Auditing Mcqs – (Management Sciences) MCQs Latest For FPSC, PPSC, NTS, KPPSC, SPSC & Other Tests
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Which of the following is not an advantage of the preparation of working paper?
A. To provide a basis for subsequent audits
B. To provide a basis for review of audit work
C. To ensure audit work is being carried out as per programme
D. To provide a guide for advising another client on similar issues
The auditor’s permanent working paper file should not normally, include__________?
A. Extracts from client’s bank statements
B. Attorney’s letters
C. Past year’s financial statements
D. Debt agreements
For what minimum period should audit working papers be retained by audit firm?
A. For the time period the entity remains a client of the audit firm.
B. For the period the audit firm is in existence.
C. For a period auditor opines them to be useful in servicing the client
D. For a period of ten years
Which of the following factors would least likely affect the quantity and content of an auditor’s working papers
A. The possibility of peer review
B. The assessed level of control risk
C. The nature of auditor’s report
D. The content of management representation letter
Which of the following statement is true regarding an auditor’s working papers?
A. They document the level of independence maintained by the auditor
B. They should be considered as the principle support for the auditor’s report
C. They help the auditor to monitor the effectiveness of the audit firm’s quality control
D. They should not contain details regarding weaknesses in the internal control system
Which of the following statement best describes the understanding with respect to ownership and custody of working papers prepared by an auditor?
A. The working papers may be obtained by third parties when they appear to be relevant to issues raised in litigation
B. The working papers must be retained by an audit firm for a period of 10 years
C. The safe custody of working papers is the responsibility of client, if kept at his premises
D. Successor auditors may have access to working papers of the predecessor auditors. The approval of client is not required.
The current file of the auditor’s working papers, generally, should include____________?
A. Organisation charts
B. A flowchart of the internal controls
C. A copy of financial statements
D. Copies of bond and debentures
Auditing is what?
A. Preparation financial statements
B. Examination of financial statements
C. Reporting the financial information
D. maintaining the ledger records
Audit of banks is an example of__________?
A. Balance sheet audit
B. Statutory audit
C. Concurrent audit
D. Both (A. and (B.
E. All of the above
In Pakistan, balance sheet audit is synonymous to___________?
A. Annual audit
B. Detailed audit
C. Continuous audit
D. Statutory audit
Audit in depth is synonymous for_____________?
A. Completed audit
B. Complete audit
C. Final audit
D. Detailed audit
Balance sheet audit includes verification of____________?
C. Income and expense accounts where appropriate
D. All of the above
Which of the following statements is not true about continuous audit?
A. It may be carried out on daily basis
B. It is conducted at regular interval
C. It is needed when the organization has a good internal control system
D. It is expensive
Balance sheet does not include:_____________?
A. Examination of adjusting and closing entries
B. Vouching of income and expense accounts related to assets and liabilities
C. Verification of assets and liabilities
D. Routine checks
Which of the following statements is not correct about materiality?
A. Materiality judgments involve both quantitative and qualitative judgments
B. Materiality is a relative concept
C. Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of an informed decision maker who will rely on the financial statements
D. At the planning state, the auditor considers materiality at the financial statement level only
_______the audit risk,_______the materiality and _______the audit effort?
A. Lower, Higher, Lower
B. Higher, Lower, Lower
C. Lower, Lower, Higher
D. Lower, Higher, Higher
When issuing unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the_____________?
A. Estimates of the total likely misstatement cannot be made
B. Estimates of the total likely misstatement is less than materiality level
C. Estimate of the total likely misstatement is more than materially level
D. Amount of known misstatement is documented in working papers
In determining the level of materiality for an audit, what should not be considered?
A. Prior year’s financial statements
B. The auditor’s remuneration
C. Adjusted interim financial statements
D. Prior year’s errors
Analytical procedures issued in the planning stage of an audit, generally?
A. indicates important aspects of business
B. directs attention to potential risk areas
C. helps to determine the nature, timing and extent of other audit procedures
D. All of the above
Which of the following statements is most closely associated with analytical procedure applied at substantive stage?
A. It helps to identify possible oversights
B. It helps to discover material misstatements in the financial statements
C. It helps to study relationship among balance sheet accounts
D. It helps to accumulate evidence supporting the validity of a specific account balance
The basic assumption underlying the use of analytical procedures is:____________?
A. Analytical procedures will not be able to detect unusual relationships
B. Relationship among data exist and continue in the absence of known condition to the contrary
C. It helps the auditor to study relationship among elements of financial information
D. None of the above.
What are analytical procedures?
A. Substantive tests designed to evaluate the validity of management’s representation letter
B. Substantive tests designed to assess control risk
C. Substantive tests designed to study relationships between financial and nonfinancial
D. All of the above
Which of the following is not an analytical procedure?
A. Tracing of purchases recurred in the purchase book to purchase invoices.
B. Comparing the actual costs with standard costs
C. Comparing aggregate wages paid to number of employees
D. All of them are analytical procedure
When applying analytical procedures, an auditor could develop independent estimate of an account balance to compare it to___________?
A. Prior year audited balance
B. client’s unedited account balance adjusted for trends in the industry
C. client’s unedited account balance
D. Prior year audited balance adjusted for trends in the industry
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 direct attention to potential risk areas
C. To reduce specific detection risk
D. To satisfy doubts when questions arise about a client’s ability to continue
Of the following, which is the least persuasive type of audit evidence?
A. Computations made by the auditor
B. Documents obtained by auditor from third parties directly.
C. Carbon copies of sales invoices inspected by the auditor
D. Bank statements obtained from the client
In an audit of financial statements, substantive tests are audit procedures that___________?
A. may be eliminated for an account balance under certain conditions
B. will increase proportionately when the auditor decreases the assessed level of control risk
C. are designed to discover significant subsequent events
D. may be test of transactions, test of balance and analytical procedures
The nature, timing and extent of substantive procedures is _________ related to assessed level of control risk?
Which of the following statements is, generally, correct about the reliability of auditevidence?
A. Evidence obtained from outside sources routed through the client
B. Effective internal control system provides reliable audit evidence
C. To be reliable, evidence should conclusive rather than persuasive
D. All are correct.
When is evidential matter, generally, considered sufficient?
A. When it is objective and relevant
B. When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
C. When it constitutes entire population
D. When auditor collects and evaluates it independently
Which of the following is not a corroborative evidence?
A. Confirmations from debtors
B. Minutes of meetings
C. Information gathered by auditor through observation
D. Worksheet supporting consolidated financial statements
Which of the following affects audit effectiveness?
A. Risk of incorrect acceptance
B. Risk of incorrect rejection
C. Risk of incorrect rejection
D. Both A. and C.
Which of the following statements is not true with respect to management representations obtained as per AAS11?
A. Authenticated copy of relevant minutes of meetings may be regarded as management representation
B. It should always be in working
C. It should be addressed to the auditor
D. It may be dated prior to the report date
What would most appropriately describe the risk of incorrect rejection in terms of substantive testing?
A. The auditor has rejected an item for sample which was material
B. The auditor concludes that the balance is materially misstated when in actual fact it not
C. The auditor concludes balance is materially correct when in actual fact it is not
D. None of the above
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. He applies random sampling on data which is inaccurate and inconsistent
C. The auditor has rejected an item from sample which was not supported by documentary evidence
D. The auditor concludes the balance is materially misstated when in actual fact is not
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 quantity of audit evidence
C. The objectivity and integrity of the auditor
D. The independence of the source of evidence
Which of the following is not a revenue expense?
A. Expenses incurred for laying of sewers on land purchased
B. Cost of accessories of motor vehicles spent at the time of purchase
C. Cost of raising a loan
D. Insurance premium paid at the time of registration of the ship
Depreciation does not arise form _______
B. effluxion of time
C. obsolescence through technology be market changes
D. remarket expectation
Which of the following will not lead to creation of secret reserve?
A. Charging capital expenditure to revenue
B. Undervaluation of closing stock
C. Goods sent on consignment being shown as actual sales
D. Charging higher rates of depreciation on fixed assets than actually required
Which of the following is a revenue reserve?
A. Security premium account
B. Capital redemption reserve
C. Debenture redemption reserve
D. Capital reserve
If the book value of an asset stands at________per cent of the original cost, a company need not provide depreciation on it.
Which of the following expenses should not be treated as capital expenditure?
A. The fees paid to engineer who constructed the plant.
B. Cost of dismantling a building in case a new building is to be constructed on the land
C. Legal expenses incurred to defend a suit related to title of patent.
D. Expenses paid on installation of a plant.
Who is responsible for the appointment of statutory auditor of a limited company ?
A. The Central Government
B. Members of the company
C. Directors of the company
D. All of the above
The board of directors shall appoint first auditor of a company
A. With in one month of completion of capital subscription state of the company
B. With in one month of the commencement of the business of the company
C. With in one month of the promotion of the company
D. With in one month of incorporation of the company
The term of the auditor ship of first auditor would be from the date of appointment till________?
A. the date of removal
B. the conclusion of first annual general meeting
C. the conclusion of next annual general meeting
D. the conclusion of statutory meeting
In case the directions fail to appoint first auditor (s), the shareholders shall appoint them at_________by passing a resolution.
A. a general meeting
B. statutory meeting
C. first annual general meeting
D. annual general meeting
If a casual vacancy in the office of auditor arises by his resignation it should only be filled by the company in a_________?
A. extraordinary general meeting
B. Board meeting
C. General meeting
D. annual general meeting
The authority to remove the first auditor before the expiry of term is with__________?
A. the shareholders in a general meeting
B. the board of directors
C. the shareholders in the first annual General meeting
D. the Central Government
Who out of the following cannot be appointed as a statutory auditor of the company?
A. Relative of a director
B. Internal auditor
C. Erstwhile director
D. Only (B. and (C.
A statutory auditor has a right of access at all times to___________?
A. Books, accounts and documents of the company
B. Books and accounts of a company
C. Books, accounts and vouchers of the company
D. Notices and documents of the company
The auditor has a right to___________?
A. Obtain information and explanation
B. Obtain information and explanation necessary for the purpose of audit
C. Obtain information and explanation from the employees and officers
D. Both B. and C.
The branch auditor is appointed by___________?
A. Board of directors in board meeting
B. Shareholders in general meeting
C. Shareholders in an annual general meeting
D. Any of the above
Auditor of a___________company does not have right to visit foreign branches of the company?
C. Unlimited liability
D. Nonprofit making
The date on auditor’s report should not be____________?
A. later than the date on which the accounts are approved in board’s meeting
B. the data of AGM
C. earlier than the date on which the accounts are approved by the management
D. Both A. and B.
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. Adverse opinion
C. Disclaimer of opinion
D. Unqualified report with ‘an emphasis of matter’ paragraph;
The auditor has serious concern about the going concern of the company. It is dependent on company’s obtaining a working capital loan from a bank which has been applied for. The management of the company has made full disclosure of these facts in the notes to the balance sheet. The auditor is satisfied with the level of disclosure. He should issue___________?
A. qualified opinion
B. unqualified opinion with reference to notes to the accounts
C. unqualified opinion
D. disclaimer of opinion
Which of the following is true about explanatory notes?
A. These are given by the directors of the company
B. These are given by auditors of the company in auditor’s report
C. These are given to adhere to requirements of section 211.
D. All of the above
The client changed method of depreciation from straight line to written down value method. This has been disclosed as a note to the financial statements. It has an immaterial effect on the current financial statements. It is expected, however, that the change will have a significant effect on future periods. Which of the following option should the auditor express?
A. Unqualified opinion
B. Disclaimer of opinion
C. Qualified opinion
D. Adverse opinion
Which of the following documents is not relevant for vouching cash sales?
A. Salesmen’s summary
B. Daily cash sales summary
C. Monthly statements sent to customers
D. Bank statement
To test whether sales have been recorded, the auditor should draw a sample from a file of__________?
A. sales orders
B. purchase orders
C. sales invoices
D. bill of loading
The auditor should examine subsequent realization of revenue such as dividends, interest,commission, etc to:_____________?
A. identify cases of unrecorded revenue
B. recompute accrued income on the data of balance sheet
C. ensure proper disclosure in the balance sheet
D. Any of these
What is meant by negative assurance?
A. The auditor could not conduct any tests due to lack of controls.
B. The client’s financial statements were found to be materially misstated.
C. The auditor cannot give an opinion due to lack of evidence.
D. The auditor did not find anything to indicate that a material misstatement exists.
For companies required to produce interim financial statements (IFI):
A. the same firm should audit the IFI and the financial statements for the year as a whole.
B. one accountancy firm should review the IFI and a different firm should audit the financial statements for the year as a whole.
C. one audit firm should audit the IFI and a different firm should audit the financial statements for the year as a whole.
D. the same firm should review the IFI and the financial statements for the year as a whole.
Which of the following statements is correct?
A. When a company negotiates a ‘friendly’ takeover, it usually appoints a firm of accountants to carry out due diligence on the takeover target.
B. In a review engagement, evidence is gathered mainly by means of computation and inspection.
C. In an attestation engagement, the accountant is required to report on the quality of work performed.
D. In an engagement to review financial statements, the amount of work required is the same as for an audit
What sort of assurance is provided in a review engagement?
A. High level of assurance
B. Negative assurance
C. Positive assurance
D. No assurance
Which one of the following is part of the auditor’s function?
A. Providing representations to management
B. Obtaining and evaluating audit evidence on the financial statements
C. Calculating the year-end accruals figure for inclusion in the accounts
D. Conducting the inventory count
Which of the following does NOT belong in the auditors’ report?
A. Introductory paragraph specifying the pages to which the report relates and the accounting convention adopted
B. Statement of responsibilities of directors and auditors
C. Involvement of any specialist
D. Basis of the opinion
What is meant by the expression ‘expectation gap’?
A. The gap between how the directors of a company perform their duties and how the general public expects them to perform
B. The gap between how the directors of a company perform their duties and how the shareholders expect them to perform
C. The gap between the public perception of the role of company auditors and their statutory role and responsibilities
D. The gap between the auditors’ own perception of their duties and how they are set out in the Companies Act
Which of the following would you not use as a benchmark for comparison when undertaking analytical procedures?
A. Other audit clients
C. Other companies in the same industry
D. Previous years
Which of the following is true about written representations?
A. They should be used only when there is other substantive audit evidence to complement it
B. They should be used only when there is a lack of other substantive audit evidence
C. They are the best source of audit evidence
D. Shareholders receive a copy of all material written representations
Which of the following statements is INCORRECT?
A. An auditor may serve on the board of directors of an audit client.
B. An auditor who was recently a director of an audit client must not be assigned to the audit team for that client.
C. Purchasing goods from an audit client on normal commercial terms does not create a threat to the auditor’s independence.
D. An auditor who is an immediate family member of the director of an audit client must not be assigned to the audit team.
An auditor should not accept a loan on favourable commercial terms from an audit client because of the threat to his or her independence. The threat would be a___________?
A. Self-interest threat
B. Advocacy threat
C. Self-review threat
D. Familiarity threat
Which of the following are fundamental ethical principles for professional accountants?
A. 1, 2 and 3 only
B. 1, 3 and 4 only
C. 1, 2 and 4 only
D. 2, 3 and 4 only
Which one of the following may auditors NOT perform for their client?
A. Taking management decisions
B. Preparing tax computations
C. Preparation of accounting records
D. Advising on weaknesses in the internal control systems
You have been proposed as auditor of a company. What is the first step that you should take?
A. Obtain the client’s permission to communicate with the existing auditor
B. Obtain a copy of the company’s most recent board minutes
C. Obtain the existing auditor’s working papers
D. Obtain a copy of the existing auditor’s letter of engagement
Which of these are types of Audit Report?
A. Qualified opinion
B. Unqualified opinion
C. Adverse opinion
D. Disclaimer of opinion.
E. All of above