OOJective lype Questlon Answers

Chapter 8: Appointment, Power, Duties and

Liabilities of an Auditor
I . Objective Questions
( Choose the correct answer from the given alternatives
1. A
statutory auditor of a limited company is appointed by:
(a) Directors of the (b) Members of the company
company
(c) The Central Government (d) None of the above
2. Which of the
followingstatement is correct?
(a) A partnership firm can be appointed as a statutory auditor of limited company

(6) Appointment can be made in the name of the firm

(c) All partners should be chartered accountants
(d) All of the above
3. The term of the auditorship of first auditor would be from the date of appointment till_
(a) The conclusion of statutory meeting
(b) The conclusion of first annual general meeting
(c) The conclusion of next annual general meeting
(d) The date of removal
4. "An Auditor is a watch dog and not a blood-hound." This observation was made in the case of:

(a) Kingstone Cotton Mills Co. (b) London Oil Storage Co.
(c) Ammonia Soda Co. Ltd. (d) Leach Vs. Stockes
5. Who is responsible for the appointment of statutory auditor of a limited company?
(a) Directors of the company (b) Members of the company
(d) All of the above
(c) The Central Government
6. Which of the following statement is not correct?
auditor of limited company
(a) A partnership firm can be appointed as a statutory
of the firm
(b) Appointment can be made in the
name

in India
(c) Majority of the partners should be practicing
accountants
(d) All partners should be chartered
Ans.: 1. (a), 2. (d), 3. (b), 4. (a), 5. (d), 6. (c).
True or False:
0) State whetherthe following statements
are

to appoint an auditor.
(True/False)
There are no legal bindings upon the sole proprietor
auditor is appointed by
the Comptroller and Auditor
2 the first
case
n of governmentcompany, (True/False)
General ofIndia. be appointed as

the Companies Act, 2013,

an employee of the company may (True/False)
CCording to
auditor. company.
(True/False)
appointed as a statutory auditor oflimited
Apartnership firm can be (True/False)
5. Appointment can be made in the name ofthe firm.
19
Audit gdl

6. Majority of the partners should be practicing in India.

7. All partners should be chartered accountants.
(True/False)
Ans.:1. True, 2. True, 3. False, 4. True, 5. True, 6. False, 7. True.
(True/False)
(ii) Fillin the blanks with appropriate word(s):
1. In case the directors fail to appoint first auditor, the shareholders shall appoint them at
passing a resolution. by
2. Life Insurance Corporation of India holds twenty five percent of subscribed
capital of XYZ Ltd
The statutory auditor in XYZ Ltd. would be appointed by _
3. The board of directors shall appoint first auditor of a company within
of the company.
month(s) of
4.
incorporation
If casual in the
a vacancy office of auditor arises by his resignation it should only be filled
by the
company in a meeting.
5. In case of a Government company the first auditor shall be appointed by the
Ans.: 1.a general meeting, 2. special resolution, 3. One,4. General, 5. Comptroller and Auditor
General of India.

(iv) Answer the following questions in one word:

1. Which section does deal with appointment of the auditor in AGM by members?
2. Who appoints the auditor in government companies?
3. Which section deals with disqualification of the auditor?
4. The auditor appointed under Section 139 may be removed from office before
expiry of his term
by which kind of resolution?
Ans.: 1.Section139, 2. Comptroller and
Auditor General ofIndia,
3. Section 141 (3),4. Special.
I. Very Short Answer Type Questions
1. Explain any one right of the auditor?
Ans. Right to Access the Books, Accounts and Vouchers of the Company: Under Section 143 of the
Companies Act, 2013, the auditor has the right to access the books, accounts and vouchers of the
company at all times, whether the same are located at the head office of the company or any
branch. By 'books of the company' we mean those books which are being maintained by the
company or those books which are required to be maintained by the company under any legal
provision.
2. Explain any one duty of the auditor?
Ans. To Examine the Truthfulness and Justification of the Balance Sheet: It is the duty of the auditor to
see whether the Balance Sheet
depicts the true situation of the business and not merely check
arithmetical accuracy. This decision was given in the case of Leeds Estate Building and
Investment Society Ltd. vs. Shepherd.
3. "An Auditor is a
watchdog, but not a Blood Hound". Explain.
Ans. The question before the courts was that if the auditor
relies upon the certificate of the manager
instead of examining in detail, is the auditor
guilty of professional misconduct? While giving
decision, Justice Jopez, explaining the duties of the auditor said, "An auditor is not bound to ea
detective, or as was said, to approach his work with the suspicion or with the foregone
that there is something wrong. He is
conu
a watchdog, but not a blood-hound.
20
Chapter Audit Report Objective Type
Question Answers
1.Objective Questions
Choose
Choose the
the correct
answer from the given alternatives
1.
According to which section of the
the completion of Companies Act, 2013, the auditor
audit?
(a) Section 142 has to issue a
report after
(c) Section 141 (b) Section 143
2. When the book of (d) Section 145
accounts are
used. prepared as per the Companies
Act, then the words
(a) True and fair are
(c) True and reliable (b) True and correct
3. If the (d) None of the above
auditor is not appointed to
auditor issues a report, then, verify all the accounts, but only some
it is known books of accounts and the
as:
(a) Interim report
(b) Clean report
(c) Qualified report
(d) Partial report
4. A standard
unqualified report contains the following distinct parts:
(a) Engagement, Scope and Opinion
paragraphs
(b) Introductory, Scope and Closing
paragraphs
(c) Introductory, Scope and Opinion paragraphs
(d) None of the above
5. The following are categories of audit reports except
(a) Standard Unqualified (b) Adverse
(c) Qualified (d) All of these are categories of audit reports
6. The following are the most important causes of the addition of an explanatory paragraph or
modification in the wording of a standard unqualified report.
(a) Auditor agrees with a departure from promulgated accounting principles
(b) Reports involving other auditors
(c) Emphasis of a matter
(d) All of the above
Ans.: 1. (b), 2. (a), 3. (d), 4. (a), 5. (d), 6. (d).
State whether the following statements are True or False
certain special issues then such
middle of the year on

W h e n an auditor issues a report in the (True/False)

report is known as a partial report. correctness ofthe
accounts. (True/False)
the truth and
. Aqualified report does not certify report he will be
held guilty of negligence.
the fact that it is a partial (True/False)
l t the auditor does not specify
then sucha
on certain special issues
middle of the year (True/False)
4. a report in the
when an auditor issues
21
eport is known as partialreport
 and Corporate Governance
Auditing
audit forthe
the entire
entire businee.
the completion of the business
5. When the auditor issues a report after year then
such a report is known as a final report
5. True.
(True/False
Ans.: 1. False, 2. True, 3. True, 4. False,

(ii) Fill in the blanks with appropriate word(s):

1. A report shows that there are no dliscrepancies and fraud in the books of ccOunt

2. A qualified report the goodwill of a business.

3. An audit report is a of the verification conducted by the auditor.
4. According to the Companies Act, 2013 the auditor should use the words "True and

in his audit report.

5. If the auditor is not appointed to verify all the accounts, but only some books of accounts anddth
the
auditor issues a report, then, it is known as
Ans.: 1. Clean, 2. Decreases, 3. Summary, 4. Fair, 5. Partial Report.

iv) Answerthe following questions in one word:

1. Which section of the Companies Act, 2013 does deal with contents or subject-matter of audit
report?
2. What is the other name for clean report?
3. Such reports have some qualifications.
Ans.: 1. Section 143, 2. Unqualified report, 3. Qualified reports
I . Very Short Answer Type Questions
1. What is meant by audit report?
Ans. After veritying the accounts the auditor gives a briefdescription of the work done by him, whiechis
signed by him. This description is known as the audit report. Joseph Lancaster has defined audit
report as follows, "Report is a statement of collected and considered facts, so drawn up as to give
and concise information to persons who are not already in possession of the full facts of the
subject matter of the Report"
2. Write any two characteristics of audit
report.
Ans. (i) Report is a summary of the verification
conducted by the auditor.
i) The report also gives details of all the conclusions which the auditor concludes after the
verification activities.
3. What is meant by "True and Fair"?
Ans. When the books of accounts
(accounts) were prepared as per the Companies Act, 1913then ne
words True and Correct were
used, but now as per the Companies Act, 2013 the True
and Fair are used. If the words True woras
and Fair are used then, it is assumed that (i) the
Loss Account and Balance Sheet have
been prepared as per the
Promt athe
balance sheet of the organisation is free Companies Act, (1) tna
from window dressing and secret reserves, and
accounts of the organisation have been (u
neither over stated nor under stated.
4. What is meant by
partial report?
Ans. If the auditor is not
appointed to verify all the an the
auditor issues a report, then, it is known as accounts, but only some books of accounis a
'Partial Report'. While writing this report
should keep in mind that a
person reading the report should not take it as a full
tne a
22 repor
 What is eant by interim Objective Type Question
When
hen an audito
an report?
auditor issues a Answers
onort is krnown as an
report in the middle
Interim Report'. of the
he year on
didividend or when the central Normally
such a
certain special
What is report is presented onissues then such a
government issues an order.
meant by final declaring interim
When the auditor issues a report?
then such a report is knownreport after the completion the audit for the entire
of
'Final Report'
asa
important part in the life of. Normally
This report plays an an auditor
business year
a
issues such a
report only.
company.

Chapter 10: Cost Audit

L.Objective Questions
Choose the correct answer from the given alternatives
1. Which of the following statements is not correct about cost
audit?
(a) It is useful to verify arithmetical accuracy of cost books
(b) It is not compulsory
(c) It is used to check whether the balance sheet shows the actual position
(d) It is used only in manufacturing units
2. The report of cost audit can be submitted to the
(a) Government (b) Law Board

(c) Company (d) All of the above

should submit audit report to the central government
3. After completing cost audit, the auditor
within:
(a) 120 days (b) 90 days
(d) 30 days
(c) 60 days
has wider scope?
4. Which of the following
(b) Cost audit
(a) Financial audit
(d) None of the above
(c) Management audit
4. (a).
Ans.: 1. (c), 2. (d), 3. (a),
True or False:
statements are
the following no specific
(n) State whether end of accounting
year,
whereas for cost auditing
(True/False)
audit is done after the
. Financial
(True/False)
period is covered.
general meeting.
in the annual to work as costauditor.
2. Cost auditor is appointed chartered
accountant
(True/False)
government
can permit any
ne central (True/False)
(True/False)
audit firm.
done by an books.
4Costauditcan be arithmetical
accuracy ofcost (True/False)
is useful to verify
CostAudit organisation.
compulsory for every 5. False. 23
C o s t audit is
False, 5. False,
4.
Ans.: 1. True, 2.
False, 3. True,
 Governance
Auditing and Corporate
( i i ) Fill in the blanks with appropriate word(s) from the given alternative
ves
1. As per the Companies Act, if a person is appointed as auditor of a companu
appointed as cost auditor of the same company.
2. The on the audit of cost records shall be submitted by the cost accountant in
report practices
of the company. to the
3. The Cost Auditor pays attention to various cost elements and compares these to
costs.
4. Audit is compulsory for all Limited Companies.
5. A cost auditor is appointed by the Board of Directors, with prior permission of
Ans.: 1. cannot be, 2. Board of Directors, 3. Predetermined, 4. Financial,
5. Central Government.
(iv) Answer the following questions in one word:
1. Mention any one objective of cost audit.
2. Mention any one benefit of cost audit.
3. It is that work which is not completed on the date of balance sheet.
4. Which section of the Companies Act, 2013 is related with cost audit report?
Ans.: 1. Checking of Cost Accounts, 2. Helpful in Cost Reduction, 3.
4. Section 148.
Work-in-progress,
. Very Short Answer Type Questions
1. What is meant by cost audit?
Ans. The Cost Audit refers to the accuracy and verification and
following the process of recording of
costing. According to Institute of Cost and Works Accountants of India, Cost Audit can be defined
as verification of the correctness of
cost accounts and adherence to the cost
accounting
principles, plans and procedures.
2. Mention any two
objectives of cost audit.
Ans. (i) Checking of Cost Accounts: The main aim of
Cost Audit is to check the accuracy of costing
entries so that it is known that accounts
relating to costs are correct.
i) In Accordance with Accounting Principles: The
objective of Cost Audit is to see whether tne
organisation is following the principle of cost accounting or not.
3. Write any two
advantages of cost audit.
Ans. (i) Helpful in Cost Reduction:
The Cost Audit can check
other expenses. The cost Audit is wastages of material, labour and
useful in reducing cost.
(i) Control over Uneconomic Units: nits,
The cost audit is useful to mark
suggestive measures can be chalk out to make such uneconon
4. What are the units viable.
disqualifications cost auditor?
Ans. (i) A person cannot be
of
appointed as Cost Auditor who according to Companies Act, (uls
141) is not competent to be v
(i) Aperson as per Company
appointed as Cost Auditor.
Act, 2013 (u/s 139) is appointed as Auditor of a m p a n ycannot

be appointed as Cost col

Auditor of the same
company.
 Objective Type Question Answers

chapter 11:Tax Audit

I.Objective Questions
()Choose the correct answer from the given alternatives
1. Main objective of tax audit is to ensure
that
(a) Correct income and tax are calculated
(b) The accounts and reports are
placed in a specified manner
(c) Both (a) and (b)
(d) None of the above
2. The appointment of tax auditor can be made by:
(a) Board of Directors
(b) Managing Director
(c) Either (a) or (b)
(d) None of the above
Ans.: 1. (c), 2. (c).

) State whether the following statements are True or False:

1. Achartered accountantfirm shall not accept audit of more than 10 companies. (True/False)
2. It is necessary for a company to appoint Tax Auditor in its Annual General
Meeting. (True/Palse)
3. Ifaperson in previous year has a sale of 7 40lakh or more is liable for tax audit. (True/False)
4. If Assessee feel so, more than one tax Auditor can be appointed. (True/False)
Ans.: 1. False, 2. False, 3. True, 4. True.
(ii) Fill in the blanks with appropriate word(s) from the given alternatives:
income tax
1. As per Income Tax Act, 1961, under sections public trust can claim
rebate.
2. f than tax auditor, the audit report should be signed by
assessees appoints more one

3. Section 44AC covers those Assessees who are covered under Section 44AD and 40Af, whose
declared gross receipt is not more than ?

Ans.: 1. 11 and 12, 2. all the auditors, 3. 1 crore.

(iv) Answer the following questions in one word:

. Mention any one objective of tax audit.
2. Mention any one category of persons who are not covered under section 44AB of the Incon
Tax.
Ans.: 1.Checking correct income, 2. NKI whose income is from shipping.