SEBI Grade A 2020

Company Law
Important MCQs - Chapter X
Audit & Auditors – Part 2

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 Question 1
A person shall not be eligible to be an auditor of a company if he has been convicted by a court of an offence involving
fraud and a period of………………. Years has not elapsed from the date of such conviction.

a) 5
b) 7
c) 10
d) 12

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 Explanation to Q 1

Section 141 of The Companies Act

Disqualifications : Following shall not be appointed as auditors
a) An officer or employee of the company or anyone who is further employee of any officer or employee of company
b) A person who is partner in the company
c) A person or a firm who has business relationship with the company
d) A person who's relative is director or key management personnel in the company
e) A person who in full time employment in some other company
f) If person or partner of firm is already holding appointment of more than twenty companies (These twenty
companies shall not include one person companies, small companies and private companies having paid-up share
capital less than one hundred crore rupee)
g) A person convicted by court for a fraud or any other offence till 10 years from date of conviction
h) A person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding
company or its subsidiary company.
i) A person who himself or his relative or partner is (holding securities of more than 1 lakh) or (Indebted/Owes more
than 5 lakh to the company ) or (has given a guarantee of more than 1 lakh for a third person who owes money to
the company or its subsidiary)

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 Question 1
A person shall not be eligible to be an auditor of a company if he has been convicted by a court of an offence involving
fraud and a period of………………. Years has not elapsed from the date of such conviction.

a) 5
b) 7
c) 10
d) 12

Answer- C

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 Question 2
In case of Government companies, CAG has the power to conduct supplementary audit. Within how many days of the
receipt of the audit report , the Supplementary audit be conducted by CAG?

a) 30
b) 45
c) 60
d) 90

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 Explanation to Q 2

Section 143-->

a) CAG can direct the auditor regarding the manner which the accounts of the company are required to be
audited and auditor shall submit a report to CAG

b) CAG with in 60 days from the date of receipt of the audit report can conduct a supplementary audit

c) CAG can also conduct a test audit

Test audit is like selecting some random samples from the overall accounts and not auditing the whole accounts

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 Question 2
In case of Government companies, CAG has the power to conduct supplementary audit. Within how many days of the
receipt of the audit report , the Supplementary audit be conducted by CAG?

a) 30
b) 45
c) 60
d) 90

Answer- C

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 Question 3
Following is the list of some services.
I. Accounting and book keeping services
II. Internal audit
III. Actuarial services
IV. Investment advisory services

Which of the following services cannot be provided by the auditor of the company?

a) I & II only
b) I, II & III
c) II & III only
d) All (I,II,III & IV)

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 Explanation to Q 3

Section 144-->Auditors shall not provide the following services directly or indirectly to the company or
its holding company or subsidiary company
A. Accounting and bookkeeping services
B. Internal audit
C. Design and implementation of any financial information system
D. Actuarial services;
E. Investment advisory services, investment banking services and Oustsourced Financial services;
F. Management service

Memory Technique- ADMIN

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 Question 3
Following is the list of some services.
I. Accounting and book keeping services
II. Internal audit
III. Actuarial services
IV. Investment advisory services

Which of the following services cannot be provided by the auditor of the company?

a) I & II only
b) I, II & III
c) II & III only
d) All (I,II,III & IV)

Answer- D

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 Question 4
Who can conduct the audit of a company?

a) Chartered Accountant
b) Company Secretary
c) Advocate
d) Cost Management Accountant
e) Any of the above

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 Explanation to Q 4

Section 141-->
A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant

 A firm whereof majority of partners practicing in India are chartered Accountants may be appointed by its
firm name to be auditor of a company

 When a firm is appointed as an auditor of a company, only the partners who are chartered accountants
shall be authorized to act and sign on behalf of the firm.

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 Question 4
Who can conduct the audit of a company?

a) Chartered Accountant
b) Company Secretary
c) Advocate
d) Cost Management Accountant
e) Any of the above

Answer- A

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 Question 5
Which companies are required to maintain cost accounts?

a) Companies with annual turnover of Rs.25 crore or more

b) Companies with annual turnover of Rs.35 crore or more
c) Companies with annual turnover of Rs.45 crore or more
d) Companies with annual turnover of Rs.50 crore or more

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 Explanation to Q 5
Section 148-->The Central Government may direct companies (having an overall turnover >= 35
crore from all its products and services the immediately preceding financial year) that Cost data for
specific items related to the utilization of material or labor shall also be included in the books of
account

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 Question 5
Which companies are required to maintain cost accounts?

a) Companies with annual turnover of Rs.25 crore or more

b) Companies with annual turnover of Rs.35 crore or more
c) Companies with annual turnover of Rs.45 crore or more
d) Companies with annual turnover of Rs.50 crore or more

Answer- B

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 Question 6
A company is dealing in category A products such as Pharma and Telecom, then for the company to come under the
ambit of conducting a mandatory cost audit, its overall annual turnover shall be ______ crore or more and aggregate
turnover of the individual product or products or services for which cost records are required to be maintained is
_______crore or more

a) 50,25
b) 100,50
c) 100,25
d) 50,50

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 Explanation to Q 6
The central government can also direct for cost audit of companies meeting below requirements shall be conducted

1.For the items under Category A need to conduct cost audit if

 The overall annual turnover of the company from all its products and services during the immediately
preceding financial year is >= 50 crore And
 The aggregate turnover of the individual product or products or services for which cost records are required to
be maintained is >= 25 crore.

2.For the items under category B, need to conduct cost audit if

 The overall annual turnover of the company from all its products and services during the immediately
preceding financial year is >= 100 crore And
 The aggregate turnover of the individual product or products or service or services for which cost records
are required to be maintained is >= 35 crore .

Category A -> Regulated Sectors such as Telecom, Pharma, Petroleum, Fer lizers, sugar

Category B -> Non-Regulated Sectors such as Machinery, Turbo jets, Steel, Coffee, Tea, Minerals, Rubber, Roads
and Railways, Radars, Tanks, Arms and Ammunitions, Paper, Tyres, Milk Power, Glass etc.

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 Question 6
A company is dealing in category A products such as Pharma and Telecom, then for the company to come under the
ambit of conducting a mandatory cost audit, its overall annual turnover shall be ______ crore or more and aggregate
turnover of the individual product or products or services for which cost records are required to be maintained is
_______crore or more during the preceding financial year.

a) 50,25
b) 100,50
c) 100,25
d) 50,50

Answer- A

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 Question 7
Which of the following are disqualified to be appointed as the auditor of a company?

a) Officer or employee of the company

b) Any body corporate
c) A person who is a partner or employee of the officer or employee of the company
d) All of the above

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 Explanation to Q 7
Section 141 of The Companies Act
Disqualifications : Following shall not be appointed as auditors
a) An officer or employee of the company or anyone who is further employee of any officer or employee of company
b) A person who is partner in the company
c) A person or a firm who has business relationship with the company
d) A person who's relative is director or key management personnel in the company
e) A person who in full time employment in some other company
f) If person or partner of firm is already holding appointment of more than twenty companies (These twenty
companies shall not include one person companies, small companies and private companies having paid-up share
capital less than one hundred crore rupee)
g) A person convicted by court for a fraud or any other offence till 10 years from date of conviction
h) A person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding
company or its subsidiary company.
i) A person who himself or his relative or partner is (holding securities of more than 1 lakh) or (Indebted/Owes more
than 5 lakh to the company ) or (has given a guarantee of more than 1 lakh for a third person who owes money to
the company or its subsidiary)

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 Question 7
Which of the following are disqualified to be appointed as the auditor of a company?

a) Officer or employee of the company

b) Any body corporate
c) A person who is a partner or employee of the officer or employee of the company
d) All of the above

Answer- D

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 Question 8
An auditor who has resigned shall file a statement within …………… days of his resignation to ROC.

a) 10
b) 15
c) 30
d) 45

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 Explanation to Q 8

Resignation of Auditor
 In case of Govt. Companies and Non-Govt. Companies -> The auditor who has resigned from the company
shall file within a period of thirty days from the date of resignation, a statement (using Form ADT-3) with the
company and the Registrar indica ng the reasons and other facts related to his resigna on

 In case of Govt. Companies -> In case of government company, the auditor shall additionally also file a
statement within a period of thirty days from the date of resignation with the Comptroller and Auditor-
General of India, indicating the reasons and other facts related to his resignation

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 Question 8
An auditor who has resigned shall file a statement within …………… days of his resignation to ROC.

a) 10
b) 15
c) 30
d) 45

Answer- C

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THANK YOU

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