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Auditor Tests
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
(c) Controls over classes of transactions
(d) Auditors are equally concern with each of the given issues
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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
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
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
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
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
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)
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
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
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
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
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
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
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
(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?
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
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
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