MF 0013

MCQS

7. Auditors responsibility even extends to areas in which he

has no adquate and fair view reporting is at true competence, if
the true and fair view reporting is at risk.
8. The scope of an audit depends upon the kind of audit being
undertaken, and the terms agreed between the auditor and the
client.
9. The auditor is not responsible for preparing the financial
reports or the company.
10. The directors are ultimately responsible for maintain
adequate records and preparation of annual accounts showing a
true and fair view.
11. Due audit care is concerned with the determination of
reliability and adequacy of evidence in support of observations
made in the audit report.
12. A Bank Reconciliation statement (BRS) prepared by an
internal auditor who is independent of the cashier and
accountant.
13. Accrual basis of accounting is a widely accepted practice
whereas cash basis of accounting is not.
14. Auditor should be self-governing in their approach and free
from any biases and prejudices.
15. Statutory financial audit gives the owners of a company
and other stakeholders the assurance that annual financial
reports give true and rational view.

16. It should also be understood that audit of accounts does not

guarantee the detection of all the errors.
17. Financial audit is a systematic and independent check on
the data, statements records, operations and performance of an
enterprise for an identified purpose.
18. The primary objective of financial audit is to examine the
reliability and trust fullness and fairness of the presentations in
those statements.
19. The secondary objective of audit is to prevent and detect
errors and frauds.
20. Only a person who is a Chartered Accountant within the
meaning of the chartered Accountants act 1949 and holds a
certificate of practice.
21. A general audit covers all areas of management and is
company-focussed.
22. A specific audit on the other hand covers one or more
specific areas of management.
23. An independent audit is conducted by an independent,
professionally qualified auditor.
24. The financial statements portray the financial position at
the end of an accounting period and the financial result- profit or
loss for that period.
25. An independent auditor is given the responsibility to ensure
that the financials reflect a true and fair view of the financial
health of the company.
26. An audit which is mandatory under a law in force is called a
statutory audit.

27. Going concern the auditor should assess if the going

concern concept can be applied to the entity and whether it will
continue in the future.
28. The financials are prepared on the basis of the accrual
concept and therefore absolute certainly with respect to the
accuracy of the figure is rarely attainable.
29. Internal audit is another type of general audit.
30. The comptroller and auditor general (CAG) shall perform
such duties and exercise such powers in relation to the
accountants of the union and of the states and or any other
authority of body as prescribed by or under any law and by the
Parliament.
31. An interim audit is conducted between two annual audits.
32. The objective is to ascertain and declare interim figures of
a specific purpose like declaration of interim dividend.
33. The income Tax Act has made tax audit compulsory for
specified persons under section 44AB of the income Tax Act 1961.
34. Tax audit may be defined as the verification of the financial
records to ascertain the correctness of the taxable profits as per
the provisions.
35. Cost audit means the detailed checking of the costing
system, techniques and accountant to verify their correctness and
to ensure adherence to the objective of cost accounting.
36. Cost accounting is primarily aimed at ascertaining the cost
of goods produced or service provided by the enterprise.
37. A VAT audit certificate / report that is issued by a chartered
accountant in a specific format is required for VAT legislation.

38. Management audit is the audit of the management

processes of a company comprising of planning, organizing and
controlling its operations with a view.
39. Proprietary audit is an examination of management
decisions, usually involving large sums of money, format he
standpoint of reasonableness or appropriateness.
40. CAG audit can be broadly classified into two categories
regularity audit and performance audit.
41. Investigation is an audit undertaken in a situation when
there is suspicion of misappropriation of funds, fraud, fudging of
accountants or other records.
42. Operations audit is aimed at providing and independent and
objective evaluation of the quality and effectiveness of internal
operations including internal controls established by the
management.
43. Secretarial audit is the audit of statutory compliances of the
company44. The companies Act has made secretarial audit
mandatory for companies having paid-up share capital of two
crore rupees or more.
45. A business organization owes certain responsibilities towards
the society at large.
46. Social audit also known as social responsibility audit, is
concerned with evaluating a companys fulfillment of its social
obligations.
47.Systems audit may be defined as audit, control, monitoring
and assessment of an organizations information technology and
business systems.
48. A continous audit is one where the auditors staff is
occupied continuously on the accountants the whole year round.

49.Annual audit is done at the end of the financial year when

accountants are completed and books of accounts are closed.
50. Balance sheet audit is mainly concerned with the items
appearing in the balance sheet.
51. Internal audit is an independent, objective assurance and
consulting activity designed to add value and improve and
organizations operations.
52.The internal auditor should ideally report to the CEO and the
Board of the company.
53. Internal audit is audit with clear management and
operations focus.
54.The statutory auditor is independent of the organization
which appoints him.
55. The responsibility of external auditor is mainly towards the
shareholders who have appointed him, and other external
stakeholders of the company.
56.The external auditors submits his report to the owners or
shareholders.
57. The external auditor should assess the quality of work done
by internal auditor before relying upon the work of the latter.
58. Internal check is an important process of internal control
system.
59.Purchases are managed by a separate department called the
purchase department.
60. The crux of the internal audit function as the focus is always
on financial performance and viability of the enterprise.

61. The national Securities Depository Ltd (NSDL) which was

formed by the Governement of india in November 1996.
62. Every Producer Company shall have internal audit of its
accounts carried out, at such intervals and in such manner as
may be specified in articles.
63. You know the internal audit is an independent activity. But as
the internal auditors is a management appointee.
64. The internal auditors job is not to execute but to review and
advise.
65.Refraining from activities that may suggest a bias or personal
preference.
66. Internal auditors are considered independent when they
can carry out their work freely and objectively.
67. The person who is ultimately responsible for the audit is
called the Auditors.
68. Audit Firm mean either the partners of a firm providing audit
services or soled practitioner providing audit services.
69. Personnel means partners and professional staff engaged in
the audit practice of the firm.
70. Assistant means personnel involved in a individual audit
other than the auditors.
71.The firms personnel have to be follow the principles of
independence, objectivity, confidentiality integrity and
professional behavior.
72. To ensure that the performed work meets appropriate
standards of quality there should be sufficient direction,
supervision and revision of work at all levels.

73. Appropriate direction is required for assistants to whom work

is delegated.
74. Effectiveness means attainment of the internal audit
objectives and efficiency means conduct of the audit with the
maximum utilization of the internal audit resources.
75. fine tuning the specific methods to be adopted for different
segment of the audit.
76. Making sure that the financial accounting reporting and
disclosure are in line with the applicable generally accepted
accounting practices (GAAP).
77. The head of internal audit should ideally report directly to the
managing director(MD) or the Chief Executive Officer (CEO) of
the organization.
78. Financial and Accounting Procedures Manaual (FAPM) and a
Delegation of Authority Manual (DOA) which set out the
organization policies and procedures.
79. Management letter is a document given by statutory
auditors on conclusion of the annual audit to the companys board
on aspects of the financial reporting.
80. Define audit risk as the risk that an auditor may give an
inappropriate opinion on financial information that is materially
misstated.
81. Materially misstated, either individually or taken together with
other account balances or transaction classes. This is referred to
as its inherent risk.
82. Detection risk may arise when the auditors examines
samples of transactions or account balances that are not
representative.

83. Audit process a well-defined methodology for organizing an

audit and achieving audit objectives.
84. A fixed audit programme as the name suggests, has fixed
framework regarding how and when the audit work is scheduled
to be done.
85.A flexible audit programme has greater flexibility compared
to a fixed audit programme.
86. A flexible audit programme provide for variability in audit
approaches, tools and even resources deployed, to guarantee the
best results.
87. Fixed audit programmes are less expensive than flexible
programmes, because the qualification of people required is not
high, and time taken is less.
88. A well-written internal audit programme sets out when and
how the audit has to be done.
89. The auditor first considers the specific audit objectives that
need to be achieved and then the procedure that could be used to
best achieve those objectives.
90. The complete set of data from which the auditor wants to
sample for a conclusion is referred to as the population.
91. Sampling units are the individual items that comprise of a
population.
92. The maximum error in the population willingly accepted by
the auditor, while also concluding that the sample result has
achieved audit objective, is referred to as the tolerable error.
93. The auditor needs to examine a larger sample if an error is
expected in the population than when no error is expected.

94. Sample items should selected by the auditor in a way that

the sample represents the population.
95. Error results of the sample to the population from which the
sample was chosen is projected by the auditor.
96. Audit tests are extensively used by auditors during all kinds
of audit work.
97 .Compliance tests are tests applied to check that the internal
control procedures laid down are actually followed in practice.
98. Depth test implies a thorough examination of transactions
end to end. It includes detailed examination of documents and
records created to each stage of that transaction.
99. Rotation tests relate to either areas of audit or units of an
enterprise. In view of time constraint audit is done on rotation.
100. The committee of sponsoring Organizations (COSO) of
the National Commission on Fraudulent Financial Reporting (also
known as Treadway Commission).
101. Proactive controls designed to discourage errors or
prevent irregularities from occurred fall into this category.
102. Retroactive controls designed to find irregularities that
may have occurred fall into this category.
103. These are methods and procedures that promote operational
efficiency and adhere to managerial policies and are usally
indirectly related to the financial records.
104. Control environment is the basis of an internal control
system. It includes and reflects the factors that influence the
control consciousness of its people.

105. A proper system, preferably in writing must be

implemented so that origination, recording and accounting of
business transactions take place in a standardized way.
106. The authority and responsibility of every official should be
fixed.
107. The system should facilitate cross functional physical
verification or assets.
108. A reliable and accurate Management Information system
(MIS) should be in place.
109. A system of allocation of responsibility division of work
and method of recording transactions, whereby the work an
employees or group of employees is checked continuously by
correlate ting it with the work of others.
110. Internal Check is an important process of internal control
system.
111. Purchases are managed by a separate department called
purchase department.
112. The person is charge or receiving the goods prepares a
goods received not (or Materials Received Report).
113. Internal check is a preset system or carrying out and
recording of transactions in such a way that error and frauds
are prevented or get exposed is committed.
114. Internal check system goes right through to the entry in
the books of accounts, and so accounting becomes more exact.
115. The separation of functions of custodian and record keeper
is an important purpose of internal check systems.

116. The duties responsibilities and authorities of every

employee should be clearly demarcated and communicated to
them.
117. Division of work amongst employees should be based on
job requirements and the capability competence training and
experience of the employees.
118. Rotation of duties amongst employees after a reasonable
time interval improves efficiency, helps detect errors and wrong
practices and serves as a moral check.
119. Internal check system ensures a proper division of
responsibilities among the employees of an organization.
120. Well set processes with internal checks promote
efficiency of employees.
121. Management Information system (MIS) the information
and data generated in the organization which has an effective
internal check system.
122. Internal check is an important segment of internal control
system.
123. Around this time EDP auditors formed the Electronic Data
Processing Auditors Association (EDPAA).
124. Relation Database Management Systems (RDBMS) are
increasingly being used though COBOL and flat files still find a
place in batch processing.
125. Methodology adopted for systems development is becoming
crucial and CASE (computer Aided software Engineering)
tools are increasingly used.

126. Common business documents like cheqes, invoices etc. are

being replaced by paperless Electronic Data Interchange (EDI)
at least in large organizations.
127. The responsibility for initiating transactions recording
transactions and custody of assests, lies with separate
individuals in a manual system.
128. The separation of incompatible functions may be even
more difficult to achieve in a minicomputer and microcomputer
environment.
129. An essential characteristic of internal control is a clear line
of authority and responsibility.
130. In a manual system auditors evaluate the adequacy of
procedures of authorization by examining the work of employees.
131. A manual system requires adequate documents and
records if it is to provide an audit trail of activities within the
system.
132. It is critical for internal control to have physical control
over assets and access total records.
133. Management supervision of employee activities is
relatively straightforward in a manual system.
134. A periodical comparison between assests and the data
that is a record of those assets must be done.
135. Internal controls in an EDP environment are well-defined
and formal.
136. Emphasise segregation of EDP department from source
and user departments.
137. Built into computer equipment by the manufacturer to
detect equipment failure.

138. To prevent unauthorized use of data files, programmes

and their support documentation and computer hardware, access
must be limited to authorized individuals.
139. EDP Manager in overall charge of the data processing
activity.
140. Systems Analysts to design new systems and modify
existing systems according to the information needs of the users.
141. Programmers to write and test programmes based on the
system design and or modification.
142. Computer Operators to process transactions through the
system in accordance with the operator instruction for the
application being updated.
143. Input preparation Group to convert input data to machine
readable form.
144. Librarian to maintain custody over master files and
programmes and control access based on proper authority.
145. Data control Group to distribute output monitor
reprocessing of errors, and compare input with output on a test
basis.
146. Independent handling of receipt and opening of mail and
preparation of statement of receipts of money orders and cheques
from the mail.
147. Cash storage and handling controls including restriction
of access to cash room, arrangement for safeguarding cash after
business hours and cash in chest and cash in transit insurance
and surprise verification of cash periodically by internal audit
team.

148. System for appointment and removal of workmen and

staff and fixation and revision of wage rates.
149. Division of the job of payroll preparation among different
clerks so that sheets prepared by one clerk automatically
checked by another and singed off.
150. Checking and reconciliation of the number of employees
shown in the payrolls and their remuneration rates with data as
per official list of circumstances and with approval of the general
manager of concerned function in writing.
151. Focus on overtime payments to be allowed only in
exceptional circumstances and with approval of the General
Manager of concerned function in wrting.
152. System for payment of salaries and wages by persons who
are in no way connected with the preparation of payrolls.
153. Policy, procedure and authority levels for issuing
purchase requisitions.
154. Copies of purchase orders (PO) and Goods Receipt and
Inspection Reports (GRIR) to Accounts for effective linking with
supplier invoices and other related documents.
155.Detailed procedure for purchase from subcontractors, with
appropriate link to material issued to them and excise
documentation.
156.Policies and procedures fro accepting customer orders.
157. In case of production for specific customer orders
performance report on quality and cost of production.
160. Availability of duty authorized capital budget and system for
authorization of unbudgeted items.

161. Cash payments for small expenses like postage petty cash
based on imprest system.
162. Petty cashier to be an experienced and honest employee.
163. Policy and procedure for acceptance of sales returns,
with value limits, authority levels, and process steps and formats
to be available and updated continually.
164. Bank reconciliation and passing of entries arising
therefrom.
165. Determine the degree of reliance he can place on the
systems and processes of the company.
166.Discussion with managers at different levels on their
comfort with the controls.
167. Test checking of controls by simulating transactiosn and
seeing if the controls work.
168. Compliance tests are crucial in case of procedural controls
that the auditor intends to rely upon in view of volume or other
constraints.
169. The flow chartis a visual presentation that facilitates a birds
eye view of an activity or a transaction.
170. A questionnaire is a list of questions about the activity or
transaction, the answers to which help in understanding its
dimensions.
171.Flow charting is an important technique used in the
evaluation of internal control system.
172. A flow chart comprises boxes that symbolize activities,
documents, reports, decisions, etc and connectors that link the
boxes.

173. A flowchart is normally drawn horizontally.

174. Documents and activities flow horizontally from section to
section and functions/sections are the vertical column heads.
175. Standard symbols have been designed similarly for
connectors inter links between flowcharts standard symbols exist
and should be used.
176.A questionnaire is an organized set of questions about each
function, seeking descriptions of the steps involved in performing
the function and the control aspects of each step.
177. on the basis of their extensive experience in studying
controls in a wide variety of businesses, auditing firms have
developed standard internal control questionnaires over the
years.
178. The questionnaire is to be filled by the executive in charge
of the area, and auditor may thereafter send it to him and await
feedback.
179. A professional accountant often formulates internal
control schemes in various functional areas of an organization.