PRINCIPLES OF AUDITING

CHOOSE
UNIT 1
1. The term “Audit” originated from the Latin word
a) Audire b) Adhere c) Adihere d) None of the above
Answer: A
2. Examination of books of accounts with supporting vouchers and documents in order to
detect and prevent error and fraud is the main function of-----
- a) Accountant b) Management c) Company Director d) Auditing
Answer: d
3. In the case of financial audit, a set of financial statements are said to be true and fair when
they are free of- ---------
a) Error b) Fraud c) Material Misstatements d) None of the above
Answer: c
4. Express an opinion on the financial or non-financial areas is the goal of- ------------
a) Accounting b) Managing c) Auditing d) None of the above
Answer: c
5. Verification refers to ------------
a) Examining the physical existence and valuation of assets. b) Examining the journal and
ledger
c) Examination of vouchers related to assets. d) None of the above.
Answer: A
6. Audit deals with checking, verification and examination of--------------
a) Accounts b) Finance c) Management d) None of the above
Answer A
7. The objective of an audit of financial statements is to enable an auditor to ............. on
financial statements
a) Completion of an audit b) Express on opinion
c) Check the transaction d) Check frauds
Answer B
8. Accounts maintenance is the function of .......
a) Auditor b) Accountant c) Auditor staff d) Practicing Professionals
Answer B

9. The main object of an audit is--------------

a) Expression of opinion b) Detection and prevention of fraud and error
c) Both(a) and (b)above d) Depends on the type of audit
Answer A
10. Review of system and procedure is the primary function of--------------
a) Accounting b) management c) Auditing d) None of the above
Answer C
11. No one will try to commit an error or fraud as the accounts are subject to---------
a) Scrutiny b) Internal control
c) Audit d) None of the above
Answer C
12. Auditing is very useful in obtaining the independent opinion of the auditor about--------
a) Financial condition b) business condition
c) Profits/losses d) Business condition
Answer D
13. Audit helps in protecting the interests of -------------
a) Employees b) Government
c) Management d) Shareholders in case of joint stock company
Answer D
14. Money can be borrowed easily on the basis of audited balance sheet from---------
a) Private sources b) Creditors
c) Financial institutions d) Government
Answer C
15. Generally auditing exercise on is based on test checking, inferring a result on the basis of
test check always need not to be-------------
a) Fair b) Apparently correct
c) True d) None of the above
Answer C
16. The evidences obtained by an auditor are persuasive rather than-----------
a) Correct b) Reliable
c) Conclusive d) All of the above
Answer C
17. The audit opinion is based on the information provided by the –---------------
a) Employees b) Management
c) Government d) All of the above
Answer B
18. The investigation is related to critical checking of-----------
a) Internal records b) Particular records
c) Accounting records d) External records
Answer B
19. Which of the following is not the objective of Internal audit------
a) To keep proper control over business activities b) To evaluate accounting system
c) To report to the owner and outsiders d) To evaluate the internal check system
Answer C
20. One of the following not an advantage of audit
a) It provides satisfaction for owner b) It helps in getting loans
c) It reduces cost burden d) It detects errors and frauds
Answer C
21. The purpose of audit and investigation is---------
a) Same b) Different
c) Sometimes same and sometimes different d) None of the above
Answer B
22. Investigation implies systematic, critical and special examination of the records of a
business for a---------
a) General purpose b) Unspecified purpose
c) Specific purpose d) None of the above
Answer C
23. Investigation is conducted by------
a) Cost Accountant b) Company Secretary
c) Chartered Accountant d) Any person
Answer D

24. Audit is conducted by-------------

a) Cost Accountant b) Company Secretary
c) Chartered Accountant d) Any person
Answer C
25. ---------the following are not objectives of auditing.
(a). Ascertain the profit and preparation of P/L Account, Balance sheet.
(b) Detection and prevention of frauds and errors.
(c) Give a true and fair view of financial amount.
(d) To submits the accounts to Government of India.
Answer D
26. An audit which is compulsory by the law -------------.
(a) Government audit. (b) Internal audit.
(c) Cost audit. (d) Statutory audit.
Answer D
27. Lapping is also known as--------
a) Teeming and lading b) Embezzlement
c) Looping d) Hacking
Answer A
28. This kind of audit is conducted generally between two annual audit-------------
(a) Internal audit. (b) Interim audit.
(c) Final audit. (d) Continuous audit.
Answer B
29. An auditor is like a------------
a) Blood haunt b) Watch dog
c) May both according to situation d) None of these
Answer B
30. Auditing is compulsory for --------------
a) Small scale business b) Partnership firms
c) Joint stock Companies d) Proprietary Concerns
Answer C
UNIT 2
1. Audit can be divided into two categories -------
a) Internal audit and external audit b) Audit required under law and voluntary audit
c) Financial audit and cost audit d) None of the above
Answer B
2. Internal audit is an evaluation and analysis of the business operation conducted by the------
a) Accounting staff b) Managemene
c)I internal audit staff d) External audit staff
Answer C
3. The purpose of internal Audit is to keep proper control------------
a) over accounting activities b) over audit activities
c) over management activities d) over business activities
Answer D
4. The purpose of internal audit is to evaluate the----------
a) Accounting system b) Internal audit system
c) Management accounting system d) Statutory audit system
Answer A
5. The purpose of internal audit is to protect the-------
a) Accountings staff b) Audit staff
c) Management d) Assets
Answer D
6. The goals of business can be achieved if there is proper –----------
A) Internal control b) Internal check
c) Internal audit d) All of the above
Answer D
7. Management could rely on internal audit for--------
a) Good results b) Better results
c) Best results d) All of the above
Answer D

8. The limitation of internal audit is------

a) Shortage of time b) Shortage of staff
c) Shortage of time and finance d) Shortage of finance
Answer B
9. Cost audit is related to --------------
a) Cost accounting records b) Compliance
c)Financial statements d) Balance and Profit &Loss account
Answer A
10. Secretarial audit is also termed as -----------
a) Financial audit b) Compliance audit
c) operational audit d) Tax audit
Answer B
11.Balance sheet audit is also known as:
a) Continues Audit b) Annual audit
c) Internal audit d) Financial audit
Answer D
12. In India, balance sheet audit is synonymous to--------------
a) Annual audit b) Continuous audit
c) Detailed audit d) Statutory audit
Answer A
13. Institute of Chartered Accountants of India was established ----------
a) 1956 b) 1949 c) 1956 d) 1948
Answer B
14. Audit programme is prepared by ----------
a) The auditor b) The client
c) The audit assistants d) The auditor and his audit assistants
Answer D
15. The working papers which auditor prepares for financial statements audit are----------
a) Evidence for audit conclusions b) Owned by the client
c) Owned by the auditor d) Retained in auditor’s office until a change in auditors
Answer C
16. Payment for wage should be vouched with the help of------
a) Piece Work Statement. b) Wage sheets
c) Minutes book d) Bank pass book.
Answer B
17. Management audit otherwise called as -------------.
(a) Final audit. (b) Efficiency audit.
(c) Cost audit. (d) Cash audit.
Answer B
18. Commercial audit is conducted in -----------enterprises.
a) public b) private c) both a & b d) none of the above
Answer B
19. The term balance sheet audit is-----------contribution.
a) India b) England c) China d) America
Answer D
20. Continuous audit is suitable to-----------concern.
a) Big b) small c) medium d) none of these
Answer A
21. Periodical audit is suitable to ------- concern.
a) Big b) small c) medium d) none of these
Answer B
22. The document which can be produced as evidence is---------
a) audit program b) audit note book c) audit working paper d) both b & c
Answer D
23. Audit working papers are to be preserved for a period of------- number of years.
a) 2 years b) 4 years c) 8 years d) 7 years
Answer D
24. Records maintained and preserved the audit process is called------------.
a) audit program b) audit note book
c) audit working papers d) documentation
Answer D

25. The owner of working paper is---------.

a) client b) auditor c) audit staff d) none of the above
Answer B
26. The book helps in evaluating the efficiency of audit staff----------.
a) audit note book b) audit working papers c) audit report d) audit program
Answer A
27. In case of poor audit staff there is no guarantee that audited accounts are-----
a) Full of errors b) Free from errors
c) Free from frauds d) Full of frauds
Answer B
28. -------------is an examination of the operations, records and books of account of the
insurance company.
a) Internal audit b) externals audit c) Insurance audit d) Tax audit
Answer C
29. A performance audit can be a review of a program to assure that it is------
a) Complete b) Satisfactory c) Fool proof d) Satisfying its objectives
Answer D
30. Cost audit is useful for the purpose of -------- and proper utilization of scarce resources-
a) Increasing profit b) Reducing cost
c) Cost control and cost reduction d) Optimum utilization
Answer C