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6/6/2019 Accounting Principles & Procedures MCQs | FPSC Senior Auditor Tests

Accounting Principles & Procedures MCQs (Set-I) for


FPSC Senior Auditor Tests
By CSS Times - February 19, 2019

MCQS FOR FPSC SENIOR AUDITOR TESTS


ACCOUNTING PRINCIPLES & PROCEDURES | FUNDAMENTALS OF
ACCOUNTING

1. For better assessing the audit risk, auditor inquires different groups in the organizations
EXCEPT:
(a) Board of governance and top level management
(b) Legal counsel
(c) Middle level management
(d) Stakeholders

2. Internal sources of audit evidence for an entity includes the following EXCEPT:
(a) Associated companies of the entity
(b) Accounting systems, records and documents
(c) Non-financial data and records
(d) Management representation and discussion
Note: An “Associated Company” is an entity in which the Company has significant influence, but not a
controlling interest, over the operating and financial management policy decisions of the entity.
Associated Companies are accounted for using the equity method. Significant influence is generally
presumed when the Company holds between 20 percent and 50 percent of the voting rights.

3. Which of the following is the least concern to an auditor regarding the client’s internal
control system?
(a) Efficiency and effectiveness of operations
(b) Controls related to the reliability of financial reporting

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(c) Controls over classes of transactions


(d) Auditors are equally concern with each of the given issues

4. During test of control procedure its design can easily tested with the help of:
(a) ICQs and walk through tests
(b) ICQs and judgment sample
(c) ICQs and random sample
(d) ICQS and ICEC

5. Which of the following is TRUE?


(a) The audit profession is unregulated
(b) The audit profession is regulated by its own professional body
(c) Outside bodies sometimes become involved in the regulation of audit profession
(d) The audit profession is regulated only by the government

6. The small audit firms provide the following services EXCEPT:


(a) Liquidation and receivership work, fraud auditing
(b) Financial management and system consultancy
(c) Financial system planning and preparation
(d) Tax management and statutory form filling

7. Which of the following is not included in the category of cash?


(a) Deposit with banks
(b) Checks
(c) Postdated checks
(d) Money orders

8. Which of the following letter should be included in the letter of representation?


(a) Existence of immaterial mistake in the statement
(b) Existence of any fraud or any error in the statement
(c) Company’s growth trend in the future in figures
(d) Market value of the company’s stock

9. For measuring the quality of audit evidence auditors used the tool of appropriateness; in
case if auditor wants to measure quantity of audit evidence which tools from the following
should be adopted?
(a) Relevance
(b) Reliability
(c) Sufficiency
(d) Effectiveness

10. When the cash sales should be recorded by the companies in order to achieve control
objectives?
(a) Record the cash sales when purchase order is received from the customer
(b) Record the cash sales at the point they are made
(c) Record the cash sales after some period
(d) Record the cash sales weekly

11. Auditors conduct auditing in accordance with:


(a) International Financial Reporting Standards
(b) Local pronouncements/Legislations
(c) Financial Accounting Standards Board
(d) All of the given options

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12. Which of the following primary assertions is satisfied when an auditor ensures that
there are no unrecorded assets, liabilities, transactions or events or undisclosed items in
the client s financial records?
(a) Valuation
(b) Completeness
(c) Existence
(d) Rights and obligations

13. Which of the following is a series of constant cash flows that occur at the end of each
period for some fixed number of periods?
(a) Ordinary annuity
(b) Annuity due
(c) Perpetuity
(d) None of the given options

14. During the accounting period, sales revenue is Rs. 25,000 and accounts receivable
increases by Rs. 8,000. What will be the amount of cash received from customers for the
period?
(a) Rs. 33,000
(b) Rs. 25,000
(c) Rs. 17,000
(d) Rs. 8,000

15. Which of the following ratios are intended to address the firm’s financial leverage?
(a) Liquidity Ratios
(b) Long-term Solvency Ratios
(c) Asset Management Ratios
(d) Profitability Ratios

16. Balance Sheet is based upon which of the following formula?


(a) Assets = Liabilities – Stockholder’s equity
(b) Assets + Liabilities = Stockholder’s equity
(c) Assets + Stockholder’s equity = Liabilities
(d) Assets = Liabilities + Stockholder’s equity

17. Quick Ratio is also known as:


(a) Current Ratio
(b) Acid-test Ratio
(c) Cash Ratio
(d) None of the given options

18. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
(a) Ordinary Annuity
(b) Special Annuity
(c) Annuity Due
(d) D. Perpetuity

19. The conflict of interest between stockholders and management is known as:
(a) Agency problem
(b) Interest conflict
(c) Management conflict
(d) Agency cost

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20. Which of the following ratios are particularly interesting to short term creditors?
(a) Liquidity Ratios
(b) Long-term Solvency Ratios
(c) Profitability Ratios
(d) D. Market Value Ratios

21. AST Company has a current ratio of 4:3. Current Liabilities reported by the company
are Rs. 30,000. What would be the Net Working Capital for the company?
(a) Rs. 40,000
(b) (–Rs. 40,000)
(c) Rs. 10,000
(d) D. (–Rs. 10,000)

22. In which form of Business, owners have limited liability.


(a) sole proprietorship
(b) partnership
(c) joint stock company
(d) D. none of the above

23. Which of the following item provides the important function of shielding part of income
from taxes?
(a) Inventory
(b) Supplies
(c) Machinery
(d) D. Depreciation

24. The process of determining the present value of a payment or a stream of payments
that is to be received in the future is known as:
(a) Discounting
(b) Compounding
(c) Factorization
(d) D. None of the given options

25. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5
percent compounded annually, how long will you have to wait to buy the television?
(a) 8.42 years
(b) 10.51 years
(c) 15.75 years
(d) D. 18.78 years

26. Which of the following equation is known as Cash Flow (CF) identity?
(a) CF from Assets = CF to Creditors – CF to Stockholder
(b) CF from Assets = CF to Stockholders – CF to Creditors
(c) CF to Stockholders = CF to Creditors + CF from Assets
(d) D. CF from Assets = CF to Creditors + CF to Stockholder

27. In which of the following type of annuity, cash flows occur at the beginning of each
period?
(a) Ordinary annuity
(b) Annuity due
(c) Perpetuity
(d) None of the given options

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28. Between the two identical bonds having different maturity periods, the price of the
______ bond will change less than that of ______ bond.
(a) long-term; short-term
(b) short-term; long-term
(c) lower-coupon; higher-coupon
(d) None of the given options

29. Which of the given area is addressed by Business Finance?


(a) Financing
(b) Investing
(c) Managing day today expenses
(d) All of these

30. Which of the following form of business organization is least regulated?


(a) Sole-proprietorship
(b) General Partnership
(c) Limited Partnership
(d) Corporation

31. Which of the following is measured by profit margin?


(a) Operating efficiency
(b) Asset use efficiency
(c) Financial policy
(d) Dividend policy

32. A company having a current ratio of 1 will have ________ net working capital.
(a) Positive
(b) Negative
(c) zero
(d) None of the given options

33. Business Finance addresses which of the following?


(a) Capital budgeting
(b) Capital structure
(c) Working capital management
(d) All of the given options

34. In which type of business, all owners share in gains and losses and all have unlimited
liability for all business debts?
(a) Sole-proprietorship
(b) General Partnership
(c) Limited Partnership
(d) Corporation

35. Which of the following is measured by retention ratio?


(a) Operating efficiency
(b) Asset use efficiency
(c) Financial policy
(d) Dividend policy

36. How many years will it take to pay off a Rs. 11,000 loan with a Rs. 1,241.08 annual
payment and a 5% interest rate?
(a) 6 years

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(b) 12 years
(c) 24 years
(d) 48 years

37. Which one of the following terms refers to the risk arises for bond owners from
fluctuating interest rates?
(a) Fluctuations Risk
(b) Interest Rate Risk
(c) Real-Time Risk
(d) Inflation Risk

38. Which of the following set of ratios relates the market price of the firm’s common stock
to selected financial statement items?
(a) Liquidity Ratios
(b) Leverage Ratios
(c) Profitability Ratios
(d) Market Value Ratios

39. If a firm uses cash to purchase inventory, its quick ratio will:
(a) Increase
(b) Decrease
(c) Remain unaffected
(d) Become zero

40. Standard Corporation sold fully depreciated equipment for Rs.5,000. This transaction
will be reported on the cash flow statement as a(n):
(a) Operating activity
(b) Investing activity
(c) Financing activity
(d) None of the given options

41. Which of the following form of business organization is least regulated?


(a) Sole-proprietorship
(b) General Partnership
(c) Limited Partnership
(d) Corporation

42. A group of accounts with a common characteristic, such as all customer accounts is
a…?
(a) General journal
(b) Subsidiary ledger
(c) Special journal
(d) General ledger

43. Which of the following is not an acceptable statement of the basic accounting
equation?
(a) Assets = Liabilities – Owner’s Equity/Capital
(b) Assets = Liabilities + Owner’s Equity/Capital
(c) Assets – Liabilities = Owner’s Equity/Capital
(d) Assets – Owner’s Equity/Capital = Liabilities

44. Which of the following accounts would be increased with a debit?


(a) Rent Payable

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(b) Owner’s Equity/Capital


(c) Owner’s Drawings
(d) Fees Earned

45. How do you get the Current Ratio?


(a) divide long-term liabilities by current assets
(b) divide current liabilities by current assets
(c) divide current assets by current liabilities
(d) divide capital assets by current liabilities

46. When we talk about accounting, what kind of job do we mean?


(a) Bookkeeping and auditing.
(b) Bookkeeping only.
(c) Bookkeeping and consulting.
(d) All of bookkeeping, auditing, consulting, and more.

47. Which part of the G.A.A.P. is “the assumption that economic events can be identified
with a particular unit of accountability”?
(a) Going concern assumption
(b) Economic entity assumption
(c) Monetary unit assumption
(d) Double-entry assumption

48. Which form of accounting states that transactions are to be recorded in the period that
they occur?
(a) Accrual basis of accounting
(b) Economic basis of accounting
(c) Cash basis of accounting
(d) Transaction basis of accounting

49. Usually, what asset account in a company’s ledger is the most liquid?
(a) Ckeque
(b) Cash
(c) Book
(d) Account

50. Which kind of accountant would you go to to have prepare your income tax
documentation, public or private?
(a) Government
(b) Private
(c) public
(d) Nome of the above

Answers
1. d 2. a 3. a 4. d 5. b 6. c 7. c 8. a 9. c 10. b
11. d 12. b 13. a 14. c 15. b 16. d 17. b 18. d 19. a 20. a
21. c 22. c 23. d 24. a 25. b 26. d 27. a 28. b 29. d 30. a
31. a 32. c 33. d 34. b 35. d 36. b 37. b 38. d 39. b 40. b
41. a 42. b 43. a 44. c 45. c 46. d 47. b 48. a 49. b 50. c

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