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Auditing MCQs

Solve Introduction to Auditing MCQs with Answer

MCQs Question Bank

Download Principles of auditing Multiple Choice Questions and Answers in PDF.

Introduction to Auditing

1. The main object of an audit is ___

A. Expression of opinion

B. Detection and Prevention of fraud and error

C. Both (A. and (B.

D. It depends on the type of audit.

2. The title of AAS2 issued by Council of ICAI is ___

A. Objective and Scope of the Financial Statements

B. Objective and Scope of the Audit of Financial Statements

C. Objective and Scope of Business of an Entity

D. Objective and Scope of Financial Statements Audit


3. Which of the following is not true about the opinion on financial statements?

A. The auditor should express an opinion on financial statements.

B. His opinion is no guarantee to the future viability of a business

C. He is responsible for the detection and prevention of frauds and errors in financial statements

D. He should examine whether the recognized accounting principle has been consistently


4. A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _

A. An error of omission

B. Error of commission

C. Compensating error

D. Error of principle


5. ‘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

6. 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 the detection and prevention of errors and frauds is similar.

D. All statements are correct.


7. As per AAS4 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.


8. Which of the following is not a limitation of audit as per AAS4?

A. The objectivity of auditor’s judgment

B. Selective testing

C. Persuasiveness of evidence

D. Limitations of the internal control system.


9. How many principles are listed in AAS1 which govern auditor’s professional obligation?

A. Nine

B. Fourteen

C. Seven

D. Eight


10. Both auditing and accounting are concerned with financial statements. Which of the following.

A. Auditing uses the theory of evidence to verify the financial information made available by Accountancy

B. Auditing lends credibility dimension and quality dimension to the financial statements prepared by the


C. The auditor should have knowledge of accounting concepts and conventions to enable him to express an opinion on financial statements

D. All of the above.


11. The risk of management fraud increases in the presence of :

A. Frequent changes in supplies

B. An improved internal control system

C. Substantial increases in sales

D. Management incentive system based on sales done in a quarter


12. Auditing standards differ from audit procedures in that procedures relating to:

A. Audit assumptions

B. acts to be performed

C. quality criterion

D. methods of work


13. Which of the following factors likely to be identified as a fraud factor by the auditor?

A. The company is planning an initial public offer of quality shares to raise additional capital for expansion.

B. Bank reconciliation statement includes depositsintransit.

C. Plant and machinery are sold at a loss.

D. The company has made political contributions.


14. 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. The omission of a sales transaction from being recorded.


15. 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 as mentioned in AAS4, should be considered and documented along with a response to them.

B. Document the identification of fraud risk factors along with a response to them.

C. Document material fraud, risk factors and response to them.

D. No documentation is required.


16. 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 the existence of inventory?

A. Visit location on a 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.


17. 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


18. Professional skepticism requires that the auditor assume that management is:

A. reasonably honest

B. Neither honest nor dishonest

C. Not necessarily honest

D. Dishonest unless proved otherwise


19. Which of the following information should a successor auditor obtain during the inquiry of the predecessor auditor before accepting engagement?

A. Information about the integrity of management

B. Disagreement with management concerning auditing procedures

C. Review of an internal control system.

D. Organization structure


20. 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.