Final Audit MCQ

CA-FINAL
(PAPER-3)
ADVANCED AUDITING
&
PROFESSIONAL ETHICS
MULTIPLE CHOICE QUESTIONS
CA NITIN GUPTA
(FCA, M.Com)
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QUESTION PAPER PATTERN
• The question paper comprises two parts, Part I (30 Marks) and Part II (70 Marks).
• Part I comprises Multiple Choice Questions (MCQs). All MCQs are compulsory.
and no MCQ will be subject to negative marking. MCQs will range 1-2 marks.
• Part II comprises questions which require descriptive type answers. Part II
comprises 6 questions. Question 1 is compulsory and attempt any 4 out of
remaining 5 questions. Each question will cover 14 marks. Questions are divided
into parts. Each part will be of 4-5 marks.
• Answers to Questions in Part I are to be marked on OMR answer sheet only.
Answer to questions in Part II are to be written on the descriptive type answer
book. Answer to MCQs, if written in the descriptive type answer book, will not be
evaluated.
• Duration of the examination is 3 hours. You will be required to submit (a) Part I of
the question paper containing MCQs (b) OMR answer sheet thereon and (c) the
answer book in respect of descriptive type answer book to invigilator before
leaving the exam hall, after the conclusion of the exam.
Message from Author
Hello Champion
Firstly, I would like to thank for having faith in “Way to Pinnacle” and me. Dear, as you know
that syllabus of Audit in CA- Final is quite vast so the entire syllabus is covered in two volumes.
Volume 1 is called as “Sanjivani” and Volume 2 is called as “Shikhar”. For practice of MCQ
there is a separate book covering 1700+ mcqs.
In volume 1 (Sanjivani) I have covered those chapters which are easy to understand and are
regularly asked in the examination. There are total 10 chapters in volume 1 covering
approximately 60 marks in examination. If you have a good command on Volume 1 and
average command on volume 2, you will definitely clear this paper that is why I have named
volume 1 as “Sanjivani”. It is Sanjivani for you to clear this paper.
In Volume 2 (Shikhar) I have covered remining chapters which are either not regularly asked in
examination (like Audit of Dividend, Liabilities of Auditor etc.) or are asked regularly but are
technical in nature (like Audit of Banks, Audit of NBFC, Standards on Auditing etc.). There are
total 10 chapters in volume 2. If you also have a good command on Volume 2, you will be able to
score exemption marks in this paper, that is why I have named volume 2 as “Shikhar”.
Dear, in the descriptive part of the question paper, questions from chapters are repeatedly asked,
so you are advised to cover all the past attempt questions of all the chapters which are provided
in both the volumes at the end of chapters / topics.
Generally, case studies based questions are asked from the chapters Professional Ethics, The
Company Audit, Audit under Fiscal Law and Standards on Auditing. So, you are advised to
develop the skills as how to present the answers on these case studies based questions. For this
purpose, you are advised to read the answers of solved case studies again and again.
In auditing paper sometimes case studies based on AS /Ind AS are also asked. AS / Ind AS are
discussed in the paper of “Financial Reporting”. So you are advised to have a good command
on AS / Ind AS, as it will help you in the paper of “Financial Reporting” as well as in “Advanced
Auditing & Professional Ethics”.
I hope that you will find the content of book user friendly and helpful in preparation of your
examination.
Wishing success for you.
CA NITIN GUPTA
Contents P.No.
CHAPTER 1 PROFESSIONAL ETHICS 1

CHAPTER 2 AUDIT UNDER FISCAL LAWS 25
CHAPTER 3 THE COMPANY AUDIT 45
AUDIT COMMITTEE AND CORPORATE 66
CHAPTER 4
GOVERNANCE
CHAPTER 5 INVESTIGATION, DUE DILIGENCE AND FORENSIC 71
AUDIT
AUDIT OF CONSOLIDATED FINANCIAL 77
CHAPTER 6
STATEMENTS
CHAPTER 7 AUDIT OF PUBLIC SECTOR UNDERTAKINGS 83
CHAPTER 8 AUDIT OF INSURANCE COMPANIES 90
CHAPTER 9 AUDIT IN AUTOMATED INVIRONMENT 96
CHAPTER 10 PEER REVIEW AND QUALITY REVIEW 109
CHAPTER 11 AUDIT OF DIVIDENE 114
CHAPTER 12 LIABILITIES OF AUDITOR 126
CHAPTER 13 INTERNAL AUDIT, MANAGEMENT AND 130

OPERATIONAL AUDIT
CHAPTER 14 AUDIT PLANNING, STRATEGY AND EXECUTION 137
CHAPTER 15 RISK ASSESSMENT AND INTERNAL CONTROLS 140
CHAPTER 16 AUDIT OF NON- BANKING FINANCE COMPANY 141
CHAPTER 17 AUDIT OF BANKS 148
CHAPTER 18 AUDIT REPORT 156
CHAPTER 19 QUALITY CONTROL AND ENGAGEMENT 157

STANDARDS
MISCELLANEOUS MCQs 283
INTEGRATED CASE SCENIARIO MCQs 321
Advanced Auditing & Professional Ethics Way To Pinnacle
CHAPTER-1
PROFESSIONAL ETHICS
1. Which of the following is not self- interest threat for compliance with fundamental principles
a) Undue dependence on total fees from a client.
b) Potential employment with a client
c) Having a close business relationship with a client
d) A member of the assurance team being or having recently been, a director or officer of that client.
2. Which of the following is self- review threat for compliance with fundamental principles
a) Reporting on the operational of financial system after being involved in their design or
implementation.
b) Having prepared the original data used to generate records that are subject matter of the
engagement.
c) A member of the assurance team being or having recently been, a director or officer of that client.
d) All of the above
3. Examples of circumstances that may create advocacy threats:
a) Promoting shares in a listed entity when that entity is a financial statement audit client
b) Acting as an advocate of an assurance client in litigation or disputes with third parties
c) Both (a) and (b)
d) None of these
4. Examples of circumstances that may create familiarity threats
a) A member of the engagement team having close family relationship with a director or officer of
client
b) Long association of senior personnel with the assurance client
c) A former partner of the firm being a director or officer of the client.
d) All of the above
5. Examples of circumstances that may create intimidation threats
a) Being threatened with litigation
b) Accepting gifts or preferential treatment from a client
c) Long association of senior personnel with the assurance client
d) All of these
6. Which of the following is not particular of the register of member
a) Qualification of member
b) Single or married
c) Whether he holds Certificate of practice
d) Date of birth
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7. Which of the following is disqualification for the purpose of member of the institute
a) If age of person is not 21 years at the time of application
b) If person is unsound mind as per competent court
c) If person is undischarged insolvent
d) All of the above
8. Which of the following is a class of designation of the member of the Institute
a) Associate Chartered Accountant
b) Fellow Chartered Accountant
c) Both (a) and (b)
d) None of these
9. Which of the following is incorrect for associate chartered accountant
a) Any person shall, on his name being entered in the Register of Member, be deemed to have an
Associate Member of the Institute
b) After becoming member of the institute, member shall apply to for becoming associate member of
the Institute
c) Associate member is entitled to use the letter A.C.A after his name indicating that he is an Associate
member of the Institute
d) None of these
10. Which of the following is incorrect for fellow member of the Institute
a) Any person shall, on his name being entered in the Register of Member, be deemed to have a Fellow
Member of the Institute
b) On an application made and granted in the prescribed manner, the name of the prescribed
categories of members shall be entered in the Register as a fellow of the Institute
c) Fellow member is entitled to use the letter F.C.A after his name
d) None of these
11. On an application made and granted in the prescribed manner, the name of the following
categories of members shall be entitled in the Register as Fellow of the Institute
a) Members, being an Associate who has been in continuous practice in India for at least 5 years.
b) Members, being Associate possessing such qualification as prescribed continuous for at least 5
years
c) Both (a) and (b)
d) None of these
12. A Chartered Accountant is deemed to be guilty of professional misconduct if he not being FCA
but acts himself as FCA, under _________________________ of Chartered Accountants Act, 1949
a) Clause 1 of Part III of Second Schedule
b) Clause 1 of Part III of First Schedule
c) Clause 1 of Part IV of First Schedule
d) Clause 3 of Part III of First Schedule
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13. On which of the following ground, Council may remove from the Register the name of any
Member of the Institute
a) Who is dead
b) From whom a request has been received to that effect
c) Who has not paid any prescribed fee required to be paid by him
d) Any of the above
14. Which of the following is incorrect for use of designation by member of the Institute
a) Member in practice cannot use any designation other than that of a Chartered Accountant
b) Member who is not in practice can use any designation.
c) Member in practice can use any other additional designation in addition to Chartered Accountant.
d) None of these
15. Which of the following is incorrect
a) A member in practice can write down letters showing membership of approved bodies after his
name, i.e. he can write down degrees after his name
b) A member, who is not in practice can write down letters showing membership of approved bodies
after his name, i.e. he can write down degrees after his name
c) Both (a) and (b)
d) None of these
16. A Chartered Accountant in practice is deemed to be guilty of professional misconduct if he uses
any designation / expression other than Chartered on Visiting cards, Letter heads or Sign Board,
under ____________________ of Chartered Accountants, Act 1949
a) Clause 6 of Part I of First Schedule
b) Clause 7 of Part I of First Schedule
c) Clause 7 of Part 1 of Second Schedule
d) Clause 1 of Part II of Second Schedule
17. A member shall be deemed to be in practice, if he individually or in practice with CA in practice,
in consideration of remuneration received or to be received
a) Engages himself in practice of accountancy
b) Offers to perform or perform audit and related services
c) Renders professional services or assistance in accounting procedures
d) Any of the above
18. A members of the Institute of is not holding certificate of practice but engages himself as
practicing member in his professional capacity, shall be deemed to be guilty of professional
misconduct under __________________ of Chartered Accountants Act, 1949
c) Clause 1 of Part II of Second Schedule
d) Clause 1 of Part IV of First Schedule
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19. Any person who not being member of the Institute represents that he is a member of the
Institute or uses the designation Chartered Accountant, shall be deemed to be guilty of
professional misconduct under ________________ of Chartered Accountants Act, 1949
b) Clause 7 of part I of first Schedule
c) Clause 1 of Part II of Second Schedule
d) Nome of these
20. Any person who not being member of the Institute represents that he is a member of the
Institute or uses the designation Chartered Accountant, shall be punished
a) For first conviction fine up to Rs. 1,000. For Subsequent conviction fine up to Rs. 5,000 or
imprisonment up to 6 months or both.
b) For first conviction fine up to Rs. 5,000. For Subsequent conviction fine up to Rs. 10,000 or
c) For first conviction fine up to Rs. 1,000. For Subsequent conviction fine up to Rs. 10,000 or
d) For first conviction fine up to Rs. 10,000. For Subsequent conviction fine up to Rs. 20,000 or
21. Which of the following service shall not be rendered by member of the Institute
a) Activities of Stock broking
b) Activities of Underwriting of Securities
c) Activities of Portfolio Management
d) All of the above
22. Which of the following is management consultancy service and other service which can be
rendered by member in practice of the Institute
a) Personnel Recruitment and Selection
b) Acting as advisor or consultation to an issue on matters like Drafting of Prospectus, Memorandum,
Selection of various agencies connected with issue, namely Registrar to Issue, printers and
advertising agencies, advice on the post issue activities
c) Project Report Preparation and Feasibility Studies
d) All of the above
23. Which of the following is incorrect for name board of firm/individual member
a) A CA cannot use glow sign board
b) At residence of CA, name board of firm is allowed
c) A CA cannot use large sized board
d) None of these
24. What is meaning of branch office
a) A place where name board is fixed
b) A place which is mentioned in the letter head or any other document as a place of business
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c) (a) or (b)
d) None of these
25. If a CA in practice or a firm of CA has more than one office in India, each one of such offices should
be in the separate charger of
a) Any person having sound knowledge of accountancy
b) Any person who is member of the Institute who may be partner or whole time employee
c) Any person who is member of the Institute and holding Certificate of Practice
d) Any person who is member of the Institute and must be partner.
26. Separate in charge of second office is not required, if second office is situated in
a) Same premises in which first office is situated
b) In the same city
c) Within 50 Km, from the municipal limits of city in which first office is situated.
d) Any of the above
27. If a member in practice place name board of the firm at his place of residence, it will amount to
a) Professional Misconduct
b) Other Misconduct
c) No Misconduct
d) Both (a) and (b)
28. If a member in practice place name board of the firm at his place of residence, it will amount to
professional misconduct under____________________________ of Chartered Accountants Act, 1949
c) Clause 7 of Part I of First Schedule
d) Clause 1 of Part II of Second Schedule
29. A member practicing in hilly areas can open temporary office in plains in winter season and
separate in charge in not required for that office, but such second office in plains cannot be
opened for not more than _______________ months in winter season.
a) 1
b) 2
c) 3
d) 4
30. How many parts therein First Schedule of the Chartered Accountants Act, 1949
a) 3
b) 4
c) 5
d) 6
31. How many parts therein Second Schedule of the Chartered Accountants Act, 1949
a) 3
5
b) 4
c) 5
d) 6
32. Which Part of First Schedule deals with Other Misconduct of the Member of the Institute
a) Part I
b) Part II
c) Part III
d) Part IV
33. Which Part of the Second Schedule deals with Other Misconduct of the Member of the Institute
a) Part I
b) Part II
c) Part III
d) Part IV
34. Part I of First Schedule of the Chartered Accountants Act, 1949 deals with
a) Professional Misconduct in relation to Members in Practice
b) Professional Misconduct in relation to Member in Service
c) Professional Misconduct in relation to Members Generally
d) Other Misconduct in relation to Members Generally
35. Part II of First Schedule of the Chartered Accountants Act, 1949 deals with
36. Part III of First Schedule of the Chartered Accountants Act, 1949 deals with
37. Part IV of First Schedule of the Chartered Accountants Act, 1949 deals with
38. Part I of Second Schedule of the Chartered Accountants Act, 1949 deals with
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39. Part II of Second Schedule of the Chartered Accountants Act, 1949 deals with
40. Part III of Second Schedule of the Chartered Accountants Act, 1949 deals with
41. Complaints against member of the ICAI of allege misconduct along with prescribed fee shall be
made to
a) Board of Discipline
b) Disciplinary Directorate
c) Disciplinary Committee
d) Quality Review Board
42. Matters of alleged Misconducts falling under First Schedule are placed before
43. Matters of alleged Misconducts falling under Second Schedule or First & Second Schedule, both
are placed before
44. Any member aggrieved by order of Board of Discipline / Disciplinary Committee can prefer an
appeal within ________ days before________________.
a) 30 Days, Appellate Authority
b) 60 Days, Council of the Institute
c) 90 Days, Council of the Institute
d) 90 Days, Appellate Authority
45. Appellate Authority of the ICAI can
a) Confirm, modify or set aside the order of Board of Discipline/Disciplinary Committee
b) Impose, set aside, Reduce or enhance penalty
c) Remit the case to the Board of Discipline or Disciplinary Committee for reconsideration
d) Any of the above
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46. A CA is deemed to be guilty of professional misconduct under ______________________of the Chartered

Accountants Act, 1949, if he does not supply the information called for, or does not comply with
the requirement asked for by the Institute, Council or any of its Committees, Director
(Discipline), Board of discipline, Disciplinary Committee, Quality Review Board or Appellate
Authority
a) Clause 1 of Part I of the First Schedule
b) Clause 2 of Part III of the First Schedule
c) Clause 3 of Part II of the Second Schedule
d) Clause 1 of Part II of the Second Schedule
47. A CA is deemed to be guilty of professional misconduct under ______________________of the Chartered
Accountants Act, 1949, if he includes in any information/statement/return/form to be
submitted to the Institute, Council or any of its Committees, Director (Discipline), Board of
discipline, Disciplinary Committee, Quality Review Board or Appellate Authority, particulars
knowing them to be false.
48. A CA in practice is deemed to be guilty of professional misconduct under ____________________ of the
Chartered Accountants Act, 1949, if he allows any person to practice in his name as a chartered
accountant in practice unless he is also a CA in practice and is in partnership with or employed
by himself
b) Clause 1 of Part II of the Second Schedule
c) Clause 1 of Part I of the Second Schedule
d) Clause 4 of Part I of the First Schedule
49. A CA can pay any share, commission or brokerage in fee/profit of his professional business to
which of the following
a) Doctor
b) Bachelor in Technology
c) Bachelor in Commerce
d) Professor
50. If a CA in practice pays/allows or agrees to pay allow any share, commission or brokerage in
fee/profits of his professional business to any person except for certain exception, then such CA
shall be deemed to be guilty of professional misconduct under________________________ of the
Chartered Accountants Act, 1949
b) Clause 2 of Part II of First Schedule
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d) Clause 2 of Part I of First Schedule

51. With which of following a member in practice can share his fees or profit of professional
business
a) Chartered Accountant
b) Retired Partner
c) Legal Representative of deceased partner
d) All of the above
52. With which of the following member of professional body, a CA in practice cannot share his fees
or profit of professional business
a) ICSI
b) Bar Council of India
c) AICPA
d) Indian Institute of Architect
53. A CA in practice in practice cannot enter into partnership with which of the following person
a) Chartered Accountant who is holding Certificate of Practice
b) Architect
c) Advocate
d) Company Secretary
54. A CA in practice is deemed to be guilty of professional misconduct under _________________________ of
the Chartered Accountants Act, 1949, if he enters into partnership with any person other than
those with which partnership is allowed.
b) Clause 2 of Part I of the First Schedule
c) Clause 4 of Part I of the First Schedule
55. A CA in practice is deemed to be guilty of professional misconduct under _____________________ of the
Chartered Accountants Act, 1949, if he secures any professional business through services of a
person who is not an employee/partner of such CA or by means not open to a chartered
accountant (Except for certain exceptions)
56. A CA in practice is deemed to be guilty of professional misconduct under ___________________ of the
Chartered Accountants Act, 1949, if he solicits client or professional work directly or indirectly
by circular or advertisement or personal communication or interview or any other means.
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c) Clause 6 of Part II of the First Schedule

a) A CA can respond to tenders issued by the various users of professional services or organizations
and secure professional work as consequence.
b) A CA can respond to tenders issued by on organization or user of professional services in the areas
of services which are open to other professional along with the chartered accountant.
c) A CA can respond to tenders issued by an organization or user of professional services in areas of
services which are exclusively reserved for chartered accountant and no minimum fees is
prescribed in tender document.
d) A CA can respond to tenders issued by an organization or user of professional services in areas of
services which are exclusively reserved for chartered accountant and minimum fees is prescribed
in tender document.
58. Pick the odd one
a) A member may request another chartered accountant in practice for professional work
b) A member may advertise for soliciting work.
c) A member is not permitted to use the less open method of circulating letters to a small field of
possible clients.
d) A member may advertise change in partnership, address of practice and telephone numbers
provided it contains a bare statement of facts and are of distribution and number of insertions in
newspaper should be limited.
a) In respect of organizations, where a panel of CA’s exists, a member is not free to request to place his
name on the panel.
b) Roving enquiries for existence of panel of CA is not permitted for chartered accountant in practice.
c) Entries in telephone directory by making a special request or by means of additional payment are
not permitted for chartered accountant in practice.
d) A member in practice can issue hand bills containing their name to his client.
a) A CA in practice can write books and get them published
b) A CA in practice can mention his name in the book written by him
c) A CA in practice can mention name of his firm in the book written by him
d) A CA in practice can mention his personal / academic details in the book written by him.
61. Which of the following in not a permitted feature for a member in practice
a) Issue of greeting card or invitation for marriage, religious ceremonies, opening of office and letter
regarding changes in office and indication of designation of Chartered Accountant and name of firm
and address.
b) Public interview subject to condition that it should not result in publicity.
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c) Posting particulars on website, subject to condition

d) Sending enquiries to prospective clients
62. Which of the following in incorrect w.r.t. guidelines for posting the particulars on website
a) Website may in any format
b) Website should not be in attractive colours
c) Website should run on pull mode
d) Only passport size photograph is allowed on website.
63. Which of the following is correct w.r.t guidelines for posting the particulars on website
a) Year of establishment of firm can be mentioned on website.
b) Website should be in the name of CA/CA Firm, it cannot be in different name
c) Website should be in specified format
d) All of the above
64. A CA in practice is deemed to be guilty of professional misconduct under ____________________ if he
advertises his professional attainment or services.
a) A common logo is prescribed by the ICAI. But member can use any other logo
b) If a member in practice is Member of Parliament then he can use designation of “Member of
Parliament” in addition to Chartered Accountant.
c) Date of establishment of firm can be mentioned in visiting card, letter heads or sign board.
d) All of the above
66. A CA in practice is deemed to be guilty of professional misconduct under __________________ of the
Chartered Accountants Act, 1949 if he allows a person not CA; or CA, but not his partner, to sign
on his/his partner’s behalf any Balance Sheet, Profit & Loss Account, Report or Financial
Statements.
d) Clause 10 of Part I of the Second Schedule
67. A CA in practice is deemed to be guilty of professional misconduct under _________________ if he
engages himself in any business / occupation other than the profession of CA unless permitted
by council so to engage.
a) Clause 7 of Part I of the Second Schedule
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d) Clause 1 of Part IV of the Second Schedule

68. For which of the following occupation general permission has been granted by the Council of
the ICAI to member in practice
a) Valuation of paper, acting as paper setter, head examiner or moderator for any exam
b) Interest in family business concern
c) Editorship of journal other than professional journals
d) Part time/ Full time tutorship under any educational institution
69. For which of the following occupation by member in practice, specific and prior approval of the
Council of the ICAI is required
a) Office of Managing Director/Whole time Director of a body corporate
b) Interest in educational institute
c) Full time /part time employment in business concern
d) All of the above
Chartered Accountants Act, 1949 if he accepts an appointment as auditor of a company without
ascertaining from it whether requirements of section 139, 140 and 142 and read with 141 of the
Companies Act, 2013, in respect of such appointment have been duly complied with
d) Clause 1 of Part III of the Second Schedule
71. A CA in practice is deemed to be guilty of professional misconduct under ______________ of the
Chartered Accountants Act, 1949, if he accepts position as auditor previously held by another
Chartered Accountant without first communicating with him in writing.
a) Incoming auditor is required to send his communication by registered post acknowledgement due
or by hand against an acknowledgement in writing or under certificate of posting.
b) Outgoing auditor must reply as early as possible
c) In case the retiring auditor does not reply within a reasonable time, incoming auditor may start his
own work
d) The requirement for communication with previous auditor being a chartered accountant in practice
would apply to all types of audit.
73. Advertisement in press is allowed but which one of the following case
a) Recruiting staff in own office
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b) Recruiting staff or acquiring / disposing business / property on behalf of client

c) Sale of business / property, when CA is acting as trustee, liquidator or receiver.
d) All of the above
Chartered Accountants Act, 1949 if he charges or offers to charge with respect to any
professional employment fees which are based on percentage of profit or contingent upon
findings/result of such wok except in permissible cases under the Act.
75. A CA in service is guilty of professional misconduct under _____________________ of the Chartered
Accountants Act, 1949, if he pays or allows or agree to pay directly or indirectly to any person
any share in emolument of employment undertaken by him.
a) Clause 1 of Part II of the Second schedule
b) Clause 1 of Part II of the First Schedule
c) Clause 1 of Part III of the First Schedule
d) Clause 1 of Part IV of the First Schedule
76. A CA in service is guilty of professional misconduct under _______________________ of the Chartered
Accountants Act, 1949, if he accepts or agrees to accept any part of fee, profit or gains from a
lawyer, a CA, broker, agent, customer of such employer by way of commission or gratification.
a) Clause 2 of Part II of the First Schedule
c) Clause 3 of Part III of the Second Schedule
d) Clause 1 of Part IV of the Second Schedule
77. A CA is deemed to be guilty of professional misconduct under __________________ of the Chartered
Accountants Act, 1949 if he while inviting professional work from another CA or while
responding to tenders or inquiries gives information knowing it to be false.
a) Clause 2 of Part III of the Second Schedule
78. If a member of the Institute, whether in practice or not brings disrepute to the profession or the
Institute as a result of his action whether or not related to his professional work, it will amount
to
a) Professional Misconduct
b) Other Misconduct
c) Both (a) and (b)
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d) None of these
79. A member of the Institute, whether in practice or not, shall be deemed to be guilty of other
misconduct under ________________ of the Chartered Accountants Act, 1949, if he brings disrepute
to the profession or the Institute as a result of his action whether or not related to his
professional work
c) Clause 1 of Part IV of the First Schedule
80. A member of the institute, whether in practice or not, shall be deemed to be guilty of _______________
under _____________________ of the Chartered Accountants Act, 1949, if he is held guilty by civil or
criminal court for an offence which is punishable with imprisonment for a term __________________.
a) Other Misconduct, First Schedule, not exceeding 6 months
b) Professional Misconduct, First Schedule , not exceeding 6 months
c) Other Misconduct, Second schedule, not exceeding 6 months
d) Professional Misconduct, Second Schedule, exceeding 6 months.
81. A CA in practice is deemed to be guilty of professional misconduct under ______________________ of
the Chartered Accountants Act, 1949, if he discloses information acquired in course of his
professional engagement to any person other than his client.
b) Clause 10 of Part I of the Second Schedule
82. Which of the following is incorrect w.r.t. taxation frauds committed by client but member is not
involved in such fraud
a) Member is under no obligation to inform tax authorities about taxation frauds
b) If the services are dispensed with before completion of the engagement, these is no further duty to
disclose
c) In case of suppression of current accounts, the client should be advised to make a full disclosure, if
he refuses, member should make a complete reservation in his report and disassociate himself with
income tax return.
d) If the fraud relates to past years accounts examined and reported by the members himself, on the
basis of which the tax assessment in the past has been made, he should advise the client for a
disclosure. In case the client refuses, he should disassociate himself from the case and make a report
to authorities that the accounts examined by him previously unreliable and give details of
information w.r.t frauds by his client.
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83. A CA in practice is deemed to be guilty of professional misconduct under __________________ of the

Chartered Accountants Act, 1949 if he expresses his opinion on financial statements of any
business or enterprise in which he, his firm or a partner in his firm has a substantial interest
84. ‘P’, a CA in practice, accepts appointment as statutory auditor for LMN Pvt. Ltd. ‘Q’, brother of ‘P’
has substantial interest in LMN Pvt. Ltd. ‘P’ is guilty of professional misconduct under
_______________ of the Chartered Accountants Act, 1949
85. A CA in practice in practice is deemed to be guilty of professional misconduct under
_________________ of the Chartered Accountants Act, 1949, if he permits his/his firm’s name to be
used in connection with an estimate of earning contingent upon future transactions in a manner
which may lead to be belief that he vouches for the accuracy of forecast.
86. A CA in practice can participate in the preparation of financial forecast and also can review then
provided he indicates clearly in his report:
a) The sources of information
b) The basis of forecast
c) The major assumption made in arriving at such forecast so long as he does not vouch for the
accuracy of the forecast
d) All of the above
87. If a CA in practice expresses an opinion on the financial statements without conducting
examination, he shall be guilty of professional misconduct under ___________________ of the
Chartered Accountants Act, 1949.
d) All of the above
88. A CA in practice is deemed to be guilty of professional misconduct under _________________ of the
Chartered Accountants Act, 1949, if he fails to disclose a material fact known to him which is not
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disclosed in financial statements but disclosure of which is necessary in making such financial
statements when he is concerned with that financial statement in professional capacity
d) Clause 6 of Part I of the Second schedule
89. If a CA in practice fails to pay monthly stipend to his articles, he is deemed to be guilty of
professional misconduct under ______________ of the Chartered Accountants Act, 1949.
d) Clause 1 of Part II of the Second schedule
90. Loans were given of the funds of an Employees Provident Fund to the employer company in
contravention of the applicable rules. As the auditor of the said Provident Fund, M discloses the
contraventions to the Trustees of the fund, but failed to do so to members of the fund. Auditor
is guilty of professional misconduct under _______________ of the Chartered Accountants Act, 1949
91. A CA in practice is deemed to be guilty of professional misconduct under _________________ of the
Chartered Accountants Act, 1949, if he fails to report a material misstatements known to him
to appear in a financial statement with which he is concerned in professional capacity
92. Where a Chartered Accountant failed in his duty to check the bank balances with the pass book
of the bank and failed to obtain certificates of balances from the bankers in respect of balances,
he shall be guilty of professional misconduct under ______________________ of the Chartered
Accountants Act, 1949.
b) Clause 5 of Part I of the Second schedule
93. Mr. D, a practicing CA, did not complete his work relating to the audit of accounts of a company
and had not submitted his audit report in due time to enable the company to comply with
16
statutory requirements. Mr. D is guilty of professional misconduct under ________________ of the

c) Clause 8 of Part I of the Second schedule
94. A CA in practice is deemed to be guilty of professional misconduct under _____________________ of the
Chartered Accountants Act, 1949 if he fails to invite attention to any material departure from
generally accepted procedures of audit applicable to circumstances.
c) Clause 8 of Part I of the Second schedule
95. If a CA in practice takes loan from any enterprise in which his article is interested, he is deemed
to be guilty of professional misconduct under _______________ of the Chartered Accountants Act,
1949
b) Clause 1 of Part II of the Second schedule
d) Clause 1 of Part IV of the Second schedule
96. If a CA in practice fails to keep money of his client other than fees or remuneration or money
meant to be expended in separate banking account or to use such money for the purpose for
which they are intended within a reasonable time, he shall be deemed to be guilty of
professional misconduct under __________________ of the Chartered Accountants Act, 1949
97. If exceptions are sufficient material to negate the expression of opinion, but still auditor
expresses an opinion, auditor shall be guilty of professional misconduct under _____________________
of the Chartered Accountants Act, 1949
a) Clause 2 of Part I of the Second schedule
d) All of the above
98. If a CA being an employee discloses confidential information acquired in the course of his
employment, he shall be deemed to be guilty of professional misconduct under _________________ of
the Chartered Accountants Act, 1949
17

b) Clause 2 of Part II of the First Schedule
c) Clause 1 of Part II o the Second Schedule
99. A CA shall be deemed to be guilty of professional misconduct __________________ of the Chartered
Accountants Acts, 1949, if he defalcates or embezzles money received in his professional
capacity.
a) Clause 4 of Part II of the Second Schedule
100. A member of the institute, whether in practice or not, shall be deemed to be guilty of _______________
under _____________________ of the Chartered Accountants Act, 1949, if he is held guilty by civil or
criminal court for an offence which is punishable with imprisonment for a term __________________.
a) Other Misconduct, First Schedule, exceeding 6 months
b) Professional Misconduct, First Schedule , not exceeding 6 months
c) Other Misconduct, Second schedule, exceeding 6 months
d) Professional Misconduct, Second Schedule, exceeding 6 months.
101. A CA is deemed to be guilty of professional misconduct under ____________________ the Chartered
Accountants Act, 1949 if contravenes any of the provisions of this Act or Regulations made there
under, or any guidelines issued by the Council.
102. If a CA in practice fails to maintain proper books of accounts including Cash Book / Ledger, he is
deemed to be guilty of professional misconduct under __________________ of the Chartered
a) Clause 4 of Part II of the Second Schedule
a) Practice work should be performed only after obtaining Certificate of Practice
b) A CA in practice will be guilty of professional misconduct if he accepts auditorship of a concern
while he is indebted to the concern or has given any guarantee for limits fixed in the statute and in
other cases exceeding Rs. 10,000.
18
c) A member may accept appointment as auditor of an entity in case the undisputed fees of another
CA for carrying out at statutory audit has not been paid.
d) There is no restriction on minimum fees to be charged
104. Which of the following is other misconduct by member of the ICAI
a) Where a CA makes a material misrepresentation
b) Where a CA retains the books of accounts and documents of the client and fails to return these to
the client on request without reasonable cause
c) Where a CA uses the services of his article for the purpose other than professional practice.
d) All of the above
105. ‘J’ a practicing CA has not maintained the record of audit assignments of the companies on the
ground that he is conducting lesser number of audit prescribed under section 14193)(g) of the
companies Act, 2013. ‘J’ is:
a) Not Guilty
b) Guilty of Other Misconduct
c) Guilty of Professional Misconduct
d) None of these
106. Mr. Fair a practicing CA, was appointed to carry out a Balance Sheet Audit of a Non-Profit
Organisation. The Internal Auditor detect certain irregularities at one of the branches of the
organisation which Mr. Fair has failed to detect. Mr. Fair is
a) Not Guilty
d) None of these
107. M/S ABC & Co, a firm of Chartered Accountants, having 3 partners accepts an audit assignment
of a private limited company for a fee of Rs. 4,000/-. M/S ABC & Co is
a) Not Guilty
d) None of these
108. Mr. C, a practicing CA, in the course of audit of listed company discovered serious violations of
the provisions of the Companies Act, 2013, informed the Registrar of Companies out of public
interest. Mr. C is:
a) Guilty of Other Misconduct
b) Guilty of Professional Misconduct
c) Not Guilty
d) None of these
19
109. A Firm of Chartered Accountants was appointed by a company to evaluate the costs of various
products manufactured by it for their information system. One of the partners of the firm of
chartered accountants was a non-executive director of the company. Firm is:
a) Guilty of Other Misconduct
b) Guilty of Professional Misconduct’
c) Not Guilty
d) None of these
110. Mr. ‘X’, a practicing CA was appointed to present a company before the tax authorities. He
submitted on behalf of his client certain information and explanation to the authorities, which
were found to be false and misleading. Mr. ‘X’ is
a) Not Guilty
c) Guilty of Other Misconduct
d) None of these
111. In which of the following Firm Name of practicing CA is not allowed
a) Publication of Books/Articles
b) Prospectus of Co in which CA is director
c) Appearance on TV/Film/Radio/Press/Seminar
d) All of the above
112. Mr. G while applying for a certificate of practice, did not fill the column which solicit information
about his engagement in other occupation or business. Mr. G is:
a) Not Guilty
c) Guilty of Other Misconduct
d) None of these
113. Mr. ‘P’, a practicing CA acting as liquidator of AB & Co charged his professional fees on
percentage fees on percentage of realization of assets. Mr. ‘P’ is:
a) Guilty of Professional misconduct
c) Not Guilty
d) None of these
114. A CA in practice can charge his fees on basis of percentage for which of the following case
a) In case he is acting as Receiver or Liquidator
b) In case he is auditor of Co-Operative Society
c) For Services of cost optimization
d) All of the above
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a) Widow or legal representative of deceased partner can continue to receive a share of profits in the
firm provided the partnership agreement provides the same
b) In case of death of partner of partnership firm, goodwill of partnership firm can be sold
c) In case of sole proprietorship firm, if sole proprietor is died, his widow can sale/transfer goodwill
of sole proprietorship firm
d) None of these.
116. In case of sole proprietorship firm, if sole proprietor is died, his widow can sale/transfer
goodwill of sole proprietorship firm, provided ICAI’s permission to practice in the deceased’s
firm name is sought within ___________ year of death
a) 1
b) 2
c) 3
d) 4
117. ‘K’, a practicing CA gave 50% of the audit fees receives by him to ‘L’, who was not a CA, under the
nomenclature of office allowance and such as arrangement continued for a number of years. ‘K’
is :
a) Not Guilty
b) Guilty of Professional Misconduct under First Schedule
c) Guilty of Professional Misconduct under Second Schedule
d) Guilty of Other Misconduct
118. Mr. ‘X’, a CA in practice writes a book, in which he mention his name, personal details, academic
details and name of his firm without address. Mr. ‘X’ is
a) Not Guilty
c) Guilty of Professional Misconduct under Second Schedule’
d) Guilty of Other Misconduct.
119. An advertisement of coaching / teaching activities by a member in practice may amount to
___________ solicitation and may therefore be guilty of professional misconduct under
_________________ of the Chartered Accountants Act, 1949.
a) Direct, Clause 5 of Part I of the First Schedule
b) Direct, Clause 6 of Part I of the First Schedule
c) Indirect, Clause 5 of Part I of the First Schedule
d) Indirect, Clause 6 of Part I of the First Schedule
120. In which of the following Firm Name of CA in Practice is allowed
a) Greeting card
b) Publication in telephone / other directories
c) Press note on success of candidate in exam
d) All of the above
21
121. Mr. ‘B’, a practicing CA as well as a qualified lawyer, was permitted by the bar council to practice
as a lawyer also. He printed his visiting card where he mentioned his designation as Chartered
Accountant and Advocate. Mr. ‘B’ is guilty professional misconduct under _________________ of the
d) Clause 1 of Part II of the Second schedule
122. Mr. A, a CA in practice wrote several letters to Government Department, pointing out seniority
of his firm, sending his life sketch that he had a glorious record of service to the country as well
as to the organisation of accountancy profession with a view to get audit work. Mr. A is guilty of
professional misconduct under
d) Both (b) and (c).
123. Mr. ‘X’, a practicing CA has printed visiting cards which besides other details also carries his
photo. Mr. X is:
a) Not Guilty
c) Guilty of Professional Misconduct under Second Schedule
d) Guilty of Other Misconduct
124. Mr. ‘X’, a practicing CA has printed visiting cards which besides other details also carries his
photo. Mr. X is guilty of professional misconduct under ____________________ of the Chartered
125. A CA in practice may accept the appointment
a) As a liquidator, trustee, executor, administrator, arbitrator, receiver, advisor
b) As representative for costing, financial or taxation matter
c) An appointment made by Central government or State Government or Court of Law or any other
legal authority
d) All of the above
126. Resolution passed by the Council of ICAI, pursuant to section 2(2)(iv) of the Chartered
Accountants Act, 1949, permit a CA in practice to render entire range of “Management
22
Consultancy and Other Services”. Which of the following is not covered within the meaning of
“Management Consultancy and Other Services”?
a) Quality Audit
b) Statutory Audit
c) Environment Audit
d) Energy Audit
127. The specified number of tax audit assignments that ab auditor, as an auditor or as a partner of
a firm, ca accept, is:
a) 20
b) 30
c) 45
d) 60
128. Mr. A is a CA who is working as a controller for PQR Ltd in capacity of an employee. Which
statement is true?
a) He may use the Chartered Accountant designation on company transmittals but not on his business
card.
b) He may use the Chartered Accountant designation on his business cards as long as he does not
mention PQR Ltd or his title as controller.
c) He may not use the Chartered Accountant designation because he is not in public practice
d) He may use the Chartered Accountant designation on his business cards if he also puts his
employment title on them.
129. Mr. X, a Chartered Accountant is practice accepts an audit in respect of Partnership Firm, on
condition that the partnership firm shares 5% of the profits of the firms for that year. On the
basis on above which of the following is correct?
a) Mr. A can accept the professional work and his fee can be on the based on profits of the firm.
b) Mr. A is guilty of professional misconduct and cannot place such condition
c) Mr. A can accept maximum 5%
d) None of the above.
130. Accepting gifts or preferential treatment from a client result into:
a) Intimidation Threat
b) Familiarity Threat
c) Advocacy Threat
d) Self-Interest Threat
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Answers
1 d 21 d 41 b 61 d 81 c 101 b 121 c
2 d 22 d 42 a 62 b 82 d 102 d 122 d
3 c 23 b 43 c 63 a 83 c 103 c 123 b
4 d 24 c 44 d 64 c 84 b 104 d 124 c
5 a 25 b 45 d 65 d 85 a 105 c 125 d
6 b 26 d 46 b 66 c 86 d 106 a 126 b
7 d 27 a 47 c 67 b 87 d 107 a 127 d
8 c 28 c 48 a 68 a 88 c 108 b 128 d
9 b 29 c 49 b 69 d 89 d 109 c 129 b
10 a 30 b 50 d 70 c 90 a 110 a 130 b
11 c 31 a 51 d 71 b 91 b 111 d
12 b 32 d 52 c 72 a 92 d 112 b
13 d 33 c 53 a 73 d 93 b 113 c
14 c 34 a 54 c 74 c 94 a 114 d
15 d 35 b 55 d 75 b 95 b 115 b
16 b 36 c 56 b 76 a 96 c 116 a
17 d 37 d 57 c 77 c 97 b 117 b
18 c 38 a 58 b 78 b 98 d 118 b
19 d 39 c 59 a 79 d 99 a 119 d
20 a 40 d 60 c 80 a 100 c 120 d
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CHAPTER-2
AUDIT UNDER FISCAL LAWS
1. As per Sec. 44AB of Income Tax Act, 1961, tax audit is required in which of following cases:
a) Assessee carrying on business where total sales or turnover or gross receipts exceeds Rs 50 lakhs in
any previous year
b) Assessee carrying on business where total sales or turnover or gross receipts exceeds Rs 100 lakhs
in any previous year
c) Assessee carrying on business where total sales or turnover or gross receipts was Rs 200 lakhs or
more in any previous year
d) Assessee carrying on business where total sales or turnover or gross receipts was Rs 100 lakhs or
more in any previous year and his income exceeds the maximum exempted income
2. As per Sec. 44AB of Income Tax Act, 1961, tax audit is required in which of following cases:
a) Assessee carrying on profession where gross receipts exceed Rs. 50 Lakhs in any previous year and
his income exceeds the maximum exempted income
b) Assessee carrying on profession where gross receipts exceed Rs. 100 Lakhs in any previous year and
his income exceeds the maximum exempted income
c) Assessee carrying on profession where gross receipts exceed Rs. 50 Lakhs in any previous year
d) Assessee carrying on profession where gross receipts exceed Rs. 100 Lakhs in any previous year
3. As per Sec.44AB of Income Tax Act, 1961, tax audit is required in which of following cases:
a) Assessee carrying on profession covered u/s 44ADA and declaring lower income than deemed u/s
44ADA, irrespective of income earned
b) Assessee carrying on profession covered under section 44ADA and declaring lower income than
deemed u/s 44ADA and his income exceeds the maximum exempted amount
c) Assessee carrying on profession covered under section 44ADA where gross receipts exceed Rs 25
Lakhs
d) Both (b) and (c)
4. Section 44AB is not applicable to assesses covered under section:
a) 44B relating to shipping business
b) 44BB relating to exploration of mineral oil
c) 44BBB relating to foreign companies engaged in Civil Construction
d) All of the above
5. Mr. A is having turnover of Rs 1.5 cr from his business in F.Y. 18-19. He has opted presumptive
taxation u/s 44AD
a) As per Sec. 44AB of Income Tax Act, 1961, tax audit is required as turnover exceeds Rs. 1 cr
b) As per Sec. 44AB of Income Tax Act, 1961, tax audit is not required as turnover does not exceed Rs. 2
cr
c) As per Sec. 44AD of Income Tax Act, 1961, tax audit is required as turnover exceeds Rs. 1 cr
25
d) As per Sec. 44AD of Income Tax Act, 1961, tax audit is not required as turnover does not exceed Rs.
2 cr
6. Mr. Y aged 50 years is having turnover from business in F.Y. 18-19 of Rs 90 Lakhs from which he
is having loss of Rs. 2,00,000. He is also having salary income of Rs. 10,50,000. During F.Y. 17-18,
he opted for presumptive taxation.
a) Mr. Y is not required to get his accounts audited since turnover is less than Rs. 1 Cr
b) Mr. Y is not required to get his accounts audited since turnover is less than Rs. 2 Cr
c) Mr. Y is required to get his accounts audited
d) None of the above
7. Mr. X deals in commodity and purchase and sales of that commodity is ultimately settled
otherwise than by the actual delivery. During the financial year 2018-19 he purchased the
commodity worth Rs. 95 Lacs and sold the same commodity for Rs. 104 Lacs and the contract
was settled otherwise than by the actual delivery
a) Mr. X is liable for audit u/s 44AB of Income Tax Act, 1961, as his turnover (i.e. Rs. 104 Lacs) exceeds
Rs. 1 Cr
b) Mr. X is not liable for audit u/s 44AB of Income Tax Act, 1961, as turnover (i.e. Rs. 95 Lacs) does not
exceed Rs. 1 Cr
c) Mr. X is not liable for audit u/s 44AB of Income Tax Act, 1961, as his turnover (i.e. Rs. 9 Lacs) does
not exceed Rs. 1 Cr
d) Mr. X is liable for tax audit u/s 44AB of Income Tax Act, 1961, as he is engaged in speculative business
8. Concession Ltd. is engaged in the business of manufacturing of threads. The company recorded
the turnover of Rs. 1.13 crore during the financial year 2018-19 before adjusting the following:
Discount allowed in the Sales Invoice Rs. 8,20,000
Cash discount (other than allowed in Cash memo/ sales invoice) Rs. 9,20,000
Trade discount Rs. 2,90,000
Commission on Sales Rs. 6,00,000
Sales Return (F.Y. 2017-18) Rs. 1,60,000
Sales of Investment Rs. 6,60,000
Effective turnover to be considered for the prescribed limit of tax audit will be:
a) Rs. 1,00,30,000
b) Rs. 91,30,000
c) Rs. 97,70,000
d) Rs. 1,01,90,000
9. M/s Ltd. engaged in business presented the following information to you for the FY 18-19.
Turnover made during the year Rs. 124 Lacs. Goods returned in respect of sales made during FY
17-18 is Rs. 20 Lacs not included in the above. Cash discount allowed to his customers Rs. 1 Lac
for prompt payment. Special rebate allowed to customer in the nature of trade discount Rs. 5
Lacs. Effective turnover to be considered for the prescribed limit of tax audit will be:
a) Rs. 1,23,00,000
b) Rs. 1,18,30,000
c) Rs. 98,00,000
d) Rs. 99,00,000
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10. A Co-operative society having receipts over Rs. 2 crores have appointed Mr. D as the statutory
auditors. Mr. D is eligible to do the same under the State Co-operative Societies Act. Mr. D is not
a chartered accountant
a) Mr. D is eligible to conduct the tax audit of the society under section 44AB of the Income Tax Act,
1961
b) Mr. D is not eligible to conduct the tax audit of the society under section 44AB of the Income tax Act,
1961
c) Audit Report of Mr. D under the State Co-operative Societies Act is not acceptable u/s 44AB of Income
Tax Act, 1961
d) Audit Report of Mr. D under the State Co-operative Societies Act is acceptable as tax audit report u/s
44AB of Income Tax Act, 1961
11. Under the provisions of Sec. 44AB of Income Tax Act,1961, the audit shall be conducted by an
Accountant as explained u/s 288(2) of the Act. The Term “Accountant” means a chartered
accountant as defined in Sec. 2 of the Chartered Accountants Act, 1949, who holds a valid
certificate of practice, but does not include an individual whose relative:
a) Is holding any security of or interest in the assessee of the face value not exceeding Rs. 1,00,000
b) Is indebted to the assessee for an amount not exceeding Rs. 1,00,000
c) Has given a guarantee for an amount not exceeding Rs. 1,00,000
d) All of the above
certificate of practice, but does not include an individual who:
a) Is holding any security of or interest in the assessee
b) Is indebted to the assessee for an amount not exceeding Rs. 5,00,000
c) Has given a guarantee or provided any security in connection with the indebtedness of any third
person to the assessee for an amount not exceeding Rs. 1,00,000
d) All of the above
certificate of practice, but does not include an individual who has been convicted by:
a) a court of an offence involving fraud and a period of ten years has not elapsed from the date of such
conviction
b) ITAT of an offence involving fraud and a period of ten years has not elapsed from the date of such
conviction
c) a court of an offence involving fraud and a period of five years has not elapsed from the date of such
conviction
d) ITAT of an offence involving fraud and a period of ten years has not elapsed from the date of such
conviction
27
14. Mr. A, is a renowned lawyer. During the previous year, he collected GST of Rs 25 lakhs but utilized
it for his personal use. The department issued a show cause notice to him as to why the tax,
collected by him, is not deposited to the government account. He appeared before the
department and stated his inability to pay the sum due to financial crisis. The proceedings are
still pending.
Mr. A instructed his tax auditor not to disclose his GST registration details, while filling
particulars to be furnished in Form No. 3CD, believing that the income tax department might
trace his scrutiny proceedings details pending before department which would bring disrepute
to his profession.
a) Instruction of Mr. A is acceptable as Form 3CD requires tax auditor to furnish the details of
Permanent Account Number, not any other registration number
b) Instruction of Mr. A is not acceptable as clause 4 of Form 3CD requires tax auditor to furnish the
details of registration number or other identification number of assessee, if assessee is required to
pay indirect taxes like GST etc
c) Instruction of Mr. A is not acceptable as clause 41 of Form 3CD requires tax auditor to furnish the
details of demand raised or refund issued during the previous year under any tax laws other than
Income Tax Act, 1961 and Wealth Tax Act, 1957 along with details of relevant proceedings
15. Which clause of Form 3CD requires the tax auditor to report the method of valuation of closing
stock employed in the previous year
a) Clause 11 of Form 3CD
b) Clause 13 of Form 3CD
c) Clause 14 of Form 3CD
d) Clause 16 of Form 3CD
16. Clause 15 of Form 3CD requires the tax auditor to report the particulars of the capital asset
converted into stock-in trade. The particulars to be reported are:
a) Description of capital asset; date of acquisition; cost of acquisition; amount at which the asset is
converted into stock-in-trade
b) Description of capital asset; date of conversion; cost of acquisition; amount at which the asset is
c) Description of capital asset; date of acquisition; mode of acquisition; amount at which the asset is
d) Description of capital asset; date of conversion; cost of acquisition; amount at which the converted
asset is actually sold
17. Clause 16 of Form 3CD requires the tax auditor to report certain amounts not credited to the
profit and loss account. Which of the following is not required to be reported under Clause 16:
a) The items falling within the scope of section 28
b) The pro forma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of
sales tax or value added tax where such credits, drawbacks or refunds are admitted as due by the
authorities concerned
28
c) Refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and
Wealth Tax Act, 1961 along with details of relevant proceedings
d) Escalation claims accepted during the previous year
18. Clause 17 of Form 3CD requires the tax auditor to furnish certain information in a situation
where any land or building or both is transferred during the previous year for a consideration
less than value adopted or assessed or assessable by any authority of a ________
a) State Government referred to in Sec. 43CA
b) State Government referred to in Sec. 43 CA or 50C
c) Central Government referred to in Sec. 50C
d) Central Government referred to in Sec. 43CA or 50C
19. Clause 21 (a) of Form 3CD requires the tax auditor to furnish the details of amounts debited to
the profit and loss account, being in the nature of capital, personal, advertisement expenditure
etc. Which of the following amounts does not require reporting under Clause 21 (a)
a) Expenditure by way of penalty or fine for violation of any law for the time being force
b) Expenditure by way of penalty or fine other than due to violation of any law
c) Expenditure incurred for any purpose which is an offence or which is prohibited by law
d) Expenditure incurred for staff welfare activities
20. Mr. R, the Tax Auditor finds that some payments inadmissible under Section 40A(3) were made
and advised the client to report the same in form 3CD. The client contends that cash payments
were made since the other parties insisted upon the same and did not have Bank Accounts.
a) Payments made are inadmissible u/s 40A(3) of the Income Tax Act, 1961 and hence, needs to be
reported under clause 21(d) of Form 3CD
b) Payments made are inadmissible u/s 40A(3) of the Income Tax Act,1961 and hence, needs to be
reported under clause 31(d) of Form 3CD
c) Cash payment made on insistence of other parties on the contention that they do not have bank
accounts is covered under the list of exceptions provided under Rule 6DD, hence no reporting
required in Form 3CD
21. As the tax auditor of a Company, how would you report on payments exceeding Rs. 10,000 made
in cash to a supplier against an invoice for expenses booked in an earlier year?
a) The tax auditor is required to report under clause 21(d) (A), being the amount disallowed under
section 40A(3) of the Income Tax Act, 1961
b) The tax auditor is required to report under clause 21(d) (B), being the amount disallowed under
section 40A(3A) of the Income Tax Act, 1961
c) The tax auditor is required to report under clause 21(d) (A), being the amount disallowed under
section 40A(3A) of the Income Tax Act, 1961
d) The tax auditor is required to report under clause 21(d) (B), being the amount disallowed under
section 40A(3) of the Income Tax Act, 1961
22. As a tax auditor how would you report the following: An assessee has paid rent to his brother Rs.
2,50,000 and paid interest to his sister Rs. 4,00,000
a) Reporting required under Clause 23 w.r.t. rent paid to brother only
29
b) Reporting required under Clause 23 w.r.t. interest paid to sister only

c) Reporting required under Clause 23 w.r.t. rent paid to brother as well as interest paid to sister
d) No reporting required in Form 3CD
23. ABC Pvt Ltd. was XYZ Pvt Ltd. are the Companies in which public are not substantially interested.
During the previous year 2018-19, ABC Pvt. Ltd. received some property being shares of XYZ Pvt.
Ltd. The details of which are provided below:
No. of shares 1000
Face Value Rs. 10 per share
Aggregate Fair Market Value Rs. 1,00,000
Consideration Value Nil
As the tax auditor how would you deal with the situation?
a) Reporting required under clause 28 being the transaction results into income taxable u/s 56(2) (viia)
b) Reporting required under clause 29 being the transaction results into income taxable u/s 56(2) (viib)
c) Reporting required under clause 29A being the transaction results into income taxable u/s 56(2) (ix)
d) Reporting required under clause 29B being the transaction results into income taxable u/s 56(2) (x)
24. Amount of profit chargeable to tax under section 41 and computation thereof is required to be
reported under:
25. Tiger Ltd., is a company engaged in the production of wool. Along with its production business,
it is also engaged in buying and selling of securities with the expectation of a favourable price
change. During the year, its speculation loss on account of purchase and sale of securities was to
the tune of Rs 12 lacs
a) Details of this transaction is not required to be reported in Form 3CD
b) Clause 32(c) of Form 3CD requires the auditor to furnish the details of speculation losses incurred by
the assessee during the previous year
c) Clause 32(e) of Form 3CD requires the auditor to furnish the details of speculation losses incurred
by the assessee during the previous year
26. Clause 31(a) of Form 3CD requires the auditor to furnish the particulars of each loan or deposit
in an amount exceeding the limit specified in Sec. 269SS taken or accepted during the previous
year. The limit specified u/s 269SS is:
a) Rs. 10,000 or more
b) Rs. 20,000 or more
c) Rs. 50,000 or more
d) Rs. 2,00,000 or more
27. Clause 31(ba) of Form 3CD requires the auditor to furnish the particulars of each receipt in an
amount exceeding the limit specified in Sec.269ST, in aggregate from a person in a day or in
respect of a single transaction or in respect of transactions relating to one event or occasion from
30
a person, during the previous year, where such receipt is otherwise than by a cheque or bank
draft or us of electronic clearing system through a bank account. The limit specified u/s 260ST
is:
d) Rs. 2,00,000 or more
28. Section -wise details of deductions, if any, admissible under Chapter VIA or Chapter III of Income
Tax Act, 1961 is required to be reported:
a) Under Clause 16 of Form 3CD
b) Under Clause 19 of Form 3CD
c) Under Clause 31 of Form 3CD
d) Under Clause 33 of Form 3CD
29. Clause 34 of Form 3CD requires the tax auditor to report:
a) Whether a change in shareholding of the company has taken place in the previous year due to which
the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of
section 79
b) Whether the assessee has incurred any speculation loss referred to in section 73 during the previous
year, If yes, please furnish the details of the same
c) Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or
Chapter XVII-BB
d) Whether any cost audit was carried out, if yes, give the details, if any, of disqualification or
disagreement on any matter/item/value/quantity as my be reported/identified by the cost auditor
30. Clause 36A of Form 3CD requires the tax auditor to report whether the assessee has received
any amount in the nature of dividend as referred to in sub-clause (22) of Section 2. If yes, tax
auditor is required to furnish:
a) Amount received (in Rs.) and date of receipt
b) Amount received (in Rs.) and the entity from whom such dividend was received
c) Date of receipt and the entity from whom such dividend was received
d) Amount received (in Rs.), date of receipt and the entity from whom such dividend was received
31. Clause 40 of Form 3CD requires the tax auditor to furnish the details regarding turnover, gross
profit, etc., for the previous year and preceding previous year. Such detail is required for:
a) All items of goods traded or manufactured
b) Principal items of goods traded or manufactured
c) All items of goods traded or manufactured or services rendered
d) Principal items of goods traded or manufactured or services rendered
32. In the case of a domestic company, tax auditor is required to furnish in Form 3CD, the details of
tax on distributed profits under section 115-0, the following:
a) Total amount of distributed profits and tax paid thereon
b) Amount of reduction as referred to in section 115-O(1A) and section 115-O(1B)
c) Dates of payment with name of person to whom the dividend is paid
31
d) All of the above

33. Details of demand raised or refund issued during the previous year under any tax laws other
than Income Tax Act, 1961 and Wealth tax Act, 1957 along with details of relevant procedings is
required to be reported:
34. Tax auditor is required to report whether the assessee is required to furnish statement in Form
No. 61 or Form No. 61A or Form No. 61B. If yes, tax auditor needs to furnish:
a) Income-tax Department Reporting Entity Identification Number
b) Type of Form, Due date for furnishing and Date of furnishing, if furnished
c) Whether the Form contains information about all details/ transactions which are required to be
reported. If not, please furnish list of the details/ transactions which are not reported
d) All of the above
35. As per clause 43 of Form 3CD., tax auditor is required to report, whether the assessee or its
parent entity or alternate reporting entity is liable to furnish the report as referred to in sub-
section (2) of section 286. As per Sec. 286(2) of income Tax Act, 1961, every parent entity or the
alternate reporting entity, resident in India, shall, for every reporting accounting year, in respect
of the international group of which it is a constituent, furnish a report, to the prescribed
authority_______________ in the form and manner as may be prescribed
a) Within a period of six months from the end of the said reporting accounting year
b) Within a period of twelve months from the end of the said reporting accounting year
c) On or before the due date specified u/s 139, for furnishing the return of income for the relevant
accounting year
36. Tax auditor is required to furnish in Form 3CD, break-up of total expenditure of entities
registered or not registered under the GST. Such breakup includes:
a) Expenditure in respect of entities registered under GST and Expenditure relating to entities not
registered under GST
b) Total amount of Expenditure incurred during the year and Expenditure in respect of entities
c) Total amount of Expenditure incurred during the year and Expenditure relating to entities not
d) Total amount of Expenditure incurred during the year, Expenditure in respect of entities registered
under GST and Expenditure relating to entities not registered under GST
37. ABC Ltd. is engaged in providing certain services on which it did not pay any GST. As per
company, said services were not liable to GST. However, Department issued a show cause notice
to company demanding GST along with interest worth Rs. 5,45,000 on the same and such demand
was also confirmed. Company, being aggrieved by the order, decided to file an appeal against
32
such order. ABC Ltd. has requested the tax auditor not to report as those services were not liable
for GST and it has also filed an appeal for the same
a) Request of ABC Ltd. is not acceptable as clause 16 of Form 3CD requires tax auditor to furnish the
details of demand raised during the previous year under any tax law other than Income Tax Act, 1961
b) Request of ABC Ltd. is not acceptable as clause 41 of Form 3CD requires tax auditor to furnish the
details of demand raised during the previous year under any tax law other than Income Tax Act, 1961
c) Request of ABC Ltd. is acceptable as clause 16 of Form 3CD requires tax auditor to furnish the details
of demand raised during the previous year under Income Tax Act, 1961only
d) Request of ABC Ltd. is not acceptable as clause 41 of Form 3CD requires tax auditor to furnish the
details of demand raised during the previous year under Income Tax Act, 1961 only
38. Tax auditor is required to report in Form 3CD, whether the assessee or its parent entity or
alternate reporting entity is liable to furnish the report as referred to in sub-section (2) of
section 286. If yes, tax auditor is required to furnish:
(i) Whether report has been furnished by the assessee or its parent entity or an alternate
reporting entity
(ii) Name of parent entity
(iii) Name of alternate reporting entity (if applicable)]
(iv) Date of furnishing of report
Select the appropriate one
a) (i), (ii) and (iii)
b) (i), (ii) and (iv)
c) (i), (iii) and (iv)
d) (i), (ii), (iii) and (iv)
39. Break-up of total expenditure of entities registered or not registered under the GST is required
to be reported:
a) Under Clause 41 of form 3CD
b) Under Clause 42 of Form 3CD
c) Under Clause 43 of Form 3CD
d) Under Clause 44 of Form 3CD
40. Normally, the report of the tax auditor cannot be revised later. However, in certain situations tax
auditor need to revise the tax audit report. Identify that situation:
a) Revision of accounts of a company after its adoption in the annual general meeting
b) Change in law with retrospective effect
c) Change in interpretation of law (e.g.) CBDT Circular, notifications, judgments, etc
d) All of the above
41. Ab Ltd. is a company in which public are not substantially interested. During the previous year
2018-19, the company issued shares to residents of India and provides you the following data
related to such issue:
No. of shares issued 1,00,000
Face value Rs. 10 per share
Fair Market Value(FMV) Rs. 60 per share
33
Consideration received Rs. 80 per share

The management of the company contends that, it is a normal issue of shares, thus, needs not to
be reported in Form 3CD
a) Tax auditor is required to furnish the details of shares issued under clause 29 of Form 3CD
b) Tax auditor is required to furnish the details of shares issued under clause 29A of Form 3CD
c) Tax auditor is required to furnish the details of shares issued under clause 29B of Form 3CD
d) Contention of the management is correct, no reporting required in Form 3CD
42. Which clause of Form 3CD requires the tax auditor to furnish certain information in a case where
any land or building or both is transferred during the previous year for a consideration less than
value adopted or assessed or assessable by any authority of a State Government referred to in
section 43CA or 50C
43. AB Ltd. is a company in which public are not substantially interested. During the previous year
2018-19, the company issued shares to residents of India and provides you the following data
related to such issue:
No. of shares issued 1,00,000
Face value Rs. 10 per share
Fair Market Value(FMV) Rs. 60 per share
Consideration received Rs. 80 per share
The management of the company contends that, it is a normal issue of shares, thus, needs not to
be reported. As the tax auditor of AB Ltd., how would you deal with the matter in your tax audit
report?
a) Excess of issue price over fair market value of shares issued, is taxable as per section 56(2) (viia) of
the Income Tax Act, 1961. Therefore, the tax auditor is required to furnish the details of shares issued
under clause 28 of Form 3CD
b) Excess of issue price over fair market value of shares issued, is taxable as per section 56(2) (viib) of
the Income Tax Act, 1961. Therefore, the tax auditor is required to furnish the details of shares issued
c) Excess of issue price over fair market value of shares issued, is taxable as per section 56(2) (ix) of the
Income Tax Act, 1961. Therefore, the tax auditor is required to furnish the details of shares issued
under clause 29A of Form 3CD
d) Excess of issue price over fair market value of shares issued, is taxable as per section 56(2) (x) of the
Income Tax Act, 1961. Therefore, the tax auditor is required to furnish the details of shares issued
under clause 29B of Form 3CD
44. Particulars of payments made to persons specified under section 40A(2)(b) requires reporting
under:’
34

45. As an auditor appointed u/s 44AB of the Income Tax Act, 1961, how would you verify and report
on the following: The assessee has borrowed Rs. 50 lakhs from various persons partly in cash
and partly by account payee cheque
a) Reporting required under Clause 31(a) of Form 3CD
b) Reporting required under Clause 31(b) of Form 3CD
c) Reporting required under Clause 31(ba) of Form 3CD
d) Reporting required under Clause 31(bb) of Form 3CD
46. Clause 32(d) of Form 3CD requires the tax auditor to report:
a) Whether during the previous year the assessee received any consideration for issue of shares which
exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish
the details of the same
b) Whether the assessee has incurred any loss referred to in section 73A in respect of any specified
business during the previous year, if yes, please furnish details of the same
c) Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B of
Chapter XVII-BB
disagreement on any matter/ item/value/quantity as may be reported/ identified by the cost auditor
47. BC Ltd., having principal place of business in Delhi, is engaged in the generation, transmission,
distribution and supply of electricity throughout the India. The management of the company
came to know the provisions related to maintenance of cost records and cost audit are applicable
to the company. The company, therefore, appointed a cost auditor for the financial year 2018-19
The cost auditor reported certain disqualifications in Form CRA-3 of the cost audit report to
which the management of the company disagreed
The management of ABC Ltd. instructed its tax auditor not to reveal any of the disqualifications
related to the cost audit while filling particulars to be furnished in Form No. 3CD contending that
the disqualifications are not relevant and there is no correlation between tax audit and cost
audit as well. As a tax auditor, how would you deal with the matter?
a) Contention of management is not acceptable as auditor is required to provide the details of
disqualifications on any matter/ item/ value/ quantity as may be reported/ identified by cost auditor
b) Contention of management is not acceptable as auditor is required to provide the details of
c) Contention of management is acceptable as auditor is not required to provide the details of
d) Contention of management is acceptable as auditor is not required to provide the details of
35
48. Clause 40 of Form 3CD requires the tax auditor to furnish the details regarding turnover, gross
profit, etc., for the previous year and preceding previous year
(i) Total turnover of the assessee
(ii) Gross profit/ turnover
(iii) Net profit/ turnover
(iv) Stock-in-trade/ turnover
(v) Trade receivable/ turnover
(vi) Material consumed/ turnover
(vii) Finished goods produced/ turnover
Such detail includes:
a) (i), (ii), (iii) and (iv) only
b) (i), (ii), (iii) , (iv) and (vi) only
c) (i), (ii), (iii) , (iv) and (vii) only
d) (i), (ii), (iii) , (iv) ,(v) and (vii)
49. Clause 37 of Form 3CD requires the tax auditor to report
a) Whether a change in shareholding of the company has taken place in the previous year due to which
the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of
section 79
b) Whether the assessee has incurred any speculation loss referred to in section 73 during the previous
year, If yes, please furnish the details of the same
c) Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or
Chapter XVII-BB
disagreement on any matter/ item/ value/ quantity as may be reported/ identified by the cost
auditor
50. Clause 32(b) of Form 3CD requires the auditor to report whether a change in shareholding of the
company has taken place in the previous year due to which the losses incurred prior to the
previous year cannot be allowed to be carried forward in terms of section 79. As per Sec. 79 of
Income Tax Act, 1961, where a change in shareholding has taken place in a previous year, in the
case of a company not being a company in which the public are substantially interested, no loss
incurred in any year prior to the previous year shall be carried forward and set off against the
income of the previous year, unless on the last day of the previous year, the shares of the
company carrying___________
a) Not less than 51% of the voting power, were beneficially held by persons who beneficially held shares
of the company not less than 51% of the voting power on the last day of the year or years in which
the loss was incurred
b) Not less than 75% of the voting power, were beneficially held by persons who beneficially held shares
of the company not less than 75% of the voting power on the last day of the year or years in which
the loss was incurred
c) Not less than 51% of the voting power, were held by persons who are named as shareholder in the
Register of members of the company carrying not less than 51% of the voting power on the last day
of the year or years in which the loss was incurred
36
d) Not less than 75% of the voting power, were beneficially held by persons who are named as
shareholder in the Register of members of the company carrying not less than 75% of the voting
power on the last day of the year or years in which the loss was incurred
51. Clause 31(b) of Form 3CD requires the auditor to furnish the particulars of each specified sum
in an amount exceeding the limit specified in Sec. 269SS taken or accepted during the previous
year. The limit specified u/s 269SS is
d) Rs. 2,00,000 or more
52. Mr. Sharma carries on the business of dealing and export of diamonds. For the year ended 31 st
March 2019, you as the tax auditor find that the entire exports are to another firm in U.S.A. which
is owned by Mr. Sharma’s brother
a) Reporting required under Clause 23 w.r.t. particulars of payment made to persons specified u/s
40A(2)(b)
b) Reporting required under Clause 22 w.r.t. particulars of payment made to persons specified u/s
40A(2)(b)
c) No reporting required in Form 3CD
53. You are the Tax auditor of BL & Co., a partnership firm engaged in the business of plying of Goods
Carriages for the financial year 2018-19 having a turnover of Rs. 20 crores. How would you deal
and report on payment of Rs. 30,000 in cash to Mr. R on 10th September, 2018 towards settlement
of invoice for expenses accounted in financial year 2017-18
a) Reporting required under Clause 21(d)(A) w.r.t. payment of Rs. 30,000
b) Reporting required under Clause 21(d)(B) w.r.t. payment of Rs. 30,000
c) No reporting required in Form 3CD, as the limit of Rs. 35,000 is applicable when the payer is engaged
in the business of plying of goods carriages
54. XYZ Ltd. pays Rs. 90,000 for its 10 employees to a Hotel as boarding and lodging expenses of such
employees for a conference. The Company pays the amount in cash to the Hotel. The Hotel gives
10 bills each amounting to Rs. 9,000. The Company contends that each bill is within the limit, so
there is no violation of the provisions of the Income Tax Act, 1961. As the tax auditor, how would
you deal with the matter in your tax audit report for the Assessment Year 2019-20?
a) Payments made by the XYZ Ltd. are inadmissible u/s 40A(3) of the Income Tax Act, 1961 and hence,
needs to be reported under Clause 21(d) of Form 3CD
b) Payments made by the XYZ Ltd. are inadmissible u/s 40A(3A) of the Income Tax Act, 1961 and hence,
needs to be reported under Clause 21(d) of Form 3CD
c) Payments made by the XYZ Ltd. are inadmissible u/s 40A(3) of the Income Tax Act, 1961 and hence,
no reporting required in Form 3CD
d) Payments made by the XYZ Ltd. are inadmissible u/s 40A(3A) of the Income Tax Act, 1961 and hence,
no reporting required in Form 3CD
37
55. Clause 21(a) of Form 3CD requires the tax auditor to furnish the details of amounts debited to
the profit and loss account, being in the nature of capital, personal, advertisement expenditure
etc. Which of the following amounts does not require reporting under Clause 21(a)
a) Advertisement expenditure in any souvenir, brochure, tract, pamphlet or the like published by a
political party
b) Expenditure incurred at Clubs being Entrance Fees and Subscriptions
c) Expenditure incurred at Clubs being cost for club services and facilities used
d) Escalation Claims paid during the year
56. Particulars of depreciation allowable as per the Income Tax Act, 1961 in respect of each asset or
block of assets, as the case may be, requires to be reported in
57. Where any land or building or both is transferred during the previous year for a consideration
less than value adopted or assessed or assessable by any authority of a State Government
referred to in section 43CA or 50C, the tax auditor is required to furnish in Form 3CD
a) Section to which transaction relates to, Details of property and Consideration received or accrued
b) Details of property, Consideration received or accrued, Value adopted or assessed or assessable
c) Details of property, Date on which transfer took place, Consideration received or accrued, Value
adopted or assessed or assessable
d) Section to which transaction relates to, Details of property, Consideration received or accrued and
Value adopted or assessed or assessable
58. How many types of audit are prescribed under GST Regime
a) Two
b) Three
c) Four
d) Five
59. As per Sec. 35(5) of CGST Act, 2017, every registered person whose turnover during a financial
year exceeds the prescribed limit shall get his accounts audited by a _________
a) Chartered Accountant or Cost Accountant
b) Chartered Accountant only
c) Commissioner or any Officer authorised by him
d) Chartered Accountant or Cost Accountant, nominated by the Commissioner
year exceeds the prescribed limit shall get his accounts audited. The limit prescribed for this
purpose is
a) Rs. 50 Lakhs
b) Rs. 100 Lakhs
c) Rs. 200 Lakhs
d) Rs. 500 Lakhs
38
year exceeds the prescribed limit shall get his accounts audited and shall submit_______
a) Copy of audited annual accounts
b) Copy of audited annual accounts and reconciliation statement
c) Reconciliation statement and such other documents in such form and manner as may be prescribed
d) Both (a) and (c)
62. As per Rule 80(3) of CGST Rules, 2017, every registered person whose aggregate turnover during
a financial year exceeds the prescribed limit shall get his accounts audited and he shall furnish
a copy of audited annual accounts and a reconciliation statement, duly certified, in__________
a) Form GSTR-9A
b) Form GSTR-9B
c) Form GSTR-9C
63. Every registered person who is required to get his accounts audited in accordance with the
provisions of Sec. 35(5) of CGST Act, 2017, shall furnish, the annual return. The annual return is
to be furnished
a) Manually
b) Electronically
c) Manually or Electronically
d) Manually and Electronically both
64. Every registered person who is required to get his accounts audited in accordance with the
provisions of Sec. 35(5) of CGST Act, 2017, shall furnish, the annual return along with
a) Copy of audited annual accounts
b) Reconciliation statement
c) Both (a) and (b)
d) Neither (a) nor (b)
65. Reconciliation statement furnished u/s 44(2) of CGST Act, 2017 reconciles the
a) Value of supplies declared in the return furnished for the financial year with the audited annual
financial statements
b) Value of supplies declared in the return furnished for the financial year with the unaudited quarterly
financial results
c) Value of supplies declared in the audited financial statements with the unaudited quarterly financial
results
66. As per Sec. 65 of CGST Act, 2017, the Commissioner or any officer authorised by him, by way of a
general or a specific order, may undertake audit of any registered person for such period, at such
frequency and in such manner as may be prescribed. For this purpose, audit is to be conducted
at the
a) Place of business of the registered person
b) Office of the Commissioner or the officer authorised by the Commissioner
39
c) Either (a) or (b)

frequency and in such manner as may be prescribed. The registered person shall be informed by
way of a notice not less than
a) 15 working days prior to the conduct of audit
b) 30 working days prior to the conduct of audit
c) 45 working days prior to the conduct of audit
d) 60 working days prior to the conduct of audit
frequency and in such manner as may be prescribed. Audit shall be completed within a period of
a) 2 months from the date of commencement of the audit
b) 2 months from the date of informing the registered person
c) 3 months from the date of commencement of the audit
d) 3 months from the date of informing the registered person
frequency and in such manner as may be prescribed. On conclusion of audit, the proper officer
shall, within ____________________, inform the registered person, whose records are audited, about
the findings, his rights and obligations and the reasons for such findings
a) 7 days
b) 15 days
c) 21 days
d) 30 days
70. Special Audit under the GST regime is covered under:
a) Sec. 35(5) of CGST Act, 2017
b) Sec. 44(2) of CGST Act, 2017
c) Sec. 65 of CGST Act, 2017
d) Sec. 66 of CGST Act, 2017
71. Direction for Special Audit under the GST provisions shall be issued in Form:
a) GST ADT-01
b) GST ADT-02
c) GST ADT-03
d) GST ADT-04
72. Special Audit under the GST provisions shall be carried out by
a) Chartered Accountant or Cost Accountant
b) Chartered Accountant only
c) Commissioner or any Officer authorised by him
d) Chartered Accountant or Cost Accountant, nominated by the Commissioner
40
73. Report of Special Audit under GST provisions shall be submitted within
a) 60 days
b) 90 days
c) 120 days
d) 180 days
74. Findings of the Special Audit under GST provisions shall be informed to the registered person in
Form
a) GST ADT-01
b) GST ADT-02
c) GST ADT-03
d) GST ADT-04
75. Expenses of examination and audit, including the remuneration of such chartered accountant or
cost accountant in relation to Special Audit under GST provisions, shall be
a) Determined by Commissioner and paid by the Registered person
b) Determined by Registered Person and paid by the Commissioner
c) Determined and paid by the Registered person
d) Determined and paid by the Commissioner
76. Directions for special audit under GST Provisions may be issued by
a) Commissioner or any Officer authorised by him
b) Chief Commissioner or any Officer authorised by him
c) Any officer not below the rank of Assistant Commissioner, with prior approval of the Commissioner
d) Any officer not below the rank of Assistant Commissioner, without the prior approval of the
Commissioner
77. Under the provisions of CGST Act, 2017, proper officer may initiate action under section 73 or
section 74, if special audit conducted results in
a) Detection of tax not paid or short paid or erroneously refunded
b) Input tax credit wrongly availed or utilized
c) Both (a) and (b)
78. Term “Audit” as defined u/s 2(13) of GST Act, 2017 means the examination of records, returns
and other documents maintained or furnished by the registered person under
a) The GST Act, 2017 or rules made thereunder
b) The Income Tax Act, 1961 or rules made thereunder
c) The Companies Act, 2013 or rules made thereunder
d) The CGST Act, 2017 or rules made thereunder or under any other law
79. As per Rule 80(3) of CGST Rules, 2017, every registered person is required to get his accounts
audited and he shall furnish a copy of audited annual accounts and a reconciliation statement,
duly certified, in FORM GSTR-9C, if
a) Aggregate turnover during a financial year exceeds Rs. 1 Cr
b) Aggregate turnover during a financial year exceeds Rs. 2 Cr
41
c) Amount of taxes paid during a financial year exceeds Rs. 10 Lacs

d) Amount of taxes paid during a financial year exceeds Rs. 25 Lacs
80. Who may undertake audit of any registered person undersection 65 of CGST Act, 2017 ?
a) Commissioner
b) Any officer authorised by the Commissioner
c) Commissioner or any officer authorised by him
81. What will be the commencement of Audit based on following information:
Documents called by the tax authorities on 15.06.2018
Documents made available by the registered person on 29.06.2018
Date of actual institution of audit at the place of business 07.07.2018
a) 15.06.2018
b) 29.06.2018
c) 07.07.2018
82. Match the following
1 Form GST ADT 1 A Audit Report u/s 65
2 Form GST ADT 2 B Communication to registered person for conduct of
special audit u/s 66
3 Form GST ADT 3 C Notice for conducting audit
4 Form GST ADT 4 D Information of Findings upon Special Audit
a) 1-C, 2-B, 3-A, 4-D
b) 1-A, 2-D, 3-C, 4-B
c) 1-B, 2-A, 3-D, 4-C
d) 1-C, 2-A, 3-B, 4-D
83. Who is authorised to undertake the GST audit of a registered person?

a) The Commissioner of CGST/ Commissioner of SGST
b) Any officer authorised by Commissioner of CGST/ Commissioner of SGST by way of a general or a
specific order
c) Only (a)
d) Either (a) or (b)
84. For initiation of audit u/s 65 of CGST Act, 2017, whether any reason to believe or evidence is
required?
a) Reason to believe is a prerequisite for initiation of audit u/s 65
b) Proper evidence is a prerequisite for initiation of audit u/s 65
c) Both (a) and (b)
d) Sec. 65 does not specify any such requirements
85. The tax authorities may conduct audit u/s 65 of CGST Act, 2017 at
a) The place of business of the registered person
b) The place of residence of the registered person
42
c) The office of the tax authorities

d) (a) or (c)
86. Where the Commissioner is satisfied that audit u/s 65 of CGST Act, 2017 in respect of such
registered person cannot be completed within 3 months from the date of commencement of
audit the time limit can be extended
a) By a further period not exceeding six months
b) By a further period not exceeding three months
c) By a further period not exceeding nine months
d) No extension of time limit is permissible
87. During the course of audit under the provisions of CGST Act, 2017, the authorised officer may
require the registered person
a) To afford him the necessary facility to verify the books of account or other documents as he may
require
b) To furnish such information as he may require and render assistance for timely completion of the
audit
c) (a) and/or (b)
d) Only (a)
88. Special audit u/s 66 of CGST Act, 2017 can be directed at any stage of scrutiny, enquiry,
investigation or any other proceedings having regard to nature and complexity of the case if, any
officer not below the rank of Assistant Commissioner
a) Is of the opinion that the value has not been correctly declared
b) The credit availed is not within the normal limits
c) Assessee does no co-operate
d) (a) or (b)
89. The time limit to submit a report of the audit u/s 66 of CGST Act, 2017 is
a) Within the period of 90 days without any extension of time
b) Within the period of 60 days without any extension of time
c) Within the period of 90 days. The Assistant Commissioner may, on an application made to him in this
behalf or for any material and sufficient reason, extend the said period by another ninety days
Answers
1 b 16 a 31 d 46 b 61 d 76 c
2 c 17 c 32 a 47 a 62 c 77 c
3 b 18 b 33 c 48 a 63 b 78 d
4 a 19 d 34 d 49 d 64 c 79 b
5 d 20 a 35 b 50 a 65 a 80 c
6 c 21 b 36 d 51 b 66 c 81 c
43
7 c 22 c 37 b 52 c 67 a 82 d
8 a 23 d 38 d 53 b 68 c 83 d
9 d 24 c 39 d 54 a 69 d 84 d
10 b 25 c 40 d 55 d 70 d 85 d
11 d 26 b 41 a 56 b 71 c 86 a
12 a 27 d 42 b 57 b 72 d 87 c
13 a 28 d 43 b 58 b 73 b 88 d
14 b 29 c 44 c 59 a 74 d 89 c
15 c 30 a 45 a 60 c 75 a
44
CHAPTER-3
THE COMPANY AUDIT
1. Which of the following section of Companies Act, 2013 deals with eligibility, qualification and
disqualification of auditor
a) Section 140
b) Section 141
c) Section 142
d) Section 143
2. Which of the following section of the Companies Act, 2013, defines meaning of Chartered
accountant
a) 2(17)
b) 2(77)
c) 2(87)
d) 2(7)
3. Which of the following is eligible for appointment as auditor of company
a) Any Chartered Accountant
b) A Company whose all the directors are chartered accountants
c) Chartered Accountant holding valid certificate of practice
d) All of these
4. A partnership firm can be appointed as auditor of Company if
a) All the partners of partnership firm are chartered accountants
b) If at least one partner of partnership firm is chartered accountant
c) If majority of partners of the firm is of chartered accountants
d) If at least 2/3rd partners of the firm are chartered accountants
5. In case of partnership firm as auditor of company, audit report shall be signed by:
a) Any partner of the partnership firm
b) Any CA employee of the firm
c) All CA partner of the firm
d) Any CA partner of the firm
6. Which of the following statement is incorrect
a) Limited liability partnership firm can be appointed as auditor of company
b) A Body corporate can be appointed as auditor of company
c) A person who is chartered accountant within the meaning of the Chartered Accountants Act, 1949
and holding valid certificate of practice can be appointed as auditor of company.
45
d) None of these.
7. Which of the following is disqualified for appointment as auditor of company
a) Any officer or employee of Co
b) Any officer or employee of holding co of the Co
c) Any officer or employee of subsidiary co of the Co
d) All of these
8. Which of the following is not covered within the meaning of relative u/s 2(77) of the Co Act, 2013
a) Step Father
b) Step Mother
c) Step Sister
d) Step Daughter
9. Which of the following is covered within the meaning of relative u/s 2(77) of the Co Act, 2013
a) Brother’s wife
b) Step brother
c) Sister’s husband
d) Step daughter
a) Any partner of officer of company shall not be appointed as auditor of company
b) Any employee of officer of company shall not be appointed as auditor of company
c) Any partner of employee of company shall not be appointed as auditor of company
d) Any employee of employee of company can be appointed as auditor of company
11. An individual is disqualified for appointment as auditor of Co
a) Only if he is holding security of co having total face value exceeding Rs. 1 Lakh
b) Only if he is holding security of co having total face value exceeding Rs. 1,000/-
c) If he is holding any security of company, irrespective of face value of security
d) None of these
12. An individual is disqualified for appointment as auditor of co if
a) His father is holding security of co having total face value of Rs 1 Lakh
b) His father is holding security of co having total face value exceeding Rs. 1 Lakh
c) His sister’s husband is holding security of co having total face value exceeding Rs. 1 Lakh
d) His step daughter is holding security of co having total face value exceeding Rs. 1 Lakh
13. If a relative acquires security exceeding Rs 1 Lakh, then auditor shall take corrective action
within ________ days of such acquisition so as to maintain the limit of Rs 1 Lakh.
a) 60
b) 30
c) 60
d) 120
14. An individual is disqualified for appointment as auditor of co if he is indebtedness to co
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a) Rs. 5,00,000
b) Exceeding Rs. 5,00,000
c) Exceeding Rs. 1,00,000
d) Any amount
15. Which of the following transaction is not covered within the meaning of business relationship
for the purpose of disqualification of auditor
a) Commercial transactions which are in the nature of professional services permitted to be rendered
by an auditor under the Co Act, 2013 and Chartered Accountants Act, 1949 and rules or regulations
made under those Acts
b) Commercial transaction which are in the ordinary course of business of the company at arm’s length
price - like sale of product or services to the auditor, as customer, in the ordinary course of business.
c) Both (a) and (b)
d) None of these
16. A person shall not be appointed as auditor of co, if
a) His relative is director of the company
b) His relative is in the employment of company as key managerial personnel
c) Both (a) and (b)
d) His relative is manager of subsidiary company of the company
17. Audit of which of the following companies is excluded from ceiling limit of audit
a) Government Companies
b) Private Limited Company having paid up share capital Rs 100 Crore or more
c) Audit of Public Companies
d) Dormant Companies
18. A person shall not be appointed as auditor of co if he has been convicted by court for an offence
involving fraud and a period of ___________ years has not been elapsed since such conviction
a) 10 Years
b) 7 Years
c) 8 Years
d) 5 Years
19. Which of the following is not disqualification of company’s auditor
a) Any person who is officer or employee of the company
b) Any person who is indebtedness to company exceeding Rs. 5,00,000
c) Any person who has been convicted by court for an offence involving fraud and a period of 10years
has not been elapsed since the date of such conviction
d) Any person whose age is exceeding 65 years.
20. Audit of private limited company is exempted from ceiling on number of audits if its
a) Paid up share capital is less than Rs. 10 crore
b) Paid up share capital is less than 20 crore
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c) Paid up share capital is less than Rs. 50 crore

d) Paid up share capital is less than Rs. 100 crore
21. First auditor of non- government company is appointed
a) By BoD within 1 month of incorporation of Co
b) By BoD within 30 days of incorporation of Co
c) By Members within 90 days of incorporation of Co
d) By Members within 60 days of incorporation of Co
22. First auditor of government company is appointed
a) By BoD within 1 month of incorporation of co
b) By CAG within 1 month of incorporation of co
c) By CAG within 60 days of incorporation of Co
d) By Members within 90 days of incorporation of Co
23. Subsequent auditor of non-government company is a appointed
a) By Members in EGM by passing ordinary resolution
b) By Members in AGM by passing special resolution
c) By Members in AGM by passing ordinary resolution
d) By BoD in Board Meeting
24. Subsequent auditor of government company is appointed by CAG within_______ days from
commencement of FY which is subject to audit
a) 60 days
b) 180 days
c) 120 days
d) 150 days
25. The provision of section 139(1) are applicable to all companies except:
a) Government Companies
b) One person companies
c) Dormant companies
d) None of these
26. The auditor shall furnish his written consent and a certificate to the company
a) Before his appointment
b) Within 15 days of his appointment
c) Not required to furnish
d) None of these
27. Which of the following Form is filed by Co with RoC as intimation of appointment of subsequent
auditor
a) ADT-1
b) ADT-2
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c) ADT-3
d) ADT-4
28. ADT-1 is filed with RoC within
a) Within 15 days of appointment of auditor
b) Within 30 days of appointment of auditor
c) Within 1 month of appointment of auditor
d) Within 60 days of appointment of auditor
29. Tenure of subsequent auditor of non-government company is
a) Till conclusion of next AGM
b) Till conclusion of 5th AGM
c) Till conclusion of 5 years.
d) Till conclusion of 6th AGM
30. Tenure of subsequent auditor of government company is
a) Till conclusion of next AGM
b) Till conclusion of 5th AGM
c) Till conclusion of 5 years
d) Till conclusion of 6th AGM
31. If at AGM no auditor is appointed or reappointed, the following consequence will be there
a) CG shall appoint the auditor
b) CAG shall appoint the auditor
c) Existing auditor shall continue to be auditor of company
d) Due to casual vacancy, BoD shall appoint the auditor
32. Which of the following company in required to constitute an audit committee
a) Listed Company
b) Small Company
c) One Person Company
d) All of these
33. Before making any appointment or reappointment of auditor also including filling of casual
vacancy recommendation of ________________ shall be considered if company falls under section
177(1).
a) Board of Director
b) Audit Committee
c) Tribunal
d) Company Law Board
34. Any casual vacancy in the office of auditor of non-government company is filled by
a) Members within 15 days
b) Members within 30 days
c) BoD within 15 days
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d) BoD within 30 days

35. Any casual vacancy in the office of auditor of government company is filled by
a) BoD within 30 days
b) CAG within 30 days
c) CAG within 60 days
d) Members within 90 days
36. If vacancy in the office of auditor of other than government company is caused by resignation by
auditor, then appointment by BoD shall also be approved by company at general meeting within
_____________ months of the recommendation of BoD
a) 1
b) 3
c) 5
d) 6
37. Which of the following in not a case of casual vacancy in the office of auditor of company
a) Death of person appointed as auditor
b) Dissolution of partnership firm appointed as auditor
c) Refusal of appointment by auditor
d) If any disqualification is attracted to auditor after appointment of auditor
38. Any auditor appointed to fill a casual vacancy shall hold office of auditor of company
a) Till conclusion of 6th AGM
b) Till conclusion of next AGM
c) Till he submits his audit report
d) None of these
39. Pick the odd one out
a) Section 139(6)
b) Section 139 (1)
c) Section 139(8)
d) Section 139(10)
40. At any AGM, a retiring auditor may be re-appointed if
a) He is not disqualified for re-appointment
b) He has not given the company a notice in writing of his unwillingness to be re-appointed
c) A special resolution has not been passed at that AGM appointing some other auditor or providing
expressly that he shall not be re-appointed.
d) All of above
41. Remuneration of auditor of company is fixed
a) By company in general meeting
b) By BoD of Co
c) By CG
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d) By CAG
42. Remuneration of auditor of government company is fixed
a) By company in general meeting
b) By BoD of Co
c) By CG
d) By CAG
43. At any AGM, a retiring auditor may be re-appointed if
a) He is not disqualified for re-appointment
b) He has not given the company a notice in writing of his unwillingness to be re-appointed
c) A special resolution has not been passed at AGM appointing some other auditor or providing
expressly that he shall not be reappointed.
d) All of the above
44. Rotation of auditor is not applicable on
a) Dormant Company
b) One Person Company
c) Small Company
d) Both (b) and (c)
45. Rotation of auditor is applicable on unlisted public company if
a) Its paid up share capital is more than Rs 10 Crore
b) Its paid up share capital is equal to or more than Rs 10 Crore
c) Its paid up share capital is more than Rs. 50 Crore
d) Its paid up share capital is equal to or more than Rs 50 Crore.
46. Rotation of auditor is applicable of private limited company if
a) Its paid up share capital is more than Rs 10 Crore
b) Its paid up share capital is equal to or more than Rs 10 Crore
c) Its paid up share capital is more than Rs 50 Crore
d) Its paid up share capital is equal to or more than Rs 50 Crore
47. Rotation of auditor is always applicable on
a) Listed Companies
b) Government Companies
c) Private Limited Companies
d) All of these
48. If rotation of auditor is applicable on company, term of an individual auditor will be
a) One term of 5 consecutive years
b) Two terms having 5 consecutive years in each term
c) Till conclusion of next AGM
d) None of these
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49. If rotation of auditor is applicable on company, term of partnership firm as auditor will be
a) 10 Years
b) Two terms having 5 consecutive years in each term
c) Till conclusion of next AGM
d) None of these
50. A break in the term for continuous period of ____________ years shall be considered as fulfilling the
requirement of rotation
a) 1 Year
b) 5 Years
c) 10 Years
d) 20 Years
51. As on date of appointment no audit firm having a common partner or partners to audit firm,
whose tenure has expired in a company, shall be appointed as auditor of the same company for
a period of _____ years
a) 1
b) 3
c) 5
d) 10
52. Which of the following services is not prohibited for auditor of company
a) Internal Audit
b) Tax Audit
c) Book-keeping
d) Actuarial Service
53. Which of the following is prohibited service for auditor of company
a) Tax Audit
b) Income Tax Representative
c) Tax Consultant
d) None of these
a) Representing client before taxation authorities
b) Management Services
c) Internal Audit
d) Actuarial Service
55. Auditor shall not render prohibited services as specified u/s 144 of the Co Act, to
a) The Company
b) Holding Company of the Company
c) Subsidiary Company of the Company
d) All of the above
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56. Auditor shall not render prohibited services to the company or its holding company or its
subsidiary company_________________
a) Directly
b) Indirectly
c) Directly or Indirectly
d) None of these
57. Which one of the following is incorrect
a) Auditor of company can be appointed as internal auditor of holding company of the company.
b) Auditor of company can be appointed as internal auditor of associate company of the company.
c) Any relative of auditor cannot be appointed as internal auditor of the company
d) Any partner of auditor cannot be appointed as internal auditor of the company.
58. Which of the following in not mentioned along with signing on audit report
a) Membership number of individual/partner
b) Firm’s registration number in case of partnership firm as auditor
c) Date
d) Time
59. In case of removal of auditor under section 140 (1), an application for obtaining approval of such
removal is made to
a) CG
b) CAG
c) ROC
d) NCLT
60. CG approval is required when auditor is to be removed
a) After expiry of term
b) Before expiry of term
c) By order of tribunal
d) All of the above
61. For removal of auditor before expiry of term of auditor, which of the following form is filed with
CG for getting approval of such removal
a) ADT-1
b) ADT-2
c) ADT-3
d) ADT-4
62. Which of the following form is filed by auditor in case of his resignation
a) ADT-1
b) ADT-2
c) ADT-3
d) ADT-4
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63. In case of resignation by auditor, ADT-3 shall be filed by auditor within _________days of
resignation
a) 7
b) 10
c) 15
d) 30
64. In case resigning auditor does not file ADT-3 as required, the minimum penalty shall be
a) Rs 50,000
b) Remuneration of auditor
c) Rs 50,000 or remuneration of auditor, which is less
d) Rs 50,000 or remuneration of auditor, whichever is higher
65. Under section 140(4), the retiring auditor is entitled to
a) Make a representation against his removal
b) Request the company to circulate the representation to members
c) Personally communicate the members on one to one basis
d) Both (a) and (b)
66. _________ may order that the representation received u/s 140(4) shall not be circulated and read
out at meeting
a) CAG
b) ROC
c) Tribunal
d) CG
67. Under section 140(5), the power of order to change of auditor has been given to
a) Tribunal
b) CAG
c) ROC
d) BOD
68. Any auditor removed under section 140(5) shall not be appointed as auditor of any company for
a period of __________ years from the date of order of Tribunal
a) 10
b) 8
c) 5
d) 3
69. Special notice is requires when auditor is to be removed
a) After expiry of term
b) Before expiry of term
c) By order of Tribunal
d) All of the above
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70. If the branch office is situated in a country outside India, the accounts of the branch office shall
be audited by
a) The Company’s Auditor
b) By An Accountant
c) By any other person duly qualified to act as an auditor of the accounts of the branch office in
accordance with the laws of that country
d) Any of the above
a) Branch office in relation to company means any establishment described as branch by the company.
b) The provisions of regarding reporting of fraud by the auditor shall not be applicable to the branch
auditor.
c) The duties and power of the company’s auditor with reference to the audit of the branch and branch
auditor, if any, shall be as contained u/s 143(1) to 143(4).
d) The branch auditor shall prepare a report on the accounts of the branch examined by him and sent it
to the auditor of the company who shall deal with it in his report in such manner as he considers
necessary.
72. Auditor’s right to access to books of account and vouchers of company extends to all the books
a) Kept at registered office
b) Kept at any other place
c) Kept at registered office or at any other place
d) He is not entitled to such a right
73. The auditor should comply with Auditing Standards. It is ____________ of the auditor
a) Right
b) Duty
c) Moral responsibility
d) None of these
74. Under section 143(3), auditor has duty to report on internal financial controls of the company.
However, this requirement shall not apply to
a) A listed company
b) A foreign company
c) One Person Company
d) A Public Company
75. Reporting on fraud is made by auditor to CG
a) Within 2 days of his knowledge of fraud
b) Within 15 days of his knowledge of fraud
c) Within 45 days of his knowledge of fraud
d) Within 60 days of his knowledge of fraud
76. Reporting on fraud is made by auditor to CG when fraud amount is
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a) Exceeding Rs. 10 Lakhs

b) Exceeding Rs. 50 Lakhs
c) Exceeding Rs. 1 Crore
d) Rs. 1Crore or above
77. Reporting on fraud is made by auditor to CG in statement in the form
a) ADT-1
b) ADT-2
c) ADT-3
d) ADT-4
78. For the purpose of reporting on fraud to CG, CG means
a) RoC
b) CBI
c) Director General
d) Secretary of Ministry of Corporate Affairs.
79. Which of the following in not right of auditor:
a) To attend general meetings
b) To receive all notices and other communications relating to any general meeting
c) To make a representation against his removal
d) To be heard at such meeting on any part of the business which concerns him as the auditor
80. CARO (2016) is applicable on which of the following companies
a) One Person Company
b) Small Company
c) Public Company
d) Banking Company
81. A Private Limited Company is exempted from applicability of CARO (2016) if which of following
conditions is satisfied
a) Paid up Share Capital and Reserve & Surplus is not more than Rs. 1 Crore
b) Borrowing from Bank/FI is not more than Rs. 1 Crore at any point of time during FY
c) Revenue as per Schedule III is not more than Rs. 10 Crore during FY
d) All of these
82. CARO (2016) is applicable from FY
a) FY 2014-15
b) FY 2015-16
c) FY 2016-17
d) FY 2017-18
83. Which of the following statement is incorrect
a) CARO is applicable on reporting of consolidated financial statements
b) One Person Companies and Small Companies are exempted from applicability of CARO
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c) If CARO is applicable of the company, it will also be applicable on audit of branch offices of the
company
d) Insurance Companies are exempted from applicability of CARO.
84. Which of the following is not reporting requirement w.r.t fixed assets under CARO (2016)
a) Purchase and sale of fixed assets made during the FY
b) Maintenance of proper records
c) Physical verification by management at reasonable intervals
d) Title deeds of immovable properties
85. Which of the following is reporting requirement w.r.t inventories under CARO (2016)
a) Purchase and sale of inventories made during the FY
b) Maintenance of proper records
c) Physical verification by management at reasonable intervals
d) All of these
86. Outstanding statutory dues as at last day of financial year concerned for a period of more than
__________ months from the day they became payable, shall be indicated by the auditor.
a) 1
b) 2
c) 5
d) 6
87. In respect of loans, investments, guarantees and security whether provisions of section 185 and
186 of the Companies Act, 2013 have been complied with. If not, provide details thereof. This
matter is to be reported under which clause of para 3 of the CARO (2016)
a) Clause (i)
b) Clause (ii)
c) Clause (iii)
d) Clause (iv)
88. With respect of cost records, what is the reporting requirement under CARO (2016)
a) Whether such accounts and record are properly audited
b) Whether such accounts and records have been made and maintained
c) Both (a) and (b)
d) None of these
89. Reporting on fraud is made by auditor under which of the following clause of para 3 of CARO
(2016)
a) Clause (x)
b) Clause (xii)
c) Clause (xiii)
d) Clause (xiv)
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90. Which of the following frauds are reported by auditor under CARO (2016)
a) Any fraud on the company by vendor of the company
b) Any fraud by the company or any fraud on the company by its officers or employees
c) All types of frauds
d) None of these
91. Any default in the repayment of loans or borrowings to _______________________________ are reported
by auditor under CARO (2016)
a) Bank, Financial Institution
b) Government
c) Debenture holders
d) All of above
92. Application of money raised by way of public offer is reported under which clause of CARO
(2016)
a) Clause (vii)
b) Clause (viii)
c) Clause (ix)
d) Clause (x)
93. Application of money raised by way of preferential allotment or private placement is reported
under which clause of CARO (2016)
a) Clause (xi)
b) Clause (xii)
c) Clause (xiii)
d) Clause (xiv)
94. Compliance with provision of section 192 of the Companies Act, 2013 w.r.t non cash transactions
entered by company with directors or persons connected with him, is reported under which of
the following clause of para 3 of CARO (2016)
a) Clause (xv)
b) Clause (xvi)
c) Clause (xi)
d) Clause (xii)
95. For the purpose of applicability of CARO(2016), status of company is considered
a) As on 1st day of FY
b) Though out the FY
c) As on Balance Sheet date of FY
d) As on Balance Sheet date of immediate preceding FY
96. How many matters are specified under CARO(2016) for reporting by Co’s auditor
a) 12
b) 13
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c) 15
d) 16
97. The auditor shall address audit report on the financial statement of company
a) To BoD of Company
b) To the Members of Company
c) To CG
d) To RoC
98. The date on auditor’s report shall be
a) As on balance sheet date
b) Any date after balance sheet date
c) After balance sheet date but not earlier than the date of approval of financial statement of the entity
d) Date of AGM
99. Under section 148, the maintenance of cost accounting records are not required for
a) A micro enterprise or small enterprise
b) The company whose revenue from exports in Forex exceeds 75% of total revenue
c) Which is operating from SEZ
d) All of these
100. Cost audit will not be applicable to those companies
a) Whose revenue from exports in Forex exceeds 75% of total revenue
b) Which is operating from SEZ
c) Which is engaged in generation of electricity for captive consumption through captive generation
plant.
d) All of these
101. Cost auditor of company is appointed by
a) CG
b) BoD
c) Members
d) CAG
102. Cost auditor of company shall be appointed by BoD within __________days from commencement of
FY
a) 30
b) 60
c) 120
d) 180
103. Intimation of appointment of cost auditor is filed by Co to CG in the form
a) ADT-1
b) CRA-1
c) CRA-2
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d) CRA-3
104. Any casual vacancy in the office of cost auditor of company is filed by
a) BoD within 1 month
b) BoD within 30 days
c) CG within 30 days
d) CAG within 60 days
105. Cost Auditor performs cost audit in accordance with
a) Standards on Auditing
b) Basic principles of cost audit
c) Cost Audit Standards
d) Standards on Related Services
106. Cost audit report shall be submitted in Form
a) CRA-1
b) CRA-2
c) CRA-3
d) CRA-4
107. Cost audit report shall be submitted by Cost auditor to BoD within __________ days from closure of
FY
a) 90
b) 120
c) 150
d) 180
108. Company shall within __________days from receipt of cost audit report furnish the CG with such
report along with full information and explanation on every reservation or qualification
contained therein, in Form____________.
a) 30, CRA-4
b) 60, CRA-5
c) 120, CRA-6
d) 180, CRA-7
109. As per section 143(3)(f) of the Companies Act, 2013, auditor’s report shall also state the
observations or comments of the auditors on financial transactions or matters which have any
adverse effect in the functioning of the company. The word “Observations or Comments” as used
in the clause (f) refers to:
a) EOM Paragraph and situations leading to modification in the auditor’s report
b) Key Audit Matters communicated in the audit report
c) Matters covered under section 143(1) relating to propriety aspects.
d) Material uncertainty as to going concern which requires a separate section in the audit report titled
“Material Uncertainty Relating to Going Concern”
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110. XYZ & Co is a firm of Chartered Accountants has three partners, Mr. X, Mr. Y and Mr. Z. The firm
is holding 55 companies which include 10 small companies, 5 government companies, 5 listed
companies, 5 OPC, 15 public companies and 15 private companies having paid up capital more
than Rs. 100 crores. Firm has been offered the appointment as auditors of 30 companies, of the
30 companies, 5 are private companies having paid up capital of each company is below Rs. 100
crores and remaining 25 companies are public companies. Select which of the following is
correct:
a) Firm can accept audit of all 30 companies.
b) Firm can accept of 25 companies including 5 private companies.
c) Firm can accept audit of 20 companies including 5 private companies.
d) Firm can accept audit of 15 companies including 5 private companies.
111. As per Rule 11 of the Companies (Audit and Auditor’s) Rules, 2014, the auditor’s report shall also
include auditor’s review and comments on certain matters. Which of the following is covered in
Rule 11?
a) Whether financial statements of the company are in agreement with the books of accounts and
returns.
b) Whether financial statements of the company comply with the accounting standards.
c) Whether any fraud by the company or on the company by its officers/ employees has been noticed
or reported during the year.
d) Whether company has disclosed the impact if any, of pending litigations on its financial position in
its financial statements.
112. If auditor has contravened provisions of Section 139, 143, 144 or Section 145, knowingly or
willfully with the intention to deceive the company or its shareholders or creditors or tax
authorities, the auditor shall be punishable with imprisonment which may extend to __________
and with fine ranging from _____________.
a) One year; Rs. 25,0000- Rs. 5,00,000.
b) Five year; Rs. 1,00,000 to lower of Rs. 25,00,0000 or 8 times of remuneration
c) One year; Rs. 50,000 to lower of Rs. 25,00,000 or 8 times of remuneration
d) Five year; Rs. 25,0000- Rs. 5,00,000
113. As per Section 145 of the Companies Act, 2013 _________________________________ mentioned in the
auditor’s report shall be read before the company in the general meeting and shall be open to
inspection by any member of the company.
a) the qualification, observation or comments on the financial transactions or matters, which have any
adverse effect on the functioning of the company.
b) any qualification, reservation or adverse remark relating to the maintenance of accounts and other
matters connected therewith.
c) operating effectiveness of internal controls with reference to financial statements.
d) director’s disqualifications u/s 164(2) of the Companies Act, 2013.
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114. Electro Ltd is engaged in generation of electricity for captive consumption through Captive
Generating Plant. The Company also maintain cost records in their books of account as required
under Cost Records and Audit Rules. Mr. X, friend of Managing Director of the company,
suggested name of his brother, who is Cost Accountant in Practice, for the purpose of cost audit.
Which of the following is correct?
a) Electro Ltd is not required to conduct cost audit as it is falling under the exemption criteria under
Rule 4 of the Companies (Cost Records and Audit) Rules, 2014.
b) Electro Ltd is not required to conduct cost audit as it is falling under the exemption criteria under
c) Electro Ltd is required to conduct cost audit as it does not fall under the exemption criteria under
d) Electro Ltd is required to conduct cost audit as it does not fall under the exemption criteria under
115. For the purpose of Section 148 (1) of the Companies Act, 2013, the specified class of companies,
including foreign companies, engaged in the production of the goods or providing services,
having an overall turnover from all its products and services of ______________, shall include cost
records for such products or services in their books of account.
a) Rs. 35 crore or more during the immediately preceding FY
b) Rs. 35 crore or more during the FY
c) More than Rs. 35 crore during the immediately preceding FY
d) More than Rs. 35 crore during the FY.
116. As per proviso to Section 140(5) of the Companies Act, 2013, an auditor, whether individual or
firm, against whom final order has been passed by the Tribunal under this section shall not
eligible to be appointed as an auditor of ____________ for a period of ______________ from the date of
passing of the order.
a) any company, 5 years
b) Same company, 5 years
c) Any company, 10 years
d) Same company, 10 years
117. As per Section 143(8) of the Companies Act, 2013, where the branch office of a company is
situated in a country outside India, the accounts of the branch office shall be audited
a) Only by the company’s auditor
b) Only by a person duly qualified to act as an auditor of the accounts of the branch office in accordance
with the laws of that country
c) Either by the company’s auditor or by an accountant or by other person duly qualified to act as an
auditor of the accounts of the branch office in accordance with the laws of that country
d) Either by the company’s auditor or by a cost accountant or by any person duly qualified to act as an
auditor of the accounts of the branch office in accordance with the laws of that country
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118. Statement (1): Where a company is required to constitute an audit committee, the audit
committee shall recommend to the Board, the remuneration of the cost auditor.
Statement (2): Whether or not a company is required to constitute an audit committee, the
remuneration of cost auditor shall be approved by the BoD and it shall be subsequently
approved by the members.
a) Only Statement (1) is correct
b) Only Statement (2) is correct
c) Both the Statements are correct
d) None of the Statements is correct.
119. Where an auditor is convicted for contravention of section 139, 143, 144 or 145, the auditor
shall be liable to refund to the company___________
a) The remuneration received by him
b) Twice the amount of remuneration received by him
c) Thrice the amount of remuneration received by him
d) Five times the amount of remuneration received by him
120. The provision with respect to reporting of fraud shall apply to
a) Statutory auditor appointed u/s 139
b) Cost auditor appointed u/s 148
c) Secretarial auditor appointed u/s 204
d) All of these
121. To comply with the Auditing Standards is __________ of the auditor
a) A right
b) A duty
c) A moral responsibility
d) None of these
122. Mrs. A, wife of Mr. A had given a financial guarantee for the principal amount of a debt owned
by Mr. X to ABC Ltd for Rs. 6 lakhs. Mr. X has repaid Rs. 5 lakhs to ABC Ltd. 2 days before the
date of appointment of Mr. A as an auditor of the company.
a) Appointment of Mr. A in ABC Ltd is not valid as his wife has given guarantee to ABC Ltd for an
amount in excess of Rs. 1 Lac.
b) Appointment of Mr. A in ABC Ltd is not valid as his wife has given guarantee to ABC Ltd for an
amount in excess of Rs. 5 Lac.
c) Appointment of Mr. A in ABC Ltd is valid as the outstanding amount of guarantee given by his wife
at the time of appointment does not exceed Rs. 1 Lac.
d) Appointment of Mr. A in ABC Ltd is valid as guarantee given by the relative of the auditor is no
relevance.
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123. Which of the following is true?

a) Where at any AGM, no auditor is appointed or reappointed, the existing auditor shall continue be
the auditor of the company.
b) If the auditor appointed at the AGM refuses to accept the same, the company can appoint another
person by holding GM.
c) If appointment of a person as an auditor is void-ab-initio, it should be treated as a casual vacancy.
d) An auditor can be appointed as first auditor of a newly formed company simply because his name
has been stated in the Articles of Association of the Company.
124. As per proviso to Section 140 (5) of the Companies Act, 2013, if the application is made by the
CG and the Tribunal is satisfied that any change of the auditor is required, it shall within ________
days of the receipt of such application, make an order that he shall not function as an auditor
and the _________ may appoint another auditor in his place.
a) 15, Tribunal
b) 15, CG
c) 30, Tribunal
d) 30, CG
125. As per section 143(6) of the Companies Act, 2013, the CAG of India shall within __________ days
from the date of receipt of the audit report have a right to conduct a ____________ of the _____________
of the company by such person or persons as he may authorize in this behalf.
a) 60 days, Supplementary Audit, Books of accounts.
b) 60 days, Supplementary Audit, Financial Statements.
c) 60 days, Test Audit, Books of Accounts.
d) 90 days, Test Audit, Financial Statements.
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Answers
1 b 21 b 41 a 61 b 81 d 101 b 121 d
2 a 22 c 42 a 62 c 82 b 102 d 122 c
3 c 23 c 43 d 63 d 83 a 103 c 123 a
4 c 24 b 44 d 64 c 84 a 104 b 124 b
5 d 25 a 45 b 65 d 85 c 105 c 125 b
6 b 26 a 46 d 66 c 86 d 106 c
7 a 27 a 47 a 67 a 87 d 107 d
8 d 28 a 48 a 68 c 88 b 108 a
9 b 29 d 49 b 69 a 89 a 109 a
10 d 30 a 50 b 70 d 90 b 110 b
11 c 31 c 51 c 71 b 91 d 111 d
12 b 32 a 52 b 72 c 92 c 112 c
13 a 33 b 53 d 73 b 93 d 113 a
14 b 34 d 54 a 74 c 94 a 114 a
15 c 35 b 55 d 75 d 95 c 115 a
16 c 36 b 56 c 76 d 96 d 116 a
17 d 37 c 57 a 77 d 97 b 117 c
18 a 38 b 58 d 78 d 98 c 118 c
19 d 39 d 59 a 79 a 99 a 119 a
20 d 40 d 60 b 80 c 100 d 120 d
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CHAPTER-4
AUDIT COMMITTEE &
CORPORATE GOVERNANCE
1. As per Sec. 177 of Companies Act, 2013 which of the following companies are required to
constitute audit committee:
a) Public limited (unlisted) company having paid up capital of Rs. 5 Cr
b) Private limited (unlisted) company having paid up capital of Rs. 50 Cr
c) Public limited (listed) company having paid up capital of Rs. 5 Cr
d) Both (b) and (c)
2. As per Sec. 177 of Companies Act, 2013, audit committee shall consist of minimum of:
a) 3 directors with independent directors forming a majority
b) 3 directors out of which 2/3 shall be independent directors
c) 3 directors out of which 1/3 shall be independent directors
d) 3 directors out of which 1/2 shall be independent directors
3. As per proviso to Sec. 177(4)(iv), in case any transaction involving any amount not exceeding Rs.
1 Cr. is entered into by a director or officer of the company without obtaining the approval of the
Audit Committee and it is not ratified by the Audit Committee within 3 months from the date of
the transaction,
a) Such transaction shall be void
b) Such transaction shall be voidable at the option of the Board of Directors
c) Such transaction shall be voidable at the option of the shareholders
d) Such transaction shall be voidable at the option of the Audit Committee
4. As per regulation 18 of SEBI (LODR) Regulations, 2015, audit committee shall consist of
minimum of:
a) 3 directors with independent directors forming a majority
b) 3 directors out of which 2/3 shall be independent directors
c) 3 directors out of which 1/3 shall be independent directors
d) 3 directors out of which 1/2 shall be independent directors
5. As per regulation 18 of SEBI (LODR) Regulations, 2015, audit committee shall meet at least
__________________ in a year and not more than _______________ shall elapse between two meetings
a) 4 times; 90 days
b) 4 times; 120 days
c) 2 times; 90 days
d) 2 times; 120 days
6. Which of the following does not fall in mandatory review area of Audit committee?
a) Management discussion and analysis of financial conditions and results of operations
66
b) Statement of significant related party transactions submitted by management

c) Management letters/ letters of internal control weaknesses issued by the statutory auditors
d) Forensic audit reports relating to fraud detection
7. Regulations 17 to 27 of SEBI (LODR) Regulations, 2015 relating to Corporate Governance shall
be applicable on:
a) Companies whose equity share capital is listed exclusively on the SME Exchange
b) Private Limited companies having paid up capital exceeding Rs. 10 Crores
c) Private Limited companies having net worth exceeding Rs. 25 Crores
8. As per Regulation 17 on SEBI (LODR) Regulations, 2015, the Board of Directors of the company
shall have an optimum combination of executive and non-executive directors with at least
____________ and not less than 50% of the Board of Directors comprising______________
a) One woman director; executive directors
b) One resident director; executive directors
c) One woman director; non-executive directors
d) One resident director; non-executive directors
9. Which of the following is incorrect in relation to constitution of Nomination and Remuneration
Committee as per Regulation 19 of SEBI (LODR) Regulations, 2015:
a) The committee shall comprise of at least three directors
b) Majority directors of the committee shall be non-executive directors
c) At least 50% of the directors shall be independent directors
d) Chairperson of the committee shall be an independent director
10. As a part of Corporate Governance compliance under SEBI (LODR) Regulations, 2015, CEO/CFO
shall make a certificate to the Board. Which of the following is not a part of CEO/CFO
certification?
a) Review of financial statements
b) Accepting responsibility for establishing and maintaining internal control w.r.t. operational aspects
c) Informing to the auditors of significant changes in internal control over financial reporting during
the year
d) Informing to the auditor committee of significant changes in internal control over financial reporting
during the year
11. As per SEBI (LODR) Regulations, 2015, the Board of Directors of the company shall have an
optimum combination of executive and non-executive directors with___________ and not less than
____________ of the Board of Directors comprising non-executive directors
a) At least one woman director; 50%
b) More than one woman director; 75%
c) At least one woman director; 75%
d) More than one woman director; 50%
12. As per SEBI (LODR) Regulations, 2015, where the Chairperson of the Board is a non-executive
director, at least _________ should comprise independent directors and in case the company does
67
not have a regular non-executive Chairman, at least _________________ should comprise independent
directors
a) 1/3rd of the Board; 1/3rd of the Board
b) 1/2 of the Board; 1/2 of the Board
c) 1/3rd of the Board; 1/2 of the Board
d) ½ of the Board; 1/3rd of the Board
13. As per SEBI (LODR) Regulations, 2015, the Board of Directors shall constitute the nomination
and remuneration committee comprising of at least _____________; all directors of the committee
shall be ___________ and at least _____________ of the directors shall be independent directors
a) 3 directors; non-executive directors; 50%
b) 2 directors; non-executive directors; 50%
c) 3 directors; executive directors; 75%
d) 2 directors; executive directors; 75%
14. As per SEBI (LODR) Regulations, 2015, the Board of Directors shall constitute a Risk
Management Committee. The majority of members of Risk Management Committee shall consist
of members of the _______________
a) Nomination and Remuneration Committee
b) Board of directors
c) Audit Committee
d) Stakeholder Relationship Committee
15. As per SEBI (LODR) Regulations, 2015, provisions relating to Risk Management Committee shall
be applicable to_______________
a) Top 100 listed entities, determined on the basis of market capitalisation, as at the end of the
immediate previous calendar year
b) Top 500 listed entities, determined on the basis of market capitalisation, as at the end of the
immediate previous calendar year
c) Top 100 listed entities, determined on the basis of market capitalisation, as at the end of the
immediate previous financial year
d) Top 500 listed entities, determined on the basis of market capitalisation, as at the end of the
immediate previous financial year
16. As per SEBI (LODR) Regulations, 2015, the listed entity shall formulate a vigil mechanism for
________________ to report genuine concerns
a) Employees and vendors
b) Directors and executives
c) Directors and employees
d) Vendors and suppliers
17. Regulations 17 to 27 and 46(2) of SEBI (LODR) Regulations, 2015 dealing with Corporate
Governance requirements shall be applicable to all companies whose securities are listed on a
recognized stock exchange. However, compliance is not required, in respect of the companies
having paid up equity share capital not exceeding _______________ and Net Worth not exceeding
_________________, as on the last day of the previous financial year
68
a) Rs. 10 Cr; Rs. 25 Cr

b) Rs. 25 Cr; Rs. 10 Cr
c) Rs. 50 Cr; Rs. 250 Cr
d) Rs. 100 Cr; Rs. 250 Cr
18. As per SEBI (LODR) Regulations, 2015, the listed entity shall submit a quarterly compliance
report on corporate governance to the recognised stock exchange within_________________
a) 15 days from the close of the quarter
b) 30 days from the close of the quarter
c) 15 days from the close of the immediate next quarter
d) 30 days from the close of the immediate next quarter
19. Quarterly compliance report on corporate governance submitted to the stock exchanges shall be
signed
a) Either by the Compliance Officer or the Managing Director of the company
b) Either by the Managing Director or the Chief Executive Officer of the company
c) Either by the Compliance Officer or the Chief Finance Officer of the company
d) Either by the Compliance Officer or the Chief Executive Officer of the company
20. As per SEBI (LODR) Regulations, 2015, the company shall obtain a certificate regarding
compliance of conditions of corporate governance from____________________ and annex the
certificate with the director’s report, which is sent annually to all the shareholders of the
company
a) The auditors of company
b) Any practicing chartered accountant
c) Either the auditors or practicing chartered accountants
d) Either the auditors or practicing company secretaries
21. ABC Ltd. is a listed entity and number of directors in the company is 10. Audit committee formed
by the company complies with the minimum requirement of directors and independent
directors as per the requirements of Sec.177 of Companies Act, 2013 and Regulation 18 of SEBI
(LODR) Regulations, 2015. The number of independent directors in the audit committee of the
company must be:
a) One
b) Two
c) Three
d) Four
22. Which of the following does fall in mandatory review area of Audit committee?
a) Functioning of Whistle Blower mechanism
b) Forensic audit reports relating to fraud detection
c) Inter Corporate Loans and Investments
d) Management discussion and analysis of financial conditions and results of operations
23. As per SEBI (LODR) Regulations, 2015, the quarterly and year to date results shall be prepared
in accordance with the recognition and measurement principles laid down in
a) Accounting Standard 25
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b) Ind AS 34-Interim Financial Reporting

c) Accounting Standards 25 or Ind AS 34, as applicable
d) Accounting Standards 25 and Ind AS 34
24. Audit matters of governance interest to be communicated by the auditor to the board or audit
committee ordinarily include all the following except:
a) Questions regarding management integrity
b) The general approach and overall scope of the audit
c) Non-compliance with management objectives
d) Fraud involving management
25. The quarterly financial results submitted to the Stock Exchange shall be approved by
a) The Board of Directors
b) Members of the company
c) Audit Committee
d) Statutory Auditor of the Company
Answers
1 c 6 d 11 a 16 c 21 b
2 a 7 d 12 c 17 a 22 d
3 d 8 c 13 a 18 a 23 c
4 b 9 b 14 b 19 d 24 c
5 b 10 b 15 c 20 d 25 a
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CHAPTER-5
INVESTIGATION, DUE DILIGENCE AND
FORENSIC AUDIT
1. Due diligence is a process of _____________, into the details of a potential investment such as an
examination of operations and management and the verification of material facts.
a) Audit performed by internal auditor
b) Investigation performed necessarily by statutory auditor
c) Audit performed by statutory auditor
d) Investigation performed by investors.
2. XYZ Limited, a company engaged in the business of manufacturing and distribution of copper
rods and copper wire is interested in acquiring a listed company having a market share of 38%
of insulated Copper Wires. You were appointed to conduct a “Due Diligence” of the target
company with the objective that whatever the proposed acquisition would create operational
synergies. For this purpose, primary area in which due diligence is to be exercised is:
a) Financial Due Diligence
b) Commercial due diligence
c) Tax due diligence
d) Information System Due Diligence
3. KDK Bank Ltd., received an application from a pharmaceutical company for takeover of their
outstanding term loans secured on its assets, availed from and outstanding with a nationalized
bank. KDK Bank Ltd., requires you to make a due diligence audit in the areas of assets of
pharmaceutical company especially with reference to valuation aspect of assets. In order to
ensure that the assets are not stated at overvalued amounts, the auditor shall have to specifically
examine__________________.
a) Uncollectable receivables
b) Obsolete, slow and non-moving inventories and inventories valued above net realizable value, if any
c) Obsolete and unused plant and machinery and their spares
d) All of the above
4. M Limited is going to acquire S Limited. The purchase consideration has been decided at Rs.
4,000 Crores. M Limited is worried about hidden liabilities and approached you to examine the
same. In order to investigate hidden liabilities, the auditor should pay attention to various areas.
Which of the following area will not form part of audit programme?
a) Contingent liabilities not shown in books
b) Product and warranty liabilities, product returns and discounts, liquidated damages, etc
c) Investment carrying very low rate of return
d) Tax liability under direct and indirect taxes
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5. J Ltd is interested in acquiring S Ltd. The valuation of s ltd is dependent on future maintainable
sales. As the person entrusted to value S Ltd what primary factors would you consider in
assessing the future maintainable turnover?
a) Accounting policies followed, valuation of inventories, trend of sales in past years and exploring new
markets
b) Accounting policies followed, valuation of inventories, political and economic considerations and
competition
c) Trend of sales in past years, exploring new markets, political and economic considerations and
competition
d) Trend of sales in past years, exploring new markets, location of production facilities and competency
of employees.
6. Which of the following activity will be performed in pre-due diligence period:
a) Preparation of due diligence request list to target specific areas of concern
b) Support for preparation of negotiation terms
c) Regular updates with the client
d) Involvement of Price adjustment procedures using the findings of due diligence
7. Which of the following activity is not a part of Due Diligence process and negotiation Phase:
a) Flexible approach even after project kick-off
b) Q & A Process with management
c) Support for preparation of negotiation terms
d) Preparation of review of closing documents prepared by the Target.
8. Which of the following activity is part of Due Diligence process and negotiation Phase:
a) Discussion with the client to gain understanding of the transaction
b) Assessment of the most appropriate scope of work and methodology
c) Centralized coordination of project team
d) Report drafting, including assistance in the definition of financial aggregates and wordings of
financial clauses
9. Which of the following activity is not a part of Closing and Post Closing Process of due diligence
activity:
a) Report drafting, including assistance in the definition of financial aggregates and wordings of
financial clauses
b) Preparation of review of closing documents prepared by the Target
c) Review of other pot-closing transactions review.
d) Involvement of Price adjustments using the findings of due diligence.
10. Which of the following activity is part of Closing and Post Closing Process of due diligence
activity:
a) Report drafting, including assistance in the definition of financial aggregates and wordings of
financial clauses.
b) Q & A Process with management.
c) Centralized coordination of project team
d) Involvement of Price adjustment procedures using the findings of due diligence.
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11. Which of the following is an example of statutory investigation?

a) Investigation on behalf of bank proposing to advance loan to a company
b) Investigation into affairs of a company u/s 210 of Companies Act, 2013
c) Investigation of fraud as per the requirement of SA 240
d) Both (b) and (c)
12. Which of the following is not a non-statutory investigation?
a) Investigation on behalf of an incoming partner
b) Investigation of fraud by SFIO
c) Investigation of frauds by the auditor
d) Both (b) and (c)
13. Shareholders of Akash Ltd. not satisfied with the performance of the company inferred that some
activities conducted by the company are against the interest of the members of the company.
Group of shareholders of the company filed an application to the Central Government to appoint
an inspector to carry out investigation to look into the matter.
a) Application will not be accepted as investigation can be ordered by CG on intimation of an ordinary
resolution passed by the company that the affairs of the company ought to be investigated.
b) CG is mandatorily required to issue the order of investigation
c) CG may in public interest can order the investigation
d) CG is not empowered to pass order of investigation in case of non-government companies.
14. A majority of the Board of Directors of M/s High value InfoTech Ltd. Have realized that some of
the business activities carried out in the name of the company is not in the interest of either the
company or its members. They want that the company should make an application to the Central
Government to appoint an inspector to carry out investigation and find out the whole truth.
Formalities need to be complied with are:
a) Pass a Board Resolution and apply to CG
b) Pass an ordinary resolution in general meeting and apply to CG
c) Pass a special resolution in general meeting and apply to CG
d) Make an application to CG
15. The shareholders of Kumar Ltd. Passed a special resolution that the affairs of the company ought
to be investigated. The company submitted the special resolution to the Central government.
a) Power of the CG to order an investigation is discretionary
b) Power of the CG to order an investigation is mandatory
c) CG is not empowered to pass order of investigation in case of non-government companies.
16. Where it appears to the Central Government that there is a reason so to do, it may appoint one
or more inspectors to investigate and report on matters relating to the company, and its
membership for the purpose of determining the true persons:
a) Who are or have been financially interested in the success or failure of the company
b) Who are or have been able to control r to materially influence the policy of the company
c) Who have or had beneficial interest in shares of a company or who or have been beneficial owners
or significant beneficial owners of a company
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d) Any of the above

17. Which of the following are the examples of Corporate Frauds?
a) Cash Misappropriation and teeming and lading
b) Tempering of Cheques and Off Book frauds.
c) Bribery and expense reimbursement scheme
d) Shell companies and money laundering activities
18. Which of the following are the examples of Fraud at Operational Level Employees?
a) Cash misappropriation and teeming and lading
b) Tempering of cheques and Off Book frauds
c) Payroll Fraud and expense reimbursement schemes
d) All of the above
19. Which of the following is not an example of fraud at Operational Level Employees?
a) Money laundering activities
b) Teeming and Lading
c) Cash Misappropriation
d) Fraudulent Disbursement
20. Which of the following fraud comes within the purview of “Fraud for personal gain”?
a) Advance Billing
b) Shell Companies
c) Bribery
d) All of the above
21. Forensic Accounting is defined as:
a) The practice of applying defined financial ratios to investigate a company’s financial health
b) The application of investigation and analytical skills for the purpose of resolving financial issues in a
manner that meets standard required by courts of law
c) The investigatory arm of the Securities Regulator
d) All of the above
22. An activity that uses accounting, auditing and investigative skills to assist in legal matter is
known as:
a) Fraud Audit
b) System Audit
c) Forensic Audit
d) Due Diligence
23. Application of accounting methods to the tracking and collection of forensic evidence, usually
for investigation and prosecution of criminal acts such as embezzlement of fraud, is known as:
a) Forensic Accounting
b) Forensic Audit
c) Forensic Investigation
24. Forensic accounting uses ___________________________ to conduct investigation into theft and fraud.
74
a) Accounting and investigation skills.

b) Auditing and investigation skills.
c) Accounting and auditing skills.
d) Accounting, auditing and investigation skills.
25. Forensic Auditor is generally involved in the area of:
a) Financial accounting, Financial audit and investigation of fraud.
b) Financial Audit, System Audit and Computer Forensics.
c) Computer Forensics and Expert Testimony
d) Fraud detection, fraud Prevention, Computer Forensics and Expert Testimony
26. Which of the following is not a skill needed by a Forensic Accountant?
a) Accounting and Auditing
b) Investigative
c) Sociology
d) Information Technology
27. Identify the primary differences between a Financial Audit and a Forensic Audit?
a) Objectives of Financial Audit is to determine whether fraud has taken place. Objective of Forensic
Audit is to determine the amount involved in fraud.
b) Approach of Financial Audit is Risk based with the help of compliance and substantive procedures.
Whereas approach of forensic audit is investigative and substantive
c) Financial audit involves in depth checking whereas forensic audit involves test checking.
28. Are of Forensic Audit may comprise of:
I Fraud Detection A Developing computerized application to assist
in the recovery, analysis and presentation of
financial evidence
II Fraud Prevention B Investigating and analyzing financial evidence
III Computer Forensics C Reviewing internal controls to verify their
adequacy
IV Expert Testimony D Assisting in legal proceedings
a) I-C, II-B, III-D, IV-A
b) I-B, II-C, III-A, IV-D
c) I-C, II-B, III-A, IV-D
d) I-B, II-C, III-D, IV-A
29. Identify the stages involved in Forensic audit in sequence
a) Initialization, Planning, Collection of Evidences, Perform Analysis, Reporting and Court Proceedings.
b) Court Proceedings, Planning, collection of Evidence, Perform Analysis, Reporting and Initialization.
c) Planning, Collection of Evidence, Perform Analysis, Reporting, Initialization and Court Proceedings.
d) Planning, Collection of Evidence, Perform Analysis, Reporting, Court Proceedings and Initialization.
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30. Techniques for Forensic audit comprise of:

a) Benchmarking and Analytical tools
b) Digital Techniques and CAATs
c) System Analysis and Data Mining Techniques
d) All of the above
Answers
1 d 6 a 11 b 16 d 21 b 26 c
2 b 7 d 12 b 17 d 22 c 27 b
3 d 8 d 13 c 18 d 23 a 28 b
4 c 9 a 14 c 19 a 24 d 29 a
5 c 10 d 15 a 20 c 25 d 30 d
76
CHAPTER-6
AUDIT OF CONSOLIDATED FINANCIAL
STATEMENTS
1. As per Sec. 129(3) of Companies Act, 2013, a company shall, in addition to financial statements,
prepare a consolidated financial statement of the company and of all the _______ in the same form
and manner as that of its own and in accordance with the applicable accounting standards
a) Subsidiary companies
b) Subsidiaries and associate companies
c) Subsidiaries, associates and joint venture companies
2. As per first proviso to Rule 6 of Companies (Accounts) Rules, 2014, if a company covered u/s
129(3) which is not required to prepare consolidated F.S. under the Accounting Standards, it
shall be sufficient:
a) If the company complies with provisions on consolidated F.S. provided in Schedule III of the
Companies Act, 2013
b) If the company attach along with its financial statement, a separate statement containing the salient
features of the financial statement of its subsidiary or subsidiaries and associate company or
companies in prescribed Form
c) If the company makes adequate disclosure in the Director’s Report that the company is not required
to prepare consolidated financial statements under the accounting standards
d) Any of the above
3. As per para 31 of Ind-AS 110, a company is not required to consolidate its subsidiaries if:
a) Control is intended to be temporary because the subsidiary is acquired and held exclusively with a
view to its subsequent disposal in the near future
b) It operates under severe long-term restrictions which significantly impair its ability to transfer funds
to the parent
c) It is an investment company
d) Any of the (a) and (b)
4. As per Para 11 of AS 21, a subsidiary shall be excluded from consolidation when:
a) Control is intended to be temporary because the subsidiary is acquired and held exclusively with a
view to its subsequent disposal in the near future
b) It operates under severe long-term restrictions which significantly impair its ability to transfer funds
to the parent
c) It is an investment company
d) Any of the (a) and (b)
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5. While auditing the consolidated financial statements, which of the following does not form part
of auditor’s objectives:
a) To enquire into the matters as specified in section 143(1) of the Companies Act, 2013
b) To report on the matters given in the clause (a) to (i) of section 143(3) of the Companies Act, 2013
c) To report on other matters under section 143(3)(j) read with rule 11 of the Companies (Audit and
Auditor’s) Rules, 2014
d) To report on fraud under section 143(12) of Companies Act, 2013 read with Rule 13 of the Companies
(Audit and Auditor’s) Rules, 2014
6. Adjustments which are made in the accounting period for which consolidated financial
statements are prepared are known as:
a) Current Period Consolidated Adjustments
b) Permanent Consolidated Adjustments
c) Memorandum adjustments
7. Adjustments that are made only on the first occasion or subsequent occasions in which there is
a change in the shareholding of a particular entity which is consolidated are known as:
a) Current Period Consolidated Adjustments
b) Permanent Consolidated Adjustments
c) Memorandum adjustments
8. Which of the following is not a current period consolidation adjustment:
a) Adjustments made to harmonise the different accounting policies including adjustments made by
management to convert a component’s F.S. prepared under the component’s GAAP to the GAAP under
which the consolidated F.S. are prepared
b) Elimination of intra group transactions and account balances
c) Adjustments relating to deferred tax on account of temporary differences arising out of elimination
of profit and losses resulting from Intergroup transactions
d) Determination of Goodwill or Capital Reserve as per applicable AS
9. Which of the following is a permanent consolidation adjustment?
a) Preparation of consolidated F.S. using uniform accounting policies for like transactions
b) Adequate disclosures have been made in the consolidated F.S. of application of different accounting
policies if it was impracticable to harmonize them
c) Determination of the amount of equity attributable to minority
d) Income and expenses of the subsidiary are included in consolidated F.S. from the date it gains control
until the date when the entity ceases to control the subsidiary
10. H Limited is an investment company preparing its Financial Statements in accordance with Ind
AS. The company obtains funds from various investors and commits its performance for fair
return and capital appreciation to its investors. During the year under audit, it had been
observed that the company had invested 25% in S1 Ltd, 50% in S2 Ltd. and 60% in S3 Ltd. of the
respective share capitals of the Investee Companies
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a) H Ltd. is required to consolidate accounts of all such investee companies with those of H Limited in
accordance with Sec. 129(3) of the Companies Act, 2013 as there is no exclusion from consolidation
b) H Ltd. is not required to consolidate accounts of subsidiaries and associates as it is exempted under
the second proviso to Rule 6 of Companies (Accounts) rules, 2014
c) H Ltd. is exempted from the requirements of consolidation if it attach along with its financial
statements a separate statement containing the salient features of the financial statement of its
subsidiary or subsidiaries and associate company or companies in Form AOC-1
d) H Ltd. is exempted from the requirements of consolidation as it is an investment company
11. The principal auditor, if decides to use the work of auditor of component in relation to audit of
consolidated financial statements, he should comply with requirements of:
a) SA 600 “Using the work of Another Auditor”
b) SA 299 “Joint Audit of Financial Statements”
c) SA 720 “The Auditor’s Responsibilities Relating to Other Information”
d) SRS4410 “Compilation Engagements”
12. H Ltd., is a holding company with two subsidiaries R Ltd. and S Ltd., The H Ltd. and R Ltd. adopts
straight line method of depreciation for its assets whereas S Ltd., follows written down value or
diminishing value method. While preparing the consolidated financial statements:
a) S Ltd. is required to depreciate the assets adopting straight line method of depreciation so as to
facilitate the harmonization of accounting policies
b) H Ltd. is required to make suitable adjustments as to the depreciation charged by S Ltd. at the time
of consolidation
c) No adjustment required as there can be different methods for calculation of depreciation for its
assets, if their expected pattern of consumption is different
d) H Ltd. and R Ltd. are required to depreciate the assets adopting written down value so as to facilitate
the harmonization of accounting policies
13. H Ltd. owns 55% voting power in S Ltd. It however holds and discloses all the shares as “Stock-
in-trade” in its accounts. The shares are held exclusively with a view to their subsequently
disposal in the near future. H Ltd. represents that while preparing Consolidated Financial
Statements, S Ltd. can be excluded from the consolidation.
a) Contention of H Ltd. is not correct as there is no exclusion in the statutory provisions with regard to
consolidation
b) Consolidation of H Ltd. is correct as Para 31 of Ind-AS 110 allows exclusion in case of temporary
control
c) Consolidation of H Ltd. is correct as Para 11 of AS 21 allows exclusion in case of temporary control
d) Contention of H Ltd. is not correct as Rule 6 of Companies (Accounts) Rules, 2014 requires
consolidation as per Schedule III
14. A Ltd. holds the ownership of 10% of voting power and control over the composition of Board of
Directors of B Ltd.
a) A Ltd is required to prepare consolidated financial statements with B Ltd. as B Ltd. is subsidiary of A
Ltd
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b) A Ltd is required to prepare consolidated financial statements with B Ltd. as B Ltd. is associate of A
Ltd
c) A Ltd is not required to prepare consolidated financial statements, as it is not in a posting to control
the B Ltd. being shareholding is B Ltd. is only 10% of voting power
d) A Ltd. is not required to prepare consolidated financial statements, as having control over
composition of Board of Directors of B Ltd. is of no relevance
15. ANC Ltd., a wholly owned subsidiary of H Ltd., is having two subsidiaries. ANC Ltd. is not a listed
company. H Ltd. prepare and files consolidated financial statements with the Registrar. The
Auditor of ANC Ltd insists that the company is required to prepare its consolidated financial
statements as it is also the holding company in respect of its subsidiary companies
a) ANC Ltd. is required to prepare consolidated financial statements as there is no exclusion under
section 129(3) with regard to consolidation
b) ANC Ltd. is not required to prepare consolidated financial statements as Para 31 of Ind-AS 110 allows
exclusion in this case
c) ANC Ltd. is not required to prepare consolidated financial statements as Para 11 of AS 21 allows
exclusion in this case
d) ANC Ltd. is not required to prepare consolidated financial statements as Rule 6 of Companies
(Accounts) Rules, 2014 allows exclusion in this case
16. If auditor of parent company is also the auditor of all of the components, this association
requires the auditor:
a) To apply the procedures of SA 600 while auditing the consolidated financial statements
b) To report whether principles and procedures for preparation and presentation of consolidated F.S.
as laid down in the relevant AS(s) have been followed
c) To incorporate Emphasis of Matter Paragraph in the audit report to state his association with the
component
d) Both (a) and (b) above
17. If auditor of parent company is not the auditor of the components, the auditor of parent company
while auditing the consolidated financial statements is required to:
a) Apply the procedure of SA 600 while auditing the consolidated financial statements
b) To incorporate Emphasis of Matter Paragraph in the audit report as per requirement of SA 706
c) To incorporate Other Matter Paragraph in the audit report as per requirement of SA 706
d) Both (a) and (c) above
18. When a component’s financial statements are prepared under an accounting framework that is
different than that of the framework used by the parent in preparing group’s consolidated
financial statements,
a) The parent’s management perform a conversion of the components’ audited F.S. from the framework
used by the component to the framework under which the consolidated F.S. are prepared
b) Component may prepare financial statements on the basis of the parent’s accounting policies, as
outlined in the group accounting manual
c) Both (a) and (b)
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19. If auditor of component reports under an auditing framework that is different from that of the
Parent,
a) In order to maintain consistency of the auditing framework, the components’ financial statements
should also be audited under a framework that corresponds to Indian auditing standards
b) Auditor of the parent company may rely on the audit report of component auditor and include an
emphasis of matter para in the audit report
c) Auditor of the parent company may rely on the audit report of component auditor and include other
matter para in the audit report
d) Auditor of the parent company may rely on the audit report of component auditor and include key
audit matter in the audit report
20. Where the financial statements of one or more components continues to remain unaudited, the
auditor reporting on the consolidated financial statements should
a) Consider unaudited components in evaluating a possible modification to his report on the
consolidated financial statements
b) Issue a qualified opinion or adverse opinion, as appropriate
c) Perform additional procedures to identify the misstatements in components financial information
21. If the parent’s auditor is not the auditor of the components included in the consolidated
Financial Statements,
a) The auditor of the consolidated financial statements should consider the requirement of SA 600
b) The auditor of the standalone financial statements of component should consider the requirement of
SA 600
c) The auditor of the consolidated financial statements should consider the requirement of SA 299
d) Both (a) and (b)
financial statements and the parent’s management perform a conversion of the components’
audited F.S. from the framework used by the component to the framework under which the
consolidated F.S. are prepared,
a) The conversion adjustments are audited by the principal auditor to ensure that the financial
information of the component(s) is suitable and appropriate for the purposes of consolidation
b) The conversion adjustments are audited by the component auditor to ensure that the financial
c) Conversion adjustments need not to be audited
d) Conversion adjustments are audited by the internal auditor of component to ensure that the financial
financial statements and the component prepare financial statements on the basis of the
parent’s accounting policies, as outlined in the group accounting manual,
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a) Such adjusted financial statements are to be audited by the principal auditor to ensure that the
financial information of the component(s) is suitable and appropriate for the purpose of
consolidation
b) Such adjusted financial statements are to be audited by the local component auditor and issue an
audit report on the component F.S. prepared in accordance with “group accounting policies”
c) Such adjusted financial statements are to be audited by internal auditor and issue an audit report on
the component F.S. prepared in accordance with “group accounting policies”
d) Such adjusted financial statements need not to be audited
24. If auditor of component reports under an auditing framework that is different from that of the
Parent,
a) Auditor of the parent company may rely on the audit report of component auditor and include an
emphasis of matter para in the audit report
b) Auditor of the parent company may rely on the audit report of component auditor and include other
matter para in the audit report
c) Auditor of the parent company may rely on the audit report of component auditor and include key
audit matter in the audit report
25. The financial statements of ABC Ltd., an Indian company, are prepared for inclusion in the
consolidated financial statements of its non-Indian parent. These financial statements are
prepared in conformity with the accounting principles generally accepted in the parent’s
country and are for use only in that country. How may ABC Ltd. auditor report on these financial
statements?
I. An Indian- style report(unmodified)
II. An Indian-style report modified to report on the accounting principles of the parent’s country
III. The report form of the parent’s country
Select the appropriate one:
I II III
a) Yes No No
b) No Yes No
c) No Yes Yes
d) Yes No Yes
Answers
1 b 6 a 11 a 16 b 21 a
2 a 7 b 12 c 17 d 22 a
3 c 8 d 13 c 18 d 23 b
4 d 9 c 14 a 19 a 24 d
5 d 10 d 15 d 20 a 25 c
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CHAPTER-7
AUDIT OF PUBLIC SECTOR UNDERTAKINGS
1. Tenure of Comptroller and Auditor General of India shall be:
a) 6 years
b) 65 years of age
c) 6 years or upto 65 years of age whichever is earlier
d) 6 years or upto 65 years of age whichever is Later
2. Comptroller and Auditor General of India can be removed:
a) When each House of Parliament decides to do so by a majority of not less than 2/3rd of the members
present and voting
b) Only on ground of proven mis behavior or incapacity
d) Both (a) and (b)
3. Audit Reports and Annual Accounts of PSU shall be referred to specialized committees
constituted by parliament and the State Legislatures. Such Committees consists of:
a) Audit committee and Nomination and Remuneration Committee
b) Joint Parliamentary Committee (JPC) constituted for special purpose
c) Risk Management Committee and Stakeholders Relationship Committee
d) Public Accounts Committee and Committee on Public Undertakings
4. Which of the following functions is not covered within the scope of Public Accounts Committee:
a) To examine that the moneys (shown in the accounts) were disbursed for the purpose to which they
were applied
b) To examine that the expenditure was authorised
c) To examine the efficiency of public undertakings and to see whether they are being managed in
accordance with sound business principles and prudent commercial practices
d) To examine that re-appropriation has been made in accordance with the provisions made (i.e.
distribution of funds)
5. Which of the following functions is not covered within the scope of Estimates Committee:
a) To suggest alternative policies in order to bring about efficiency and economy in administration
b) To examine whether the money is well laid out within the limits of the policy implied in the estimates
c) To suggest the form in which the estimates shall be presented to Parliament
d) To examine that the moneys (shown in the accounts) were disbursed for the purpose to which they
were applied
6. The examination of public enterprises by the Committee on Public Undertakings takes the form
of
a) Comprehensive appraisal or evaluation of performance of the undertaking
b) Audit of efficiency, economy and effectiveness
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c) Audit of provision of funds, sanctions, compliances and propriety

d) Verification of transactions on the tests of public interest, commonly accepted customs and standards
of conduct
7. Which of the following functions is performed by the Committee on Public Undertakings:
a) To examine that the moneys (shown in the accounts) were disbursed for the purpose to which they
were applied
b) To examine that the expenditure was authorised
c) To examine the efficiency of public undertakings and to see whether they are being managed in
accordance with sound business principles and prudent commercial practices
d) Both (a) and (b)
8. Fiscal Accountability as an objective of audit of PSU includes:
of conduct
9. Managerial Accountability as an objective of audit of PSU includes:
of conduct
10. In audit of public sector enterprises, the role of auditor is fulfilled by:
a) Audit Committee formed by the company
b) Supreme Audit Institution, India
c) Statutory Auditor appointed by Central Government
d) Statutory Auditor appointed by Board of Directors of the entity
11. Parties involved in an audit assignment of Public Sector Enterprise includes:
a) Auditor, Responsible Party and Intended users
b) Auditor, CAG and Intended users
c) Auditor, PSU and Responsible Party
d) Auditor, Intended users and Public at large
12. Information, condition or activity that is measured or evaluated against certain criteria is known
as:
a) Subject matter
b) Subject matter Information
c) Benchmarks
13. Which of the following are Attestation Engagements?
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a) Performance Audit
b) Financial Audit
c) Comprehensive Audit
14. Which of the followings are Direct Reporting Engagements?
a) Performance Audit
b) Financial Audit
c) Comprehensive Audit
d) Both (a) and (c) above
15. Auditor of a government company is appointed by CAG. The appointment shall be made by CAG
within:
a) 180 days from the commencement of the financial year
b) 120 days from the commencement of the financial year
c) 180 days from the conclusion of last AGM
d) 120 days from the date of last audit report submitted
16. Tenure of Auditor of government company shall be:
a) Till conclusion of 6th AGM
b) Till conclusion of next AGM
c) Till appointment of auditor of next year
d) Till submission of audit report
17. Which Section of Companies Act, 2013 empowers the CAG to order the supplementary Audit of
financial statements of government companies?
a) Sec. 139(5) of Companies Act, 2013
b) Sec. 139(7) of Companies Act, 2013
c) Sec. 143(6) of Companies Act, 2013
d) Sec. 143(7) of Companies Act, 2013
18. Audit which involves assessing overall efficiency and effectiveness of Public Enterprises is
known as:
a) Financial Audit
b) Compliance Audit
c) Propriety Audit
d) Comprehensive Audit
19. In which of the below mentioned types of audit, verification of transactions is done on the tests
of public interest, commonly accepted customs and standards of conduct:
a) Financial Audit
b) Compliance Audit
c) Propriety Audit
20. Performance Audit is carried out:
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a) To express an audit opinion on a set of financial statements

b) To determine whether specified compliance requirements are met or not
c) To verify the transactions on the tests of public interest, commonly accepted customs and standards
of conduct
d) For objective and systematic examination of evidence for the purpose of providing an independent
assessment of the performance of a government organization, program, activity, or function in order
to provide information to improve public accountability and facilitate decision-making by parties
with responsibility to oversee or initiate corrective action
21. Evaluation of internal control and internal audit functions that assist in safeguarding assets and
assure the accuracy and completeness of accounting records is primarily covered in:
a) Financial Audit
b) Compliance Audit
c) Propriety Audit
22. Independent assessment as to whether a given subject matter is in compliance with applicable
authorities identified as criteria, is primarily covered in:
a) Financial Audit
b) Compliance Audit
c) Propriety Audit
23. Comprehensive Audit is done with reference to
a) Certain pre-determined standards, objectives and criteria
b) Assessing whether activities, financial transactions and information comply in all material respects,
with the authorities which govern the audited entity
c) Examination of financial systems and transactions including an evaluation of compliance with
applicable statutes and regulations which affect the accuracy and completeness of accounting
records
d) All of the above
24. Propriety audit is concerned with
a) Scrutiny of executive actions and decisions bearing on financial and profit and loss situation of the
company with special regard to public interest and commonly accepted customs, and standards of
conduct
b) Assessing whether activities, financial transactions and information comply in all material respects,
with the authorities which govern the audited entity
c) Examination of financial systems and transactions including an evaluation of compliance with
applicable statutes and regulations which affect the accuracy and completeness of accounting
records
d) Any of the above
25. Performance audits include evaluation of economy, efficiency and effectiveness. Efficiency is the
measurement of input-output. It is said to be achieved when the:
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a) Output is minimised at the maximum of inputs or input is minimised for any given quantity and
quality of output
b) Output is maximised at the minimum of inputs or input is maximised for any given quantity and
quality of output
c) Output is maximised at the minimum of inputs or input is minimised for any given quantity and
quality of output
d) Output is maximised at the maximum of inputs or input is minimised for any given quantity and
quality of output
26. Objectives of Audit of Public Sector Undertakings, in broader context, covers:
a) Fiscal Accountability
b) Managerial Accountability
c) Review of Compliance with laws and Regulations
d) Both (a) and (b)
27. Benchmarks used to evaluate the subject matter is known as:
a) Subject matter information
b) Criteria
c) Estimations
d) Frame work
28. Th characteristics for assessing whether criteria are suitable are all the following except:
a) Understandability
b) International acceptance
c) Reliability
d) Neutrality
29. A responsible party does each of the following except:
a) Selects criteria
b) Selects the audit procedures
c) Engages the practitioner
d) Determines the subject matter
30. The subject matter, and subject matter information, of an assurance engagement can take many
forms, such as:
a) Behaviour
b) Financial performance or conditions
c) Non-financial performance or conditions
d) All of the above
31. Outcome of evaluating or measuring the subject matter against the criteria is known as:
a) Subject matter opinion
b) Subject matter judgement
c) Subject matter information
d) Subject matter report
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32. First Auditor appointed by Comptroller and Auditor General of India, in case of a government
company hold office till:
a) Conclusion of 1st AGM
b) Conclusion of 6th AGM
c) Conclusion of next AGM
d) Submission of audit report
33. Benchmarks used to evaluate the subject matter are known as criteria. Each audit shall have
criteria suitable to the circumstances of that audit. In determining the suitability of criteria, the
auditor shall consider
a) Relevance and understandability of the criteria for the intended users
b) Completeness, reliability and objectivity
c) Neutrality, general acceptance and comparability
d) All of the above
34. In the case of a Government company or any other company owned or controlled, directly or
indirectly, by the Central Government, or by any State Government or Governments, or partly by
the Central Government and partly by one or more State Governments, the Comptroller and
Auditor General (CAG) of India shall appoint an auditor____________
a) In respect of a calendar year
b) In respect of a financial year
c) In respect of five financial years
d) In respect of five calendar years
35. Financial Audit is an example of:
a) Direct reporting Engagement
b) Attestation Engagement
c) Non-Assurance Engagement
d) Compilation Engagement
36. A company will be considered as Government company if:
a) Not less than 51% of authorised share capital is held by Central Government or by any State
Government or partly by the Central Government and partly by one or more State Governments
b) More than 50% of paid up capital is held by Government Company
c) Not less than 50% of paid up capital is held by Central Government or by any State Government or
partly by the Central Government and partly by one or more State Governments
d) Both (a) and (b)
37. Performance Audits and Compliance Audits are examples of:
a) Attestation Engagement
b) Assurance Engagement
c) Direct reporting Engagement
d) Compilation Engagement
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Answers
1 c 11 a 21 a 31 c
2 d 12 a 22 b 32 a
3 d 13 b 23 a 33 d
4 c 14 d 24 a 34 b
5 d 15 a 25 c 35 b
6 a 16 b 26 d 36 b
7 c 17 c 27 b 37 c
8 c 18 d 28 b
9 b 19 c 29 b
10 b 20 d 30 d
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CHAPTER-8
AUDIT OF INSURANCE COMPANIES
1. As per Sec. 64VA of Insurance Act, 1938, every insurer and re-insurer shall at all times maintain
an excess of value of assets over the amount of liabilities of____________
a) Not less than 50% of the amount of minimum capital as stated under Sec. 6
b) Not more than 50% of the amount of minimum capital as stated under Sec. 6
c) Not less than 50% of net worth as at the end of preceding financial year
d) Not more than 50% of net worth as at the end of preceding financial year
2. As per Sec. 64VA of Insurance Act, 1938, every insurer or re-insurer, as the case may be, who
does not comply with the requirement of solvency margin shall be deemed to be insolvent and
a) May be wound-up by the Authority
b) May be wound-up by the Court on an application made by the Authority
c) May be wound-up by the Court on an application made by the insurer or the re-insurer, as the case
may be
d) May be wound-up voluntarily by the insurer or re-insurer, as the case may be
3. IRDA (General Insurance-Claim Reserving) Regulations, 2013 requires creation of a minimum
amount of unexpired risks reserve at a specified percentage of net premium. Percentage as
specified for marine hull insurance is_________________ and for fire, marine cargo and miscellaneous
insurance is _____________
a) 50% of net premium; 100% of net premium
b) 50% of gross premium; 100% of gross premium
c) 1000% of net premium; 50% of net premium
d) 100% of gross premium; 50% of gross premium
4. As at 31st March 2018 while Auditing Safe Insurance Ltd you observed that a policy has been
issued on 25th March 2018 for fire risk favouring one of the leading corporate houses in the
country without the actual receipt of premium and it was reflected as premium receivable. The
company maintained that it is a usual practice in respect of big customers and the money was
collected on 5th April 2018. You further noticed that there was a fire accident in the premises of
the insured on 31st March 2018 and a claim was lodged for the same. The insurance company
also made a provision for claim
a) Insurance company is not liable to pay the claim and hence no provision for claim is required as per
requirement of Sec. 64VA of Insurance Act, 1938
b) Insurance company is not liable to pay the claim and hence no provision for claim is required as per
requirement of Sec. 64VB of Insurance Act, 1938
c) Insurance company is liable to pay the claim and hence provision for claim is required as per
requirement of Sec. 64VA of Insurance Act, 1938
d) Insurance company is liable to pay the claim and hence provision for claim is required as per
requirement of Sec. 64VB of Insurance Act, 1938
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5. Activity of examination and evaluation of applications for insurance, the rating of risks and the
establishment of premiums is known as:
a) Actuarial Services
b) Underwriting services
c) Credit Appraisal activity
d) Forensic Examination
6. Prime objectives of internal controls over reinsurance transaction is
a) Determination of correct amounts for reinsurance ceded
b) Proper valuation of assets and liabilities arising out of reinsurance transactions
c) Adherence to legal provisions, regulations and reinsurance agreements
d) All of the above
7. While auditing the records of an insurance company, auditor is required to check whether claim
account is properly maintained. The components of the cost of claims to an insurer means:
a) Claims under policies
b) Claim settlement costs
c) Claims under the policies as well as claim settlement cost
8. A liability for outstanding claims should be brought to account on:
a) Direct business only
b) Direct business and co-insurance business only
c) Direct business and inward reinsurance business only
d) Direct business, inward reinsurance business and co-insurance
9. In determining the amount of provision of claims, events after the balance sheet date have been
considered. Examples of such events include:
a) Claims settled for a materially higher amount in the post-audit period
b) Claims settled for a materially lower amount in the post-audit period
c) Claims paid by other insurance companies during the year under audit and communicated to
company after the balance sheet date where other companies are the leaders in co-insurance
arrangements
d) All of the above
10. In case of insurance companies, major operating expenses are required to be shown separately.
Major operating expense means:
a) 5 lacs or in excess of 1% of net premium, whichever is higher
b) 5 lacs or in excess of 1% of gross premium, whichever is higher
c) 1 lac or in excess of 1% of net premium, whichever is higher
d) 1 lac or in excess of 1% of gross premium, whichever is higher
11. Section 11 of the Insurance Act, 1938 provides that every insurer, should prepare at the end of
each financial year, ___________________ in accordance IRDA Regulations
a) A Balance Sheet and a Profit and Loss Account
b) A Balance Sheet, a Profit and Loss Account and separate account of receipts and payments
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c) A Balance Sheet, a Profit and Loss Account and a Revenue Account

d) A Balance Sheet, a Profit and Loss Account, separate account of Receipts and Payments and a Revenue
Account
12. An agreement between a ‘ceding company’ and a ‘reinsurer’ whereby the former agrees to ‘cede’
and the latter agrees to accept a certain specified share of risk or liability upon terms as set out
in the agreement. Through reinsurance arrangement, which of the following persons acquire
rights:
a) Insured Person
b) Reinsurer
c) Reinsured
d) Insured person and Reinsured
13. Type of reinsurance whereby contract relates to one particular risk and is expressed in the
reinsurance policy is known as:
a) Proportional Treaty Reinsurance
b) Non-Proportional Treaty Re-insurance
c) Facultative Re-insurance
14. Reinsurance in which the reinsurer will receive a prorated share of the premiums of all the
policies sold by the insurance company being covered, is known as:
15. Reinsurance in which the reinsurer will only get involved if the insurance company’s losses
exceed a specified amount, which is referred to as priority or retention limit, is known as:
16. Trade Credit insurance provides:
a) Protection to suppliers against the risk of non-payment of goods
b) Protection to suppliers against the risk of non-payment of services
c) Both (a) and (b)
17. Trade Credit insurance product is offered subject to certain requirements. However, supplier
cannot take protection under Trade Credit insurance if:
a) Policyholder’s loss arises due to non-receipt of trade receivable arising out of a trade of goods or
services
b) Policyholder is a supplier of goods or services for a consideration
c) Loss of policyholder arises out of factoring or reverse factoring arrangement or any other similar
arrangement
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d) Premium for the entire policy period has been paid

18. Facultative reinsurance is used in which of the following situation:
a) Automatic cover has exhausted
b) Risk is excluded from treaties
c) When insurer has no automatic cover
d) All of the above
19. Consideration received by an insurer from the insured is known as:
a) Finance charge
b) Mortality charge
c) Premium
d) Underwriting charges
20. Prime objectives of internal controls over premium is to ensure that
a) Correct premium is calculated and collected before acceptance of any risk
b) Premium is accounted for in an appropriate manner
c) The premium is collected only in respect of such risks which are assumed by the company
d) All of the above
21. The IRDA (Preparation of Financial Statements and Auditor’s Report of Insurance Companies)
Regulations, 2002 require that the auditor of an insurance company should:
a) Report whether the receipts and payments account of the insurer is in agreement with the books of
account and returns
b) Express an opinion as to whether the receipts and payments account has been prepared in
accordance with the provisions of the relevant statutes
c) Express an opinion whether the receipts and payments account give a true and fair view of the
receipts and payments of the insurer for the financial year/ period under audit
d) All of the above
22. Investments in case of general insurance companies are governed by:
a) Sections 27, 27A and 27B of the Insurance Act, 1938 only
b) Guidelines issued from time to time by the Ministry of Corporate Affairs through General Insurance
Corporation of India only
c) Sections 27, 27A and 27B of the Insurance Act, 1938 as well as the guidelines issued from time to
time by the Ministry of Corporate Affairs through General Insurance Corporation of India
d) Sections 27, 27A and 27B of the Insurance Act, 1938 as well as the guidelines issued from time to
time by the Ministry of Finance through General Insurance Corporation of India
23. Facultative reinsurance is not available in case of:
a) Existence of treaty reinsurance
b) Treaty Reinsurance exhausted
c) When insurer has automatic cover
24. Type of reinsurance whereby contract relates to one particular risk and is expressed in the
reinsurance policy, is known as:
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a) Treaty reinsurance
b) Facultative Reinsurance
c) Quota Share Treaty
d) Stop Loss Treaty
25. Which of the following function does not fall generally within scope of actuary in case of a life
insurance business:
a) Product Development / Pricing and Experience analysis
b) Solvency management
c) Statutory Valuations and reserving
d) Verifying the level of risk in each new entrant
26. Which of the following function is performed by underwriter in case of a life insurance business:
a) Product Development / Pricing and Experience analysis
b) Solvency management
c) Statutory Valuations and reserving
d) Verifying the level of risk in each new entrant
27. Risk mitigating tool adopted by Insurer whereby the risk underwritten by one Insurer is
transferred partially to another Insurer, is known as:
a) Actuarial Valuation
b) Underwriting
c) Re-insurance
d) Co-insurance
28. An option provided to the policyholder wherein he can return the policy in case of disagreement
to any of the terms and conditions, is known as:
a) Surrender of Policy
b) Free Look Cancellation
c) Lapse of Policy
29. A policyholder, if disagree to any of the terms and conditions of the policy, has the option to
return the policy stating the reason for policy’s cancellation within a period of
a) 15 days from the date of receipt of the policy document
b) 30 days from the date of receipt of the policy document
c) 15 days from the date of commencement of risk under the policy
d) 30 days from the date of commencement of risk under the policy
30. Discontinuation of the policy owing to non-payment of premium dues is known as:
c) Lapse of Policy
31. Voluntary termination of the insurance contract before the expiry of the term of the contract is
known as:
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c) Lapse of Policy
32. A policy becomes eligible for surrender on completion of ________________
a) 3 years from the commencement of the policy provided that 3 years premium have been paid within
the due dates
b) 2 years from the commencement of the policy provided that 2 years premium have been paid within
the due dates
c) 5 years from the commencement of the policy provided that 3 years premium have been paid within
the due dates
d) 3 years from the commencement of the policy provided that 2 years premium have been paid within
the due dates
33. Effects of a lapsed policy are:
a) It ceases to provide insurance protection to the insured
b) It forfeits the benefits under the policy and cost of new policy is higher
c) Agents do not get renewal premium commission if the policy is lapsed
d) All of the above
34. Request for Free look cancellation is processed-
a) Only when the policy holder is not satisfied with the terms and conditions of the policy document
b) Only when the premium charged is higher than the promised amount
c) Only when the policy suffers from technical defects
Answers
1 a 11 d 21 d 31 a
2 b 12 a 22 d 32 a
3 c 13 c 23 a 33 d
4 b 14 a 24 b 34 a
5 b 15 b 25 d
6 d 16 c 26 d
7 c 17 c 27 c
8 d 18 d 28 b
9 d 19 c 29 a
10 a 20 d 30 c
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CHAPTER-9
AUDIT IN AN AUTOMATED ENVIRONMENT
1. Type of automated environment in which business operations and transactions are initiated,
processed and recorded immediately on their occurrence.
a) Real Time Processing
b) Batch Processing
c) Time Sharing Processing
d) Service Bureau Processing
2. Switches, routers and firewalls are the elements of:
a) Networks
b) Network Devices
c) Storage Devices
d) Operating Systems.
3. Core Banking System is an example of:
b) Batch Processing
d) Service Bureau
4. A real-time environment has several critical IT components that enable anytime, anywhere
transactions to take place. They include:
a) Applications, Middleware, Network and Network Devices.
b) Applications, Middleware, Hardware and Software
c) Applications, Middleware, Network and hardware
d) Applications, Network, Hardware and Software
5. As required by SA 315, auditor is required to obtain an understanding of the entity and its
environment as a part of Risk Assessment Procedure to identify and assess Risk of Material
Misstatements. Given below is list of certain areas for which auditor generally required
understanding:
i. Applications being used by the entity.
ii. IT infrastructure components for each of the application
iii. Organization structure and governance
iv. Policies, procedures and processes followed.
v. IT Risks and controls.
In an automated environment, auditor is required to obtain an understanding of:
a) (i), (ii) and (v)
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b) (iii) and (iv)

c) (i), (ii), (iv) and (v)
d) (i), (ii), (iii), (iv) and (v)
6. Formal program that is implemented across an enterprise for enabling risk management is
known as:
a) Risk Management
b) Enterprise Risk Management
c) Enterprise Risk Planning
d) Enterprise Risk Monitoring
7. Risks related to Governance, Organization and management of IT
a) Entity Level Control
b) Process Level Control
c) Transaction Level Control
8. Process Level Risks involves examination of:
a) Whether direct data changes to database prevented.
b) Whether strong passwords used in the operating system.
c) Whether management monitor the adherence of the established policies.
d) Whether unauthorized changes to IT Systems application being prevented and detected in a timely
manner.
9. IT Risks at each layer of the automated environment are known as:
a) Entity Level Risks
b) Process Level Risks
c) Transaction Level Risks
10. Identify the Manual Controls:
1. Price master configured in the sales master can only be edited by the authorised personnel in
the system.
2. Invoice cannot be booked in SAP in case Purchase Orders are not approved.
3. Inventory ageing report is pulled out from the system based on which provisioning is
calculated after analyzing future demand by the inventory personnel and approved by the
controller.
4. All invoices are signed by warehouse personnel before the goods are dispatched to the
customers.
5. Credit limit is assigned to the customer and goods cannot be sold in excess of the credit limit
configured in the system
6. All changes to the credit limit are approved manually by sales manager.
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a) 1, 2, 3 and 4
b) 2, 3 and 4
c) 4 and 6
d) 4, 5 and 6
11. Which of the following are not general IT control?
a) Controls over data center and network operations.
b) Back-up and recovery
c) Edit checks of input data
d) System software acquisition
12. Which of the following are not application controls?
a) Access security
b) Numerical sequence checks
c) Edit Checks of Input Data
d) Reasonable Checks.
13. Policies and procedures, that relate to many applications and support the effective functioning
of application controls are known as
a) General IT Controls
b) Application Controls
c) IT Dependent Controls
14. Application controls are ________________ that typically operate at a business process level and apply
to the processing of individual applications.
a) Manual procedures
b) Automated procedures
c) Manual or Automated procedures
15. Which of the following is not an example of Indirect Entity Level Control?
a) Company code of conduct
b) Business performance reviews
c) Human resource policies
d) Job roles & responsibilities.
16. Analytical process by which meaning information is generated and prepared from raw system
data using processes, tools and techniques is known as:
a) Substantive Analytical Procedures
b) Data Analytics
c) Data Monitoring
d) Modelling Tool
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17. Best practice IT Governance and Management framework published by Information System
Audit and Control Association, is
a) Control Objectives for Information and Related Technologies
b) Committee of Sponsoring Organizations
c) Criteria of Control
d) Cyber Security Framework
18. Most popular framework for improving critical infrastructure cyber security, which provides a
set of standards and best practices for companies to manage cyber security risks is:
b) Committee of Sponsoring Organization
c) Information Technology Infrastructure Library
d) Cyber Security framework.
19. Which framework provide a set of best practice processes and procedures for IT service
management in a company?
b) Committee of Sponsoring Organizations
c) Information Technology Infrastructure
d) Cyber Security Framework.
20. Who is mainly responsible for implementation of internal financial control in a company?
a) Auditors
b) Directors
c) Employees
d) Regulators
21. Manual controls that make use of some form of data or information or report produced from IT
systems and applications are known as:
b) Automated Application Controls
22. Identify the automated controls from below mentioned cases:
a) All changes to the credit limit are approved manually by sales manager.
b) Price master configured in the sales master can only edited by authorised personnel in the system.
c) Inventory ageing report is pulled out from the system based on which provisioning is calculated after
analyzing the future demand by the inventory personnel and approved by the controller.
d) All invoices are signed by warehouse personnel before goods are dispatched to the customer.
23. Process Level Risks are related to
a) Governance, Organization and Management of IT
b) Risks in the IT Processes and Procedures being followed.
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c) IT Risks at each of the automated environment.

d) All of the above
24. While assessing IT Risks, auditor should consider:
a) Entity Level Risks
b) Process level Risks
c) Transaction Level Risks
d) All of the above
25. Airlines and Railway Reservation is an example of:
b) Batch Processing
d) Service Bureau Processing
26. Identify the IT Dependent controls:
1. Price master configured in the sales master can only be edited by the authorised personnel
in the system.
customers.
controller.
6. Ageing report is pulled from SAP based on which provisioning is calculated by accounting
personnel and approved by financial controller.
a) 1,2, 3 and 4
b) 2, 3 and4
c) 4 and 6
d) 4, 5 and 6
27. Identify the Automated controls
1. Price master configured in the sales master can only be edited by the authorised personnel
in the system.
controller.
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customers.
6. All changes to the credit limit are approved manually by sales manager.
a) 1, 2 and 3
b) 1, 2 and 4
c) 1, 2 and 5
d) 1, 2 and 6
28. Which controls help ensure that transactions occurred are authorised and are completely and
accurately recorded and processed?
29. IT dependent controls are:
a) Manual Controls
b) Automated Controls
c) Manual or Automated Controls
30. Examples of Application controls include the following:
1. Edit checks and validation of input data
2. Sequence Number checks
3. Limit Checks
4. Access Security
5. Application system acquisition, development and maintenance
a) 1,2 and 3
b) 1,2,3 and 4
c) 4 and 5
d) 1,2,3 and 5
31. Examples of General IT Controls include the following:
1. Edit checks and validation of input data
2. Sequence Number checks
3. Limit Checks
4. Access security
5. Application system acquisition, development and maintenance
a) 1, 2 and 3
b) 1, 2, 3 and 4
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c) 4 and 5
d) 1, 2, 3 and 5
32. Which of the following is an example of Direct Entity Level Controls?
a) Monitoring of effectiveness of control by Internal Audit Function
b) Business Performance Reviews
c) Human Resources Policies
d) Both (a) and (b)
33. Which of the following is an automated control?
a) Program Change
b) Configuration
c) System generated reports
d) Application control
34. The data analytics method used in audit are known as ____________________
a) Test Data
b) Integrated Test Facility
c) Computer Assisted Auditing Techniques (CAAT)
d) Data Base Management System
35. Arrange the steps involved in using Data Analytics
A. Document the results and reports the conclusions
B. Apply criteria on data extracted
C. Validate and confirm results
D. Verify, completeness, accuracy and validity of extracted data
E. Understand business environment including IT
F. Extract data
G. Identify source and format data
H. Defines the objectives and criteria against which subject matter will be evaluated.
a) E, H, F, G, B, D, A and C
b) E, H, G, F, D, B, C and A
c) H, G, F, B, E, D, A and C
d) H, G, F, B, E, D, C and A
36. Examples of Process Level Controls are:
a) Approvals, authorizations, verifications and reconciliations
b) Business performance review and Monitoring of effectiveness of control by Internal Audit Function.
c) Company code of conduct, Human resource policies and job roles & responsibilities
37. Transaction Level Risks are related to IT Risks at each layer of the automated environment and
requires examination of which aspect:
a) Whether user access to systems commensurate with roles and responsibilities of the user.
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b) Whether direct data changes to data base prevented.

c) Whether management established an IT Security Policy.
d) Whether policy is being communicated to all employees.
38. Examples of Indirect Entity Level Controls are:
a) Approvals, authorization, verifications and reconciliations
b) Business performance reviews and Monitoring of effectiveness of control by Internal Audit Function.
c) Company code of conduct, Human resources policies and job roles & responsibilities.
39. Most widely adopted information security standard for the payment cards industry is
a) ISO 27001:2013
b) Payment Card Industry- Data Security Standard
40. Any entity that is involved in the storage, retrieval, transmission or handling of credit card /
debit card information are required to implement the security controls in accordance with:
a) ISO 27001:2013
b) Payment Card Industry- Data Security Standard
41. _____________ basically refers to a business environment where the processes, operations,
accounting and even decisions are carried by using computer system.
a) Automated environment
b) Computer environment
c) IT environment
d) None of these
42. Some of the key features of an automated environment are
a) Enables faster business operations
b) Better security and controls
c) Provide latest information
d) All of above
43. Which of the following is not IT related risk
a) Unauthorized access to data
b) Unauthorized changes to system of program
c) Sampling Risk
d) Lack of adequate segregation of duties
44. Types of Controls in an Automated Environment
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c) IT Dependent Manual Controls

d) All of above
45. __________________ are policies and procedures that relates to many applications and support the
effective functioning application controls
b) IT Dependent Manual Controls
c) Both (a) and (b)
d) None of these
46. Which of the following the auditor should consider to obtain an understanding of the company’s
automated environment
a) Information system being used
b) Key Persons
c) Outsourced activities
d) All of the above
47. General IT Controls that maintain integrity of information and security of data commonly
include controls over following
a) Inputs
b) Access Security
c) Processing
d) Output
48. Which of the following is not method for testing of controls in automated environment
a) Inspect the configuration defined in an application
b) Inspect technical manual/user manual of system and application
c) Analytical Review
d) Observe how a user processes transactions under different scenarios.
49. Which of the following is an automated control?
a) Program change
b) System generated report
c) Application control
d) Configuration
50. General IT control that ensure backups, performance monitoring, recovery from failures
commonly include controls over
a) Program Change
b) Access Security
c) Data Center and Network Operations
d) Application System acquisition, development and maintenance
51. The objective of which of the following is to ensure that modified system continue to meet
financial reporting objectives
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a) Data Center and Network Operation

b) Program Change
c) Access Security
d) Application system, acquisition, development and maintenance
52. The objective of which of the following is to ensure that access to programs and data is
authenticated and authorized to meet financial reporting objectives
a) Data Center and Network Operations
b) Program Change
c) Access Security
d) Application system, acquisition, development and maintenance
53. The objectives of which of the following is to ensure that system are developed, configured and
implemented to meet financial reporting objectives
a) Data Center and Network Operations
b) Program Change
c) Access Security
d) Application system, acquisition, development and maintenance.
54. The combination of processes, tools and techniques that are used to tap vast amounts of
electronic data to obtain meaningful information is called_________
a) Data Analytics
b) Data base
c) Information system
d) None of these
55. Edit checks and validation of input data, sequence number checks, user limit checks,
reasonableness checks, mandatory data fields, these are examples of
a) General IT Control
b) Manual Application Controls
c) Automated Application Controls
d) None of these
56. IT dependent controls are basically__________
a) Manual Control
b) Automated Control
c) Both (a) and (b)
d) None of these
57. Which of the following is General IT control?
a) IT Environment
b) Application Control
c) Access Security
d) IT Department Control
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58. _________________ can be used in testing of electronic records and data residing in IT systems using
spreadsheets and specialized audit tools to perform fraud investigation analysis of journal
entries as required by SA 240 and selection of audit sample.
a) Data base
b) Data analytics
c) Information system
d) None of these
59. _____________ is a term that is used to describe a very large computer with high computing power,
memory and storage that are required for running large business operations.
a) Application
b) Read Access Memory
c) Automated
d) Mainframe
60. _____________ is a computer program or collection of computer programs that provides an interface
to a user for performing a specific activity, task, operation or transaction in electronic form
through a computer or information system.
a) Software
b) System
c) Mainframe
61. __________ is a type of super user access to information system that enforces less or no limits on
using that system.
a) General Controls
b) Privileged Access
c) Software
d) CAAT
62. _______________ refers to a collection of electronic, hardware, software, networks and processes that
are used in a business to carry out operations and transactions.
a) Software
b) Information Technology
c) System/Information System
d) Operating System
63. ____________ is a task or activity that is routinely performed by a computer system and does not
require manual efforts
a) Automated
b) Computerized Information System
c) Electronic Data Processing
d) Computer System
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64. ____________ are a collection of computer based tools and techniques that used in audit for
analyzing data in electronic form to obtain audit evidence.
a) Data
b) Database
c) Data Analytics
d) CAATs
65. _________ refers to the digital content that is stored in electronic form within computer system
a) Operating System
b) Data
c) Software
d) Application System
66. _____________ refers to a system software that is installed in a computer to convert high level user
instructions or commands into low level machine understandable format and enable interaction
with a computer.
a) Software
b) Application
c) Operating System
67. _____________ refers to the systematic recording, storage, retrieval, modification and
transformation of electronic data using information system.
a) Data
b) Data Analytics
c) Data Processing
d) Information
68. ___________ is logical subsystem within a larger information where electronic data is stored in a
predefined form and retrieved for use.
a) Data
b) Data Analytics
c) Data Processing’
d) Database
69. __________ is a backed modification that is made directly to data that is stored in a database
bypassing business rules built-in to a business application software.
a) Direct Data Change
b) Information Technology
c) Information System
d) Change Technology
70. ___________ is a type of business application software that provides an integrated platform to
automate multiple interrelated business processes and operations.
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a) Automated
b) ERP (Enterprise Resource Planning)
c) Database
71. ______________ is electronic data residing in computer system that is organized in a logical and
meaningful manner that is easy to read, understand and analyse.
a) Data
b) Database
c) Information
d) Information System
72. ____________ is the branch of science and engineering that involves designing, building,
implementing and maintaining computer systems and networks that can be used in a variety of
ways including operating businesses and setting up information system
a) Information
b) Information System
c) Internal Controls
Answers
1 a 11 c 21 c 31 c 41 a 51 b 61 b 71 c
2 b 12 a 22 b 32 d 42 d 52 c 62 c 72 d
3 a 13 a 23 b 33 b 43 c 53 d 63 a
4 c 14 c 24 d 34 c 44 d 54 a 64 d
5 d 15 b 25 a 35 b 45 a 55 c 65 b
6 b 16 b 26 c 36 a 46 d 56 a 66 c
7 a 17 a 27 c 37 b 47 b 57 c 67 c
8 d 18 d 28 b 38 c 48 c 58 b 68 d
9 c 19 c 29 a 39 b 49 d 59 d 69 a
10 c 20 b 30 a 40 b 50 c 60 a 70 b
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CHAPTER-10
PEER REVIEW AND QUALITY REVIEW
1. The term “Peer Review” means
a) Review of work done by a professional by Central Government
b) Review of work done by a professional by National Financial Reporting Authority (NFRA)
c) Review of work done by engagement team members by the engagement partner
d) Review of work done by a professional by another professional of similar standing
2. In Peer Review, examination and review of work of practice unit is carried out by___________
a) Reviewer appointed by the Peer Review Board
b) Reviewer appointed by Quality Review Board
c) Reviewer appointed by National Financial Reporting Authority (NFRA)
d) Reviewer appointed by Central Government
3. Peer Review process shall apply to
a) All assurance and consulting services provided by a practice unit
b) All assurance services provided by a practice unit
c) All consulting services provided by a practice unit
d) All assurance and due diligence services provided by a practice unit
4. Statement of Peer Review aims to confine the scope of review to______________________
a) Preceding 2 years
b) Preceding 3 years
c) Preceding 4 years
d) Preceding 5 years
5. Which of the following form part of assurance services for the purpose of Peer Review:
a) Compilation Engagements
b) Representation work
c) Due Diligence Engagements
6. In case of practice unit, which has undertaken statutory audit of entities having net worth of
more than Rs. 5 Crores, the applicability of peer review is:
a) Once in 3 years
b) Once in 4 years
c) Once in 5 years
d) Suo motu
7. In case of practice unit, which has undertaken Central Statutory Audit of insurance companies,
the applicability of peer review is:
a) Once in 3 years
b) Once in 4 years
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c) Once in 5 years
d) Suo motu
8. In case of practice unit, which has not been covered in Level I and Level II Entities, the
applicability for peer review is:
a) Once in 3 years
b) Once in 4 years
c) Once in 5 years
d) Suo motu
9. Peer Review Board shall be constituted by_______________ and shall consist of a maximum
of______________ members
a) Council of ICAI; 10
b) Central Government; 10
c) Council of ICAI; 12
d) Central Government;12
10. Casual Vacancies on the Peer Review Board shall be filled by the______________
a) Chairperson of QRB
b) Chairperson of PRB
c) Council of ICAI
d) Central government
11. A Peer Reviewer shall be a member of ICAI with at least ___________ of experience in_____________
a) 10 years; practice
b) 15 years; practice
c) 10 years; service or practice
d) 15 years; service of practice
12. A peer Reviewer should have conducted audit of Level I Entities for at least ________ to be eligible
for conducting Peer Review of_______________________
a) 5 years; Level I Entities
b) 7 years; Level I Entities
c) 5 years; Level II Entities
d) 7 years; Level II Entities
13. Execution stage in peer review begins with ______________________ and ends with ________________ by the
reviewer
a) Initial meeting; preliminary report
b) Compliance Review; review of records
c) Initial meeting; review of records
d) Compliance review; preliminary report
14. In case of peer review, the reviewer is expected to carry out the compliance review of key
controls. Which of the followings key controls are covered in compliance review?
(1) Independence
(2) Maintenance of professional Skill & Standards
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(3) Outside consultation

(4) Monitoring
(5) Staff Selection and Supervision
(6) Office Administration
(7) Engagement Performance
(8) Written Representations
Select the appropriate one:
a) (1), (2), (3), (5) and (6)
b) (1), (2), (3), (7) and (8)
c) (3), (4), (5), (6) and (7)
d) (1), (3), (5), (7) and (8)
15. In case of Peer Review, the practice unit, has to send its presentation, in writing, to _____________,
on the areas mentioned in the preliminary report within a period of___________ from the receipt of
the preliminary report from the reviewer
a) PRB; 15 days
b) Reviewer; 15 days
c) PRB; 30 days
d) Reviewer; 30 days
16. While performing peer review, a reviewer is required to collect the audit evidences. Methods
used to collect the audit evidences comprises of:
a) Inspection, observation and Analytical review
b) Inspection, Inquiry and Analytical Review
c) Inquiry, Inspection and Observation
d) Inquiry, Observation and External confirmation
17. A reviewer, who performs peer review of a practice unit, shall not accept any professional
assignment from the practice unit for a period of___________________
a) One year from the date of submission of Report
b) Two years from the date of submission of Report
c) One year from the date of appointment
d) Two years from the date of appointment
18. Which of the following is not a limitation of peer review?
a) Review in conducted in accordance with the Statement on Peer Review
b) Review would not necessarily disclose all weaknesses in compliance of technical standards and
maintenance of quality of assurance services since it would be based on selective tests
c) Inherent limitations exist in the effectiveness of any system of quality control which happens to be
subject-matter of review, hence, departure from the system may occur and may not be detected
19. The Reviewer and Practice Unit shall mutually cooperate and ensure that the entire Review
process is completed within:
a) 90 days from the date of notifying the Practice Unit about its selection for Review
b) 120 days from the date of notifying the Practice Unit about its selection for Review
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c) 90 days from the date of selection for Reviewer

d) 120 days from the date of selection for Reviewer
20. In case of Peer Review, at the end of on-site Review if the Reviewer is satisfied with the rely
received from the Practice Unit, he shall submit a Peer Review Report to the Board along with
a) Initial findings
b) Response by the Practice Unit and the manner in which the responses have been dealt with
c) Both (a) and (b)
21. Scope of Quality Review includes:
a) Compliance with Technical Standards
b) Compliance with Law and Regulation
c) Implementation of Quality Control System
d) All of the above
22. Quality Review Board is constituted by:
a) Central Government
b) Council of ICAI
c) National Financial Reporting Authority
23. Quality Review Board shall consist of chairperson and
a) 10 members nominated by the CG
b) 12 members nominated by Council of ICAI
c) 5 members nominated by CG and 5 members nominated by the ICAI
d) 6 members nominated by CG and 5 members nominated by Council of ICAI.
24. As per section 28B of Chartered Accountants Act, 1949, the function of Quality Review Board
include:
a) To make recommendation to the Council with regard to the quality of services provided by the
members.
b) To review the quality of services provided by the members of the Institute including audit services.
c) To guide the members of the Institute to improve the quality of services and adherence to the various
statutory and other regulatory requirements.
d) All of the above.
25. To be empaneled with Quality Review Board, a member of the Institute must have
a) Minimum 10 years of post-qualification experience as a CA and be currently active in the practice of
accounting and auditing.
b) Minimum 15 years of post-qualification experience as a CA and be currently active in the practice of
accounting and auditing.
c) Minimum 10 years of post-qualification experience as a CA and be currently employed with Central
Government.
d) Minimum 15 years of post-qualification experience as a CA and be currently employed with CG.
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26. Technical Reviewers for carrying out the quality review assignment, could undertake a
maximum of ___________ on-site visit to the Statutory Audit Firm shall not extend beyond ______ days.
a) One; fourteen
b) Two; fourteen
c) One; seven
d) Two; seven
27. For purpose of Quality Review assignment, the Technical Reviewer could also take the
assignment of not more than _______ assistants who shall be___________
a) 3; chartered accountants
b) 5; chartered accountants
c) 3; his employee, may or may not be chartered accountants
d) 5; his employee, may or may not be chartered accountants
28. In case of Quality Review assignments, Technical Reviewer are required to submit final report
along with a copy of Annual Report of the company / entity for the year, as specified, to the Board
within _________________________.
a) 45 days from the date of acceptance of the assignment.
b) 90 days from the date of acceptance of the assignment.
c) 45 days from the date of commencement of work.
d) 90 days from the date of commencement of work.
29. In case of Quality Review assignments, the reports of Technical Reviewers shall be considered
by Quality Review Groups. Functions of the Quality Review Group includes:
a) Consider the report of Technical Reviewers.
b) Consider the response of the Audit Firm
c) Making recommendations to the Quality Review Board
d) All of the above
30. Provisions relating to constitution of Quality Review Board are provided by:
a) Section 28A of the Chartered Accountants Act, 1949.
b) Section 28B of the Chartered Accountants Act, 1949.
c) Section 21 of the Chartered Accountants Act, 1949.
d) Rule 6 of Chartered Accountants Procedures of Meetings of Quality Review Board, and Terms and
Conditions of Service and Allowance of the Chairperson and Members of the Board Rules 2006.
Answers
1 d 6 b 11 a 16 c 21 d 26 c
2 a 7 a 12 b 17 d 22 a 27 a
3 b 8 c 13 c 18 d 23 c 28 a
4 b 9 c 14 a 19 a 24 d 29 d
5 d 10 c 15 b 20 c 25 b 30 a
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CHAPTER-11
AUDIT OF DIVIDEND
1. As per Sec. 123(1) of Companies Act, 2013, before declaration of any dividend in any financial
year, company is required to transfer
a) 10% of profits for that financial year to the reserves of the company
b) 20% of profits for that financial year to the reserves of the company
c) Such percentage of its profits for that financial year as it may consider appropriate to the reserves of
the company
d) Such percentage of its profits for that financial year as audit committee may consider appropriate to
the reserves of the company
2. As per Sec. 123(1) of Companies Act, 2013, no company shall declare dividend unless
a) Carried over previous losses and depreciation not provided in previous year or years, whichever is
less, are set off against profit of the company for the current year
b) Carried over previous losses and depreciation not provided in previous year or years, whichever is
higher, are set off against profit of the company for the current year
c) Carried over previous losses and depreciation not provided in previous year or years are set off
against accumulated profits of the company
d) Carried over previous losses and depreciation not provided in previous year or years are set off
against profit of the company for the current year
3. As per Sec. 123(1) of Companies Act, 2013, in case of inadequacy or absence of profits in any
financial year, a company may declare dividend out of____________
a) Accumulated profits earned by it in previous years and not transferred by the company to the
reserves
b) Accumulated profits earned by it in previous years and transferred by the company to the reserves
c) Capital reserves
d) Both (a) and (b)
4. The Board of Directors of a company may declare interim dividend
a) During any financial year or any time during the period from closure of financial year till holding of
Board meeting
b) During any financial year or any time during the period from closure of financial year till holding of
AGM
c) During any financial year or any time during the period from closure of financial year till date of
auditor report
d) During the financial year only
5. As per Sec. 123(1) of Companies Act, 2013, in case the company has incurred loss during the
current financial year up to the end of the quarter immediately preceding the date of declaration
of interim dividend, such interim dividend shall not be declared at a rate higher than the
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a) Interim dividend declared by the company during the immediately preceding financial year
b) Final dividend declared by the company for the immediately preceding financial year
c) Average dividends declared by the company during the immediately preceding five financial years
d) Average dividends declared by the company during the immediately preceding three financial years
6. As per Rule 3 of Companies (Declaration and Payment of Dividend) Rules 2014, in the event of
inadequacy or absence of profits in any year, a company may declare dividend out of free
reserves subject to the fulfilment of which condition
a) The rate of dividend declared shall not exceed the average of the rates at which dividend was
declared by it in the 5 years immediately preceding that year
b) The rate of dividend declared shall not exceed the average of the rates at which dividend was
c) The rate of dividend declared shall not exceed the average of the rates at which dividend was
d) The rate of dividend declared shall not exceed the average of the rates at which dividend was
a) The total amount to be drawn from such accumulated profits shall not exceed 10% of the sum of its
paid-up share capital as appearing in the latest audited financial statement
b) The total amount to be drawn from such accumulated profits shall not exceed 10% of the sum of its
paid-up share capital and free reserves as appearing in the latest audited financial statement
c) The total amount to be drawn from such accumulated profits shall not exceed 15% of the sum of its
paid-up share capital as appearing in the latest audited financial statement
d) The total amount to be drawn from such accumulated profits shall not exceed 15% of the sum of its
paid-up share capital and free reserves as appearing in the latest audited financial statement
a) The balance of reserves after such withdrawal shall not fall below 10% of its paid-up share capital as
appearing in the latest audited financial statement
b) The balance of reserves after such withdrawal shall not fall below 10% of its paid-up share capital
and free reserves as appearing in the latest audited financial statement
c) The balance of reserves after such withdrawal shall not fall below 15% of its paid-up share capital as
appearing in the latest audited financial statement
d) The balance of reserves after such withdrawal shall not fall below 15% of its paid-up share capital
and free reserves as appearing in the latest audited financial statement
9. As per Sec. 124 of Companies Act, 2014, if any default is made in transferring the unpaid/
unclaimed dividend to the Unpaid Dividend Account of the company, company shall pay, from
the date of such default, interest on so much of the amount as has not been transferred to the
said account, at the rate of_________
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a) 9% p.a.
b) 12% p.a.
c) 15% p.a.
d) 18% p.a.
10. As per Sec. 127 of Companies Act, 2013, where a dividend has been declared by a company but
has not been paid or the warrant in respect thereof has not been posted within 30 days from the
date of declaration to any shareholder entitled to the payment of the dividend, the company shall
be liable to pay simple interest at the rate of_______________
a) 9% p.a. during the period for which such default continues
b) 12% p.a. during the period for which such default continues
c) 15% p.a. during the period for which such default continues
d) 18% p.a. during the period for which such default continues
11. In case of inadequacy or absence of profits in any year, a company may declare dividend out of
reserves of the company subject to
a) Total amount to be drawn from the reserves shall not exceed 10% of the paid-up equity capital and
free reserves of the company
b) The balance of reserves after such withdrawal shall not fall below 15% of its paid-up equity capital
as appearing in the latest audited financial statements
c) Both (a) and (b) above
12. As per Sec. 123 of Companies Act, 2013, the amount of the dividend, including interim dividend,
shall be deposited in a scheduled bank in a separate account within____________
a) 5 days from the date of declaration of such dividend
b) 7 days from the date of declaration of such dividend
c) 30 days from the date of declaration of such dividend
d) 60 days from the date of declaration of such dividend
13. As per Sec. 124 of Companies Act, 2013, the company shall, within a period of_____________
Prepare a statement containing the names, address and the unpaid dividend to be paid to each
person and place it on the website of the company, if any, and also on any other website approved
by the Central Government, for this purpose, in such form, manner and other particulars as may
be prescribed
a) 60 days of making any transfer of unpaid/ unclaimed dividend to special account
b) 90 days of making any transfer of unpaid/ unclaimed dividend to special account
c) 60 days of declaration of dividend
d) 90 days of declaration of dividend
14. As per Sec. 126 of Companies Act, 2013, where any instrument of transfer of shares has been
delivered to any company for registration and a transfer of such shares has not been registered
by the company, the company shall transfer the dividend in relation to such shares to the
_____________ unless the company has been authorised by the registered holder of such shares in
writing to pay such dividend to the transferee specified in such instrument of transfer
a) Investor Education and protection Fund
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b) Unpaid Dividend Account

15. Sec. 126 of the Companies Act, 2013 provides the special provisions as to rights of transferee in
respect of shares which have not been registered by the company. Rights covered in Sec. 126
related to
a) Right to receive dividend
b) Offer of Right Shares
c) Issue of fully paid bonus shares
d) All of the above
16. AS-4, “Contingencies and Events Occurring after the Balance Sheet Date” requires that if an
enterprise declares dividends to shareholders after the balance sheet date,
a) The enterprise should recognize those dividends as a liability at the balance sheet date
b) The enterprise should not recognize those dividends as a liability at the balance sheet date
irrespective of requirements of a statute
c) The enterprise should not recognize those dividends as a liability at the balance sheet date unless a
statute requires otherwise. Such dividends should be disclosed in notes
17. Which of the following is correct?
a) Dividend once declared, becomes a debt against the company and cannot be revoked in any situation
b) Dividend once declared, becomes a debt against the company and cannot be revoked except when
dividend declared in general meeting is against the provisions of the Act
c) Dividend once declared, becomes a debt against the company and cannot be revoked except when
general meeting resolves the revocation for just and proper reasons
d) Both (b) and (c)
18. The Board of Directors of ACP Ltd. has recommended the dividend of 15% on paid up share
capital of Rs. 450 crores for the year ended 31st March, 2018, at their meeting held on 1st of May,
2018 when the accounts for the financial year 2017-18 were approved. The Board of Directors
when they met on 7th July, 2018 for the review of first Quarter accounts, the Board has decided
to rescind their decision to recommend dividend.
The notice for AGM to be held on 14.08.2018 was sent on 15th July, 2018 without any
recommendation of dividend. At the AGM the members asked the management how they can
rescind the declaration of dividend once recommended
a) Revocation of dividend by Board of Directors is not within their powers
b) Board of directors are well within their powers to rescind the recommended dividend
c) Members may declare dividend in the general meeting irrespective of revocation of dividend by
Board of Directors
19. As per Sec. 123(1) of Companies Act, 2013, among various sources of dividend. One of the major
sources is profits of the company. While computing profits for the purpose of dividend, which of
the following is to be excluded
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a) Any amount representing unrealised gains or notional gains

b) Surplus arises on revaluation of assets
c) Any change in carrying amount of an asset or of a liability on measurement of the asset or the liability
at fair value
d) All of the above
20. Which of the following is incorrect?
a) Money transferred to Unpaid Dividend Account which remains unpaid or unclaimed for a period of
7 years from the date of such transfer shall be transferred by the company along with interest
accrued, if any, thereon to the Fund established u/s 125
b) All shares in respect of which unpaid or unclaimed dividend has been transferred to IEPF shall also
be transferred by the company in the name of IEPF along with a statement containing such details as
may be prescribed
c) Any claimant of shares transferred to IEPF shall not be entitled to claim the transfer of shares from
IEPF
d) Any person claiming to be entitled to any money transferred to unpaid dividend account may apply
to the company for payment of the money claimed
21. In the event of inadequacy or absence of profits in any year,
a) Company may declare dividend out of free reserves, but the rate of dividend declared shall not exceed
the average of the rates at which dividend was declared by it in the 5 years immediately preceding
that year
b) Company may declare dividend out of free reserves, but the rate of dividend declared shall not exceed
the average of the rates at which dividend was declared by it in the 3 years immediately preceding
that year
c) Company may declare dividend out of free reserves, but the rate of dividend declared shall not exceed
10% of capital or of the average of the rate at which dividend was declared by it in the 3 years
immediately preceding that year, whichever is higher
d) Company may declare dividend out of free reserves, but the rate of dividend declared shall not exceed
10% of capital or of the average of the rate at which dividend was declared by it in the 3 years
immediately preceding that year, whichever is lower
22. As per Regulation 80 of Table F of schedule I of the Companies Act, 2013, the company in general
meeting
a) May declare dividend upto 20%, if dividend is not recommended by the Board
b) May declare dividend, but dividend declared shall not exceed more than 10% of the rate
recommended by the Board
c) May declare dividends, but no dividend shall exceed the amount recommended by the Board
d) May declare dividends, but dividend declared shall not exceed more than 20% of the rate
recommended by the Board
23. The rate of dividend proposed by the Board may be _____________ by the members
a) Increased
b) Reduced
c) Both (a) and (b)
d) None of these
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24. Statement (1): The declaration of dividend at an annual general meeting is an item of ordinary
business
Statement (2): A company may pay dividend in proportion to the amount paid up on shares, if
the company is so authorised by the Board
d) None of the Statements is correct
25. The dividend for any financial year can be declared or paid out of ________________________
a) Profits for that financial year
b) Profits for any previous financial year(s) and remaining undistributed
c) Both (a) and (b)
d) Both (a) and (b) and out of free reserves
26. A company shall not declare any dividend on ________________, if it has failed to comply with the
provisions of section 73 or section 74
a) Equity shares
b) Preference shares
c) Any shares, whether equity or preference
d) None of these
27. In case of joint holders, the dividend shall be paid to _________________
a) The joint holder, who is authorised by all the joint holders in this regard
b) All the joint holders equally
c) The joint holder, who is first named in the register of members
d) All the joint holder in proportion of money invested by them
28. The amount of the dividend shall be deposited by the company in ______________ in a separate
account within ___________ of declaration of such dividend
a) A nationalised bank; 5 days
b) A scheduled bank; 5 days
c) State bank of India; 7 days
d) A nationalised bank; 7 days
29. If a company fails to transfer the unpaid or unclaimed dividend to the Unpaid Dividend Account,
the company shall be liable to pay interest @ ____________ per annum
a) 9%
b) 12%
c) 15%
d) 18%
30. Any money transferred to the Unpaid Dividend Account which remains unpaid for _________ from
the date of such transfer shall be transferred by the company, along with interest accrued, if any,
to the ‘Investor education and Protection Fund’
a) 3 years
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b) 5 years
c) 7 years
d) 10 years
31. All such shares in respect of which dividend has not been paid or claimed for ______________ shall
be transferred by the company in the name of Investor Education and Protection Fund
a) Any 7 years
b) 7 consecutive years
c) Any 5 years
d) 5 consecutive years
32. The Central Government shall constitute, by notification, an Authority for administration of the
Investor Education and Protection Fund consisting of a chairperson and such other members,
not exceeding ______________ and a chief executive officer, as the Central Government may appoint
a) 5
b) 7
c) 10
d) 12
33. The amount accumulated in the Investor Education and Protection Fund shall not be used
for________________
a) Reimbursement of legal expenses incurred in pursuing class action suits under section 37 and 245
b) Refunds in respect of unclaimed dividends, matured deposits, matured debentures, application
money due for refund and interest thereon
c) Grants or donations by the Central Government
d) Distribution of any disgorged amount among eligible and identifiable applicants who have suffered
losses
34. Where a transfer deed has been delivered to the company for registration, but the transfer of
shares has not yet been registered by the company, the company shall-
a) Pay the dividend to the registered shareholder, if it is so authorised by the articles
b) Pay the dividend to the transferor, if the transferee has authorised the company to do so
c) Transfer the dividend in relation to such shares to the Investor Education and Protection Fund
d) Transfer the dividend in relation to such shares to the Unpaid Dividend Account
35. Where a transfer deed has been delivered to the company for registration, but the transfer of
shares has not yet been registered by the company, any offer of right shares or bonus shares
made by the company______________
a) Shall belong to the transferor
b) Shall belong to the transferee
c) Shall remain pending
d) Shall be transferred to the Fund
36. The dividend shall be paid within _______________ days from the date of ______________ of dividend
a) 30; declaration
b) 7; declaration
c) 30; recommendation
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d) 7; recommendation
37. Dividend (other than interim dividend) is declared by____________
a) The Board
b) The members
d) Both (a) and (b)
38. Mr. Mannan, a member of Moksh Ltd. had given directions to the company regarding payment of
dividend, but those directions could not be complied with. Consequently, dividend could not be
paid to Mr. Mannan. Consider the following Statement:
Statement (1): Moksh Ltd. has contravened the provisions of section 127. And is therefore, liable
for penalty under section 127
Statement (2): In case a company contravenes the provisions of section 127, it shall be liable to
pay simple interest @ 12% per annum during the period for which the default continues
39. Statement (1): The Board may declare interim dividend out of surplus in the profit and loss
account
Statement (2): The Board may declare interim dividend out of profits of the financial year for
which interim dividend is sought to be declared
Statement (3): The Board may declare interim dividend out of profits generated in the financial
year till the quarter preceding the date of declaration of the interim dividend
Statement (4): The Board may declare interim dividend out of profits which have been
transferred to reserves
a) Statement (1) and (3) are correct
b) Statement (2) and (3) are correct
c) Statement (1), (2) and (3) are correct
d) All the statements are correct
40. If a company has incurred loss upto ____________ immediately preceding the date of declaration of
interim dividend, then, the rate of interim dividend shall not be higher than the average rate of
dividends declared by the company during immediately preceding ___________________ financial
years
a) The end of the financial year; 3
b) The end of the quarter; 3
c) The end of the financial; 5
d) The end of the quarter; 5
41. Statement (1): The Board may declare interim dividend whether or not it is authorised by the
articles
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Statement (2): The amount of interim dividend is to be compulsorily deposited in a scheduled

bank in a separate bank account, within 7 days of passing the Board resolution declaring the
interim dividend
42. A Ltd. proposes to declare dividend out of accumulated profits earned by it in the previous years
and transferred to the free reserves. The rate of dividend declared by it shall not exceed the
average of the rates at which dividend was declared by it in the immediately preceding
__________________ financial years, and the total amount to be drawn from reserves shall not exceed
_______________ of the sum of its paid-up share capital and free reserves as per the latest audited
a) 3; 1/5th
b) 5; 1/5th
c) 3; 1/10th
d) 5; 1/10th
43. B Ltd. has incurred loss for the financial year 2017-18. However, for the financial year 2017-18,
B Ltd. proposes to declare dividend out of accumulated profits earned by it in the previous years
and transferred to the free reserves. Consider the following statements:
Statement (1): The total amount to be drawn from reserves shall not exceed 1/20th of the sum of
its paid-up share capital and free reserves as per the latest audited financial statements
Statement (2): Any amount drawn from reserves shall first be utilised to set off the losses
incurred in the financial year for which the dividend is declared
Statement (3): The balance of reserves after drawal from reserves shall not fall below 10% of its
paid up share capital as per the latest audited financial statements
a) Statements (1) and (2) are correct
c) Statements (2) and (3) are correct
d) All the Statements are correct
44. After declaration of dividend it should be paid within
a) 14 days
b) 21 days
c) 30 days
d) 45 days
45. Which of the following amount is not credited to IEPF account
a) Unpaid dividend account of company
b) Matured deposit with company
c) Profit on sale of asset
d) Matured debentures with companies
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46. In how many days from the date of declaration, the interim dividend shall be deposited in a
separate bank account
a) 5 days
b) 7 days
c) 15 days
d) 21 days
47. After the expiry of ______________, the amount of unpaid dividend account should be transferred to
Investor Education and Protection Fund
a) 3 years
b) 5 years
c) 7 years
d) 10 years
48. Amount to be transferred to reserves out of profits before any declaration of dividend is_____
a) 5%
b) 7.5%
c) 10%
d) At the discretion of the company
49. If declared dividend has not been paid or the warrant in respect thereof has not been posted
within 30 days from the date of declaration to any entitled shareholder, the company shall be
liable to pay simple interest at the rate of _____________ p.a. during the period for which such default
continues.
a) 5%
b) 6%
c) 15%
d) 18%
50. Power to recommend dividend rests with:
a) Shareholders
b) Board of Directors
c) Chairman
d) All of the above
51. Which of the following are the sources of dividend:
a) Free Reserve of the company
b) Money’s provided by other companies
c) Debenture Redemption Reserve
52. Which of the following amount is not credited to IEPF Account
a) Unpaid dividend account of the company
b) Matured deposit with company
c) Profit on sale of asset
d) Matured debenture with companies.
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53. Dividend shall be paid in

a) Kind
b) Cash
c) Cash or Kind
d) Cash and Kind
54. Mr. X is a shareholder of A Pvt Ltd. He transferred his shares to his daughter Ms D, in the month
of February. Registration of such instrument of transfer is still pending by the company. In this
scenario, Companies Act, 2013 states that certain provisions which have to be kept in mind by
the company. Which provision mentioned below in this regard is correct?
a) Company has to transfer the dividend in relation to such shares to the Unpaid Dividend Account
b) Company has to transfer the dividend in relation to such shares in the name of transferee
c) Company has to issue fully paid-up bonus shares in the name of transferor
d) Company has to issue fully paid-up bonus shares in the name of transferee
55. XP Ltd declared 12% dividend to its equity share holders. However, company missed to transfer
unpaid dividend to bank account even after 40 days from declaration of dividend. In such case
how much interest will be payable?
a) 8% p.a
b) 16% p.a
c) 10% p.a
d) 12% p.a
56. Declaration of dividend is __________ in general meeting. Resolution to declare dividend can be
passed as:
a) Ordinary Business; 3/4th majority
b) Special Business; Special Resolution
c) Ordinary Business; Ordinary Resolution
d) Special Business; Ordinary Resolution
57. A Ltd did not declare the dividend in its AGM. However, the BoD of the company are keen to
declare the dividend for the company. The dividend can be declared in subsequent:
a) Audit Committee Meeting
b) Annual General Meeting only
c) Extraordinary General Meeting
d) Webcast on the website of the company
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Answer to MCQs
1 c 11 d 21 b 31 b 41 a 51 a
2 d 12 a 22 c 32 b 42 c 52 c
3 d 13 b 23 b 33 c 43 b 53 b
4 b 14 b 24 a 34 d 44 c 54 a
5 d 15 d 25 d 35 c 45 c 55 d
6 b 16 c 26 a 36 a 46 a 56 c
7 b 17 d 27 c 37 b 47 c 57 c
8 c 18 b 28 b 38 a 48 d
9 b 19 d 29 b 39 c 49 d
10 d 20 c 30 c 40 b 50 b
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CHAPTER-12
LIABILITIES OF AUDITOR
1. Regarding civil liability under Companies Act, 2013
a) Auditors may be fined for violating confidentiality
b) Auditors may be held liable to pay financial penalties
c) Auditors may have their bonuses confiscated
d) Auditors may get jail terms
2. Regarding criminal liability under statutory law
a) Auditors may be held liable to pay financial penalties
b) Auditors may be imprisoned for lack of professional competence and due care
c) Auditors may be fined for violating confidentiality
d) Auditors may get jail terms
3. Legal liability for the auditor is based on all the following except
a) Common law
b) Constitutional liability under statutory law
c) Liability for members of professional accounting organizations
d) Civil liability under statutory law
4. X Ltd. has issued its prospectus for raising capital, which includes a statement which is untrue
or misleading in form or context in which it is included. It was found that such statement was
made with authorization of Mr. X, who is Chartered Accountant and engaged with the company
to manage their public issue
a) Mr. X is liable to be punished u/s 147 of Companies Act, 2013
b) Mr. X is liable to be punished u/s 447 of Companies Act, 2013
c) Mr. X is liable to be punished under sections 147 as well as 447 of Companies Act, 2013
d) Mr. X is not liable for any punishment
5. Professional negligence may be defined as
a) Any failure to perform a duty according to accepted professional standards, which may or may not
cause loss, damage or detriment to the party who had engaged a professional
b) Any failure to perform a duty according to accepted professional standards, which has resulted in
causing revenue losses to the government
c) Any failure to perform a duty according to accepted professional standards, which has resulted in
some loss, damage or detriment to the party who had engaged a professional
6. As per Sec. 447 of Companies Act, 2013, a person shall be punishable with imprisonment for a
term which shall not be less than 6 months but which may extend to 10 years, if he is found to be
guilty of fraud, involving an amount of
a) At least Rs. 10 lakh or 1% of the turnover of the company, whichever is lower
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b) At least Rs. 10 lakh or 1% of the turnover of the company, whichever is higher

c) At least Rs. 10 lakh or 5% of the turnover of the company, whichever is lower
d) At least Rs. 10 lakh or 5% of the turnover of the company, whichever is higher
7. As per Sec. 447 of Companies Act, 2013, a person who commits a fraud which involves public
interest , the term of imprisonment shall not be less than __________________
a) 1 year
b) 2 years
c) 3 years
d) 5 years
8. As per Sec. 447 of Companies Act, 2013, where the fraud involves an amount less than Rs. 10 lakh
or 1% of the turnover of the company, whichever is lower, and does not involve public interest,
any person guilty of such fraud shall be punishable with imprisonment for a term which may
extend to _____________________ or with fine which may extend to _____________________ or with both
a) 3 years; Rs. 10 Lakh
b) 5 years; Rs. 10 Lakh
c) 3 years; Rs. 50 Lakh
d) 5 years; Rs. 50 Lakh
9. Civil liability for misstatement in prospectus is covered under
a) Section 34 of Companies Act, 2013
b) Section 35 of Companies Act, 2013
c) Sections 34 and 35 of Companies Act, 2013
10. As per Sec. 448 of Companies Act, 2013, if in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for, the purposes of any of the
provisions of this Act or the rules made thereunder, any person makes a statement, (a) which is
false in any material particulars, knowing it to be false; or (b) which omits any material fact,
knowing it to be material, he shall be liable
a) Under section 147
b) Under section 447
c) Under sections 147 and 447 of Companies Act, 2013
11. As per _____________________, a person who has been convicted of any offence connected with any
Income Tax proceeding or on whom a penalty has been imposed under the said Act is
disqualified from representing an assessee
a) Sec. 288(4) of the Income Tax Act, 1961
b) Sec. 288(5) of the Income Tax Act, 1961
c) Sec. 278 of the Income Tax Act, 1961
12. Any person who abets or induces, in any manner another person to make and deliver to the
Income Tax Authorities a false account, statement, or declaration relating to any income
chargeable to tax which he knows to be false or does not believe to be true is punishable, in a
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case where the amount of tax, penalty or interest which would have been evaded, if the
declaration, account or statement had been accepted as true, or which is wilfully attempted to
be evaded, exceeds Rs. 25 Lacs, with rigorous imprisonment for a term which shall not be less
than _______________ but which may extend to ______________ and with fine
a) 3 months; 2 years
b) 3 months; 7 years
c) 6 months; 3 years
d) 6 months; 7 years
13. Any person who abets or induces, in any manner another person to make and deliver to the
Income Tax Authorities a false account, statement, or declaration relating to any income
chargeable to tax which he knows to be false or does not believe to be true is punishable, in a
case where the amount of tax, penalty or interest which would have been evaded, if the
declaration, account or statement had been accepted as true, or which is wilfully attempted to
be evaded, does not exceed Rs. 25 Lacs, with rigorous imprisonment for a term which shall not
be less than _______________ but which may extend to ______________ and with fine
a) 3 months; 2 years
b) 3 months; 3 years
c) 6 months; 2 years
d) 6 months; 3 years
14. As per Sec. 271J of Income Tax Act, 1961, where the Assessing Officer or the Commissioner
(Appeals), in the course of any proceedings under this Act, finds that ______________________ has
furnished incorrect information in any report or certificate furnished under any provision of
this Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may
direct that person to pay a penalty of Rs. 10,000 for each such report or certificate
a) An accountant
b) A merchant banker
c) Registered valuer
d) All of the above
15. In assessment proceedings of M/s Cloud Ltd., Income Tax Officer observed some irregularities.
Therefore, he started investigation of Books of Accounts audited and signed by Mr. Old, a
practicing Chartered Accountant. While going through books he found that M/s Cloud Ltd. used
to maintain two sets of Books of Accounts, one is the official set and other is covering all the
transactions. Income Tax Department filed a complaint with the Institute of Chartered
Accountants of India saying Mr. Old had negligently performed his duties
a) Mr. Old is not guilty of any misconduct as he is not associated with the maintenance of books of
accounts irrespective of the fact whether he was aware of two sets or not
b) Mr. Old is guilty of professional misconduct as he has performed his work without due diligence, he
was supposed to apply investigate skills to identify that the client had maintained two set of books
c) Mr. Old is guilty of other misconduct as his conduct disrepute the profession
d) Mr. Old is not guilty of any misconduct as he is not associated with the maintenance of books of
accounts provided, he was not aware of maintenance of two sets of books of accounts
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16. As per Sec. 271J of Income Tax Act, 1961, where the Assessing Officer or the Commissioner
(Appeals), in the course of any proceedings under this Act, finds that an accountant has furnished
incorrect information in any report or certificate furnished under any provision of this Act or
the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may direct that
person to pay a penalty of
a) Rs. 10,000 for each incorrect information in such reports or certificates
b) Rs. 10,000 for each such report or certificate
c) Rs. 25,000 for each incorrect information in such reports or certificates
d) Rs. 25,000 for each report or certificate
Answers
1 b 4 d 7 c 10 b 13 a 16 b
2 d 5 c 8 d 11 a 14 d
3 b 6 a 9 b 12 d 15 d
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CHAPTER-13
INTERNAL AUDIT, MANAGEMENT AND
OPERATIONAL AUDIT
1. Management audit is an audit of the management; it is undertaken at the insurance of the
_____________ for providing it with information and appraisal of operations and activities
a) Management
b) Statutory Auditor
c) Regulatory Authorities
d) Any of the above
2. Management audit is primarily concerned with
a) Appraising management’s accomplishment of organizational goals
b) Management functions of preparation of financial statements, financial planning and other similar
activities
c) Management oversight function of preparation of financial statements
d) All of the above
3. Management audit should cover everything that we know as operational audit and, in addition
it should also include review of the
a) Adequacy and competence of the objectives, plans, policies and decisions of the top management
b) Economy, efficiency and effectiveness of business operations
c) Logical, structured and organized series of procedures
d) All of the above
4. Basic difference between management audit and operational audit is in:
a) Method
b) Level of appraisal
c) Method as well as level of appraisal
d) Neither method nor level of appraisal
a) Scope of management audit is wider than scope of operational audit
b) Scope of management audit is narrower than scope of operational audit
c) Scope of management audit is exactly the same as of operational audit
d) Management audit and Operational Audit are interchangeable words
6. The principal reason for undertaking a management audit is
a) The need for review of efficiency of business operations
b) The need for review of economy of business operations
c) The need for review of effectiveness of business operations
d) The need for detecting and overcoming current managerial deficiencies in ongoing operations
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7. In management audit, the managerial problems and related operational difficulties can be
spotted:
a) After the fact
b) Before the fact
c) On real time basis
8. Once top management has decided on the scope, the staffing, and the frequency of the
management audit, the next phase is the undertaking of actual audit. This involves investigating
and analyzing the present facts through
a) Reperformance and review of business operations
b) Interviews
c) Completing a management questionnaire
d) Interviews as well as completing a management questionnaire
9. A management audit questionnaire aims at
a) A comprehensive and constructive examination of an organisation’s management and its assigned
tasks
b) Appraisal of management actions in accomplishing organisation objectives
c) To highlight weaknesses and deficiencies of the organisation for possible improvements
d) All of the above
10. To assist in the preparation of the final report, the management auditors normally meet with the
a) Internal and statutory auditor of the entity
b) Statutory Auditor and management of the entity
c) Management and other concerned personnel
d) Management and Those Charged with Governance
11. Summary written reports issued by the management auditor also known as:
a) Interim Written Reports
b) Regular Written Reports
c) Flash reports
12. Summary written Reports:
a) In some cases, are primarily for audit committees of Boards of Directors, but in order cases for higher
level management
b) Are especially useful to top level managers who do not actively review the individual reports
c) Are useful to the general auditor in seeing his total reporting effort with more perspective and on an
integrated basis
d) All of the above
13. Management auditors in the normal discharge of their duty will come into contact with the
following:
a) Colleagues in their own department
b) Staff of the department whose functioning they audit
c) “Top management” who authorise them to perform audits
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d) All of the above

14. One of the biggest difficulties involved during the course of management audit is that people
working in the organization do not wish to accept any change. Causes of behavioural problems
that the management auditor is likely to face in the discharge of the review function that is
expected of him includes:
a) Staff/ Line Conflict
b) Fear of criticism as a result of adverse audit findings
c) Resistance to Change
d) All of the above
15. Systematic process of evaluating an organisation’s effectiveness, efficiency and economy of
operations under management’s control and reporting to appropriate persons the results of the
evaluation along with recommendations for improvement is known as:
a) Internal Audit
b) Operational Audit
c) Management Audit
d) Statutory Audit
16. Objectives of Operational Audit includes:
a) Appraisal of Controls, evaluation of financial performance, examination of state of affairs and
Appraisal of organizational structure
b) Appraisal of Controls, evaluation of performance, appraisal of objectives and plans and Appraisal of
organizational structure
c) Appraisal of financial Controls, evaluation of financial performance, appraisal of objectives and
financial plans and Appraisal of organizational structure
d) Appraisal of operational Controls, evaluation of financial performance, appraisal of objectives and
plans and Appraisal of customer relationships
17. Which of the following is not a difference between financial and operational audit :
a) Financial auditing is basically concerned with the opinion that whether the historical information
recorded is correct or not, whereas the operational auditing emphasizes on effectiveness and
efficiency of operations for future performance
b) Financial audits are restricted to the matters directly affecting the appropriateness of the presented
financial statements but the operational auditing covers all the activities that are related to efficiency
and effectiveness of operations directed towards accomplishment of objectives of organization
c) The financial audit report is sent to all stock holders, bankers and other persons having stake in the
Organization. However, the operational audit report is primarily for the management
d) Report of financial audits also includes suggestion for improvement whereas, the operational
auditing is limited to report only the deficiencies identified
18. In performance appraisal, the operational auditor is basically concerned not so much with-
a) How well technically the operations are going on
b) Accumulating information and evidence to measure the effectiveness, efficiency and economy with
which the operations are being carried on
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c) Preparing evaluation programme in such a manner that it will show how well or how poorly the
department has fared by reference to applicable standards, procedures, rules, policies and plans
d) Both (b) and (c)
19. In the task of performance evaluation, an operational auditor
a) Is least dependent upon availability of acceptable standards
b) Is expected to possess technical background in all diverse technical fields
c) Both (a) and (b) above
20. In operational auditing, special assignments arise at the request of management, may include
a) Determining the cause of an ineffective IT system
b) Investigating the possibility of fraud in a division
c) Making recommendations for reducing the cost of a manufactured product
d) All of the above
21. Operational audits are generally of three types. These three types are:
a) Functional Audits, Organizational Audit and Management Audit
b) Internal Audit, Management Audit and Functional Audits
c) Internal Audit, Management Audit and Special Assignments
d) Functional Audits, Organizational Audits and Special Assignments
22. Scope of internal audit is:
a) Restricted to financial statements
b) Not restricted to financial statements, but also extends to the task review of all operations of the
enterprise.
c) Not restricted to the financial statements, but also extends to take upon the function of the
operational manager.
d) Not restricted to financial statements, but also extends to statutory reporting under section 143(3)
of the Companies Act, 2013.
23. Which of the following public unlisted companies, required to appoint an internal auditor?
a) Companies having paid up equity capital and reserves of Rs. 50 crore or above during the preceding
financial year.
b) Companies having turnover of Rs. 200 crore or more during the current FY
c) Companies having outstanding loans or borrowings from the banks, financial institutions and
directors exceeding Rs. 100 crore or more at any point of time during the preceding FY
24. Which of the following private companies, required to appoint an internal auditor?
a) Companies having paid up capital Rs. 50 crore or above during the preceding FY
b) Companies having turnover of Rs. 200 crore or more during the preceding FY
c) Companies having outstanding loans or borrowing from banks, financial institution and directors
exceeding Rs. 100 crore or more at any point of time during preceding FY
d) Both (b) and (c)
25. Which of the following companies is not required to appoint an internal auditor?
a) Public companies having its securities listed on Main Board of Stock Exchange.
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b) Public companies having its securities listed on Institutional Trading Platform.

c) Unlisted Public Companies having paid up share capital of Rs 50 crores or above during the preceding
FY
d) Private companies having paid up share capital of Rs. 50 crore or above during the preceding FY.
26. Which of the following companies is required to appoint an internal auditor?
a) Private companies having paid up share capital of Rs. 40 crore during the preceding financial year
b) Private companies having turnover of Rs. 120 during the preceding financial year
c) Private companies having outstanding loans or borrowings from bank or financial institutions Rs.
105 crore at the end of the preceding financial year
d) None hey of the above.
27. Provisions relating to appointment of internal auditor are prescribed under:
a) Section 138 of Companies Act, 2013 read with Rule 13 of Companies (Audit and Auditor’s) Rules,
2014
b) Section 139 of Companies Act, 2013 read with Rule 13 of Companies (Audit and Auditor’s) Rules,
2014
c) Section 138 of Companies Act, 2013 read with Rule 13 of Companies (Accounts) Rules, 2014
d) Section 139 of Companies Act, 2013 read with Rule 13 of Companies (Accounts) Rules, 2014
28. Scope, function, periodicity and methodology of internal audit shall be formulated by:
a) Audit Committee in consultation with Board of Directors.
b) Audit Committee or the Board of Directors, as the case may be, in consultation with Statutory Auditor.
c) Board of Directors in consultation with the Audit Committee
d) Audit Committee or the Board of Directors, as the case may be, in consultation with the Internal
Auditor.
a) Internal auditor shall either be a chartered accountant or a cost accountant or such other
professionals pass may be decided by the Risk Management Committee
b) Internal auditor may or may not be an employee of the company
c) Chartered Accountant who is appointed in the company as internal auditor may or may not be in
practice
d) none of the above
30. Responsibilities of internal auditor shall not include:
a) To operate independently of the accounting staff
b) To perform the work with independence
c) To formulate policies and procedures to be implemented in the entity
d) To bring to the notice of the management any deficiencies identified in the policies and procedures
reviewed
31. Scope of internal auditor’s work include a review of

a) Internal control system and processors
b) Organizational structure of the enterprise
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c) Accomplishment of entity goals and objectives

d) All of the above
32. Coordination between the external auditor and the internal audit function is effective when:
a) Discussions take place at appropriate intervals throughout the period
b) The external auditor informs the internal audit function of significant matters that may affect the
function
c) The external auditor is advised of and has access to relevant reports of the internal audit function
and is informed of any significant matters that come to the attention of the function when such
matters may affect the work of external auditors so that external auditor is able to consider the
implications of such matters for the audit engagement
d) All of the above
33. The procedures the external auditor may perform to evaluate the quality of the work performed
and conclusions released by the internal audit function, in addition to performance include
which of the following:
a) Making inquiries of appropriate individuals within the internal audit function
b) Observing procedures performed by the internal audit function
c) Reviewing the internal audit functions work program and working papers
d) All of the above
34. Which out of the following is not covered within the scope of internal auditor work:
a) Evaluation of internal control
b) Review of compliance with laws and regulations
c) Review of operating activities
d) Statutory Examination of financial statements
35. Which of the following is most likely to be considered a material weakness in the internal control
for the purpose of an internal control audit of a public company?
a) Weaknesses in control activities
b) Restatement of previously issued financial statements due to a change in accounting principles
c) An ineffective internal audit function
d) inadequate segregation of recordkeeping from accounting
36. Internal auditor shall be
a) A practice chartered accountant
b) A practicing cost accountant
c) An employee of the company
d) Either be a chartered accountant (whether in practice or not) or a cost accountant, or such other
professional as may be decided by the Board.
37. The objective and scope of internal audit function typically include ___________ designed to
evaluate and improve the effectiveness of the entity’s governance processes, risk management
and internal control.
a) Assurance activities only
b) Consulting activities only
c) Assurance and consulting activities
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d) Risk management activities
Answers
1 a 6 d 11 c 16 b 21 d 26 c 31 d 36 d
2 a 7 b 12 d 17 d 22 b 27 c 32 d 37 c
3 a 8 d 13 d 18 a 23 d 28 d 33 d
4 b 9 d 14 d 19 d 24 b 29 a 34 d
5 a 10 c 15 b 20 d 25 d 30 c 35 c
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CHAPTER-14
AUDIT PLANNING, STRATEGY AND
EXECUTION
[MCQ of Audit Planning are covered under the SA-300 (Planning An Audit of Financial Statements).]
1. The auditor shall consider the factors that, in the auditor’s professional judgement, are
significant, are significant in directing the engagement team’s effort, while
a) Establishing the overall audit strategy
b) Developing the audit programme
c) Designing the audit programme
d) All of the above
2. The auditor may summarize _______________in the form of a memorandum that contains key
decisions regarding the overall scope, timing and conduct of the audit.
a) The overall audit plan
b) The overall audit strategy
c) Audit programme
d) Audit note
3. ______________ refers to such audit programme where plans for the auditor are not fixed.
a) Special audit
b) Fixed audit
c) Pre-determined audit
d) None of above
4. When a company engage a Chartered Accountant as its Internal Auditor, the external auditor
a) Need not check the areas covered by internal auditor
b) Should ignore the existence of internal auditor
c) Should incorporate the internal auditors report with his own
d) Should examine the system and efficiency of internal audit and devise a suitable audit programme.
5. Which of the following in incorrect w.r.t audit programme
a) An audit programme consists of a series of verification procedures to be applied.
b) It is desirable in respect of each audit and more particularly for bigger audits an audit programme
should be drawn up.
c) An audit programme is a summarized plan
d) There should be periodic review of the audit programme to assess whether the same continues
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6. _______________ sets the scope, timing and direction of the audit.

a) Overall audit strategy
b) Adequate planning
c) Audit programme
d) Overall objective of audit
7. State which of the following statement is not true
a) Evolving one audit programme applicable to all business under all circumstances is not practicable
b) An audit programme is a detailed plan of applying the audit procedures in the given circumstances
with instructions for the appropriate techniques to be adopted for accomplishing the audit
objectives.
c) An audit programme consists a series of verification procedures to be applied to the financial
statements and accounts of a given company for the purpose of obtaining sufficient evidence to
enable the auditor to express an informed opinion on such statements.
d) The auditor may summarize the audit note in the form of a memorandum that contains key
8. The auditor can formulate his entire audit programme only after
a) How far the weakness have been removed at an interim date
b) He has had a satisfactory understanding of the internal control system and their actual operation
c) The existence and operation of internal control
9. An audit programme is:
a) List of examination and verification steps to be applied
b) Examination in depth
c) List of audit queries
d) All of these
10. Responsibility fixing is a feature of
a) Audit plan
b) Audit
c) Audit programme
d) All of the above
a) Audit programme helps in distribution of work amongst the people doing audit
b) Audit programme is mechanical
c) Audit program acts as a evidence against change of negligence
d) Audit programme helps in covering all the areas where audit is required
12. Audit programme is a failure if
a) Instructions are not followed property
b) Audit plan is not made correctly
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c) The instructions are ambiguous

d) All of the above
a) A hard and fast audit programme may kill the initiative of efficient and enterprising assistants
b) An audit programme can make the audit exercise rigid and mechanical.
c) The principal can control the progress of the various audits in hand by examination of audit
programme.
d) There is a risk that if any matter escaped attention of auditor at the time of audit programming may
remain unaudited during the entire audit.
Answers
1 a 6 a 11 b
2 b 7 d 12 d
3 d 8 b 13 c
4 d 9 a
5 c 10 c
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CHAPTER-15
RISK ASSESSMENT AND INTERNAL CONTROL
MCQ of this chapter are covered with the SA-315 (Identifying and Assessing the Risk of Material
Misstatements Through Understanding the Entity and its Environment)
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CHAPTER-16
AUDIT OF NON-BANKING FINANCE COMPANIES
1. No NBFC is allowed to commence or carry on the business of a NBFC without obtaining a
certificate of registration from RBI. The registration is required where the financing activity is a
principal business of the company. Financial activity will be considered as principal business if
a) The company’s financial assets constitute more than 50% of the total assets
b) Income from financial assets constitute more than 50% of the gross income
c) The company’s financial assets constitute more than 50% of the total assets and income from
financial assets constitute more than 50% of the gross income
d) The company’s financial assets constitute more than 50% of the total assets or income from financial
assets constitute more than 50% of the gross income
2. Requirement of compulsory registration to commence or carry on the business of a NBFC is
prescribed by:
a) Sec. 451 of the RBI (Amendment) Act, 1997
b) Sec. 45IA of the RBI (Amendment) Act, 1997
c) Sec. 45IB of the RBI (Amendment) Act, 1997
d) Sec. 45IC of the RBI (Amendment) Act, 1997
3. Which of the below mentioned companies are not required to be registered with the RBI to carry
on the business of a NBFC:
a) Venture Capital Fund/ Merchant Banking companies/ Stock broking companies registered with SEBI
b) Insurance Company holding a valid Certificate of Registration issued by IRDA
c) Housing Finance Companies regulated by National Housing Bank
d) All of the above
4. A company desirous of commencing business of non-banking financial institution should have a
minimum net owned fund of
a) Rs. 25 lakh
b) Rs. 50 lakh
c) Rs. 100 lakh
d) Rs. 200 lakh
5. NBFC will be classified as systematically important NBFCs if:
a) Asset size is of Rs. 500 Cr. or more as per last audited balance sheet
b) Total income from financial assets is Rs. 500 Cr. or more for the immediately preceding financial year
c) Asset size is of Rs. 500 Cr. or more as per last audited balance sheet and total income from financial
assets is Rs. 500 Cr. or more for the immediately preceding financial year
d) Asset size is of Rs. 500 Cr. or more as per last audited balance sheet or total income from financial
assets is Rs. 500 Cr. or more for the immediately preceding financial year
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6. Rationale for classifying a NBFCs as systemically important NBFCs is that:

a) The activities of such NBFCs will have a bearing on the financial stability of the overall economy
b) They required relaxed norms for ease of doing business
c) The activities of such NBFCs will have a bearing on the operational aspects of the NBFC industry
d) All of the above
7. Asset Finance company may be defined as:
a) Companies engaged in financing of physical assets supporting productive or economic activity and
income arising therefrom is not less than 60% of total income
b) Companies engaged in financing of physical assets may or may not support productive or economic
activity and income arising therefrom is not less than 60% of total income
c) Companies engaged in financing of physical assets supporting productive or economic activity and
income arising therefrom is not less than 50% of total income
d) Companies engaged in financing of physical assets may or may not support productive or economic
activity and income arising therefrom is not less than 50% of total income
8. Company which is a financial institution carrying on as its principal business the acquisition of
securities, is classified as:
a) Systemically Important Core Investment Company
b) Investment Company
c) Non-Banking Financial Company-Micro Finance Institution
d) Non-Banking Financial Company-factors
9. NBFC-MFI is a _________________ taking NBFC having not less than _______________ of its assets in the
nature of qualifying assets which satisfy certain criteria
a) Deposit taking; 85%
b) Non-deposit taking; 85%
c) Deposit taking; 90%
d) Non-deposit taking; 90%
10. Infrastructure Finance Company is a non-banking finance company (a) which deploys at least
_______________ of its total assets in infrastructure loans, (b) has a minimum Net Owned Funds of
__________________, (c) has a minimum credit rating of _____________________ (d) and a CRAR of
________________
a) 75%; Rs. 50 crore; ‘A’ or equivalent; 10%
b) 50%; Rs. 100 crore; ‘A++’ or equivalent; 12%
c) 80%; Rs. 200 crore; ‘A+’ or equivalent; 14%
d) 75%; Rs. 300 crore; ‘A’ or equivalent; 15%
11. Systemically Important Core Investment Company (CIC-ND-SI) is an NBFC carrying on the
business of acquisition of shares and securities which holds not less than ______________ of its total
Assets in the form of investment in________________________
a) 90%; equity shares, preference shares, debt or loans in other CIC-ND-SI
b) 75%; equity shares, preference shares, debt or loans in other CIC-ND-SI
c) 90%; equity shares, preference shares, debt or loans in group companies
d) 75%; equity shares, preference shares, debt or loans in group companies
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12. Company which is a financial institution carrying as its principal business the providing of
finance whether by making loans or advances or otherwise for any activity other than its own
but does not include an Asset Finance Company, is classified as:
a) Investment company
b) Loan company
c) Non-Banking Financial Company-Micro Finance Institution
d) Non-Banking Financial Company- Factors
13. Every NBFC shall maintain a capital ratio consisting of Tier 1 and Tier II capital of its aggregate
risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items,
which shall not be less than ________________ %
a) 10%
b) 12%
c) 15%
d) 16%
14. In order to have uniformity in reporting, frauds in case of a NBFC have been classified, based
mainly on the provisions of:
a) The Indian Penal Code
b) Companies Act, 2013
c) Standard of Auditing 240
d) Reserve Bank of India Act, 1934
15. In case of a NBFC, negligence and cash shortage is reported as fraud only if the intention to cheat/
defraud is suspected/ proved. However, if fraudulent intention is not suspected/ proved, at the
time of detection, cases of negligence and cash shortage will be treated as fraud and reported, if:
a) Cash shortages are more than Rs. 5,000/-
b) Cash shortages are more than Rs. 7,500/-
c) Cash shortages are more than Rs. 10,000/-
d) Cash shortages are more than Rs. 25,000/-
16. The ceiling on quantum of public deposits in case of a NBFC, has been linked to its
a) Credit rating as given by approved credit rating agency
b) Credit rating as given by the Reserve Bank of India
c) Credit rating as given by the Central Government
d) Credit rating as given by an approved Valuer
17. In the case of NBFCs not accepting/ holding public deposits, auditor is required to check:
a) Whether a board resolution has been passed by the NBFC to the effect that it has not accepted any
public deposits
b) Whether a board resolution has been passed by the NBFC to the effect that it would not accept any
public deposits during the year
c) Whether a resolution has been passed by the NBFC in its general meeting to the effect that neither it
has accepted any public deposits nor would it accept any public deposits during the year
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18. NBFC Prudential Norms stipulates that NBFCs should not lend
a) More than 25% of its owned funds to any single borrower and not more than 25% to any single group
of borrower
b) More than 25% of its owned funds to any single borrower and not more than 40% to any single group
of borrower
c) More than 15% of its owned funds to any single borrower and not more than 25% to any single group
of borrower
d) More than 15% of its owned funds to any single borrower and not more than 40% to any single group
of borrower
19. Which of the following is incorrect keeping in mind the requirements of NBFC Prudential Norms
directions?
a) Dividend income on shares of companies and units of mutual funds to be recognised on cash basis
b) NBFC has an option to account for dividend income on accrual basis, if the same has been declared
by the body corporate in its AGM and its right receives the payment has been established
c) Income from bonds/ debentures of corporate bodies is to be accounted on accrual basis only if the
interest rate on these instruments is predetermined and interest is serviced regularly and not in
arrears
20. Every non-banking financial company shall submit a Certificate from its ____________ that it is
engaged in the business of non-banking financial institution requiring it to hold a Certificate of
Registration under Section 45-IA of the RBI Act and is eligible to hold it
a) Board of Directors
b) Audit Committee
c) CEO/CFO
d) Statutory Auditors
21. As per NBFC Auditor’s Report (Reserve Bank) Directions, 2016, in addition to the Report made
by the auditor u/s 143 of the Companies Act, 2013, the auditor shall also make a separate report
to the Board of Directors of the Company. In such report, auditor shall include a statement
“Whether the company has obtained a Certificate of Registration from the Bank”. This statement
is to be included in case of:
a) All NBFC
b) NBFC accepting public deposits only
c) NBFC not accepting public deposits only
“Whether the company has violated any restriction on acceptance of public deposit as provided
in NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 2016”. This statement is to be
included in case of:
a) All NBFC
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“Whether the capital adequacy ratio as disclosed in the return submitted to the Bank, has been
correctly arrived at and whether such ratio is in compliance with the minimum CRAR prescribed
by the Bank”. This statement is to be included in case of:
a) All NBFC
c) Systemically Important Non-deposit taking NBFCs
d) NBFC other than Systemically Important Non-deposit taking NBFCs
24. Where, in the case of a NBFC, the statement regarding any of the items referred to in para 3 of
NBFC Auditor’s Report (Reserve Bank) Directions, 2016, is unfavourable or qualified, it shall be
the obligation of the auditor to make a report containing the details of such unfavourable or
qualified statements and/ or about the non-compliance, as the case may be, in respect of the
company to
a) The concerned Regional Office of the Department of Non-Banking Supervision of the Bank under
whose jurisdiction the registered office of the company is located
b) The concerned Zonal Office of the Department of Non-Banking Supervision of the Bank under whose
jurisdiction the registered office of the company is located
c) The concerned Regional Office of the State Bank of India
d) The concerned Regional Office of the Department of Non-Banking Supervision of the Ministry of
Corporate Affairs
25. Company auditor is required to report whether the company is required to be registered under
Section 45-IA of the RBI Act, 1934 and if so, whether the registration has been obtained. This
reporting requirement is prescribed by:
a) Sec. 143(1) of Companies Act, 2013
b) Para 3 of NBFC Auditor’s Report (Reserve Bank) Directions, 2016
c) Para 3(xii) of Companies (Auditor’s Report) Order, 2016
d) Para 3(xvi) of Companies (Auditor’s Report) Order, 2016
26. No NBFC is allowed to commence or carry on the business of a NBFC without obtaining a
certificate of registration from RBI. The registration is required where the financing activity is a
principal business of the company. Financial activity will be considered as principal business if:
a) The company’s financial assets constitute more than 50% of the total assets
b) Income from financial assets constitute more than 50% of the gross income
d) Both (a) and (b)
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27. NBFC Prudential Norms stipulates that NBFCs should not invest
a) More than 25% of its owned funds to a single entity and not more than 25% to any single group of
entities
b) More than 25% of its owned funds to a single entity and not more than 40% to any single group of
entities
c) More than 15% of its owned funds to a single entity and not more than 25% to any single group of
entities
d) More than 15% of its owned funds to a single entity and not more than 40% to any single group of
entities
28. NBFC Prudential Norms stipulates that composite limit of credit to and investments in a single
entity/ group of entities has been fixed at
a) 15% and 25% respectively of net worth of the concerned NBFC
b) 25% and 40% respectively of net worth of the concerned NBFC
c) 15% and 25% respectively of the owned fund of the concerned NBFC
d) 25% and 40% respectively of the owned fund of the concerned NBFC
“Whether the NBFC is meeting the required net owned fund requirement as laid down in
Directions issued by RBI”. This statement is to be included in case of:
a) All NBFC
“Whether the company has defaulted in paying to its depositors the interest and/ or principal
amount of the deposits after such interest and/ or principal became due”. This statement is to
be included in case of:
a) All NBFC
“Whether the company has furnished to the Bank within the stipulated period the quarterly
return on prudential norms as specified in the NBFC Returns (Reserve Bank) Directions, 2016”.
This statement is to be included in case of:
a) All NBFC
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“Whether the company has furnished to the Bank the annual statement of capital funds, risk
assets/ exposures and risk asset ratio within the stipulated period”. This statement is to be
included in case of:
a) All NBFC
c) Systemically Important Non-deposit taking NBFCs
d) NBFC other than Systemically Important Non-deposit taking NBFCs
33. It shall be the obligation of the auditor to make a report to the concerned Regional Office of the
Department of Non-Banking Supervision of the Bank under whose jurisdiction the registered
office of the company is located, if in the opinion of the auditor the company has not complied
with:
a) The NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 2016
b) NBFC-Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016
c) NBFC-Systemically Important Non-Deposit taking Company and Deposit Taking Company (Reserve
Bank) Directions, 2016
d) All of the above
Answers
1 c 6 a 11 c 16 a 21 a 26 d 31 b
2 b 7 a 12 b 17 d 22 b 27 c 32 c
3 d 8 b 13 c 18 c 23 c 28 d 33 d
4 d 9 b 14 a 19 d 24 a 29 a
5 a 10 d 15 c 20 d 25 d 30 b
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CHAPTER-17
AUDIT OF BANKS
1. In addition to main audit report, Statutory Central Auditors are required to issue other reports/
certificates. Which of the following is not covered within their scope?
a) Report on adequacy and operating effectiveness of Internal Controls Over Financial Reporting in case
of banks which are registered as companies under the Companies Act in terms of Section 143 (3) of
the Companies Act, 2013
b) Long form audit report (LFAR)
c) Report on compliance with Statutory Liquidity Ratio
d) Unit Inspection Reports
2. Long Form Audit Report is to be submitted by:
a) 30th April every year
b) 30th June every year
c) 30th Sep. every year
3. The matters which the banks require their auditors to deal with in the long form audit report
have been specified by the
a) Central Government
b) State Bank of India
c) Board of Directors of respective banks
d) Reserve Bank of India
4. During stage of initial considerations in a bank audit, which of the following aspect is not
covered:
a) Acceptance & Continuance
b) Terms of Audit Engagements
c) Communication with Previous Auditor
d) Engagement Team Discussions
5. During stage of “understanding the business operations” in a bank audit, auditor is required to
obtain understanding of various aspects. Which of the following aspect is not covered ?
a) Bank and its Environment including Internal Control
b) Bank’s Accounting Process
c) Risk Management Process
6. During stage of “Risk Assessment” in a bank audit, auditor is required to identify and assess
risks. Risks to be identified and assessed include:
a) Risks of Material Misstatements and Risk of Fraud including Money Laundering
b) Risks of Material Misstatements and Risk of Fraud including Money Laundering And Specific risks
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c) Risk Associated with Outsourcing of activities and Risk of Fraud including Money Laundering
d) Risks of Material Misstatements, Risk of Fraud including Money Laundering, Specific Risks and Risk
Associated with Outsourcing of activities
7. Which of the following activity is generally not form part of execution stage in a bank audit:
a) Establish Engagement Team
b) Engagement Team Discussions
c) Response to the Assesses Risks
d) Appropriateness of Going concern
8. Specified minimum fraction of the total deposits of customers, which commercial banks have to
hold as reserves either in cash or as deposits with the central bank is known as:
a) Statutory Liquidity Ratio
b) Cash Reserve Ratio
c) Liquidity Coverage Ratio
d) Deposit Liability Ratio
9. The Reserve Bank of India requires statutory central auditors of banks to verify the compliance
with SLR requirements of:
a) 12 odd dates in different months of a fiscal year not being Fridays
b) 12 odd dates in different months of a calendar year not being Fridays
c) 12 even dates in different months of a fiscal year being Fridays
d) 12 odd dates in different months of a fiscal year being Fridays
10. The report of the statutory auditors in relation to compliance with SLR requirements should
cover:
a) Correctness of the compilation of DTL (Demand and Time Liabilities) position
b) Maintenance of liquid assets
c) Both of the above
11. While examining the computation of Demand and Time Liabilities for the purpose of
ascertaining compliance of SLR requirements in a bank audit, auditor should specifically
examine that the certain items have been excluded from liabilities. Which of the following will
not be excluded?
a) Part amounts of recoveries from the borrowers in respect of debts considered bad and doubtful of
recovery
b) Amounts received in Indian currency against import bills and held in sundry deposits pending
receipts of final rates
c) Margins held and kept in sundry deposits for funded facilities
d) Interest on deposit as at the end of the firm half year reversed in the beginning of the next half-year
12. While examining the computation of Demand and Time Liabilities for the purpose of
ascertaining compliance of SLR requirements in a bank audit, auditor should specifically
examine that the certain items have been included in liabilities. Which of the following will not
be excluded?
149
a) Part amounts of recoveries from the borrowers in respect of debts considered bad and doubtful of
recovery
b) Margins held and kept in sundry deposits for funded facilities
c) Net credit balance in branch adjustment accounts including these relating to foreign branches
d) Un-adjusted deposits/ balances lying in link branches for agency business like dividend warrants,
interest warrants, refund of application money, etc., in respect of shares/ debentures to the extent of
payment made by other branches but not adjusted by the link branches
13. Pursuant to RBI’s circulars, issued from time to time, banks require their central auditors to
issue certificate regarding investments of the bank, in addition to their main audit report and
the LFAR. Identify the certificate to be issued by Central Auditors.
a) Certificate on reconciliation of securities by the bank (both on its own Investment Account as well as
PMS client’s account). The reconciliation is to be presented in a given format
b) Certificate on compliance by the bank in key areas of prudential and other guidelines relating to such
transactions issued by the RBI
c) Both (a) and (b)
14. Your firm has been appointed as Central Statutory Auditors of a Nationalised Bank. The bank has
recognised on accrual basis income from dividends on securities and Units of Mutual Funds held
by it as at the end of financial year. The dividends on securities and Units of Mutual Funds were
declared after the end of financial year.
a) Recognition of income from dividends on securities and units of mutual fund on accrual basis in order
b) Recognition of income from dividends on securities is in order; Recognition of income from units of
mutual fund on accrual basis is not in order
c) Recognition of income from dividends on securities is not in order; Recognition of income from units
of mutual fund on accrual basis is in order
d) Recognition of income from dividends on securities and units of mutual fund on accrual basis is not
in order
15. Accounts where regular/ ad hoc limits are not reviewed within ___________ from the date/ date of
ad hoc sanction, should be considered as NPA.
a) 90 days
b) 120 days
c) 180 days
16. Credit facilities backed by guarantee of the Central Government though overdue should be
treated as NPA only when the government repudiates its guarantee when invoked. This
exemption is not applicable for the:
a) Purpose of recognition of income
b) Purpose of asset classification
c) Purpose of provisioning on advances
d) Both (b) and (c)
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17. Agricultural advances are classified as NPA if interest and/ or Instalment of principal is overdue
for _____________ in case loans granted for Short Duration crops and __________ in case loans granted
for Long Duration crops (i.e. more than 1 year)
a) Two crop seasons; one crop season
b) One crop season; one crop season
c) two crop seasons; two crop seasons
d) one crop season; one crop season
18. While verifying accounts falling under corporate debt restructuring, auditor is required to
ensure that accounts wherein recovery suits have been filed, the initiative to resolve under the
CDR system is taken by at least by
a) 60% of the creditors by value and 75% in number
b) 75% of the creditors by value and 60% in number
c) 66% of the creditors by value and 75% in number
d) 75% of the creditors by value and 90% in number
19. In respect of examination of sale/purchase of NPA by the auditor, auditor should ensure that
only such NPA has been sold which has remained NPA in the books of the bank for at least
a) 180 days
b) 1 year
c) 2 years
d) 3 years
20. In case of sale of an NPA, the auditor should also ensure that where the sale is for a value higher
than the net book value-
a) Profit is to be recognized in the profit and loss account
b) Excess provision need to be reversed
c) No profit is recognised and the excess provision has not been reversed
21. The RBI requires banks to maintain a minimum CRAR of _______________ on an ongoing basis
a) 8%
b) 9%
c) 10%
d) 12%
22. Your firm has been appointed as auditors of a branch of a nationalised Bank. The bank is a
consortium member of Cash facilities of Rs. 50 crores to X Ltd. Bank’s own share is Rs. 10 crores
only. During the last two quarters against a debit of Rs. 1.75 crores towards interest, the credits
in X Ltd’s account are to the tune of Rs. 1.25 crores only. Based on the certificate of lead bank, the
bank has classified the account of X Ltd as performing
a) Classification of advance as performing is in order as in case of consortium advances, classification is
to be done on the basis of certificate of lead bank
b) Classification of advance as performing is in order subject to confirmation from branch statutory
auditor
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c) Classification of advance as performing is in order subject to confirmation from Central Statutory

auditor
d) Classification of advance as performing is not in order
23. M/s. S Ltd. is a MSME unit. The company does multiple banking. The company is availing cash
credit limit from U Bank of Rs. Crores. The limit availed remained less than Rs. 5.00 crores during
all the days of F.Y. 2017-18. The company has not done any credit in cash credit account during
the year as it is operating current account in newly opened another bank branch adjoining to
company premises. The company is having sufficient security of stocks and debtors and DP of
Rs. 25.00 crores remains all over the year. The company is availing term loans from other bank
branches. Now the Bank Manager is insisting to route the sale proceeds through U Bank,
otherwise cash credit limit and term loan accounts with other banks will be treated as Non-
Performing Accounts.
a) Cash credit facility with U bank need to be classified as NPA as there are no credit in the account to
serve the interest charged in the account. Classification of term loan with other banks depends upon
the payment made to that bank
b) Cash credit facility with U bank as well term loans with other bank branches need to be classified as
NPA
c) Cash credit facility with U bank as well term loans with other bank branches need to be classified as
performing
d) Cash credit facility with U bank need to be classified as performing whereas classification of term
loan with other banks depends upon the payment made to that bank
24. Banks are required to cover _______________ under concurrent audit
a) 60 percent of total deposits and 40 percent of total advances
b) 40 percent of total deposits and 40 percent of total advances
c) 50 percent of total deposits and 40 percent of total advances
d) 75 percent of total deposits and 40 percent of total advances
25. Scope of Concurrent audit in a bank normally includes:
a) Verification of cash transactions only
b) Verification of foreign exchange transactions only
c) Verification of advances and deposit only
26. Which of the following activity is generally not form part of execution stage in a bank audit
a) Engagement Team Discussions
b) Response to the Assessed Risks
c) Understanding of bank accounting policies
d) Audit Planning Memorandum
27. Requirement that the commercial banks in India require to maintain in the form of gold,
government approved securities before providing credit to the customers, is known as:
a) Statutory Liquidity Ratio
b) Cash Reserve Ratio
c) Liquidity Coverage Ratio
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d) Deposit Liability Ratio

28. Which of the following items will not be included in demand and time liabilities while examining
compliance of SLR requirements in a bank audit:
a) Un-adjusted deposits/ balances lying in link branches for agency business like dividend warrants,
b) Net credit balance in branch adjustment accounts including those relating to foreign branches
c) Interest on deposit as at the end of the first half year reversed in the beginning of the next half- year
d) Borrowings from abroad needs to be considered as ‘liabilities to other’ and thus, needs to be
considered at gross level
29. Which of the following items will be included in demand and time liabilities while examining
compliance of SLR requirements in a bank audit:
a) Un-adjusted deposits/ balances lying in link branches for agency business like dividend warrants,
b) Margins held and kept in sundry deposits for funded facilities
c) Borrowings from abroad needs to be considered as ‘liabilities to other’ and thus, needs to be
considered at gross level
d) All of the above
30. Credit facilities backed by guarantee of the Central Government though overdue should be
treated as NPA only when the government repudiates its guarantee when invoked. This
exemption is not applicable for the:
a) Purpose of recognition of income
b) Purpose of asset classification
c) Purpose of provisioning on advances
d) Both (b) and (c)
31. In case of purchase of NPAs, the auditor should verify that for the purpose of capital adequacy,
banks have assigned _____________ risk weights to the NPAs purchased from other banks
a) 50%
b) 60%
c) 75%
d) 100%
32. In course of audit of Good Samaritan Bank as at 31st March 2019 you observed the following: In
a particular account there was no recovery in the past 18 months. The bank has not applied the
NPA norms as well as income recognition norms as well as income recognition norms to this
particular account. When queried the bank management replied that this account was
guaranteed by the central government and hence these norms were applicable. The bank has
not invoked the guarantee
a) Bank is correct to the extent of not applying the NPA norms for provisioning purpose. But this
exemption is not available in respect of income recognition norms
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b) Bank is not correct to the extent of not applying the NPA norms for provisioning purpose. But this
exemption is available in respect of income recognition norms
c) Bank is correct is not applying the NPA norms and income recognition norms
d) Bank is not correct in not applying the NPA norms and income recognition norms
33. Banks should undertake half-yearly reviews (as of 30th September and 31st March) of their
investment portfolio. These half yearly reviews should cover:
a) The operational aspects of the investment portfolio
b) Indicating amendments made to the investment policy
c) Certification of adherence to laid down internal investment policy and procedures and RBI guidelines
d) All of the above
34. The third Schedule to the Banking Regulation Act, 1949 requires classification of advances made
by a bank from perspective of:
a) Nature of advance
b) Nature and extent of security
c) Place of making advance (i.e. whether in India or outside India)
d) All of the above
35. The basic approach of capital adequacy framework is that a bank should have sufficient capital
to provide a stable resource to absorb any losses arising from the risks in its business. Capital is
divided into two categories: Tier I and Tier II, representing different instruments’ quality as
capital. Which of the following is incorrect w.r.t. above discussion?
a) Capital is divided into tiers according to the characteristics/ qualities of each qualifying instrument
b) Tier I capital consists mainly of share capital and disclosed reserves
c) Tier II capital consists of certain reserves and certain types of subordinated debt
d) The loss absorption capacity of Tier I capital is lower than that of Tier II capital
36. In carrying out audit of deposits and liabilities in a bank, the auditor is primarily concerned with
obtaining _______ that all known liabilities are recorded and stated at appropriate amounts.
a) Absolute assurance
b) Reasonable assurance
c) Moderate assurance
d) Limited assurance
37. The detailed scope of the concurrent audit should be clearly and uniformly determined for the
Bank as a whole by the Bank’s Inspector and Audit Department in consultation with the
a) Reserve Bank of India
b) Central Statutory Auditors of the bank
c) Bank’s Audit Committee of the Board of Directors
d) Comptroller and Auditor General of India
38. Management develops controls and uses performance indicators to aid in managing key
business and financial risks. Requirements of Risk Management System in a Bank may include:
1. Oversight by those Charged with Governance
2. Identification. Measurement and monitoring of risks
3. Control activities
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4. Monitoring activities
5. Reliable information systems
6. Assess the Risk of Fraud including Money Laundering by audit team
7. Identifying and Assessing the Risks of Material Misstatements by auditor
8. Assess Specific Risks at engagement level that may cause material misstatement
Identify the requirements
a) 1,2,3 and 4
b) 5,6,7 and 8
c) 1,2,3,4 and 5
d) 6,7 and 8
Answers
1 d 11 d 21 b 31 d
2 b 12 c 22 d 32 a
3 d 13 c 23 a 33 d
4 d 14 d 24 c 34 d
5 d 15 c 25 d 35 d
6 d 16 a 26 c 36 b
7 a 17 a 27 a 37 c
8 b 18 b 28 a 38 c
9 a 19 c 29 c
10 c 20 c 30 a
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CHAPTER-18
AUDIT REPORT
The SA 700 series is purely dedicated to the auditor report to be issued by the auditor. These SAs are SA 700,
701, 705, 706, 710 and 720. MCQs of these SAs are discussed under Chapter “Quality Control and Engagement
Standards”.
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CHAPTER-19
QUALITY CONTROL AND
ENGAGEMENT STANDARDS
BASICS, SQC-1 and SA 200
1. Which of the following organization set International Standards on Auditing?

a) International Auditing and Assurance Standard Board
b) International Federation of Accounts
c) International Accounting Standard Committee
d) Public Company Accounting Oversight Board
2. Auditing and Assurance Standards Board issues all of the following standards except
a) Standards on Quality Control
b) Standards on Special Purpose Audits
c) Standards on Assurance Engagements
3. The IAASB functions as an independent standards-setting body under the auspices of_________
a) International Federation of Auditors
b) International Federation of Accounts
c) Auditing Practices Committee
d) International Ethical Standard Board of Accounts
4. Which of the following standards are not issued by the International Auditing and Assurance
Standards Board?
a) Financial Reporting Standards
b) Standards on Assurance Engagements
c) Standards on Quality Control
5. In a limited assurance engagement, the practitioner
a) Expresses the conclusion in a positive form
b) Expresses the conclusion in the negative form
c) Conveys reasonable assurance
d) Has obtained sufficient appropriate evidence to reduce assurance engagement risk to an acceptably
low level.
6. How does the related services framework differ from the assurance framework?
a) Related services enhance the degree of confidence intended users can have
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b) Related services claim compliance with SAs

c) Related services engagements do not result in an opinion
d) Related services claim compliance with SAEs.
7. An assurance report
a) Provides reasonable assurance to the responsible party
b) Is prepared by the responsible party
c) Provides a written report containing a conclusion that conveys the assurance obtained about the
subject matter information
d) Has a format that is uniquely different from SA audit opinion.
8. What is the type of assurance engagement that has as its subject matter non-historical financial
information?
a) Agreed upon procedures
b) Special purpose engagement
c) Review of financial statements
d) Examination of prospective financial information
9. What standards are practitioners who perform assurance engagements govered by no matter
what type of assurance audit they are performing?
a) Code of Ethics and Standards on Quality Control
b) Standards for Related Services and Code of Ethics
c) Standards for Review Engagements and Code of Ethics
d) Code of Ethics and Standards on Auditing (SAs)
10. Which of the following is not one of the major categories of auditor’s services?
a) Compliance Engagement
b) Audit and Review of Historical Financial Information
c) Assurance Engagements on subject matters other than historical financial information
d) Relates Services.
11. The Institute of Chartered Accountants of India constitutes the _________________ to review the
existing auditing practices in India to develop Engagement and Quality Control Standards
a) AASB
b) IFAC
c) IAASB
d) None
12. ______________________ is a member of the IFAC and is committed to work towards the implementation
of the guidelines issued by the IFAC
a) The Institute of the Chartered Accountants of India
b) Auditing Practices Committee
c) Auditing and Assurance Standards Board
d) All of the above
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13. Auditing Practices Committee has been converted into

a) IFAC
b) ICSI
c) AASB
d) IAASB
14. Which of the following is not type of engagement standard
b) Standard on Quality Control
c) Standards on Review Engagement
d) Standards on Assurance Engagement
15. In which of the following engagement opinion is not expressed
a) Related Services Engagement
b) Auditing Engagement
c) Review Engagement
d) Assurance Engagement
16. In which of the following engagement an opinion is expressed on a subject matter other than
the historical financial information
a) Auditing Engagement
b) Review Engagement
c) Assurance Engagement
d) Related Services Engagement
b) Standard on Quality Control
c) Standards on Review Engagement
d) Standards on Assurance Engagement
18. SA series 300-499 cover the aspect of
a) Risk assessment and responses to assess risk
b) Specialized area
c) Introductory matters
d) General principles and responsibilities
19. SA Series 500-599 cover the aspects of_______
a) Introductory matters
b) General Principles and Responsibilities
c) Audit Evidence
d) Audit Conclusion and Reporting
20. SA Series 700-799 cover the aspects of ________
a) Introductory matters
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b) General Principles and Responsibilities

c) Audit Evidence
d) Audit Conclusion and Reporting
21. As per SQC 1, the objective of the firm is to establish and maintain a system of quality control to
provide it with reasonable assurance:
a) As to acceptance and retention of clients, partner compensation and monitoring is appropriate
b) As to leadership responsibilities, acceptance and retention of clients and professional relations are
appropriate.
c) That there is appropriate acceptance and retention of clients, monitoring and public relations
d) That reports issued by firm or engagement partners are appropriate in the circumstances.
22. As per SQC 1, which of the following elements is not part of the firm’s system of quality control:
a) Leadership responsibilities for quality within the firm
b) Ethical requirements including independence
c) Preparation of Financial Statements in compliance of applicable financial reporting framework.
d) Acceptance and continuance of client relationships and specific engagements.
23. A process designed to provide an objective evaluation, before the report is issued, of the
significant judgments the engagement team and conclusions they reached in formulating the
report, is known as:
a) Inspection
b) Engagement Quality Control Review
c) Peer Review
d) Quality Review
24. A process comprising an ongoing consideration and evaluation of the firm’s system of quality
control, including a periodic inspection of a selection o completed engagements, design to enable
the firm to obtain reasonable assurance that its system of quality control is operating effectively,
is known as:
a) Review
b) Monitoring
c) Inspection
d) Quality Review
25. The audit firm must establish, maintain, document and communicate to their personnel a system of
quality control that includes polices and procedures that address each of the following elements except:
a) Human resources
b) Monitoring
c) Public relations
d) Engagement performance
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26. As per SQC 1, firms should obtain written confirmation of compliance with the policies and
procedures on independence from all firm personnel required to be independence in terms of
the requirements of the code
a) On annual basis
b) On quarterly basis
c) On half yearly basis
d) On engagement basis
27. As per requirements of SQC 1 the firm should establish policies and procedures for the
acceptance and continuance of client relationships and specific engagements, designed to
provide it with reasonable assurance that it will undertake or continue relationships only where
it:
a) Has considered the integrity of the client and does not have information that would lead it to conclude
that the client lacs integrity.
b) Is competent to perform the engagement and has the capabilities, time and resources to do so.
c) Can comply with the ethical requirements.
28. SQC 1 requires firm to establish policies and procedures for the timely completion of the
assembly of audit files. An appropriate time limit within which to complete the assembly of the
final audit file is ordinarily
a) Not more than 30 days after the date of the auditor’s report.
b) Not more than 45 days after the date of the auditor’s report.
c) Not more than 60 days after the date of the auditor’s report.
d) Not more than 90 days after the date of the auditor’s report.
29. SQC 1requires the firm to obtain information before accepting an engagement. Which of the
following information will not assist the engagement partner in determining whether the
decisions regarding the acceptance and continuance of audit engagements are appropriate:
a) The integrity of the principal owners, key management and those charged with governance of the
entity.
b) Whether the engagement team is competent to perform the audit engagement and has the necessary
capabilities, including time and resources.
c) Whether the firm and the engagement team can comply with the relevant ethical requirements.
d) Whether the firm and the engagement partner are able to communicate with the TCWG.
30. You are an audit senior working for the firm ABC & Associates. You are currently carrying out
the audit of Wisdom Ltd, a manufacturer of wastepaper bins. You are unhappy with Wisdom
Ltd.’s inventory valuation policy and have raised issue several times with the audit manager. He
has dealt with the client for a number of years and does not see what you are making an objection
about. He has refused to meet you on site to discuss those issues.
As the audit manager had dealt with Wisdom Ltd. for so many years, the other partners have
decided to leave the audit of Wisdom Ltd. in his capable hands.
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a) Audit firm has not complied with the requirement of SQC 1 in so far as appears that the firm does not
have a suitable policy to resolve conflicting views. However, it appears that Audit firm has complied
with the requirements of SA 220
b) Audit firm has not complied with the requirement of SA 220 in so far as appears that the audit
manager refused to meet the audit senior to discuss the inventory valuation policy of the client.
However, it appears that Audit firm has complied with the requirements of SQC 1
c) Audit firm has not complied with the requirements of SCQ 1 and SA 220 in so far as appears that no
engagement partner is appointed to audit engagement undertaken by the firm to take responsibility
for the engagement on behalf of the firm and the firm does not have a suitable policy to resolve
conflicting views.
d) Audit firm has complied with the requirements of SQC 1 and SA 220 in so far as appears that audit
responsibility has been delegated to audit manager who had with the client for past many years.
31. Which of the following is not a SA 200 requirement relating to an audit of financial statements?
a) To obtain reasonable assurance, the auditor must obtain sufficient appropriate audit evidence to
reduce audit risk to an acceptably at low level.
b) Compliance with relevant ethical requirements, including those pertaining to independence
c) The auditor shall plan and perform an audit with professional skepticism, recognizing that
circumstances may exist that cause the financial statements to be materially misstated.
d) The auditor shall exercise common sense in planning and performing an audit of financial statements.
32. As per SA 200, the overall objective of the auditor is:
a) To obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement and to report on the financial statements and communicate as required by the
SAs, in accordance with the auditor’s findings.
b) To guide the management as to design, implement and maintenance of internal controls which are
necessary to obtain reasonable assurance that the financial statements are free from material
misstatements.
c) To communicate with TCWG, the weaknesses identified during the course of audit
33. Professional skepticism is defined as:
a) An attitude that incudes a questioning mind, being alert to conditions which may indicate possible
misstatement due to error or fraud, and a critical assessment of evidence
b) An attitude to avoid significant mistakes which could influence the economic decisions of users taken
on the basis of the financial statements
c) An analysis of management decisions in terms of the failed outcomes.
d) The application of relevant training, knowledge and experience, with the context provided by the
auditing, accounting and ethical standards, in making informed decisions about the courses of action
that are appropriate in the circumstances of the audit engagement.
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34. An attitude that includes a questioning mind, being alert to conditions which may indicate
possible misstatement due to error or fraud, and a critical assessment of audit evidence is known
as ______________
a) Professional Judgment
b) Professional Skepticism
c) Professional Competence
d) Professional Behaviour
35. Professional Judgment is defined as:
a) An attitude that includes a questioning mind, being alert to conditions which may indicate possible
misstatement due to error or fraud, and a critical assessment of evidence.
b) An attitude to avoid significant mistakes which could influence the economic decisions of the users
taken on the basis of the financial statements.
c) An analysis of management decisions in term of failed outcomes.
d) The application of relevant training, knowledge and experience in making informed decisions about
the courses of action that are appropriate in the circumstances of the audit engagement.
36. Professional judgment is the application of relevant training, knowledge and experience, within
the context provided by ____________, in making informed decisions about the courses of action that
are appropriate in the circumstances of the audit engagement
b) Financial Reporting Standards
c) Code of Ethics
d) Auditing, Accounting and Ethical Standards
37. The auditor shall comply with relevant ethical requirements, including independence. The term
‘Independence’ comprises of:
a) Independence of mind
b) Independence of appearance
c) Independence of mind or independence of appearance
d) Independence of mind and independence of appearance
38. The auditor shall exercise of professional judgement
a) Only during the planning stage
b) Only during the performance stage
c) Only during the reporting stage
d) Throughout the audit
39. As per SA 200, the overall objective of the auditor is to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, thereby enabling the auditor to express an opinion on whether the financial
statements are prepared, in all material respects, in accordance with an applicable FRF. The term
reasonable assurance in this context implies:
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a) Equivalent to absolute assurance

b) High, but not absolute
c) Limited
d) Moderate assurance
40. To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence
to reduce audit risk to __________ and thereby enable the auditor to draw reasonable conclusion on
which to base the ____________
a) Acceptable low level; audit conclusion
b) Nil; audit opinion
c) Acceptable low level; audit opinion
d) Nil; conclusion
a) Management of the organization is solely responsible for the compliance of auditing standards while
preparing financial statements.
b) The matter of difficulty, time or cost involved is in itself a valid basis for the auditor to omit an audit
procedure for which there is no alternative.
c) The basic objective of audit does not change with reference to nature, size or form of the entity.
d) Audit procedures used to gather audit evidence may be effective for detecting an intentional
misstatement.
42. Ethical requirements are defined as the Code of Ethics issued by the ICAI which establishes the
fundamental principles of professional ethics. Which of the following is not specified in Code of
Ethics, as such?
a) Objectivity
b) Professional Competence
c) Confidentiality
d) Communication Skills
43. Which of the following is not an inherent limitation of audit?
a) Nature of Financial Reporting
b) Nature of Audit Procedures
c) Nature and Size of Business Entity
d) Existence of Related Party Transactions.
a) Auditor is able obtain only reasonable assurance due to inherent limitation of audit
b) The auditor is not expected to and cannot reduce audit risk to zero and cannot therefore obtain
absolute assurance that the financial statements are free from material misstatement due to fraud or
error.
c) An auditor is considered to lack independence if the partner of the audit firm deals with shares and
securities of the audited entity.
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d) The preparation of the financial statements does not involve judgement by management in applying
the requirements of the entity’s applicable financial reporting framework to the facts and
circumstances of the entity.
Answers
1 a 11 a 21 d 31 d 41 c
2 b 12 a 22 c 32 a 42 d
3 b 13 c 23 b 33 a 43 c
4 a 14 b 24 b 34 b 44 d
5 b 15 a 25 c 35 d
6 c 16 c 26 a 36 d
7 c 17 b 27 d 37 c
8 d 18 a 28 b 38 d
9 a 19 c 29 d 39 b
10 a 20 d 30 c 40 c
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SA 210
1. Which of the following SAs deals with auditor’s responsibilities in agreeing the terms of audit
engagement
a) SA 210
b) SA 220
c) SA 230
d) SA 240
2. The primary purpose of establishing quality control policies and procedures for deciding on
client evaluation to
a) Ensure adherence to generally accepted auditing standards
b) Acceptance or continuance of client’s relationship
c) Ensure audit fees is charged according to the type of audit work assigned
d) All of above
3. The auditor shall establish existence of preconditions for an audit of financial statements
a) Before confirming common understanding between the auditor and management of the terms of
audit engagement.
b) After confirming common understanding between the auditor and management of the terms of audit
engagement.
c) Before appointment of auditor
d) After the date of auditor’s report.
4. Terms of auditing engagement are discussed through
a) Letter of appointment
b) Letter of acceptance
c) Engagement letter
d) Letter of weakness
5. Engagement letter is provided by
a) Management to auditor
b) Auditor to Management/TCWG
c) Internal auditor to External Auditor
d) CG to Auditor
6. Engagement letter is
a) Always required when auditor is appointed
b) Always required when auditor is reappointed
c) Not always required when auditor is reappointed but except for certain exceptions
d) (a) and (C)
7. Which of the following reduce the possibility of misunderstanding to a great extent
a) Statements issued by the ICAI
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b) Guidance notes issued by the ICAI

c) Engagement Letter
d) All of the above
8. Which of the following is not a term of engagement letter
a) Object and Scope of audit
b) Responsibilities of management and TCWG of the entity
c) Fact that audit process may be subject to peer review under Chartered Accountants Act, 1949
d) Audit Planning
9. The audit engagement letter generally should include to each of the following except
a) Limitation of auditing
b) Responsibilities of management with respect to audit work
c) Expectation of receiving a written representation letter
d) A description of the auditor’s method of sample selection.
10. In which of the following circumstances a new engagement letter is required in recurring audit
engagement
a) Any change in the senior management of the entity
b) Any change in the nature of business of the entity
c) Any change in legal requirement
d) All of the above
11. If auditor is requested by management to change the audit engagement to an engagement that
conveys a lower level of assurance, then the auditor shall
a) Reject the management’s request
b) Accept the management’s request
c) Determine that there is a reasonable justification for doing so
d) Shall not entertain any such request
12. If auditor is unable to agree to change of the terms of the audit engagement and it is not
permitted by management to continue the original audit engagement, the auditor shall
a) Withdraw from the audit engagement where possible under applicable law or regulation.
b) Determine whether there is any obligation, either contractual or otherwise, to report the
circumstances to other parties, such as those charged with governance, owners or regulators
c) Combination of both (a) and (b)
13. As per SA 210, when at management’s request auditor determines to change any term of auditing
engagement, the revised terms of auditing engagement
a) Shall be recorded in the engagement letter
b) Need not be recorded in written agreement
c) Other suitable form of written agreement
d) Either (a) or (c)
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14. The use of an audit engagement letter is the best method of assuring the audit will have
a) Auditor will obtain sufficient appropriate audit evidence
b) Management representative letter
c) Access to all books, accounts and vouchers required for audit purpose
d) Cooperation from other auditors
15. In order to establish whether the preconditions for an audit of financial statements are present,
the auditor shall
a) Determine whether the financial reporting framework is acceptable
b) Obtain the agreement of management that it acknowledges and understands its responsibilities its
responsibility for the preparation of the financial statements in accordance with the applicable FRF
c) To provide the auditor with access to all information such as records, documents and other matters.
d) All of the above
SA 220
16. Which of the following SAs deals with responsibilities of auditor regarding quality control
procedures for an audit of financial statements
a) SA 200
b) SA 210
c) SA 220
d) SA 260
17. The objective of SA 220 is to implement quality control procedures at the engagement level that
provide the auditor with reasonable assurance that
a) The audit complies with professional standards and regulatory requirements
b) The auditor’s report issued is appropriate in the circumstances
c) Both (a) and (b)
d) None of these
18. The partner who is responsible for the auditing engagement and its performance and for the
report that is issued on behalf of the firm is called as:
a) Active partner
b) Performing partner
c) Engagement Partner
d) Working Partner
19. Which of the following is not a function of engagement partner?
a) Designing and implementing internal control
b) Compliance with professional standards
c) Whether to accept the client or not
d) Monitoring of quality control system of firm
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20. SQC-1 sets out

a) The responsibilities of the firm for establishing policies and procedures regarding compliance with
relevant ethical requirements
b) The engagement partner’s responsibilities with respect to relevant ethical requirements
c) Both (a) and (b)
d) None
21. ____________ safeguards the auditor’s ability to form an audit opinion without being affected by any
influences.
a) The engagement partner’s responsibilities
b) The auditor’s independence
c) Both (a) and (b)
d) None
22. Which of the following partner can act as engagement partner
a) Any Partner
b) Any CA Partner
c) Any CA Partner in full time or part time practice
d) Any CA Partner in full time practice
23. Who will take responsibility for overall quality in an audit of financial statements
a) All the partners of firm
b) All CA partners of firm
c) Engagement partner
d) Engagement team
24. Which of the following information assist the auditor in accepting and continuing of client
relationship
a) The integrity of the principal owners, key management and TCWG of the entity
b) Whether the firm and the engagement partner can comply with the relevant ethical requirements
c) Whether the engagement team is competent to perform the audit engagement and has the necessary
capabilities, including time and resources
d) All of these
25. Appointment of engagement quality control reviewer is mandatory in case of audit of financial
statements of
a) Any entity
b) Any entity except One Person Company and Small Company
c) Listed Entity
d) None of these
26. Which of the following in not element of quality control in an audit of financial statements
a) Leadership Responsibilities
b) Assignment of Engagement Team
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c) Acceptance and Continuance of Client Relationship and Audit Engagements

d) Signing on Audit Report
27. If any difference of opinion arise within engagement team or between engagement partner and
quality control reviewer, the engagement team follow
a) Engagement partner
b) Engagement quality control reviewer
c) Firm’s policies and procedures
d) Majority of members of engagement team
28. Auditing firms should establish quality control policies and procedures for personnel
management in order to provide reasonable assurance that
a) Employees promoted possess the appropriate characteristics to perform competently
b) Personnel will have the knowledge required to fulfill responsibilities assigned
c) The extent of supervision and review in a given instance will be appropriate
d) All of the above are reasons
29. The least important element in the evaluation of an audit firm’s system of quality control would
relate to
a) Assignment of audit assistants
b) Consultation with experts
c) System for determining audit fees
d) Confidentiality of client’s information
30. The engagement partner may identify a threat to independence regarding the audit engagement
that safeguards may not be able to eliminate or reduce to an acceptable level. In that case
a) The engagement partner reports to the relevant person(s) within the firm to determine appropriate
action.
b) Withdraw from audit engagement, where withdrawal is legally permitted.
c) Where applicable law or regulation does not permit withdrawal of the auditor from the engagement,
disclose through a public report.
d) All of the above
31. In pursuing its quality control objectives with respect to independence, an auditing firm may use
policies and procedures such as
a) Emphasizing independence of mental attitude in firm training programs and in supervision and
review of work
b) Prohibiting employees from owning stock of public companies
c) Suggesting that employees conduct their banking transactions with banks that do not maintain
accounts with client firms
d) Assigning employees who may lack independence to research positions that do not require
participation in field audit work
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32. Policies and procedures w.r.t human resources address which of the following issues
a) Recruitment
b) Capabilities
c) Competence
d) All of above
33. Throughout the audit engagement, the engagement partner shall remain alert for evidence of
non-compliance with relevant ethical requirements by engagement team through
a) Inquiry
b) Observation
c) (a) and (b)
d) Review of audit documentation
34. As per SQC-1, the firms’ system of quality control should include policies and procedures
addressing which of the following element
a) Leadership responsibilities for quality
b) Audit planning
c) Auditor’s judgement
d) All of the above
35. The engagement quality control reviewer shall perform an object evaluation of the significant
judgements made by the engagement team, and the conclusions reached in formulating the
auditor’s report. This evaluation shall involve
a) Discussion of significant matters with engagement team.
b) Review of the financial statements and the proposed auditor’s report
c) Review of selected audit documentation relating to the significant judgements and the engagement
team made and the conclusions it reached
d) All of the above
36. Duties of Engagement Quality Control Reviewer
a) Whether to accept the client or not
b) Discuss significant matters with engagement partner
c) To resolve issues of engagement team
d) All of the above
37. Which of the following is not function of engagement partner
a) Design and implementing internal control
b) Compliance with professional standards
c) Whether to accept the client or not
d) Monitoring of quality control system of firm
38. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the policies and procedures relating to the system of quality control are relevant,
adequate, operating effectively and complied with in practice, which refers to
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a) Engagement Performance
b) Human Resources
c) Monitoring
d) Firm’s Quality Control Policies
SA 230
39. _____________ refers to the record of audit procedures performed, relevant audit evidence obtained,
and conclusions the auditor reached.
a) Audit Techniques
b) Audit Evidence
c) Audit Documentation
40. ______________ may be defined as one or more folders or other storage media, in physical or
electronic form, containing the records that comprise the audit documentation for a specific
engagement.
a) Audit File
b) Audit Evidence
c) Completion Memorandum
d) Both (a) and (b) above.
41. As per SQC-1 “An appropriate time limit within which to complete the assemble of the final audit
file is ordinarily not more than _____ days after the date of auditor’s report.
a) 30
b) 60
c) 90
d) 45
42. As per SQC-1, auditor should retain audit documentation for at least _________ years
a) 5
b) 6
c) 7
d) 8
43. Which of the following factors may affect the form, content and extent of audit documentation:
a) Size and complexity of the entity
b) Identified risk of material misstatements
c) Significance of audit evidence obtained
d) All of above
44. Audit documentation can be made by auditor:
a) Paper mode
b) Electronic mode
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c) Both (a) and (b)

45. Who is the owner of audit working papers?
a) Auditee
b) Auditor
c) (a) and (b)
d) ICAI
46. Additional numbers of purposes served by audit documentation are:
a) Enabling the engagement team to plan and perform the audit
b) Enabling the engagement team to be accountable for its work
c) To enable the engagement partner for direction, supervision and review the work performed by
engagement team members.
d) All of above
47. If in exceptional circumstances the auditor departs from Standards on Auditing, he
shall___________
a) Document the reason for departure
b) Perform alternative procedures
c) Both (a) and (b)
d) Auditor is not allowed to depart from SAs.
48. Which of the following is not content of permanent audit file:
a) Record of study and evaluation of internal control
b) Audit planning and audit documentation
c) Memorandum and Article of Association
d) Notes relating to significant accounting policies
49. Which of the following is content of current audit file:
a) Correspondence relating to acceptance of annual reappointment
b) Copies of communication with experts or other auditors
c) Audit evidence obtained
d) All of above
50. Loan agreement are the integral parts of
a) Permanent audit file
b) Current audit file
c) Temporary audit file
51. Working on trial balance is the part of
a) Permanent audit
b) Current audit file
c) Temporary audit file
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a) Written representations and confirmation from clients.
b) Audit planning and audit programme
c) Correspondence relating to annual reappointment
d) Memorandum and Article of Association of the Company.
53. From the initial client interview to the preparation of audit report an auditor must keep a record
of all the work you do in
a) Audit file
b) Audit report
c) Audit papers
54. Which of the following is not true of working papers?
a) They record the audit evidence to provide support for the auditor’s opinion
b) They assist in review of the audit work
c) They are a direct aid in the planning of the audit
d) They provide proof of the correctness of the financial statements.
55. The audit working papers should contain information on planning the audit work, the nature,
timing and extent of audit procedures performed, _______________________ and the conclusion drawn
leading to an opinion.
a) The results of the audit procedures
b) The auditor’s opinion of management
c) All gratuities received by auditor
d) Names of the employees who cooperated with the auditor.
56. The extent of what is included in working paper is
a) Thoroughly specified in SAs
b) Determined by each staff auditor
c) Thoroughly specified under law
d) A matter of professional judgement.
57. Which of the following factors would least likely affect the quantity and content of an auditor’s
working papers
a) The nature of auditor’s report
b) The assessed level of control risk
c) The possibility of peer review
d) The content of management representation letter.
58. A current audit file would always contain which of following?
a) Loan agreements, pension plans, agreements with parent company and subsidiaries
b) Company documents such as corporate charter or articles of association and corporate bylaws.
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c) A record of the nature, timing and extent of audit procedures performed and the results of such
procedures.
d) Prior year analysis of fixed assets, long term debt, and terms of stock and bond issues.
59. Which of the following SAs deals with auditor’s responsibilities w.r.t. audit documentation:
a) SA 580
b) SA 230
c) SA 505
d) SA 700
60. Audit documentation may be useful for
a) Engagement team
b) Quality control reviewer
c) External inspector
d) All of these
61. After assembly of audit file, the auditor_______________
a) May delete audit documentation if it is of no use
b) May delete audit documentation if it is occupying much of its space
c) Shall not delete audit documentation before its retention time period
d) May delete audit documentation before its retention period if it is required by any law.
62. The auditor shall not document the following
b) Changes made during the audit engagement which are insignificant
c) Audit plan and reason for such change
d) Audit plan
63. The client had received an assessment order from the income tax department. Mr. A, the auditor
was approached for the same. However, Mr. A did not retain the working papers relating to his
audit findings for the particular period. He has failed to comply with
a) SA 220
b) SA 210
c) SA 230
d) SA 250
64. Preparing sufficient and appropriate audit documentation________________, helps to enhance the
quality of the audit and facilitates the effective review and evaluation of the audit evidence
obtained and conclusions reached before the auditor’s report is finished.
a) Based on engagement
b) Based on time
c) Based on objective
d) Based on audit plan
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65. Documentation prepared after the audit work has been performed is likely to be
a) More accurate than documentation prepared at the time such work is performed
b) Less accurate than documentation prepared at the time such work is performed
c) More appropriate than documentation prepared at the time such work is performed
66. State which of the following statement is true
a) Auditor is bound to provide copies of the working papers to the CEO of the Company
b) Extract & Copies of important legal documents, agreements relevant to audit is part of current audit
file
c) The auditee has no rights to compel the auditor to provide copies of the working papers
d) All of the above
SA 240 and Types of Errors

67. Which of the following SA deals with auditor’s responsibilities in relation to fraud in an audit of
a) SA 240
b) SA 250
c) SA 315
d) SA 330
68. When credit purchases of Rs. 5100 is recorded on credit side and credit sales of Rs. 5100 is
recorded on debit side, this kind of error is called____________________.
a) Error of omission.
b) Compensating error.
c) Error of principle.
d) Error of commission.
69. Procedural error arises
a) As a result of transaction have been recorded in a fundamentally incorrect manner
b) Where there is error in implementation of the procedure
c) Both (a) and (b)
d) None
70. If, as a result of s misstatement resulting from fraud, the auditor encounters exceptional
circumstances that bring into question his ability to continue performing the auditor shall-
a) Withdraw from the engagement immediately.
b) Report to audit team regarding withdrawal.
c) Determine the professional and legal responsibilities applicable in the circumstances.
d) Ask the management for his withdrawal.
71. Which of the following is an example of inflating cash payments?
a) Making payments against purchase vouchers.
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b) Teeming and lading.

c) Not accounting for cash sales fully.
d) Making payments against inflated vouchers.
72. The type of errors, existence of which becomes apparent in the process of compilation of
accounts is known as-
a) Self-revealing errors.
b) Intentional errors.
c) Concealed errors.
d) Unconcealed errors.
73. Misappropriation of assets may occur because there is-
a) Adequate record keeping with respect to assets.
b) Know history of violations of securities laws.
c) Lack of complete and timely reconciliations of assets.
d) Dispute between shareholders in a closely held entity.
74. The risk of management fraud increases in the presence of :
a) Frequent changes in supplies
b) Improved internal control system
c) Substantial increases in sales
d) Management incentive system based on sale done in a quarter.
75. Which of the following is an example of fraudulent financial reporting
a) Defalcation of cash by cashier
b) Misappropriation of inventory by store keeper
c) Overvaluation of assets
d) All of these
76. Which of the following frauds is more difficult to detect
a) Fraud by employees
b) Fraud by management & TCWG
c) Both (a) and (b)
d) None of these
77. Primarily prevention and detection of fraud are the responsibilities of
a) TCWG and Management of entity
b) Internal Auditor of entity
c) External Auditor of entity
d) All of above
78. Which of the following in not a fraud through suppressing cash receipts:
a) Not accounting for cash sales fully
b) Not accounting for miscellaneous receipts
c) Not accounting for bad debt recovered
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d) Making payment against fictitious vouchers.

79. Teeming and lading is a technique of fraud through
a) Inflating cash payment
b) Wrongs casting in cash book
c) Suppressing cash receipts
d) None of these
80. Which of the following error will affect the trial balance
a) Error of partial omission
b) Error of principles
c) Error of complete omission
d) Compensatory errors
81. Examples of fraudulent financial reporting
a) Inflating or suppressing purchases and expenses
b) Inflating or suppressing sales and other items of income
c) Overvaluation of assets
d) All of above
82. Which of the following is not an example of suppressing cash receipts
a) Teeming and Lading
b) Payment against fictitious vouchers
c) Not accounting for cash sales fully
d) Not accounting for miscellaneous receipts.
83. Which of the following is not self-revealing error
a) Wages paid for installation of machine debited in wages account.
b) Omission to post a part of a journal entry to ledger
c) A failure to record in the cash book, cash paid into or withdrawn from bank
d) Goods purchased from Mr. A omitted to be recorded.
84. Teeming and Lading is a technique for
a) Inflating cash payments
b) Wrong casting in the cash book
c) Suppressing cash receipts
d) None of these
85. Which of following is fraud risk factor
a) Incentive/Pressure
b) Opportunities
c) Attitude/Rationalization
d) All of above
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86. Which of the following is not likely to be a fraud risk factor relating to management’s
characteristics
a) Tax evasion
b) Failure to correct known weakness in internal control system
c) Adoption of conservative accounting principles
d) High management turnover
87. Which of the following statements is not true?
a) Management fraud is more difficult to detect than employee fraud
b) Internal control system reduces the possibility of occurrence of employee fraud and management
fraud.
c) The auditor’s responsibility for detection and prevention of error and fraud is similar
d) All statements are correct
88. Which of the following is an indicator of fraud due to problematic or unusual relationship
between auditor and management
a) Unsupported or unauthorized transaction
b) Unusual delays by the entity in providing requested information
c) Last minute adjustments that significantly affect financial results
d) All of above.
89. Which of the following is least likely to be included in an auditor’s inquiry of management while
obtaining information to identify the risks of material misstatement due to fraud?
a) Are financial reporting operations controlled by and limited to one location?
b) Does it have knowledge of fraud or suspect fraud?
c) Does it have programs to mitigate fraud risks?
d) Has it reported to the audit committee the nature of the company’s internal control?
90. Which of the following is most likely to be presumed to present a fraud risk on an audit?
a) Capitalization of repairs and maintenance expense into the property, plant and equipment asset
account
b) Improper revenue recognition
c) Improper interest expense accrual
d) Introduction of significant new products
91. Degree of detection risk is generally high which respect to
a) Management’s Fraud
b) Employee’s Fraud
c) Error
d) All of above.
92. Due to inherent limitations of audit, there is ______________ that some mis-statements will __________
a) Reasonable assurance, not be detected
b) Unavoidable risk, not be detected
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c) Avoidable risk, not be detected

d) Unavoidable risk , not be prevented
93. Fraud is an intentional act involving use of deception to obtain an unjust advantage and can be
committed by
a) TCWG
b) Employees
c) Third parties
d) Any of these
a) Management is responsible for identification of fraud
b) Auditor is appointed for the sole purpose to identify the fraud
c) TCWG takes major decision about the entity
d) Management is involved in operation of entity
95. Where auditor comes across a situation where any misstatement due to fraud or error could
exist then
a) The auditor shall issue modified report
b) The auditor should discuss significant matter with engagement partner’
c) The auditor should apply additional procedures to confirm or dispel his suspicion
d) The auditor shall qualify the report.
96. Circumstances relating to possibility of fraud include
a) Accounting policies that appear to be variance with industry norms
b) Yearly changes in accounting estimates that do not appear to result from changed circumstances
c) Short period provided by management to resolve complex issues
d) All of the above
97. The management may override the controls in order to take advantage of the situation, whereby,
they may pass false entries in the book, is known as
a) Misappropriation of assets
b) Fraudulent financial reporting
c) Pilferage/misappropriation of receipts
98. State which of the following statement is misappropriation of assets
a) Ledger alteration
b) Concealment of facts
c) Significant alteration
d) Pilferage/Misappropriation of receipts
99. The accountant receives money from customer 2 but adjust it to customer 1’s account. This
process goes on and at no point of time will the customer balance shown properly, it refers as
a) Misapplication of accounting principles
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b) Intentional Omission
c) Teeming and Lading
d) Engaging in complex transaction
100. Which of the following is not likely to be a fraud risk factor relating to management’s
characteristics
a) Tax evasion
d) High management turnover.
101. State which of the following constitutes possibility of fraud
a) Discrepancies in accounting records
b) Conflicting or missing evidence
c) Problematic or unusual relationship between auditor and management
d) All of the above
102. Incentive or pressure to commit fraudulent financial reporting exist when
a) An individual believes internal control can be overridden
b) Management is under pressure
c) Some individual possess an attitude, character or set of ethical values that allow them knowingly and
intentionally to commit a dishonest act
d) All of the above
103. A perceived opportunity to commit fraud may exist when
a) An individual believes internal control can be overridden
b) Management is under pressure
c) Some individual possess an attitude, character or set of ethical values that allow them knowingly and
intentionally to commit a dishonest act
d) Both (b) and (c)
104. Fraudulent financial reporting may be accomplished by _______________
a) Manipulation/ Falsification
b) Misapplication of accounting policies
c) Both (a) and (b)
d) None of these
105. Fraud can be committed by management overriding controls using the following techniques.
State which of the following options is correct?
a) Inflating cash payments
b) Recording fictitious journal entries
c) Causing an entity to pay for goods and service not received.
d) All of the above
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106. Misappropriation of assets is often accompanied by

a) False or misleading records
b) Documents in order to conceal the fact that the assets are missing.
c) Documents in order to conceal the fact that the assets have been pledged without proper
authorization.
d) All of the above
107. ‘Fraud’ deals with ___________ but, ‘error’, on the other hand, refers to __________ in financial
information.
a) Unintentional mistake, misrepresentation
b) Intentional misrepresentation, unintentional mistake
c) Unintentional misrepresentation, intentional mistake.
d) Misapplication, Misrepresentation.
108. Even though the audit is properly planned and performed in accordance with Sass, some
material misstatements of the financial statements will not be detected, this is due to
a) Internal control is not effective
b) Inherent limitation of an audit
c) Inherent limitation of an internal control
d) Deficiencies in internal control.
109. Which of the following statement is not true, in respect of risk factors relating to misstatements
arising from fraudulent financial reporting?
a) Financial stability or profitability is threatened by economic, industry, or entity operating conditions,
as indicated by, high degree of competition or market saturation, accompanied by declining margins.
b) The nature of the industry or the entity’s operations provides opportunities to engage in fraudulent
financial reporting that can arise from, recurring negative cash flows from operations or an inability
to generate cash flows from operations while reporting earnings and earnings growth
c) The relationship between management and the current or the predecessor auditor is strained, or
exhibited by, frequent disputes with the current or predecessor auditor on accounting, auditing, or
reporting matters.
d) Both (a) and (c)
110. Discrepancies in the accounting records, including
a) Unsupported or unauthorized balances or transactions
b) Missing documents
c) Significant unexplained items on reconciliations
d) Both b and c
111. Conflicting or missing evidence, does not includes
a) Transactions that are not recorded in a complete or timely manner or are improperly recorded as to
amount, accounting period, classification, or entity policy.
b) Unusual discrepancies between the entity’s records and confirmation replies.
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c) Significant unexplained items on reconciliations

d) Both b and c
112. Problematic or unusual relationships between the auditor and management, including
a) Unwillingness to facilitate auditor access to key electronic files for testing through the use of
computer assisted audit techniques
b) Undue time pressures imposed by management to resolve complex or contentious issues.
c) An unwillingness to add or revise disclosures in the financial statements to make them more
complete and understandable
d) All of the above
113. Which one of the following statements about fraud is correct?
a) Fraud can be intentional or unintentional
b) Fraud always involves misappropriation of assets
c) Fraud always involves the use of deception to obtain an unjust or illegal advantage
d) Fraud is always perpetrated by management, those charged with governance or employees.
114. Which one of the following does not necessarily constitute fraud?
a) Alteration of accounting records from which the financial statements are prepared.
b) Overriding internal controls to record transactions outside the usual course of an entity’s business
c) Intentional omission from the financial statements of transactions or other significant information.
d) Intentional misapplication of accounting principles relating to amounts, classification, manner of
presentation or disclosure.
115. Which of the following fraudulent activities constitutes misappropriation of assets?
a) Causing an entity to pay for goods and services not received
b) Omitting, advancing or delaying recognition of events and transactions
c) Concealing, or not disclosing, facts that could affect the recorded amounts.
d) Engaging in complex transactions that misrepresent the financial position of the entity
116. Which one of the following does not constitute an appropriate audit planning procedure that the
auditor should employ relating to the risk of fraud?
a) Increase the level of professional skepticism
b) Make enquiries to obtain information and so identify the risks of material misstatement due to fraud
c) Incorporate an element of unpredictability in the selection of the nature, timing and extent of the
audit procedures to be performed.
d) The engagement team needs to discuss the susceptibility of the entity’s financial statements to
material misstatement due to fraud
117. When planning the audit, the auditor must make enquiries of management. Which one of the
following is not an appropriate enquiry of management about fraud?
a) The auditor should ask about management’s communications with employees about ethical
behavior.
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b) The auditor should ask management about their assessment of the risk that the financial statements
may be materially misstated due to fraud.
c) The auditor should ask management if they are personally engaged in fraudulent activity, including
fraudulent financial reporting and misappropriation of assets.
d) The auditor should ask management about any communications with those charged with governance
regarding its processes for identifying and responding to the risks of fraud in the entity.
118. With respect to financial statement fraud, which one of the following statements is not correct?
a) Enquiries of management are more useful for detecting management fraud than employee fraud.
b) The auditor must consider the risk of material fraud at both the financial statement level and the
assertion level
c) Excessive pressure on management to meet expectations of third parties creates incentives for
management fraud
d) The auditor needs to consider the likelihood of collusion in determining the appropriate level to
report suspicions of fraud.
SA 250
119. Which of the following SA deals with auditor’s responsibility to consider law and regulation in
an audit of financial statements
a) SA 230
b) SA 240
c) SA 250
d) SA 260
120. State who is responsible to ensure that the entity’s operations are conducted in accordance with
provisions of laws and regulations
a) Company Auditor
b) Internal Auditor
c) Company Secretary
d) Management
121. Which of the following statement is not true as per SA 250?
a) The auditor is responsible for preventing non-compliance and can be expected to detected non-
compliance with all laws and regulation.
b) Non-compliance with laws and regulations may result in fines, litigation or other consequences for
the entity that may have a material effect on the financial statements
c) SA 250 are designed to assist the auditor in identifying material misstatement of the financial
statements due to non-compliance with laws and regulations
d) Management is responsible to ensure that the entity’s operations are conducted in accordance with
the provisions of laws and regulations.
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122. Which of the following statement is not true as per SA 250?

a) Non- compliance does not include personal misconduct by TCWG, management or employee of the
entity.
b) Non-compliance include personal misconduct by TCWG, management or employee of the entity
c) Non-compliance include act of omission or commission by the entity which are intentional or
unintentional.
123. With respect to examining the compliance with law and regulations that do not have direct effect
on the determination of amounts and disclosures in the financial statement
a) Auditor’s responsibility is to obtain sufficient and appropriate audit evidence
b) Auditor’s responsibility is limited to undertake specified audit procedures
c) Auditor’s responsibility is to report on these non-compliances, no matter how immaterial these can
be
d) Auditor’s responsibility is not there to report with respect to non-compliance with these laws
124. With respect to examining the compliance with law and regulations that have direct effect on the
determination of amounts and disclosures in the financial statement
a) Auditor’s responsibility is to obtain sufficient and appropriate audit evidence
b) Auditor’s responsibility is limited to undertake specified audit procedures
c) Auditor’s responsibility is to report on these non-compliances, no matter how immaterial these can
be
d) Auditor’s responsibility is not there to report with respect to non-compliance with these laws
125. Primary responsibility to ensure compliance with applicable law and regulation is of
a) External auditor
b) Internal auditor
c) TCWG and management
d) Legal expert
126. Which of the following is indicator of non-compliance with law and regulation
a) Unusual cash payment
b) Unauthorized transactions or improperly recorded transactions
c) Payments made in tax haven countries
d) All of above
127. If auditor becomes aware of information concerning an instance of non-compliance or suspected
non-compliance with law and regulations, the auditor shall
a) Obtain an understanding of nature of the act and circumstances in which it has occurred
b) Discuss the matter with management and TCWG
c) Evaluate the possible effect on the financial statements’
d) All of above
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128. If non-compliance with law and regulation is material and affecting the financial statements, the
auditor shall express
a) Unmodified opinion
b) Qualified/Adverse opinion
c) Disclaimer of opinion
d) Qualified/Adverse opinion with EOM section in audit report
129. If auditor is unable to determine whether non-compliance has occurred because of limitation
imposed by circumstances rather than by management or TCWG, the auditor shall
a) Evaluate the effect on the auditor’s opinion in accordance with SA 705
b) Withdraw from engagement
c) Communicate the matter to ROC
d) Communicate the matter to ROC and CG.
130. If auditor identifies non-compliance with law and regulation, the auditor shall report such non-
compliance
a) To TCWG
b) In Audit Report
c) To Regulatory Authority and Enforcement Authorities
d) All of above
131. State which of the following is an example of law and regulation having direct effect on the
a) Taxation Laws
b) Factory Act
c) Labour Law
d) Company Act
132. When auditor suspect non-compliance of law, he shall
a) Inform to CG
b) Inform to MCA
c) Inform to management and TCWG
d) All of the above
133. Management is responsible for compliance with laws and regulations, except
a) Monitoring legal requirements
b) Ensure the employees are properly trained and understand the code of conduct
c) Obtaining reasonable assurance
d) Registers of significant laws are maintained
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SA 260
134. SA 260 deals with auditor’s responsibilities w.r.t.
a) Communication with Those Charged with Governance of the entity
b) Communication with Owners of the entity
c) Communication with Management of the entity
d) All of these
135. The auditor shall communicate with TCWG a statement w.r.t. auditor’s independence in case of
audit of financial statements of
a) Any entity
b) Listed entities
c) Any entity except One Person Company and Small Company
d) None of these
136. The various form of communication with TCWG may be classified as
a) Oral or written
b) Detail or summarized
c) Structured or unstructured
d) All of the above
137. If two way communication between auditor and TCWG has not been adequate for the purpose of
audit, the auditor shall
a) Communicate the matter to TCWG
b) Evaluate the effect on auditor’s assessment of risk of material misstatements
c) Withdraw from auditing engagement
d) None of these
138. In case of ______________ entities, the auditor shall communicate with TCWG a statement that the
engagement team has complied with relevant ethical requirements regarding independence and
related safeguard to eliminate threats to independence
a) Listed
b) Small
c) Government
d) All of these
139. Which of the following is not a factor affecting mode of communication with TCWG
a) Whether management has previously communicated the matter to TCWG
b) Whether the matter has been satisfactorily resolved
c) Legal requirements
d) None of these
140. The auditor shall communicate with TCWG his views about significant qualitative aspects of
entity’s accounting practices, including
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a) Accounting assumptions, accounting principles and accounting policies

b) Accounting standards, accounting policies and accounting estimates
c) Accounting policies, accounting estimates and financial statements disclosures
d) Accounting complexities, accounting estimates and accounting records.
141. The auditor shall communicate the overview the planned scope and timing of audit with
a) Management
b) Article Assistant
c) TCWG
d) All of the above
142. Significant difficulties encountered during audit with reference to SA 260
a) Delay in providing required information by management
b) Restriction imposed on the audit
c) Unavailability of expected information
d) All of the above
SA 265
143. _______________ is sent by auditor to management and TCWG to communicate weakness in internal
control system
a) Letter of weakness
b) Engagement letter
c) Internal control questionnaire
d) Written representation
144. Which of the following SA deals with auditor’s responsibility to communicate appropriately to
TCWG and management deficiencies in internal control that the auditor has identified in an audit
of financial statements
a) SA 260
b) SA 330
c) SA 265
d) SA 580
145. Deficiency in internal control exist when
a) A control is designed, implemented or operated in such a way that in unable to prevent, or detect and
correct, misstatements in the financial statements on a timely basis
b) A control necessary to prevent, or detect and correct, misstatements in the financial statements on a
timely basis is missing
c) (a) or (b)
d) None of these
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146. Significant deficiency in internal control means

a) Deficiency or combination of deficiencies in internal control that, in the auditor’s professional
judgement is of sufficient importance of auditor
b) Deficiency or combination of deficiencies in internal control that, in the auditor’s professional
judgement is of sufficient importance of management.
c) Deficiency or combination of deficiencies in internal control that, in the auditor’s professional
judgement is of sufficient importance of entity’s owners.
d) Deficiency or combination of deficiencies in internal control that, in the auditor’s professional
judgement is of sufficient importance of TCWG
147. Which of the following includes in written communication in respect of deficiencies of internal
control
a) Description of deficiencies
b) Explanation of their potential effects
c) Sufficient information to understand the context of communication
d) All of the above
148. The auditor shall communicate to management at an appropriate level of responsibility on a
timely basis in writing
a) Significant deficiencies in internal control that the auditor has communicated or intends to
communicate to TCWG
b) Other deficiencies in internal control identified during the audit that have not been communicated to
management by other parties and that in the auditor’s professional judgement are of sufficient
importance to merit management’s attention.
c) (a) and (b)
149. Which of the following is indicator of significant deficiencies in internal control system
a) Entity’s risk assessment process in absent/ineffective
b) Evidence of ineffective aspects of control environment
c) Management inability to oversee financial statements preparation
d) All of the above
SA 299
150. _________________ deals with principle for effective conduct of joint audit.
a) SA 220
b) SA 600
c) SA 299
d) SA 610
151. Joint auditor are appointed in the following circumstances
a) Complexity of transactions
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b) Volume of transactions are high

c) Both (a) and (b)
152. SA 299 does not deal with the relationship between
a) Principal auditor and component’s auditor
b) Auditor and expert
c) Auditor and internal auditor
d) All of these.
153. SA 299 deals with the auditor’s responsibilities regarding joint audits at following stages
a) Audit planning and risk assessment
b) Performance of work and coordination stage
c) Conclusion and reporting stage
d) All of these
154. When joint auditors are appointed, they should
a) Divide audit work among themselves on the basis of instruction of client
b) Divide the audit work among themselves by mutual discussion
c) Divide audit work among themselves as per law
d) None of these
155. Division of work among joint auditors should be
a) In writing
b) Properly documented
c) Communicated to client
d) All of above
156. State which of the following is not true about dividing the works among the joint auditor
a) Based on time
b) Based on location
c) Based on fact
d) Based on nature
157. If joint auditors are in disagreement with respect to the opinion to be covered by audit report,
they shall
a) Express their opinion in a separate audit report
b) Notify to the client
c) Express their opinion in a common audit report through a note
d) Notify ROC regarding disagreement in audit opinion.
158. In case separate audit reports are issued by joint auditors, the reference of audit reports
separately issued by others is made under the heading
a) Emphasis of matter
b) Basis for modified opinion
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c) Other matter
d) Auditor’s responsibilities
159. All the joint auditors are jointly and severally responsible for
a) Examining that financial statements of the entity comply with requirements of relevant statutes
b) Presentation and disclosure of the financial statements as required by the applicable FRF
c) Ensuring that the audit report complies with requirements of relevant statutes, the applicable SA and
other pronouncement issued by the ICAI
d) All of above
160. Which of the following statements is incorrect
a) The joint auditors shall obtain common engagement letter and common management representation
letter
b) Joint auditors are not entitled to rely on the work of other joint auditors
c) After identification and allocation of work among joint auditors, the work allocation document shall
be signed by all the joint auditors and the same shall be communicated to TCWG of the entity.
d) Before finalizing their audit report, the joint auditors shall discuss and communicate with each other
their respective conclusions.
161. State which of the following is not true as per SA 299
a) Joint auditor should issue the report jointly if they difference opinion
b) Joint auditors are responsible for the area which is been allocated to them
c) There should be co-ordination between joint auditors and they should share information with each-
others
d) Where the areas are not divided, all the joint auditors will be jointly and severally responsible for
such undivided area
162. Joint auditors shall obtain
a) Common engagement letter
b) Common management representation letter
c) Both (a) and (b)
163. It is not necessary for a joint auditor to
a) Review the work performed by other joint auditor
b) Perform any test in order to ascertain whether the work has actually been performed in such a
manner
c) Both (a) and (b)
SA 300 and Audit Programming

164. Which of the following SAs deals with auditor’s responsibilities w.r.t. audit planning in an audit
of financial statements
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a) SA 300
b) SA 315
c) SA 320
d) SA 330
165. The auditor shall
a) Establish audit strategy on the basis of overall audit plan.
b) Develop overall audit plan on the basis of audit strategy
c) Both (a) and (b)
d) None of these
166. The audit plan is ______________ detailed than the overall audit strategy.
a) Less
b) More
c) Equal
167. Which of the following enable the auditor to conduct an effective audit in an efficient and timely
manner?
a) Audit Strategy
b) Audit Plan
c) Audit Programme
d) Knowledge of the client’s accounting system
168. Audit Plan should be based on
a) Knowledge of client’s business
b) Knowledge of the applicable financial reporting standards
c) Knowledge of the required accounting and auditing standards
d) Nature and size of the business
169. Planning is _______________ process of an audit that often begins shortly after (or in connection with)
the completion of the previous audit and continues until the completion of the current audit
engagement.
a) Continuous
b) Discreet
c) Neither continuous nor discreet.
170. The auditor shall develop an audit plan that include a description of:
a) The nature, timing and extent of planned risk assessment procedures.
b) The nature, timing and extent of planned further audit procedures at the assertion level.
c) Other planned audit procedures that are required to be carried out so that the engagement complies
with SAs.
d) All of the above
171. An auditor who accepts an audit but does not possess the industry expertise of the business
entity should
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a) Engage experts
b) Obtain knowledge of matters that relate to the nature of entity’s business
c) Inform management about it
d) Take help of other auditors
172. Auditor can obtain knowledge of client’s business from
a) Discussion with people within client entity
b) Publication relating to industry
c) Previous experience
d) All of these
173. Benefit(s) of audit planning is
a) Helping auditor to devote appropriate attention on important areas of the audit
b) Better preparation of engagement letter
c) Effective communication with retiring auditor
d) It ensure compliance with applicable law and regulation
174. Planning should be made to cover, among other things:
a) acquiring knowledge of the client’s accounting system, policies and internal control procedures
b) establishing the expected degree of reliance to be placed on internal control
c) coordinating the work to be performed
d) all of above
a) In establishing the audit strategy the auditor shall identify characteristics of the engagement that
define its scope.
b) The auditor shall develop an audit plan that shall include a description of the nature, timing and
extent of risk assessment procedures and further audit procedures which are proposed to be
performed.
c) The auditor shall establish audit strategy on the basis of overall audit plan.
d) The auditor shall update and change the audit strategy and audit plan as necessary during course of
the audit.
176. The overall audit strategy and the audit plan remain the _____________ responsibility.
a) Auditor’s
b) Management’s
c) Those charged with governance
d) All of the above
177. Prior to commencing field work, an auditor usually discusses the general audit strategy with the
client’s management. Which of the following details do management and the auditor usually
agree upon at this time?
a) The specific matters to be included in the communication with the audit committee
b) The minimum amount of misstatements that may be considered to be reportable conditions
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c) The schedules and analyses that the client’s staff should prepare
d) The effects that inadequate controls may have over the safeguarding of assets
178. Which of the following is not a source of obtaining knowledge of client’s business
a) Annual reports circulated among the shareholders
b) Communication from previous auditor
c) Client’s policy and procedure manual
d) Discussion with client
179. In establishing the overall audit strategy, the auditor shall:
(i) Identify the characteristics of the engagement that define its scope
(ii) Ascertain the nature, timing and extent of resources necessary to perform the engagement
(iii) Ascertain the reporting objective of the engagement to plan the timing of the audit and the nature
of the communication required
(iv) Consider the factors that, in the auditor’s professional judgement are significant in directing the
engagement team.
a) Both (i) and (ii)
b) All (i), (ii) and (iii)
c) Both (iii) and (iv)
d) All of the above
180. State which of the following statement is not true with reference to SA 300?
a) The nature and extent of planning activities will not vary according to the size and complexity of the
entity, the key engagement team members previous experience with the entity, and changes in
circumstances that occur during the audit engagement.
b) Planning is not a discrete phase of an audit, but rather a continual and iterative process that often
begins shortly after (or in connection with) the completion of the previous audit and continues until
the completion of the current audit engagement.
c) Planning an audit involves establishing the overall audit strategy for the engagement and developing
an audit plan. Adequate planning benefits the audit of financial statements in several ways.
d) The auditor may decide to discuss elements of planning with the entity’s management to facilitate
the conduct and management of the audit engagement.
181. The methodology of audit planning is
a) Not prescribed in any law
b) Prescribed in Companies Act, 2013
c) Prescribed in Chartered Accountants Act, 1949
d) Prescribed by the appointing authority.
182. _____________ shall be involved in the planning of audit
a) Engagement partner
b) Other key members of engagement team
c) Both (a) and (b)
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183. The auditor shall consider the factors that, in the auditor’s professional judgement, are
significant, are significant in directing the engagement team’s effort, while
a) Establishing the overall audit strategy
b) Developing the audit programme
c) Designing the audit programme
d) All of the above
184. The auditor may summarize _______________in the form of a memorandum that contains key
a) The overall audit plan
b) The overall audit strategy
c) Audit programme
d) Audit note
185. ______________ refers to such audit programme where plans for the auditor are not fixed.
a) Special audit
b) Fixed audit
c) Pre-determined audit
d) None of above
186. When a company engage a Chartered Accountant as its Internal Auditor, the external auditor
a) Need not check the areas covered by internal auditor
b) Should ignore the existence of internal auditor
c) Should incorporate the internal auditors report with his own
d) Should examine the system and efficiency of internal audit and devise a suitable audit programme.
187. Which of the following in incorrect w.r.t audit programme
a) An audit programme consists of a series of verification procedures to be applied.
b) It is desirable in respect of each audit and more particularly for bigger audits an audit programme
should be drawn up.
c) An audit programme is a summarized plan
d) There should be periodic review of the audit programme to assess whether the same continues
188. _______________ sets the scope, timing and direction of the audit.
b) Adequate planning
c) Audit programme
d) Overall objective of audit
a) Evolving one audit programme applicable to all business under all circumstances is not practicable
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b) An audit programme is a detailed plan of applying the audit procedures in the given circumstances
with instructions for the appropriate techniques to be adopted for accomplishing the audit
objectives.
c) An audit programme consists a series of verification procedures to be applied to the financial
statements and accounts of a given company for the purpose of obtaining sufficient evidence to
enable the auditor to express an informed opinion on such statements.
d) The auditor may summarize the audit note in the form of a memorandum that contains key decisions
regarding the overall scope, timing and conduct of the audit.
190. The auditor can formulate his entire audit programme only after
a) How far the weakness have been removed at an interim date
b) He has had a satisfactory understanding of the internal control system and their actual operation
c) The existence and operation of internal control
191. An audit programme is:
a) List of examination and verification steps to be applied
b) Examination in depth
c) List of audit queries
d) All of these
192. Responsibility fixing is a feature of
a) Audit plan
b) Audit
c) Audit programme
d) All of the above
a) Audit programme helps in distribution of work amongst the people doing audit
b) Audit programme is mechanical
c) Audit program acts as a evidence against change of negligence
d) Audit programme helps in covering all the areas where audit is required
194. Audit programme is a failure if
a) Instructions are not followed property
b) Audit plan is not made correctly
c) The instructions are ambiguous
d) All of the above
a) A hard and fast audit programme may kill the initiative of efficient and enterprising assistants
b) An audit programme can make the audit exercise rigid and mechanical.
c) The principal can control the progress of the various audits in hand by examination of audit
programme.
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d) There is a risk that if any matter escaped attention of auditor at the time of audit programming may
remain unaudited during the entire audit.
SA 315
196. Which of the following is a type of audit procedure
a) Risk Assessment Procedures
b) Further Audit Procedures
c) Both (a) and (b)
d) None of these
197. Which of the following SAs deals with auditor’s responsibilities w.r.t. risk assessment
a) SA 315
b) SA 320
c) SA 330
d) SA 450
198. Risk assessment procedures are performed by auditor
a) To detect material misstatements in the financial statements
b) To identify and assess material misstatements in the financial statements
c) To identify and assess operational risk in the operations of the entity
d) All of these
199. Components of risk of material misstatements are
a) Inherent Risk and Control Risk
b) Inherent Risk and Detection Risk
c) Control Risk and Detection Risk
d) Inherent Risk, Control Risk and Detection Risk
200. Audit Risk refers to risk that
a) If financial statements are materially misstated then auditor may express an inappropriate opinion.
b) Audit sample may be inappropriate
c) Auditor may be unable to complete auditing engagement in timely manner
d) All of these
201. The risk for the company that an auditor may issue an unqualified report due to auditor’s failure
to detect some misstatement either due to fraud or error is
a) Financial accounting risk
b) Analytical risk
c) Taxation risk
d) Audit risk
202. For better assessing the audit risk, auditor inquires different groups in the organizations
EXCEPT:
a) Board of governance and top level management
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b) Legal counsel
c) Middle level management
d) Stakeholders
203. Which is not included in audit risk
a) Ordinarily insignificant
b) Adverse publicity
c) Loss from litigation
d) All of the above
204. Components of audit risk are
a) Inherent Risk, Control Risk and Sampling Risk
b) Inherent Risk, Control Risk and Detection Risk
c) Inherent Risk and Control Risk
d) None of these
205. Risk of material misstatements is a function of
a) Audit risk and control risk
b) Control risk and detection risk
c) Inherent risk and control risk
206. If inherent risk and control risk are assessed as high, then
a) Audit risk should be higher so that overall detection risk can be controlled
b) Detection risk should be lower so that overall audit risk can be controlled
c) Audit risk should be lower so that overall detection risk can be controlled
d) Detection risk should be higher so that overall audit risk can be controlled
207. Which of the following increase control risk?
a) Lack of segregation of duties
b) Reduction in the size of the internal audit group
c) Both (a) and (b)
d) None of these
208. Which of the following is correct
a) Audit risk is the risk of a material misstatement in the financial statements
b) The risk of a material misstatement in the financial statements consists of control risk
c) Audit risk is the risk that auditor will not detect a material a material misstatement that exists in the
d) Audit risk is the risk of a material misstatement in the financial statements and that the auditor did
not detect the material misstatement.
209. Risk of material misstatement has __________ components
a) One
b) Two
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c) Three
d) Four
210. What techniques should the auditor use in assessing the risk of material misstatements?
a) The auditor should obtain written representation from the entity’s management
b) The auditor should relate the identified risks to what can go wrong at assertions level
c) The auditor should consider the implications of the identified risks for the auditor’s report
d) The auditor should familiarize themselves with the client’s industry and current market conditions.
211. Which one of the following is not one of the categories of assertions identified in SA 315
a) Accounting policies
b) Presentation and disclosure
c) Account balances at the period end
d) Classes of transactions and events for the period under audit.
212. For purposes of the SAs, which of the following meaning attributed to the term “Assertions”
a) Representations by management, explicit or otherwise, that are embodied in the financial
statements, as used by the auditor to consider the different types of potential misstatements that may
occur.
b) A risk resulting from significant conditions, events, circumstances, actions or inactions that could
adversely affect an entity’s ability to achieve its objectives and execute its strategies or from the
setting of inappropriate objectives and strategies.
c) An identified and assesses risk of material misstatements that, in the auditor’s judgement, requires
special audit consideration.
d) The audit procedures performed to obtain an understanding of the entity and its environment,
including the entity’s internal control to identify and assess the risk of material misstatement,
whether due to fraud or error, at the financial statement and assertion levels.
213. The auditor shall identify and assess the risk of material misstatements at
a) The financial statement level
b) The assertion level for classes of transactions account balances and disclosures
c) Both (a) and (b)
214. Obtaining an understanding of the entity and its environment, including the entity’s internal
control is a _____________________
a) Initial process of gathering, updating and analyzing information of an audit
b) Continuous, dynamic process of gathering, updating and analyzing information throughout the audit
c) Dynamic process of gathering, updating and analyzing information at the time of initial audit
engagement
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215. An understanding of the entity’s selection and application of accounting policies may encompass
such matters
a) The methods the entity uses to account for significant and unusual transactions
b) Financial reporting standards an laws and regulations that are new to entity and when and how the
entity will adopt such requirements
c) Changes in the entity’s accounting policies
d) All of the above
216. An identified and assessed risk of material misstatement that, in the auditor’s professional
judgement, requires special audit consideration is called as
a) Inherent Risk
b) Audit Risk
c) Sampling Risk
d) Significant Risk
217. Inherent Risk refers to
a) Risk of an inappropriate opinion
b) Risk of failure of internal control in the prevention or detection of material misstatements
c) Susceptibility of account balances or class of transaction to be materially misstated, assuming there
were no internal controls
d) Risk of non-detection of material misstatements in financial statements
218. Possibility of deficiencies leading to material misstatement in the financial statement in future,
is the best
a) Risk of material misstatement
b) Significant Deficiency in internal control
c) Deficiency in professional judgement
219. Which of the following does not refers to significant deficiency in internal control?
a) Susceptibility to loss or fraud of the related assets or liability
b) Amount in financial statements exposed to deficiency
c) Subjectivity and complexity of determining estimated amounts
d) Transactions are executed in accordance with management’s general or specific authorization.
220. Parameters for significant deficiency to be reported to those charged with governance, state
which of the following is not correct with reference to the above?
a) Disclosure of material misstatement due to fraud or error where the management is involved
b) Evidence of ineffective response by management
c) Identification of fraud where management is also involved, which entity’s internal controls are
unable to prevent.
d) Transactions are executed in accordance with management general or specific authorization.
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221. Evaluation and assessment of audit findings and control deficiencies involves applying
a) Professional Skepticism
b) Professional Judgement
c) Both (a) and (b)
222. In assessing which risks are significant risk, which one of the following is not required to be
considered by the auditor
a) The complexity of transaction
b) Whether the risk is risk of fraud
c) Whether the firm has an internal audit department
d) The degree of subjectivity in the measurement of financial information
223. Business risk may arise from which of the following?
a) Globalization
b) Industry and economic factors
c) Corporate objectives and strategies
d) All of the above
224. Control Risk refers to
225. If before considering the internal controls at the audited entity, there is a high probability of
certain errors in the financial statements, we particularly speak of
a) a high sampling risk.
b) a high inherent risk
c) a high control risk
d) a high detection risk
226. Detection Risk refers to
227. The risk that an auditor’s procedures will lead to the conclusion that a material misstatement
does not exist in an account balance when, in fact, such misstatement actually does exist is
a) Audit risk
b) Sampling risk
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c) Control risk
d) Detection risk
228. There is inverse relationship between
a) Inherent risk and control risk
b) Combined risk of inherent and control risk with risk of material misstatements
c) Materiality and Audit Risk
d) Detection Risk and Audit Risk
229. For a given level of audit risk, the acceptable level of detection risk bears _______________
relationship to the assessed risk of material misstatement at the assertion level
a) Direct
b) Inverse
c) No
230. There is inverse relationship between
a) Inherent Risk and Control Risk
b) Combined risk of inherent and control risk with risk of material misstatements
c) Combined risk of inherent and control risk with detection risk
d) Sampling Risk and Non-Sampling Risk
231. The sequence of steps in the auditor’s consideration of internal control is as follows:
a) Obtain an understanding, design substantive test, perform tests of control, make a preliminary
assessment of control risk.
b) Design substantive test, Obtain an understanding, perform tests of control, make a preliminary
assessment of control risk.
c) Obtain an understanding, make a preliminary assessment of control risk, perform tests of control,
design substantive test
d) Perform tests of control, Obtain an understanding, make a preliminary assessment of control risk,
Design substantive test
232. An auditor should study and evaluate internal controls to
a) Determine whether assets are safeguarded
b) Suggest improvements in internal control
c) Plan audit procedures
d) Express and opinion
233. The overall attitude and awareness of an entity’s board of directors concerning the importance
of internal control is reflected in
a) Accounting controls
b) Control environment
c) Control procedures
d) Supervision
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234. Objective of internal control excluding

a) Transactions are executed in accordance with managements general or specific authorization
b) Internal control is designed, implemented and maintained to address unidentified business risks.
c) The recorded assets are compared with the existing assets at reasonable intervals and appropriate
action is taken with regard to any differences.
d) Assets are safeguarded from unauthorized access, use or disposition, maintain accountability for
assets.
235. A number of checks and controls exercised in a business to ensure its efficient working is known
as
a) Internal check
b) Internal control
c) Internal audit
d) Interim check
236. An auditor assesses control risk because it
a) Affects the audit risk
b) Affects the level of detection risk that auditor may accept
c) Helps him to fix materiality level for each financial assertion
d) Is directly related to inherent risk
237. The SAs do not ordinarily refer to inherent risk and control risk separately, but rather to a
combined assessment of the “risks of material misstatement”
a) The management may make separate or combined assessments depending on methodologies and
practical considerations
b) The auditor may make separate or combined assessments depending on methodologies and practical
considerations
c) The management and those charged with governance may make separate or combined assessments
depending on methodologies and practical considerations
238. In comparison to the independent auditor, an internal auditor is more likely to be concerned
with
a) Cost accounting system
b) Internal control system
c) Legal compliance
d) Accounting system
239. When an independent auditor decides that the work performed by internal auditors may have
bearing on the nature, timing and extent of planned audit procedures, the independent auditor
should evaluate objectivity of the internal auditor. The most important factor influencing it
would be
a) Organizational level to which he reports
203
b) Qualification of internal auditor

c) System of quality control of his work
d) All of the above
240. When an independent auditor relies on the work of an internal auditor, he or she should
a) Examine the scope of internal auditor’s work
b) Examine the system of supervising review and documentation of internal auditor’s work
c) Adequacy of related audit programme
d) All of the above
241. The independence of an internal auditor will most likely be assured if he reports to the
a) President finance
b) President system
c) Managing Director
d) CEO
242. In respect of some risks, the auditor may judge that it is not possible or practicable to obtain
sufficient appropriate audit evidence only from
a) Test of control
b) Substantive procedures
c) Both a and b
d) All of the above
243. M Ltd. Conducts quarterly review of operations. It discovers that unrest in a Middle east country
may affect the supply of raw materials to it the next quarter. This is an example of:
a) Risk assessment
b) Control procedure
c) Supervision
d) Control environment
244. Which of the following statements is correct
a) Audit risk is the risk of material misstatement in the financial statements
b) The risk of a material misstatement in the financial statements consists of control risk
c) Audit risk is the risk that the auditor will not detect a material misstatement that exists in the
d) Audit risk is the risk of a material misstatement in the financial misstatements and that the auditor
did not detect the material misstatement.
245. Which of the following statement is not correct
a) Inherent risk and control risk cannot be controlled by the management
b) Detection risk is related directly to the effectiveness of the auditor procedures
c) Detection risk is related inversely to control risk
d) Inherent risk and control risk are highly interrelated
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246. Proper segregation of duties reduces the opportunities in which a person would both
a) Establish controls and executes them
b) Records cash receipts and cash payments
c) Perpetuate errors and frauds and conceals them
d) Record the transaction in journal and ledger
247. The risk assessment procedures shall include the following except
a) Inquiries of management and of others within the entity
b) Regular reconciliation
c) Analytical procedures
d) Observation and inspection
248. Which of the following is not likely to a fraud risk factor relating to management characteristics
a) Tax evasion
d) High management turnover
249. Factors relevant to the auditor’s judgement about whether a control, individually or in
combination with others, is relevant to the audit may include such matters as the following
a) Materiality
b) The significance of the related risk
c) The diversity and complexity of the entity’s operations
d) All of the above
250. Which of the following in not an assertion about classes of transactions and events for the period
under audit:
a) Occurrence
b) Accuracy
c) Classification
d) Existence
251. Which of the following is not an assertion about classes account balances at the period end
a) Existence
b) Valuation
c) Accuracy
d) Rights and Obligations
252. XYZ Limited decided that it wanted to improve earnings. To do this, they understated their
expenses by omitting unpaid expenses from the accrued liabilities account at year end. Which
management assertion has been violated?
a) Rights and obligations
b) Completeness
c) Existence
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d) Disclosure
a) Occurrence
b) Existence
c) Right and obligation
d) Valuation
a) Occurrence
b) Accuracy
c) Cut-off
d) Valuation
255. A Ltd, is in a highly competitive industry with majority of the competition coming from middle
east countries. The company’s products have a relatively short life cycle and product
development is continuous in order to keep up with competitors.
For the inventory account, the assertion upon which most audit efforts should be concentrated
is
a) Existence
b) Completeness
c) Right and Obligation
d) Valuation and Allocation
256. B Ltd is engaged in business of selling accessories for laptops through online, as an auditor how
would you proceed in this regard as to understanding the entity and its environment
a) Spending substantial time
b) Extensive audit procedures
c) Both (a) and (b)
d) Monitoring
257. Which of the following are performed as risk assessment procedures
a) Observation
b) Inquiry
c) Analytical Review
d) All of these
258. Significant risk refers to
a) Audit Risk
b) Sampling Risk
c) Risk of material misstatements
d) Risk of material misstatements requiring special audit considerations
259. Which of the following is not a component of Internal Control
a) Information system
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b) Control environment
c) Entity’s risk assessment procedures
d) Quality review
260. Control activities, whether within IT or manual system, have various objectives and are applied
at various organizational and functional levels. Which of the following is an example of control
activities?
a) Authorization
b) Performance reviews
c) Information processing
d) All of the above
261. The auditor must have a thorough understanding of the entity, the client’s business strategies,
processes, and measurement indicators for critical success. This analysis helps the auditor
a) Decide if they want to accept the engagement
b) Identify risks associated with the client’s strategy that could affect the financial statements
c) Assess the level of materiality that is appropriate for the audit
d) Identify the potential for fraud in the financial reporting process
262. Which assertion is common among income statement and balance sheet captions:
a) Existence
b) Valuation
c) Completeness
d) Measurement
263. Direct confirmation procedures are performed during audit of accounts receivable balances to
address the following balance sheet assertion:
a) Rights and obligations
b) Existence
c) Valuation
d) Completeness
SA 320
264. While determining materiality of any item financial statements, the auditor considers
a) Quantity of item
b) Quality of item
c) Legal or Regulatory consideration of item
d) All of these
265. Materiality in terms of amount or amounts set by the auditor for particular classes of
transactions, account balances or disclosures is called as
a) Materiality for financial statement as a whole
b) Performance Materiality
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c) Item Materiality
d) None of these
266. Determining a percentage to be applied to a chosen benchmark (in relation to materiality)
involves the exercise of ___________________
a) Independence
b) Professional judgement
c) Professional skepticism
d) All of the above
267. In determining the level of materiality for an audit, what should not be considered?
a) Prior year’s errors
b) The auditor’s remuneration
c) Adjusted interim financial statements
d) Prior year’s financial statements.
268. Audit materiality is to be considered from
a) Qualitative angle
b) Quantitative angle
c) Both (a) and (b)
d) None of these
269. Which of the following SA prescribes auditor’s responsibilities for materiality in planning and
performing an audit
a) SA 320
b) SA 300
c) SA 330
d) SA 500
270. As per SA 320, materiality is to be applied
a) In planning the audit
b) In performing an audit
c) In planning and performing an audit
d) In planning, performing and concluding an audit
271. Materiality of item depends upon
a) Size of item
b) Nature of item
c) Statutory provision
d) All of these
272. Factors that may affect identification of an appropriate benchmark include
a) Elements of financial statements
b) Nature of entity
c) Entity’s ownership structure
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d) All of these
273. Performance materiality means the amount or amounts set by the auditor at _______________ the
amount of materiality level for the financial statements as a whole.
a) Less than
b) More than
c) Equal to
d) Any of above
274. If the misstatement influences the decision of the user of financial statement, then
a) The item is said to be material
b) The auditor shall apply additional procedures
c) Both a and b
275. State which of the following is not true with reference to SA 320?
a) Audit materiality is not inversely proportional to the audit risk
b) Higher the audit materiality, lower is the audit risk
c) An item is said to be material, if the misstatement influences the decision of the user of financial
statement then
d) Even a small value items can be considered material if taken on cumulative basis
276. State which of the following statement is correct?
a) Inherent risk refers to wrong evaluation of internal control or internal control is unable to check the
misstatement.
b) Detection risk refers to the risk which is unavoidable in nature
c) Control risk refers to audit is unable to find any misstatement
277. The materiality differs from client to client and transaction to transaction, the auditor fixes the
materiality level in the following ways, except
a) Disclosure
b) Class of transaction
c) Account Balance
d) Nature and size of audit
278. Benchmark approach may not include
a) Net Asset value
b) Total revenue
c) Net liability value
d) Gross profit
279. The concept of materiality is applied by the auditor for both
(i) Planning and performing the audit,
(ii) Evaluating the effect of identified misstatements on the audit
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(iii) Uncorrected misstatements

(iv) None of the above
a) Both i and ii
b) Only i, ii, and iii
c) Both iii and iv
d) All of the above
280. Which of the following is an important consideration for an auditor to evaluate whether the
financial statements reflect a true or fair view or not.
a) Materiality
b) Benchmark
c) Audit plan
d) Audit note
281. The auditor shall determine materiality for the financial statements as a whole. When,
a) At the time of initially planning of the audit
b) At the time of evaluating the results of audit procedures
c) Establishing the overall audit strategy
d) There is one or more particular classes of transactions
282. ____________ also refers to the amount or amounts set by the auditor at less than the materiality
level or levels for particular classes of transactions, account balances or disclosures.
a) Benchmark
b) Undetected misstatements
c) Performance materiality
d) Overall audit strategy
283. If an entity is financed solely by debt rather than equity, users may put more emphasis on_________
a) Entity’s gross earnings
b) Entity’s net earnings
c) Assets, and claims on them
d) Both (a) and (c)
284. _________ from continuing operations is often used for profit-oriented entities
a) Total equity or net asset value
b) Profit before tax
c) Gross profit and total expenses
d) Total revenue
SA 330
285. Which of the following SA deals with auditor’s responsibility to design and perform further audit
procedures as a response on assessed risk
a) SA 330
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b) SA 315
c) SA 320
d) SA 450
286. Which of the following is a further audit procedure as per SA 330
a) Risk assessment procedure
b) Internal check
c) Substantive audit procedures
d) Internal audit
287. Test of controls is performed by auditor
a) To evaluate operating effectiveness of internal controls
b) To detect material misstatements in financial statements
c) To identify and assess risk of material misstatements in financial statements
d) All of above
288. The auditor shall test controls
a) For particular time
b) Throughout the period
c) (a) or (b)
d) None of these
289. The auditor shall design and perform tests of controls to obtain sufficient appropriate audit
evidence as to operating effectiveness of relevant controls when:
a) The auditor’s assessment of risks of material misstatements includes an expectation that controls are
operating effectively
b) Substantive procedures alone cannot provide sufficient appropriate audit evidence
c) (a) or (b)
d) None of these
290. In case of recurring audit engagement, it is a matter of professional judgment of auditor to
determine whether it is appropriate to use audit evidence about the operating effectiveness of
controls obtained in previous audit but auditor shall test the controls at least once in every
a) Third audit
b) Fourth audit
c) Fifth audit
d) Sixth audit
291. Factors which may warrant re-testing of controls in recurring audit engagement are
a) Deficient general IT controls
b) Deficient monitoring controls
c) A deficient control environment
d) All of these
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292. Substantive audit procedures are performed by auditor

a) To determine nature, timing and extent of test of controls
b) To determine nature, timing and extent of substantive analytical procedures
c) To detect material misstatements.
d) To identify and assess detection risk
293. Substantive audit procedure comprises:
a) Substantive analytical procedures
b) Test of details
c) Both (a) and (b)
d) None of these
294. Nature, timing and extent of substantive audit procedures are determined by auditor on the
basis of
a) Test of controls performed
b) Understanding of entity and its related environment
c) Test of details
d) All of these
295. The nature, timing and extent of substantive audit procedures is related to assessed level of
control risk
a) Randomly
b) Disproportionately
c) Directly
d) Inversely
296. Substantive procedures related to the financial statements closing process are
a) Verification of assets and liabilities
b) Agreeing or reconciling the financial statements with the underlying records
c) Examining material journal entries and other adjustments made during the course of preparing the
d) Both (b) and (c)
297. Which statement best describes the interaction of the systems and substantive approaches in
the audit plan?
a) The systems approach focuses on testing controls to make sure they are effective, while the
substantive approach is the detailed testing of specific accounts for accuracy
b) The systems approach focuses on detailed testing of specific accounts for accuracy, while the
substantive approach is the testing controls to make sure they are effective
c) The systems approach focuses on the use of computer systems to aid in the audit while the
substantive approach focuses on more manual tests
d) A thoroughly designed systems approach to auditing can eliminate
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298. After testing a client’s internal control activities, an auditor discovers a number of significant
deficiencies in the operation of a client’s internal controls. Under these circumstances the
auditor most likely would
a) Issue a disclaimer of opinion about the internal controls as part of the auditor’s report
b) Increase the assessment of control risk and increase the extent of substantive tests
c) Issue a qualified opinion of this finding as part of the auditor’s report
d) Withdraw from the audit because the internal controls are ineffective
299. What is not included under the audit term “substantive procedures”?
a) Test made to obtain evidence of material errors
b) A general strategy and detained concerning the nature, timing and extent of audit procedures to be
performed.
c) Analytical procedures to analyze trends and fluctuations
d) Test of the details of the transactions
300. The auditor shall apply procedures to examine overall presentation of financial statements and
their compliance with relevant FRF, these are called as
a) Audit procedures responsive to risk assessed at assertion level
b) Overall response
c) Both (a) and (b)
301. Substantive procedures comprise of
a) Test of controls, Risk Assessment
b) Test of Details, Substantive Analytical Procedures
c) Degree of reliance on controls, Extent of test of controls
302. Which of the following are included in test of controls?
a) Reperformance and observation
b) Inquiry and analytical procedures
c) Comparison and conformation
d) Inspection and verification
303. Which of the following is a routine audit procedure
a) Vouching of transactions
b) Analytical procedures
c) Risk assessment procedures
d) Verification of assets and liabilities
SA 402
304. SA 402 deals with responsibilities of
a) User Auditor
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b) Service Auditor
c) User Auditor and Service Auditor
d) Service organization and user auditor both
305. An entity that uses a service of service organisation and whose financial statements are being
audited is called as
a) User
b) User Entity
c) Beneficial
d) Owner
306. An auditor who audits and reports on the financial statements of user entity is called as
a) Principal Auditor
b) Beneficial Auditor
c) User Auditor
307. An auditor who, at the request of the service organisation provides an assurance report on the
controls of a service organisation is called as
a) Service Auditor
b) Joint Auditor
c) Branch Auditor
d) Co-Auditor
308. A third party organisation that provides services to user entities that are part of those entities
information system relevant to financial reporting is called as
a) Branch
b) Service Organisation
c) Service Provider
d) Sub-Service Organisation
309. In case client outsources some aspects of their business to other organization, SA _________ is to be
considered and applied by the auditor
a) 320
b) 500
c) 402
d) 450
310. As per SA 402, service auditor is an auditor who provides _______________ about ______________ of a
service organization.
a) Audit report, financial statements
b) Audit report, controls
c) Assurance report, financial statements
d) Assurance report, controls
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311. As per SA 402, ___________ report shall provide better assurance than ___________ report to the user
auditor.
a) Type 2, Type 1
b) Type 1, Type 2
c) Type A, Type B
d) Type B, Type A
312. As per SA 402, user auditor is an auditor who audits and reports
a) On the internal controls of user entity
b) On the financial statements of user entity
c) On the controls of service organization
d) On the financial statements of a user entity and those of service organization both
313. The user auditor shall obtain un understanding about
a) The nature of service provided by service organisation
b) The materiality of transactions processed by service organisation
c) The degree of interaction between service organization and user entity
d) All of these
314. If user auditor is not able to obtain to obtain information from service organization or about the
transactions being processed by service organization, he shall
a) Modify his audit report
b) Express an unqualified opinion
c) Express an unqualified opinion but mentions the same in EOM section
d) Express his audit opinion and mention the same in OM section.
315. The report on description and design of controls at service organization is termed as
a) Type 1 Report
b) Type 2 Report
c) Type A Report
d) Type B Report
316. The report on description , design and operating effectiveness of controls at service organization
is termed as
a) Type 1 Report
b) Type 2 Report
c) Type A Report
d) Type B Report
317. Which of the following is a method of reporting in Type 1 or Type 2 Report by service auditor
a) Inclusive method
b) Carve out method
c) Both (a) and (b)
d) None of these
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318. When Type1 or Type 2 Report of service auditor includes information of internal controls of sub
service organization, such method is called
a) Inclusive method
b) Carve out method
c) Combined method
d) Exclusive method
319. When Type1 or Type 2 Report of service auditor excludes information of internal controls of sub
service organization, such method is called
a) Inclusive method
b) Carve out method
c) Combined method
d) Exclusive method
320. If user auditor is unable to obtain sufficient understanding from the user entity, the user auditor
shall obtain understanding from one or more of the following procedures
a) Obtaining a Type 1 or Type 2 report, if available, contacting the service organisation through the user
entity
b) Visiting the service organisation and performing procedures
c) Using another auditor to perform procedures that will provide necessary information about the
relevant controls at the service organisation
d) All of the above
SA 450
321. Which of the following SAs deals with auditor’s responsibilities to evaluate the effect of identified
misstatements
a) SA 330
b) SA 500
c) SA 505
d) SA 450
322. The objective of auditor with reference to SA450 is
a) To evaluate the effect of identified misstatement on the audit
b) To obtain sufficient and appropriate audit evidence regarding compliance with provision of laws and
regulations
c) Both (a) and (b)
323. Misstatements in financial statements is the difference in amount, classification, presentation
and disclosure of the item of financial statements between
a) Reported financial statements and applicable financial reporting framework
b) Reported financial statements and discrepancies in accounting records
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c) Discrepancies in accounting records and applicable financial reporting framework

d) All of the above
324. Misstatements may result from:
a) An inaccuracy in gathering or processing data from which financial statements are prepared
b) An omission of an amount or disclosure
c) An incorrect accounting estimate
d) All of above
325. SA 450 considers the mis-statements resulting from
a) Frauds
b) Errors
c) Frauds and errors both
d) Mistakes
326. Misstatements that the auditor has accumulated during the audit and have not been corrected
are called as
a) Uncorrected misstatements
b) Material misstatements
c) Immaterial misstatements
d) Tolerable errors
327. If aggregate of uncorrected misstatements is material, auditor shall express
a) Unmodified Opinion
b) Qualified /Adverse Opinion
d) None of these
328. Misstatements can arise from
a) Error
b) Fraud
c) Both (a) and (b)
329. The auditor shall communicate on a timely basis all misstatements accumulated during audit
with appropriate level of management, the auditor shall request management
a) To disclose those misstatements in the financial statements
b) To correct those misstatements
c) To disclose in board report
d) To report to TCWG
330. If management refuses to correct some or all misstatements communicated by the auditor
a) The auditor shall obtain an understanding of management’s reason for not making the corrections
b) The auditor shall determine whether uncorrected misstatements are material, individually or in
aggregate
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c) Both (a) and (b)

SA 500
331. Which of following SA deals with auditor’s responsibility to design and perform audit
procedures in such a way to enable the auditor to obtain sufficient and appropriate audit
evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion
a) SA 500
b) SA 501
c) SA 330
d) SA 315
332. Sufficient audit evidence is a measurement of
a) Quality of audit evidence
b) Quantity of audit evidence
c) Both of (a) and (b)
d) None of these
333. Appropriate audit evidence is a measurement of
a) Quality of audit evidence
b) Quantity of audit evidence
c) Both of (a) and (b)
d) None of these
334. The auditor must obtain following audit evidence to draw reasonable conclusion
a) Sufficient audit evidence
b) Appropriate audit evidence
c) Sufficient and appropriate audit evidence
d) None of these
335. Which of the following is the least persuasive type of audit evidence?
a) Bank statements obtained from the client
b) Documents obtained by auditor from third parties directly
c) Carbon copies of sales invoices inspected by the auditor
d) Computations made by the auditor.
336. Following audit procedures are performed by auditor to obtain sufficient appropriate audit
evidence
a) Risk assessment procedures
b) Test of controls
c) Substantive audit procedures
d) Both (b) and (c)
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337. Which of the following is not a factor to determine sufficient audit evidence
a) Reliability of information
b) Materiality of item
c) Risk of material misstatements
d) Size and characteristics of the population
338. Which of the following is a factor to determine sufficient audit evidence
a) Materiality of item involved
b) Risk of material misstatements
c) Size and characteristics of the population
d) All of these
339. Which of the following is a factor to determine appropriate audit evidence
a) Reliability of information
b) Relevancy of information
c) Both (a) and (b)
d) None of these
340. Depending upon nature audit evidence can be classified as
a) Visual evidence
b) Oral evidence
c) Documentary evidence
d) All of these
341. Depending upon source audit evidence can be classified as
a) Internal audit evidence
b) External audit evidence
c) Both (a) and (b)
d) None of these
342. Which of the following is not internal audit evidence
a) Bank Reconciliation Statement
b) Bank Statement
c) Copy of Sales Invoice
d) Voucher
343. Which of the following is not external audit evidence
a) Bank Statements
b) Purchase Invoice
c) External Confirmation
d) Salary Sheet
344. Techniques to obtain audit evidence are
a) Inspection
b) Recalculation
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c) External confirmation
d) All of these
a) Confirmation
b) Inquiry
c) Re-computation
d) Ledger posting
a) Bank reconciliation statement
b) Copy of sales invoice
c) Purchase invoice
d) Minutes book
347. Which of following statement is incorrect
a) Recalculation consists checking reasonableness of appropriates of accounting policies
b) Inspection consists of examining records, documents whether internal or external in paper form or
electronic form and physical examination of assets
c) An external confirmation represents audit evidence obtained by auditor as direct written response
to the auditor from a third party.
d) Evaluating responses of inquiry is an integral part of inquiry process.
348. Observation consists
a) Review of financial statements
b) Looking at a process, procedure being performed by others
c) Independent execution of procedure or controls that were originally performed as part of entity’s
internal control.
d) All of these
349. Before using the work of an expert the auditor shall evaluate
a) Competency of expert.
b) Capability of expert
c) Objectivity of expert
d) All of above
350. Information regarding the competence, capabilities and objectivity of management’s expert may
come from a variety sources such as:
a) Discussion with expert
b) Personal experience with previous work of that expert
c) Published papers or books written by that expert
d) All of these
351. Pick the most appropriate. Auditing evidence is more reliable when
a) Received from third party
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b) Received from reliable third party

c) Received from audited organization resources
d) Both (a) & (b)
352. Which is NOT a technique of obtaining evidence
a) Correction
b) Computation
c) Confirmation
d) Both a & b
353. Which of the following statements is, generally correct about the reliability of audit evidence?
a) To be reliable, evidence should be conclusive rather than persuasive
b) Effective internal control system provides reliable audit evidence
c) Evidence obtained from outside sources routed through the client
d) All are correct
354. In case of inconsistency between audit evidences obtained by auditor for ant item of the financial
statement, the auditor shall
a) Withdraw from audit engagement
b) Perform alternative audit procedures
c) Perform additional audit procedures to obtain corroborative audit evidence
d) All of the above
355. Which of the following is incorrect w.r.t. inquiry
a) Inquiries may range from formal written inquiries to informal oral inquiries
b) Conducting inquiry alone is not sufficient to obtain sufficient and appropriate audit evidence
c) Inquiry can be conducted with the person within the entity and with the person outside the entity
d) Evaluation of responses of enquiries is not an integral part
a) Audit procedures and audit techniques are not one and same thing.
b) Audit procedures and audit techniques are often used interchangeably.
c) Inspection of bank reconciliation statement is an audit technique.
d) All of the above
357. Audit is usually conducted in three steps:
1. A pre-examination or opening meeting with the auditee marks the beginning of the process
2. Involves a suitability audit of the documented procedures against the selected reference
standard
3. The auditor examines in depth the implementation of the quality system
a) True
b) False
c) Partially false
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358. In auditing most of the time we deal with persuasive audit evidence which helps the auditor
a) To understand the nature of audit
b) To understand the source of audit evidence
c) For conclusion of the audit
359. State which of the following techniques are not used for obtaining audit evidence
a) Questioning the management with objective to get suitable response
b) Involve inspection record or documents internal or external
c) Detailed examination of some specific areas
d) Trend analysis
360. Reperformance involves
a) Evaluation of financial information using financial and non-financial data.
b) Questioning the management with objective to get suitable response
c) Auditor’s independent execution of procedures or controls that were originally performed by
management
d) Checking the mathematical accuracy documents or record. It can be manually or electronically
361. State which of the following statement is true
a) Audit evidence are persuasive in nature
b) Audit evidence are conclusive in nature
c) Both (a) and (b)
362. Which of the following are designed to obtain audit evidence as to completeness, accuracy and
validity of data produced by the accounting system
a) Test of controls
b) Substantive procedures
c) Analytical procedures
d) All of the above
363. Substantive procedures does not involves
a) Checking of transactions
b) Analytical review
c) Checking of balance
d) Checking whether internal controls are working effectively
364. Test of controls involves in
a) Testing of transaction and balance
b) Analytical review
c) Check the internal control exist and operating effectively
d) All of the above
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365. The reliability of audit evidence is influenced by its

a) Source
b) Nature
c) Circumstances
d) All of the above
SA 501
366. Which of the following SA deals with deals with special consideration by auditor in obtaining
sufficient appropriate audit evidence with respect to existence and condition of inventory,
completeness of litigation and claim and presentation and disclosure of segment information:
a) SA 500
b) SA 501
c) SA 505
d) SA 510
367. The responsibility for determining the quantity and value of inventory rests with
a) Management
b) Auditor
c) Auditor and Management both
d) None of these
368. The auditor shall obtain sufficient appropriate audit evidence regarding the existence and
condition of inventory by attending physical inventory count, unless impracticable, to
a) Evaluate the management’s instruction and procedures for recording and controlling the results of
the entity’s physical inventory counting
b) Observe the performance of management’s count procedures
c) Inspect the inventory
d) All of above
369. If auditor is unable to attend physical inventory counting due to unforeseen circumstances the
auditor shall
a) Obtain a written representation from management of entity
b) Conduct external confirmation form third party
c) Make or observe some physical count on an alternative date, and perform audit procedures on
intervening transactions
d) All of these.
370. If attendance at physical inventory counting is impracticable, the auditor shall
a) Perform Alternative audit procedures
b) Perform Additional audit procedures
c) Obtain written representation from management of entity
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371. When inventory under the custody and control of a third party is material to the financial
statements, the auditor shall obtain sufficient appropriate audit evidence regarding the
existence and condition of that inventory by
a) Request confirmation from third part as to the quantities and condition of inventory held by third
party
b) Perform inspection or other audit procedures appropriate in the circumstances
c) Both (a) and (b)
372. Litigation and claim involving the entity may have a material effect on the financial statements
and thus may be required
a) To be disclosed in the financial statements
b) To be accounted in the financial statements
d) Both (a) and (b)
373. The auditor shall design and perform audit procedures in order to identify litigation and claims
involving the entity which may give rise to a risk of material misstatement including:
a) Inquiry of management and others within the entity
b) Performing analytical procedures as are appropriate
c) Reviewing minutes of meetings of members
d) All of above
374. When the audit procedures performed indicated that other material litigation or claims may
exist, then the auditor shall
a) Seek direct communication with the entity’s internal legal counsel through a letter of inquiry,
prepared by auditor and sent by the management.
b) Seek direct communication with the entity’s external legal counsel through a letter of inquiry,
prepared by management and sent by the auditor
c) Seek direct communication with the entity’s external legal counsel through a letter of inquiry,
prepared by auditor and sent by the management
d) Seek direct communication with the entity’s internal legal counsel through a letter of inquiry,
prepared by management and sent by the auditor
375. If management does not permit auditor to communicate with legal counsel or legal counsel
refuses to respond to auditor, the auditor shall
a) Express unmodified opinion
b) Modify opinion
c) Provide key audit matter section in his report
d) All of these
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376. With respect to segment information, the auditor shall obtain evidences regarding ________ of
segment information as per___________.
a) Preparation, Standard on auditing
b) Disclosure, Standard on auditing
c) Preparation, Financial reporting framework
d) Presentation and Disclosure, Financial reporting framework.
377. State which of the following is covered under AS 17 and SA 501
a) Claims & Litigation
b) Segment Reporting
c) Both (a) and (b)
SA 505
378. __________________ means audit evidence obtained as direct written response from a third party in
paper/electronic form.
a) Internal Confirmation
b) External Confirmation
c) Written Representation
d) All of above
379. Which of the following SAs deals with auditor’s responsibilities to design and perform external
confirmation procedures to obtain relevant and reliable audit evidence
a) SA 580
b) SA 330
c) SA 500
d) SA 505
380. A request that the confirming party respond directly to the auditor indicating whether the
confirming party agrees or disagrees with the information in the request, or providing the
requested information, is
a) Negative Confirmation Request
b) Exception
c) Positive Confirmation Request
d) Non-Response
381. A request that the confirming party respond directly to the auditor only if the confirming party
disagrees with the information provided in the request, is
a) Negative Confirmation Request
b) Positive Confirmation Request
c) Exception
d) Non Response
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382. A response that indicates a difference between information requested to be confirmed, or

contained in the entity’s records, and information provided by the confirming party, is
a) Error
b) Exception
c) Fraud
d) All of above
383. A failure of the confirming party to respond, or fully respond, to a positive confirmation request,
or a confirmation request returned undelivered is called
a) Disagreement
b) Confirmation failure
c) Restriction on auditor’s scope
d) Non-Response
384. The auditor should use negative confirmation request if
a) Population comprises a large number of small, homogeneous account balances or transactions
b) The auditor has assessed the risk of material misstatement as low
c) A very low exception rate is expected
d) All of above
385. Factors to be considered when designing confirmation request:
a) Prior experience of auditor
b) Assertions being addressed
c) Information to be confirmed
d) All of above
386. In case any exception is identified by auditor by conducting external confirmation, he shall
perform
a) Alternative audit procedures
b) Additional audit procedures
c) Test of Controls
d) Both (a) and (b)
387. In case of non-response in the process of external confirmation, the auditor shall perform
a) Alternative audit procedures
b) Additional audit procedures
c) Test of Controls
d) Both (a) and (b)
388. _______________ should carefully plan and control external confirmation
a) Management
b) TCWG
c) Auditor
d) All of these in consultation with one another
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389. Where no reply is received during the performance of direct confirmation procedures as part of
audit of accounts receivable balances, the auditor should perform:
a) No additional testing
b) Additional testing including agreeing the balance to cash received; agreeing the detail of the
respective balance to the customer’s remittance advice
c) Additional testing including preparing a detailed analysis of the balance, ensuring it consists of
identifiable transactions and confirming that these revenue transactions actually occurred
d) Both (b) and (c)
390. Which of the following statement is not true, if management refuses to allow the auditor to send
a confirmation request
a) Inquire as to management’s reasons for the refusal, and seek audit evidence as to their validity and
reasonableness
b) The auditor also shall determine the implication for the audit and the auditor’s opinion in accordance
with standards on auditing
c) Evaluate the implication of management’s refusal on the auditor’s assessment of the relevant risk of
material misstatement, including the risk of fraud, and on the nature, timing and extent of other audit
procedures.
d) Auditor shall withdraw from engagement.
391. The auditor shall investigate exceptions to determine whether or not
a) They are indicative of misstatements
b) The audit evidence is sufficient and appropriate
c) It is conclusive to conclude
d) All of the above
392. State which of the following statement is true, with the auditor’s use of external confirmation
procedures to obtain audit evidence as per SA 505
a) Positive confirmation provide less persuasive audit evidence than negative confirmation
b) Positive confirmation provide less conclusive audit evidence than negative confirmation
c) Negative confirmation provide less conclusive audit evidence than positive confirmation
d) Negative confirmation provide less persuasive audit evidence than positive confirmation
393. The auditor shall not use negative confirmation requests as the sole substantive audit procedure
to address an assessed risk of material misstatements at
a) At initial audit engagement level
b) The time, when the auditor is aware of circumstances or condition that would cause recipients of
negative confirmation requests to disregard such requests
c) The assertion level
d) All of the above
394. A refusal by management to allow the auditor to send a confirmation request
a) is a limitation on the scope of audit
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b) is a limitation on the audit evidence

c) is a limitation on the audit documentation
d) All of the above
395. State which of the following circumstance, refusal by management to allow the auditor to send a
confirmation request is reasonableness as per SA 505
a) Existence of a legal dispute
b) Ongoing negotiation with TCWG
c) When the reason for exception available
d) All of the above
396. When the auditor evaluates the evidence obtained and response received from the third party is
unreliable, then which one of the best option available to the auditor
a) Perform alternative audit procedure to obtain relevant and reliable audit evidence
b) Revise the assessment of the risk of material misstatement at the assertion level and modify planned
audit
c) The auditor shall communicate with TCWG in accordance with SA 260
d) The auditor shall determine the implications for the audit and auditor’s opinion in accordance with
SA
SA 510
397. Which of the following SA deals with the auditor’s responsibilities relating to Opening balances
when conducting an initial audit engagement:
a) SA 500
b) SA 510
c) SA 710
d) SA 540
398. An initial audit engagement in engagement in which :
a) The financial statements for the prior period were not audited
b) The financial statements for the prior period were audited by a predecessor auditor
d) None of (a) or (b)
399. Predecessor auditor is:
a) Joint auditor
b) Auditor of component’
c) Internal auditor
d) The auditor from a different audit firm, who audited the financial statements of an entity in the prior
period and who has been replaced by the current auditor.
400. To obtain information relevant to opening balances including disclosures, the auditor shall
a) Read the most recent financial statement, if any and auditor’s report thereon
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b) Conduct written communication with predecessor auditor

c) Inquire with management
d) All of the above
401. Which of the following is true
a) If auditor concludes that opening balances contain misstatements that materially affects the current
period’s financial statements, the auditor shall express disclaimer of opinion.
b) If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances, the auditor shall express a qualified opinion or disclaimer of opinion, as appropriate, in
accordance with SA 705.
c) If auditor concludes that the current period’s accounting policies are not consistently applied in
relation to opening balances, or a change in accounting policies is not properly accounted for , or not
adequately disclosed in accordance with applicable reporting framework, the auditor shall express a
qualified opinion or an adverse opinion as appropriate, in accordance with SA 705.
d) Both (b) and (c)
402. Auditors of M/s A Ltd were changed for the accounting year 2017-18. The closing stock of the
company as on 31-03-2017 amounting to Rs 100 Lakhs continued as it is and became closing
stock as on 31-03-2018. The auditors of the company propose to exclude from their audit
programme the audit of closing stock of Rs. 100 Lakhs on the understanding that it pertains to
the preceding year which was audited by another auditor.
a) Auditor’s contention is wrong
b) Auditor’s contention is right
c) Auditor can choose to skip them as it is audited by predecessor auditor
d) Auditor can rely on the previous audit report
403. If auditor concludes that the opening balances contain a misstatement and such misstatement
materially affects the current period’s financial statements and the effect of the misstatement is
not properly accounted for or not adequately presented or disclosed
a) The auditor shall express a disclaimer of opinion
b) The auditor shall perform additional procedures and advise management to revise financial
statements
c) The auditor shall express a qualified opinion or an adverse opinion
d) All of the above
404. Which of the following is incorrect, in relation to the predecessor auditor’s report
a) Evaluate the effect of the matter giving rise to the modification in assessing the risks of material
misstatement in the current period
b) If the prior period’s financial statements were audited by predecessor auditor and there was a
modification to the opinion, the auditor shall also modify his opinion
c) Evaluate the effect of the matter giving rise to the modification in the internal control
d) Auditor shall express a qualified opinion or an adverse opinion if no appropriate disclosure is made
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405. If a change in accounting policies is not properly accounted for or not adequately presented or
disclosed in accordance with the applicable financial reporting framework
b) The auditor shall perform additional procedures and advise management to update financial
statements
c) The auditor shall express a qualified opinion or an adverse opinion
d) All of the above
406. If the auditor concludes that the current period’s accounting policies are not consistently applied
in relation to opening balances in accordance with applicable financial reporting framework
b) The auditor shall perform additional procedures and advise management to revise financial
statements
c) The auditor shall express a qualified or an adverse opinion
d) All of the above
407. The auditor shall obtain sufficient appropriate audit evidence about whether the opening
balances contain misstatement that
a) Materially affect the current period’s financial statements
b) Materially affect the prior period’s financial statements
c) Materially affects one or more prior period’s financial statements
d) All of the above
408. The auditor shall obtain sufficient appropriate audit evidence about whether the _________
reflected in the opening balances have been consistently applied in the current period’s financial
statements
a) Accounting policies
b) Accounting estimates
c) Fundamental accounting assumptions
d) Applicable financial reporting framework
SA 520
409. ________________ means evaluation of financial information through analysis of plausible
relationships among both financial and non-financial data.
a) Risk assessment
b) Analytical Procedures
c) Substantive Procedures
d) Test of Controls
410. Which of the following SAs deals with auditor’s responsibilities to design and perform analytical
procedures as substantive analytical procedure?
a) SA 315
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b) SA 330
c) SA 520
d) SA 500
411. What are analytical procedures?
a) Substantive tests designed to assess control risk.
b) Substantive tests designed to evaluate the validity of management’s representative letter.
c) Substantive tests designed to study relationship between financial and non-financial.
412. Analytical procedures used in the planning stage of an audit, generally
a) helps to determine the nature, timing and extent of other audit procedures
b) Directs attention to potential risk areas
c) Indicate important aspects of business
d) All of above.
413. The basic assumption underlying the use of analytical procedures is
a) It helps the auditor to study relationship among elements of financial information
b) Relationship among data exist and continue in the absence of known condition to the contrary
c) Analytical procedures will not be able to detect unusual relationships
414. Which of the following is not an analytical procedure?
a) Tracing of purchases recurred in the purchase book to purchase invoices.
b) Comparing aggregate wages paid to number of employees.
c) Comparing the actual costs with standard costs.
d) All of them are analytical procedures.
415. Analytical procedures used in the planning stage of an audit, generally:
a) Helps to determine the nature, timing and extent of other audit procedures
b) Directs attention to potential risk areas
c) Indicates important aspects of business
d) All of the above
416. The basic assumption underlying the use of analytical procedures is:
a) It helps the auditor to study relationship elements of financial information.
b) Relationship among data exist and continue in the absence of known conditions to the contrary
c) Analytical procedures will not be able to detect unusual relationships.
417. What is the primary objective of analytical procedures used in the overall review stage of an
audit?
a) To help to corroborate the conclusions drawn from individual components of financial statements
b) To reduce specific detection risk
c) To direct attention to potential risk areas
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d) To satisfy doubts when questions arise about a client’s ability to continue

418. Which of the following is a technique available as substantive analytical procedure?
a) External confirmation
b) Ratio Analysis
c) Trend Analysis
d) Both (b) and (c)
419. Timing of analytical procedure is
a) At Planning stage only
b) Throughout the audit engagement
c) At planning stage and in addition these are also required during completion phase.
d) None of these
420. Reliability of data is influenced by
a) Its source
b) Its nature
c) Circumstances under which it is obtained
d) All of these
421. Which of the following is not a typical analytical procedure?
a) Study of relationships of the financial information with relevant nonfinancial information
b) Comparison of the financial information with similar information regarding the industry in which the
entity operates
c) Comparison of recorded amounts of major disbursements with appropriate invoices
d) Comparison of the financial information with budgeted amounts
422. Which of the following is not a technique for substantive analytical procedures
a) Ratio Analysis
b) Trend Analysis
c) Structural Modelling
d) None of these
423. Which of the following is not a reasonableness test
a) Sales discounts and commissions against sales volume
b) Inventory turnover
c) Interest expenses against interest bearing obligation
d) Rental revenues based on occupancy of premises
424. Which of the following is relevant factor for determining whether data is reliable for purposes
of designing substantive analytical procedures
a) Complexity of information
b) Source of information is available
c) Nature and relevance of the information
d) Comparability of the information available
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425. Analytical procedures are least likely to be use in the audit of

a) Cash balance
b) Investments
c) Bills receivables
d) Debtors
426. Substantive analytical procedures are generally more applicable to _________ of transactions that
tend to be predictable over time
a) No effect on volume of data
b) Low volume
c) Large volume
d) Any type
SA 530
427. Which of following SAs deals with auditor’s responsibilities w.r.t audit sampling:
a) SA 200
b) SA 580
c) SA 530
d) SA 500
428. When auditor decides to select less than 100% of the population for testing, the auditor is said
using
a) Audit sampling
b) Representative sampling
c) Poor judgement
429. The entire set of data from which a sample is selected and about which the auditor wishes to
draw conclusions is called as________________
a) Population
b) Monitor
c) Data center
d) Source data
430. The individual items constituting a population is called as_______________
a) Transaction
b) Sampling unit
c) Sample
d) Data
431. ______________ is the risk that auditor’s conclusion based on a sample may be different from
conclusion if the entire population were subjected to the same audit procedure.
a) Audit Risk
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b) Inherent Risk
c) Control Risk
d) Sampling Risk
432. Size of sample is affected by
a) Tolerable error
b) Expected error
c) Sampling risk
d) All of these
433. Type 1 sampling risk affects________________
a) Audit efficiency
b) Audit effectiveness
c) Both (a) and (b)
d) None of above
434. Type 2 sampling risk affects________________
a) Audit efficiency
b) Audit effectiveness
c) Both (a) and (b)
d) None of above
435. _____________________ is the risk that the auditor reaches an erroneous conclusion for any reason not
related to sampling risk.
a) Inherent Risk
b) Control Risk
c) Sampling Risk
d) Non-Sampling Risk
436. Which of the following item is not suitable for test checking?
a) Purchase transactions
b) Sale transactions
c) Balance Sheet items
d) All of above
437. Precautions to be considered by auditor while performing audit engagement on the basis of test
checking are
a) Auditor should identify the items which are not suitable for test checking
b) There should be no personal bias
c) Examination in depth should be done
d) All of above
438. Approaches to sampling are
a) Non- Statistical Sampling
b) Statistical Sampling
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c) Both (a) and (b)

d) None of these
439. In non-statistical sampling, the sample size and its composition are determined on the basis of
a) Personal experience of auditor
b) Knowledge of auditor
c) Judgement of auditor
d) All of above
440. ____________________ is a method of audit testing which is more scientific than testing based entirely
on the auditor’s own judgement because it involves use of mathematical laws of probability in
determining the appropriate sample size.
a) Statistical Sampling
b) Non statistical Sampling
c) Haphazard Sampling
d) Cluster Sampling
441. Judgmental sampling is
a) Based on probability theory
b) Not having any personal bias
c) Widely accepted way of sampling
d) None of these
442. The main advantage of using statistical sampling techniques is that such techniques:
a) Mathematically measure risk
b) Eliminate the need for judgmental sampling
c) Defines the values of tolerable error
d) All of them
443. Which of the following factor is (are) considered in determining the sample size for test of
controls?
a) Projected error
b) Tolerable error
c) Expected error
d) Both (b) and (c)
444. Tolerable error, is the maximum monetary error that the auditor is prepared to accept in the
population and still concludes that audit objectives has been achieved, is directly related to
a) Sample size
b) Audit risk
c) Materiality
d) Expected error
445. Which of the following is source of Non Sampling risk
a) Human Mistakes
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b) Applying audit procedures not appropriate to the objectives of audit

c) Misinterpreting the sample results
d) All of the above
446. Which of the following is more scientific
a) Statistical
b) Non-Statistical
c) Both (a) and (b)
447. In which of the following sampling, population is divided into number of groups
a) Block Sampling
b) Haphazard Sampling
c) Cluster Sampling
d) None of these
448. In which of the following sampling, sampling units are selected from population on the basis of
random number tables
a) Systematic Sampling
b) Random Sampling
c) Cluster Sampling
d) Both (b) and (c)
449. In which of the following sampling, sampling units are selected from population at fixed intervals
a) Random Sampling
b) Systematic Sampling
c) Block Sampling
d) Cluster Sampling
450. In which of the following sampling, sampling units are selected from population in a defined
block of consecutive items
a) Random Sampling
b) Systematic Sampling
c) Block Sampling
d) Haphazard sampling
451. In which of the following sampling, population is divided into number of groups
a) Random Sampling
b) Interval Sampling
c) Block Sampling
d) Cluster Sampling
452. Which of the following is a type of random sampling
a) Simple Random
b) Stratified Random
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c) Both (a) and (b)

d) Haphazard Random
453. In random sample, each item of population
a) Has equal chance of selection
b) Has varying chances of selection depending upon the placing of items
c) May have a chance of selection depends upon the auditor’s professional judgement
d) None of these
454. Simple random sample can be selected by
a) Random number bias
b) Help of computers
c) Just by picking up a number without any order
d) All of these
455. In stratified random sampling
a) Sample is taken from whole of the population
b) It requires special attention to judge contents of stratum
c) There is application of different concept and not an extension of simple random sampling
d) All of these
456. Tolerable error is _______________ in population that auditor is willing to _______________ for a given
sample size.
a) Minimum, Forego
b) Maximum, Forego
c) Minimum, Accept
d) Maximum, Accept
457. The kind of relationship between tolerable error and sample size is
a) Inverse
b) Direct
c) They both are same
d) There is no relationship as such
a) There are two types of sampling risk
b) Audit sample should be representative of the population’
c) These is direct relationship between sampling risk and audit sample
d) If auditor examines any population on the basis of test checking, there will always be a sampling risk
459. _________________ is the process of dividing a population into sub-population, each of which is a
group of sampling units, which have similar characteristics (often monetary value)
a) Cluster
b) Stratification
c) Sub-Division
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d) None of these
460. ____________ sample sizes are justified when the population is expected to be error free
a) Smaller
b) Large
c) (a) or (b)
SA 540
461. Which of the following SA deals with auditor’s responsibilities regarding accounting estimates
including fair value accounting estimates and related disclosure in an audit of financial
statements
a) SA 501
b) SA 540
c) SA 510
d) SA 550
462. Accounting estimate is ____________ of a monetary amount in _______________ a precise means of
measurement.
a) Exact amount, in the absence of
b) Approximation, in the absence of
c) Exact amount, in the presence of
d) Approximation, in the presence of
463. Which of the following in not an example of accounting estimate that may have high estimation
uncertainty:
a) Accounting estimates that are highly dependent upon judgement.
b) Accounting estimates that are not calculated using recognized measurement techniques.
c) Accounting estimate for outstanding expenses
d) Accounting estimates where results of auditor’s views of similar accounting estimates made in prior
period financial statements indicate a substantial difference between original accounting estimate
and actual outcome.
464. The susceptibility of an accounting estimate and related disclosure to an inherent lack of
precision in its measurement is called as:
a) Risk of material misstatements
b) Estimate uncertainty
c) Significant risk
d) Inherent risk.
465. Which of the following is false
a) The auditor shall obtain an understanding of requirements of standards of auditing to identify and
assess risk of material misstatements for accounting estimates
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b) The auditor shall obtain sufficient appropriate audit evidence about whether the accounting estimate
and their disclosure in financial statements is appropriate.
c) For accounting estimates that give rise to significant risk, auditor shall examine adequacy of
disclosure of their estimation uncertainty in the financial statements.
d) The auditor shall obtain written representation from management whether management believes
significant assumptions used by it in making accounting estimates are reasonable.
466. A lack of neutrality by management in the preparation and presentation of information is called:
a) Management’s point estimate
b) Management’s range
c) Estimation uncertainty
d) Management bias
467. Which of the following is not as example of accounting estimate
a) Warranty obligation
b) Outcome of long term contracts
c) Selection of accounting policies
d) Financial obligations/cost arising from litigation settlements and judgements.
468. Matters that the auditor may consider in evaluating the reasonableness of the assumptions used
by management include:
a) Whether individual assumptions appear reasonable
b) Whether the assumptions are interdependent and internally consistent
c) In the case of fair value accounting estimates, whether the assumptions appropriately reflect
observable market place assumptions
d) All of above
469. In case of accounting estimates, the auditor shall perform the following if he faces any significant
risk:
a) Examine alternative assumption
b) Develop a range
c) Consider whether management has been biased
d) All of above
470. If there is any material difference between the auditor’s range concluded by the auditor and the
estimate made by management in the financial statements, which client refuses to adjust, the
auditor shall express:
a) An unmodified opinion
b) A qualified opinion
c) Either a qualified opinion or adverse opinion
d) Either a qualified opinion or disclaimer of opinion
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SA 550
471. Which of the following SA deals with auditor’s responsibilities regarding related party
relationships and transactions when performing an audit of financial statements
a) SA 540
b) SA 550
c) SA 560
d) SA 570
472. A transaction conducted on such terms and conditions as between a willing buyer and a willing
seller who are unrelated and are acting independently of each other and pursuing their own best
interest is called as:
a) Arm’s length transaction
b) Related party transaction
c) Significant transaction
d) None of these
473. Related party transaction may be conducted
a) In the normal course of business
b) Not under normal market terms and conditions
c) With no exchange consideration
d) All of these
474. A related party transaction may have the following features:
a) A person or entity under common control
b) Owners who are close family members
c) Common key management
d) All of these
475. Which of the following is not a record or document that may provide information about related
party relationships and transactions:
a) Entity income tax return
b) Internal auditor’s report
c) Memorandum of Association
d) Life insurance policies acquired by the entity.
476. To identify and assess risk of material misstatements due to fraud or error that could result the
entity’s related party relationships and transaction the auditor shall:
a) Inquiry with management and others within the entity
b) Perform other risk assessment procedures
c) Both (a) and (b)
d) None of these
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477. If auditor identifies significant related party transactions, not conducted on the terms and
conditions like normal rate and market conditions then, he should evaluate-
a) Business rationale behind these transactions
b) Consistency of terms with management’s explanation
c) Accounting and disclosure of such transactions in financial statements
d) All of these
478. Statement(1)
As per SA-550, auditor should examine whether related party transactions have been
appropriately accounted for and disclosed in the financial statements as per financial reporting
framework; though he need not check authorization of such transactions by management.
Statement (2)
Auditor should consider whether management has appropriately accounted and disclosed the
related party transactions in their financial statements as per applicable financial framework as
it might affect his audit opinion.
a) Only Statement (1) is true
b) Only Statement (2) is true
c) Both the statements are true
d) None of the Statements is true
479. Statement(1)
Regarding related party relationships and transactions with them, auditor shall not obtain any
written representation; rather obtain extra evidences independently as he cannot rely on
written representations when it comes to related party transactions.
Statement (2)
As per SA-550, he should maintain documentation regarding name and nature of related party
relationships.
480. As per Accounting Standard 18, the facts to be disclosed in the financial statements by the
auditor shall include-
a) Related party name and nature of relationship
b) If there is a transaction between related parties, the nature of transaction, the price at which it has
been made and amount of transaction outstanding at the balance sheet date.
c) Both a and b
d) None of these
481. For identifying existence of related parties, apart from obtaining written representation from
management and TCWG, the auditor should also consider-
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a) Key man insurance policies

b) Income tax returns
c) Internal auditor’s reports
d) None of these
482. SA- ___________ pertains to management’s responsibilities to examine whether related party
transactions have been appropriately accounted for and disclosed in the financial statements.
a) SA-240
b) SA-550
c) SA-560
d) None of these
SA 560
483. SA- ____________relates to auditor’s responsibilities regarding subsequent events
a) SA-550
b) SA-560
c) SA-570
d) None of these
484. Subsequent events as per SA 560 are-
a) Events occurring between the date of financial statements and the date of auditor’s report
b) Facts that become known to the auditor after the date of auditor’s report
c) Both a and b
d) None of these
485. The auditor shall obtain sufficient and appropriate evidence that all events after the balance
sheet date but before or up to the date of __________ that require adjustment or disclosure in _______
have been identified.
a) Board’s approval; Board report
b) Board’s approval; financial statements
c) Auditor’s report; Board report
d) Auditor’s report; financial statements
486. Regarding subsequent events, auditor shall comply with the requirements given in SA-560. State
which of the following is not correct in this regard?
a) The auditor shall inquire the management and those charged with governance regarding the
subsequent events.
b) Auditor should read the entity’s subsequent interim financial statements, if any
c) The auditor may inquire entity’s lawyer regarding the pending cases and outcomes therefrom.
d) Auditor need not consider whether subsequent event may have an impact on going concern
assumption.
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487. Statement (1)

Generally, auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of auditor’s report.
Statement (2)
In case auditor comes to know about a fact after the date of auditor’s report, he should not
consider the same.
488. In case facts become known to the auditor after the date of audit report but before the date
financial statements are issued, then auditor shall-
a) Discuss with management and TCWG the matter whether there is need to amend financial statements
and treatment in financial statements.
b) Should not ask the management and TCWG to amend the financial statements in any case because it
may give rise to many complications.
c) He should ask the management and TCWG to inform about the situation to everyone in receipt of
previously issued financial statements and amend the financial statements.
d) He need not provide a new report even if facts are such that had it been known to the auditor at the
date of audit report, it might have affected his audit report.
489. Statement (1)
If auditor comes to know about the facts which are of such nature that had those been known to
the auditor at the date of audit report, it might have affected his audit report, and he asks the
management and TCWG to amend the financial statements but management does not amend the
financial statements, then, he should provide a new report.
Statement (2)
If he comes to know about the facts after the date financial statements are issued, then, he does
not have any obligation because financial statements have already been issued to third parties.
At the most he can provide a public notice.
490. A limited company is having a pending case filed against it on 31th March, 2018. A decision has
been received from the court on 14th April, 2018. i.e. after the balance sheet date.
a) It is a subsequent event
b) It should be considered by the management while preparing the financial statements.
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c) Auditor needs to check whether it has been dealt with in the financial statements as per applicable
financial reporting framework.
d) All of these
491. When after the financial statements have been issued, a fact becomes known to the auditor that,
had it been known to the auditor at the date of auditor’s report, may have caused the auditor to
amend the auditor’s report, the auditor shall
a) Discuss the matter with management and TCWG
b) Determine whether the financial statements need amendment
c) Inquire how management intends to address the matter in the financial statements
d) All of the above
SA 570
492. Statement (1)
Under the going concern assumption, an entity is viewed as continuing in business forever.
Statement (2)
General purpose financial statements are prepared on a going concern basis if management
neither intends to liquidate the entity nor to cease the operations
493. In case financial statements have not been prepared on a going concern basis,-
a) The fact need not be appropriately disclosed
b) The auditor shall comply with SA-570
c) Both a and b
d) None of these
494. Statement (1)
As per SA-570, the auditor need not consider whether there is material uncertainty about the
entity’s ability to continue as a going concern because it is management’s responsibility to
consider the same.
Statement (2)
The absence of any reference to going concern uncertainty in the auditor’s report may be viewed
as a guarantee as to the entity’s ability to continue as a going concern.
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495. As per SA-570, the auditor shall

a) Consider the events or conditions that may cast significant doubt on the entity’s ability to continue
as a going concern.
b) Plan and perform his audit considering professional skepticism.
c) Remain alert throughout the audit
d) All of these
496. The following type of indicators may give rise to a doubt on going concern assumption adopted
by management:
a) Financial indicators
b) Operating indicators
c) Other indicators
d) All of these
497. If the management has prepared financial statements based on going concern assumption but
auditor concludes that use of going concern basis is inappropriate, then auditor shall-
a) Express a qualified opinion
b) Express an adverse opinion
c) Disclaim his opinion
d) Either option (a) or option (b)
498. If auditor concludes that use of going concern basis of accounting is appropriate but a material
uncertainty exists which is adequately disclosed in the financial statements, then auditor shall-
a) Express a qualified opinion
b) Express an adverse opinion
c) Either option (a) and option (b)
d) None of these
499. If going concern basis of accounting is appropriate, however, there is a material uncertainty
which is not disclosed in the financial statements, then auditor shall express-
a) Qualified opinion
b) Adverse opinion
c) (a) or (b)
d) Disclaimer of opinion
500. The auditor’s report shall include a separate section under the heading “material uncertainty
relating to going concern” in case-
a) Adequate disclosure of a material uncertainty has been made in the financial statements
b) Adequate disclosure of material uncertainty is not made in the financial statements
c) Management may be unwilling to make or extend his assessment
d) All of these
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501. If auditor identifies events or conditions that may cast significant doubt on going concern, he
shall communicate the same to-
a) Management
b) TCWG
c) Option (a) and option (b) both
d) Either (a) or option (b)
502. The matters relating to going concern may-
a) Be a key audit matter as per SA 701
b) Should not be a key audit matter as per SA-701 because these are dealt only in SA-570
c) Key audit matters must not include going concern matters
d) None of these
503. While performing audit procedures to obtain audit evidence for management’s use of going
concern assumption, the auditor shall consider same time period as covered by management in
its assessment, but such period shall not be less than
a) 3 Months
b) 6 Months
c) 10 Months
d) 12 Months
504. Which of the following is financial event or condition which may cast significant doubt on the
entity’s ability to continue as going concern
a) Loss of franchise
b) Shortage of supplies
c) Negative operating cash flows
d) Non-compliance with statutory requirement
505. Which of the following is operating event or condition which may cast significant doubt on the
entity’s ability to continue as going concern
a) Loss of major market segment
b) Loss of key customer
c) Inability to pay creditors on due date
d) (a) and (b)
506. The auditor found that entity has recurring losses and has negative net worth, these are
indicators of-
a) Operating nature
b) Financial nature
c) Other indicators
d) All of these
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507. If auditor concludes that management’s use of going concern basis of accounting is appropriate
but material uncertainty exists which has been properly disclosed by management in financial
statement, the auditor shall
a) Introduce EOM para in his report in accordance with SA 706
b) Introduce separate section in his report under the heading ‘Material Uncertainty Related to Going
Concern’
c) Introduce OM para in his report in accordance with SA 706
d) Qualify his opinion in accordance with SA 705
508. In case of management’s unwillingness to make or extend its going concern assumption, the
auditor shall
a) Consider the implications for the auditor’s report
b) Withdraw from engagement
c) Introduce EOM para in his report in accordance with SA 706
d) Introduce OM para in his report in accordance with SA 706
509. When any event or condition is identified by auditor which may cast significant doubt on the
entity’s ability to continue as going concern, the auditor’s additional procedure shall include the
following
a) Communicating the facts to the regulatory auditory of the entity
b) Communicate the matter to the Central Government
c) Request written representation from management or TCWG regarding their future action and
feasibility of these plan
d) All of the above
SA 580
510. SA 580 relates to
a) External Confirmation
b) Audit Materiality
c) Written Representation
d) Going Concern
511. Written representation are obtained from
a) TCWG
b) Management
c) Third Parties
d) TCWG or Management
512. Written representation is a written statement by management provided to auditor
a) To confirm certain matters
b) To support other audit evidence
c) (a) or (b)
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d) None of these
513. Statement 1
Written representation do not include financial statements and supporting records etc.
Statement 2
Written representation should be addressed to the management and TCWG
a) Only Statement 1 is true
b) Only Statement 2 is true
514. If auditor concludes that there is a sufficient doubt about the integrity of management such that
written representation are not reliable or management does not provide the necessary written
representation, he shall
a) Express unmodified opinion
b) Disclaim an opinion
c) Express adverse opinion
d) Withdraw from engagement.
a) Written representation is a written statement by management or TCWG of the entity to the auditor
b) Written representation shall be dated before the date of auditor’s report
c) Written representations do not include financial statements or supporting books and records
d) Written representation is a substitution of audit procedures
a) Written representation is a written statement by management provided to auditor to confirm certain
matters or to support other audit evidence
b) Written representation includes financial statements or supporting books and records
c) Written representation shall be for all financial statements and period(s) referred to in auditor’s
report
d) Written representation shall be dated before the date of auditor’s report.
SA 600
517. SA __________ deals with using the work of another auditor
a) 600
b) 610
c) 620
d) 500
518. SA 600 is applicable to
a) Component’s auditor
b) Joint auditors
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c) Predecessor auditors
d) Option (a) and (c) both
519. Component includes
a) Branch
b) Subsidiary
c) Division
d) All of the above
520. ______ should advice __________ regarding use to made of his report, timetable for completion of his
work and significant accounting, auditing and reporting requirement----
a) Principal auditor, expert
b) Auditor, expert
c) Joint Auditor, other joint auditor
d) Principal auditor, another auditor
521. Principal auditor may require supplementary test to be performed by----
a) Another auditor
b) Himself
c) Either option (a) or option (b)
d) None of these as he cannot require conducting supplement test because audit has already been done
by another auditor
522. If there is modification in another auditor’s report, then principal auditor ---
a) Need not consider another auditor’s report
b) Should consider another auditor’s report but will not consider that while preparing his own audit
report
c) Consider whether modification in his own audit report is required
d) Ask the management to discuss with another auditor why he modified his audit report
a) There should be sufficient liaison between principal auditor and the other auditor.
b) The other auditor, knowing the context in which his work is to be used by the principal auditor,
should co-ordinate with the principal auditor
c) Other auditor also includes internal auditor
d) The principal would not be responsible in respect of the work entrusted to the other auditor
524. Principal auditor should __________ his audit opinion if he cannot use another auditor’s work and
is not able to perform sufficient additional procedures-
a) Qualify
b) Disclaim
c) Adverse
d) Qualify or disclaim
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525. Statement (1)

Principal auditor may use the work of another auditor in accordance with SA 600 and there is no
need to mention about division of responsibility in his audit report.
Statement (2)
SA 600 is applicable to all the components whether material or immaterial as components by
their very nature need to be considered by the principal auditors
a) Only statement 1 is true

b) Only statement 2 is true
d) None of the statement is true
SA 610
526. Which of the following SA deals with auditor’s responsibilities for using the work of internal
auditor
a) SA 600
b) SA 610
c) SA 620
d) SA 402
527. SA 610 deals with the external auditor’s responsibilities if using the work of internal auditors.
This includes
a) Using the work of internal audit function in obtaining audit evidence
b) Using internal auditors to provide direct assistance under the direction, supervision and review of
external auditor.
c) (a) and (b)
d) None of these
528. The external auditor shall determine whether work of internal audit function can be used for
purpose of audit by evaluating of following
a) The extent to which internal audit function’s organization status and relevant policies and
procedures support the objectivity of internal auditors
b) The level of competence of the internal audit function
c) Whether the internal audit function applies a systematic and disciplined approach including quality
control
d) All of the above
529. The external auditor shall perform audit procedures on the body of work of internal auditor that
the external auditor plan to use to determine its adequacy for the purpose of audit, including
evaluating whether
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a) The work of internal auditor had been properly planned, performed, supervised, reviewed and
documented
b) Sufficient appropriate evidence had been obtained to draw reasonable conclusions
c) Both (a) and (b)
d) Internal auditor has necessary competency
530. If using internal auditor to provide direct assistance is not prohibited by law or regulation and
external auditor plans to use internal auditors to provide direct assistance on the audit, the
external auditor shall consider
a) The amount of judgement involved in planning and performing relevant audit procedures and
evaluating the audit evidence gathered
b) The risk of material misstatement assessed
c) Threats to the objectivity and level of competence to internal auditors
d) All of the above
531. Which of the following in incorrect
a) The external auditor may use internal auditor to provide direct assistance w.r.t. area that involve
significant judgements in audit
b) The external auditor shall not use internal auditor to provide direct assistance w.r.t. area where risk
of material misstatements is highly assessed by auditor
c) Both (a) and (b)
d) None of these
SA 620
532. Statement (1)
Auditor’s expert is an individual and organization possessing expertise in a field including
accounting and auditing whose work is used by auditor in obtaining evidences.
Statement (2)
Auditor’s expert as per SA 620 needs to be an external expert so as to maintain his independence.

533. SA 620 deals with auditors responsibilities regarding using the work of –
a) Managements expert
b) Auditors expert
c) Option (a) or (b)
d) Both option (a) and option (b)
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534. Statement 1
If auditor uses the work of auditor expert, his responsibility to express opinion is reduced to the
extent he has used expert’s work.
Statement 2
As per SA, the sole objective of auditor is to determine whether to use the work of auditor’s
expert or not.
535. Auditor’s expert may be
a) Auditor’s internal expert
b) Auditor’s external expert
c) (a) or (b)
d) Management’s expert
536. Auditor’s internal expert may be
a) Any partner of auditor’s firm
b) Any staff of auditor’s firm
c) (a) or (b)
d) Management’s expert
a) An auditor’s internal expert is subject to quality control policies and procedures of firm in accordance
with SQC-1
b) An auditor’s internal expert is subject to quality control policies and procedures of firm in accordance
with SQC-1
c) Both (a) and (b)
d) None of these
538. Which of the following is source of information for evaluating competency, capability and
objectivity of auditor’s expert
a) Personal experience with previous work of that expert
b) Discussion with that expert
c) Expert’s qualification, membership of professional body
d) All of the above
539. Which of the following is not a content of written agreement which is entered with expert before
appointing him
a) The nature, scope and objectives of expert’s work
b) The Scope and objectives of audit
c) The nature, timing and extent of communication between auditor and expert
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d) Form of any report to be provided by that expert

540. Auditor should be aware of ________ that may _________ expert’s independence----
a) Relationships, hamper
b) Education, increase
c) Education, decrease
d) Knowledge, enhance
541. The auditor should agree with auditor’s expert _____ before relying on him.
a) In writing
b) Orally
c) Either option (a) or option (b)
d) Option (a) and subsequently option (b)
542. If the auditor evaluates whether the auditors expert work is adequate, he shall consider----
a) Reasonableness of experts findings and consistency with other evidences
b) Reasonableness of assumptions used by expert
c) Reasonableness and accuracy of source data
d) All of these
543. Auditor shall not refer to the work of auditor’s expert in the report containing---
b) Modified opinion
c) Both option (a) and option (b)
Forming an Opinion, SA 700 and 705

544. In order to form an opinion, the auditor shall take into account:
a) Whether sufficient appropriate audit evidence has been obtained
b) Whether uncorrected misstatements are material, individually or in aggregate
c) Evaluation of accounting estimations
d) All of above
545. In order to form the opinion, the auditor shall conclude as to whether the auditor has obtained
______________ about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error.
a) Reasonable assurance
b) Absolute assurance
c) Limited assurance
546. Which of the following is a not a type of modified opinion
b) Adverse opinion
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d) None of these
547. The auditor shall express________________ opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are
both material and pervasive to the financial statements.
a) Adverse
b) Qualified
c) Disclaimer
548. When auditor concludes that financial statements as a whole are free from material
misstatements and he has no reservation for any material item of the financial statements, he
shall express
b) Unmodified opinion
c) Adverse opinion
d) Disclaimer of opinion
549. When auditor concludes that financial statements are not free from material misstatements and
effect of material misstatements is not pervasive, he shall express
b) Disclaimer of opinion
c) Qualified opinion
d) Adverse opinion
550. If auditor is unable to obtain sufficient appropriate audit evidence with respect to any material
item(s) of the financial statements and possible effect if material but not pervasive, he shall
express
b) Adverse opinion
d) Qualified opinion
551. If auditor is unable to obtain sufficient appropriate audit evidence with respect to any material
item(s) of the financial statements and possible effect if pervasive, he shall express
b) Adverse opinion
d) Qualified opinion
552. Which of the following SAs deals with auditor’s responsibilities for forming an opinion and
reporting on financial statements
a) SA 700
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b) SA 701
c) SA 705
d) SA 706
553. Which of the following is title of auditor’s report
a) Auditor’s Report
b) Independent Auditor’s Report
c) Audit Report on the Financial Statements
d) Reporting on the Financial statements
554. As per SA 700, which of the following is addressee of auditor’s report
a) Those Charged With Governance of the Entity
b) Members of the Entity
c) It depends upon circumstances of the engagement
d) Central Government
555. If auditor concludes an unmodified opinion, which heading will auditor use for opinion section
a) Opinion
b) Unmodified Opinion
c) Unqualified Opinion
d) Reporting on True and Fair View
556. To form an opinion, auditor conclusions include which of the following
a) The auditor’s conclusions in accordance with SA 330
b) The auditor’s conclusions in accordance with SA 450
c) Whether financial statements are prepared in accordance with applicable FRF
d) All of the above
557. Under which of the following section auditor shall mention in his report that he has conducted
audit engagement in accordance with SAs issued by ICAI and has complied with code of ethics
and relevant ethical requirements
a) Opinion
b) SA and Code of Ethics
c) Compliance with Standards
d) Basis for Opinion
558. Which of the following is not content of basis of opinion section
a) Name of the entity
b) Statement that audit was conducted in accordance with SAs
c) Statement that auditor believes that audit evidence the auditor has obtained is sufficient and
appropriate to provide a basis for the auditor’s opinion.
d) Reference to the section of auditor’s report that describes the auditor’s responsibilities under the
SAs.
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559. Under which of the following heading, auditor shall report those matters in his report which are
required to be reported by him as his duties as per the law and regulation basis upon which audit
has been conducted
a) Opinion
b) Basis for Opinion
c) Reporting on the Audit of Financial Statements
d) Reporting on Other Legal and Regulatory Requirements
560. The date in auditor’s report represent the date
a) Balance Sheet Date
b) Date when financial statements are approved by management of the entity
c) Date when audit report is signed by auditor
d) Date when audit report is submitted to management of the entity.
561. The place in auditor’s report represent
a) Address of auditor
b) Name of city, where audit report has been signed
c) Name of city, where office of entity is situated
d) None of these
562. If partnership firm is appointed as auditor, audit report shall be signed by
a) Any partner of the firm
b) Any practicing chartered accountant partner of the firm
c) All the partners of the firm
d) Any partner or any CA employee of the firm.
563. Which of the following is not mentioned along with signing in auditor’s report
a) Membership number of individual/partner
b) Firm’s Registration Number
c) Date & Place
d) Time
564. The opinion section of the auditor’s report shall:
a) Identify the entity whose financial statements have been audited;
b) State that the financial statements have been audited;
c) Identify the title of each statement comprising the financial statements
d) All of the above
565. Which of the following SAs deals with auditor’s additional responsibilities w.r.t modified opinion
a) SA 700
b) SA 701
c) SA 705
d) SA 706
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566. When auditor modifies the opinion the opinion the auditor shall give reason of modified opinion
in a section under the heading
a) Basis for Opinion
b) ‘Basis for Qualified Opinion’ or ‘Basis for Adverse Opinion’ or ‘Basis for Disclaimer of Opinion’ as
appropriate
c) Reason for Modified Opinion
d) None of these
SA 701
567. Which of the following SAs deals with auditor’s responsibility to communicate key audit matters
in the auditor’s report
a) SA 701
b) SA 705
c) SA 706
d) SA 700
568. _________________ are those matters that in the auditor’s professional judgement, were of most
significance in the audit of the financial statements of the current period.
a) Significant Matters
b) Key Audit Matters
c) Noteworthy Audit Matters
d) Remarkable Audit Matters
569. Key Audit Matters are selected from matters
a) Communicated to members of engagement team
b) Communicated to management of the entity
c) Communicated to TCWG of the entity
d) Communicated to CG.
570. In making determination of key audit matters, the auditor shall consider the following
a) Areas of higher assessed risk of material misstatements or significant risk identified in accordance
with SA 315
b) Significant auditor judgements relating to area in the financial statements that involved significant
management judgement, including accounting estimates that have been identified as having
estimation uncertainty.
c) The effect on audit of significant events or transaction that occurred during the period.
d) All of the above
571. The auditor shall describe each key audit matter, using an appropriate subheading, in a separate
section of the audit report under the heading_____________________
a) Audit Matters
b) Key Audit Matters
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c) Any appropriate heading as per the auditor’s judgement

572. Which of following statement is incorrect’
a) Communicating key audit matters in the auditor’s report is not a separate opinion on individual
matters.
b) SA 701 also applies when the auditor is required by law or regulation to communicate key audit
matters in the auditor’s report.
c) The purpose of communicating key audit matters to enhance the communicative value of the
auditor’s report by providing greater transparency about the audit that has been performed.
d) Key audit matter is a substitute for expressing a modified opinion.
573. The auditor shall describe each key audit matter in the auditor’s report unless
a) Law or regulation precludes public disclosure about the matter
b) In extremely rare circumstances, the auditor determines that the matter should not be
communicated in the auditor’s report because the adverse consequences of doing so would
reasonably be expected outweigh the public interest benefits of such communication
c) (a) or (b)
d) None of these
574. The auditor’s report shall not include a Key Audit Matter section in accordance with SA 701, in
case of
a) Disclaimer of Opinion
b) Adverse Opinion
c) Qualified Opinion
d) All of the above
575. Which of the following sequence in audit report is correct
a) Title, Opinion section , Basis For Opinion section, Addressee, Key Audit Matter section
b) Title, Addressee, Basis For Opinion section, Opinion section, Key Audit Matter section
c) Title, Addressee, Key Audit Matter section, Opinion section, Basis For Opinion section
d) Title, Addressee, Opinion section, Basis for opinion section, Key Audit Matter section.
SA 706
576. Which of the following SA deals with auditor’s responsibility to communicate emphasis of matter
and other matter paragraph in independent auditor’s report
a) SA 700
b) SA 701
c) SA 705
d) SA 706
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577. ________________ is a paragraph included in the auditor’s report that refers to a matter appropriately
presented or disclosed in the financial statements that, in the auditor’s judgement, is of such
importance that is fundamental to user’s understanding of the financial statements.
a) Emphasis of Matters Paragraph
b) Other Matters Paragraph
c) Key Audit Matter
578. ________________ is a paragraph included in the auditor’s report that refers to a matter other than
those presented or disclosed in the financial statements that, in the auditor’s judgement, is of
such importance that is fundamental to user’s understanding of audit, the auditor’s
responsibilities or the auditor’s report.
a) Emphasis of Matters Paragraph
b) Other Matters Paragraph
c) Key Audit Matter
579. To disclose the fact that financial statements of the prior period have been audited by
predecessor auditor, the auditor shall introduce _____________________ paragraph in his report.
a) Emphasis of Matter
b) Other Matter
c) Key Audit Matter
580. To disclose an early application by entity (where permitted) of a new accounting standards that
has a pervasive effect on the financial statements in advance of its effective date, auditor shall
introduce_________________ paragraph in his report.
a) Emphasis of Matter
b) Other Matter
c) Key Audit Matter
d) Basis for Modified Opinion
581. Emphasis of matter paragraph shall in auditor’s report
a) Immediately following opinion section
b) Immediately following Basis for opinion section
c) Immediately following management’s responsibility section
d) Immediately following auditor’s responsibility section
SA 710
582. SA _______ relates to comparative information.
a) 520
b) 705
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c) 710
d) 720
583. ____________ financial statements include comparative information which are included for
comparison with current financial statements but if audited are referred to in the auditor’s
opinion----
a) Comparative
b) Prior period
c) Corresponding
d) All of these
584. __________ framework means comparative information is included as an integral part of current
period financial statements---
a) Corresponding figures
b) Comparative financial statements
c) Both option (a) and option (b)
585. As per SA 710, the auditor shall also consider—
a) SA 510
b) SA 560
c) SA 720
d) Both (a) and (b)
586. In SA-710, if there is a doubt of material misstatement in comparative information, then auditor
shall not-
a) Apply professional skepticism
b) Perform additional audit procedures
c) Obtain sufficient appropriate evidences regarding existence of material misstatements
d) None of these
587. If the prior year’s financial statements were audited by another auditor, then current year
auditor shall as per SA 710, state in other matters paragraph---
a) That last year financial statements are audited by predecessor auditor
b) Type of opinion expressed by him
c) Date of that report
d) All of these
588. If last year financial statements are unaudited, then as per SA 710 the auditor shall state in ______
section of audit report that corresponding financial statements are unaudited---
a) Auditor’s responsibility
b) Opinion
c) Emphasis of matter
d) Other matters
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589. Statement (1)

If client has disclosed comparative information as per corresponding figures framework, the
auditor shall not refer to corresponding figures in any case.
Statement (2)
In the case of comparative financial statements, the audit opinion shall refer to each period for
which financial statements are presented and on which opinion is expressed.
SA 720
590. SA 720 deals with the auditor’s responsibility in relation to__________ in ________
a) Comparative information, financial statements
b) Other information, annual report
c) Financial information, financial statements
d) Other information, last year’s financial statements
591. As per SA 720, the documents containing audited financial statements refers to----
a) Agenda of general meeting
b) Annual reports
c) Audit reports
d) All of these
592. As per SA 720, other information can be ___________ information which is included in a document
containing audited financial statements and auditor’s report thereon---
a) Financial
b) Non-financial
c) Financial and Non-financial
d) None of these
593. Statement (1)
As per SA 720, inconsistency means other information that is unrelated to matters appearing in
the audited financial statements that is incorrectly stated or presented.
Statement (2)
As per SA 720, misstatement of fact refers to other information that contradicts information
contained in the audited financial statements.
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594. If auditor concludes that revision of other information is necessary but management refuses to
make the revision, then auditor shall include this matter in---
a) Opinion paragraph
b) Other matter paragraph
c) Emphasis of matter paragraph
d) None of these
595. If auditor after reading the other information as per SA 720 becomes aware of an apparent
material misstatement of fact, the auditor shall---
a) Discuss the matter with management
b) Request the management to consult with a qualified third party
c) Shall consider the advice received from entity’s legal counsel
d) All of these
596. As per SA 720, which of the following is not considered ‘Other Information’ on which the auditor
may have no obligation to report but which he must check for material misstatements?
a) Names of officers and directors
b) Management divisional budgets
c) Financial summary highlights
d) Report by management on operations.
597. As per the requirements of SA 720, if the auditor concludes that a material misstatement of other
information exists, the auditor shall request management to correct the other information
a) If management agrees to make the correction, the auditor shall mention the fact in the Key Audit
Matter.
b) If management agrees to make the correction, the auditor shall determine that the correction has
been made.
c) If management refuses to make the correction, the auditor shall modify the audit opinion.
d) Both (a) and (c)
598. As per the requirements of SA 720, if the auditor concludes that a material misstatement exists
in other information obtained prior to the date of the auditor’s report, and the other information
is not corrected after communicating with those charged with governance, the auditor shall take
a) Considering the implication for the auditor’s report and communicating with regulatory authorities
about how the auditor plans to address the material misstatements in the auditor’s report.
b) Considering the implications for the auditor’s report and communicating with regulatory authorities
about how the auditor plans to address the material misstatement in the auditor’s report.
c) Withdrawing from the engagement, where withdrawal is possible under applicable law or regulation.
d) Either (b) or (c)
599. The auditor’s report shall include a separate section with heading __________________. When at the
date of auditor’s report: (a) For an audit of financial statements of a listed entity, the auditor has
obtained, or expressed to obtain, the other information; or (b)For an audit of financial
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statements of an unlisted corporate entity, the auditor has obtained some or all of the other
information.
a) Key Audit Matter
b) Emphasis of Matter Paragraph
c) Other Matter Paragraph
d) Other Information
600. If the auditor is required by a relevant law or regulation to refer to the other information in the
auditor’s report using a specific layout or wording, the auditor’s report shall refer to Standards
on Auditing only if the auditor’s report includes, at a minimum:
a) Identification of the other information obtained by the auditor prior to the date of auditor’s report.
b) A description of the auditor’s responsibilities with respect to the other information.
c) All of the above
MISCELLANEOUS MCQ ON SAs

601. Which of the following is not an example of uncertainties that might be emphasized in an
emphasis of a matter paragraph?
a) Matters affecting the comparability of financial statements with those of previous years.
b) The existence of related party transaction.
c) Important accounting matters occurring subsequent to the balance sheet date.
d) Internal control deficiencies.
602. X. a Chartered Accountant was engaged by PQR & Co Ltd for auditing their accounts. He sent his
letter of engagement to the Board of Directors, which was accepted by the Company. In the
course of audit of the company, the auditor was unable to obtain sufficient appropriate audit
evidence regarding receivables. The client requested for a change in the terms of engagement.
a) Auditor need to issue a revised engagement letter to PQR & Co.
b) Auditor should not agree for change in the terms as no justified reason exists.
c) Auditor may ask for written representation from TCWG in his regard
603. Timely communication throughout the audit contributes to the achievement of robust two-way
dialogue between those charged with governance and the auditor. However, the appropriate
timing for communication will vary with the circumstances of the engagement. Communicating
regarding significant difficulty encountered during the audit may
a) be made early in the audit engagement
b) be made as soon as practicable if TCWG are able to assist the auditor to overcome the difficulty.
c) Be made as soon as practicable if it is likely to lead to a modified opinion.
d) Both (b) and (c).
604. OP & Associates are the statutory auditors of BB Ltd. BB Ltd is a listed company and started its
operations 5 years back. The field work during the audit of the financial statements of the
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company for the year ended March 31, 2018 got completed on May 1, 2018. The auditor’s report
was dated May 12, 2018. During the documentation review of the engagement, it was observed
that the engagement quality control review was completed on May 15, 2018. Engagement
partner had completed his reviews in entirely by May 10, 2018. Which of the following is correct?
a) Signing of auditor’s report i.e. on May 12, 2018 is completely in order as Engagement Quality Control
Review is done only after issue of audit report.
b) Signing of auditor’s report i.e. on May 12, 2018 is completely in order as Engagement Partner had
completed his reviews in entirely by May 10, 2018.
c) Signing of auditor’s report i.e. on May 12, 2018 which is before the completion of review engagement
quality control review i.e. May 15, 2018, is not in order.
605. M/s Sureshchandra & Co has been appointed as an auditor of SC Ltd for the FY 2018-19. CA
Suresh, one of the partners of M/s Sureshchandra & Co, completed entire routine audit work by
29th May, 2019. Unfortunately, on the very next morning, while roving towards office of SC Ltd to
sign final audit report, he met with a road accident and died. CA Chandra, another partner of M/s
Sureshchandra & Co, therefore, signed the accounts of SC Ltd, without reviewing the work
performed by CA Suresh. Which of the following is correct?
a) CA. Chandra is not allowed to sign the audit report as he has not performed routine audit work.
b) CA. Chandra is not allowed to sign the audit report as the firm M/s Sureshchandra & Co cease to exists
due to death of one of the partners and a casual vacancy arises in the office of auditor of SC Ltd.
c) CA. Chandra is allowed to sign the audit report, though will not be responsible for expressing the
opinion. He may rely on the work performed by CA Suresh.
d) CA Chandra is allowed to sign the audit report, though will be responsible for expressing the opinion.
He may rely on the work performed by CA Suresh provided he review the work performed by CA.
Suresh.
606. KRP Ltd at its annual general meeting, appointed Mr. X, Mr. y and Mr. Z as joint auditors to
conduct auditing for the FY 2017-18. For the valuation of gratuity scheme of the company, Mr. X,
Mr. Y and Mr. Z wanted to refer their own known Actuaries. Dur to difference of opinion, all the
joint auditors consulted their respective Actuaries. Subsequently, major difference was found in
the actuary reports. However. Mr. X agreed to Mr. Y’s actuary report, though, Mr. Z did not. Mr. X
contends that Mr. Y’s actuary shall be considered in the audit report due to majority of votes.
Now, Mr. Z is in dilemma. Select which of the following is correct?
a) Contention of Mr. X is correct as SA 299 requires a single report based on majority.
b) Contention of Mr. X may be considered as SA 299 does not provide any provision in relation to such
situation.
c) Contention of Mr. X is not acceptable as SA 299 requires separate reports in a situation where opinion
of joint auditors differs.
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607. ABC & Co. and DEF & Co. Chartered Accountant firms were appointed as joint auditors of Good
Health Care Ltd for 2009-10. A special audit was conducted under section 233A of the Companies
Act, 1956during March 2011 and observed gross understatement of revenue. The revenue
aspects were looked after by DEF & Co; but there was no documentation for the division of work
between the joint auditors. Select which of the following is correct?
a) Liability for negligence will arise only on DEF & Co.
b) Liability for negligence will arise only on ABC & Co.
c) Both the joint auditors are jointly and severally responsible.
d) No liability arises on joint auditors as company was liable to maintain documentation for the division
of the work between the joint auditors.
608. Y & Co; Chartered Accountants have come across in the course of audit of a company that certain
machinery had been imported for production of new product. Although the auditors have
applied the concept of materiality for the financial statement as a whole, they now want to re-
evaluate the materiality concept for this transaction involving foreign exchange. Select which of
the following is correct?
a) Auditor cannot re-evaluate the materiality.
b) Materiality can be revised, provided a written confirmation is obtained from the TCWG
c) Materiality can be revised only after revising the terms of engagement with the management and
recording the terms in letter of engagement.
d) Auditor shall revise the materiality and document it in the working papers.
609. In most cases, audit evidence from a previous audit’s substantive procedures provides little or
no audit evidence for the current period. There are , however, exceptions, where, it may be
appropriate to use audit evidence from a previous audit’s substantive procedures if that
evidence and related subject matter have not fundamentally changed, and
a) The matter is mentioned in the audit report in the “Emphasis of Matter” Para in the audit report.
b) The matter is mentioned in the audit report in the “Other Matter” Para in the audit report.
c) The matter is mentioned in the audit report in the “Key Audit Matters” Section in the audit report.
d) Audit procedures have been performed during the current period to establish its continuing
relevance.
610. The auditor’s decision on whether to rely on audit evidence obtained in the previous audits for
controls that (a) have not changed since they were last tested; and (b) are not controls that
mitigate a significant risk; is a matter of professional judgment. In addition, the length of time
between retesting such controls is also a matter of professional judgment, but is required to be
at least
a) Once in every year
b) Once in every two year
c) Once in every third year
d) Once in every fifth year
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611. LMN Ltd. supplies navy uniforms across the country. The company has 4 warehouses at different
locations throughout the India and 5 warehouses at the borders. The major stocks are generally
supplied from the borders. LMN Ltd. appointed M/s OPQ & Co. to conduct its audit for the
financial year 2017-18. Mr. O, partner of M/s OPQ & Co., attended all the physical inventory
counting conducted throughout the India but could not attend the same at borders due to some
unavoidable reason. In this situation, the auditor shall
a) Perform audit procedures to obtain audit evidence about whether changes in inventory between the
count date and the date of the financial statements are properly recorded
b) Shall make or observe some physical counts on an alternative date, and perform audit procedures on
c) Perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the
existence and condition of inventory. If it is not possible to do so, the auditor shall modify the opinion
in the auditor’s report in accordance with SA 705
d) Obtain sufficient appropriate audit evidence regarding the existence and condition of that inventory
by requesting confirmation from the third party as to the quantities and condition of inventory held
on behalf of the entity
612. Moon Limited replaced its statutory auditor for the FY 2016-17. During the course of
audit, the new auditor found a credit item of Rs. 5 Lakhs. On enquiry, company explained
him that it is a very old credit balance. The creditor had neither approached for the
payment nor he is traceable. Under the circumstances, no confirmation of the credit
balance is available.
a) Auditor should obtain a written representation in this regard and need to report the matter in the
audit report in “Emphasis of Matter Para”
b) Auditor need not to perform any procedure considering the matter as a limitation on scope and issue
a qualified opinion in this regard
c) Auditor should apply alternative audit procedures to get documentary proof for the transaction/s
and should not rely entirely on the management representation. If not satisfied, he should include the
matter as Key Audit Matter in the audit report
d) Auditor should examine the validity of the credit balance as appeared in the company’s financial
statements by applying alternative audit procedures to get documentary proof for the transaction. If
not satisfied, he should include the matter by way of a qualification in his audit report to the members
613. You are the auditor of Easy Communications Ltd. for the year 2017-18. The inventory as at the
end of the year i.e. 31.3.18 was Rs. 2.25 crores. Due to unavoidable circumstances, you could not
be present at the time of annual physical verification. In this situation, the auditor shall
a) Perform audit procedures to obtain audit evidence about whether changes in inventory between the
count date and the date of the financial statements are properly recorded
b) Shall make or observe some physical counts on an alternative date, and perform audit procedures on
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c) Perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the
existence and condition of inventory. If it is not possible to do so, the auditor shall modify the opinion
in the auditor’s report in accordance with SA 705
d) Obtain sufficient appropriate audit evidence regarding the existence and condition of that inventory
by requesting confirmation from the third party as to the quantities and condition of inventory held
on behalf of the entity
614. Expectations are developed by identifying plausible relationships that are reasonably expected
to exist based on the auditor’s understanding of the client and of the industry. These
relationships may be determined by comparisons with the following sources:
a) Data from various company divisions
b) Non- financial information
c) Data from national cross-industry surveys
d) Comparable information for future periods
615. If the user auditor plans to use a Type 1 or Type 2 report as audit evidence to support the user
auditor’s understanding about the design and implementation of controls at the service
organization, the user auditor shall:
a) Evaluate whether the description and design of controls at the service organization is at a date or for
a period that is appropriate for the user auditor’s purposes
b) Evaluate the sufficiency and appropriateness of the evidence provided by the report for the
understanding of the user entity’s internal control relevant to the audit
c) Determine whether complementary user entity controls identified by the service organization are
relevant to the user entity
d) All of the above
616. The auditor shall communicate on a timely basis all misstatements accumulated during the audit
with the appropriate level of management, unless prohibited by law or regulation. The auditor
shall request management to correct those misstatement. If management refuses to correct
some or all of the misstatements communicated by the auditor, the auditor shall:
a) Withdraw from the engagement and inform to appropriate authorities.
b) Obtain an understanding of management’s reason for not making the corrections.
c) Modify the audit opinion
d) Any of the above.
617. Y Ltd engaged an actuary to ascertain its employee cost gratuity and leave encashment liabilities.
As the auditor of Y Ltd; you would like to use the report of actuary as an audit evidence and for
this purpose auditor is required to evaluate the competence, capability and objectivity of the
expert. Sources from where information about the competence, capability and objectivity of
expert may be obtained include:
a) Personal experience with previous work
b) Knowledge of that expert’s qualification, membership of a professional body or industry association,
license to practice or other forms of external recognition.
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c) Published papers or books written by that expert.

618. If the auditor assess a risk of material misstatement regarding litigation or claim that have been
identified, or when audit procedures performed indicate that other material litigation or claims
may exist, the auditor shall, in addition to the procedures required by other SAs, seek direct
communication with the entity’s external legal counsel. If it is considered unlikely that the
entity’s external counsel will respond appropriately to a letter of general inquiry, for example if
the professional body to which the external legal counsel belongs prohibits response to such a
letter, the auditor may
a) Seek direct communication through a letter of specific inquiry.
b) Ask management to assess the outcome of each identified litigation and claim.
c) Modify the opinion.
d) Communicate the matter in the audit report through “Key Audit Matter” Section.
619. Substantive analytical procedures have certain advantages. Which of the following is an
advantage of substantive analytical procedures?
a) Analytical procedures are effective when applied to the financial statements of the entity as a whole
rather than when applied to financial statements of components of a diversified entity.
b) Obtaining data used to develop an expectation and ensuring the reliability of the data at an
appropriate level of disaggregation can amount for a substantial amount of the time.
c) Substantive analytical procedures deliver the desired results every year.
d) Substantive analytical procedures often enable auditors to focus on a few key factors that affect the
account balance.
620. R & Co is the statutory auditor of S Ltd for the financial year ended on 31st March 2017, S Ltd had
disclosed in the notes (Note No. X) “The State Pollution Control Board” had ordered the closure
of the company’s only manufacturing plant on the ground that it is environmentally damaging,
which the company had challenged in a law suit. Pending the outcome of the law suit the financial
statements are prepared on a going concern basis”. Select which of the following is correct?
a) As disclosure is given in financial statements of S Ltd; auditor should express an unmodified opinion
and the auditor’s report shall include a separate section under the heading ‘Material Uncertainty
Related to Going Concern”.
b) As disclosure is given in financial statements of S Ltd; auditor should express an unmodified opinion
and the auditor’s report shall include a separate section under the heading “Emphasis of Matter”.
c) Disclosure given in the financial statements are of no relevance, auditor need to express an adverse
opinion.
d) Disclosure given in the financial statements are of no relevance, auditor need to disclaim the opinion.
621. CA. Yuvi has been appointed as an auditor of Ajanta Ltd; a textile entity. While going
through the employee records of the company, CA Yuvi identified that most of the
laborers are of the age between 11-12 years. On enquiring the same, the management
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argues that there is no such boundation with regard to employment of such lower age
children and contends that it sis out of the scope of audit as well as to check such
compliance. Select which of the following is correct?
a) Contention of the management is correct and auditor need not to inquire these matters as it is out of
scope of audit.
b) Auditor should ensure the disclosure of the fact to the relevant authorities and modify his opinion.
c) Auditor should communicate the matter to the TCWG and nee not to modify the opinion in relation
to this matter.
d) Auditor should ensure the disclosure of the fact and provision for the cost of fines, litigation or other
consequences. If the non-compliance may have a material effect on financial statements, he should
modify his opinion accordingly.
622. M/s Innocent Limited has entered into a transaction on 25th February, 2018, near year-end,
whereby it has agreed to pay Rs. 5 lakhs per month to Mr. Yuvraj as annual retainer-ship fee for
"engineering consultation". No amount was actually paid, but Rs. 60 lakhs is provided in books
of account as on March 31, 2018.
Your inquiry elicits a response that need-based consultation was obtained round the year, but
there is no documentary or other evidence of receipt of the service. As the auditor of M/s
Innocent Limited, what would be your approach?
a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material
misstatement due to fraud could exist.
b) Auditor should consider the requirements of section 143(12) of the Companies Act, 2013 as to
reporting of fraud to the CG.
c) Auditor should consider the requirements of Para 3(X) of CARO, 2016 as to reporting of fraud.
623. During the course of audit of Star Limited the auditor received some of the confirmation of the
balances of trade payables outstanding in the balance sheet through external confirmation by
negative confirmation request. In the list of trade payables, there are number of trade payables
of small balances except one, old outstanding of Rs. 15 Lacs, of whom, no confirmation on the
credit balance received. Select which of the following is correct?
a) Negative confirmation requests require response from a third party only when the third party
disagree. If no response received from third party, auditor may consider that third party agree and
no further procedure required.
b) Auditor should again send the positive confirmation request so as to confirm the balance.
c) Considering the materiality of the account balance, the auditor may examine subsequent cash
disbursements or correspondence from the third parties, and other record, such as goods received
notes.
624. CA Mr Jack a recently qualified practicing Chartered Accountant got his first audit
assignment of Future (P) Ltd for the FY 2018-19. He obtained all the relevant appropriate
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audit evidence for the items related to Statement of Profit and Loss. However, while
auditing the Balance Sheet items, CA Jack left out obtaining appropriate audit evidence
say, confirmations, from the outstanding account receivable amounting Rs. 1 Crore,
continued as it from the last year, on the affirmation of the management that there is no
receipts and future credits during the year. CA Jack, therefore, excluded from the audit
programme, the audit of accounts receivable on the understanding that it pertains to the
preceding year which was already audited by predecessor auditor. Select which of the
following is correct?
a) Mr. Jack has no responsibility in relation to opening balance if prior period financial statements were
audited by predecessor auditor and hence the approach of Mr. Jack is correct.
b) Mr. Jack is required to obtain sufficient appropriate audit evidence regarding opening balances and
in the present case, he should insists for management representation for their views. As per code of
ethics, Mr. X is guilty of other misconduct for not exercising the due diligence.
c) Mr. X is required to obtain sufficient appropriate audit evidence regarding opening balances and in
the present case he should insist for management representation for their views. As per code of
ethics, Mr. X is guilty for professional misconduct for not exercising the due diligence.
625. As per the requirement of SA 530, if the auditor is unable to apply the designed audit
procedures, or suitable alternative procedures, to select the item, the auditor shall:
a) Shall treat that item as a deviation from the prescribed control, in the case of test of details, or a
misstatement, in the case of test of controls.
b) Shall treat that item as a deviation from the prescribed control, in the case of test of controls and test
of details.
c) Shall treat that item as a misstatement in the case of test of controls and test of details.
d) Shall treat that item as a deviation from the prescribed control, in the case of test of controls, or a
misstatement, in the case of test of details.
626. Where management has changed an accounting estimate, or the method in making it, from the
prior period based on a subjective assessment that there has been a change in circumstances,
the auditor may
a) Conclude based on the audit evidence that the accounting estimate is misstated as a result of
an arbitrary change by management.
b) May regard it as an indicator of possible misstatement bias.
c) Conclude based on the audit evidence that the accounting estimate is misstated as a result of
an arbitrary change by management, or may regard it is an indicator of possible management
bias.
627. When management has made as assertion in the financial statements to the effect to the effect
that a related party transaction was conducted on terms equivalent to those prevailing in an
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arm’s length transaction, the auditor shall obtain sufficient appropriate audit evidence about the
assertion. Management’s support for the assertion may include:
a) Comparing the terms of the related party transaction to those of an identical or similar transaction
with one or more unrelated parties.
b) Engaging an external to determine a market value and to confirm market terms and conditions for
the transaction.
c) Comparing the terms of the transaction to known market for broadly similar transaction on an open
market.
628. Many related party transactions are in the normal course of business. In such circumstances,
they may carry no higher risk of material misstatement of the financial statement than similar
transactions with unrelated parties. However, the nature of related party relationships and
transactions may, in some circumstances, give rise to higher risks of material misstatement of
the financial statement than transactions with unrelated parties. Identify the situations that give
rise to low risk of material misstatement:
a) Related parties may operate through an extensive and complex range of relationships and structures.
b) Information systems unable to identifying or summarizing transactions and outstanding balances
between an entity ad its related parties.
c) Related party transaction conducted under normal market terms and conditions.
d) Related party transactions conducted with no exchange of consideration.
629. You are the Auditor of Power Supply Corporation Limited, a Government Company for the year
ended on 31st March 2018. The turnover of the Company for the period was Rs 12,000 crores
from sale of power. During your audit, you found that the company had procured Spares for
Transmitters for Rs. 850 crores from abroad through a Corporation by name Procurement and
Supply India Limited which is also owned and controlled by Government of India. The Financial
statements of the Power supply corporation Limited, prepared in compliance with Ind AS for the
year ended on 31st 20l8 did not contain any additional disclosure regarding the procurement of
spares as referred to above. To your query as to whether any disclosure regarding Related Party
Transaction would be required, the Management of the Corporation replied that no such
disclosure would be necessary for transactions between State Controlled Enterprises. Select
which of the following is correct?
a) Contention of the management is correct as no disclosure required in case of transactions between
State Controlled Enterprises.
b) Contention of the management is not correct; and Auditor shall modify his report as necessary
disclosures as required by Ind AS 24 not provided in the financial statements.
c) Contention of the management is not correct; and Auditor shall modify his report as necessary
disclosures as required by AS 18 not provided in the Financial Statements.
d) Contention of management is not correct; and auditor shall modify his report as necessary
disclosures by Schedule III not provided in the financial statements.
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630. M/s Airlift Ltd., carrying on the business of Passenger Transportation by air is running into
continuous financial losses as well as reduction in Sales due to stiff competition and frequent
break down of its own aircrafts. The Financial Statements for the Year ended on 31/03/2018 are
to be now finalized. The Management is quite uncertain as to its ability to continue in near future
and has informed the Auditors that having seized of this matter, it had constituted a committee
to study this aspect and to give suggestions for recovery, if any, from this bad situation. Till the
study is completed, according to the Management, the issue involves uncertainty as to its ability
to continue its business and it informs the Auditor that the fact of uncertainty clamping on the
'Going Concern" would suitably be disclosed in notes to accounts. Reporting requirement, in the
Independent Auditor’s Report in respect of matter will be:
a) To include a separate section under the heading “Key Audit matters” in the Auditor’s Report as per
the requirement of SA 701.
b) To include a separate section under the heading “Material Uncertainty Related to Going Concern” in
the Auditor’s Report as per the requirement of SA 705
c) To include a separate section under the heading “Key Audit Matters” in the Auditor’s Report as per
the requirements of SA 570.
d) To include a separate section under the heading “Material Uncertainty Relating to Going Concern” in
the Auditor’s Report as per the requirements of SA 570.
631. In the course of audit of K Ltd its auditor Mr. ‘N’ observed that there was a special audit conducted
at the instance of the management on a possible suspicion of a fraud and requested for a copy of
the report to enable him to report on the fraud aspects. Despite many reminders it was not
provided. In the absence of the special audit report, Mr. ‘N’ insisted that he be provided with at
least a written representation in respect of fraud on/by the company. For this request also, the
management is silent. Select which of the following is correct?
a) Auditor may withdraw from engagement applying the provisions of SA 240
b) Auditor may disclaim the opinion applying the provision of SA 580
c) Auditor should report to Regulatory Authorities
632. The auditor shall disclaim an opinion when the following conditions occur except:
a) It is not possible to form an opinion o the financial statements due to the potential interaction of the
uncertainties and their possible cumulative effect of the financial statements.
b) The auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive.
c) The auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive.
d) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion.
633. Wipro Ltd has branches all over India. Suddenly due to floods in Kerala, all the records of Wipro
Ltd at its Kerala branch were destroyed due to Floods. No documents were made available. The
turnover of Wipro Ltd (all over India) was Rs 100 Crore. If turnover from Kerala Branch alone
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was Rs. 25 Lakhs and the Company has disclosed the same in the Financial statements as notes
to accounts. There are no alternatives checks that could be applied except External party
Confirmation. As an auditor of Wipro what would be your opinion of the financial Statements.
a) Unmodified Opinion with Emphasis on Matter that books of the Kerala Branches have been
destroyed.
b) Modified Opinion- Adverse Opinion
c) Modified Opinion- disclaimer of Opinion
d) Modified Opinion- Qualified Opinion
634. Wipro Ltd has branches all over India. Suddenly due to floods in Kerala, all the records of Wipro
Ltd at its Kerala branch were destroyed due to Floods. No documents were made available. The
turnover of Wipro Ltd (all over India) was Rs 100 Crore. If turnover from Kerala Branch alone
was Rs. 60 Crores and the Company has disclosed the same in the Financial statements as notes
to accounts. There are no alternatives checks that could be applied except External party
Confirmation. As an auditor of Wipro what would be your opinion of the financial Statements.
a) Unmodified Opinion with Emphasis on Matter that books of the Kerala Branches have been
destroyed.
b) Modified Opinion- Adverse Opinion
c) Modified Opinion- disclaimer of Opinion
d) Modified Opinion- Qualified Opinion
635. XYZ Ltd received a grant of Rs. 25 lakhs under the Government’s Subsidy Scheme, for acquiring
an imported machinery for setting up new plant. The entire grant received is credited to profit
and loss account. While preparing the audit report, the auditor needs to:
a) Qualify the report stating the fact that the income has been overstated to the extent of the amount of
grant net of proportionate credit that would have been worked out.
b) Qualify the report stating that the fact that the income has been understated to the extent of the
amount of grant net of proportionate debit that would have been worked out.
c) Express unmodified opinion as AS-12 allow the recognition of grant received as income.
636. Misappropriation of assets involves the theft of an entity’s assets and is often perpetrated by
employees in relatively small and immaterial amounts. Misappropriation of assets can be
accomplished in a variety of ways. Which of the following is not an example of misappropriation
of assets?
a) Misappropriating collections on account receivable or diverting receipts in respect of written off
accounts to personal bank accounts.
b) Inappropriately adjusting assumptions and changing judgements used to estimate account balance.
c) Stealing inventory for personal use or for sale. Stealing scrap for resale, colluding with competitor by
disclosing technological data in return for payment.
d) Payments to fictitious vendors, kickbacks paid by vendors to the entity’s purchasing agent in return
for inflating prices, payments to fictitious employees.
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637. Cloud Ltd appointed an auditor for the FY 20818-19. While going through the audit procedures,
the auditor observed that the management has entered into certain transactions which are
irregular in nature and the management is personally benefited from such transaction.
a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material
misstatement due to fraud could exist.
b) Auditor should consider the requirements of section 143(12) of Companies Act, 2013 as to reporting
of fraud to the CG.
c) Auditor should consider the requirement of Para 3 (X) of CARO, 2016 as to reporting of fraud.
638. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of
the audit and that guide the development of the audit plan. The auditor shall develop an audit
plan that shall include a description of nature, timing and extent of audit procedures. Select
which one of the following is correct?
a) The establishment of the overall audit strategy and the detailed audit plan are sequential processes,
wherein audit planning always follows audit strategy.
b) The establishment of the overall audit strategy and the detailed audit plan are sequential processes,
wherein audit strategy always follows audit plans.
c) The establishing of the overall audit strategy and the detailed audit plan are not necessarily
sequential processes, but are closely inter-related since changes in one may result in consequential
changes to the other.
639. CA. Needle had been appointed as an auditor of M/s Fabric Ltd. In the course of audit, it had been
observes that inventory including work-in-process had been valued by management by using
experts hired by them.
a) Auditor is required to perform the procedures as required by SA 500 before relying on the valuation
by experts.
b) Auditor is required to perform the procedures as required by SA 620 before relying on the valuation
by experts.
c) Auditor is required to perform the analytical procedures as required by SA 520 before relying on the
valuation by expert.
640. The auditor of SS Ltd accepted the gratuity liability valuation based on the certificate issued by
a qualified actuary. However, the auditor noticed that the retirement age adopted is 65 years as
against the existing retirement age of 60 years, the company is considering a proposal to
increase the retirement age. Select which of the following is correct?
a) Assumption made by actuary is not relevant and reasonable, hence auditor need to modify the report.
b) Assumption made by actuary is relevant and reasonable, hence auditor need not to perform any
further procedure in this matter.
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c) Assumption made by actuary is not relevant and reasonable, hence auditor is required to bring out
the facts to the notice of management and advice the modification accordingly.
d) Assumption made by actuary is relevant and reasonable, but auditor need to explain the matter in
the audit report in Emphasis of Matter Para.
641. Performing analytical procedures may be thought of as a four-phase process. The first phase is:
a) Compare the expected value to the recorded amount.
b) Formulate expectation.
c) Evaluate the impact of the differences between expectation and recorded amounts on the audit and
the financial statements.
d) Investigate possible explanations for a difference between expected and recorded values.
642. As per SA 550, where the applicable FRF establishes related party requirements, the auditor
shall obtain written representation from management and, where appropriate, those charged
with governance. Circumstances in which it may be appropriate to obtain written
representations from those charged with governance include:
a) When they have approved specific related party transactions that (a) materially affect the financial
statements, or (b) involve management.
b) When they have made specific oral representations to the auditor on details of certain related party
transactions.
c) When they have financial or other interests in the related parties or the related party transactions.
643. A matter giving rise to a modified opinion in accordance with SA 705 or a material uncertainty
related to events or condition that may cast significant doubt on the entity’s ability to continue
as a going concern in accordance with SA 570, are by their nature key audit matters. In relation
to this statement, select the appropriate answer:
a) Such matters shall not be described in the Key Audit Matters Section of the auditor’s report and the
requirements as stated in SA 701 do not apply.
b) Such matters shall only be described in the Key Audit Matters Section of the auditor’s report and the
requirements as stated in SA 701 shall apply.
c) Such matters shall be described in the Key Audit Matters section of the auditor’s report and the
requirements as stated in SA 701 shall apply in addition to the requirements of SA 570 or SA 705, as
the case may be.
d) Such matters shall be described in Emphasis of matter para.
644. An auditor concludes that a client’s illegal act, which has a material effect on the financial
statements, has not been properly accounted for or disclosed. Depending on the materiality of
the effect on the financial statements, the auditor should express either
a) Unqualified opinion with a separate explanatory paragraph or a qualified opinion.
b) Adverse opinion or a disclaimer of opinion.
c) Disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph.
d) Qualified opinion or an adverse opinion.
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645. As per SA 701, communicating key audit matters in the auditor’s report is in the context of the
auditor having formed an opinion on the financial statements as a whole.
Communicating key audit matters in the auditor’s report can be considered as a substitute for:
a) Disclosure in the financial statements that the applicable financial reporting framework requires
management to make, or that are otherwise necessary to achieve fair presentation.
b) The auditor expressing a modified opinion when required by the circumstances of a specific audit
engagement in accordance with SA 705
c) Reporting in accordance with SA 570 when a material uncertainty exists relating to events or
conditions that may cast significant doubt on an entity’s ability to continue as a going concern
646. While auditing a lawyer company, Mr. X the statutory auditor of the company, was unable to get
the confirmation about the existence and value of certain books existed in the library worth Rs.
35 lakhs. However, the management gave him a certificate to prove the existence and value of
the books as appearing in the books of account. The auditor accepted the same without any
further procedure and signed the audit report. Is he right in this approach? Select which of the
following is correct:
a) The approach adopted by the auditor is right, as “Written Representation” are considered as
sufficient appropriate audit evidence in the absence of other audit evidences.
b) The approach adopted by the auditor is not right, as ‘Written Representation” cannot be a substitute
for other audit evidence that the auditor could reasonably expect to be available.
c) The approach adopted by the auditor can be considered as right, if he discloses this fact in the audit
report as “Key Audit Matter”
d) The approach adopted by the auditor can be considered as right, if he discloses the fact in the audit
report in “Emphasis of Matter’ Para.
647. Toddle Limited had definite plan of its business being closed within a short period from the close
of the accounting year ended on 31st March, 2017. The Financial Statements for the year ended
31/03/2017 had been prepared on the same basis (Going Concern basis) as it had been in
earlier periods with an additional note that the business of the Company shall cease in near
future and the assets shall be disposed off in accordance with a plan of disposal as decided by the
Management. The Statutory Auditors of the Company indicated this aspect in Key Audit Matters
only by a reference as to a possible cessation of business and making of adjustments, if any,
thereto to be made at the time of cessation only. Select which of the following is correct?
a) Auditor was required to issue adverse opinion as financial statements are prepared on Going
concern, which is not appropriate in this case, Key Audit Matter cannot be considered as
substitute for modified opinion.
b) Reporting by the auditor seems to be appropriate as Key Audit Matter can be considered as
substitute for modified opinion.
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c) Auditor was required to issue unmodified opinion. However, this matter needs to be
highlighted through “Key Audit Matters” Paragraph.
d) Auditor was required to issue disclaimer of opinion.
648. A Co has not included in the Balance Sheet as on 31/03/2011 a sum of Rs. 1.50 Crores being
amount in the arrears of salaries and wages payable to the staff for the last 2 years as a result of
successful negotiation which were going on during the last 18 months and concluded on
30/04/2011. The auditor wants to sign the said Balance Sheet and give the audit report on
31/05/2011. The auditor came to know the result of negotiation on 15/05/2011. Select which
of the following is correct:
a) Auditor should request management to adjust the sum of Rs. 1.5 crores by making provision for
expenses. If the management does not accept the request, the auditor should qualify his opinion as
per SA 705.
b) Auditor should request management to adjust the sum of Rs. 1.5 crores by making provision for
expenses. If the management does not accept the request, the auditor should include the matter in
the auditor’s report as “Key Audit Matter” as per SA 701.
c) Auditor should request management to adjust the sum of Rs. 1.5 crores by making provision for
the auditor’s report as “Emphasis of Matter” as per SA 706.
d) Auditor should request management to adjust the sum of Rs. 1.5 crores by making provision for
the auditor’s report as “Other Matter” as per SA 706.
649. A Pvt Ltd is engaged in the business of real estate. The auditor of the company requested the
information from the management to review the outcome of accounting estimates (like
estimated costs considered for percentage completion etc.) included in the prior period financial
statements and their subsequent re-estimation for the purpose of the current period. The
management has refused the information to the auditor saying that the review of prior period
information should not be done by the auditor. Which of the following id correct?
a) Management is correct in refusing the relevant information to the auditor.
b) Management is not correct in refusing the relevant information to the auditor.
c) Auditor should report the matter under Para 3 (x) of the CARO, 2016.
d) Auditor should report the fact the Central Government for safeguarding the interest of the users of
the financial information, as there is possibility of fraudulent financial reporting in the financial
statements.
650. In audit of DEF Limited, the Auditor had made use of certain analytical procedures with
regard to certain key data in Statement of Profit and Loss. The results obtained showed
inconsistencies with other relevant information. Which of the following is the course of
action that the auditor should take?
a) Auditor should communicate the matter immediately to the TCWG of the entity.
b) Auditor should modify his opinion in accordance with SA 705.
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c) Auditor should communicate the matter in his audit report as Key Audit Matter as per SA 701.
d) Auditor should conduct inquiry with the management and obtain appropriate audit evidence
relevant to management’s responses and perform other audit procedures as necessary in the
circumstances.
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Answers
1 a 36 b 71 d 106 d 141 c
2 b 37 a 72 a 107 b 142 d
3 a 38 c 73 c 108 b 143 a
4 c 39 c 74 d 109 b 144 c
5 b 40 a 75 c 110 a 145 c
6 d 41 b 76 b 111 a 146 d
7 c 42 c 77 a 112 d 147 d
8 d 43 d 78 d 113 c 148 c
9 d 44 c 79 c 114 b 149 d
10 d 45 b 80 a 115 a 150 c
11 c 46 d 81 d 116 a 151 b
12 c 47 c 82 b 117 c 152 d
13 d 48 b 83 a 118 a 153 d
14 c 49 d 84 c 119 c 154 b
15 d 50 a 85 d 120 d 155 d
16 c 51 b 86 c 121 a 156 c
17 c 52 d 87 b 122 b 157 a
18 c 53 a 88 b 123 b 158 c
19 a 54 d 89 a 124 a 159 d
20 a 55 a 90 b 125 c 160 b
21 b 56 d 91 a 126 d 161 a
22 d 57 a 92 b 127 d 162 c
23 c 58 c 93 d 128 b 163 c
24 d 59 b 94 b 129 a 164 a
25 c 60 d 95 c 130 d 165 b
26 d 61 c 96 d 131 a 166 b
27 c 62 b 97 b 132 c 167 b
28 b 63 c 98 d 133 c 168 a
29 c 64 b 99 c 134 a 169 a
30 d 65 b 100 c 135 b 170 d
31 a 66 c 101 d 136 d 171 b
32 d 67 a 102 b 137 b 172 d
33 c 68 b 103 a 138 a 173 a
34 a 69 b 104 c 139 d 174 d
35 d 70 c 105 b 140 c 175 c
279
176 a 211 a 246 c 281 c 316 b

177 c 212 a 247 b 282 c 317 c
178 b 213 c 248 c 283 c 318 a
179 d 214 b 249 d 284 b 319 b
180 a 215 c 250 d 285 a 320 d
181 a 216 d 251 c 286 c 321 d
182 c 217 c 252 b 287 a 322 a
183 a 218 b 253 a 288 c 323 a
184 b 219 d 254 d 289 c 324 d
185 d 220 d 255 d 290 a 325 c
186 d 221 b 256 c 291 d 326 a
187 c 222 c 257 d 292 c 327 b
188 a 223 d 258 d 293 c 328 c
189 d 224 b 259 d 294 a 329 b
190 b 225 c 260 d 295 c 330 c
191 a 226 d 261 b 296 d 331 a
192 c 227 d 262 c 297 a 332 b
193 b 228 c 263 b 298 b 333 a
194 d 229 b 264 d 299 b 334 c
195 c 230 c 265 b 300 b 335 c
196 c 231 c 266 b 301 b 336 d
197 a 232 c 267 b 302 a 337 a
198 b 233 b 268 c 303 a 338 d
199 a 234 b 269 a 304 a 339 c
200 a 235 b 270 c 305 b 340 d
201 d 236 b 271 d 306 c 341 c
202 d 237 b 272 d 307 a 342 b
203 d 238 b 273 a 308 b 343 d
204 b 239 a 274 a 309 c 344 d
205 c 240 d 275 a 310 d 345 d
206 b 241 c 276 d 311 a 346 c
207 c 242 b 277 d 312 b 347 a
208 d 243 a 278 c 313 d 348 b
209 b 244 d 279 b 314 a 349 d
210 b 245 a 280 a 315 a 350 d
280
351 b 386 b 421 c 456 d 491 d

352 a 387 a 422 d 457 a 492 b
353 b 388 c 423 b 458 c 493 d
354 c 389 d 424 a 459 b 494 d
355 d 390 d 425 a 460 a 495 d
356 d 391 a 426 c 461 b 496 d
357 a 392 d 427 c 462 b 497 b
358 c 393 c 428 a 463 c 498 d
359 c 394 a 429 a 464 b 499 c
360 c 395 a 430 b 465 a 500 a
361 a 396 b 431 d 466 d 501 b
362 b 397 b 432 d 467 c 502 a
363 d 398 c 433 b 468 d 503 d
364 c 399 d 434 a 469 d 504 c
365 d 400 a 435 d 470 c 505 d
366 b 401 d 436 c 471 b 506 b
367 a 402 a 437 d 472 a 507 b
368 d 403 c 438 c 473 d 508 a
369 c 404 b 439 d 474 d 509 c
370 a 405 c 440 a 475 c 510 c
371 c 406 c 441 d 476 c 511 d
372 c 407 a 442 a 477 d 512 c
373 a 408 a 443 d 478 b 513 a
374 b 409 b 444 c 479 b 514 b
375 b 410 c 445 d 480 c 515 d
376 d 411 c 446 a 481 d 516 b
377 b 412 d 447 c 482 b 517 a
378 b 413 b 448 d 483 b 518 a
379 d 414 a 449 b 484 c 519 d
380 c 415 d 450 c 485 d 520 d
381 a 416 b 451 d 486 d 521 c
382 b 417 a 452 c 487 a 522 c
383 d 418 d 453 a 488 a 523 c
384 d 419 c 454 d 489 d 524 d
385 d 420 d 455 b 490 d 525 d
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526 b 561 b 596 b 631 d

527 c 562 b 597 b 632 b
528 d 563 d 598 d 633 a
529 c 564 d 599 d 634 c
530 d 565 c 600 c 635 a
531 a 566 b 601 d 636 b
532 d 567 a 602 b 637 d
533 b 568 b 603 d 638 a
534 d 569 c 604 c 639 a
535 c 570 d 605 d 640 c
536 c 571 b 606 c 641 b
537 a 572 d 607 c 642 d
538 d 573 c 608 d 643 c
539 b 574 a 609 d 644 d
540 a 575 d 610 c 645 d
541 a 576 d 611 c 646 b
542 d 577 a 612 d 647 a
543 a 578 b 613 b 648 a
544 d 579 b 614 b 649 b
545 a 580 a 615 d 650 d
546 d 581 b 616 b
547 a 582 c 617 d
548 b 583 a 618 a
549 c 584 a 619 d
550 d 585 d 620 a
551 c 586 d 621 d
552 a 587 d 622 d
553 b 588 d 623 c
554 c 589 b 624 c
555 a 590 b 625 d
556 d 591 b 626 d
557 d 592 c 627 d
558 a 593 d 628 c
559 d 594 b 629 b
560 c 595 d 630 d
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MISCELLANEOUS MCQs
1. The basic assumption underlying the use of analytical procedures is:
a) It helps the auditor to study relationship among elements of financial information.
b) Relationship among data exist and continue in the absence of known condition to the contrary.
c) Analytical procedures will not be able to detect unusual relationships.
2. Direct confirmation procedures are performed during audit of accounts receivables balance to
address the following balance sheet assertion
a) Right and obligations
b) Valuation
c) Completeness
d) Existence
3. The auditor shall express ________________ opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in aggregate, are both
material and pervasive to the financial statements.
a) Adverse
b) Qualified
c) Disclaimer of Opinion
d) Unmodified
4. The agreed terms of the audit engagement shall be recorded in al audit engagement letter which
shall include the following except:
a) Responsibilities of the auditor
b) Description of methods to be followed for obtaining audit evidence
c) Responsibilities of management
d) Objective and scope of the audit of the financial statements.
5. The measure of the quality of audit evidence about its relevance and reliability in providing
support for the conclusions on which the auditor’s opinion is based is:
a) Sufficiency of audit evidence
b) Appropriateness of audit evidence
c) Accounting estimates
d) Reasonableness of audit evidence
6. The auditor’s ______________ safeguards the auditor’s ability to form an audit opinion without being
affected by any influence.
a) Objectivity
b) Independence
c) Confidentiality
d) Integrity
7. Which of the following company is not exempted from reporting under CARO, 2016?
a) Banking company
b) Insurance Company
c) Company licensed to operate under section 8 o the Companies Act, 2013
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d) Private limited company having paid up capital of Rs. 5 Crore.

8. Section 144 of the Companies Act 2013 does not excludes the statutory auditor of the company
to render the services of:
a) Investment advisory
b) Investment banking
c) Branch auditor
d) Actuarial
9. As per SA 550 on Related Parties, existence of which relationships indicate the presence of
control or significant influence?
a) Friend of a family member of a person who has the authority and responsibility for planning.
b) Holding debentures in the entity.
c) The entity’s holding of debentures in other entities.
d) The entity’s holding of equity in other entities.
10. When does an auditor shall modify the opinion in the auditor’s report?
a) When, based on the audit evidence obtained, the financial statements as a whole are not free from
material misstatements.
b) When, unable to obtain sufficient appropriate audit evidence to conclude that the financial
statements as a whole are free from material misstatement.
c) Both (a) and (b)
11. For a given level of audit risk, the acceptable level of detection risk bears ______________
relationship to the assessed risks of material misstatement at the assertion level.
a) Direct
b) Inverse
12. Control activities, whether IT or manual systems, have various, objectives and are applied at
various organizational and functional levels. Which of the following is an example of control
activities?
a) Authorization
b) Performance reviews
c) Information processing
13. If, as a result of misstatement resulting from fraud, the auditor encounters exceptional
circumstances that bring into question his ability to continue performing the audit, he shall:
a) Withdraw from the engagement immediately
b) Report to the audit team regarding withdrawal
c) Determine the professional and legal responsibilities applicable in the circumstances.
d) Ask the management for his withdrawal.
14. In order to form the opinion, the auditor shall conclude as to whether the auditor has obtained
_____________________ about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error.
a) Reasonable assurance
b) Absolute assurance
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c) Limited assurance
15. Request of free look cancellation is processed
a) Only when the policy holder is not satisfied with the terms and conditions of the policy
document.
b) Only when the premium charged is higher than the promised amount.
c) Only when the policy suffers from technical defects
16. Performance audits and compliance audits are example of
a) Attestation Engagements
b) Assurance Engagements
c) Direct Reporting Engagements
d) Compilation Engagements
17. Which of the following information should a successor auditor obtain during the inquiry of the
predecessor auditor before accepting engagement?
i. Information about the integrity of the management
ii. Disagreement with management concerning audit procedures
iii. Review of internal control system
iv. Organizational Structure
a) (i) and (ii)
b) (ii) and (iii)
c) (i), (ii) and (iii)
d) (i) and (iii)
18. In an investigation relating to possible misappropriation of cash, the cashier says that every day
the cash is counted and is reviewed by the Finance Head. Your specimen review indicates that
the daily cash summary was not signed off by of the Finance Head. In this situation you should:
a) Conclude that the cashier is not telling truth.
b) Consider extending investigation procedures like corroborative enquiry with the Finance head,
review of appropriate daily cash summaries etc.
c) Conclude that the Finance Head is not a responsible person.
d) Conclude that daily cash summary is not relevant for the investigation.
19. Current period adjustments are those adjustments that are made:
a) Only on the first occasion of the preparation and presentation of consolidated financial statements.
b) Only on the first occasion of the audit of consolidated financial statements.
c) In the accounting period for which the consolidation of financial statement is done.
20. Which of the following best suits the description –“The susceptibility of an assertion that could
be material, either individually or in aggregate, before consideration of any related internal
controls”
a) Inherent Risk
b) Detection Risk
c) Control Risk
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21. CA. D, a chartered accountant in practice availed of a loan against his personal investments from
a bank. He issued 2 cheques towards repayment of the said loan as per the instalments due.
However, both the cheques were returned back by the bank with the remarks “Insufficient
funds”. As per Chartered Accountants Acl,1949, under which clause CA D is liable for misconduct.
22. As an auditor appointed under section 44AB of the Income Tax Act, 1961, under which clause of
Form 3CD you will report for the amounts determined to be profit and gains under Section 32AC,
33AB or 33ABA or 33AC
a) Clause 24
b) Clause 40
c) Clause 31
d) Clause 23
23. As per CARO,2016, the auditor is required to report whether the company is required to
be registered under section 45-IA of the Reserve Bank of India Act,1934. If so, whether the
registration has been obtained.
a) Under Clause (xi) of paragraph 3 of the CARO, 2016
b) Under Clause (xi) of paragraph 3 of the CARO, 2016
c) Under Clause (xi) of paragraph 3 of the CARO, 2016
d) Under Clause (xi) of paragraph 3 of the CARO, 2016
24. As per Clause (i) (c) of Paragraph 3 of the CARO 2016, the auditor is required to report on:
a) Whether the title deeds of immovable properties are held in the name of the company, if not, provide
the details thereof.
b) Whether the company has entered into any non-cash transactions with the directors or persons
connected with him.
c) Whether any fraud by the company or any fraud on the company by its directors or employees has
been noticed or reported during the year. If yes, the nature and the amount involved is to be indicated.
d) Whether the company is maintaining proper records showing full particulars, including quantitative
details and situation of fixed assets.
25. LM Ltd obtained a Term Loan of Rs. 30 lakhs from a bank for the construction of a factory. Since
there was a delay in the construction activities, the said funds were temporarily invested in short
term deposits. Under which clause of CARO 2016 the auditor is required to report
a) Under Clause (viii) of Para 3 of the CARO, 2016.
b) Under Clause (xi) of Para 3 of the CARO, 2016.
c) Under Clause (x) of Para 3 of the CARO, 2016.
d) Under Clause (ix) of Para 3 of the CARO, 2016.
26. NMP Ltd is in the business of retail and has been suffering losses. The turnover of the
company has been same over the last 3-5 years. The company has Oracle as its ERP package. The
internal auditor of the company observed that there is no process to review the supplier master
on a periodic basis to identify the cases of incorrect updation/redundant supplier codes, key
fields were not made mandatory in Oracle at the time of vendor empanelment and maker
checker mechanism was also not enabled in Oracle.
286
There is no mechanism to track redundant supplier codes and block them for further
transactions. For 5,750 out of 9,076 active suppliers (63.3%), no transaction had occurred in the
past 180 days. For 4,972 out of these 5750, no transaction occurred in the past 1 year. For 35 out
of 9,076 active suppliers, the state code in the GST Identification Number (GSTIN)updated in the
supplier master did not match the state mentioned in supplier's address. Payments valuing INR
27 crores have been made to such suppliers.
Management explained that for redundant supplier codes, annual review will be conducted by
the purchase leam to identify such codes and, post an approval from finance, purchasing will be
blocked for the respective vendors. For GSTIN and State mismatch, management has already
commenced assessment to identify the reasons for such errors and all such inconsistencies will
be rectified in next 6 months. Please suggest in terms of reporting.
a) Management responses look reasonable and this matter should be dropped.
b) The matter is more of to hygiene and may not have impact on the financial reporting and hence should
be ignored.
c) Internal auditor needs to report this matter.
d) Internal auditor should look at the significance of the matter. Material and on the basis of the same
should decide about reporting this matter.
27. TPL Pvt Ltd is in the business of software and consultancy services. The annual turnover of the
company is Rs. 899 crores and profits are Rs. 199 crores. The company is planning to get listed
in the overseas market within a year. If that does not happen then the company may look for
funding through private placement.
For, some projects, the company receives grants from the government. These projects run upto
5-10 years. XYZ & Co LLP is the internal auditor of the company. Please advise what internal
auditor procedures should be considered by the internal audit team for the audit grants
received.
i. Check the donations received with the copies of receipts
ii. Check sanction letters for any conditions attached with the donations.
iii. Examine the statements submitted for utilization of grant.
iv. Verify the grants received from the Government or other authorities with reference to all the
correspondences.
v. Verify all the bank statements of the company to trace the grants received and its utilization
a) (i)(ii)(iii)(iv) and (iv)
b) (i)(ii)(iii) and (iv)
c) (i) (iii) (iv) and (v)
d) (i) (ii) (iii) and (v)
28. ONZ Ltd. is in the business of trading of consumer equipments. The company’s turnover is INR
347 crores. The company has not been doing well over the last few years due to which its
profitability has gone down significantly.
The company charges cartage/ freight from its customers. Because there is a huge cost incurred
in this respect, the company ensures that this amount is recovered on time.
During the performance of the internal audit procedures, the internal auditors of the company
found that in some cases freight was charged in the bills manually, rather than through the
automated system of generating an invoice. Internal auditor raised this point to the
287
management. The management replied that it happens only in exceptional cases that the freight
is charged manually on automated generated invoice.
How would you deal with this as an auditor?
a) Internal auditor should report this matter
b) Internal auditor should discuss with management about way forward and drop this point
c) Internal audit observation is not right
d) Internal auditor should ignore on the grounds of materiality
29. MNO Ltd. borrowed an amount of INR 5 crores from a financial institution during the year. The
company had existing borrowings of INR 1800 crores from various banks. However, the company
took loan from a financial institution for the first time.
The rate of interest charged on the new loan was based on market rate of interest and there was
no security for this loan. During the course of the internal audit, internal auditor could not find
the borrowing agreement for the new loan and raised this point with the management. The
management explained that new loan was required for a special purpose for which all other
documents are available for auditor to verify- disbursement proof in the bank statements,
repayments. However, the agreement was not prepared because the person who arranged the
loan from financial institution was known to the company and basis verbal understanding this
has one. Please advise internal auditor.
a) Internal auditor should report this matter as this can be a serious deficiency
b) Because all other proofs are available, internal auditor should ignore this point
c) Internal auditor should report this matter to Reserve Bank of India
d) Considering the insignificant amount of this new loan as compared to total borrowings of the
company, this may be ignored by the internal auditor
30. AAS Ltd. is in the business of fast fond chains. During the internal audit of accruals/ expenses of
the company, the internal audit team observed that for some of the entries passed the narration
was wrongly written as if the expense is related to the travelling expense. The vouchers were
passed by the finance personnel of the company but no review mechanism was seen for this.
Management explained that there is a review mechanism but this is only about narration of
expenses which should not be relevant for the internal auditor. How should the internal auditor
deal with the matter?
a) The Company should perform the review of entries to check such cases and same thing should be
reported by the internal auditor
b) The company’s management seems reasonable here
c) This matter should be considered on the basis of materiality
d) Internal auditor should further investigate as this is indicative of fraud
31. Medivision Industries designs and manufactures spectacles. Medivision's year end was 31
March 2018 and its draft financial statements show a profit before tax of Rs.60 lakh. The
fieldwork stage for this audit has largely been completed but there are few outstanding issues.
On 1 January 2018, Medivision began the commercial production of a new range of lightweight
frames which have been proven to keep their shape regardless as to how roughly they are
treated. Up to 31 December 2017, the company had correctly capitalised development costs of
Rs.45 lakh relating to this project. The directors believe that the new frames will have a product
life of three years. The financial statements show development costs at a carrying amount of
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Rs.45 lakh. Medivision's accounting policy states that it amortises intangible assets on a straight-
line basis.
The auditor's report for Medivision is due to be signed in the next week or so, and you have been
unable to resolve a disagreement with the directors concerning the amortisation of the
development costs. The directors have refused to include any amortisation on the basis that
sales of the product have not yet commenced.
Which of the following options correctly summarises the impact on the auditor's report if the
issue remains unresolved?
a) The auditor to provide an unmodified opinion, since the directors are correct not to include any
amortisation on the basis that sales of the product have not yet commenced.
b) The auditor to provide an unmodified opinion with the emphasis of matter paragraph about the
amortisation charge on the capitalised development costs.
c) The auditor to provide a modified opinion- Adverse opinion since having obtained sufficient
appropriate evidence, concludes that the misstatement is both material and pervasive.
d) The auditor to provide a modified opinion- Qualified opinion due to material misstatement of not
recording the amortization charge on the capitalised development costs, which is material but not
pervasive.
32. You are an audit supervisor of Swanminathan & Associates and are currently planning the audit
of your client, Zonal Co which manufactures elevators. lts year end is 31 March 2018 and the
forecast profit before tax is Rs 25.26 Lakhs.
At the beginning of the year, Zonal purchased a patent for Rs.5.3 lakhs which gives them the
exclusive right to manufacture specialised elevator equipment for five years. In order to finance
this purchase, the entity borrowed Rs.4.5 lakhs from the bank which is repayable over five years.
Which of the following is a response to the audit risk identified by you in planning the audit for
the reporting year?
a) The audit team need to agree the purchase price to supporting documentation and to confirm the
useful life is five years. Recalculate the amortisation charge to ensure the accuracy of the charge and
that the intangible is correctly valued at the year end.
b) The company has borrowed Rs.4.5 lakhs from the bank via a five-year loan. This loan needs to be
correctly split between current and non-current liabilities in order to ensure correct disclosure.
c) In accordance with Ind AS 38 Intangible Assets, the patent should be included as an intangible asset
and amortised over its five-year life.
d) Also, as the level of debt has increased, there should be additional finance costs. There is a risk that
this has been omitted from the statement of profit or loss leading to understated finance costs and
overstated profit.
33. Teamsg International Co is a manufacturer of electrical equipment. It has factories across the
country and its customer base includes retailers as well as individuals, to whom direct sales are
made through their website. The company's year-end is 31 March 2018.You are an audit
supervisor of Suraj & Co and are currently reviewing documentation of Teamsg's internal
control in preparation for the interim audit.
In the past six months Teamsg has changed part of its manufacturing process and as a result
some new equipment has been purchased, however, there are considerable levels of plant and
equipment which are now surplus to requirement. Purchase requisitions for all new equipment
289
have been authorised by production supervisors and little has been done to reduce the surplus
of old equipment.
Which of the following control can be recommended to address the internal control deficiency
in the respect of the acquisition of new equipment and treatment of the old equipment?
a) Regular review of the data on the unused equipment on the master file by a responsible official and
the review to be evidenced.
b) Supplier statement reconciliations should be performed monthly for all suppliers and these should
be reviewed by a responsible official.
c) Capital expenditure authorisation levels to be established. Production supervisors should only be
able to authorise low value items, any high value items should be authorised by the board.
d) Observe the review process by senior factory personnel, identifying the treatment of any old
equipment.
34. You are a manager in the audit department of Narang & Co, and you are dealing with several
ethical and professional matters raised at recent management meetings, all of which relate to
audit clients of your firm:
One of your client Bernwood Co has a year ending 31 March 2018.During this year, the company
established a pension plan for its employees, and this year end the company will be recognising
for the first time a pension deficit on the balance sheet, in accordance with Ind AS 19 Employee
Benefits. The finance director of Bernwood Co has contacted the audit engagement partner,
asking if your firm can provide an actuarial valuation service in respect of the amount
recognised.
Which of the following options needs to be considered by the audit engagement partner?
a) The issue is whether there is a self-review threat, as the valuation of the amount recognised should
be recorded in the financial statements. The audit partner should decline the work of valuation
service.
b) The issue is whether the audit firm would be likely to possess the requisite competence to provide
such a valuation service. The audit partner should decline since not professionally qualified to
provide the valuation service.
c) Narang & Co needs to assess the materiality of the figure and the degree of subjectivity involved. If
Considers that safeguards like using separate personnel, performing a second partner review, could
reduce the threat to an acceptable level, then it can go ahead with both the audit and the valuation
service.
d) The audit partner could go ahead with the valuation service and disclose the fact in its audit report
about the
35. Co. designs and manufactures specialised furniture for offices in and around the city of Mumbai.
The revenue has been gradually increasing over the last few years. The main concern for PR Co
is finding credit-worthy customers who will make the payment on due dates. You are assigned
as the audit team member lo test the controls in sales and purchase system of the entity. The year
end of the entity is 31March 2018.One of the control objectives of the sales system of PR Co is to
ensure that goods and services are sold to credit-worthy customers.
Which of the following control activities would assist the entity in achieving this objective?
a) All sales orders above Rs. 10 lakh is based on authorised prise lists.
b) Credit limits for all the customers are checked before sales orders are accepted.
c) Overdue debts are chased each month by the credit controller.
290
d) The aged-debit listing is reviewed by the finance director of PR Co on a monthly basis.

36. You are an audit manager of DC & Co and you are currently responsible for the audit of Beautypal
Co, a company which develops and manufactures health and beauty products and distributes
these to wholesale customers. Its draft profit before tax is Rs.43 lakhs and total assets are Rs.38
lakhs for the financial year ended 31 March 2018.The final audit is due to commence shortly, and
the following matter has been brought to your attention:
Beautypal Co has a large portfolio of property, plant and equipment (PPE). In January 2018, the
company carried out a fell review of all its PPE and updated the useful lives, residual values,
depreciation rates and methods for many categories of asset. The finance director felt the
changes were necessary to better reflect the use of the assets. This resulted in the depreciation
charge of some assets changing significantly for this year.
Which of the following substantive procedure should the auditor perform to obtain sufficient
and appropriate audit evidence in relation to matter of depreciation on property, plant and
equipment?
a) Review the capital expenditure budget for the next few years to assess whether the revised asset lives
correspond with the planned period until replacement of the relevant asset categories.
b) Inspect non-current asset accounts for a sample of purchases to ensure they have been properly
allocated.
c) Consider whether the proceeds on disposals of PPE are reasonable and recalculate the profit or loss
disposal.
d) For a sample of fully depreciated asset, inspect the register to ensure no further depreciation is
charged.
37. As an internal auditor of LMN Bank Ltd., you have to verify the vouchers for the quarter ending
30th June 2018 of a branch at Ahmedabad. While verifying the vouchers, your team noticed that
many of the bearer cheques processed by the teller have not been stamped as “paid”, when
discussed with the branch manager he stated the reason as ignorance on the part of official who
has been assigned the duty of verifying the vouchers. As an internal auditor, what should be your
next course of action:
a) Considering the matter as immaterial, ignore it for the internal audit report.
b) The Branch manager should be advised to rectify the discrepancy and the observation is closed in the
internal audit report noting the corrective action plan.
c) The matter should be immediately reported to TCWG of LMN Bank Ltd.
d) Report the matter in Executive summary paragraph of internal audit report as it is significant internal
control lapse.
38. ALM Ltd. is a trading company engaged in the business of selling readymade garments with a
turnover of around Rs.85 crore in the year 2017-18. Your firm has been appointed as statutory
auditors for the year 2018-19. In the process of audit for the half year ending 30th September,
2018 your senior has instructed you to verify the debtors of the company. While verifying the
same it came to your notice that the company is not taking balance confirmations from the
debtors and the balance shown in the books of company is considered final for the preparation
of accounts. As a statutory auditor what should be your decision on the debtors balances:
a) Statutory auditor should review the internal audit report and ensure as per section 143 of the
Companies Act, 2013 that the company has adequate internal financial control in place.
b) There is no need to take debtors confirmation as it is immaterial for the purpose of audit report.
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c) The auditor is required to take external confirmation independently and where the auditor gets
negative or no response is doubtful an alternative audit procedure should be followed.
d) A management representation letter should be obtained by the auditor.
39. As a Central Statutory auditor of KG Ltd. for the year 2018-19 you need to verify the bank
balances for the half year ending 30th September 2018.The company is holding Bank accounts
in five different banks, but you found that the bank reconciliation is rot complete for some of the
bank accounts. When discussed with the management they explained that the number of
transactions in these accounts is very huge on daily basis and there are some old entries (existing
in the reconciliation statement from the year 2008 and they are not material in nature) so it is
difficult to reconcile these bank accounts. As a Central Statutory Auditor what will be your
decision:
a) The unusually old outstanding entries, as are not material in nature, should be removed from
reconciliation statement and the balance in books of accounts should be considered as the balance
for the balance sheet purpose.
b) The auditor should confirm the appropriateness of the old outstanding entries by taking bank
confirmation for the same to reduce audit risk and obtain a management representative letter on
pending reconciliation.
c) The auditor should disclose the matter in Notes to accounts of the audit report with respect to
incomplete bank reconciliation.
d) The auditor should communicate it to TCWG as deficiency in internal control.
40. You are an article assistant in PQR & Associates. You are assigned an internal audit of X Ltd., a
leading company in business of dairy products. While evaluating internal controls associated
with related party relationships and transactions, you come across some discrepancies. What is
the basic information to be collected by you related to related party relationships and
transactions?
i. The identity of the entity’s related parties including changes from the prior period
ii. The nature of the relationships between the entity and these related parties
iii. Understanding of business activities and parties
iv. Whether the entity has entered into any transaction with these related parties during the
period and, if so, the nature and extent and the purpose of the transaction
v. Materiality of related party transaction
a) (i) (ii) and (v)
b) (i) (ii) and (iv)
c) (ii) (iii) and (iv)
d) (iii) (iv) and (v)
41. AMS &Co is a computer hardware specialist and has been trading for over 6 years. The
company is funded through overdrafts and loans and by several large shareholders. The
financial year end is 31 March 2017.
AMS had significant growth in business in previous years; however, in the current year a new
competitor BOM & Co, has entered the market and through competitive pricing has gained
considerable market share from AMS. One of AMS's customers has stopped trading with them
and has moved its business to BOM. In addition, a few specialist developers have left the
company and joined the new company BOM. AMS has found it difficult to replace these employees
due to the level of their skills and knowledge. AMS has just received notification that its main
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supplier who provides the company with specialist electrical equipment has ceased to trade.
Which of the following audit procedures should not be performed in assessing whether or not
AMS is a going concern?
a) Evaluating management’s plans for the future of the business, by finding out from the financial
director whether the company has gained any new customer to replace the customer lost.
b) Review board minutes for evidence of progress on recruiting special developers to replace the ones
who have left to join BOM.
c) Analyse and discuss the entity’s last 2 years of financial statements to determine whether it is
consistent with the cash flow forecast.
d) Review the correspondence with the shareholders to assess the probability that any o the
shareholders choose to increase or sell their investment.
42. ASM Motor Cars co. manufactures a range of motor cars and its year end is 31 March 2018.Yor
are the audit supervisor of Khanna & Associates and currently preparing the audit programmes
for the year-end audit of ASM. The entity undertakes continuous production of cars, 24 hours a
day, seven days a week. An inventory count is to the undertaken at the year end and Khanna &
Associates will attend.
You are responsible for the audit of work in progress (WIP)and will be part of the team attending
the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and
this balance is likely to be material. ASM values WIP according to percentage of completion, and
standard costs are then applied to these percentages.
Which of the following is NOT a substantive procedure the audit could perform to obtain
sufficient and appropriate audit evidence in relation to the valuation of work in progress?
a) Discuss with management how the percentage completions are attributed to WIP.
b) Observe the procedures carried out in the count in assessing the level of WIP, consider
reasonableness of the assumptions used.
c) During the count, verify all the percentage completions if they are in accordance with ASM’s policies.
d) Review the level of variances between standard and actual costs.
43. AJ & Co LLP is a firm of Chartered Accountants. The firm has 10 Partners. The firm has a good
portfolio of clients for statutory audits but the same clients had some other firms as their tax
auditors. In the current year (FY 2018-19), many existing clients for whom AJ & Co LLP happens
to be the statutory auditor have requested the firm to carry out their tax audits as well. The firm
is expecting the no of tax audits to increase significantly this year. One of the partners of the firm
has also raised a point that the firm can accepts tax audits upto a maximum limit. However, other
partners are of the strong view that limits on audits is applicable in case of statutory audits and
not for tax audits. This needs to be decided as soon as possible so that the appointment
formalities can also be completed.
You are requested to advise the firm in this matter.
a) There is no limit in tax audits in case of LLP.
b) All the partners of the firm can collectively sign 450 tax audit reports.
c) All the partners of the firm can collectively sign 600 tax audit reports.
d) All the partners of the firm can collectively sign 450 tax audit reports. However, one partner can
individually sign maximum 60 tax audit reports.
44. Ram & Shyam Co LLP is an old firm of Chartered Accountants with Ram and Shyam as the audit
partners. The firm has various statutory audit and internal audit engagements which are looked
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after by Ram and Shyam respectively. In the previous year ended 31 March 2018, one of the audit
engagements of the firm was picked up for peer review and peer reviewer raised various
observations regarding the audit documentation. Some of the information regarding audits were
missing from the audit files as per the observation of the peer reviewer.
Ram & Shyam are in the process of establishing a robust mechanism for audit documentation so
that the same is available for a long duration and would lead to audit efficiencies also in the
future years. Ram and Shyam would like to understand the period for which audit
documentation should be maintained by them as per the Standard on Auditing 230. Please
advise.
a) 10 years
b) 9 years
c) 8 years
d) 7 years
45. KJA Ltd is in the business of manufacturing of tiles and sanitaryware. The company has a large
inventory every year. Annual turnover of the company is INR 3000 crores. The company has 7
plants across India. The management of the company carries out physical verification of
inventory every year at the time of reporting date. During the year ended 31 March 2018, it was
found by the management that the inventory sheets of 31 March 2017 did not include five pages
containing details of inventory worth INR 24.5 crores. Management has included this inventory
in the valuation of inventory as of 31 March 2018. Management has also explained that
considering the size of the company this may happen at times as the inventory is huge and lying
at various locations. Morever, the amount of the inventory is insignificant if considered as a
percentage of revenue or inventory. State how you will deal with this matter as an auditor in the
accounts of the company (towards substantive audit procedures and excluding the impact on
auditor’s assessment under Internal Financial Control Framework) for the year ended 31 March
2018.
a) Since the matter is not relevant / material to current period figures, no reporting in respect of this
matter would be required in the auditor’s report for the year ended 31st March 2018.
b) Management should restate the financials to adjust the error. Otherwise auditor may modify his
opinion on current year’s financial statements considering the materiality.
c) Considering the matter is not relevant / material to current period figures, the management may
include a note in the financial statements and basis that no reporting in respect of this matter would
be required in the auditor’s report for the year ended 31st March 2018.
d) Include an emphasis of matter because of the effects or possible effects of the error in the auditor’s
report for the year ended 31st March 2018.
46. IRC Ltd is in the business of construction and infrastructure. The company is listed in
India having an annual turnover of INR 2500 crores. The company has various projects
offices/ operations in India and outside India. The functional currency of the company and
its project offices is INR. The company has five joint ventures and various jointly
controlled operations. The company has been audited by Luthra & Associates, a firm of
Chartered Accountants, since beginning. During the year ended 31 March 2018, new auditors
were appointed as the statutory auditors of the company for the audit of the financial
statements for the year ended 31 March 2018. New statutory auditors have raised various
points related to the consolidation procedures followed by the company. Management did
not agree to the observations of the auditors as they have been following this since many
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years now and there was no observation of previous auditors in respect of the same.
Auditors have highlighted a point that joint ventures have been consolidated by the company in
its standalone financial statements. However, management has an argument that those are in
the nature of its operations and hence to reflect the true and fair view it would be appropriate to
consolidate the same in the standalone financial statements.
Please advise as auditors how would you deal with this matter.
a) Since the matter is related to consolidation, which is more relevant for consolidated financial
statements, hence no reporting in respect of this matter would be required in the auditor’s report for
the year ended 31 March 2018.
b) Auditor should look at the materiality and conservatism principle. Company has included extra
information in the financials which can be considered by the auditors and basis that clean audit
report should be given.
c) Management should restate the financials to adjust the error related to consolidation of joint
ventures in standalone financial statements. Otherwise auditor may modify his opinion on current
year's financial statements considering the materiality.
d) As per the requirements of accounting standard, joint venture if consolidated in standalone financial
statements should not be consolidated again in the consolidated financial statements. Basis that this
point should be dropped by the auditor.
47. WCO Private Ltd is a joint venture of WCO Gmbh and MSON Ltd. WCO Gmbh is a company based
out of Germany and is also listed in Germany. WCO Gmbh prepares its financial statements as
per IFRS. MSON Ltd is a company based out of India and is also listed in India. MSON Ltd prepares
its financial statements as per Ind AS. For the purpose of reporting of financial information to
WCO Gmbh and MSON Ltd for consolidation purposes, WCO Private Ltd uses reporting package
(which comprises of balance sheet, profit and loss and other notes to accounts). WCO Private Ltd
prepares its financial statements as per Ind AS.
WCO Private Ltd has taken useful life of some fixed assets in its Ind AS financial statements based
on their useful lives which is different from the useful lives of similar nature fixed assets taken
by WCO Gmbh (in line with their accounting policies). The reporting package of WCO Private Ltd
is audited before reporting to WCO Gmbh. The auditor audits the reporting package which is
prepared in line with the Group accounting policies of WCO Gmbh and mentions in his report
that the reporting package has been prepared as per the Group accounting policies of WCO
Gmbh.
WCO Private Ltd makes an adjustment for changes in useful lives in the reporting package on the
basis of Group accounting policies of WCO Gmbh. The auditor has asked the management to take
same useful lives of fixed assets in the reporting package which have also been taken by them in
its Ind AS financial statements. Management has not agreed with the view of the auditor. Please
suggest the right course of action.
a) Position taken by the management is correct.
b) Position suggested by the auditor is correct and if the management does not agree then auditor may
have to modify his report on the basis of materiality.
c) The matter relates to an estimate (i.e. useful life) which may be subject to changes under different
GAAPs and hence auditor should ignore this point.
d) The report would be for special purpose which should always be a clean report.
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48. DCHI Ltd is in the business of optics and imaging products. It is a wholly owned subsidiary of
Japanese company, DCHJ Ltd. DCHI Ltd has many expatriates (Expats) working in the company
whose tenure range from 2 to 5 years. During the course of audit of financial statements of the
company, the statutory auditors observed that the company has not been deducting and
depositing the TDS (tax deducted at source) on salaries of expats. The auditors assessed that the
impact of this can be significant as the company has many expats and salary amount is
significant. Management explained that TDS on salary of expats would lead to unnecessary
hassles to the expats and they serve the company only for a short period. How should the
auditors of DCHI Ltd deal with this matter?
a) Considering this as a statutory non-compliance, the auditor should look at the significance of the
matter and accordingly should report the same in CARO.
b) Considering this as a statutory non-compliance, the auditor should look at the significance of the
matter and accordingly should consider reporting this in the main report along with CARO.
c) The auditor should agree to the management’s view as the expats are temporary workers and this
may not be convenient for the management.
d) Since the matter relates to statutory liability only, the reporting requirements do not arise till the
time this become disputed.
49. You have only eight working hours for raw material inventory verification. Based on
your observation during these eight hours, you have to form an opinion with respect to
the correctness of inventory value calculated by the management. The company uses ERP system
for updating and recording raw material inventory. The ERP system of the company has passed
all the ITGC checks and inventory rates are calculated by ERP on moving average price (MAP)
basis. The company has done ABC analysis of all raw material inventory items and has vast
number of items in each category. You will form your opinion based on
a) Based on ABC analysis, check physical inventory of all “A” class items during allotted time and
matching it with ERP stock.
b) Understand the process of recording of inventory in ERP to ascertain potential weaknesses and
checking physical inventory of mostly “A” class items, some “B” class items and some “C” class items.
c) Check physical inventory of “A” class items as much as possible along with certain “B” class items and
certain “C” class items on sample basis in value wise descending order, compare the physical stock
with ERP system, and tabulate the result. The exercise should be continued till the end of allotted
eight hours.
d) Check physical stock of only those items, which have standard packaging so that verification is faster
considering the eight -hour time limit.
50. ABC Pvt Ltd had turnover of Rs. 39 crores as at 31 March 2018. The Company had taken a loan of
Rs. 39 crores from various banks and financial institutions during the year ended 31 March
2018. These loans were paid by the Company before 31 March 2018. The Company is of the view
that the auditors’ reporting on adequacy and operating effectiveness of internal financial
controls (IFC) under Section 143(3)(i) of the Companies Act, 2013 would not be required. The
auditors of the Company have a different view. What should be correct option?
a) The turnover of ABC Pvt Ltd is below required threshold and hence IFC will not be applicable.
b) The turnover of ABC Pvt Ltd is below required threshold and loan amount was fully paid before year
end i.e. 31 March 2018. Hence IFC will not be applicable.
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c) The turnover of ABC Pvt Ltd is below required threshold but loan amount was above required
threshold. Irrespective of the fact that loan was outstanding as at 31 March 2018 or not, IFC would
be applicable.
d) In the given case because of the repayment of the loan before year end i.e. 31 March 2018,
applicability of IFC becomes optional.
51. Which of the following is an example of Direct Entity level control?
a) Ethics policy
b) Human resources policy
c) Business performance reviews
d) Job roles & responsibilities of employees
52. The Advances Bank Ltd. has sanctioned overdraft limit of Rs. 44 crore to ASG Ltd. on the working
capital of the company as on 31st March 2015. As per bank norms the drawing power in the
overdraft account need to be reviewed on quarterly basis as per the audited stock statement of
the company. As a central statutory auditor for the year 2016-17, while verifying the advances
for the year ending 31st March 2017, you noticed that the bank has not obtained the stock
statement of ASG Ltd. for the two quarters ending 31st December 2016 and 31st March 2017 and
no provision of NPA has been made for this account in the financial statements for the year 2016-
17. What will be your decision as a central statutory auditor?
a) Classify the borrower’s account as NPA as the borrower’s financial position cannot be determined
due to non-submission of stock statement.
b) Instruct the bank to obtain the audited stock statement for both the quarters and review the credit
limit accordingly.
c) As per bank norms the drawing power need to be determined on the basis of stock statement and it
was more than three months old as on 31st March 2017, so the outstanding in the account will be
deemed as irregular.
d) You should give a qualificatory note in the audit report as per SA700.
53. RBJ Ltd. is a listed company engaged in the business of software and is one of the largest company
operating in this sector in India. The company’s annual turnover is Rs. 40,000 crores with profits
of Rs. 5,000 crores. Due to the nature of the business and the size of the company, the operations
of the company are spread out in India as well as outside India. Outside India, the company is
focusing more on US and European markets and the company has been able to establish its good
reputation in these markets as well.
During the course of the audit, the audit team spends significant time on audit of revenue– be it
planning, execution or conclusion. The audit team for this engagement is generally very big i.e. a
team of approx. 70-80 members. The company’s contracts with its various customers are quite
complicated and different. The efforts towards audit of revenue also involve
significant involvement of senior members of the audit team including the audit partner.
After completion of audit for the year ended 31 March 2019, the audit partner was discussing
significant matters with the management wherein he also communicated to the management
that he plans to include revenue recognition as key audit matter in his audit report. The
management was quite surprised to understand this from the auditor and did not agree with
revenue recognition to be shown as key audit matter in the audit report. As per the management,
the auditors didn’t have any modification and such a matter getting reported as key audit matter
would not go down well with various stakeholders and would significantly impact the financial
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positions of the company in the market. The auditors were not able to convince the management
in respect of this point and there was a difference of opinion.
You are requested to give your view in respect of this matter.
a) The concern of the management is valid. For such a large sized company, such type of matter getting
reported as key audit matter is not appropriate.
b) The assessment of the auditor is valid. Such a matter qualifies to be a key audit matter and hence
should be reported accordingly by the auditor in his audit report.
c) Reporting revenue as key audit matter when the auditor does not have observation in that area
leading to any modification in his report, would not be appropriate.
d) This being the first year of reporting key audit matters, the auditor should take a soft stand and
should avoid reporting such controversial matter in his report.
54. BDJ Ltd. is engaged in the business of providing management consultancy services and have been
in operation for the last 15 years. The company’s financial reporting process is very good and its
statutory auditors always issued clean report on the audit of the financial statements of the
company. The auditors were required to be rotated due to mandatory audit rotation
requirement of the Companies Act 2013.
RNJ & Associates, a firm of Chartered Accountants, was appointed as the new auditor of the
company for a term of 5 years and have to start their first audit for the financial year ended 31
March 2019.
The auditors had a detailed and clear discussion with the management that they will perform
their audit procedures in respect of opening balances along with the audit procedures for the
financial year ended 31 March 2019.
Management agreed with that and the audit was completed as per the plan. The auditors did not
have any significant observations and hence they communicated to the management that their
report will be clean. Management was quite happy with this and also requested the auditors to
share draft report before issuing the final report.
In the draft audit report, all the particulars were fine except ‘other matters paragraph’ wherein
the auditors gave a reference that the financial statements for the comparative year ended 31
March 2018 was audited by another auditor. Management asked the audit team to remove this
paragraph as the auditors had performed all the audit procedures on opening balances also. But
the auditors did not agree with the management.
Please advise the auditor or the management whoever is incorrect with the right guidance.
a) The contention of the management is valid. After performing all the audit procedures, an auditor
should not pass on the responsibility to another auditor by including such references in his audit
report.
b) Any auditor has two options, either to perform audit procedures on opening balances or given such
reference of another auditor in his report. An auditor cannot mix up the things like this auditor has
done. It is completely unprofessional.
c) In the given situation even if the auditor wants to give such reference, the management and the
auditor should have taken approval from the previous auditor at the time of appointment of new
auditor. In this case, it cannot be done.
d) The report of the auditor is absolutely correct and is in line with the auditing standards. An auditor
is required to include such reference in his report as per the requirements of the auditing standard.
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55. KJ Private Ltd. is engaged in the business of e-commerce wherein most of the operations are
automated. The company has SAP at its ERP package and is planning to upgrade the SAP version.
Currently, the version of SAP being used is fine but the higher version would lead to increased
efficiencies and hence the company is considering this plan which will also involve a huge outlay.
KPP & Associates, were appointed as the statutory auditors of this company for the year ended
31 March 2019 and the statutory audit firm has been working in this industry for long but most
of the work which the firm did was more of risk advisory or internal audit.
For the first time, this audit will be conducted and that’s why the audit team started obtaining
understanding of the operations of the company which included understanding of the SAP
system of the company.
However, the management of the company was not comfortable with this approach of the audit
team particularly because audit team was spending good time on understanding of the IT
systems of the company.
The management suggested that the auditors should limit their understanding and
should perform audit procedures rather than getting into business/ operations. But the auditors
have a different view on this matter and because of which work has got stuck.
In the given situation, please suggest what should be the course of action.
a) The approach of audit team to obtain detailed understanding of the company before starting with the
audit procedures is absolutely fine. If the auditors don’t understand the systems properly the audit
procedures may not be appropriate.
b) The management’s concern regarding the approach of the auditors seems reasonable. The auditors
are spending time on understanding of the systems/ business and not performing their audit
procedures.
c) This being a private company and that too into the business of e-commerce, the auditors should have
knowledge about the operations of the company through their understanding of the industry and
hence should not get into this process of obtaining detailed understanding at the client place.
d) The audit team could have planned their work differently. They should involve IT experts who would
have knowledge of the systems of the company and hence lot of time can be saved. Further in case of
such type of industry, involvement of IT experts is anyways required mandatorily as per the legal
requirements.
56. Yuvraj Ltd. is a non-banking financial company other than Nidhi company and is covered under
“Master Direction - Non-Banking Financial Companies Auditor’s Report (Reserve Bank)
Directions, 2016”. The NBFC has been in existence for the last 11 years and its operations are
considerable in size having a net worth of Rs. 299 crores.
The NBFC has new statutory auditors for the financial year ended 31 March 2019. The audit
report (including CARO) of the NBFC was clean for the financial year ended 31 March 2018. The
company had a planning discussion with the auditors of the company for the financial year ended
31 March 2019 who raised a point regarding the applicability of new set of accounting standards,
Indian Accounting Standards (Ind AS), on the NBFC for the financial year ended 31 March 2019
and have asked the management to ensure that its financial statements should be according to
that. This comes as a big surprise to the management who had assessed that Ind AS would not be
applicable to this NBFC because of the fact that CARO is applicable on this NBFC. There is a big
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disconnect on this matter between the auditor and the management. Please help by resolving
this matter.
a) Both the management and statutory auditors are not correct because Ind AS is not applicable to any
NBFC covered under “Master Direction - Non-Banking Financial Companies Auditor’s Report
(Reserve Bank) Directions, 2016”.
b) Management is correct because Ind AS is only applicable to NBFC which are also a Nidhi company. In
this case, CARO being applicable Ind AS cannot apply to this NBFC.
c) If the management does not agree with the view of statutory auditors then they should give adverse
opinion in their report and also report this to RBI.
d) Ind AS would not be applicable for financial year ended 31 March 2019 and hence the view of
statutory auditors is not correct.
57. Kshitij and a group of persons subscribed to the shares of JNN Ltd. JNN Ltd. had issued a
prospectus for issuance of shares against which these persons had subscribed the shares.
It was later on found that some information as included in the prospectus was misleading. These
persons filed a case against the company covering all the parties who were responsible for the
prospectus on the ground that the information contained in the prospectus was misleading and
they suffered losses by relying on that information.
The company consulted this matter with its legal consultants in respect of the course of action to
be taken and also consulted that if the outcome of the case goes against the company then which
all parties may be held liable and what could be the other consequences.
The prospectus included auditor’s report who had also given his clearance. Some of the experts
were also involved in respect of the information on which the litigation was filed. Subsequently,
it was proved that the contention of Kshitij and those persons was correct. It was held that the
directors, promoters of the company and the experts involved would be liable to pay
compensation to all these persons who had sustained losses or any damage.
The auditors of the company were also asked to make good the losses but they refused with an
argument that it is limited to directors, promoters and experts.
In this context, please suggest which of the following statement is correct.
a) The argument of the auditors is valid. As per the final outcome of the litigation the auditors were not
held liable. However, on moral grounds the auditors should contribute towards the losses suffered
by any person.
b) The argument of the auditors is valid. Since the final outcome of the litigation did not held them liable,
they cannot be asked to contribute towards the losses suffered by any person.
c) The argument of the auditors is not valid. The final outcome of the litigation covers the experts and
hence the auditors also get covered to contribute towards the losses suffered by the persons.
d) The outcome of the litigation seems to be completely wrong. The directors and experts were held
liable but along with that the statutory auditors, internal auditors, tax auditors, Company Secretary,
tax consultants and the legal advisors should also have been held liable. Further the promoters
cannot be held liable in such matters.
58. The audit of Selby & Co is at the last stage, where your team member is looking at
the presentation of items in the financial statements. You have instructed the team member
to follow the general instructions given under Schedule III of the Companies Act, 2013 for
the preparation and presentation of financial statements. The team member has shown you the
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following list where the company has not adhered to the general instructions given in Schedule
III. Which of the following from the list is not as per Schedule III?
a) The company had Rs. 32,500 in deferred tax liability and Rs.12,500 in deferred tax asset. The financial
statements include both the above figures at non-current liabilities and non-current assets
respectively.
b) The company had a loss in the current year, this debit balance of statement of profit and loss was
shown as a negative figure under the head “Surplus” in the notes to the financial statements.
c) In the current year the company had issued a performance guarantee and counter guarantees, but
these were not disclosed as contingent liability in the notes in the financial statements.
d) The company has clubbed all other expenses under the head ‘Other expenses on the basis of one
percent of the revenue from operations or Rs. 1,00,000 whichever is higher to be disclosed
separately.
59. VKPL & Associates, a firm of Chartered Accountants, have been operating for the last 5 years
having its office in Gurgaon. The firm has staff of around 25 persons with 3 Partners. The firm
has been offering statutory audit, risk advisory and tax services to its various clients. The major
work of the firm is for taxation services. The audit partners also discussed that the firm needs to
work significantly to improve the quality of the services they offer and that would also help the
firm to grown its business. Considering this objective, the firm started training programmes for
the staff which were made mandatory to be attended.
During one of the training programmes on quality, a topic was discussed regarding
the information that should be obtained by the firm before accepting an engagement with a new
client, when deciding whether to continue an existing engagement, and when considering
acceptance of a new engagement with an existing client. It was explained that the following
points may assist the engagement partner in determining whether the conclusions reached
regarding the acceptance and continuance of client relationships and audit engagements are
appropriate (as per SA 220):
i. The integrity of the principal owners, key management and those charged with governance
of the entity;
ii. The qualification of all the employees of the entity;
iii. Whether the engagement team is competent to perform the audit engagement and has the
necessary capabilities, including time and resources;
iv. The remuneration offered by the entity to its various consultants;
v. Whether the firm and the engagement team can comply with relevant ethical requirements;
and
vi. Significant matters that have arisen during the current or previous audit engagement, and
their implications for continuing the relationship.
We would like to understand from you which of the above mentioned points are relevant for the
topic under discussion or not?
a) i, ii, iv and v.
b) ii, iv, v and vi.
c) iii, iv, v and vi.
d) i, iii, v and vi.
60. AOP Pvt. Ltd. is currently engaged in closing its books of accounts for the financial year ended 31
March 2019. The company has always been a compliance-savvy and has also engaged
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consultants for the same. The business of the company has been stable over the years and
profitability has been good over the last 3 years.
The company got registered for GST on time. Since registration the company has been filing
statement of returns in GSTR 3B. However, Annual Return in GSTR 9 has not been filed by the
company.
Proper Officer issued a notice for failure to file Annual Return within 15 days. Even then, no
Annual Return was filed by the company within the time permitted. Please advise.
a) In such a case, the company becomes a ‘non-filer’.
b) In such a case, the company would remain fully compliant.
c) The Proper Officer would be required to discuss this matter with the GST auditors of the company.
d) GST auditor may resign in this situation.
61. NIC Pvt. Ltd. is a large private company engaged in the business of insurance for the last 9 years.
The company has expanded its business considerably over the years and have set up various
divisions across India.
The accounting and the operational systems of the company are centralized wherein
the accounts of all the divisions, trial balances and their balance sheets are prepared by the Head
Office. AJ & Co, a firm of Chartered Accountants, are the statutory auditors of this company and
audit all the divisions and the head office. The auditors have completed the audit of the financial
statements of the company for the year ended 31 March 2019 and the company’s financial
statements are approved.
Before the annual general meeting of the company, the company received a notice from the
Insurance Regulatory and Development Authority of India (IRDAI) which has asked the company
to respond within 7 days as to why this company breached the requirement of IRDAI guidelines
by having a single auditor for all the divisions and head office. The management of the company
has been doing this over the years and were never aware of this requirement. To respond to this,
the management has consulted many legal experts and also the auditors. They would also like to
understand your views as to how to respond to IRDAI in this critical situation. Please advise
carefully.
a) There has been no breach of IRDAI guidelines and accordingly the management should respond.
b) The management should request IRDAI to consider relaxation in respect of this provision for the
company for the current year as the audit is completed and it would be practically very difficult to
complete the entire process within the required timelines.
c) The management should respond to IRDAI that this provision is applicable to a company only after
15 years of its existence and hence there is no breach of IRDAI guidelines.
d) The management should respond to IRDAI that this provision should have been ensured by the
auditors and hence they should be held liable for this breach of provision of the IRDAI guidelines.
62. Shivam & Co LLP is a large firm of Chartered Accountants based out of Delhi-NCR. During the
financial year ended 31 March 2019, the firm Shivam & Co LLP got an intimation for the peer
review on 1 July 2018. The process of peer review got started and completed on 15 September
2018 which included the on-site review from 1 August 2018 to 16 August 2018.
Shivam & Co LLP objected to the time taken by the Peer Reviewer on-site, however, as per Peer
Reviewer, the entire review process got completed within 90 days from the date of notifying
the firm about its selection for review.
a) The time for complete review should be completed within 120 days.
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b) The time for on-site review should not have extended beyond 10 working days
c) The time for complete review should be completed within 60 days.
d) The time for on-site review should not have extended beyond 7 working days
63. XYZ Printers is a medium size printing press with turnover of Rs.100 crore for the financial
Year 2015-16. The company buy paper rims for its press from different suppliers. You are the
statutory auditor of the company for the year 2015-16 and the management has informed you
that the company has bought paper rims from one of the supplier who is related to one of the
director of XYZ Printers. What audit evidence do you need to collect for identifying and assessing
the risk of material misstatement associated with related party transaction?
a) Prior approval of the audit committee/shareholders for the transactions with the
supplier, materiality/ significance of the transactions on company’s financial statements,
agreement entered into with the supplier and internal control for the transactions with the supplier.
b) Only the prior approval of the audit committee/ shareholders for the transactions with the supplier
is sufficient.
c) Check whether the company has formulated any policy on dealing with related party transactions
and materiality of transactions.
d) As a statutory auditor you should check the internal controls and internal audit reports only.
64. You are the internal auditor of FCD Bank Limited for the year 2017-18 and the bank maintains
all the data on computer. You are instructed by your senior to verify the loan against fixed
deposits of the Navi Mumbai branch. As per the scope of audit, you need to ensure that proper
lien has been marked on all the fixed deposits against which loan has been issued. Which of the
following procedure you will follow for the same:
a) Ensure that all the fixed deposit receipts are attached along with the approved loan documents.
b) Ensure that all the fixed deposit receipts, against which the loan has been sanctioned, are discharged
in favour of bank and check that the lien is marked in the computer software.
c) Discuss the process followed for lien marking with the branch manager.
d) Ensure that all the fixed deposit receipts, against which the loan has been sanctioned, are discharged
in favour of bank, check that the lien is marked in the computer software and the fixed deposit should
be kept separately with the branch manager.
65. Mr. Vijay Kapoor, Chartered Accountant, has been appointed the statutory auditor by M/s.
XYZ Private Limited for the audit of their financial statements for the year 2015-16. The company
has mentioned in the audit terms that they will not be able to provide internal audit reports to
Mr. Vijay during the course of audit. Advise, whether Mr. Vijay should accept the proposed
audit engagement and on what grounds he can accept/ refuse the proposal?
i. As per SA 210 the auditor can refuse to accept the audit engagement as the management is not
giving access to internal audit reports which are necessary in determining the
internal controls in the company.
ii. There is no limitation on the scope of the auditor’s work, so the auditor should accept
the appointment.
iii. The auditor can accept the audit engagement if the management gives representation on
its responsibility.
Which of the following option is correct?
a) (ii) only
b) Both (i) and (iii)
c) Both (ii) and (iii)
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d) (iii) only
66. Best Manufacturers Limited is a manufacturing company and has entered into an agreement
In February 2017 with CISCA Brothers for buying land in order to set up their new
manufacturing unit. As per the agreement, Best Manufacturers were required to pay Rs.20 Lakhs
as signing amount and the balance amount was required to be paid in three instalments of Rs.25
lakhs each in the month of May, July and September 2017. The title deed for the land was to be
transferred after the payment of second instalment in July 2017, so in the accounts for the year
2016-17 of the Best Manufacturers the payment of signing amount was booked as an expense.
Your firm have been appointed as auditor of financial statements of Best Manufacturers Limited
for the year 2016-17. There is conflict between Financial Reporting Framework and Legal
requirement, so what will be the duty of your firm in such case?
a) Incorporate the changes in financial statements as per the legal requirement.
b) As the title deed has not been transferred in favour of the company in the year 2016-17, there is no
need to review the payment in terms of Accounting Standard or any other legal requirement.
c) Take management representation on the same.
d) Discuss the matter with management and ensure disclosure of the same in notes to accounts. In the
absence of same, the auditor may consider issuing modified opinion.
67. BSF Limited is engaged in the business of trading leather goods. You are the internal auditor
of the company for the year 2017-18. In order to review internal controls of the sales department
of the company you visited the department and noticed the work division as follows:
1) An officer was handling the sales ledger and cash receipts.
2) Another official was handling dispatch of goods and issuance of Delivery challans.
3) One more officer was there to handle customer/ debtor accounts and issue of receipts.
As an internal auditor do you think that there was proper division of work? If not, why?
a) There is proper division of work as the despatch and sales ledger maintenance work is allotted to
different officials.
b) Company has not done proper division of work as the receipts of cash should not be handled by the
official handling sales ledger.
c) Delivery challans should be verified by an authorised official other than the officer handling despatch
of goods.
d) Both (b) and (c) are correct.
68. Your firm has been appointed as the statutory auditors of GBM Private Limited for the
financial year 2017-18. While verification of company’s inventories as on 31st March 2018 you
found that the significant amount of inventories belonging to the company are held by other
parties. However, the company has kept all the records of the inventories maintained by other
parties, what is your duty as an auditor in order to ensure that third parties are not such with
whom the stock should not be held and the stock as disclosed in company’s records actually
belongs to them?
a) Ensure that the total stock including the stock with third party tally with the stock
register maintained by the company.
b) Obtain confirmation from the third party/s with whom the inventories of the company are held and
reconcile the same with stock register.
c) Conduct a physical verification of stock maintained with third party/s.
d) Obtain a written confirmation from the departmental head of the company for the
inventories maintained at other places as audit evidence.
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69. Bhishm Limited decided to appoint Mr. Rajvir, chartered accountants as the branch auditor for
the audit of its Lucknow branch accounts for the year 2017-18. The decision to appoint branch
auditor was taken by way of Board Resolution in the meeting of Board of Directors of the
company, held in April 2017, subject to shareholders’ approval in AGM of the company scheduled
to be held in June 2017. Meanwhile, the Principal Auditor of the company raised an objection
that the branch auditor cannot be appointed without his consent. Whether the objection raised
by company auditor is valid?
a) The objection raised by company auditor is not valid as per section 143(8) of the companies Act, 2013
and the Board has authority to appoint branch auditor but should be approved by shareholders in
General Meeting.
b) The objection raised by company auditor is valid as it is necessary to consult/obtain the consent of
Principal Auditor before appointing Branch Auditor.
c) The Board of Directors has no authority to appoint Branch Auditor so the objection raised
by Principal Auditor is valid.
d) The objection raised by company auditor is not valid as it is compulsory to appoint branch auditor as
per Sec.139 of the Companies Act, 2013.
70. Prakash & Co. Chartered Accountants are the internal auditor of Textbook Private Limited, for
the year 2016-17. You have been instructed by your senior to check the internal controls for
the investments done by the company during the year. While verifying the same you noticed that
the property documents, share certificates and other investment documents have been kept in a
safe custody locker, whose keys are kept with an authorised official of Accounts Department of
the company and none other than that official has access to locker. As an internal auditor do
you consider as material weakness in internal controls? If yes, how will you report the matter?
a) It cannot be considered as material weakness in internal control as the company might not have any
other reliable employee within in its staff members.
b) The safe custody locker should always be under the control of two authorised officials. Therefore, the
auditor should communicate such material weakness to the management or audit committee.
c) It is not material weakness to be reported as giving the keys to two or more persons can lead
a situation of confusion only.
d) The auditor should discuss the observation with the management and there is no need of any written
communication.
71. DSP Chartered Accountants have been appointed statutory auditors of Flakes Private Limited
for the year 2016-17. The company’s net profit has declined by 5% as compared to previous year
in spite of increase in sales. On verification of company’s profit & loss account it is noticed that
in the current year a huge amount is debited as loss on sale of fixed assets due to which the profits
has reduced. The auditor discussed the matter with management and was told that since the lot
of fixed assets were lying idle due to their non-working condition, they have been sold at less
than their written down value. As an auditor do you think that the fact regarding disposal of
assets should be disclosed in auditor’s report/ notes to accounts?
a) If the assets have been sold as per company’s policy and under applicable Financial
Reporting framework, then separate disclosure is not required in auditor’s report/ notes to accounts.
b) As the sale of assets has an impact on profit for the current year, it should be disclosed in the notes
to account of the Financial Statements.
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c) Even if the assets has been sold as per company’s policy and under applicable Financial Reporting
framework, the auditor should disclose the facts in Emphasis of Matter Paragraph of Audit Report as
the loss booked in Profit & Loss account has a material impact on the net profit of the company.
d) As the loss on sale of fixed assets is debited in Profit & Loss Account as per Accounting Standard,
there is no requirement of disclosure of the same in any report.
72. The auditor is required to evaluate management’s assessment of the entity’s ability to continue
as a going concern. Certain events/ conditions were identified that may cast significant doubt on
the entity’s ability to continue as a going concern but, based on the audit evidence obtained, the
auditor concludes that no material uncertainty exists, and no disclosures are explicitly required
by the applicable financial reporting framework regarding these circumstances.
If management’s assessment of the entity’s ability to continue as a going concern covers less than
twelve months from the date of the financial statements, the auditor is required to request
management to extend its assessment period to at least twelve months from that date. The
management of the company would provide the financial support letter extended by its parent
company.
In the given case, which one of the following options is correct?
a) The auditor may obtain the financial support letter from the parent company for a period of 12
months from year end date.
b) The auditor may obtain the financial support letter from the parent company for a period of 12
months from date of signing of the financial statements.
c) The auditor may obtain the financial support letter from the parent company for a period of 12
months or less from year end date.
d) The auditor may obtain the financial support letter from the parent company for a period of 12
months or less from date of signing of the financial statements.
73. Auditor's report on prior period i.e. year ended 31 March 2017 included a modified opinion on
an unresolved matter. If such matter is not relevant/ immaterial to the current period figures in
the financial statements for the year ended 31 March 2018, how should the auditors deal with
this matter in his auditor’s report for the year ended 31 March 2018?
a) Since the matter is not relevant/ material to current period figures, no reporting in respect of this
matter would be required in the auditor’s report for the year ended 31 March 2018.
b) Modify opinion on current period's financial statements because of the effects or possible effects of
the unresolved matter on the comparability of the current period and corresponding figures in the
auditor’s report for the year ended 31 March 2018.
c) Considering the matter is not relevant/ material to current period figures, the management may
include a note in the financial statements and basis that no reporting in respect of this matter would
be required in the auditor’s report for the year ended 31 March 2018.
d) Include an emphasis of matter because of the effects or possible effects of the unresolved matter on
the comparability of the current period and corresponding figures in the auditor’s report for the year
ended 31 March 2018.
74. DEF Ltd has outsourced its payroll to a third entity (service organization). What should be the
basis followed by the auditor of DEF Ltd in respect of audit of payroll?
a) The auditor should obtain Type 2 report as audit evidence to support his understanding of about the
design and implementation of controls at the service organisation. Type 2 report would also serve as
audit evidence about the operating effectiveness of those controls.
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b) The auditor may refer to the work of service auditor in his report containing an unmodified opinion
and diminish his responsibility for the audit opinion.
c) The auditor should obtain Type 1 or Type 2 report as audit evidence to support his understanding of
about the design and implementation of controls at the service organisation. Type 2 report would
also serve as audit evidence about the operating effectiveness of those controls.
d) Since the payroll process is outsourced to a service organization, there is nothing much an auditor
can do. Auditor should audit the other information for the financial statements and accordingly
should issue his opinion.
75. The profits of XYZ Ltd was Rs. 1000 crores for the financial year ended 31 March 2018. While
planning the audit of the financial statements of XYZ Ltd, the auditor determined the materiality
of Rs. 50 crores. The materiality was taken as 5% of profits of XYZ Ltd. During the course of audit,
on becoming aware of information during the audit, audit adjustments were passed which
resulted in significant decline in the profits of XYZ Ltd. Post audit adjustments, the profits
reduced to Rs. 500 crores. Because of the changes in profits of the company, the materiality may
get reduced to Rs. 25 crores.
XYZ Ltd is a large size company having a turnover of Rs. 20,000 crores for the financial year
ended 31 March 2018. Considering the size of the company, the auditor believes that materiality
amount should not go below Rs. 50 crores as that would result in significant increase in their
work and the work of the auditor may not get completed within the required timelines.
Accordingly, the auditor wants to change the basis of materiality by increasing the percentage of
profits or taking revenue as the basis for computation of materiality.
In the given situation, which one of the following options is correct?
a) Considering the size of the company, the auditor may be appropriate in changing the basis of
materiality to save his work.
b) The basis of materiality cannot be changed to save the increased work of auditor if there has been
additional information which resulted in decline of profits during the course of audit.
c) The auditor need not change the materiality basis. He can complete his audit using the materiality of
Rs. 50 crores which was determined initially by him while planning the audit.
d) Since the profits of XYZ Ltd have got reduced due to audit adjustments, the same cannot be
considered to be the basis for computation of materiality. Materiality has to be based on management
computed numbers.
76. M/s ABC & Co LLP has been appointed as the statutory auditors of WEF Ltd. Previous auditor of
WEF Ltd was M/s LMN & Co LLP. For the purpose of accepting position as the statutory auditors
of WEF Ltd, M/s ABC & Co LLP has sent a written communication to M/s LMN & Co LLP to obtain
no objection letter. In the given case, which one of the following options is correct?
a) M/s ABC & Co LLP needs to ensure that his appointment has been made by WEF Ltd as per the
provisions of the Companies Act 2013. Once that is done, ABC & Co LLP need not make any
communication with LMN & Co LLP.
b) M/s ABC & Co LLP needs to make a communication with LMN & Co LLP and obtain his no objection
letter for accepting the position of statutory auditors of WEF Ltd. Once this is done, M/s ABC & Co
LLP can be appointed by WEF Ltd. However, in that case it will not be mandatory to follow the
provisions of the Companies Act 2013.
c) M/s ABC & Co LLP needs to ensure that his appointment has been made by WEF Ltd as per the
provisions of the Companies Act 2013. ABC & Co LLP also needs to make a communication with M/s
LMN & Co LLP to obtain his no objection letter
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d) M/s ABC & Co LLP needs to ensure that his appointment has been made by WEF Ltd as per the
provisions of the Companies Act 2013. Once that is done, ABC & Co LLP need not make any
communication with LMN & Co LLP.
77. The auditor is required to audit a complete set of annual financial statements for the year ended
31 March 2018 prepared under Ind AS by the management solely for preparation of consolidated
financial statements of the holding company. Is the auditor required to include 'Other Legal and
Regulatory Requirements' to comment on matters such as maintenance of proper books of
accounts, compliance with accounting standards etc. in the audit report?
a) Since the auditor is required to audit complete set of annual financial statements for the year ended
31 March 2018 prepared under Ind AS, it will be mandatory for the auditor to include 'Other Legal
and Regulatory Requirements' in his audit report.
b) The audit report is not issued pursuant to requirement of section 143 and hence 'Other Legal and
Regulatory Requirements' is not required to be included in the audit report.
c) The audit report is not issued pursuant to requirement of section 143 and hence some of the
requirements related to 'Other Legal and Regulatory Requirements' may be included in the audit
report as per the discretion of the management of the Company.
d) The auditor may include 'Other Legal and Regulatory Requirements' in the audit report but he would
need approval of the Board of Directors for doing so.
78. A Ltd. is a company in the business of buying and selling modern and contemporary Indian arts.
Following are the assets (in millions) of the Company on 31 March 2017:
• Fixed assets: INR 10
• Investments: INR 20
• Loans and advances: INR 40
• Inventories: INR 400
• Trade receivables: INR 10
• Cash and cash equivalents: INR 20
The management has not obtained valuation of inventories as at 31 March 2017 from a valuation
expert in art forms. The auditors could not perform alternate procedures for valuation of
inventories. Therefore, auditors were not able to comment on the carrying value of inventories.
However, the auditors were able to obtain sufficient appropriate audit evidence in respect of all
other captions of financial statements. The auditors qualified their opinion in the auditor's
report. What are your views on auditors qualifying their report?
a) The auditors were able to obtain sufficient appropriate audit evidence in respect of all captions of
financial statements other than inventories. The auditors may qualify their opinion in the auditor's
report considering only one caption of the financial statements could be misstated.
b) Total assets amount to Rs. 500 million, out of which, Rs. 400 million pertaining to inventories
comprises of 80% of total assets. This signifies that the auditors are not able to obtain sufficient
appropriate audit evidence on 80% of the assets. Hence, possible misstatement, if any, could be
pervasive. Therefore, the auditors should issue adverse opinion.
c) Total assets amount to Rs. 500 million, out of which, Rs. 400 million pertaining to inventories
comprises of 80% of total assets. This signifies that the auditors are not able to obtain sufficient
appropriate audit evidence on 80% of the assets. Hence, possible misstatement, if any, could be
pervasive. Therefore, the auditors should disclaim their opinion.
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d) Inventory is considered to be an important component of the financial statements. This is one of the
items wherein significant risk may exist from the audit’s perspective. Auditor should take cognizance
of this fact and accordingly decide his opinion –qualified/ adverse/ disclaimer.
79. X Ltd is in the business of trading of industrial equipments. The Company’s operations are based
out of India and Germany. For the purpose of hedge, the company has taken forward contracts.
The Company is Phase 1 company as per the requirements of Ind AS and hence forward contracts
have been fair valued for the purpose of preparation of financial statements. The Company also
got its property, plant and equipment fair valued. The Company has shown its fair valuation
reports in respect of above items to the auditors. What should be the responsibility of the
auditors in this case?
a) The auditor may refer to the work of the valuer in his report containing an unmodified opinion and
accordingly reduce the his responsibility for the audit opinion.
b) The auditor may refer to the work of the valuer in his report for forward contracts but not for
property, plant and equipment, containing an unmodified opinion and accordingly reduce his
responsibility for the audit opinion.
c) The auditor may refer to the work of the valuer in his report for property, plant and equipment but
not for forward contracts, containing an unmodified opinion and accordingly reduce his
responsibility for the audit opinion.
d) The auditor may involve his own expert for the purpose of audit of fair valuation of forward contracts
and property, plant and equipment. But in any case; he cannot reduce his responsibility for the audit
opinion by referring to the work of the valuer in his report.
80. PQR Ltd has three subsidiaries, two associates and five joint ventures. The standalone
and consolidated financial statements of PQR Limited are audited by M/s Jain & Co LLP
(Group auditors) for statutory reporting in India. The standalone financial statements of other
group companies of PQR Ltd are audited by some other audit firms (component auditors). For
the purpose of consolidation, the instructions sent by M/s Jain & Co LLP to component
auditors state that the principal auditors would be working on the principle of division
of responsibility.
The instructions further state that the Group auditor may review selected working papers of the
component auditors covering identified areas of emphasis, if required.
Considering the local regulatory requirements, the component auditors do not agree to get their
working papers reviewed from the Group auditors. Please choose the course of action for the
Group auditors in the given case.
a) As per the Standards of Auditing in India, “When the principal auditor has to base his opinion on the
financial information of the entity as a whole relying upon the statements and reports of the other
auditors, his report would be stating the division of responsibility for the financial information of the
entity by indicating the extent to which the financial information of components audited/reviewed
by the component auditors have been included in the financial information of the entity.” The Group
auditor is not required to audit the financial statements of the components.
b) For the purpose of consolidation, the Group auditor would have to issue his opinion on the
consolidated financial statements which would comprise the financial statements of the components
and hence the Group auditor is required to audit the financial statements of the components.
c) For the purpose of consolidation, the Group auditor would have to issue his opinion on the
consolidated financial statements which would comprise the financial statements of the components.
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Hence the Group auditor may either audit the financial statement s of the components or review the
work of the component auditors.
d) For the purpose of consolidation, the Group auditor would have to issue his opinion on the
consolidated financial statements which would comprise the financial statements of the components.
Hence the Group auditor would be required to review the work of the component auditors. If the
component auditors do not provide access to their working papers to the Group auditors, the Group
auditors may qualify his auditors report.
81. M/s ABC & Co LLP has been appointed as the statutory auditors of WEF Ltd. Previous auditor of
WEF Ltd was M/s LMN & Co LLP. WEF Ltd is subsidiary of WEF Holding Ltd, UK. For the purpose
of consolidation, WEF Ltd is required to send financial information of the company for the year
in the Reporting package comprising of balance sheet, statement of profit and loss, statement of
cash flow and notes to accounts. Since WEF Holding Ltd has many group companies across the
globe, to ensure consistency in reporting of number s under various heads, a standard reporting
package is used by all the group companies. The group companies do not have any provision to
change the groupings/ classifications which need to be reported as per the Group accounting
manual which is prepared as per the Group’s accounting policies. Group follows IFRS.
ABC & Co LLP is also required to audit the reporting package of WEF Ltd as per IFRS. During the
course of audit, the auditor observed that some classifications are not in line with IFRS, however,
due to the limitation of the reporting package no such corrections can be made. How should the
auditor deal with this?
a) Since all the classifications are in line with the requirements of the Group as per the Reporting
package, the auditor need not change anything and should issue clean report.
b) Since all the classifications are in line with the requirements of the Group as per the Reporting
package, the auditor need not change anything and should issue clean report. However, the auditor
may also include a note separately in respect of the corrections required.
c) Since all the classifications are in line with the requirements of the Group as per the Reporting
package, the auditor cannot change anything. However, the auditor is the auditor should issue
qualified report if the amount is material.
d) Since all the classifications are in line with the requirements of the Group as per the Reporting
package, the auditor need not change anything. However, the auditor should issue his report as per
the Group accounting manual instead of IFRS.
82. AKB Ltd is a large sized company having diversified business activities. The
company’s operations are spread across various locations within India and outside India. The
company has many units and plants. The no of transactions of the company is large and it uses
SAP as its ERP package. The company appointed LLM & Associates as their new tax auditors
for the current year. Tax auditors were reviewing the statutory compliances and observed
that currently there is no process of the company to check whether TDS has been
correctly deducted on all transactions or not. Since the transactions of the company may be
running in thousands and covers various provisions of TDS, the management believes that such
a process cannot be established. Also in the past this exercise was never done and no case of any
short/non-deduction of TDS has been reported in Form 3CD in the past. How should the tax
auditor deal with this matter in his report?
a) Management is right and hence it should be ignored by the tax auditor.
b) Tax auditor should test check and basis that he should close this point.
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c) Management should provide a reconciliation to the auditor reconciling the accruals/ expenses with
TDS deducted during the year to ensure TDS is deducted appropriately. If the same is not available,
tax auditor should qualify his report.
d) Management should set up a process as per the requirement of the tax auditor. For the current year,
tax auditor should obtain management representation on this matter and should close this
accordingly.
83. This year you were included in the audit team with portfolio of few not-for- profits organisations.
MJ Hospital was one such non-for-profit organisation with the year end 31 March 2018. MJ
Hospital was government funded organisation and was obliged to deliver value for money. As a
result, you were aware that many of the internal controls in MJ Hospital will be focused on
providing the best service possible at the lowest price. Which of the following controls may not
be implemented by MJ Hospital?
a) Time card clocking in to ensure that the employees including resident doctors are only paid for those
hours worked
b) Strict controls over the authorisation of overtime to ensure it is only worked where really needed
c) There are any restrictions imposed by the objectives and powers given by hospital’s governing
documents
d) A recognised plan of the organisation's structure clearly showing the areas of responsibility and lines
of authority and reporting.
84. The management of ABC Recruitment Ltd has approached RK & Associates to conduct the audit
for the year ended 31 March 2018. Being a recruitment company, it has vital personal
information of prospective candidates who are looking for job opportunities through this
company. Also, ABC keeps information about the various job offers from different companies.
You are currently looking at the controls present to protect the company’s vital information.
Which of the following is the best program for the protection of a company’s vital information
resources from computer viruses?
a) You verify the policy document which has stringent corporate hiring policies for staff working with
computerized functions.
b) You observe that there is an existence of a software program for virus prevention.
c) You also verify that there are prudent management policies and procedures instituted in conjunction
with technological safeguards.
d) You identify that there are physical protection devices in use for hardware, software, and library
facilities.
85. As the external auditor of Olive Co, you have performed analytical procedures which have
highlighted a 36% increase in purchases compared to the previous period. Olive Co
manufactures tools required for heavy machinery and the year under audit is 31 March 2018.
Which further audit procedures would you perform in response to this?
1) For a sample of purchase invoices around the period end, inspect the dates and compare with
the dates of goods received notes and the dates recorded in the purchases and payables to
confirm the application of correct cut-off.
2) Trace a sample of shipping documentation to purchases invoices and into the purchases and
payables ledger.
3) For a sample of purchase transactions recorded in the ledger, vouch the purchase invoice
back to supplier orders and shipping documentation.
4) For a sample of purchase invoices, examine for proper classification into purchase accounts.
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a) Procedure (1) and (2)

b) Procedure (1) and (3)
c) Procedure (2) and (4)
d) Procedure (3) and (4)
86. You are the middle of audit of one of your client Amy & Co for the year ended 31 st March 2018.
Following is the bank reconciliation statement for the month end 31st March 2018
Rs.
Balance as per Bank Statement 31/03/2018 1,35,111
Add: Deposit Outstanding
30 March 1,10,222
31 March 25,000 1,35,222
2,70,333
Less: Outstanding Cheques
240 20,250
272 12,300.40
274 25,000
276 21,345.25
280 19,000
281 22,200 120,085.65
Balance as per General Ledger 31/03/2018 1,50,237.35
Which of the following procedures would not be followed to verify the bank reconciliation
statement?
a) Verify by checking paying-in slips that the uncleared bankings (deposits outstanding– ref (112 and
113) were paid in prior to the year end, and review whether they cleared quickly after the year end.
Any that have not cleared soon after the year end should be investigated.
b) Verify that the year-end balance per the general ledger according to the
reconciliation (Rs.1,50,237.35) agrees with the general ledger account balance at 31 March 2018 and
that this has been properly reflected in the financial statements.
c) Scrutinise the cash book and bank statements before and after the period end for exceptional entries
or transfers which have a material effect on the balance shown to be in hand.
d) Agree the balance per bank statement at 31 March 2018 as shown on the reconciliation
(Rs.1,35,111.00) to the bank statement and to the amount for that account shown on the bank letter.
87. You are an audit senior at Ghaisas & Co and are currently performing the final audit of Bingham
Co. for the year ended 31 March 2018. The company is a manufacturer and retailer of table
lamps. The current audit senior is ill, and you have been asked to complete the audit of payroll
in their absence. On arrival at the head office of Bingham Co, you determine the following data
from a review of the current year and prior year audit files:
• As at 31 March 2017, the company had 350 employees
• On 1 April 2017, 10% of staff were made redundant, effective immediately, due
to discontinuation of a product line
• On 1 June 2017, all remaining staff received a 5% pay rise
• Over the course of the year, sales levels met performance targets which resulted in a fixed
bonus of Rs.8,000 being paid to each employee on 31 March 2018.
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The following audit evidence has been gathered relating to the accuracy of wages and salaries
for Bingham Co.
1) Proof in total calculation performed by an audit team member
2) Written representation from the directors of Bingham Co confirming the accuracy of wages
and salaries
3) Verbal confirmation from the finance director of Bingham Co confirming the accuracy of
wages and salaries
4) Recalculation of the gross and net pay for a sample of employees by an internal audit team
member of Bingham Co.
What is the order of reliability of the audit evidence starting with the MOST RELIABLE first?
a) Audit evidence - 1, 2, 3, 4
b) Audit evidence - 1, 4, 2, 3
c) Audit evidence - 4, 1, 2, 3
d) Audit evidence - 4, 1, 3, 2
88. Your firm has been appointed as the auditors of Stuart Limited, a well-established consumer
goods manufacturing company. During the audit you were provided with various oral
representation during meetings and discussions. While finalizing the audit you requested the
management to provide such representations in writing. The management has however
informed you that they are not accustomed to providing any representations to the external
auditor in writing. The management is of the view that it has provided full access to whatever
records, documents and evidences were available with it without any exception and that now it
is the auditor’s responsibility to correlate the same with the oral representations.
What would be your response to the above?
a) Agree with management since you have been provided full access to whatever records, documents
and evidences were available with management without any exception
b) Document that management gave oral representation in audit working paper and issue unmodified
opinion.
c) After corroborating the audit evidences, consider this as a scope limitation and then consider to
express a qualified opinion or disclaimer of opinion or re-assess the continuation of engagement with
the audit client if integrity of the management is in question.
d) Give unmodified opinion and include the observation in “other matter” paragraph, stating that the
written representations of the concerned matters could not be obtained.
89. The year-end audit of your client Alpha Co began shortly after the reporting period 31 March
2018. Alpha Co deals in manufacture and retailer of stationery items. Last year, you had worked
on the non-current assets. This year you requested your manager to give you the work on
revenue. You have been given a list of procedures to carry out on revenue and you have decided
to prioritise those which deal with the key assertion of occurrence. The revenue for the current
year has increased y 10% from the previous year. Which of the following substantive procedures
provide evidence over the OCCURRENCE assertion for revenue?
1) Compare the reported revenue figure to the budget and to the previous year, investigating any
significant differences
2) Select a sample of goods despatched notes (GDNs) and agree to invoices in the sales day book
3) Select a sample of invoices from the sales day book and agree to GDNs of Alpha Co
4) Select a sample of invoices and recalculate the invoiced amount agreeing to price list shared by the
finance director of Alpha Co.
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a) Procedure 1 and 3
b) Procedure 1 and 2
c) Procedure 2 and 4
d) Procedure 3 and 4
90. You are an audit senior of Pendse Accountants and are currently conducting the audit of Stalwart
Co for the year ended 31 March 2018. Below is an extract from the list of supplier statements as
at 31 March 2018 held by the company and corresponding payables ledger balances at the same
date along with some commentary on the noted differences:
Supplier Statement Balance (Rs.) Payables Ledger Balance (Rs.)
AB & Co 90,000 70,000
CD & Co 1,85,000 1,15,000
AB Co: The difference in the balance is due to an invoice which is under dispute due to faulty
goods which were returned on 29 March 2018.
CD Co: The difference in the balance is due to the supplier statement showing an invoice dated
27 March 2018 for Rs.70,000 which was not recorded in the financial statements until after the
year end. The payables clerk has advised the audit team that the invoice was not received until
3 April 2018.
The audit manager has asked you to review the full list of trade payables and select balances on
which supplier statement reconciliations will be performed. Which of the following statement is
correct in respect of including or excluding from your sample?
a) Exclude with material balances at the year-end.
b) Exclude suppliers which have a high volume of business with Stalwart Co
c) Include major suppliers with nil balances at the year-end.
d) Include suppliers where the statement agrees to the ledger.
91. The audit work of Amrut & Co is underway for the year ended 31 March 2018. Your
audit manager asked you to look at the completeness of trade payables. The supplier statement
balance for one of entity’s supplier PR Co showed a difference of Rs.62,000 higher than recorded
in the payables ledger balance. Which of the following audit procedures should be performed in
relation to the balance with PR Co to determine if the payables balance is understated?
a) Inspect the goods received note to determine when the goods were received
b) Inspect the purchase order to confirm it is dated before the year end
c) Review the post year-end cashbook for evidence of payment of the invoice
d) Send a confirmation request to PR Co to confirm the outstanding balance
92. One of your team members has taken leave for her final exams due in 15 days. She was working
on the accruals balance of Karce & Co which could not be completed before she went on study
leave. The audit manager has asked to complete the task on accruals. For the current year ended
31 March 2018, there has been an increase in the accruals by 15% as compared to the previous
years. Which of the following procedures should be performed to determine if the accruals are
accurate, valued and allocated correctly?
a) Test transaction around the year end to determine whether amounts have been recognised in the
correct financial period.
b) For a sample of accruals, recalculate the amount of the accrual to ensure the amount accrued is
correct.
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c) Confirm payment of net pay per payroll records to cheque or bank transfer summary for the accruals
on salaries.
d) For a sample of vouchers, compare the dates with the dates they were recorded in the ledger for
application of correct cut-off.
93. The draft financial statement of Tex Co for the year ended 31st March 2018 show the following
information:
Rs.
Revenue 52,00,000
Cost of Sales 37,00,000
Gross Profit 15,00,000
Trade Receivables 18,00,000
Trade Payables 10,00,000
The auditor has confirmed the trade payables payment period with the Tex Co staff as 98 days
during the current year. This was compared with the payment period with the last year records
and found out there has been a decrease of 20 days in average. Which of the following audit
procedures will provide the auditor with the assertion of valuation of trade payables at the year
end?
a) Review the trade accounts payables listing to identify any large debits which should be recorded as
trade receivables or deposits
b) For a sample of vouchers, inspect supporting documentation, such as authorised purchase orders.
c) Test transactions around the year end to determine whether amounts have been recognised in the
correct financial period.
d) Compare the amounts owed to a sample of individual suppliers in the trade accounts payables listing
with amounts owed to these suppliers in the previous year.
94. The main operations of PT Co are conducting training programs for the newly
qualified commerce graduates to make them ready for the jobs available. The company owns a
2-storey building in the centre of the city, where they could attract lot of students for the courses
offered. Currently, the trainings are provided in-house. PT has plans to expand and offer online
courses as well. You are the audit senior for PT Co for the year ended 31 March 2018 and in
charge of audit work on non-current assets. New furniture and white boards have been
purchased during the current year. The total non-current assets shown in the financial
statements stands at Rs.289.5 lakhs. Which of the following audit procedures are appropriate to
test the VALUATION assertion for non-current assets?
1) Ensure disposals are properly accounted for and recalculate gain/loss on disposal
2) Recalculate the depreciation charge for a sample of assets ensuring that it is being applied
consistently and in accordance with Ind AS 16 Property, Plant and Equipment
3) Review the repairs and maintenance expense account for evidence of items of a capital nature
4) Review board minutes of PT for evidence of disposals during the year and verify that these are
appropriately reflected in the non-current assets register
5) Agree a sample of additions included in the non-current assets register to purchase invoice
and cash book. Mainly the new furniture purchased during the year by PT Co.
6) Review physical condition of non-current assets for any sign of damage.
a) Audit Procedures 1, 2, 5 and 6
b) Audit Procedures 1, 3, 4 and 6
c) Audit Procedures 2, 3, 4 and 5
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d) Audit Procedures 3, 4, 5 and 6

95. The audit team has obtained the following results from the trade receivables circularization of
Oak Co for the year ended 31st March 2018
Customer Balance as per Balance as per Customer Comment
Sales Ledger (Rs.) Confirmation (Rs.)
M Co 2,25,000 2,25,000
N Co 3,50,000 2,75,000 Invoice raised on 28/03/2018
O Co 6,20,000 4,80,000 Payment made on 30/03/2018
P Co 5,35,000 5,35,000 A balance of Rs. 45,000 is
currently being disputed by P Co
R Co 1,78,000 No Reply
Which of the following statements in relation to the results of the trade

receivables circularisation is TRUE?
a) No further audit procedures need to be carried out in relation to the outstanding balances with M Co
and P Co
b) The difference in relation to N Co represents a timing difference and should be agreed to a pre-year-
end invoice
c) The difference in relation to O Co represents a timing difference and should be agreed to pre-year-
end bank statements
d) Due to the non-reply, the balance with R Co cannot be verified and a different customer balance
should be selected and circularised
96. For the current year audit of Beta Co for the year ended 31 March 2018, your manager suggested
that we could use computer-assisted audit techniques. He asked you to plan the audit work on
trade receivables. The financial statements of Beta Co showed trade receivables of Rs.243 crores
in the current year. Which of the following procedures could not be performed by using
computer-assisted audit techniques?
a) Selection of a sample of receivables for confirmation
b) Calculation of receivables days
c) Production of receivables' confirmation letters
d) Evaluation of the adequacy of the allowance for irrecoverable receivables
97. Top Pizzas Co-operates a large chain of fast food restaurants. You are an audit supervisor of
Shivam & Associates and are currently preparing the audit programmes for the audit of Top
Pizza’s financial statements for the year ended 31 March 2018. You are reviewing the notes of
last week’s meeting between the audit manager and finance director where two material issues
were discussed. One of the issue was on Property, plant and equipment of the entity.
In the past Top Pizza has received negative press reports over the condition of its fast food
restaurants, with comments suggesting they are old fashioned and tired looking. Therefore
during the year the company undertook a full review of all its assets and carried out extensive
refurbishments to the majority of its restaurants. This review resulted in a significant amount of
ageing fixtures and fittings being disposed of and a significant amount of capital expenditure was
invested in all remaining restaurants.
Which of the following is not a substantive procedure to be used by the auditor to
obtain sufficient and appropriate audit evidence on property, plant and equipment?
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a) Obtain a breakdown of additions, cast the list and agree included in the non-current assets register
to confirm completeness of fixtures and fittings.
b) Select a sample of additions and agree cost to supplier invoice to confirm valuation.
c) Verify rights and obligations by agreeing the addition of fixtures and fittings to a supplier invoice in
the name of Top Pizza.
d) Review the evidence for recalculation of depreciation charge on the additions and disposals made in
the year of acquisition according to the company policy.
98. RK Co is a retailer in stationery items and runs 10 shops in and around South Mumbai. In the
audit plan prepared for the current year ended 31 March 2018, you have included statistical
sampling method for testing the accounts payable balance. You asked your audit senior to review
the results of some statistical sampling testing, which resulted in 20% of the payables balance
being tested. The testing results indicate that there is a Rs. 58,000 error in the sample: Rs. 30,000
which is due to invoices not being recorded in the correct period as a result of weak controls and
additionally there is a one-off error of Rs. 28,000 which was made by a temporary clerk.
What would be an appropriate course of action on the basis of these results?
a) The error is immaterial and therefore no further work is required
b) The effect of the control error should be projected across the whole population
c) RK Co should be asked to adjust the payables figure by Rs. 58,000
d) A different sample should be selected as these results are not reflective of the population
99. Sula Hotels Co- operates a number of hotels providing accommodation, leisure facilities and
restaurants. You are an audit supervisor of Pai & Co, conducting the audit of Sula Hotels Co for
the year ended 31 March 2018. The following information has been brought to your attention:
Non-current assets: Sula Hotels Co incurred significant capital expenditure during the year
updating the leisure facilities at several of the company’s hotels. Depreciation is charged on all
assets monthly on a straight- line basis (SL) and it is company policy to charge a full month’s
depreciation in the month of acquisition and none in the month of disposal. The rates are as per
Schedule II of the Companies Act, 2013.
The audit team has obtained the following extract of the non-current assets register detailing
some of the new leisure equipment acquired during the year.
Extract from Sula Hotels Co’s non-current assets register:
Date Description Cost Depreciation Charge for Carrying

Policy the Year Amount
(Rs.) (Rs.)
01/08/2017 8 treadmills 3,60,000 36 months SL 80,000 2,80,000
15/08/2017 10 exercise bikes 1,50,000 3 years SL 50,000 1,00,000
17/11/2017 10 rowing machines 2,00,000 36 months SL 44,444 1,55,556
19/11/2017 8 cross trainers 1,20,000 36 months SL 16,667 1,03,333
8,30,000 1,91,111 6,38,889

In order to verify the depreciation charge for the year, the audit team has been asked
to recalculate a sample of the depreciation charges. The audit team has also been asked to carry
out detailed testing on the valuation of non-current assets. Which of the following correctly
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calculates the depreciation charge for the new assets for the year ended 31 March 2018 and the
resultant impact on non-current assets?
a) Depreciation should be Rs.1,57,777, assets are understated
b) Depreciation should be Rs. 2,76,667 assets are understated
c) Depreciation should be Rs.1,34,722 assets are overstated
d) Depreciation should be Rs.1,74,444, assets are overstated
100. You are an audit manager with Shah & Associates and are currently performing the final audit of
Kapoor Industries for the year ended 31 March 2018. The company is a manufacturer and
retailer of shoes and boots. The audit senior has provided you with the following information
from the review of the current year and prior year audit files, to complete the audit of payroll As
at 31 March 2018, Kapoor Industries had 450 full time employees and 50 part time employees.
• One of the product lines was discontinued during the year, and on 1 May 2017, 10% of full-
time staff and all the part time employees were made redundant. This was from immediate
effect.
• 10% of the employees were promoted and they received a 8% rise in their salaries.
• Over the course of the year, sales levels met performance targets which resulted in a fixed
bonus of Rs.15,000 being paid to each employee on 31 March 2018.
Which of the following are substantive ANALYTICAL PROCEDURES to be performed to complete
the audit work for wages and salaries of Kapoor Industries?
1) Trace and agree the total wages and salaries expense per the payroll system to the draft
financial statements of Kapoor Industries.
2) Recalculate the gross and net pay for a sample of full time and part time employees, agree to
payroll records and investigate any discrepancies.
3) Compare the current year total payroll expense to the prior year and investigate
any significant differences
4) Perform a proof in total calculation and compare expected expense to actual expense within
the draft financial statements
a) Analytical procedure 1 and 2
b) Analytical procedure 1 and 3
c) Analytical procedure 2 and 4
d) Analytical procedure 3 and 4
101. You are the audit manager responsible for the audit of AB & Co. AB specializes in the manufacture
of electricals goods for domestic use, such as irons, kettles, toasters, vacuum cleaners, coffee
makers. The external audit of AB for the year ended 31 March 2018 is at the review and
finalisation stage. The draft financial statements show a profit after tax of Rs.52.5 crores and a
total assets of Rs. 190 crores. The following issue has been noted by the audit senior. The
company has set up a provision for warranty costs of Rs.3.45 crores in the financial year. These
costs are not deductible for tax purposes until AB pays the claims. The company has not made
any adjustments for the provision in the financial statements. The tax rate is 20%.
Which of the audit evidence would not be appropriate to be added in the audit working papers
relating to the above provision?
a) Copy of the assumptions and calculations from the management of AB to arrive at the figure of Rs.3.45
crores.
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b) The provision amount seems to be material since, 6.6% of the profit after tax. Auditor need to
consider qualifying the audit report.
c) Calculation of the deferred tax asset as per Ind AS 12 Income Tax, since there is a deductible
temporary difference arising on the provision.
d) Written representation point from the management of AB confirming the amount of provision in
respect of warranties.
102. Your audit firm has been appointed as auditors of Red White Limited a manufacturing entity. The
year under audit is 31 March 2018. While verifying account heads with high risk areas like
revenue and inventory, you identify certain issues for which you are not provided satisfactory
replies and documents by the client. At the same time Red White Limited approaches you to
change the scope of the engagement. They give you the reason that they have misunderstood the
scope of assignment earlier. What course of action would you adopt in this situation?
a) Accept the revised terms of engagement, as the change is resultant of change in circumstance which
affect entity’s requirements or misunderstanding concerning nature of service originally requested
and consider aforesaid as reasonable basis for requesting change in the engagement.
b) Accept the revised terms of engagement and record justification of the change in the engagement
letter.
c) Disagree to the revised terms and withdraw from the engagement where possible under applicable
law and regulations and determine whether there is any obligation, either contractual or otherwise,
to report the circumstance to other parties such as those charged with governance, owners or
regulators.
d) Disagree to the revised terms of the engagement and have your terms of increased fees since the
scope of the engagement has changed.
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Answers
1 b 26 c 51 c 76 c 101 b
2 d 27 b 52 c 77 b 102 c
3 a 28 a 53 b 78 c
4 b 29 a 54 d 79 d
5 b 30 a 55 a 80 a
6 b 31 d 56 d 81 c
7 d 32 a 57 c 82 c
8 c 33 c 58 a 83 c
9 d 34 c 59 d 84 c
10 d 35 c 60 a 85 b
11 b 36 a 61 a 86 c
12 d 37 b 62 d 87 b
13 c 38 c 63 a 88 c
14 a 39 b 64 b 89 a
15 c 40 b 65 b 90 c
16 d 41 c 66 d 91 a
17 a 42 c 67 d 92 b
18 b 43 c 68 b 93 d
19 c 44 d 69 a 94 a
20 a 45 b 70 b 95 b
21 d 46 c 71 c 96 d
22 a 47 a 72 a 97 d
23 b 48 b 73 b 98 b
24 a 49 c 74 c 99 a
25 d 50 c 75 b 100 d
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INTEGRATED CASE SCENARIO

MCQs
INTEGRATED CASE SCENARIO: 1
PQR Ltd., is one of the leading companies in the cement manufacturing industry. Right from
its incorporation, it has been a subsidiary of GDP Ltd. The total shareholding of GDP Ltd
includes the following:
• The Government of Puducherry and Government of Delhi each hold 19% of the paid -up share
capital,
• The Government Gujarat’s share is 13.5%.
On 27th August 2019, Mr. JJ, the auditor of PQR Ltd. had resigned from his post, citing
personal reasons. He had forgotten to inform about his resignation to the concerned authorities.
The casual vacancy which was created by the outgoing auditor was filled up with the appointment
of FDI & Co. Chartered Accountants as statutory auditors of PQR Ltd. However, few shareholders of
the company raised certain objections, which was later settled without any problems. As a part of
the terms and conditions of appointment as auditors, FDI & Co. agreed to do the following:
• Charge fees at 5% of the paid-up capital plus 0.1% of net profit of the company (however Mr. JJ
had agreed to charge only Rs. 45,000/-),
• Select and recruit personnel, conduct training programmes for and on behalf of PQR Ltd.
The company was having an annual turnover of Rs. 200 crores, and hence it was also liable to tax
audit under section 44 AB of Income Tax Act, 1961.
During the current financial year 2019-20, PQR Ltd. had changed its method of
accounting compared to the previous financial year (2018-19) and had reported a closing stock of
raw material amounting to Rs. 2 lakhs only as on 31st March 2020. Also, the company had borrowed
a sum of Rs. 10 crores equally from two public sector banks and two Non-Banking
Financial Companies. It had also repaid few deposits amounting to Rs. 75 lakhs to the deposit
holders.
As far as FDI & Co. Chartered accountants are concerned, Mr. F, who is one of the partners of the
firm (NOTE- Mr. F does not sign the financials of PQR Ltd.) had borrowed a sum of Rs. 3.89 lakhs
from GDP Ltd. He had also purchased goods worth Rs. 1.09 lakhs from the company. Both the sum
borrowed, and the cost of the goods bought are not yet paid by Mr. F. Another partner of the firm,
Mr. I, who is also responsible for signing the financials statements of PQR Ltd. was also engaged in
the teaching profession during his free time. Upon hearing about the efficient services provided by
FDI & Co. Chartered accountants, they were approached by XYZ Cooperative Society to act as their
statutory auditor for the upcoming financial years. The firm agreed to the offer and had the
following options in mind with respect to the fees to be charged from them:
i. To charge fees as percentage of Net Profits, or
ii. To charge fees of Rs. 101/-.
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Question No.: (1-5)

1) To whom should have Mr. JJ informed about his resignation? What could be the
possible consequence for his non-compliance?
a) He should have informed the registrar and PQR Ltd. As a consequence of his failure, he is liable to a
penalty not exceeding Rs. 5 lakhs.
b) He should have informed the registrar alone. As a consequence of his failure, he is liable to a penalty
not less than Rs. 50,000/-.
c) He should have informed the registrar and FDI & Co. As a consequence of his failure, he is liable to a
fine of Rs. 500 per day for each day of failure.
d) He should have informed the registrar & comptroller and auditor general. As a consequence of his
failure, he is liable to a fine of Rs. 45,000/-.
2) With respect to the acts carried out by Mr. F, the partner of the audit firm, what can you infer
about the appointment of FDI & Co. as auditors of PQR Ltd.?
a) It is valid since the indebtedness is within prescribed limits.
b) It is not valid since the indebtedness exceeds prescribed limit of Rs. 1 lakhs.
c) It is valid since Mr. F is not signing the financials of PQR Ltd.
d) It is valid since the indebtedness is not with PQR Ltd.
3) Which among the below are permitted as per Chartered Accounts Act, 1949?
i. Charge fees at 5% of the paid-up capital plus 0.1% of net profit of the company.
ii. Select and recruit personnel, conduct training programmes for and on behalf of PQR Ltd.
iii. Mr. I, one of the partners who is responsible to sign the financials of PQR Ltd. was into
teaching profession.
a) (i) & (ii)
b) (iii) only
c) (ii) & (iii)
d) (i), (ii) & (iii)
4) With respect to the fees to be charged for its new assignment, which option can be opted by FDI
& Co.?
i. To charge fees as percentage of Net Profits, or
ii. To charge fees of Rs. 101/-.
a) (i) Only.
b) (ii) Only.
c) Either (i) or (ii).
d) Neither (i) nor (ii).
5) Among the below transactions which were undertaken by PQR Ltd., which needs to be reported
by the auditors under fiscal laws?
i. Rs. 10 crores loan taken, which is exceeding the limit specified u/s 269 SS of Income Tax Act.
ii. Changed its method of accounting from the previous financial year.
iii. Repayment of deposits of Rs. 75 lakhs, which is exceeding limit specified u/s 269 T of Income Tax
Act.
iv. Reporting of Closing stock of raw material worth Rs. 2 lakhs only.
a) (i), (iii) & (iv).
b) (ii) & (iv).
c) (i) & (iii).
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d) (i), (ii), (iii) & (iv).

Answers
1 d 2 a 3 c 4 c 5 b

CA & Co. Chartered Accountants have been appointed as the auditors of ZXC company. The company
has obtained a license from the Central Government for itself to promote the sport of hockey in the
rural areas of India. The company’s average annual profit was estimated to be around Rs. 50 lakhs.
This profit would not be distributed as dividend to the shareholders, however, it would be applied
towards its objective of promoting sports in the country. During the course of audit for the financial
year 2019-20, the following observations with respect to the company were made by the auditors:
• The company was not maintaining proper records with respect to the fixed assets maintained by
it. The value of fixed assets of the company amounts to Rs. 1.50 crores approximately.
• Physical verification for the same was not carried out at regular intervals. The last
physical verification was conducted on 31st July 2018.
As a result of the above observations, the auditors decided to report the same in the
Companies (Auditors Report) Order 2016. However, the management of the company was against
the decision of the auditors and insisted that the observations need not be reported. After
several discussions between the auditors and the management, CA & Co. decided not to report
the issues.
CA & Co. Chartered Accountants, were also acting as auditors for another company, LS Ltd. and KD
Bank Ltd. During the course of audit of LS Ltd, there was a difference of opinion between the
management and the auditors as to which among the following are the areas which the auditor
should take into account to determine “Key Audit Matter” as per SA 701:
i. The effect on audit of significant transactions that took place in the financial year.
ii. Areas of high risk as assessed and reported by management’s expert.
iii. Significant auditor judgement relating to areas in the financials that involved
significant management judgement
During the audit of KD Bank Ltd., the auditors and the management had a certain difference
of opinion as to the amount and the items which needs to be disclosed under the head of
contingent liabilities. However, apart from that, the auditors had observed the following:
• 59 agricultural loan accounts (guaranteed by Government of Delhi) amounting to Rs. 29
lakhs were overdue for more than two years.
• 73 (guaranteed by Government of India) agricultural loan accounts amounting to Rs. 25
lakhs were overdue for more than two years.
• 6 corporate loans accounts (guaranteed three each by Government of India and Government of
Delhi) amounting to ` 25 lakhs for each company were overdue for more than three and a half
months.
On hearing about the efficient services provided by CA & Co. Chartered Accountants, they
were offered the following new assignments:
• A GST assessing officer approached for conduct of special audit under section 66 of CGST Act for
a company named MD Ltd. which was having an annual turnover of Rs. 1 crore. He had requested
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for the special audit as per the opinion that the company had not availed input tax credit within
normal limits.
• Offer to provide incorporation services to RS General Insurance Ltd. which was proposed to be
set up with a paid-up share capital of Rs. 113 crores, of which preliminary expenses of Rs. 17
crores were included.
The audit firm after taking into consideration all the facts and figures with respect to its
new assignments, decided not to undertake both of them.
Question No: (1-5)
1) Is the decision of CA & Co. of not reporting the issues of ZXC in CARO 2016 justified? If so, under
what reason?
a) No. CARO 2016 is applicable to ZXC and hence the same has to be reported under clause (i) of CARO.
b) Yes. CARO 2016 is not applicable to ZXC and hence the same need not to be reported.
c) No. As per SA 240, the auditor has to maintain professional skepticism when it comes to issues in the
area of fixed assets and hence the same has to be reported.
d) Yes. As per SA 320, the auditor after taking into account the materiality of the issue, he may either
choose to report or not report about the same.
2) What is the total amount of loans that should be classified as NPA by KD Bank?
a) Rs. 79 lakhs.
b) Rs. 100 lakhs.
c) Rs. 204 lakhs.
d) Rs. 104 lakhs.
3) Which among the following has to be reported by the auditor as contingent liability of KD Bank
Ltd.?
a) Guarantee given by KD Bank on behalf of constituent located in Myanmar.
b) A percentage of the total bills purchased by KD Bank.
c) Claims against the bank acknowledged as debt.
d) Unpaid salary of Rs. 5 lakhs to five staffs of KD Bank Ltd., who are currently undergoing a court trail.
4) What could be the possible reason for not accepting the special audit under section 66 of CGST
Act?
a) Such audit is applicable only if the turnover of the company exceeds Rs. 2 crores.
b) Such audits need to be conducted by cost accountants.
c) Such audit has to be called upon by assistant commissioner.
d) Such audit has to be called upon by the central government.
5) Whether CA & Co. are justified for not accepting the incorporation services for RS
General Insurance Ltd.? If so, as to what is the reason?
a) Yes. The incorporation services for an insurance company should be done by the auditor appointed
by the comptroller and auditor general of India.
b) Yes. The insurance company should have a minimum paid up share capital of Rs. 100 crores which
shall exclude the preliminary expenses.
c) No. The insurance company should have a minimum paid up share capital of Rs. 100 crores which
also includes the preliminary expenses.
d) Yes. The incorporation services for an insurance company should be done by the auditor appointed
by the Insurance Regulatory and Development Authority.
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Answers
1 b 2 d 3 a 4 c 5 b

M/s NSG & Associates have been appointed as auditors of Viaan Ltd. for the financial year 2019-20.
The processes, operations, accounting and decisions are carried out by using computers in Viaan
Ltd. The auditors understand that there are several aspects that they should consider to determine
the level of automation and complexity in the business environment of Viaan Ltd. While planning
the audit work, the engagement partners discussed with the audit staff about the various types of
controls in the automated environment.
The different types of audit tests that can be used in audit of an automated business
environment were also discussed within the engagement team. The responsibility regarding the
Internal Financial Controls was also discussed in detail. Further the tools and techniques that can
be used to deal with the enormous data and information of Viaan Ltd. were briefed to the audit
staff by the engagement partners.
Based on the above facts, answer the following:
1) _______________are the manual controls that make use of some form of data or information or report
produced from the IT systems and applications.
a) Application Controls
b) IT dependent Controls
c) Automated Controls
d) General IT Controls
2) Statement 1: Application controls include both manual and automated controls that operate at a
business process level.
Statement 2: General IT Controls apply to mainframe, miniframe as well as end use environment.
a) Only Statement 1 is correct
b) Only Statement 2 is correct
c) Both Statements 1 & 2 are correct
d) Both Statements 1 & 2 are incorrect
3) _____________are also known as pervasive or indirect controls :-
c) IT dependent Controls
4) Which of the following are not the types of audit tests that can be used in the audit in
an automated environment?
a) Observation
b) Inspection
c) Re performance
5) _______________is the combination of processes, tools and techniques that are used to tap vast
amounts of electronic data to obtain meaningful information:
a) Computer Assisted Audit Techniques
325
b) Automated Controls
c) Data Analytics
Answers
1 b 2 c 3 a 4 d 5 c

M/s JK & Associates have been appointed as auditors of Venus Ltd. for the financial year 2019-20.
The team consist of Mr. J & Mr. K both Chartered Accountants as also the engagement partners and
the audit staff consisting of 2 article assistants. While starting the audit work of Venus Ltd, the
engagement partners briefed the audit staff about the audit work, areas to be covered and the
various auditing concepts and their application in the audit of Venus Ltd along with applicable
Standard on Auditing.
Various topics like audit planning, overall audit strategy, audit programme were discussed
in detail. The team was told about the purpose and implication of various statements and
guidance notes issued by the Institute of Chartered Accountants of India (ICAI) from time to time.
Mr. K also briefed the team about the concept of materiality to be applied while planning
and performing audit. The team was also explained in detail about the area where
benchmark materiality can be applied in case of Venus Ltd.
Based on the above facts, answer the following:
1) _____________sets the scope, timing & direction of the audit and guides the development of the more
detailed plan.
a) Audit Programme
b) Overall Audit Strategy
c) Completion Memorandum
d) Audit Plan
2) Statement 1: The establishment of the overall audit strategy and the detailed audit plan are not
necessarily discrete or sequential process but are closely inter-related.
Statement 2: The auditor shall establish an overall audit strategy that guides the development
of audit plan.
a) Only Statement 1 is correct
b) Only Statement 2 is correct
c) Both Statements 1 & 2 are correct
d) Both Statements 1 & 2 are incorrect
3) _____________ means the amount set by the auditor at less than materiality for the
financial statements as a whole to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatement exceeds materiality for the financial
statements as a whole :-
a) Benchmark Materiality
b) Materiality in Planning
c) Performance Materiality
d) Materiality.
326
4) Which of the following is not an example of benchmark that can be used in determining
the materiality in the case of financial statements:
a) Total Revenue
b) Profit before tax
c) Net Asset Value
5) (i) Guidance notes issued by ICAI provide guidance to members on matters which may arise in the
course of their professional work.
(ii) Statements are issued by ICAI with a view to secure compliance by members on some matters.
(iii) Guidance notes are recommendatory in nature.
(iv) Statements are mandatory in nature.
a) All the above statements are correct.
b) Statements 1 & 2 are correct
c) Statements 1, 2 & 3 are correct
d) Statements 1,2 & 4 are correct
Answers
1 b 2 c 3 c 4 d 5 a

The Chanakya Bank Ltd. was having 150 branches all over India by the year ending 31st
March, 2019. Ten branches of the bank were already covered for concurrent audit and the Bank’s
Audit Committee decided to include the below mentioned branches for concurrent audit from the
year 2019-20.
1) Banaras branch which deals in treasury functions like investments and inter bank
borrowings but not in bill re-discounting.
2) Allahabad branch which started foreign exchange business from February 2019.
3) Rae Bareilly branch whose aggregate deposits were more than 35% of the aggregate deposits of
the bank.
Sista and Chartered Accountants were appointed as the stock auditors by the Bank’s
audit committee for five branches for year 2019-20. The Bank’s management appointed and fixed
the remuneration of Sista and Chartered Accountants as the statutory auditors also for the year
2019-20, for the same five branches for which they were given the assignment of stock audit.
At the Kanpur branch of the bank there were high value cash deposits in one of the current account
from April 2019. Your firm has been appointed as the concurrent auditors for the Kanpur branch
for the year 2019-20. The cash collected by the branch was remitted to currency chest on the very
same day but, during the concurrent audit for the month of April 2019 itself the auditor noticed
that the branch has not filed the requests sent via e-mail to currency chest for the cash remittance.
Answer the below questions based on the above paragraph:
1) Whether the decision of audit committee to include the three branches mentioned in
above paragraph for concurrent audit is as per RBI Guidelines?
327
a) The decision of audit committee is valid as according to RBI Guidelines, all the three branches fulfil
the criteria for compulsory concurrent audit.
b) Banaras and Allahabad branch falls under the compulsory audit criteria as per RBI Guidelines,
however Rae Bareilly branch whose aggregate deposits are less than 50% of the aggregate deposits
of the Bank is not required to be compulsorily covered for concurrent audit.
c) As Banaras branch doesn’t deal in bill re-discounting, it is not required to be covered under
concurrent audit. Allahabad and Rae Bareilly branch are compulsorily required to be covered under
concurrent audit as per RBI Guidelines.
d) Allahabad branch has started foreign exchange business in February 2019 and as per RBI Guidelines
only the branches dealing in Foreign exchange business from more than three years are covered
under concurrent audit. Therefore, Allahabad branch is not covered under compulsory concurrent
audit criteria as per RBI Guidelines, but the Banaras and Rae Bareilly branch are covered under
compulsory concurrent audit criteria.
2) Sista and Chartered Accountants were already appointed for stock audit by the audit committee
for the five branches, so whether Sista and Chartered Accountants are authorised to accept the
appointment as statutory auditors for the same branches?
a) Sista and Chartered Accountants cannot accept the appointment as it was not offered by the audit
committee and Bank’s management is not authorised to appoint the auditors.
b) Sista and Chartered Accountants can accept the appointment as they were already appointed for
the stock audit of those branches by the audit committee.
c) Sista and Chartered Accountants can accept the appointment as they have been appointed statutory
auditors for the same five branches for which they were conducting stock audit.
d) Sista and Chartered Accountants cannot accept the appointment as the audit firms should not
undertake statutory audit assignment while they are associated with internal assignments in the
Bank during the same year.
3) Whether the Bank’s Management is authorised to appoint and fix the remuneration of
statutory auditors without consulting the Audit Committee of the Board of Directors or
members in Annual General Meeting?
a) Bank’s Management cannot appoint or fix the remuneration of the statutory auditor unless the same
is passed by a resolution in the Annual General Meeting of the Bank.
b) Bank’s Management can appoint and fix the remuneration of statutory auditors only in consultation
with the Audit Committee of the Board of Directors.
c) Sista and Chartered Accountants were already appointed for stock audit by the audit committee,
therefore only audit committee was authorised to appoint or fix their remuneration as statutory
auditors.
d) Sista and Chartered Accountants were already appointed for stock audit by the audit committee, so
the Bank’s Management is authorised to appoint the same firm as the statutory auditors without
consulting the audit committee or members in the Annual General Meeting.
4) You have been asked by your senior to verify the high value cash deposits at the Kanpur branch.
What parameters/ documents will you verify as the concurrent auditor of the branch?
a) Concurrent auditor has to verify the details of cash remittance to Currency Chest only.
b) You need to verify the KYC documents of the customer/s and the reason for high value cash deposit
in the account like nature of business or sale of property etc.
c) Verify the KYC documents of the account in which cash is deposited; verify the reason for high value
cash deposit in the account like nature of business/ transaction etc.; verify the discrepancies found
328
in the cash of the customer/s, if any and ensure that the records of Currency Chest remittance is
maintained properly.
d) As a concurrent auditor you need to verify the reason of regular cash deposit in the account/s and
the nature of discrepancies, if any, found in cash deposited by the customer/s.
5) How the discrepancy of not filing the details of cash remittances to currency chest by
Kanpur branch of the bank should be dealt by the concurrent auditor in his audit report?
a) The auditor should report the matter as a major irregularity in his audit report to the management.
b) The auditor should verify the details from e-mail sent to currency chest and close the matter.
c) As it is a minor irregularity the auditor can ignore the same.
d) The auditor should discuss the importance of filing the copy of e-mail sent for cash remittance with
the Branch Manager and check for its compliance in the next audit period.
Answers
1 b 2 d 3 a 4 c 5 d
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CA-FINAL

MULTIPLE CHOICE QUESTIONS

CHAPTER 1 PROFESSIONAL ETHICS 1

CHAPTER 13 INTERNAL AUDIT, MANAGEMENT AND 130

CHAPTER 19 QUALITY CONTROL AND ENGAGEMENT 157

46. A CA is deemed to be guilty of professional misconduct under ______________________of the Chartered

d) Clause 2 of Part I of First Schedule

c) Clause 6 of Part II of the First Schedule

c) Posting particulars on website, subject to condition

d) Clause 1 of Part IV of the Second Schedule

b) Recruiting staff or acquiring / disposing business / property on behalf of client

83. A CA in practice is deemed to be guilty of professional misconduct under __________________ of the

statutory requirements. Mr. D is guilty of professional misconduct under ________________ of the

a) Clause 1 of Part II of the First Schedule

115. Which of the following is incorrect

b) Reporting required under Clause 23 w.r.t. interest paid to sister only

d) All of the above

Consideration received Rs. 80 per share

c) Clause 21 of Form 3CD

c) Either (a) or (b)

c) Amount of taxes paid during a financial year exceeds Rs. 10 Lacs

83. Who is authorised to undertake the GST audit of a registered person?

c) The office of the tax authorities

c) Paid up share capital is less than Rs. 50 crore

d) BoD within 30 days

a) Exceeding Rs. 10 Lakhs

123. Which of the following is true?

b) Statement of significant related party transactions submitted by management

a) Rs. 10 Cr; Rs. 25 Cr

b) Ind AS 34-Interim Financial Reporting

11. Which of the following is an example of statutory investigation?

d) Any of the above

a) Accounting and investigation skills.

30. Techniques for Forensic audit comprise of:

c) Audit of provision of funds, sanctions, compliances and propriety

13. Which of the following are Attestation Engagements?

20. Performance Audit is carried out:

a) To express an audit opinion on a set of financial statements

c) A Balance Sheet, a Profit and Loss Account and a Revenue Account

d) Premium for the entire policy period has been paid

b) (iii) and (iv)

c) IT Risks at each of the automated environment.

b) Whether direct data changes to data base prevented.

c) IT Dependent Manual Controls

a) Data Center and Network Operation

(3) Outside consultation

c) 90 days from the date of selection for Reviewer

b) Unpaid Dividend Account

a) Any amount representing unrealised gains or notional gains

Statement (2): The amount of interim dividend is to be compulsorily deposited in a scheduled

53. Dividend shall be paid in

b) At least Rs. 10 lakh or 1% of the turnover of the company, whichever is higher

d) All of the above

b) Public companies having its securities listed on Institutional Trading Platform.

31. Scope of internal auditor’s work include a review of

c) Accomplishment of entity goals and objectives

d) Risk management activities

6. _______________ sets the scope, timing and direction of the audit.

c) The instructions are ambiguous

6. Rationale for classifying a NBFCs as systemically important NBFCs is that:

b) NBFC accepting public deposits only

b) NBFC accepting public deposits only

c) Classification of advance as performing is in order subject to confirmation from Central Statutory

d) Deposit Liability Ratio