1. Q. 1.

The main object of an audit is ___

a) Expression of opinion
b) Detection and Prevention of fraud and error
c) Both (a) and (b)
d) Depends on the type of audit

Ans. d) Depends on the type of audit.

Q. 2. The title of AAS2 issued by Council of ICAI is ___

a) Objective and Scope of the Financial Statements

b) Objective and Scope of the Audit of Financial Statements
c) Objective and Scope of Business of an Entity
d) Objective and Scope of Financial Statements Audit

Ans. b) Objective and Scope of the Audit of Financial Statements.

Q. 3. Which of the following is not true about opinion on financial statements?

a) The auditor should express an opinion on financial statements.

b) His opinion is no guarantee to future viability of business
c) He is responsible for detection and prevention of frauds and errors in financial statements
d) He should examine whether recognised accounting principle have been consistently

Ans. c) He is responsible for detection and prevention of frauds and errors in financial
statements.

Q. 4. A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _

a) Error of omission
b) Error of commission
c) Compensating error
d) Error of principle

Ans. b) Error of commission.

Q. 5. ‘Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example of
a) Error of principle
b) Error of commission
c) Error of omission
d) Error of duplication

Q. 6. 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 errors and frauds is similar.
d) All statements are correct.

Ans. b) Internal control system reduces the possibility of occurrence of employee fraud and
Q. 7. As per AAS4 if auditor detects an error then –

a) He should inform the management.

b) He should communicate it to the management if it is material
c) The auditor should ensure financial statements are adjusted for detected errors.
d) Both (b) and (c)

Ans. d) Both (b) and (c)..

Q. 8. Which of the following is not a limitation of audit as per AAS4 ?

a) Objectivity of auditor’s judgment

b) Selective testing
c) Persuasiveness of evidence
d) Limitations of internal control system

Ans. a) Objectivity of auditor’s judgment.

Q. 9. How many principles are listed in AAS1 which govern auditor’s professional obligation?

a) Nine
b) Fourteen
c) Seven
d) Eight Ans. a) Nine.

Q. 10. Both auditing and accounting are concerned with financial statements. Which of the
following

a) Auditing uses the theory of evidence to verify the financial information made available by
Accountancy
b) Auditing lends credibility dimension and quality dimension to the financial statements
prepared by the accountant.
c) Auditor should have through knowledge of accounting concepts and convention to enable him
to express an opinion on financial statements
d) All of the above.

Ans. b) Auditing lends credibility dimension and quality dimension to the financial statements
prepared by the accountant.

1.Who normally appoints the external auditors of a company?

A. DirectorsB. ShareholdersC. Audit committee

2. Which of the following are implied in the auditor's report and reported only by exception?

(1) Adequate accounting records have been kept(2) The directors' report is consistent with
the financial statements(3) Adequate returns have been received from branches(4) The financial
statements agree with the underlying records

A. 1, 2 and 4B. 1, 3 and 4C. 2, 3 and 4 D. 1, 2, 3 and 4

3. Which of the following is the most appropriate definition of the external audit?

A. The external audit is an exercise carried out by auditors in order to give an opinion onwhethe
r the financial statements of a company are true and fair.B. The external audit is an exercise
carried out in order to give an opinion on theeffectiveness of a company's internal control
system.C. The external audit is performed by management to identify areas of deficiency within
acompany and to make recommendations to mitigate those deficiencies.D. The external audit
provides negative assurance on the truth and fairness of a company'sfinancial statements.

4. Which of the following statements correctly describes the principal purpose of an external
auditof a limited company?

A.To assist in the preparation of the company’s financial statements.B. To prevent fraud within
the company.C.To examine and express an opinion on the company’s financial statements. D.To assist
the directors in improving the company’s financial reporting process.

5. The level of assurance provided by an external audit is absolute. Is this statement true
or false?
A. TrueB. False