{ Specialist & Lectureship Guide - Commerce 8. Audit “& 1, Auditing refers to (a) preparation and checking of accounts. (bjcxamination of accounts of business units only (cJexamination of accounts by professional accountants. ¥ (d) checking of vouchers. (a) detection of errors, (b) t find out whether P & L Ave and B/S. id) detection and prevention of frauds and Auditing is luxury fora {b) partnership firm. (c) small shop-keeper.¥ (o) noverumat eatepany Limitation of audit is (a) that it does not reveal complete picture, {b) that it does not guarantee accurac (d) all of the above.” Auditor, in general, is an (a) cmptoyce of the company {b) agent of the company, (c) agent of the sharel {d) none of the abou Auditing is compufSovy for (a) small-scale business enterprises. {b) all partnership firms. (c) all joint stock companies.” Ay apropos Sommers 1 Propriety audit refers to (a) verification of accounts. (b) examination of accounts of proprietary necessity of expenses” (4) audit of Government companies. n 14. justifeation and 49, lol Propriety audit is normally undertaken in case of (a) joint stock company. (b) government company (C) statutory corporation, (a) government departments. ¥ Test checking should not be applied to. (a) Purchase Book. (b) Sales Book. (©) Stock Book (d) Cash Booky Special Audit is necessary for (a) manufacturing concem. (b) processing concem. (©) inefficiemt concern.¥ (d) trading concern Cost of removal of business to a more convenient place is (a) capital expendi (b) revenue cx (0) deferred see expenditure ¥ (a) none of Gig ove. Expenge€Ow experiments are (a) rpault expenses, tal expenses, ferred revenue expenses.¥ ) none of the above, Interim audit refers 10 (a) examination of accounts continuously (b) examination of accounts intermittently (6) audit work to find out and chock interim profits ofa company, ¥ (6) carrying on audit for bonus purposes at the end of year. Final audit implies (2) audit of accounts at the end of year. (b) finally checking of accounts to reveal frauds, (0) audit for submitting report immedistely atthe end of year (W) audit of banking companies. A continuous audit is specially needed for (a) any trading coreern, (b) smaller concerns. (©) banking companies. (W) any manufacturing concern Alteration of a figures alter audit is a limitation of (2) final audit (b) continuous audit.Subject Specialist & 1 . 19, 20. (©) interim au (d) none of the above. Joint audit implies (a) audit of two concems together. (b) audit of joint stock companies. (c) audit of joint sector companies. (d) audit of two firms of C, A. Management audit means. (a) audit undertaken on management. (b) evaluating performance of yarious management processes and functions.“ behalf of the (c) audit undertaken on behalf of Government publish management (d) compulsory audit of company management Systems audit implies. (a) systematic examination of accounts. (b) audit undertaken to improve auditing systems (c) enguirying accounting and controt systems. ~ (d) checking the performance of mianagement, Internal audit means (a) audit undertaken to ascertain truth ai faimess of state of affairs. (b) audit undertaken intemally 10 (c) audit undertaken by emy che organisation to financial irregularities.” (4) audit by indepens internal affairs. Internal audit is. (a) compulsorera company with paid-up capital of Rs, 25 Lakh and ahove (b) voluntary for a company. ¥ (c) not necessary for a company. (d) necessary for a company. insttute of Chartered Accountants Pakistan was established in. (a) 1956. (b) 1949. (c) 1956. (4) 1961.7 ‘The audit is an examination of (a) Balance sheet. (b) Profit and loss account. iditor to improve of eship Guide - Commerce 162 (e)Balance sheet and profit & loss account.“ (d) None of the above. 24, The audit of accounts of a company shall be (a) IndependentY (b) Comprehensive. (c) Moral. (d) All above, 25, Primary objective of carrying audit is to (a) Impose moral checks on employees. (b) Submit report to share holders. (©) Express an opinion of on financial statements. (d) All above. 26. The audit shall be organized in such a manner to cove} (a) Capital ex (b) Revenue (6) All asec (a) NoxpyFihe sdove 27. Th ‘which is conducted after the close a aris called. Continuous audit (b) Final Audit.” (c) Preparation and examination of the accounts, (d) None of the above . Auditor is responsible for (a) Preparation of the accounts. (b) Expression of an opinion. ¥ (0) Preparation and cxamination of the accounts (a) None of the above Examine of books of accounts is known as examination (a) Accounting. (b) Auditing. “ (c) Investigation. (d) Book Keeping Continuous audit is compulsory for a (2) Private Limited company (b) Public Limited Company (liste(d) (c) Public Limited Company (unliste(d) (d) None of the above. The classes of audit are (2) Final audit. (b) Continuous audit. (©) Interim audit, (d) All ofthe above.Y 32. The main objective of an audit is to (a) Examine the books of accounts {Qe and weeps diture and receipts 3Subject Specialist é& Lectureship Guide - Commerce 163 (b) Fom an opinion on the financial statement. (©) Report to the shareholder. (4) Investigate the books of accounts. 33. Which of the following statements correctly describes the principal purpose of the extemal audit of an enterprise within Pakistan? (a) To communicate weaknesses of Internal Controt system. (b) To assist management in the preparation of the enterprise's periodic financial statements. (c) To examine and express an opinion on the enterprise's periodic financial stalemeats.¥ (d) To assist management in the maintenance of the enterprise's accounting reeords. 34. To which one of the following does the auditor formally report when conducting his annual audit in accordance with the Companies Ordinance, 1984?, (a) The directors, (b) Regulatory bodies. {¢) The shareholders/members.” (d) The secretary. 35. Interim audit lies between (a) Final audit & continuous au (b) Between statutory ow ynitinuous audit (c) Both, (d) None of the abo 36. Depth tests arc also Called: (a) Substantive test (b) Compliance test (c) Cradle to glave tes. (d) None of the above. 37. Objectives of depth test are a To test the accruacy of the record of the clieat’s accounting system. (b) To perform compliance test. (c) To provide evidence of a substantive nature. (d) All of the above.¥ 38. Audit starts where (a) Accountancy's work ends.¥ (b) Book keeping ends e (@ None of the above. (W) All of the above. 39, A final audit is also called (2) Interim audit. (b) Complete audit. ¥ (c) Statutory audit (d) None of the above. 40. A final audit is started (a) After the close of the accounting year. (b) Alter the close of the book keeping work (c) Both (¢) None of the above. 1. Internal check @ Checking gt ‘ord by the cashier. (b) Checkigig,f accounts by the internal sof ce oF one pason by ‘dutomatically.¥ fanagement control internally over sub dinates. The cbject of internal check is to (2) Control wastages of resources. (b) Prevent errors and frauds.~ (c) Verify the cash receipts and payments. (@) Facilitate quick decision by the management. Effective Internal check system reduces. (a) The liability of auditor (b) Work of auditor. (c) Both work as well as liability of auditor. (¢) Responsibilities of an auditor. 4, Internal check isa part of (a) Internal audit (b) Internal accounting. (¢) External audit (4) Internal controlY 5: Internal check is zartied on by (a) Special staff. (b) Internal auditor. (c) Accountant. (d) None of the above. ¥ 6. Internal check is suitable for (a) Larger concems.7 (b) Smaller concems (c) Petty shop-keepers.Subject Specialist & Lectureship Guide - Commerce. lod. (d) None of the above. 7. Intemal check involves (a) Reduction of work of cashier. (b) Division of responsibilities of members of stafh¥ (c) Verification of inventory. (d) Collusion among the members of staff. 8. Intemal audit is undertaken. (a) By independent auditor. (b) Statutorily appointed auditor. () By a person appointed by management. ¥ (d) By a Government auditor. 9. Intemal auditor is appointed by the (a) Management. (b) Shareholders. (c) Government (a) None of the above. ‘The scope of work of intemal audit is decided by the (a) Shareholders. (b) Management. ¥ (c) Government. (4) Law. S@ ihe scope of work of statutory audit for @ company is decided by the (a) Shareholders. (b) Management. Guee™™SO the 10. {c) Government. 12. The object of internal audit is (a) To prevent errors and fraus (b) To detect errors and frat (c) To improve financiaéyntrol. (d) All of the above. Intemal auditor (a) Government (b) Shareholders (c) Management.” (d) None of the above. Control and management profession is in the hands of (a) Government. (b) Regulatory bodies. (c) Institute of Chartered Accountants of Pakistan, ~ (d) Institute of Cost and Management Accountants of Pakistan. 2. £3. lntemal check is carried on by moved by the 20, of audit 16. 17. 18, (a) Staff specially appointed for the purpose, (b) Internal auditor. {c) The members of the staff among themselves.” (d) Supervisor of the staff. Internal check is essential for (a) Petty traders. (b) Cash transactions in a large concern.” (c) A concern using automatic equipments. (d) None of the above ‘The risk that matetial errors may occur in the preparation of financial statements is known as (a) Audit risk. (b) Control risk. (c) Inherent risk etection risk The auditor's ‘objective in making a preliminary cb@luation of internal control is to . (a ‘whether the management has {5 responsibility to establish an ive system. }etermine the degrce of reliance which ill be placed on the intemal controls.” (c) identity those intemal controls on which he may wish to place reliance. (d) Identify any weakness in the system which should be reported to the management. . The nature, timing and extent of substantive procedures are influenced by the level of (a) Inherent risk (b) Control risk. {€) Both((a)&((b)¥ (d) None of above Iniernal control system includes. (a) Financial controls. (b) Administrative controls. (c) Both.¥ (d) None of the above. The auditor of public company witl be (a) Cost and management accountant. (b) Chartered Accountant.¥ (c) Any individual (d) All of the above. To become an internal auditor person must be (a) A Chartered AccountantSubject Specialist & Lectureship Guide - Commerce 25. 21. (b) A cost and management accountant. {c) M-Com. (d) No qualification is required,” Internal auditor is responsible to report. (a) Shareholders. (b} Creditors. (c) Management.” (d) (a) & (b) An Audit technique reviewing the intemal control system is known as (a) Verification (b) Substantive test. (c) Compliance test.” (a) Physical check A simple control which an enterprise can usefully employ is referred to es the ‘imprest system’. To which of the following, accounting areas is this control applicable? (a) Wages control and reconciliation. (b) Petty cash control and reimbursement. (c) Debtor control. (4) Stock control Substantive tests ate designed to obtain evidence as to (a) The effctiveness of the design of the accounting and intemal control system. (b) Completeness, accuracy and validity data produced by accounting system. (c) Both, > (d) None of the above. Q Test of control are perfor obtain evidence as to (a) The effectiveness of thd design of the accounting and intemabBoiitrol system. ~ (>) Completeness y and validity of data produced by segdunting system. (c) Both. (d) None of the-above. Another name of test of control is (a) Compliance test.¥” (b) Substantive test. (c) Walk through test. (a) None of the above (a) Inspection of receipts. . Commission pi 165 (b) Examination of vouchers to check authenticity of records¥” (c) Surprise checking of records. (d) Examining the various assets. accounting . Payment for good purchased should be vouched with the help of {a) Creditor's Statement (b) Correspondence with the suppliers. (c) Cash Memos.¥ (d) Ledger Accounts. Payment for wages should be vouched with the help of (a) Piece Work Statement. (b) Wages Sheets.” (c) Minute Book, (d) Bank Pass Bool ld be vouched with the help of (a) Salary, (b) WagesGheets (c) cs ns’ Statement. OCommission Book and ments. The most reliable voucher is one which originates (a) In the concem. (b) Outside the concern. (c) Outside the concern and sent directly to the auditor.” (@) In the concern and sent directly to the auditor. related, . Sales proceeds from machine should be vouched with the help of (a) Cash Books. {b) Sule Contract. ~ {c) Brokers's Statement. (d) None of the above. Payment for building purchased should be vouched with the help of | {a) Title Deed.¥ (b) Correspondence with the brokers. {c) Building Account, (d) Cash Book. Partner's drawings should be vouched with the help of (a) Stock Book. (b) Cash Book.Subject Specialist & Lectureship Guide - Commerce 166 (© Memorandum Drawings Book.” (a) Agreement Deed. Investment should be vouched with the help of {a) Commission Book. (b) Broker's Book.¥ {c) Sales Deeds. (d) Minute Book, Receipts from debtors should be vouched with the help of (a) Counterfoil Receipts and Cash Book.¥ {b) Suppliers Statement (c) Sales Deeds. (d) General Ledger Dividend received should be vouched with the help of (a) Debtors Statement (b) General Ledger. (¢) Dividends Book. (d) Countertoils of dividend warrants. ~ Receipts trom sale of investment should be vouched with the help of (a) Broker's Budget Notes, {b) Broker's Sold Notes.” (cy M (d) Inventory of investment Purchase Returns should be vouched with the help of (a) Bought Notes. (b) Credit Notes. ¥ (©) Goods Inwards Book. (a) Cash Book. . Payment for bills should be, the help of Ww (a) Debtor's Statement. b Creditor’s Statemet {c) Bills Returned. (d) Bills with the suppliers, (D) |. Verification refers to (2) Fxamination of joumal and ledger (>) Examination of vouchers related to asses. (c) Examining the physical existence and valuation of assets. ¥ () Calculation of value of assets. Object of verification is (a) Physical verification of assets. 9 13, &@ so & acs with 9. (©) Checking valucof wets (©) Examining the authority oftheir acquisition (@) Allorthe above” Which of the following statements is correct? (a) Valuation is a part of verification.” (b) Vasification is apart of valuation. (6) Valuation has nothing to do with verification. (d) Auditor isa valuer. Stock should be valued at (@)Cost. (b) Market Price (c\Cost or Market lower~ (W) Cost less depreciation Valuation means (a) Calculating valug.oJ (b) Checking the (c) Checking ¢ assets, or price whichever seis. ‘assets. ‘ical existence i of authenticity of assets. a valuer" was stated in ton Mills Case. fon and General Bank case V. Neuchatel Co. Lid. Case. London Oil Storage Co. Case. ixcd assets are valued al (a) Cost (b) Market Price. (c) Cost or market price whichever is less. (d) Cost less depreciation. ¥ Plantation products are valued at. (ey coat (b) Market Price. (c) Cost or market price whichever is tower. (d) Net amount subsequently realised.” mpleie contracts should be valucd on the basis of (a) Net profit of the period (b) Two-third of net profit of the period (c) Two-third of estimated profit of the period.“ (4) None of the above Motor Cars should be valued on the basis of (a) Cost. (b) Market Price. (c) Cost or Market price whichever is lower.Subject Specialist & Leciureship Guide - Commerce 167 (a) Depreciated value.” 11. Floating assets are valued at (a) Cast (b) Market Price (c)Cot or market price whichever is lower (d) Cost less depreciation. I Livestock should be valued with the hcip of (4) Actual counting (b) Cost (c) Market value (a) Schedule of livestock ~ 13, Timber should be valued at (a) Cost (b) Market Price. (c) Cost or market price whichever is lower (d) Original cost plus maintenance cost.~ Wine should be vajued at (a) Cost. (b) Above Cost.” (c) Market Value. (W) Cost or market value whichever is Jower, Goods on consignment should be valued at (a) Cost, 03 21 (b) Market Price. (c} Cost or market price whichever is fo (d) Original cost plus maintenance cos Goods sold on the basis of "Sales or should. (a) Be included in the stock.%, (b) Not be included in the. (c) Not be checked by aj (4) None of the above’ |. Contingent lability should be verified by (a) Balance sheet (b) Note by managment. (c) Bills receivables book.~” (a) None of the above Outstanding expenses should be verified with the help of (a) Cash Book. (b) Balance Sheet. (c) None of the above. (d) Journal Proper. Loose tools should be valued at 16 nl bills discounted 1s 19, 24, (a) Cost. (b) Cost less depreciation, (c) Market Price (d) Original cost plus maintenance cost . Loans given should be verified with the help of (a) Statement of Loans (b) Schedule of book debts.¥ (c) Inspection of agreements (d) Certificate from the bank. Book Debts should be verified with the help of (a) Balance Sheet (b) Amount received from Debtors. (c) Debior’s schedule.¥ jayement. (a) Centificate from GG To verify Goody @ auditor should check \ (a) Sales Deed. + (b) Purchase @ement.¥ (c) Bal et. (a) Ceptifigate from the management nis in hand should be verified with p of Schedule of lavestments ) Balance Sheet, (c) Inspection of Securities ¥ (d) Certificate from the bank. Inspection investment was emphasied in (a) London and General Bank case. (b)City Equitable Insurance Co, Lid. case.¥ (c) Armitage V. Brewer and Knott (d) Farrows Bank Lud. With regard to issue of share warrants to the bearers, the auditor should see that itis : (a) Permitted by Metnorandum of, Association, ¥ (b) Sanctioned by the Central Government. (c) Permitted by the Board of Directors (d) None of the above For the forfeiture of shares, the auditor should check that it is permitted. (a) By Memorandum of Association. {b) By Aniicles of Association. ¥ of securities for verifying + (c) Under Companies Ordinance 1984, (d) None of the above,Subject Specialist & Lectureship Guide - Commerce 27.1f balance confirmed by the debior is in agreement with the book balance, it provides the audit evidence as to: (a) Collectibility of balance. (>) Existence and accuracy of recorded balance.” (c) Absence of unrecorded balance. (8) None of the above. 28. The primary reason an auditor requests that letters of inquiry be sent to a client's lawyer is to provide the auditor with: (8) A description and evaluation of litigation, claims, and assessments that ‘existed at the date of the balance sheet. (b) An expert opinion as to whether a loss is possible probable, or remote. (c) The opportunity to examine. the documentation concerning litigation, claims and assessments (@ Corroboration of the information furnished by management conceming litigation, claims and assessments.” 34, Another name of teeming & lading is. (a) Substantive test. (b) Compliance test. (c) Lapping. (d) All of the above. 1. First auditor of a compat the {a) Shareholder. RY é (b) Central Govern rity. sv (c) Corporate Lay (d) Board of Dit Which of the following persons is qualified to bea company auditor? (a) Chartered Accountant.” (b) An employee of the company. (c) A body corporate. * (4) A person who is indebted to the company for Rs.800. | Which of the following persons is not qualified to be a company auditor? (a) A body corproate. (b) An employee of the company. (c) A. person who is indebted to the company for an amount exceeding Rs. 100. 4. 6. 9. 10. ul 168 (d) All of the above.¥ The following cannot be appointed as an auditor of the company (a) A chartered accountant (b) A firmof C. A (c) A body corporate (d) None of the above. ‘The first auditor of company will hold office. (a) For a period of one year. (b) Till holding of statutory meeting. () Til the conclusion of first annual general meeting.” (@) Till a new auditoris appointed Normally, a company auditor is appointed bythe x. {a) Central CoG (b) Sbarehotdere he Law Authority. in a casual vacancy is appointed ee of Directors. ¥ (bj Shareholders (c) Central Government. (d) Sarporate Law Authority. It an auditor, not appointed at annual general meeting, is appointed by the (a) The Central Goverment. (b) Board of Directors (ce) Shareholders. (d) Corporate Law Authority.” A vacancy caused by re auditor is filled only. (a) By Board of Directors. ¥ (b) At the general meeting of shareholders. (c) By the Central Government (d) By the Corporate Law Authority, ‘A Speciat Auditor is appointed by the (a) Shareholdeas. {b) Board of Directors. (c) Central Government.” (a) None of the above A company auditor can be removed before expiry of his term by (a) Sharcholders. “ (b) Board of Directors (c) Central Goveriment.Subject Specialist & Lectureship Guide - Commerce 169 (d) State Government. the first auditors of a company shall be appointed. (a) Within Sisty days of the date of incorporation. (b) Within Sixty days of commencement of husiness {c) During first annual general meeting, (U) None of the above. 13. A notice for appointment as auditor of a person other than a retiring auditor shall be given (a) At least 14 days before the retirement of previous auditor (6) Not less than 14 days before the meeting of Boanl of Directors. (c)Not less than 14 days before the AGM.¥ (a) None of the above 14. Auditor is appointed by («) Chief Executive of the company. (b) Finance Manager of the company. (c) Any individual () None of the above.¥ 19. First auditor is appointed by (a) Chief Executive of the company. (b) Finance Manager of the company. (c) Shareholders of the company NX (a) None of the above.¥ 16, Following can be appointed as an a f public company, (a) Director of the company. (0) Body Comorate . {c) Chartered Accountant (d) (a) and ((b). 1. Remuneration of a company auilitor i by the (a) Shareholders. (0) Board of Directors. (c) Central Government. (d) Appointing Authority. 2. A company auditor, in general, has to submit his report to (a) Shareholders. ¥ (b) Central Government, (c) Comporate Law Authority. (a) Board of Directors. fixed 3. A special auditor has to submit his report to the (a) Shareholders. (b) Central Government. ¥ (c} Corporate Law Authority. (d) Board of Directors 4. Internal auditor has to submit report to (z) Shareholders. (b) Government (©) Corporate Law Authority. (di None of the above.¥ Auditor should be dutifi like a (a) Awatch dog. ¥ (b) A dloed hound. (c) A detective. (a) An insurer. sO 6. An audi fepor i sed to {a) Chairman of theBoard of Directors. (b) Chief E: of the Company {(c) Boar rectors. (a) Me ¥ 7. The F the auditor's report should be date immediately after completion amination. ) After approval of financial statements Re by the Board of Directors. ¥ (c) After approval of accounts by the shareholders. (d) None of the above, 8. If detection risk cannot be reduced to an acceptable level, auditor shoutd (a) Quality or disclaim his opinion.“ (b) Withdraw from the engagement, (c) Do either ((a) or ((b). (a) None of the above 9. Auditor's report is signed by (a) One Director. (b) Two Directors. (c} Directors and Chief Executive. (4) None of the above. ¥ 10, Where the auditor qualifies his audit report on the grounds of uncertainty as to the appropriateness of the going concem assumption he should, as far as possible, identily the nature of the adjustments that may have to be made to the financial statements. Which of the following is unlikely to be a consideration arising in theSubject Specialist & Lectureship Guide - Commerce 170 context of financial statements redrafied on abreak up basis? (a) Recoverability of assets. {b) Reclassification of liabilities. (¢) Possibility of additional assets.¥” (d) Possibility of additional abilities. The audiior of Shabbir Limited completed his audit work, including his review of post balance shect events, in respect of the financial statements for the year ended 30 September 19X0 on 1 February 19X1. The directors approved the financial staternents on 7 February 19X1 and the audit report was signed and dated the same day. Which of the following is the most preferable date for the directors to sign the letter of representation requested by the auditor? (a) | February 19X1 (b) 6 February 19X1 (c) 7 February 19X1. (d) February 19X1 Which of the following terms represents the form of qualification arising tron limitation Of scope Which the auditor considers to be of fundamental importance? (a) Disclaimer of opinion \ Qi (b) Unqualified opinion (ce) ‘Except for’ opinion. walified if a limited v (d) ‘Subject to! opinion. Which of the following is exp in, rather than implied by, audit report on the accot ‘company? (a) Working papepye maintained on which an opinion eye ed. (b) information given in the directors’ report is consistent with the finan (©) The financial statemeats have been properly prepared in accordance with the Companies Ordinance 1984.” (d) Proper and in-time retums have been teccived from the branches. Which of the following is not # necessary component of the audit report for a limited company? (a) The identity of the auditor. us statements, Si (b) A statement specifying that the suditor has complied with International Standards on Auditing ¥ (c) Terms of engagement (d) Identification of the financial statements audited. (G) When annual general meeting of @ listed company is held (a) The auditor is entitled to attend. (b) The auditor must attend the AGM in person () The auditor or some other person authorised by him, in writing, must attend the AGM.¥ During the cour: .dit, an auditor finds that fietitious’gileMiave been undertaken to inflate profs. Whether he should (a) Igno ib) & fy his report for it.” Jone of the above. ring the course of a company audit, an jauditor finds that its machinery has been shown at R& 40,000 after charging depreciation, though its market value is only Rs. 20,000. Whether he should, (a) Ignore it (b) Allow it.¥ (c) Not allow it. (d) Qualify his report During a company audit, the management argues with the auditor, that machinery has been very well maintained and is as good as now. Hence there is no need for charging depreciation on it. Whether the auditor should (a) Accept it. (b) Ignore it. (c) Reject it.” (a) None of the above. If there is a capital loss, the auditor should, (a) Not allow payment of dividends, (b) Allow payment of dividends. {c) Allow payment of dividends afier making such losses good. (d) None of the above. A bunk can declare dividends, (a) Without making capital losses goods.Subject Specialist & Lectureship Guide - Commerce Wo. (b) After making capital tosses goods. (c) None of the above. A company auditor should see that the dividend should be paid (a) Alter charging depreciation. (b) Without charging depreciation (©) Out of eapital {a) None of the sbove. Auditor should see that if past revenue losses exist, current profits, (a) May be used for payment of dividends (bh) May not be used for payment dividends. ¥ (c) Postpone payment of dividends. (a) None of the above. Profits prior to incorporation of company. (a) Can be paid as dividends. {b) Cannot be paid as dividends. ie) Can be used for revenue expenses. (d) None of the above. If profiis are overstated due to revenue expenses being charged to cupital, tt will amount (© payment of dividend (a) Out of eapital. ¥ (b) Out of capital profits (c) Out of revenue profits. {d) None of the above, Which of the following statements correct? (a) Dixidend can be paid out of proceeds of fixed assets. tb) Dividend can never be paid capital. ¥ of of (c) Dividend cannot Nom of accumulated reserves. (d) Dividend can be jthout charging depreciation, In his report, the auditor gives his. (a) Judgment (>) Opinion Y (c) Guarantee to cosreetness of accounts (d) True state of affairs. Iv his report. the company auditor states. (a) Conrcet state of affairs. tb) Crue state of affairs (c) [rue and fair state of affairs. ¥ (a) Fair state of affairs. 14s 16. get 171 ‘The company has earned profits on sale of its machinery and wants to pay dividend out of it, As auditor, you should (a) Allow it. (b) Not allow it (¢) Allow it with certain conditions.” (a) None of the above There is a large accumulation of unclaimed dividend and the company directors want to pay dividend out of it. As auditor, you should, (2) Allow it {b) Not allow it. (0) Allow it after it becomes time-barred.¥ (d) None of the above. In the general y of company, sharcholders want id @ 10% whereas directors reehmiendet @ 1% As an auditor wodld vou. (a) Allow 10% (©) Alloy 7 co of the above mpany has resorted to heavy sale of lock with a view to pay dividends to shareholders. As an auditor, your should {a) Justify (bo) Not justity it (o) Ignore it.Y — (d) Reportit. A company has eamed profits and declared dividends, but does not want to pay dividend due to shortage of cash. As audilor you should suggest, if asked, that. (a) Dividend should be paid. (b} Dividend need be paid. (¢) Dividend must be paid within 42 days of declaration of dividends. (4) Dividend must be patd within 45 days.¥ You find that company has given loan to its shareholders for purchasing of ils shares. Would you, as auditor (a) Allow it. (b) Notalow itv (c) Ignore it. 4a) None of the above Auditor finds that there is a change in the method of valuation of stock; whether he should. (a) Allow it aSubject Specialist & Lectureship Guide - Commerce (b) Disallow it {c) Allow it with a note to this effect ¥ (4) Ignore it. in the annual general mecting of a company, the auditor is questioned as why he has signed the balance sheet when assets would not realise the value shown in fi, Which of the following arguments given by auditor is correct? (a) Market value of assets has nothing to do with assets, (b) Market value of assets cannot be ascertained, (c) Assets are shown treating it as a going concem.¥ (d) None of the above. ‘The auditor finds that a company has paid interest out of capital. Whether he should. (a) Allow it (b) Not allow i. te) | (d) None of the above. The, auditor did not care to check adequacy of Provision for bad and Doubtful Debts. Whether he can be held. (a) Liable for it.” (b) Not liable for it. (c) Liable criminally for it. (a) None of the above. The auditor resorted to test with the result, he could not dis frauds. Whether he can be hi (a) Liable for it. (b) Not liable for it @ (©) Liable criminally f@ni (a) None of the abode During the oe of an audit, an auditor finds that Rosvouchers are available for certain payments. Whether he should (a) Seek proper explanation for it (b) Demand vouchers for it.” (c) lynore it (a) Accept certificate for it Premium received on issue of shares, later forfeited, should be transferred to (a) Capital Reserve. (b) Shares Forfeited Account. (c) Capital Account. (@) None of the above.¥ oreit 172 27. Profits on reissue of forfeited shares should be transferred to (a) Shares Forfeited Account. (b) Capital Reserve Account. (c) Profit and Loss Account. (d) Profit and Loss Appropriation Aceount, 28. With regard to issue of share certificates, the auditor should refer to section. (a) 110. (b) 13 (c) 114, (d) 74, 29. Increase in share capital is permitted by. (a) Memorandum of Association, (b) Articles of Association ¥ (c) Court. (d) Companies Ordinance 1984. 30. For sub-divisioym\of shares in smaller amount, the should refer to Minute Book. Iders's Minute Book anies Ordinance 1984 capital can be increased by. ) Increasing face value of shares. (©) Issue of fresh shares. ¥ (d) None of the above. 32. For reduction in share capital, the auditor should sce that (a) It is permitted by Memorandum of Association. () It is Association. (©) There is prior sanetion of Federal Government (d) There ts prior sanction by the court” 33. Divisible profits should not inelude (a) Interest on capital. (b) Capital (©) Depreciation (d) None of the above.” 34, Dividends cannot be paid out of (a) Capital profits. (b) Capital receipts. (c) Revenue receipis. (d) None of the above 35, Issue of payment of dividend out of capital was raised in (a) Fisher V, Black White Publishing Co. @ (b) Issuing shares at premium. RY permitted by Articles ofSubject Specialist & Lectureship Guide - Commerce 36 40, al 173, (b) Lubbuck V. The British Bank of S. America” (c) Mckesson & Robbins case. (d) London & General Bank case Capital profits. (a) Can be paid by way of dividends. (b) Cannot be paid way of dividends (c) Can be paid by way of dividend under certain conditions.” (d) None of the above. Payments of dividend out of capital profit does not amount to (a) Payment of dividend out of capital (b) Payment of dividend out of profits.¥ (c) Payment of dividend out of capital receipts. (@) None of the above, Capital profits imply profits earned (a) Through business transactions. (b) From capital (0) From sale of fixed assets. (d) From sale of current assets. While checking allotment of shares, the auditor should see that it is made within (a) 160 days of issue of prospectus. (b) 120 days of issue of prospectus. (c) 150 days of issue of prospectus. (d) None of the above.¥ While checking allotments auditor see that amount. () Equal to estimated sige phat is received.7 (b) Equal to estimated received. (©) Necessary for pyithase of land and building has been receved. (8) None of the above. Auditor should see that the rectum of allotment has been sent to Registrar within. (2) F month.” (b) 2 months. (©)3 months. (G) 40 days Application money should not be with drawn unless {a) Allotment is made. (b) Cash Book has been prepared. (o)Centifieate 10 commence obtained.~ (a) Certificate of incorporation obtained. capital is business .08 43. Shares issued for consideration other cash should be vouched with the help of (a) Director's Minute Book. (b) Shareholder's Minute Book (©) Contract with the Party concemed.¥ (d) Cash Book. 44.A company can issue Redeemable Preference Shares, if authorised by (a) Memorandum of Association. (b) Articles of Association “ (c) Compunies Ordinance 1984, {d) Nonc of the above. 45. Auditor should see that amount received for Premium on Issue of Shares should be shown in (a) Subse bed Capita (b) Capital Reser (c) Share Prem (d) Paid-up C. 46 Share Prem count should be shown Sheet under “Capital ribed Capital serves and Surplus.” Reserved Capital /Amount of share premium may be utilised for (a) Payment of dividend. (b) Writing off of preliminary expenses.” (c) Routine expenses. (a) Purchase of fixed asses 48. Shares can be issued at discount under in the By section (a) 76. () 75. (c) 79. (d) 84.4 49. The contenis governed by (a) Sec. 157.% — (b) Sec. 160 (c) Sec. 165. (d) See. 175 50. When auditor is not appointed within 120 days of incorporation of the company then he will be appointed by. (a) Directors. (b) Shareholders. (c) Corporate Law authority.“ (d) None of the above Sl.Legat provision as, to distribution of dividend are contained in. of statutory report areSubj 53. 54. 35. ~ Auditor is Hable for ecialist & Lectureship Guid (a) Sve. 248 10 251.% (b) Sec. 260 t0 265, (€) See. 270 t0 272. (d) All of the above, Following section deals with the treatment of surplus urising out of revaluation of fixed assets. (a) See. 231. (b) See. 235.¥ (c) Sec. 240. (d) None of the above. The auditor of private company will be (a) Chartered Accountant. (b) Cost & Management Accountant. (c) Master of Commerce. (d) No qualification is mentioned.” Scope of audit of other than public company will be defined by. (a) Statute, (b) By management (c) By agreement auditor (d) All of the above. Company can issue shares at discount if it is permitted by (a) Memorandum of Association. (b) Articles of Association ¥ (c) Prospectus. (d) Statement in liew of prospectus (CH) between client and (a) Not verifying pet (b) Not determiningtstbci cunts properly. An auditor is held criminally liable for (a) Loss to his client. (b) Neglect of his duty (c) Offecnces against statutory provisions. (d) Frauds. If an auditor allows publication of annual reports knowing them to be materially false to deccive shareholders, he incurs. (a) Contractual liability. (b) Civil lisbilty. (c) Criminal liability.¥ (d) None of the above. u 174 ‘An auditor can be held liable under C.A. Ord. 1961 for (a) Negligence. (b) Criminal offence. (c) Professional misconduct.” (d) Breach of contract If a company auditor gives false evidence intentionally, he can be held for (a) Negligence. (b) Misfeasance.” (¢) Breach of contract. (4) Criminal Liability. Ifa company auditor has misapplied money of a company, he may be held liable for (2) Neghigence.¢ ©) Mistessmeg aw (o) Criminal phabily. (a) Contrgetua liability. Iran js found guilty of falsification of fy books, he will incur. mninal liability. Civil liability. ic) Contractual liability (a) None of the above. Civil liability of an auditor implies liability for (a) Misappropriation of Cash (b) Misappropriation of goods (0) Fraud. (@) Misfeasance ¥ In which of the following cases, it was decided that "it is not the duty of an auditor to take stock"? (2) London and General Bank case. (b) London Oil Storage Company case. (c) Kingston Cotton Mill case.¥ (4) None of the above. | Ani auditor, working in honorary capacity, is (a) Liable (b) Not liable (c) Criminaily liable (W) None of the above. For misstatement in a company prospectus, the auditor incurs (a) Civil liability.“ (b) Criminal liability. (c) Contractual liabilitybject Specialist & Lectureship Guide - Commerce 175 2 14 (@) None of the above. If.an auditor fails to satisfy himself that the transactions are ultra virus the directors, he incurs (a) Criminal Liability. (b) Civil fiability.” (c) Contractual tiability, (a) None of the above . A Chartered Accountant sent circular letters soliciting work. Can he be held liable. (0) For misfeasance. (b) For negliganc (c) Criminally. (d) For professional misconduct. Duty of Auditor is to (a) Form an opinion.” (h) Repo. (e) Examine books of accounts. (a) Attend annual general meeting. Auditors has right to (a) Obtain information.¥ (h) Give information (o) Prepare accounts. (d) None of the above. With whom does the auditor of a timited company have a contractual relationship? (2) The company (b) The directors. (c) ChiefExecutive. (¢) The Company and the saci MO ws ‘The auditor should pl (a) Conduct an eife (b) Disclose fraud. (©) Examine — production/manufacturing techniques. (d) Issue unqualified report. ‘Audit plan is prepared (a) Before the start of audit. ¥ (b) During audit. (©) After audit. (d) At any time. Audit programme is a written document which includes, (a) Audit procedures to be carried out. ¥ (b) Relevant accounting ratio, adit. (c) Appointment confirmation of auditor. (d) All of the above. For planning auditor must have knowledge of clients business which can be obtained from (@) Clients annual report. (b) Previous year working papers (c) Trade journals and magazines. {d) Allof the above. ¥ The Intemational Standards on Auditing 4 ‘Planning’. observes that adequate audit planning helps to ensure that attention is directed to critical aspects of the audit What audit working paper will normally provide satisfactory on of this aspect of audit p! (a) Client's Wi for preparation (b) Systems flolecharts (c) The pigghtié memorandum.” WP jught forward schedule. oe @) accounts CE ssc letter is written by (b) Auditors. ¥ (d) Chief Executive (a) Director. (c) Creditors. . Before the commencement of his audit work letter sent by the auditor is known as (a) Management letter. {b) Representaiton letter. (c) Engagement letter.” (a) None of the above, (3) Which of the following assertions should be included in the engagement letter for a new private company client trading as an electrical wholesaler? 1) The responsibility for the prevention and detection of irregularities and fraud rests with management. 2) The auditor's examination should not be relied upon to disclose irregularities and fraud which may exist 3) The auditor has no responsibility to detect fraud and irregularities in the course of his work.Subjcet Specialist & Lectureship Guide - Commerce 176 4) The auditor will endeavour to plan his work so as to have a reasonable expectation of detecting —meterial misstatements resulting from regularities or fraud (a) Assertions 1, 2 and 4 only.” (b) Assertion 2 & 3 Only. (c) All the above. (d) Assertions 1, 2 and 3 only. Which of the following describes most accurately the principal Purpose of the engagement leiter in respect ofa limited company audit assignment? (a) To deline the extent of the auditor's responsibilities ¥ (b) Arrangement regarding the planning for an audit. (c) To establish the audit fee for the current ye: (d) To draw the attention of the direciors to the range of services that the firm can offer. Autitor scnds engagement letter (a) Before commencement of audit. ~ (b) During the course of the audit, (c) At the end of the audit. (K) so Working papers are property. ak statements (a) Client (b) Registrar. (c) Auditorw (d) Corporate law au Which one of the, wing working papers would normatty\"be retained on the permanent file“hwintained for a limited ‘company audit client? (a) Extracts of management meetings. (b) Entity policy regarding provident fund. (c) Engagement letter. (d) Copy of the Memorandum and Articles of Association. Which one of the following working papers would normally be retained on the current file maintained for a limited company audit client? shareholders and 6. (a) An organisation chart summarising management functions and the division of repsonsibilities within the company (b) Analysis of transactions & balances. (©) A copy of the bank's response to the standard audit request letter ¥ (d) A deseniption of the business and its (L) Misappropriation of checked by {a) Proper supervision over stock. ~ (b) Checking of employees. () Panishmen gery leees goods may be iy wastayes. aluation of assets. aoe valuation of assets.¥ sification of accounts is undertaken by a) Auditors, (b) Clerks (e) Accountants. (d) Responsible officials.“ Errors of omission are (a) Technical errors. (b) Errors of principle (c) Compensating errors. (d) Noncof the above.v Valuation of assets on wron (a) Technical enor (b) Clerical error. (c) Error of Principle. () Compensating error Test checking refers to (a) Testing of accounting records. (b) Testing of honesty of employees (c) Intensive checking of a selected number of transactions. (4) Checking of all transactions recorded. Which of the following procedures would be the most appropriate to identify the fraud of teeming and lading? (a) Reviewing aged debiors' listings {b) Debtors’ circutarisation.Subject Specialist & Lectureship Guide - Commerce 177 (c) Reviewing bank reconeit ld) Checking subsequent debtors. 8. Detection and prevention of errors and fraud is the responsbility (a) Auditor (External), (b) Intemal Auditor. (c) Management. (d) None of the above (M) 1. The date of representation letter is normally the date on whieh (a) Audit is started (b) Accounts are approved by the Board of Directors. (c) Audit report is signed by the auditors.¥ (d) Audit field work is completed. The letter issued by the auditor to his client describing the weakness in the system observed during his audit is referred to as (a) Representation leter. (b) Management letter.” (c) Audit Engagement letter. (a) None of the above. 3. The directors of Noshaba- Limited refused the auditor's request. to formal letter of representation various matters which were co representations obtained staff during the audit following is nut accept form of evidence imgedspect of the matters on which representati@ns were sought? (a) The’ audit working papers contain a record of the oral representations.¥ {b) The representations have been formally minated by the directors (e) The auditor has prepared a statement of the representations which he has sent to the directors; the directors have confirmed in writing that the auditor's understanding of the representations is correct (d) The auditor has held a meeting with the directors al which a statement of representations prepared by himself 1s tion, clearance of ‘company ich of the as an alternative » tp) eae control. Specialized audit programs. disuessed and agreed, the purpose and ‘outcome of the meeting has been minuted. (N) One reason why an auditor uses analyticat procedures that focus on the client's operations is to identity (a) Improper separation of accounting and other financial duties. (b) Weakness of material nature in the system of internal accounting control (¢) Unusual transactions. ¥ (d) Noncomptiance with prescribed contro! procedures fe} in gross profit that 11 abnormal flucty might suggest oS for extended audit procedures fo€ sal8s and inventories would most likel{ye> identified in the planning phase dit by the use of: insactions and balances. preliminary review of intern: (4) Analytical procedrues. ~ An eample of an analytical procedure is the comparison of (a) Financial information with information regarding the industry in which the entity operates. 7 (b) Recorded — amounts of major disbursements with appropriate invoices. (c) Results of a statistical sample the expected characteristics of thé actual population. (d) Generated data with similar data generated by manual accounting system An auditor ordinarily examines invoice from lawyers primarity in order to (a) Substantiate acervals, (b) Assess. the legal litigation in progress, (c) Estimate the amount of contingent liabilities.“ (d) Wentify possible unassorted litigation, claims, and assessements ramifications ofSubject Specialist & Lectureship Guide - Com..erce 178 5. The auditors of a public limited company Giscover an omission which existed on the date of the auditor's report. Due to this discovery they are unable to support the previously expressed opinion. If they believe persons are currently relying on the report, they should promptly: (a) Undertake 10 apply the omitted procedure or alternative procedures that would provide a satisfactory basis for the opinion (b) Notify the board of directors that the previously expressed opinion is not to be relied on.¥ (c) Notify the stockholders currently relying on the report that the previously expressed opinion is not to be relied on. (d) Notify that the previously expressed opinion is not to be relied on. 6. An auditor should obtain written representation from management conceming litigation claims and. assessments. These representations may be limited to matters considered either individually or collectively material, provided an understanding on the timits of materiality for this purpose reached by: (a) The auditor and the client's lawyer, sO (b) Management and the audivo Q (c) Management, the client's I: the auditor. (a) The — auditor manayement.¥ ‘und 7. Analytical review substantive tinge of the following correctly describes the stages of an audit during which the auditor may plan to make use of analytical review procedures? (a) Analytical review is confined in its application to the closing stages of the audit when the feview of the financial statements is conducted (b) Analytical review procedures can be applied to individual account areas as well as to the review of financial statements and can be used at all stages of the audit other than initial planning. ¥ has ea 3 (c) Analytical review can be applied at all stages of the audit, including initial planning. (@) Analytical procudure can only be applied at review stages, (O) Which of the following characterises the so-called ‘around the machine’ approach to auditing in computer enviroment? (a) Audit work is based on the review of inputs to and outputs from the computer.” (b) The detailed computer processing Toutines used in the various parts of the system are exami determine whether convolsare a (c) Audit so! Is used to examine the contents of eGmpiiter files. (2) Tran@jibns are ‘walked 0} ed processes are through! whether operating ily ich of the following is a yeneral control? Procedures for investigating unauthorised access attempts to data files. (b) Manual scrutiny of output (c) Programmed reasonableness checks. {d) Programmed sequence checking. The two principal CAATs are test data and audit sofiware. In respect of which of the following audit activitics would the use of test data be most relevent? (a) Analytical review of statements. (b) Testing of programmed controls over sales invoicing.” (c) Selection and extraction of a sample for a debtors circularisation (d) Verification of aged debtors balances. Which of the following CAATs may provide a continuous review of a client’s programmed controls? (a) Test data, (b) A utility programm: (c) An embedded Facility.~ (4) A purpose written programme. the financial