Audit

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.

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

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

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

‘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

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.

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)

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

How many principles are listed in AAS1
which govern auditor’s professional obligation?
a) Nine b) Fourteen c) Seven d) Eight

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

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 sales done in a quarter

Auditing standards differ from audit procedures in that procedures relate to
a) Audit assumptions
b) acts to be performed
c) quality criterion
d) methods of work

13. Which of the following factors likely to be identified as a fraud factor by the auditor?
a) The company is planning a initial public offer of quality shares to raise additional capital for expansion.
b) Bank reconciliation statement includes depositsintransit.
c) Plant and machinery is sold at a loss.
d) The company has made political contributions

The most difficult type of misstatement to detect fraud is based on:
a) Related party purchases
b) Related party sales
c) The restatement of sales
d) Omission of a sales transaction from being recorded.

Which of the following statements is correct concerning the required documentation in
working papers of fraud risk assessment undertaken by the auditor?
a) All risk factors as mentioned in AAS4,
should be considered and documented along with response to them.
b) Document the identification of fraud risk factors along with response to them.
c) Document material fraud, risk factors and response to them.
d) No documentation in required.

(1) Double entry book-keeping was fathered by:
(a) F.W.Taylor
(b) Henry Fayol
(c) Lucas Pacioli.

Funds Flow Statement and sources and application statement are:’
(a) Synonymous
(b) Antagonistic
(c) None of these

Depreciation in spirit is similar to:
(a) Depletion
(b) Amortization
(c) Depression.

Balance Sheet is always prepared:
(a) for the year ended.
(b) As on a specified date.
(c) None of these.

In Insurance, the following Profit and Loss Accounts are prepared:
(a) Separate for Fire, Marine, and Accidents etc.
(b) Consolidated for Fire, Marine, and Accidents etc.
(c) None of these.

Partners in Pakistan can today be fixed at the following numbers:
(a) 20
(b) 50
(c) 75.

Flexible budget is a budget with the following features:
(a) Changes with volume of production.
(b) Changes with variable expenses
(c) Changes in Direct material.

(8) Break Even can be calculated as under:
(a) ______VC_______
FC- TR TC
(b) FC I- VC TR
(c) None of these.

Quick Ratio can be computed as under:
(a) Quick . Assets/Quick Liabilities
(b) Quick . Liabilities Current Assets
(c) Current Assets/ Current Liabilities

In straight line method of depreciation, the written down value of a fixed asset will be at the end of the life of the asset as under:
(a) Rupee one
(b) Rupee zero
(c) None of these.

) Sales budget must be prepared:
(a) Independently
(b) Depending on production capacity
(c) Based on Sales forecasts of market.

Consolidation of subsidiary accounts in the balance sheet of a unlisted Holding company is at present in Pakistan:
(a) Compulsory
(b) Voluntary
(c) Required.

Retained earning is synonymous to:
(a) Accumulated profit and loss account
(b) Profit for the year
(c) None of these.

The requirements of an audit report for a Banking Company in Pakistan is under:
(a) Under the Banking Companies Ordinance, 1962.
(b) Under the Companies Ordinance, 1984.
(c) Under (a) and (b) above.

Deferred Taxation is:
(a) Fixed asset
(b) Fixed liabilities
(c) Part of Owners Equity.

Investment Corporation of Pakistan follows:
(a) Open-end mutual funds
(b) Closed-end mutual funds
(c) None of these.

Directors Report is ---- in respect of financial report constituent.
(a) Mandatory for a limited Company
(b) Voluntary for a limited Company
(c) None of these.

Every limited Company in Pakistan is required by law to include the following along with financial reports:
(a) Ratio Analysis
(b) Chairman’s Review
(c) None of these

Cash budget excludes the following:
(a) Non-Cash items
(b) Cash items
(c) Purchase on Credit items.

NGOs are legally required to:
(a) Prepare accounts in a prescribed manner under the law.
(b) Prepare accounts as desired by donors.
(c) None of these.

. Fixed Cost:
a. Changes with production
b. Never changes even if production capacity is doubled.
c. None of the above

Conversion cost is:
a. Material Cost + Overhead Cost
b. Direct Labour + Material Cost
c. Labour Cost + Overhead Cost

Process Costing is relevant to:
a. Cement industry
b. Job Order cost oriented Projects
c. None of the above

Operating Profit is:
a. Profit after deducting financial costs
b. Profit after deducting taxes
c. Profit after deducting normal operating expenses including depreciation

A good Cost Accounting System is:
a. If it computes estimated cost only
b. If it cannot be reconciled with financial accounts
c. If it enables management to increase productivity and rationalize cost structure

Verification includes:
a. Checking Vouchers
b. Examining audit report
c. None of the above

Stratified audit sample means:
a. Randomly selected items for audit
b. Purposively selected items for audit
c. Items carefully selected from each group

Internal Control is totally synonymous with:
a. Internal check
b. Internal audit
c. None of above

Audit of a bank is generally conducted through:
a. Routine checking
b. Couching
c. Balance sheet audit

An auditor is liable for his annual audit of accounts to:
a. Creditors
b. Bankers
c. Owners

Income Tax is levied on:
a. Agricultural Income
b. Presumptive Income
c. None of above

If a firm has paid super-tax, its partners may follow any one of the following behaviours:
a. No need to pay income tax, even if the income exceeds the taxable limit.
b. Pay income tax, even if the income does not exceed the taxable income.
c. Pay income tax as required under the law.

A resident multinational company need not:
a. Pay income tax, if it s caused under Double Taxation agreement.
b. If it is not enjoying tax exemption under the Income Tax Ordinance, 1979 (Second Schedule).
c. None of above

Income Tax rates are the same for:
a. Limited Companies
b. Banking Companies
c. None of above

Income Tax rates are the same for:
a. Limited Companies
b. Banking Companies
c. None of above

Super Tax on companies is:
a. In vogue in Pakistan
b. Not in vogue in Pakistan
c. None of above

Current Ratio is calculated as:
a. Fixed Assets/Current Liabilities
b. Current Liabilities/Current Assets
c. Current Assets/Current Liabilities

Short-term loan can be described as:
a. If the period is three years
b. If the period is less than one year
c. If the period is over one year

Combination can be best described as:
a. Restructuring of Capital of a Company
b. Reduction of Capital of a Company
c. Amalgamation of two different types of businesses

Sources of funds can be increased by:
a. Decreasing selling prices
b. Increasing expenditure
c. None of above

1) Books of original entry are called:
(a) Ledger
(b) Work sheets
(c) Journal
(d) None of these

For preparing balance sheets prepaid expenses are shown as part of:
(a) Liability
(b) Equities
(c) Assets
(d) None of these

Unpaid and unrecorded expenses are called:
(a) Prepaid expenses
(b) Accrued expenses
(c) Additional expenses
(d) None of these

Amount, cash, or other assets removed from business by owner is:
(a) Capital
(b) Drawings
(c) Assets
(d) None of these

Under the diminishing balance method, depreciation amount is:
(a) Payment
(b) Receipt
(c) Expenditure
(d) None of these

Users of accounting information include:
(a) The tax authorities
(b) Investors
(c) Creditors
(d) All of these

(7) The business form(s) in which the owner(s) is (are) personally liable is (are) the:
(a) Partnership only
(b) Proprietorship
(c) Corporation only
(d) Partnership and proprietorship
(e) None of these

The investment of personal assets by the owner:
(a) Increases total assets and increases owner’s equity
(b) Increases total assets only
(c) Has no effect on assets but increases owner’s equity

All of the following are forms of organizations except:
(a) Proprietorship
(b) Corporation
(c) Retailer
(d) Partnership
(e) None of these

Economic resources of a business that are expected to be of benefit in the future are referred to as:
(a) Liabilities
(b) Owner’s equity
(c) Withdrawals
(d) Assets
(e) None of these

An owner investment of land into the business would:
(a) Decrease withdrawals
(b) Increase liabilities
(c) Increase owner’s equity
(d) Decrease assets
(e) None of these

A cash purchase of supplies would:
(a) Decrease owner’s equity
(b) Increase liabilities
(c) Have no effect on total assets
(d) None of these

An owner investment of each into the business would:
(a) Increase assets
(b) Decrease liabilities
(c) Increase withdrawals
(d) Decrease owner’s equity
(e) None of these

The payment of rent each month for office space would:
(a) Decrease total assets
(b) Increase liabilities
(c) Increase owner’s equity
(d) None of these

Real accounts are related to:
(a) Assets
(b) Expenses and incomes
(c) Customers and Creditors etc.
(d) None of these

Which one of the following accounts would usually have a debit balance?
(a) Cash
(b) Creditors
(c) Accounts payable
(d) Salaries Expenses
(e) None of these

Quick assets include which of the following?
(a) Cash
(b) Accounts Receivable
(c) Inventories
(d) Only (a) and (b)
(e) None of these

Net income plus operating expenses is equal to:
(a) Net sales
(b) Cost of goods available for sale
(c) Cost of goods sold
(d) Gross profit
(e) None of these

The measurable value of an alternative use of resources is referred to as:
(a) An opportunity cost
(b) An imputed cost
(c) A different cost
(d) A sunk cost
(e) None of these

A quantitative expression of management objectives is an:
(a) Organizational chart
(b)Management chart
(c) Budget
(d) Procedural chart
(e) None of these

A cost center is:
(a) A unit of production in relation to which costs are ascertained
(b) A location which is responsible for controlling direct costs
(c) Part of the factory overhead system by which costs are gathered
(d) Any location or department which incurs cost
(e) None of these

At break-even point of 400 units sold the variable costs were Rs. 400 and the fixed costs were Rs.200. What will be the 401 units sold contributing to profit before income tax?
(a) Rs. 0.00
(b) Rs. 0.50
(c) Rs. 1.00
(d) Rs. 1.50
(e) None of these

In considering a special order situation that will enable a company to make use of currently idle capacity, which of the following cost will be irrelevant:
(a) Materials
(b) Depreciation
(c) Direct labour
(d) Variable factory overhead
(e) None of these

A fixed cost:
(a) May change in total when such change is not related to changes in production
(b) Will not change in total because it is not related to changes in production
(c) Is constant per unit for each unit of change in production
(d) May change in total, depending on production with the relevant range
(e) None of these

Completion of a job is result in:
(a) DR finished goods …….. CR WIP
(b) DR Cost of goods ……... CR finished goods
(c) DR WIP ……………..….….. CR FOH control
(d) DR FOH control …….….. CR FOH applied
(e) None of these

Operating cost in often named as:
(a) Manufacturing cost plus commercial expenses
(b) Prime cost plus factory overheads
(c) Direct material plus direct labour
(d) Selling plus administrative expenses
(e) None of these

Expenses such as rent and depreciation of a building are shared by several departments these are:
(a) Indirect expenses
(b) Direct expenses
(c) Joint expenses
(d) All of the above
(e) None of these

If under applied FOH is closed to cost of goods sold, the journal entry is:
(a) DR Cost of goods sold …….. CR FOH control
(b) DR FOH control ……..……….. CR Cost of goods sold
(c) DR FOH control ……..……….. CR Profit % loss account
(d) None of these

Re-order quantity …… 3600 units
Maximum consumption ...… 900 units per week
Minimum comsumption …....300 units per week
Re-order period …………….….5 weeks
Based on this data Re-order level is:
(a) 4500 units
(b) 3900 units
(c) 1200 units
(d) 400 units
(e) None of these

The time lag between indenting and receiving material is called:
(a) Lead time
(b) Idle time
(c) Stock out time
(d) None of these

A credit balance remaining in FOH Control account is called:
(a) Over-applied overhead
(b) Under-applied overhead
(c) Actual overhead
(d) None of these

Direct material cost plus direct labour cost is called:
(a) Prime cost
(b) Conversion cost
(c) Product cost
(d) All of these
(e) None of these

Productivity means:
(a) The ability to produce
(b) All units produced
(c) Good units produced
(d) None of these

A segment of the business that generates both revenue and cost is called:
(a) Profit Center
(b) Cost Center
(c) Cost driver
(d) All of these
(e) None of these

Verification includes:
(a) Checking vouchers
(b) Examining audit report
(c) None of these

Audit of a bank is generally conducted through:
(a) Routine checking
(b) Vouching
(c) Balance sheet audit
(d) None of these

Preparation of final financial reports is governed in Pakistan under:
(a) No law
(b) Companies Ordinance 1984
(c) None of these

Depreciation is based on:
(a) Economic life of asset
(b) Declared life of asset by supplier
(c) Normal life of asset
(d) None of these

Inventory turnover is calculated as under:
(a) Cost of Goods sold/Closing Inventory
(b) Gross profit/Closing Inventory
(c) Sales/Opening Inventory
(d) None of these

Deferred Revenue is:
(a) Liability
(b) Asset
(c) None of these

Preparation of annual report of a firm is governed under:
(a) Partnership Act 1932
(b) Under partnership Deed
(c) None of these

Deferred Taxation amount be treated as:
(a) Foot note
(b) An item in the Balance Sheet on asset side
(c) None of these

Return of Equity will be calculated as under:
(a) Operating Profit x 100/Equity
(b) Net profit x 100/Paid up Capital only
(c) None of these

Current maturity of long term loan is:
(a) Current Liability
(b) Long Term Liability
(c) None of these

Prime cost is calculated as under:
(a) Manufacturing Cost/Cost of Goods Sold
(b) Direct Method plus factory overheads
(c) Direct labour + Direct Material
(d) None of these

Process Cost is very much applicable in:
(a) Construction Industry
(b) Pharmaceutical Industry
(c) Air line company
(d) None of these

Random sampling in auditing means:
(a) Selection through convenience sampling
(b) Selection through scientific sampling approach
(c) None of these

Increase in income constitutes:
(a) Inflows
(b) Outflows
(c) None of these

M & A stands for:
(a) Mergers & Analysis
(b) Mergers & Acquisitions
(c) Mergers & Allocation
(d) None of these

An endowment insurance policy can be taken in respect of:
(a) Fire insurance
(b) Accident insurance
(c) Life insurance
(d) None of these

(9) Audit and special audit are the same:
(a) In Insurance Company
(b) In Banking Company
(c) None of these

Acid test is the same as:
(a) Quick test
(b) Liquid test
(c) None of these

Acid Test Ratio is calculated as under:
(a) Current Assets/Current Liabilities
(b) Fixed Assets/Current Liabilities
(c) Liquid Assets/Current Liabilities
(d) None of these

Deferred cost is a:
(a) Liability
(b)Asset
(c) None of these

Work Sheet is:
(a) Balance Sheet
(b) Fund Flows Statement
(c) A combination of Profit and Loss Account and Balance Sheet items
(d) None of these

Banks, for the preparation of financial statements, are governed under:
(a) Banking Companies Ordinance, 1962
(b) State Bank of Pakistan Act
(c) None of these

Return on investment is computed:
(a) Investment/Profit x 100
(b) Profit x 100/Investment
(c) None of these

Rent of the premises constitutes variable expenses for cost allocation:
(a) True
(b) False

Current maturity of long term loan is:
(a) Current Liability
(b) Long Term Liability
© None of these

An auditor is liable under the following circumstances:
(a) Third Party Liabilities
(b) Fraud perpetrated in highly sophisticated circumstances
(c) None of these

Principal and markup payment within one year constitutes long term liability for disclosure in the balance sheet of a company.
(a) True
(b) False

Working Capital finance can be termed as “Running Finance” in a limited company.
(a) True
(b) False

Income from Capital gains arising out of trading on a stock strange in Pakistan is taxable these days:
(a) True
(b) False