conclusions about the
sample size that has been tested.
d. the sample does not provide a reasonable basis for conclusions about the
population that has been tested.
415. In case the auditor concludes that audit sampling has not provided a
reasonable basis for conclusions about the population that has been tested,
the auditor
a. may request management to investigate misstatements that have been
identified.
b. to make any necessary adjustments.
c. Both a and b
d. none
416. State the applicable Standards for "Audit Sampling"

a. SA 500
b. SA 520
c. SA 530
d. SA 505
SA 540 Auditing Accounting Estimates, Including Fair Value Accounting

Estimates and Related Disclosures
accounting estimates, including fair value accounting estimates, and
related financial statements
a. SA 540
b. SA 530
c. SA 520
d. SA 510
418. The amount, or range of amounts, respectively, derived from audit

evidence management's point estimate
a. Auditor's point estimate
b. management's point estimate
c. Management range
d. Both B and c
419. The susceptibility of an accounting estimate and related disclosures to an

inherent lack of precision in its a.
a. Accounting estimate.
b. Auditor's range.
c. Estimation uncertainty. d.
d. Management's point estimate.
420. The amount selected by management for recognition or disclosure in the

financial statements as an accounting estimate
a. Management bias.
b. Estimation uncertainty.
c. Accounting estimate.
421. A lack of neutrality by management in the preparation and presentation

of information
a. Management's point estimate.
b. Estimation uncertainty.
c. Management bias.
d. Management range.
422. SA 540 addresses only accounting estimates involving measurement at fair

value is used
a. Because of the complex business environment.
b. Because of the uncertainties in business activities.
c. Arm's length transaction.
d. Because they relate to routine transaction.
423. State the factors that may influence the degree of estimation uncertainty
associated with an accounting
a. The availability of reliable data from external sources.
b. The sensitivity of the accounting estimates or changes is assumption.
c. Both a and b
424. Accounting estimates excludes
i. Warranty obligation
ii. Provision for taxation
iii. Provision for bad debts
iv. Outcome of long term contracts
a. Both i and iv
b. Only i
c. All the above d.
425. Complex financial instruments, which are not traded in an active and open
market is one of the example for
a. Accounting estimates having high estimation uncertainty.
b. Accounting estimates having low estimation uncertainty.
c. Management's point estimate.
426. Inventory obsolence is one of the example for

a. Accounting estimates having high estimation uncertainty.
b. Accounting estimates having low estimation uncertainty.
c. Management's point estimate.
SA 550 Related Parties

responsibilities regarding related party relationships and transactions
when performing an audit of financial statements
a. SA 505
b. SA 550
c. SA 510
d. SA 540
428. Related party relationships may present a greater opportunity for

i. collusion
ii. concealment
iii. Assertion
iv. manipulation by management
a. Except i
b. Except ii
c. Except iii
d. Except iv
550
i. Auditor is responsible for identification of related party
ii. The TCWG should validate the procedures followed by the management in
identification of related party
iii. Transaction conducted on such terms and conditions between willing buyer
and willing seller who are related, acting independently, in the best interest.
iv. related party includes Join venture
a. Except i, all are true
b. Except ii, all are true
c. Except iii, all are true
d. Except iv, all are true
430. The auditor shall communicate with those charged with governance
significant matters arising during the audit in connection with the entity's
related parties
a. Unless all of those charged with governance are involved in managing the
entity.
b. Unless all of those charged with governance are involved in financing the
entity.
c. Unless all of those charged with governance are involved in investing the
entity.
d. All the above
431. Mr D is a director of X Ltd and Y Ltd on 30th June, 2009, Mr D resigned

from directorship of Y Ltd, X Ltd sold goods to Y Ltd, during the entire
year at the same price and conditions as to any other customer. State
which of the following is true with reference to SA 550
a. Since the sale price is same through out the year as of any other customer,
X Ltd is not required to disclose the transaction as related party transaction
for the entire year.
b. Though the sale price is same through out the year as of any other customer,
X Ltd is required to disclose the transaction as related party transaction for
the entire year.
c. X Ltd shall not require to disclose the transaction after first quarter since
the related party relationship did not exist.
432. AAS Ltd is procuring the packaging material from Ws XY and co. A
partnership firm consisting of Mr. X and Mr. Y is the managing director of
AAS Ltd. The total value of purchase made from XY and co. By AAS Ltd
during the year 2017-18 had been 38 lack. State the applicable Standard
on Auditing
a. SA 550
b. SA 402
c. SA 315
d. SA 610
433. Related parties, by virtue of their ability to exert control or significant
influence, may be in a position to
a. to exert dominant influence over the entity. b.
b. to exert dominant influence over the Management.
c. Both a and b
434. When identifying and assessing the risks of material misstatement due to
fraud, in related transaction
a. Consideration of fact is relevant.
b. Consideration of related party with dominant influence is relevant.
c. Consideration of management assertion is relevant.
d. All the above
435. Where Controls over related party relationships and transactions within
the same entities may be deficient or non-existent due to
i. The low importance attached by management
ii. lack of appropriate oversight by those charged with governance
iii. insufficient understanding by management, and absence of disclosure
requirements
iv. unintentional disregard for such controls
a. Except i
b. Except ii
c. Except iii
d. Except iv
436. State which of the following statement is true with reference to SA 550 "Related
party transaction"?
i. Fraudulent financial reporting often involves management override of controls
that otherwise may appear to be operating effectively
ii. The risk of management override of controls is higher if management has
relationships that involve significant influence with parties with which the
entity does business
iii. Directing the entity, against its interests, to conclude transactions for the
benefit of these parties
iv. colluding with such parties or controlling their actions
a. Except iii
c. All the above
d. Only iv
437. The auditor may inspect records or documents that may provide
information about related relationships and transactions, except
i. Shareholder registers to identify the entity's principal shareholders
ii. Significant contracts and agreements not in the entity's ordinary course of
business
iii. Specific invoices and correspondence from the entity's professional advisors
iv. Relationship with the guarantors and guarantees given
a. Except i
c. All the above
d. Only ii
438. Transactions outside the entity's normal course of business may exclude
i. corporate restructurings or acquisitions
ii. Transactions with offshore entities in jurisdictions with weak corporate laws
iii. Sales transactions with unusually large discounts or returns
iv. Transactions with circular arrangements
a. Except i, ii
c. All the above
d. Only iiii
439. The requirements and guidance in SA 240 regarding the Auditor's

responsibilities relating to fraud in an audit of financial statements are
relevant where
a. management appears to have intentionally failed to disclose related parties.
b. The terms and conditions of the newly identified related party transactions.
c. The auditor may determine that it is not possible to design effective
substantive audit procedures that by themselves would reduce the risks of
material misstatement associated with these transactions to an acceptably
low.
d. All the above
440. Which one of the following does not falls under related party relationship?
a. Common controlling ownership.
b. Owners who are close family members.
c. Common key management.
d. common control by a state.
441. ……………….. may be ineffective at identifying or summarizing transactions and

outstanding balances between an entity and its related parties.
a. Manual intervention
b. Information systems
c. Both a and b
d. None
442. Owing to the inherent limitation of an audit, some material misstatements

of the financial statements may not be detected, due to
a. audit risk
b. detection risk
c. inherent risk
d. control risk
443. The auditor of Client Co has made enquiries about a related party
transaction identified in the notes to the financial statements. The auditor
has discovered that the CEO of Client Co is the owner of a manufacturing
company that is a major supplier to Client Co. What is your assessment of
the risk of fraud associated with this transaction?
a. medium, because incentive is absent.
b. medium, because opportunity is absent.
c. medium, because rationalization is absent.
d. high, because incentive, opportunity and rationalization are all present.
444. Who is responsible for identification of related party transaction?

a. Auditor
b. Engagement
c. Management
d. Those charged with governance
445. State the circumstances which gives rise to higher risks of material
misstatement of the financial statements
i. life insurance policy premium paid by the company for managing director
ii. sale of scrap materials with sister concern
iii. Cash discount on sales
iv. participation in unincorporated partnership with director's son
a. Except iii
c. All the above
d. Only ii, and iv
446. The Managing director of woodpecker has refused to allow inclusion of a major
customer, whose accounts has been selected, in the direct confirmation request.
He asserts that the customer is a close relative who may be offended by the
request.
Which of the following should be the auditor's next step?
a. Indicate that his refusal constitutes a restriction of scope which will lead to
a modification of the audit opinion.
b. Perform the confirmation procedure as planned since the auditor's
responsibility is to the members and not the director.
c. Perform the confirmation procedure substituting another receivable with
similar characteristics to preserve the integrity of the sample.
d. Perform the confirmation procedure on the other receivable balance selected
and search for alternative audit evidence to confirm the balance of that
customer.
SA 560 Subsequent Events
447. Financial statements may be affected by certain events that occur after the date
of the financial statements State the applicable standards
a. SA 505
b. SA 550
c. SA 560
d. SA 402
448. SA 560 requires auditor to perform audit procedures which are designed
to obtain reasonable assurance that for all events up to the date of auditor
report require adjustments and disclosure a.
a. Have been identified and appropriately treated in the financial statement.
b. Have been identified and appropriately treated in the Board report and
Auditor's report.
c. Both a and b
449. A case is pending in the court as on 31-03-2018 but it goes against the
company where the court passes an order after the balance sheet
i. Events occurring after the Balance sheet date but before the audit report
ii. Events occurring after the audit report date and before AGM
iii. Situation existing as on Balance sheet date
a. Both i and ii
b. Both ii and iii
c. Both iii and i
450. Events that occur after the report date which provides additional evidence
to conditions existed on report date, state which of the following is the
best example with reference to the above statement.
a. Change of Tax rates.
b. Destruction of plant & machinery.
c. Dividend declared after report date.
d. The customer become insolvent.
451. Events that occur after the report date but conditions to which did not
exist on report date, state which of the following is the best example with
reference to the above statement.
a. The customer become insolvent.
b. Sale of plant after the b/s date below the carrying amount indicating
impairment.
c. Dividend declared after report date.
d. All the above
452. Events that occur after the report date but conditions to which did not
exist on report date
a. These events require disclosure.
b. These events require recording entries in the accounting year.
c. Both a and b

a. Dividend declared after the balance sheet date require only disclosure, since
it is non adjusting event.
b. Destruction of plant and machinery provide additional evidence that
condition existed on the balance sheet and hence it is a adjusting event and
require recording entries in the accounting year.
c. Financial statements issued to third parties on 30th June 2018 and any facts
that become known to the auditor after 30th June is a subsequent event-
"Fact that become known to the auditor after the Auditor's report".
d. All the above.
454. When the auditor identifies events that require adjustment of, or
disclosure in the financial statement then auditor shall determine whether
each such event is appropriately reflected in those Financial statement, if
a. Such events have not been considered by the management and which in the
opinion of the auditor are material, then auditor shall modify the report
accordingly.
b. Such events have been considered by the management and which in the
opinion of the auditor are not material, then auditor shall modify the report
accordingly.
c. Such events have not been considered by the management and which in the
opinion of the auditor are not material, then auditor shall modify the report
accordingly.
d. Such events have been considered by the management and which in the
opinion of the auditor are material, then auditor shall not modify the report
accordingly.
455. Specific enquiries with the management in reference to SA 560 which

might have effect on financial statement, does not include.
i. High & unusual accounting policies
ii. Sale or acquisition of asset
iii. Development is contingencies
iv. Increase is debt or capital
a. Except i .
b. Only ii
c. None of the above
d. All the above
456. Facts which become known to the Auditor after Auditor's report but before
the financial statement is issued, which of the following is not true
a. Auditor shall discuss the matter with Management & TCWG
b. May have caused amendment in Auditor's report.
c. Management amends the financial statement, however laws does not
prohibits amendment related to subsequent events then auditor can issue
amended audit report & make disclosure.
457. Facts which become known to the Auditor after Auditor's report but before
the financial statement is issued, and the management does not amend
the financial statement, state which of the following options are available
to an
i. Auditor can issue amended audit report and make disclosure on other
matter paragraph
ii. Auditor can issue amended audit report and make disclosure on
Emphasis matter paragraph
iii. Giving public notice in newspaper to disregard the audit report iv)
iv. Seek legal advice
a. Both i and iv
b. Both ii and iv
c. Both iii and iv
d. Except iii
458. Events occurring after the balance sheet date......................

i. Must be disclosed in the financial statements.
ii. Can be both which requires adjustment in financial statement or
disclosure.
iii. Must require adjustments and disclosure in the financial statement.
iv. which do not affect the figures stated in the financial statement would
not normally require disclosure.
a. Both i, ii and iv
b. Both ii and iv
c. Only i, ii and iii
d. Except i
459. X ltd had sold goods worth Rs. 150 lakh to Y Ltd in the year 2017-18. Y
ltd owes Rs. 150 lakh to X ltd as on 31-03- 2018. On 15-07-2018 due to
bad trading conditions the company went into liquidation. Audit was in
progress, finance manager is highly of the opinion that the money was
irrecoverable. State the Applicable Standards.
a. SA 315
b. SA 420
c. SA 510
d. SA 560
460. State the circumstance where the auditor seek legal advice or give public
notice?
a. Where management itself amends the financial statement.
b. Auditor shall notify to management not to issue financial statement to third
party before necessary amendments and the audit report has been issued.
c. Where audit report has not yet been issued and the auditor believes the
financial statement to be amended.
d. All the above circumstances leads the auditor to seek legal advice or give
public notice.
461. State which one of the following is the responsibility of an auditor

regarding subsequent events?
i. Reading minutes of meeting of shareholders and board of directors
ii. Reading the entity's latest subsequent interim financial statements.
iii. Inquire with management and those charged with governance
iv. Obtaining an understanding of the procedures that management has
established to ensure that subsequent events are identified
a. Except i
b. All the above
c. Only ii and iv
d. Except iii
462. State the appropriate circumstance, where the auditor inquire with the
management about the development in contingencies and events occurred
which are relevant to recoverability of asset?
a. at the time of external confirmation.
b. at the time of subsequent events.
c. Auditor's communication with management and those charged with
governance.
d. at the time of auditing accounting estimates, including fair value accounting
estimates and related disclosure.
463. Which of the following cause amendment in auditor's report?

a. If the fact was known on the date of auditor's report.
b. If the fact was known before the date of auditor's report.
c. When the audit report has been issued but the financial statement are not
amended.
d. When events occurring between the date of financial statement and date of
audit report.
464. The auditor should consider the effect of subsequent events on........
a. Financial statement and Audit report.
b. Audit report and Board report.
c. Financial statement and Board report.
d. Financial statement, Audit report and Board report.
465. Which of the following is not true when events occurring after the balance
sheet date?
i. Which requires adjustment in the financial statement
ii. Must be disclosed in the financial statement
iii. Disclosure in financial statement would not normally require
iv. Significance that they may require a disclosure in the report of approving
authority
a. Both i, ii
b. only iii
c. Except iv
d. Except ii
466. Where the management amends the financial statement, however laws and
regulations does not prohibit any amendment related to subsequent
events, then
i. Auditor can issue amended audit report & make disclosure in other matter
paragraph.
ii. Auditor can issue amended audit report & make disclosure in Emphasis on
matter paragraph.
iii. Auditor can give public notice in the newspaper to disregard the audit report.
iv. Seek legal opinion.
a. Both i, ii
b. only iii
c. Except iv
d. Except ii
SA 570 (Revised) Going Concern
467. Other indicators, which may show that the going concern may not be
appropriate
a. Dependence on only one customer.
b. Non compliance of statutory requirements.
c. Non compliance of loan agreement.
d. All the above
468. Operational indicators which may show that the going concern may not be
appropriate, does not include
a. Negative operational cash flow.
b. Management intention to liquidate.
c. Emergence of new competitors.
d. Loss of licence, major markets.
469. Financial indicators which may show that the going concern may not be
appropriate, does not include
a. Negative operational cash flow
b. Management intention to liquidate
c. Change in government policy d)
d. Non compliance of statutory requirements
a) All a, b and c
b) Both b, c and d
c) Except i
d) All the above
470. State the applicable standards on auditing to obtain audit evidence about
the appropriateness of management's use of going concern assumption in
the preparation and presentation of the financial statements?
a. SA 560
b. SA 570
c. SA 505
d. SA 540
471. Where the company has a mitigation plan or Backup plan, then
a. Modified report can be issued.
b. Unmodified report with disclosure in emphasis on matter paragraph.
c. Unmodified report with disclosure in other matter paragraph.
d. Either B or C
472. State the Procedures to be applied by the auditors about the
appropriateness of management's use of going concern assumption, and
excluding
a. Checking interim financial statements b.
b. Examining directors minutes
c. Status of debt compliance
d. Adverse key financial ratios
473. The auditor shall inquire of management as to its knowledge of events or

conditions that may cast significant doubt on the entity's ability to
continue as a going concern
a. Beyond the period of management's assessment.
b. Existing on the balance sheet date but before audit report.
c. Including misstatements.
474. If adequate disclosure about the material uncertainty is made in the

financial statements, the auditor shall
a. an unmodified opinion and the Auditor's report shall include a separate
section under the heading "Material Uncertainty Related to Going Concern"
b. modified opinion and the Auditor's report shall include a separate section
under the heading "Material Uncertainty Related to Going Concern"
c. adverse opinion and the Auditor's report shall include a separate section
under the heading "Material Uncertainty Related to Going Concern"
475. If adequate disclosure about the material uncertainty is not made in the
financial statements, the auditor shall
a. Express a qualified opinion
b. Express an adverse opinion
c. Either a or b
476. Your audit client has informed you that they will be winding up their
business within the next 8 to 12 months and has asked whether this will
have an effect on the financial statements. Which one of the following
statements best describes the financial reporting requirements in this
situation?
a. There are no implications for the financial statements because the business
will continue in operation for up to 12 months.
b. The auditor will have to issue a disclaimer of opinion because the value of
the firm’s assets and liabilities cannot be determined.
c. The balance sheet must be prepared to show the liquidation values of the
assets and liabilities because going concern basis is no longer appropriate.
d. The financial statements should include a note disclosing the fact that the
business will cease to operate. Emphasis of Matter paragraph will be
included in the Auditor's report, drawing the reader's attention to this.
477. Which one of the following best describes the Auditor's responsibilities in
evaluating the appropriateness of the going concern assumption?
a. The Auditor's responsibility is to consider the going concern assumption only
when potential problems appear.
b. The auditor should evaluate management's assessment of the
appropriateness of the going concern assumption.
c. The auditor should collect information and make his/her own evaluation of
the appropriateness of the going concern assumption.
d. The auditor should ask management about its plans to deal with problems
relating to the business's ability to continue as a going concern.
478. Objectives of the auditor regarding going concern does not include
a. To obtain written representations from management.
b. To support other audit evidence relevant to the financial statements or
specific assertions in the financial statements by means of written
representations.
c. To obtain direct confirmation from third party regarding receivables.
d. To respond appropriately to written representations provided by
management and, where appropriate, those charged with governance, or if
management or, where appropriate, those charged with governance do not
provide the written representations requested by the auditor.
479. Under what circumstance, Auditor's report cannot be viewed as a

guarantee as to the entity's ability to continue as a going concern.
a. The potential effects of inherent limitations on the Auditor's ability to detect
material misstatements are greater for future events that may cause an
entity to cease to continue as a going concern.
b. The potential effects of inherent limitations on the Auditor's ability to detect
material misstatements are greater for future conditions that may cause an
entity to cease to continue as a going concern.
c. When the auditor cannot predict such future events or conditions.
d. All the above
480. Which one of the following is the best examples of events or conditions
that, individually or collectively, may cast significant doubt on the entity's
ability to continue as a going concern?
a. Events which has occurred which questions the appropriateness of
accounting policies.
b. High and unusual accounting adjustments.
c. Assets appropriated by government.
d. Adverse key financial ratios.
e. All the above.
481. State the financial and operational indicators which may show that going
concern may not appropriate?
i. Uninsured or underinsured catastrophes when they occur.
ii. Loss of a major market.
iii. Fixed-term borrowings approaching maturity without realistic prospects of
renewal.
iv. Management intentions to liquidate the entity or to cease operations.
a. Except i
b. Except ii
c. Except iii
d. Except iv
482. Negative operating cash flows indicated by historical or prospective financial

statements. Select the appropriate indicator with reference to the above may
cast significant doubt on the entity's ability to continue as a going concern.
a. Operational indicator
b. Investment indicator
c. Financial indicator
d. Other indicator
483. Management intentions to liquidate the entity; select the appropriate

indicator with reference to the above may cast significant doubt on the
entity's ability to continue as a going concern.
a. Operational indicator
b. Investment indicator
c. Financial indicator
d. Other indicator
484. The auditor has concluded that a significant going concern uncertainty
exists at Client Co. Which one of the following procedures is least likely to
provide useful evidence as to the ability of Client Co. to continue as a going
concern?
a. Analysing and discussing cash flow and profit forecasts with management.
b. Examining related party transactions to identify potential sources of finance.
c. Reviewing the terms of loan agreements and determining whether any have
been breached.
d. Reviewing events after period end to identify those that either mitigate or
otherwise affect the entity's ability to continue as a going concern.
485. Which of the following is inaccurate, when describes management's

responsibilities in assessing the company's ability to continue as a going
concern.
i. Management must assess the entity's ability to continue as a going
concern
ii. If the company has a history of profitable operations and access to
sufficient financial resources, management may conclude that the going
concern basis is appropriate without detailed analysis
iii. When making the going concern assessment, management should take
into account only those future events or conditions that are certain.
iv. Management must provide the auditor with a cash forecast for a period
that is at least, but not limited to 12 months from the end of the reporting
period.
a. Both i and iv
b. Only ii, iii and iv
c. Only i, ii, and iii
d. Both i and ii
486. Krishna and Rama are the auditors of Yee-bee( a supplier of shipping
materials) The following situation related to Yee-bee are
i. The CEO is due to retire with in six months of the year end
ii. Adverse key financial ratios for the first time
iii. No cash flow forecast for the next 12 months has been produced
iv. Operating losses have continued to grow
v. The cash flow statement show net cash used in operating activities Which of
the above matters would be considered by the auditor during his planning of
audit as indicators of potential going concern difficulties?
a. Only i, ii, and iv b.
b. Only ii, iv and v
c. Only i, iii, and v
d. Only iii, iv and v
SA 580 (Revised) Written Representation
to obtain written representations from management and where
appropriate, those charged with governance.
a. SA 550
b. SA 560 c.
c. SA 570
d. SA 580
488. A written statement by the management provided to the auditor does not
include
a. Assertion
b. Supporting books and records
c. Financial statements
d. All the above
489. A written statement by the management provided to the auditor

i. To confirm certain matters
ii. To support audit evidence
iii. For supporting books and records
iv. For financial statement assertions
a. Both i and iv
b. Both ii and iii
c. Both i and ii
d. Both iii and iv
e. All the above
490. Audit evidence is all the information used by the auditor in .......................
a. Connection with the audit.
b. arriving at the conclusions.
c. response to inquiries.
d. the fulfillment of management's responsibilities.
491. Written representation are necessary information that the auditor requires
in.............
a. Connection with the audit.
b. arriving at the conclusions.
c. response to inquiries.
d. the fulfillment of management's responsibilities.
492. Extent of other audit evidence that the auditor obtains about …………….
of management responsibilities.
a. the reliability
b. the fulfillment
c. the matters
d. the conclusion
493. Those individuals may vary depending on the governance structure of the
entity and relevant law or regulation. However .................. is often the
responsible party, rather than.........................
a. Those charged with governance, Engagement team.
b. Engagement partner, Those charged with governance.
c. Management , Those charged with governance.
d. Company auditor, branch auditor.
494. The auditor shall request written representation from .....................

a. Management with appropriate responsibility for financial statement.
b. Those charged with governance with appropriate responsibility for financial
statement.
c. Both management and those charged with governance for absolute evidence.
d. Managing director and CFO.
495. Auditor may also ask management to reconfirm its acknowledgement and
understanding of those responsibilities in written representation
i. Those who signed the terms of the audit engagement on behalf of the entity
no longer have the relevant.
ii. The terms of the audit engagement were prepared in the previous year.
iii. There is any indication that management misunderstand those
responsibilities.
iv. Changes in circumstance make it appropriate to do so.
a. Both i and iv
b. Both iii and iv
c. Only i and iii, iv
d. only ii
e. All the above
f. Except i
496. Management has fufilled the responsibilities is not sufficient
a. Without obtaining confirmation from those charged with governance.
b. Without obtaining confirmation from management.
c. Both a and b
d. Neither a nor b
497. Representation made by Management and Those charged with governance

a. Which corroborates the elements of financial statement.
b. Should be taken as standalone evidence of financial statement
c. Both a and b
d. Neither a nor b
498. Written representation should not be taken as

a. Standalone evidence
b. Corroborate evidence
c. Both a and b
499. Written statement by the management, provided to the auditor to confirm

certain matters to auditor includes
a. Related party disclosure.
b. Management's plan for entity's future.
c. Effects related to going concern assumption.
d. Effects related to fraud.
500. Written statement by the management, provided to the auditor to confirm

certain matters to auditor does not
a. Yardstick related to selection & application of accounting policies. b.
b. Management's plan for entity's future.
c. Effects related to going concern assumption.
d. Uncorrected misstatements are not adjusted.
501. Written statement by the management, provided to the auditor to support

other audit evidence to auditor
a. Related party disclosure.
b. Uncorrected misstatements are not adjusted.
c. Yardstick related to selection & application of accounting policies. d.
d. Management's plan for entity's future.
502. Written statement by the management, provided to the auditor to support

other audit evidence to auditor does not includes
i. Related party disclosure
ii. Lien on asset
iii. Effects related to going concern assumption
iv. Subsequent events
a. All the above
c. Only i and iv
d. All the above except ii
503. If the management does not provide one or more of the requested written
representations, the auditor shall
a. Discuss the matter with the management.
b. Reevaluate the integrity of management.
c. Qualify the report
d. All the above

i. Written representation can be a substitute for other audit evidence.
ii. Written representation provide sufficient appropriate audit evidence on their
own
iii. Written representation by management as to the quality of inventory is
substitute for verification
iv. Taking management representation is a convenient, economical and equally
acceptable auditing method even where the direct access by auditor to audit
evidence is possible.
a. All the above
c. Only i and iv
d. All the above except ii
505. Under which of the following circumstances the auditor will not ask for
written representation from the
a. Where the available audit evidence is reliable.
b. Where evidence is not available.
c. Where the available audit evidence is reliable, but not sufficient. –
d. all the above
506. Under which of the following circumstances the auditor will ask for written
representation from the management
a. Where the available audit evidence is not sufficient.
b. Where evidence is not available.
c. Where the available audit evidence is not reliable.
d. all the above
SA 600 Using the Work of Another Auditor
507. State the applicable standard for using the work of another auditor
a. SA 610
b. SA 620
c. SA 630
d. SA 600
508. The principal auditor can rely upon the work of other auditor
a. at the request of other auditor.
b. at the request of management.
c. at the request of government.
d. at his own discretion
509. The Principal auditor should perform procedure to understand and assess
the impact of work of other auditor. He should apply the following:
a. Advising on significant account requirement.
b. consider significant findings of other auditor.
c. Advising on important reporting requirement.
d. all the above
e. Both a and c
510. Principal auditor will be responsible along with other auditor, if he is aware
or has suspicion.
a. True
b. False
511. Principal auditor will be responsible for his opinion..................................

a. on the entity as whole.
b. on the entity as whole and should indicate division of responsibility with the
other auditor in the report.
c. along with other auditor.
512. If something goes wrong at branch level.................

a. Principal auditor is responsible.
b. Both branch auditor and principal auditor are responsible.
c. Branch auditor is responsible.
513. If something goes wrong at Head office level …………

a. Principal auditor is responsible.
b. Both other auditor and principal auditor are responsible.
c. Other auditor is responsible.
514. If something goes wrong at branch level when principal auditor is aware of
the situation
a. Principal auditor is solely responsible.
b. Both branch auditor and principal auditor are responsible.
c. Branch auditor is solely responsible.
515. Co-ordination between auditor's includes

a. Sufficient Liaison between principal auditor and other auditor.
b. Knowing the context in which work of other auditor is used by principal
auditor.
c. Principal auditor requires other auditor to answer detailed questionnaire.
d. Both a and c
e. All a, b and c
516. Principal auditor concludes that work of other auditor cannot be used then
he shall express
a. Qualified opinion or Disclaimer of opinion.
b. Unqualified opinion or Disclaimer of opinion. a.
c. Qualified opinion or Adverse opinion.
d. Unqualified opinion or Adverse opinion.
517. If other auditor issues or intents to issue modified auditors report then
principal auditor should consider
a. Nature of modification.
b. Significance of modification.
c. both a and b
d. neither a nor b
518. Principal auditor is not responsible in respect of work performed by other

auditor if he is aware or has
a. True
b. False
SA 610 (Revised) Using the Work of Internal Auditors
519. State the applicable standard for using the work of internal auditor
a. SA 610
b. SA 620
c. SA 630
d. SA 600
520. Internal audit is an independent management function of examination of

a. Financial
b. Operational
c. Administrative
d. All the above
521. Scope and objective of internal audit ...................

a. Risk management by identifying the risk.
b. Due professional care.
c. Technical competence.
d. For proper coordination with external auditor.
522. Factors to be considered for use of work of internal auditor

i. Due professional care
ii. Technical competence
iii. For proper coordination with external auditor
iv. Strengthen the governance mechanism
a. Except i
b. Except ii
c. Except iii
d. Except iv
523. When internal auditors cannot be used to provide direct assistance
a. Significant threats to the objectivity of internal auditor.
b. Lack of sufficient competence.
c. Family and personal relationship with an individual working in, or
responsible for the aspect of the entity.
d. All a, b and c
e. Except a
524. What caution should be taken for using direct assistance of internal
auditor?
a. External auditor shall obtain written agreement from authorized
representative of the entity.
b. External auditor shall obtain written agreement from Internal auditor.
c. External auditor shall obtain written agreement from Board of directors.
d. Both b and c
e. Both a and b
525. Internal auditors allowed to follow the instruction of External auditor

a. True
b. False
526. To determine the adequacy of specific work performed by Internal Auditor,

External Auditor shall evaluate.
a. Any exception and unusual matter disclosed by internal auditor are properly
resolved.
b. The function lacks sufficient competence.
c. The level of competence of the internal audit function. :I.
d. None
527. Statutory auditor is responsible directly to

a. Management
b. TCWG
c. Government
d. Shareholders
528. Internal auditor is responsible directly to

a. Management
b. Tcwg
c. Government
d. Shareholders
529. Factors to be considered for reliance of work of internal auditor

a. Higher level of reporting.
b. Bigger the Scope.
c. Qualification and reputation of internal auditor.
d. All the above
530. State the SA, which addresses how the knowledge and experience of the
internal auditor function can help the external auditor in understanding
of the entity and its environment.
a. SA 600
b. SA 315
c. SA 520
d. SA 630
531. The degree of reliance that a statutory auditor can place of the work of the
internal auditor is a matter of................
a. Professional judgement
b. Individual judgement
c. Professional care
d. All the above
SA 620 (Revised)Using the Work of an Auditor's Expert
532. State the applicable standard for using the work of an Auditor's Expert
a. SA 610
b. SA 620
c. SA 630
d. SA 600
533. Expert engaged or employed by the auditor is known as Auditors Expert

a. True
b. False
534. Factors should be considered for evaluating adequateness of auditors

expert work
a. Objective and scope of expert work.
b. License of the Expert.
c. Relevance and reasonableness of that expert's findings.
d. Source data used by expert.
e. All the above
620?
a. Ultimately auditor is responsible for his opinion on the financial statement.
b. When the expert is employed by the auditor, he can use the name of the
expert in the report without obtaining permission from the expert.
c. Prior permission of expert should be obtained before using the expert name
in the report.
536. The auditor relies upon the work of an expert at

a. at the request of other auditor.
b. at the request of management.
c. at the request of government.
d. at his own discretion.
537. Specific procedures to evaluate the adequacy of the auditor's expert's work
for the auditor's purpose may
a. Discussion with another expert.
b. Inquire the auditor's expert.
c. Reviewing the working papers of auditor's expert.
d. All the above
538. The auditor, in the interest of the users, while explaining the nature of his
reservation, can describe the work of the expert with his name, in the audit
report without obtaining prior consent of the expert.
a. True
b. False
539. An auditor's external expert is not subject to quality control policies and
procedures of an audit firm.
a. True
b. False
SA 710, "Comparative Information-Corresponding figures and Comparative

Financial Statements"
540. The nature of the comparative information that is presented in an entity's

financial statements depends c the requirements of the ……………..
a. applicable financial reporting framework.
b. accounting policies and accounting estimates.
c. disclosures relating to the current period.
d. Both a and b
541. There are different broad approaches to the Auditor's reporting

responsibilities in respect comparative information.
a. Five
b. Two
c. Four
d. Three
542. Corresponding figures refers to

a. Auditor's opinion on each period for which financial statements are
presented.
b. Auditor's opinion on the financial statements refers to the current period
only.
c. Auditor's opinion on the financial statements refers to the prior period only.
4.
543. Comparative financial statements refers to

a. Auditor's opinion on each period for which financial statements are
presented.
b. Auditor's opinion on the financial statements refers to the current period
only.
c. Auditor's opinion on the financial statements refers to the prior period only.
d. The amounts and disclosures included in the financial statements in respect
of one or more prior periods in accordance with the applicable financial
reporting framework.
544. The amounts and disclosures included in the financial statements in

respect of one or more prior periods in accordance with the applicable
financial reporting framework refers to
a. corresponding figures.
b. comparative information.
c. comparative financial statements.
d. corresponding information in respect of one or more prior periods.
545. When corresponding figures are presented, the auditor's opinion shall not
refer to the corresponding figures except in the following circumstances
i. If the Auditor's report on the prior period, as previously issued, included
a qualified opinion
ii. If the Auditor's report on the prior period, as previously issued, included
a disclaimer of opinion
iii. If the Auditor's report on the prior period, as previously issued, included
an adverse opinion
iv. If the Auditor's report on the prior period, as previously issued, included
a unqualified opinion with emphasis matter paragraph
a. only i
b. Both ii and iii
c. Except iv
d. All the above are exceptional circumstances
546. When reporting on prior period financial statements in connection with

the current period's audit, if the Auditor's opinion on such prior period
financial statements differs from the opinion the auditor previously
expressed
a. the auditor shall disclose the substantive reasons for the different opinion
in an Other Matter paragraph in accordance with SA 706.
b. the auditor shall disclose the substantive reasons for the different opinion
in an Emphasis Matter paragraph in accordance with SA 706.
c. Any of the above
d. None
Answers to MCQs:
SA 200- Overall objective of the independent auditor and the conduct of an

audit in accordance with standards auditing
1. to express an opinion about whether the financial report is prepared in all
material respects in accordance with a financial reporting framework.
2. c. determine if the financial statements fairly represent the actual financial
position and the working results of the Organization.
3. d. an acceptably low level.
4. b. Compliance framework, Fair presentation framework.
5. a. Audit evidence being conclusive rather than persuasive.
6. d. The auditor cannot reduce the audit risk to Zero and cannot obtain absolute
assurance that the financial statements are free from material misstatement.
7. d. Detection risk
8. a. Audit risk
9. b. the risks of material misstatement and detection risk.
10. d. Professional skepticism
11. a. Inherent risk
12. b. Control risk
14. b. Detection risk should be lower so that overall audit risk can be controlled.
15. b. Detection risk should be higher so that overall audit risk can be controlled.
16. d. express an opinion on the compliance with AcCounting standards.
17. a. Risk of material misstatement.
19. b. Detection risk
20. b. Audit risk
21. c. He is responsible for detection and prevention of frauds and errors in financial
statements.
22. d. Audit risk is the risk of a material misstatement in the financial statements
23. a. lack of segregation of duties And d. reduction in the size of the internal audit
group.
24. a. The auditor has reduced the sample sizes for testing of purchases for the
entity.
25. a. audit And d. Detection
26. a. Most evidence is persuasive, not conclusive And b. Fraud may involve
sophisticated attempts to conceal it. Some financial statement items are subject
to an inherent level of variability, which cannot eliminated by additional audit
procedures.
27. b. SA 200
31. d. Both b and c
SA 210 Agreeing the Terms of Audit Engagements

32. a description of the Auditor's method of sample selection.
33. c. Access to all books, accounts and vouchers required for audit purpose.
34. d. (iii) and (iv)
35. d. Insignificant changes in nature/ size of business entity.
36. b. Both (i) and (ii)
37. a. Qualified opinion.
38. b. Reliance on the report of other auditor.
39. c. Both a and b
40. b. acceptance or retention of clients whose management does not lack integrity.
41. c. Predecessor Auditor's advice as to whether audit fees were paid promptly.
42. c. Understand the events and transactions that may have an effect on client's
43. b. SA 210
44. a. A change in circumstances affects the entity's requirements And b. There is
a misunderstand: concerning the nature of the service originally requested.
45. a. Auditor cannot accept the audit engagement unless required to do so by law
or regulation.
47. a. Partnership deed
48. c. auditor to auditee
49. a. (i) and (iii)
50. b. need not be recorded in written agreement.
51. c. combination of both a and b
52. c. combination of both a and b d.
53. Both a and b c.
54. Engagement letter
SA 220 Quality Control for an Audit of Financial Statements/ Standard on

Quality Control 1:
55. d.SA 220
56. c. Both (i) and (iv)
57. b. Difference of opinion
59. b. system of quality control for audit engagements.
61. b. Quality control policies & procedures of audit firm.
63. b. system of determining audit fees.
64. c. Engagement Quality Control Reviewer.
65. b. Discuss significant matter with engagement partner.
66. a. Design and implementing internal control.
67. a. Self-interest threats
68. b. Self-review threats
69. d. Familiarity threats
70. c. Advocacy threats
71. b. potential employment with the client And c. contingent fees for the audit
engagement.
72. a. close relative of the audit team working in a senior position in the client
company.
73. a. when the auditor promotes, or is perceived to promote, a client's opinion to a
point where people may believe that objectivity is getting compromised.
74. e. Intimidation threats
75. a. Professional integrity, independence.
76. a. the responsibilities of the firm for establishing policies and procedures
regarding compliance with relevant ethical requirements.
77. b. The Auditor's independence.
78. c. Both a and b
79. c. Monitoring
SA 230 Audit Documentation

80. SA 230
82. b. Audit documentation
83. c. Seven Years
84. b. Changes made during the audit engagement which are insignificant.
85. c. He failed to comply with the requirements of SA 230
86. a. Company auditor have the right of access of working papers of branch
auditor.
87. b. Based on time
88. b. Less accurate than documentation prepared at the time such work is
performed.
89. b. 60 days
90. b. The auditor to modify the opinion in the Auditor's report.
91. d. Both a and b
92. b. on timely basis
93. c. The identifying characteristics of the specific items or matter tested.
94. d. document how the auditor addressed the inconsistency.
95. d. auditor shall prepare the audit documentation on a periodical basis.
96. b. an administrative process.
97. d. Both a and c
98. b. the auditor shall delete or discarding superseded documentation.
99. a. the auditor shall not delete or discard audit documentation of any nature.
100. a. on a timely basis after the date of the auditor's report.
101. c. professional judgement.
102. b. an objective analysis.
103. b. audit note
105. a. Significant analysis of trends and ratios.
106. d. Significant evidence of planning process of the audit and audit programmes.
108. c. The auditee firm has no rights to comple the auditor to provide copies of the
working papers.
SA 240 (Revised) The Auditor's Responsibilities Relating to Fraud in an Audit

of Financial Statements
109. Management and TCWG
110. b. Auditor is appointed for the sole purpose to identify the fraud.
111. c. The auditor should apply additional procedures to confirm or dispel his
suspicion.
113. b. fraudulent financial reporting.
114. d. pilferage/ misappropriation of receipts.
115. b. Because fraud may involves sophisticated and carefully organised schemes
designed to conceal it.
118. c. Teeming & Lading
119. c. Error of Commission
120. a. The auditor shall report on such fraud within 2 days of his knowledge to the
121. b. With in 60 days.
122. b. Reporting central government is required within 15 days of receipt of reply.
123. c. Fraud first noted by Company Auditor.
124. b. No reporting required.
125. c. since the fraud is already reported no further action required.
126. c. 45 days.
127. d. Management.
128. b. Error of commission.
129. a. Error of principle.
130. b. Internal control system reduces the possibility of occurrence of employee
131. d. Both b and c
132. d. Management incentive system based on sales done in a quarter.
133. a. The company is planning an initial public offer of quality shares to raise
additional capital for expansion.
134. d. Omission of a sales transaction from being recorded.
135. b. Document the identification of fraud risk factors along with response to them.
136. a. Visit location on surprise basis to observe test counts.
137. c. Adoption of conservative accounting principles.
139. b. management is under pressure.
140. a. an individual believes internal control can be overridden.
142. a. Manipulation/ Falsification and c. Intentional ommission / misapplication of
accounting principles.
143. b. Manipulation of accounts.
144. b. Recording fictitious journal entries and c. Concealing or not disclosing facts.
146. b. Intentional misrepresentation, unintentional mistake.
147. b. Inherent limitation of an audit.
148. b. The nature of the industry or the entity's operations provides opportunities
to engage in fraudulent financial reporting that can arise from, recurring
negative cash flows from operations or an inability to generate cash flows from
operations while reporting earnings and earnings growth.
149. a. Unsupported or unauthorized balances or transactions.
150. a. Transactions that are not recorded in a complete or timely manner or are
improperly recorded as to amount, accounting period, classification, or entity
policy.
151. All the above
152. The correct options are A,B and D because they are all mentioned in SA 200
Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with International Standards on Auditing.
153. c. a list of store locations where inventory turnover is significantly higher than
average, because it might constitute a fraud risk factor, but in itself is not
indicative of fraud, and so should not be included in communications with
those charged with governance in connection with internal control. The
auditor's duty in this case is to collect further evidence relating to
inventory to determine whether any misstatements have.
154. c. Fraud always involves the use of deception to obtain an unjust or illegal
advantage. Fraud is defined as „an intentional act by one or more individuals
among management, those charged with governance, employees, or third
parties, involving the use of deception to obtain an unjust or illegal advantage"
155. b. Overriding internal controls to record transactions outside the usual course
of an entity's business. This does not necessarily constitute fraud because this
is a common way of dealing with large or unusual transactions. Normally,
internal controls are designed to manage repetitive and common transactions.
Management override of controls is a common way that frauds are perpetrated,
however, the auditor must remain alert to such circumstances and examine the
business rationale carefully.
156. a. causing an entity to pay for goods and services not received, it is a common
type of fraud involving misappropriation of assets (misappropriating the cash
used to pay for the goods or services) belonging to an.
157. d. incentive, opportunity and rationalisation, The CEO requires money to pay
for his daughter's medical treatment (incentive); a CEO is commonly able to
override the company's internal control system (opportunity); and saving the life
of his daughter is an excellent rationalisation for any behaviour. Hence
incentive, opportunity, rationalisation all three aspects of the fraud triangle are
present.
158. a. Increase the level of professional skepticism. This is not an audit planning
procedure, it is a state of mind. In accordance with the Code of Ethics, the
auditor should always maintain an attitude of professional skepticism.
159. c. medium, because rationalisation is absent, incentive and opportunity are
both present in the situation but there is no evidence of rationalisation. This
reduces the fraud risk somewhat.
160. c. The auditor should ask management if they are personally engaged in
fraudulent activity, including fraudulent financial reporting and
misappropriation of assets. Because fraud is most often concealed, there is little
point asking direct questions about fraudulent activity. Additionally, the auditor
does not want to jeopardise their relationship with the client by asking
embarrassing questions.
161. a. revenue recognition. When identifying and assessing the risks of material
misstatement due to fraud, the auditor shall, based on a presumption that there
are risks of fraud in revenue recognition, evaluate which types of revenue,
revenue transactions or assertions give rise to such risks.
162. a. Enquiries of management are more useful for detecting management fraud
than employee fraud. As per SA 240 The Auditor's Responsibilities Relating to
Fraud in an Audit of Financial Statements, which suggests that making
inquiries of others within the entity may result in information that would not be
communicated by.
163. The correct answer is Options a, c and d , because they are all intentional acts
that lead to misstatements in the financial statements.
SA 250 (Revised) Consideration of Laws and Regulation in an Audit of Financial

Statements
164. Management
165. a. The auditor is responsible for preventing non-compliance and can be
expected to detect non-compliance with all laws and regulations.
166. b. Non compliance include personal misconduct by TCWG, Management, or
employee of the entity.
167. a. Non payment of service tax.
168. c. inform to Management and TCWG
169. c. obtaining reasonable assurance.
173. c. Both a and B
SA 260(Revised) Communication with Those Charged with Governance

174. SA 260 176. b. Run the operations in the company
176. c. TCWG 179.
178. c. TCWG and accordingly take the action
182. b. may need the prior consent of those charged with governance before doing
so.
SA 299 Responsibility of Joint Auditors

184. SA 299
186. c. Both a and b
187. c. Based on fact
188. a. Joint auditor should issue the report jointly if they have difference opinion.
189. a. Voluntarily by the shareholders.
191. a. risk relating to the areas of work allocated to said joint auditor.
192. a. True
193. b. False
SA 320 Materiality in Planning and Performing an Audit

195. b. SA 320
196. a. the item is said to be material.
197. a. Audit materiality is not inversely proportional to the audit risk.
199. d. Nature and size of audit.
201. c. Net Liability value.
202. a. 0.5% to 1%
205. a. Materiality
206. c. establishing the overall audit strategy.
207. c. Performance materiality.
208. b. professional judgment.
209. assets, and claims on them.
210. profit before tax.
211. higher than a percentage applied to total revenue.
212. A newly acquired business.
213. a. Research and development costs for a pharmaceutical company.
214. b. Related party transactions, and the remuneration of management and those
215. b. the auditor revises that materiality.
216. a. the auditor shall determine whether it is necessary to revise performance
materiality.
217. a. Performance materiality.
218. a. the limit fixed by the auditor which is below the actual materiality level.
SA 450 Evaluation of Misstatements identified During the Audit

219. SA 450
221. b. unless prohibited by law or regulation.
222. b. to correct those misstatements.
223. c. All (i), (ii) and (iv)
224. b. to provide a written representation about uncorrected misstatements.
225. d. Qualify the report.
226. d. Misstatement.
227. a. The effect of identified misstatement on the audit.
228. a. Reported financial statement and Applicable financial reporting framework.
229. b. False (Misstatement in the financial statements can arise from either fraud
or error)
SA 500 Audit Evidence AND SA 501 Audit Evidence Specific Consideration for
selected items
230. SA 500
231. c. Reliability of audit evidence.
232. c. for conclusion of the audit.
233. c. In auditing most of the time we deal with conclusive audit evidence.
234. c. persuasive audit evidence.
235. c. Detailed examination of some specific areas.
236. c. Auditor's independent execution of procedure or controls that were originally
performed by Management.
237. a. Audit evidence are persuasive in nature.
238. d. Analytical procedure.
239. b. Substantive procedure.
240. d. checking whether internal control is working without break.
241. c. Check the internal control is exist and effective.
242. b. Both i and iv
243. b. Both i and ii
244. c. Except iii :
245. b. Disclaimer of opinion.
246. d. SA 501
247. a. SA 501
248. b. seek direct communication with the entity's external legal counsel through a
letter of inquiry.
250. c. Either a or b
251. b. the entity may be required or permitted to disclose segment information in
the financial statements depending on the applicable financial reporting
framework.
252. b. Segment Reporting.
253. a. Management.
254. c. Carbon copies of sales invoices inspected by the auditor.
257. b. Effective internal control system provides reliable audit evidence.
255. d. may be test of transactions, test of balance and analytical procedures.
256. c. directly.
257. a. The reliability of audit evidence and its relevance in meeting the audit
objective.
258. b. When it is enough to provide a basis for giving reasonable assurance
regarding truthfulness.
259. d. Worksheet supporting consolidated financial statements. 263. b. It should
always be in working.
260. b. The auditor concludes that the balance is materially misstated when in actual
fact it not.
261. d. Both a and c
262. a. The auditor has ascertained that the balance is materially correct when in
actual fact it is not.
263. d. Except iv
264. a. interrelated
265. c. an acceptably low level.
266. c. supplier's challan and forwarde note.
267. d. sales invoices.
268. b. Sufficiency is the measure of the quantity of audit evidence.
269. b. assertion
270. a. Existence
273. d. Both a and b
274. a. the auditor shall modify the opinion in the Auditor's report in accordance
with SA 705
275. a. Existence and condition of inventory.
SA 505 External Confirmations

278. SA 505
279. b. Negative confirmation request.
280. a. Positive confirmation request.
281. a. Exception.
282. b. Non-response.
283. d. In the case of each non-response, the auditor shall perform alternative
audit procedures to obtain relevant and reliable audit evidence.
284. b. the risk of collusion which can involve employee(s) and/or management.
285. a. they are indicative of misstatements.
286. d. Negative confirmations provide less persuasive audit evidence than positive
confirmations.
287. c. the assertion level.
288. d. Except iv
289. b. is a limitation on the audit evidence.
290. a. existence of a legal dispute.
291. a. Conclusive evidence.
292. c. All the above
293. a. the confirmation response rate.
295. b. Both i and iii
296. b. to revise the assessment of the risk of material misstatement at the assertion
level and modify planned audit Procedure.
297. a. response deemed to be unreliable.
298. a. Except i
SA 510 Initial Audit Engagements - Opening Balances

299. SA 510
300. c. Either A or B
301. c. Both iii, iv and i
302. b. audited by a predecessor auditor and there was a modification to the opinion.
303. b. the auditor shall express an adverse opinion.
304. a, Disclaimer opinion
305. b. Both ii, iii and iv
307. a. materially affect the current period's financial statements.
308. a. accounting policies.
SA 520 (Revised)Analytical Procedures

309. Substantive tests designed to study relationships between financial and non-
financial.
310. a. Tracing of purchases recurred in the purchase book to purchase invoices.
312. b. Relationship among data exist and continue in the absence of known
condition to the contrary.
313. a. To help to corroborate the conclusions drawn from individual components of
314. c. Analytical procedures.
315. a. Inconsistent d. comparisons of entity's financial information, relationship.
316. a. Financial information and relevant non-financial information, such as payroll
costs to number of employees.
317. a. Financial information and relevant non-financial information, such as payroll
costs to number of employees and
318. d. Among elements of financial information that would be expected to conform
to a predictable pattern based on the entity's experience, such as gross margin
percentages.
319. a. known conditions to the contrary.
320. c. Should investigate and obtain adequate explanations and appropriate
corroborative evidence.
323. c. detection of unusual state of affairs and mistake in accounts.
324. d. All the above.
325. b. account receivables
326. a. account payable
328. a. Potential risk
329. c. a combination of both a and b
330. a. to an acceptably low level
331. d. Predictability.
332. a. Structural modelling, and d. Reasonableness tests.
333. b. are predictable
334. c. for some assertions
335. d. Source
336. b. Ratio analysis
337. a. Trend analysis
338. c. Reasonableness tests
339. d. Structural modelling
341. b. large volumes of transactions
342. b. nature of the assertion
343. c. tests of details, substantive analytical procedures.
344. b. tests of details
349. a. source and nature
345. b. assessed risks
348. c. Analytical procedure
350. c. routine check
351. c. financial and/ or non-financial
352. b. SA 520
SA 530 Audit Sampling

353. less than 100% of items
354. a. reasonable basis
355. b. Population
357. d. either non-statistical or statistical sampling.
359. b. Auditor's judgment
360. b. sample size
361. a. the sample must be representative.
362. b. Statistical Sampling
363. c. personal experience and knowledge of the auditor.
364. c. neither objective nor scientific.
365. c. non-statistical sampling technique.
366. c. Non-Statistical Sampling.
367. d. The expected degree of objectivity cannot be assured in statistical sampling.
369. b. an acceptably low level.
370. b. each sampling unit in the population has a chance of selection.
371. a. mathematically measure risk.
372. d. All are correct
373. a. Does not support the Auditor's planned assessed level of control risk when
the true operating effectiveness of the control structure justifies such an
assessment.
375. b. tests of controls
376. c. Stratification or value-weighted selection.
377. b. stratified by age
378. d. Both c and d
379. c. the individual monetary units.
380. a. random selection
382. b. the auditor is required to perform tests of details.
384. b. inherent risk and control risk.
385. d. a low detection risk and will rely more on substantive procedures.
386. c. Haphazard sampling
387. c. Every item in the population has an equal chance of being selected in the
sample.
388. c. Materiality
389. b. both ii and iv
390. a. give a sampling interval
391. d. Monetary Unit Sampling
392. c. haphazard sampling
393. a. Block Sampling
394. b. In the case of a test of controls, that controls are more effective than they
actually are and
395. d. In the case of a test of details, that a material misstatement does not exist
396. a. In the case of a test of controls, that controls are less effective than they
actually are and
397. c. In the case of a test of details, that a material misstatement exists when in
fact it does not.
398. b. Non sampling risk c. tests of controls or a misstatement, in the case of tests
of details.
399. a. when a voided check is selected while testing for evidence of payment
authorization.
400. b. when documentation relating to that item has been lost.
401. d. when no reply has been received in response to a positive confirmation
request.
402. b. Non sampling risk.
404. a. Statistical
406. a. project misstatements
407. b. excluded
409. b. Test of controls
410. a. Test of details d. the sample does not provide a reasonable basis for
conclusions about the population that has been tested.
412. c. SA 530
SA 540 (Revised) Auditing Accounting Estimates, Including Fair Value

Accounting Estimates and Related
413. a. SA 540
414. a. Auditor's point estimate
415. c. Estimation uncertainty
417. c. Management bias
418. b. Because of the uncertainties in business activities.
421. a. Accounting estimates having high estimation uncertainty.
422. b. Accounting estimates having low estimation uncertainty.
SA 550 Related Parties

423. b. SA 550
424. c. Except iii
425. c. Except iii, all are true
426. a. Unless all of those charged with governance are involved in managing the
entity.
427. c. X Ltd shall not require to disclose the transaction after first quarter since
the related party relationship did not.
428. a. SA 550
430. b. Consideration of related party with dominant influence is relevant.
431. d. Except iv
432. c. All the above
433. b. None of the above
435. a. management appears to have intentionally failed to disclose related parties.
436. d. common control by a state.
437. b. Information systems.
443. c. inherent risk
444. c. medium, because rationalization is absent.
438. Management
439. a. Except iii
440. d. Perform the confirmation procedure on the other receivable balance
selected and search for alternative audit evidence to confirm the balance of
that customer.
SA 560 Subsequent Events

441. SA 560
442. a. Have been identified and appropriately treated in the financial statement.
443. c. Both iii and i
444. d. The customer become insolvent
445. c. Dividend declared after report date
446. a. These events require disclosure
447. a. Dividend declared after the balance sheet date require only disclosure,
since it is non adjusting event.
448. a. Such events have not been considered by the management and which in
the opinion of the auditor are material, then auditor shall modify the report
accordingly.
449. c. None of the above
450. b. May have caused amendment in Auditor's report.
451. c. Both iii and iv
452. b. Both ii and iv
453. d. SA 560
454. b. Auditor shall notify to management not to issue financial statement to third
party before necessary amendments and the audit report has been issued.
455. b. All the above
456. b. at the time of subsequent events.
457. a. If the fact was known on the date of auditor's report.
458. a. Financial statement and Audit report.
459. d. Except ii
460. a. Both i, ii
SA 570 (Revised)Going Concern

461. Non compliance of statutory requirements.
462. a. Negative operational cash flow.
463. b. Both b, c and d
464. b. SA 570
465. b. unmodified report with disclosure in emphasis on matter paragraph.
466. d. Adverse key financial ratios.
467. a. Beyond the period of management's assessment.
468. a. an unmodified opinion and the Auditor's report shall include a separate
section under the heading "Material Uncertainty Related to Going Concern"
470. c. The balance sheet must be prepared to show the liquidation values of the
assets and liabilities because going concern basis is no longer appropriate.
471. b. The auditor should evaluate management's assessment of the
appropriateness of the going concern.
472. c. To obtain direct confirmation from third party regarding receivables.
474. d. Adverse key financial ratios
475. a. Except i
476. c. Financial indicator
477. a. Operational indicator
478. b. examining related party transactions to identify potential sources of
finance.
479. a. Both i and ii
480. b. Both ii, iv and v
SA 580 (Revised) Written Representation

481. SA 580
483. c. Both i and ii
484. b. arriving at the conclusions
485. a. Connection with the audit
486. b. the fulfillment
487. c. Management, Those charged with governance.
488. a. Management with appropriate responsibility for financial statement.
490. b. Without obtaining confirmation from management.
491. a. Which corroborates the elements of financial statement.
492. a. Standalone evidence.
493. b. Management's plan for entity's future.
494. c. Effects related to going concern assumption.
495. a. Related party disclosure.
498. b. None of the above.
499. a. Where the available audit evidence is reliable.
SA 600 Using the Work of Another Auditor

501. SA 600.
502. d. at his own discretion
504. a. True
505. b. on the entity as whole and should indicate division of responsibility with
the other auditor in the report.
506. c. Branch auditor is responsible.
507. a. Principal auditor is responsible.
508. b. Both branch auditor and principal auditor are responsible.
510. a. Qualified opinion or Disclaimer of opinion.
511. c. both a and b
512. b. False
SA 610 (Revised) Using the Work of Internal Auditors
513. a. SA 610
515. a. Risk management by identifying the risk
516. d. Except iv
517. d. All a, b and c
518. e. Both a and b
519. a. True
520. a. Any exception and unusual matter disclosed by internal auditor are
properly resolved.
521. d. Shareholders
522. a. Management
524. b. SA 315
525. b. Individual judgement
SA 620 (Revised)Using the Work of an Auditor's Expert

526. b. SA 620
527. a. True
529. b. When the expert is employed by the auditor, he can use the name of the
expert in the report without obtaining permission from the expert.
530. d. at his own discretion
532. b. False
533. a. True
SA 710, "Comparative Information-Corresponding figures and Comparative

Financial Statements"
534. applicable financial reporting framework
535. b. Two
536. b. Auditor's opinion on the financial statements refers to the current period
only.
537. a. Auditor's opinion on each period for which financial statements are
presented.
538. b. comparative information
539. c. Except iv
540. a. the auditor shall disclose the substantive reasons for the different opinion
in an Other Matter paragraph it accordance with SA 706
Chapter 6
Audit of items of Financial Statement
1. Which assertion is common among income statement and balance sheet

captions?
a. Existence
b. Valuation
c. Completeness
d. Measurement
2. Direct confirmation procedures are performed during audit of accounts

receivable balances to address which of the following balance sheet assertion
a. Rights and obligations
b. Existence
c. Valuation
d. Completeness
3. Where no reply is received during the performance of direct confirmation

procedures as part of audit of accounts receivable balances, the auditor
should perform
a. No additional testing.
b. Additional testing including agreeing the balance to cash received; agreeing
the detail of the respective balance to the customer's remittance advice.
c. Additional testing including preparing a detailed analysis of the balance,
ensuring it consists of identifiable transactions and confirming that these
revenue transactions actually occurred.
d. Both b and c
4. Obtaining trade receivables ageing report and analysis and identification of

doubtful debts is performed during audit of accounts receivable balances to
address which of the following balance sheet assertion Valuation
b. Existence
c. Completeness
5. Observing inventory being counted and personally performing test counts

to verify counts is performed during audit of inventory balances to address
which of the following balance sheet assertion
b. Valuation
c. Completeness
d. Existence
6. Wages paid to workers would always qualify as

a. Revenue expenditure.
b. Capital expenditure.
c. Revenue or capital expenditure depending upon facts and circumstances.
7. During the course of audit of intangible assets, expenditure incurred

during____________ is generally not capitalized
a. Development phase
b. Research phase
c. None of the above
d. Both c and b
8. Search for unrecorded liability is performed during audit of current

liabilities to address which of the following balance Sheet assertion.
a. Valuation
b. Rights and obligations
c. Existence
d. Completeness
9. Cut-off testing is performed during audit of sales to address which of the

following income statement assertion
a. Occurrence
b. Measurement
c. Completeness
d. All of the above
10. ABC's Investee company, XYZ declares final dividend for the FY 2016-17
in the meeting of board directors held on April 2017. In which FY should
ABC account for the dividend income
a. Proportionately i.e. considering 10 days of financial year 2017-18 and 355
days of financial year 2016-17
b. Financial year 2016- 17
c. Financial year 2017- 18
d. Equally between financial year 201647 and financial year 2017-18
11. All inventory units held by the audit entity and that should have been
recorded, has been recognized in the financial statements. The assertion
involved is
a. Existence
b. Completeness
c. Rights and Obligations
d. Valuation
12. Which of the following is not an example of revenue expenditure -

a. Salaries and wages of employees engaged directly or in-directly in
production.
b. Repairs, maintenance and renewals of fixed assets.
c. Legal and professional expenses.
d. development expenditure on land.
13. Which of the following is not true with regard to verification of assets?
a. It invoices substantiation of occurrence of transactions.
b. Its objective is to establish existence, ownership, possession, valuation and
disclosure of assets.
c. The auditor has to form an opinion on different aspects.
d. All are true.
a. Valuation of assets is the responsibility of management.
b. The auditor can rely on a certificate issued by an authorized valuation as
to the valuation of assets in the.
c. The auditor should value the asset as per generally accepted accounting
principle.
d. Valuation is no part of auditor's duty.
15. An auditor is verifying valuation of building which has been self

constructed by the client. Which of the following documents is least
relevant to the auditor for verification purposes?
a. Bills of contractor.
b. Minutes of meeting of board of directors.
c. Certificates of engineer and architect.
d. Loan agreement.
16. Which of the following assets is least likely to be subjected to lien?

a. Freehold land
b. Plant and machinery
c. Leasehold property
d. Motor vehicles
17. An analysis of fixed assets account has revealed possibility of unrecorded

sale of plant and machinery. Which of the following audit procedures may
be adopted to discover it?
a. Examination of property tax files.
b. Inquiry of plant manager.
c. Examination of debits to accumulated depreciation.
d. All of the above
18. The auditor has noticed existence of recurring losses sale of fixed assets
this indicates
a. Depreciation charges are insufficient.
b. Policy of sale or disposal of fixed assets needs to be reviewed.
c. The sale of assets have not been properly authorized.
d. Accounting errors.
19. Which of the following financial statements assertions are addressed by
testing the cut off for plant asset
a. Existence and ownership
b. Valuation and disclosure
c. Possession and ownership
d. Completeness and valuation
20. Sweat equity shares means equity shares issued by the company to
employees or directors ………………. For providing know how or value
additions, by whatever name called
a. at a premium/ for consideration other than cash.
b. at a discount/ for consideration other than cash.
c. at market price.
d. For consideration of cash.
21. While verifying intangible assets, an auditor would recompute

amortization charges and determine whether amortization period is
reasonable. The auditor tries to establish .......... by doing it
a. valuation
b. existence
c. disclosure
d. possession
22. ……………….. represent profits that are available for distribution to

shareholders held for the time being or any one or more purpose.
a. capital reserve
b. revenue reserve
c. capital redemption reserve
23. Review of debt for the related parties transactions or borrowings from
major shareholders.
a. Valuation
b. Completeness
c. Existence
d. Presentation and disclosure
24. Which of the following controls would ensure that securities are not lost,
stolen or diverted?
a. Establish physical barriers over investment securities
b. Maintain files of authorized signatures.
c. Segregate investment approval from accounting and from custody of
securities.
d. All of the above
25. Inventory recognized in the balance sheet actually existed as at the period
end. The assertion involved is
a. Completeness
b. Existence
c. Rights & obligations
d. All the above.
26. Which of the following would give the assurance that debtors mentioned
on the date of balance she actually exist?
a. Sending debtor's confirmation letters.
b. Reviewing subsequent collection.
c. Verify debtors against sales document.
d. Both c and b
27. Analytical procedures are least likely to be use in the audit of -

a. cash balance
b. investments
c. bills receivables
d. debtors
28. Which of the following statements is not true with regard to teeming and
lading?
a. It results in the deliberate misappropriation of cash receipts.
b. It is associated with cash receipts.
c. If same individual maintains cash receipts and cash payments teeming and
lading is likely to exist.
d. To conceal the shortage, the defraud, usually, tries to keep bank and book
amounts in daily agreement so a bank reconciliation will not detect the
irregularity.
29. State which of the following requires special consideration? State which
two options are correct?
a. Inventories.
b. WIP arising under construction contract.
c. Biological assets.
d. Producer inventories of livestock, agricultural and forest products to the
extent that they are measured at n realisable value in accordance with well-
established practices in those industries.
30. When counting cash on hand, the auditor should ……………..

a. ensure presence of somebody from management.
b. obtain a receipt from custodian as to its return.
c. ensure postage and revenue stamps are not counted in physical count.
d. temporary advances to employees are counted to calculate balance of cash
in hand.
31. Which of the following statement is not true regard to auditor's attendance
at stock taking?
a. Auditor should attend physical stock taking only if inventory is material.
b. Auditor may not attend physical verification of stock by management, if he
does not find it appropriate to rely.
c. If inventory is material, even when the auditor is not placing reliance on the
physical verification by the management, he should attend it.
d. The primary objective of an auditor's observation of an entity's observation
of an entity's stock take is to obtain direct knowledge that the stock and
has been property counted.
32. While observing a client's annual physical inventory, an auditor conducted

test counts for certain test counts were higher than the recorded
quantities in the client's perpetual records. This situation could be the
result of the
a. purchase returns
b. sales returns
c. goods with consignor
d. purchase discounts
33. The auditor should insist and verify the original title deeds for all
immovable properties held as at the balance sheet date. The asseretion
involved is
a. Completeness
b. Valuation
c. Rights and obligation
d. Presentation and disclosure
34. A liability is classified as current if it is satisfies any of the following

criteria. State which two options are correct
a. It is expected to settled in the entity's normal operating cycle.
b. It is held primarily for the purpose of being traded.
c. It is due to be settled within 24 months after the reporting period.
d. Unconditional right to defer settlement of the liability for at least 12 months
after reporting period.
35. The auditor should examine subsequent realization of revenue such as

dividends, interest, commission, etc to
a. identify cases of unrecorded revenue.
b. ensure proper disclosure in the balance sheet.
c. recompute accrued income on the data of balance sheet.
d. Any of the above
36. To test whether sales have been recorded, the auditor should draw a
sample from a file of
a. purchase orders
b. sales orders
c. sales invoices
d. bill of loading
37. For vouching of which item, the auditor is most likely to examine cost
records?
a. Commission earned
b. Bad debts recorded
c. Credit sales
d. Sale of scrap
38. The auditor needs to satisfy himself of correct and proper cut offs. Without
a correct cut off„ purchase and expenses could be
a. understated
b. overstated
c. Both a and b
39. An auditor conducts a surprise check on the pay day (i.e) the day wages
and salaries are paid. The primary purpose of this audit procedures is
a. to ensure that there are no ghost workers.
b. to ensure the casual workers employed are authorized by the supervisor.
c. to test procedures for distributing pay cheques.
d. to obtain understanding of internal control system.
40. Accounting treatment for contingency which are like hood of occuring
probable
a. record and disclose liability.
b. disclose liability.
c. None
d. accounting treatment not required for contingency which are probable.

a. Employee benefits expense or commonly called payroll represents the sum
an entity pays to its employees for their labour/ efforts only.
b. There is no difference between reserves and provisions.
c. Sweat Equity shares means equity shares issued by the company to
employees or directors at a discount or for consideration other than cash.
d. Capital reserves represents profits that are available for distribution to
share holders held for time being or any one or more purpose.
42. Depreciation and amortisation generally constitute an entity's significant part

of overall expenses and have direct impact on the ………….. of the entity.
a. Balance sheet
b. profit and loss
c. Trading account
d. None
43. In order to vouch, which of the expenses, the auditor will examine Bill of
Entry?
a. Custom
b. Excise duties
c. Sales tax
d. Income tax
44. While vouching, how will the auditor ensure himself that all credit sales
transactions have been recorded by the
a. Examining cutoff points.
b. Matching entries in the sales book against renumbered sales invoices and
goods outward notes.
c. Counting the number of invoices and matching the number with entries on
sales book.
d. Both c and b
45. In case of sales return, the auditor should examine which documents?
a. Credit notes, advice notes and inward return notes.
b. Debit notes, advice notes and inward return notes.
c. Purchase invoices, advice notes and inward return notes.
d. Credit notes, inspection report and inward return notes.
46. An internal auditor discovered that fictitious purchases have been

recorded by the purchase clerk. This indicates absence of which control?
a. Purchase invoices are independently matched with purchase orders and
goods received notes.
b. Goods received notes requires the signature of individual who authorized
the purchase.
c. Routine checks are performed by internal auditor fortnightly.
d. Purchase function and production function are clubbed in one department.
47. Which of the following is most crucial to a purchase department?

a. Reducing the cost of acquisition.
b. Selecting supplies.
c. Authorizing the acquisition of goods.
d. Assuring the quality of goods.
48. The auditor is most likely to examine related party transactions very
carefully while vouching
a. credit sales
b. sales returns
c. credit purchases
d. cash purchases
49. In order to vouch bought ledger, the auditor obtain confirmations from
creditors. The principal reason of the auditor to examine suppliers
statements at balance sheet date is to obtain evidence that
a. the supplier exist
b. there are no unrecorded liabilities
c. recorded purchases actually occurred
d. to link creditors with cash book entries
50. The creditors accounts, generally, have credit balance. Debit balance may
be due to
a. advance paid against an order.
b. goods returned.
c. wrong debit to supplier account.
d. Any of these
51. In case of vouching, the auditor is least likely to examine authorization by

appropriate authority in case of -
a. bads written off
b. sales return
c. purchase return
d. discount allowed to customers as per organizational policy
52. Vendors should be approved by Management before purchase department
executes an order. If this is not done, then which of the following
situations may arise
a. purchases could be made from vendors whose product quality may not be
good.
b. Purchases may be made from related parties without management's
knowledge.
c. Purchases could be made from vendors who may have offered price to vice
president purchases.
d. Any of these
53. The auditor while verifying prepaid insurance has concluded that there is
inadequate insurance of building, he will
a. Modify his audit report.
b. Insist it should be disclosed in the notes to financial statements.
c. Write it in letter of weakness.
d. Both b and c
54. When auditing prepaid insurance, an auditor discovers that the insurance
policy bond on building is not available for inspection. This may indicate
a. No insurance has been undertaken for building.
b. Lien on building.
c. Insurance premium has not been paid.
d. Insurance premium paid but not recorded.
55. Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock
Holding Corporation of India Limited. The auditor many verify this
investment by
a. Reviewing last year's working papers.
b. Obtaining a certificate from a responsible official of the ABC Ltd.
c. Obtaining a certificate from SHCIL
d. Obtaining a certificate from XY ltd.
56. Inspection report/receiving report supports entries in

a. sales book and sales return book.
b. purchase book and sales return book.
c. cash book and purchase book.
d. Sales book and purchase return book.
57. Which of the following documents is not relevant for vouching cash sales?
a. Daily cash sales summary.
b. Salesmen's summary.
c. Monthly statements sent to customers.
d. Bank statement.
58. The balance of cash in often between one to five percent of total assets.
Tick the most appropriate statement with regard to verification of cash in
context of this.
a. Cash in always material as materiality is qualitative concept.
b. No audit of cash is needed when, in auditor's opinion, cash is immaterial.
Materiality is a relative concept.
c. The cash balance need only be audited if the balance is in overdraft.
d. Cash is to be verified if control risk is assessed as high.
59. The "Guidance Note on Revenue" issued by the ICAI does not deal with
a. Sales revenue.
b. Revenue rendering service.
c. Revenue from sale of fixed assets.
d. Income from interest, dividend.
60. Which of the following would prevent double payment of the same
voucher?
a. The person signing the cheque should cancel the supporting documents.
b. Cheques should be signed by at best two persons.
c. The data of payment of vouchers of similar nature should be the same or
close to each other.
d. All of the above
61. In case of unclaimed wages, the auditor should examine whether

a. the amount has been deposited in a separate bank account.
b. deposited with the cashier.
c. held in a safe deposit box.
d. All of these
62. While vouching wages, auditor should examine whether there is proper
segregation of duties. Which the following activities should not be done by
same department?
a. Maintaining personnel records and approving changing in wages rates.
b. Proposing pay roll summary and disbursement of wages.
c. Making salary statements and filing tax returns.
d. Comparing time clock records with time reports prepared by supervisors
and preparing list of workers employed along with the units of production
for each one of them.
63. Companies prepare their financial statements in accordance with the

framework of
a. Accounting standards.
b. Financial reporting standards.
c. Indian GAAP.
d. All the above
e. Both a and b
64. Representation made by management that are embodied in the financial

statements as used by the auditor to consider different types of ……………
that may occur.
a. Errors
b. Misrepresentation
c. Potential misstatements
d. Both a and b
65. The debt once recorded, can only be eliminated by

a. Receipt of cash
b. On the authority of a responsible official
c. Either a or b
d. Only a
66. In case of trade receivables, split between more than 6 months and less
than 6 months has been done from
a. sales invoice date
b. due date
c. actual delivery date
d. order date
67. Trade receivable shall sub classified as

1) Secured, considered good
2) Unsecured considered good
3) Doubtful
4) Doubtful for more than one year
a. Except 3
b. Except 4
c. Except 2
d. Except 1
68. Allowance of bad and doubtful debts shall be disclosed under the relevant
heads separately
a. True
b. False
69. In case of WIP, the allocation of overhead expenses had been made on a
a. Consistent basis
b. Rational basis
c. Both a and b
d. None
70. Separate disclosure has been made for amount due by; Directors of the
company, Officers of the company, and Firms in which director is a partner
a. True
b. False
71. Revenue expenditure excludes

a. Premium paid for the lease of a building.
b. Professional charges paid for one of the litigation.
c. Insurance
72. Capital expenditure excludes
a. Premium paid for the lease of a building.
b. Legal expenses in connection with purchase of land.
c. Wages paid for erection of machinery.
73. The cost of an item of property, plant and equipment shall be recognized
as an asset only if
a. the cost of the item can be measured reliably.
b. It is probable that future economic benefits associated with the item will
flow to the entity.
c. Both a and b.
d. None.
74. Cost do not qualify as cost of an item of an item of property, plant and
equipment:
a. Cost of opening a new facility
b. Import duties
c. non refundable purchase tax
d. all the above
75. If the Company X's balance sheet shows building with carrying amount of
1 crore, the auditor shall assume that the management has only asserted
that the building recognized in the balance sheet exist as at the period-
end.
a. True
b. False
76. Internally generated goodwill is not recognised as an asset as per

a. As - 10 and Ind As 26
b. As 26 and Ind As 32
c. As - 26 and Ind As 38
d. As 26 and Ind As 10
77. Which of the following cannot be recognised as intangible asset?

a. Internally generated brands
b. Internally generated mastheads
c. Internally generated publishing titles
d. All the above
78. Intangible asset arising from research shall be recognized

a. True
b. False
79. An intangible asset arising from development phase shall be recognised

only if
1) activities aimed at obtaining new knowledge
2) the technical feasibility of completing the intangible asset
3) its ability to use or sell
4) the availability of adequate technical, financial, and other resources to
complete the development and to use or sel
a. Except 1
b. Except 2
c. Except 3
d. Only 3 and 4
80. As per section 2(50) of the companies act 2013, 'issued capital' means that
part of ...........................
a. Subscribed capital
b. Paid up capital
c. Authorised capital
d. Any of the above
81. Nominal capital means such capital as is authorised by the memorandum

of a company to be the maximum amount of share capital of the company
a. True
b. False
82. Penalty for non compliance of section 53 of Companies Act 2013, to the
Company...... ...... ........
a. Fine of 2 Lakh which may extent to 6 Lakh
b. Fine of 1 Lakh which may extent to 5 Lakh
c. Fine of 1 Lakh which may extent to 2.5 Lakh
d. Fine of 50, 000 which may extent to 5 Lakh
83. Sweat equity shares are alloted only to

1) Employees
2) Directors
3) Customers
4) Share holders
a. Both 1 and 2
b. Both 2 and 3
c. Both 3 and 4
d. Both 4 and 1
84. The sweat equity shares issued shall be locked in /non - transferable for a
period of
a. 1 year
b. 2 years
c. 3 years
d. 5 years
85. Reserves are amount appropriated out of profits that are not intented to
meet
1) any liability
2) any contingency
3) diminution in the value of asset
4) financing the expansion of the company
a. Except 1
b. Except 2
c. Except 3
d. Except 4
86. Provisions are amount charged against revenue to provide for

a. equalising the dividends of the company from one period to another
b. any contingency
c. renewal or diminution in the value of asset
d. financing the expansion of the company
87. Capital reserve can be utilised for writing down fictitious asset or losses
a. True
b. False
88. Capital reserves represents profits that are available for distribution to
shareholders held for the time being or any one or more purpose
a. True
b. False
89. Common internal control over the employee benefits payment cycle
includes
a. attendance record
b. employee master
c. payroll taxes
d. all the above
90. Every item of expenditure has to be written off in the year in which it is
incurred
a. True
b. False
91. Dividends are recognised in the statement of profit and loss account only
when the entity's right to receive payment of dividend is established
a. True
b. False
92. Cost of structural alteration amounting to Rs. 60000 to self-owned factory

premises.
a. profit and loss account to be debited.
b. building repair account to be debited.
c. building account to be debited.
d. building account to be credited.
93. A sum of Rs. 10 Lakh is received from an insurance company in respect of a
claim for loss of goods in transit costing Rs.8 Lakh...........
a. Purchase account to be credited
b. the entire amount of 10 lakh needs to be taken to profit and loss account.
c. either a or b
d. None
94. A loss of 2 lakh on account of embezzlement of cash was suffered by the

company, state the applicable Accounting Standard
a. AS 1 and AS 3
b. AS 1 and AS 4
c. AS 1 and AS 5
d. AS 1 and AS 29
95. Embezzlement of cash during the course of business is a business loss.

a. True
b. False
96. Which of the following directly affect the earning capacity of an asset?
a. Fluctuation in value
b. Depreciation
c. Both a and b
d. None
97. State the applicable accounting standard for receipt of capita subsidy
a. AS 12
b. AS 26
c. AS 29
d. AS 10
98. There is no difference between reserves and provisions

a. True
b. False
99. The management has obtained a certificate from an actuary regarding

provision of gratuity payable to employees. State the applicable SA
a. SA 600
b. SA 610
c. SA 620
d. SA 630
100. The auditor compares entries in the books of accounts with voucher and
if two agree, his work is done.
a. True
b. False
Answers to MCQs
1) c. Completeness
2) b. Existence
3) d. Both b and c
4) a. Valuation
5) d. Existence
6) c. Revenue or capital expenditure depending upon facts and circumstances.
7) b. Research phase
8) d. Completeness
9) c. Completeness
10) c. Financial year 2017- 18
11) b. Completeness
12) d. development expenditure on land.
13) a. It invoices substantiation of occurrence of transactions.
14) c. The auditor should value the asset as per generally accepted accounting
principle.
15) b. Minutes of meeting of board of directors.
16) c. Leasehold property.
17) d. All of the above
18) a. Depreciation charges are insufficient.
19) d. Completeness and valuation.
20) b. at a discount/ for consideration other than cash.
21) a. valuation
22) b. revenue reserve
23) d. presentation and disclosure
25) b. Existence
26) d. Both c and b
27) a. cash balance
28) c. If same individual maintains cash receipts and cash payments teeming and
lading is likely to exist.
29) b. WIP arising under construction contract and c. biological assets.
30) c. ensure postage and revenue stamps are not counted in physical count.
31) c. If inventory is material, even when the auditor is not placing reliance on the
physical verification by the management, he should attend it.
32) b. sales returns.
33) c. Rights and obligation.
34) a. It is expected to settle in the entity's normal operating cycle and b. It is held
primarily for the purpose of.
35) a. identify cases of unrecorded revenue.
36) c. sales invoices
37) d. Sale of scrap
38) c. Both a and b
39) c. to test procedures for distributing pay cheques.
40) a. record and disclose liability.
41) c. Sweat Equity shares means equity shares issued by the company to
employees or directors at a discount or for consideration other than cash.
42) b. profit and loss
43) a. Custom
44) d. Both c and b
45) d. Credit notes, inspection report and inward return notes.
46) a. Purchase invoices are independently matched with purchase orders and
goods received notes.
47) c. Authorizing the acquisition of goods
48) c. credit purchases
49) b. there are no unrecorded liabilities
50) d. Any of these
51) d. discount allowed to customers as per organizational policy.
52) d. Any of these
53) d. Both b and c
54) b. Lien on building
55) c. Obtaining a certificate from SHCIL
56) b. purchase book and sales return book
57) c. Monthly statements sent to customers
58) a. Cash in always material as materiality is qualitative concept.
59) c. Revenue from sale of fixed assets.
60) a. The person signing the cheque should cancel the supporting documents.
61) a. the amount has been deposited in a separate bank account.
62) b. Proposing pay roll summary and disbursement of wages.
63) d. All the above
64) c. Potential misstatements
65) c. Either a or b
66) b. due date
67) b. Except 4
68) a. True
69) b. Rational basis
70) a. True
71) a. Premium paid for the lease of a building
72) d. None of the above
73) c. Both a and b
74) a. Cost of opening a new facility
75) a. True
76) c. As - 26 and Ind As 38
78) b. False
79) a. Except 1
80) c. Authorised capital
81) a. True
82) a. Fine of 1 Lakh which may extent to 5 Lakh
83) a. Both 1 and 2
84) c. 3 years
85) d. Except 4
86) c. renewal or diminution in the value of asset
87) a. True
88) b. False
89) d. all the above
90) a. True
91) b. False
92) c. building account to be debited
93) b. the entire amount of 10 lakh needs to be taken to profit and loss account
94) c. AS 1 and AS 5
95) a. True
96) b. Depreciation
97) a. AS 12
98) b. False
99) c. SA 620
100) b. False
Chapter – 7
Audit of Banks
Multiple Choice Questions:-
1. Auditing aspects relating to Bank includes

a. Revenue items
b. Advances and NPAs
c. Both a and b
d. Either a or b
2. For safe and sound banking sector, one of the most important factors is
a. Socio-economic growth.
b. Reliable financial information supported by quality bank audits.
c. Financial stability in the economy.
3. Regulating body in case of banks is

a. SEBI
b. IRDA
c. RBI
d. ICAI
4. Which of the following is fund based advance

a. Term loans
b. Cash credits,
c. Demand Loans
d. All of the above
5. Which of the following is not classification of NPA

a. Impaired
b. Sub standard
c. Doubtful Loss
d. Loss
6. Which of the following is the major functions of Bank
a. Granting Advances
b. Accepting Deposits
c. Both a and b
7. Banking operations are conducted

a. Only at other offices
b. Only at the branches
c. Both at branches and other offices
d. Only at the Head offices
8. Which of the following is the functions of RBI
a. issuance of currency; regulation of currency issue.
b. acting as banker to the central and state governments.
c. acting as banker to commercial and other types of banks including term-
lending institutions.
d. All the above
9. State which of the following statement is true

a. State Bank of India does not require licence from RBI to commence the
business of banking or open new branches, for which the same has been
obtained from Central Government.
b. No bank can commence the business of banking or open new branches
without obtaining licence from RBI.
c. No bank can commence the business of banking without obtaining licence
from RBI, but the same has not required for open new branches.
d. Both a and b
10. Types of Audit reports to be issued generally for Bank audit

a. Statutory Audit Report as per SA 700/705/706
b. Long form Audit report, as per the requirements of RBI Circular
c. Tax audit report as per Income Tax Act 1961
d. All the above
11. Banks may be divided into………….broad categories based on the level of

computerization
a. Two
b. Five
c. Three
d. Seven
12. A bank should have appropriate controls to

a. Manage its risks, including effective segregation of duties.
b. verification and approval of transactions.
c. Extensive use of technology.
d. Both a and b
e. All a, b and c
13. An opportunity for engagement team members to exchange information
about the
a. Audit risk
b. Bank's business risk
c. Inherent risk
d. All the above
14. The engagement team discussion ordinarily includes a discussion of the

following matters
a. Errors that may be more likely to occur.
b. Errors which have been identified in prior years.
c. Need to maintain professional skepticism throughout the audit engagement.
d. All the above
15. Income from non-performing assets (NPA) is not recognised on

a. accrual basis
b. receipt basis
c. Both a and b
16. Every banking company needs to comply with the disclosure requirements
under
a. Accounting Standards, as specified under section 133 of the Companies
Act, 2013
b. Rule 7 of the Companies (Accounts) Rules 2014
c. Accounting Standards issued by the ICAI
d. All the above
17. The auditor of a banking company is to be appointed by the

a. Shareholders at AGM
b. Board of directors
c. Central Government
d. C & AG
18. The auditor of a nationalised bank is to be appointed by bank concerned

acting through
d. C & AG
19. The auditors of the State Bank of India are to be appointed by

d. C & AG
20. The auditors of the subsidiaries of the State Bank of India are to be
appointed by
d. C & AG
e. State Bank of India
21. The auditors of regional rural banks are to be appointed by with…………..

the approval of central
b. Bank concerned
d. C & AG
22. The auditors of the State Bank of India are to be appointed by the
Comptroller and Auditor General of India in consultation with
a. RBI
b. Central Government
c. Both a and b
d. None
23. The auditor of a banking company is to be appointed at the annual general

meeting of the shareholders, whereas the auditor of a nationalised bank is
to be appointed by the bank concerned acting through its Board of
a. approval of the Reserve Bank is required before the appointment is made.
b. approval of the Central Government is required before the appointment is
made.
c. approval of C & AG is required before the appointment is made.
d. Both b and c
24. The remuneration of auditors of nationalised banks and State Bank of India
is to be fixed by
a. Reserve Bank of India in consultation with the Central Government.
b. Only Central Government.
c. C & AG in consultation with the Central Government.
d. Shareholders at AGM
25. The report of auditors of State Bank of India is also to be made to the
…………………. and is almost identical to the auditor's report in the case of
a nationalised bank.
a. C & AG
b. RBI
d. Both a and b
26. State two correct options, in case of Initial consideration by the statutory
auditor
a. Identifying and Assessing the Risks of Material Misstatements.
b. Assessment of Engagement Risk.
c. Declaration of Indebtedness.
d. Oversight and involvement in the control process by those charged with
governance.
27. If the auditor while performing his normal duties comes across any
instance, he should report the matter to the ........... in addition to
Chairman/Managing Director/Chief Executive of the concerned bank.
a. C & AG
b. RBI
d. Both a and b
28. Which of the following is classified under prudential norms in case of

classification of advance as per RBI
a. Priority and Non Priority
b. Secured and Unsecured
c. Standards and NPAs
d. All the above
29. …………… refers to the security offered by the borrower for bank finance
or the one against which credit has been extended by the bank.
a. Collateral Security
b. Primary Security
c. Both a and b
d. Hypothecation
30. ………………… is an additional security, it can be in any form i.e. tangible

or intangible asset, movable or
a. Collateral Security
b. Primary Security
c. Both a and b
d. Hypothecation
31. Depending on the nature of the item concerned, creation of security may
take the form of .........
a. Mortgage or pledge
b. Hypothecation, assignment,
c. Set-off, or lien.
d. All the above
32. ………………… Involves bailment or delivery of goods by the borrower to the

lending bank with the intention of creating a charge thereon as security
for the advance.
a. Mortgage
b. Hypothecation
c. Pledge
d. Lien
33. ………………. is the creation of an equitable charge
a. Mortgage
b. Hypothecation
c. Pledge
d. Lien
34. …………………. represents a transfer of an existing or future debt, right or

property belonging to a person in favour of another person.
a. Mortgage
b. Hypothecation
c. Assignment
d. Lien
35. A non-performing asset (NPA) is a loan or an advance where

a. Interest and/ or installment of principal remain overdue for a period of
more than 90 days in respect of a term.
b. The account remains 'out of order' in respect of an Overdraft/ Cash Credit
(OD/ CC),
c. The bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted,
d. All the above.
36. State the provisions required for substandard asset, which has remained
NPA for a period less than or equal to
a. 15%
b. 25%
c. 40%
d. 100%
37. State the provisions required for Doubtful Assets(up to l year - secured),
which has remained in the substandard category for a period of 12 months.
a. 15%
b. 25%
c. 40%
d. 100%
38. State the provisions required for Doubtful Assets (1 to 3 years - secured),
a. 15%
b. 25%
c. 40%
d. 100%
39. State the provisions required for Doubtful Assets(More than 3 years -
secured), which has remained in the substandard category for a period of
12 months.
a. 15%
b. 25%
c. 40%
d. 100%
40. State the provisions required for Doubtful Assets(up to l year - unsecured),
a. 15%
b. 25%
c. 40%
d. 100%
41. Classification as NPA should be based on ………………..

a. the record of recovery
b. availability of security
c. net worth of borrower
d. net worth of guarantor
42. Erosion in the value of security can be reckoned as significant when the
realisable value of the security is less than ....... of the value assessed by
the bank or accepted by RBI at the time of last inspection
a. 60 per cent
b. 50 per cent
c. 40 per cent
d. 45 per cent
43. Erosion in the value of security can be reckoned as significant when the
realisable value of the security is less than 50 per cent of the value
assessed by the bank or accepted by RBI at the time of last inspection, as
the case may be. Such NPAs may be straight-away classified under
a. Substandard category
b. Standard category
c. Doubtful category
d. Loss Assets
44. If the realisable value of the security, asassessed by the bank/approved

valuers /RBI is less than of the outstanding in the borrowal accounts, the
existence of security should be ignored and the asset should be straight -
a. 20 per cent
b. 7.5 per cent
c. 10 per cent
d. 15 per cent
45. If any advance, including bills purchased and discounted, becomes NPA as
at the close of any year, the entire interest accrued and credited to income
account in the past periods, should be ………………….
a. reversed or provided for if the same is not realized.
b. reversed and provided for if the same is not realized.
c. reversed and provided for if the same is realized.
d. reversed or provided for if the same is realized.
46. The functions of banking industries in India is regulated by

a. RBI
b. Central Government
c. Prime minister
d. Supreme Court Judge
47. The audit of banks or of their branches involves the following stage
1) Understanding
2) Risk assessment
3) Reporting
4) Initial consideration
5) Execution
arrange the stages into step by step
a. 1, 2, 4, 5, 3
b. 4, 1, 2, 3, 5
c. 4, 5, 2, 1, 3
d. 1, 4, 5, 2, 3
48. Initial consideration for conducting an audit of banks includes

a. Understanding the bank and its environment including internal control.
b. Declaration of indebtedness.
c. Discussion with engagement team.
d. Consider going concern.
49. Which of the following is included in the execution stage while conducting
audit of banks
a. Understanding the bank and its environment including internal control.
b. Declaration of indebtedness.
c. Discussion with engagement team.
d. Consider going concern.
50. The matters which the bank require their auditors to deal with in the long
form audit report have beer specified by the central government
a. True
b. False
51. The auditor should take into account the adverse comments, if any, on
advances appearing in the following
a. Reserve Bank's latest inspection report
b. Previous audit report
c. Concurrent / Internal audit report
d. All the above
52. Legal requirements of disclosure in the Balance sheet does includes

a. purchased and discounted
b. Secured by tangible assets
c. Covered by Bank/ Government Guarantee
d. Except a
e. a, b and c
53. Advance comprises of funded amounts by way of

a. Term Loan
b. Adverse Balance in Deposit account
c. Participation on Risk sharing basis
d. All the above
e. Except c
54. Which of the following is effected by a mere delivery of title deeds or other
documents of title with intent to create security thereof
a. Equitable mortgage
b. Registered mortgage
c. Pledge
d. Hypothecation
55. Any item if income and expenditure which exceed 1% of the net profit of
the company or 2 Lakh whichever is lower is required to be disclosed in
profit and loss a/c.
a. True
b. False
56. An account should be treated as 'out of order' if the outstanding balance

remains continuously in excess of the sanctioned limit/ drawing power for
more than.......
a. 75 days
b. 40 days
c. 20 days
d. 180 days
57. Bank should ensure drawings in the working capital account are covered
by the adequacy of the..........
a. Equity
b. Term Loan
c. Current Asset
d. Fixed Asset
58. The stock audit should be carried out by the bank for all accounts having
funded exposure of ..........
a. More than 5 crores
b. More than 10 crores
c. More than 7.5 crores
d. More than 1 crores
59. The accounts which exceed the sanctioned limit or drawing power or are
against unapproved securities or are otherwise irregular should be brought
to the notice of the ……………….. regularly
a. RBI
b. Head office
c. Central government
d. all the above
60. Special consideration should be given to proper reporting of ……………. for

the purpose of calculating
a. drawing power
b. Sundry debtors
c. Working capital
d. Sundry creditors
e. Stock
61. The drawing power needs to be calculated carefully in case of working

capital advance to companies engaged in
a. Construction business
b. Manufacturing of Steel
c. Manufacturing of cement
d. Export business
62. In carrying out audit of advances, the auditor is primarily concerned with
obtaining evidence about the
1) Accounting standards and generally accepted accounting practices
2) Appropriate provisions towards advance have been made as per RBI norms
3) Amounts included in the balance sheet in respect of advances are
outstanding at the date of balance sheet
4) Advances represent amount due to the bank
a. Except 1
b. Except 2
c. All the above
d. only 3 and 4
63. Registered mortgage is effected by a mere delivery of title deeds or other

documents of title with intent create security there of
a. True
b. False
64. Asset classification would be

a. Facility wise
b. borrower wise
c. record of recovery wise
d. None

a. Commercial banks are the most wide spread banking institution in India.
b. Classification of NPA should be based on the record of recovery.
c. Any amount due to bank under any credit facility is 'overdue' if it is not
paid within 90 days of becoming due.
d. Asset classification would be borrower wise and not facility wise.
Answers to MCQs
1) Both a and b
2) b. Reliable financial information supported by quality bank audits.
3) c. RBI
5) a. Impaired
6) c. Both a and b
7) b. Only at the branches
8) d. All the above
9) b. No bank can commence the business of banking or open new branches
without obtaining licence from R]
11) c. Three
12) d. Both a and b
13) b. Bank's business risk
15) a. accrual basis
17) Sha re holde rs at AGM
18) Boa rd of dire ctors
19) C & AG
20) State Bank of India
21) b. Bank concerned
22) b. Central Government
23) a. approval of the Reserve Bank is required before the appointment is made.
24) a. Reserve Bank of India in consultation with the Central Government.
25) c. Central Government
26) b. Assessment of Engagement Risk and c. Declaration of Indebtedness.
27) b. RBI
28) c. Standards and NPAs
29) b. Primary Security
30) a. Collateral Security
32) c. Pledge
33) b. Hypothecation
34) c. Assignment
36) a. 15%
37) b. 25%
38) c. 40%
39) d. 100%
40) d. 100%
41) a. the record of recovery
42) b. 50 per cent
43) c. Doubtful category
44) c . 10 pe r ce nt
45) a. reversed or provided for if the same is not realised.
46) a. RBI
47) c. 4, 5, 2, 1, 3
48) b. Declaration of indebtedness
49) d. Consider going concern
50) b. False
51) e. None of the above
52) e. Alla, b and c
54) a. Equitable mortgage
55) b. False
56) b. 90 days
57) c. Current Asset
58) a. More than 5 crores
59) b. Head office
60) c. Sundry creditors
61) a. Construction business
62) c. All the above
63) b. Flase
64) b. borrower wise
65) c. Any amount due to bank under any credit facility is 'overdue' if it is not
paid within 90 days of becoming due
Reference for Question No: 36 to 40
Categories of Non-Performing Assets:

1 Substandard Assets: Provision required
Would be one, which has remained NPA for a period 15%
less than or equal to 12 months.
1 Doubtful Assets:
Would be one, which has remained in the
substandard category for a period of 12 months.
Sub-categories: Secured +Unsecured
Doubtful up to 1 Year (D1) 25% +100%
Doubtful 1 to 3 Years (D2) 40% +100%
Doubtful more than 3 Years (D3) 100% + 100%
1 Loss Assets:
Would be one, where loss has been identified by the
bank or internal or external auditors or the RBI
inspection but the amount has not been written off
wholly. 100%

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Chapter 1 Nature of Auditing

Multiple Choice Question:-

2. Which of the following are not the objectives of auditing?

3. The objective of the audit is

4. The financial statement includes

5. Users of financial statement includes

6. …………………….. is defined as a systematic and independent examination of

7. External Auditors are appointed by .............

8. Internal Auditors are appointed by ................

9. The scope or me alum work is specified by the management for

11. Who is responsible to report to the management on the compliance of

19. Which of the following governed by Standards on related services?

21. Which of the following audit is not required under law?

23. Relationship of auditing with other disciplines includes

25. ................................... along with other disciplines such as accounting and

26. The IAASB achieves this objective by

27. Publishing other pronouncements on auditing and assurance matters,

28. ICAI constituted the ………………….(erstwhile Auditing Practices Committee)

30. Who has established the IAASB?

32. Auditing Practices Committee has been converted into

34. Standards on auditing aspects covered in the series SA 300-499 is

35. Standards on auditing aspects covered in the series SA 100 - 199 is

36. Standards on auditing aspects covered in the series SA 200-299 is

38. Standards on auditing aspects covered in the series SA 500-599 is

39. Standards on auditing aspects covered in the series SA 600-699 is

40. Standards on auditing aspects covered in the series SA 700-799 is

43. Which of the following apply in the review of historical financial

44. Which of the following apply to engagements to apply agreed upon

45. Which of the following is mandatory, with a view to securing compliance by

46. Guidance Notes are in nature.

47. Scope of audit of financial statement will be determined by

50. Instruction of audit issued by controller and auditor general of India

51. Audit done by the employees of the business undertaking is called

53. Management audit otherwise called as

55. Auditing begins where ..... Ends

General Questions related to Audit:

Multiple Choice Question:-

2. Which of the following categories of people use the work of a Chartered

3. The term financial statement shall exclude

6. What constitutes a 'true and fair' view is a matter of an auditor's judgment

7. Fundamental accounting assumptions does not include

13. Which of the following refers to Familiarity threats?

14. Which of the following refers to Advocacy threats?

17. Which of the following helps in better understanding of accounting

18. When fundamental accounting assumptions are followed in the financial

22. For which of the following, Audit is optional?

23. Audit programme is prepared

24. Auditor shall report on the accounts examined by him

25. Which of the following statements is not true?

Multiple Choice Question:-

2. Audit Plans should be based on

3. Audit Plans should be made to cover

4. Which of the following assisting in the selection of engagement team

5. ………………….. sets the scope, timing and direction of the audit.

6. Which of the following guides the development of the audit plan?

7. Audit programme is prepared by

8. Which of the following best describes the primary purpose of audit

9. Knowledge of the entity's business does not help the auditor to

11. An audit programme is

13. Audit programme is prepared

14. Surprise checks are part of

16. Benefits of Planning in the Audit of Financial Statements

19. The audit plan is