RIFT VALLEY UNIVERSITY NEKEMTE CAMPUS

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING
FOR 4the YEAR ACCOUNTING STUDENTS
AUDITING course(1&2 )WORK SHEET
NB THIS WORK SHEET IS PREPARED JUST LIKE OF MODEL FOR CAMING
NATIONAL EXIT EXAME .SO TRY TO COVER ALL QUESTIONS.
. PREPARED BY HUNDE EMIRU (MBA)
1. Various types of quality audits are:
A. product
B. process
C. management (system)
D. registration (certification)
E) All of above
2. When the auditor is an employee of the organization being
audited (auditee), the audit is classified as an …….. quality audit.
A. internal
B. external
C. compliance
D. Both A & B
3. The most comprehensive type of audit is the ……… system audit,
which examines suitability and effectiveness of the system as a
whole.
A. quantity
B. quality
C. Preliminary
D. sequential
4. Each of the three parties involved in an audit …………………….
plays a role that contributes to its success.
A. the client, the auditor, and the auditeer
B. the client, the auditor, and the audite
C. the client, the moderator, and the auditee
D. the client, the auditor, and the auditee
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 5. The time required and costs involved in an external audit are much higher as compared to internal
audits.
1. A. True
2. B. False
6. Audit is a fact-finding process that compares actual results with
………………….
A. specified standards and plans
B. expected results
C. premature results
D. preliminary results
7. The ……… is also expected to provide the resources needed and
select staff members to accompany the auditors.
A. auditor
B. client
C. internal auditor
D. auditee
8. For the benefit of the organisation, quality auditing should
only report non-conformances and corrective actions, but should
not highlight areas of good practice.
A. True
B. False
9. Who among the following can be appointed as auditor of a
company?
A. A partner or a director of the company.
B. A person of unsound mind.
C. Mr. Y who owes Rs. 500 to the company.
D. Mr. Z the holder of C.A certificate.
10. Confirmation of the court is necessary for __________.
A. increasing the share capital.
B. reduction of share capital.
C. conversion of shares into stock.
D. issue of new shares.

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Answer: B
11. Audit means ___________.
A. recording business transactions.
B. preparing the final accounts.
C. examination of books, accounts, vouchers etc.
D. preparing final accounts.
12. Auditor shall report on the accounts examined by him
__________.
A. to the shareholders.
B. to the court.
C. to the bank.
D. to the general public.
13. Sale of land is a __________.
A. revenue receipt.
B. capital receipt.
C. capital expenditure.
D. revenue expenditure
14. Secret reserve can be created by _______________.
A. public limited company only
B. banking and financial companies only.
C. private limited company only.
D. co-operative societies
15. When a transaction has not been recorded in the books of
account either wholly or partially such errors are called as
_________.
A. Error of commission
B. Error of omission.
C. Compensating error.
D. Error of principle.
16. Verification of the value of assets, liabilities, the balance of
reserves, provision and the amount of profit earned or loss
suffered a firm is called _________.
A. Continuous audit.

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B. Balance sheet audit.
C. Interim audit.
D. Partial audit.
17. Vouching of the balances of all incomes and expenses account
is known as vouching of ______.
A. Personal ledger.
B. Impersonal ledger.
C. Cash
D. Sales
18. Preliminary expenses are the best example for _________.
A. fictitious asset.
B. intangible asset.
C. wasting asset.
D. floating asset.
19. Periodical audit is also called as _________.
A. Final audit.
B. Interim audit.
C. Balance sheet audit.
D. Income statement audit.
20. The auditor of a government company shall be appointed by
________.
A. the government company itself.
B. the central government.
C. the share holders.
D. the debenture holders.
21. The main object of the audit of the cash book may be ________.
A. to verify the assets and liabilities.
B. to know that all receipts and payments have been properly recorded.
C. to check the internal control system in business.
D. to check the bank balance.
22. One of the audit procedures to check the issue of share capital
of the newly formed company is __________.
A. the memorandum of association and articles of association.

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B. the share transfer register.
C. the issue of debenture.
D. none of the above.
23. The work of one clerk is automatically check by another clerk
is called _________.
A. Internal control.
B. Internal check.
C. Internal audit.
D. None of the above.
24. The owners of the company are called __________.
A. Debenture holders.
B. Debtors
C. Shareholders
D. None of the above.
25. The main objects of investigation is _________.
A. to discover errors and frauds.
B. to prevent errors and frauds.
C. to verify statements.
D. all the above
26. Share may be issued _____________.
A. at par.
B. at premium.
C. at discount.
D. all the above.
27. The liabilities of an auditor can be _________.
A. Civil
B. Criminal
C. Civil and Criminal.
D. Official
28. Internal auditor of a company must be _______________.
A. Cost accountant.
B. Chartered accountant.
C. ICWA

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D. need not possess any professional qualification.
29. A vacancy caused by resignation of an auditor is filled by
_________.
A. board of directors.
B. managing director.
C. general meeting.
D. central government.
30. When at an annual general meeting of a company no auditor is
appointed or reappointed. In that case ________
A. the central government appoints a person to fill the vacancy
B. the board of directors appoints a person to fill the vacancy.
C. the managing director of the company appoints a person to fill the
vacancy.
D. none of these can appoint a person to fill the vacancy.
31. 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 recorde
32. Professional skepticism requires that the auditor assume that
management is _________.
A. reasonably honest.
B. neither honest nor dishonest.
C. not necessarily honest.
D. dishonest unless proved otherwise.
33. The use of an audit engagement letter is the best method of
assuring the auditor will have which of the following?
A. Auditor will obtain sufficient appropriate audit evidence.
B. Management representation letter.
C. Access to all books, accounts and vouchers required for audit
purpose.
D. Co-operation from other auditors

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34. An auditor who accepts an audit but does not posses the
industry expertise of the business entity should ______________.
A. engage experts.
B. obtain knowledge of matters that relate to the nature of entity
business.
C. inform management about it.
D. take help of other auditors.
35. Audit of banks is an example of __________.
A. Statutory audit.
B. Balance sheet audit.
C. Concurrent audit.
D. All of the above.
36. In India balance sheet audit is synonymous to _______________.
A. Annual audit.
B. Continuous audit.
C. Detailed audit.
D. Statutory audit.
37. Balance sheet audit included verification of ________.
A. assets
B. liabilities
C. income and expenditure accounts where appropriate.
D. all of the above.
38. In determining the level of materiality for an audit what
should not be considered?
A. Prior years errors.
B. The auditor remuneration.
C. Adjusted interim financial statement.
D. Prior year financial statements.
39. Which of the following statement is most closely associated
with analytical procedure applied at substantive stage?
A. It helps to study relationship among balance sheet accounts.
B. It helps to discover material misstatements in the financial

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statements.
C. It helps to identify possible oversights.
D. It helps to accumulate evidence supporting the validity of a specific
account balance
40. Of the following, which 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.
41. Audit Programme is prepared by ___________.
A. the auditor.
B. the client.
C. the audit assistants.
D. the auditor and his audit assistants.
42. The quantity of audit working papers complied on engagement
would most be affected by _________________.
A. management integrity.
B. auditor experience and professional judgement.
C. Auditor qualification.
D. control risk.
43. Which of the following is not an advantage of the preparation
of working paper?
A. To provide a basis for review of audit work.
B. To provide a basis for subsequent audits
C. To ensure audit work is being carried out as per Programme.
D. To provide a guide for advising another client on similar issues.
44. The board of directors shall appoint first auditor of a company._________
A. within one month of completion of capital subscription state of the
company
B. within one month of the promotion of the company.
C. within one month of the commencement of the business of the
company.

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D. within one month of incorporation of the company.
45. In case the directions fail to appoint first auditors, the
shareholders shall appoint them at _______ by passing a resolution.
A. a general meeting.
B. first annual general meeting.
C. statutory meeting.
D. annual general meeting
46. The auditor of a government company is appointed by the C &
AG. His remuneration is fixed by _____________.
A. the C & AG.
B. the shareholders.
C. the shareholders at an annual general meeting.
D. the board of directors.
47. Which of the following statement is not correct regarding
removal of first auditor before expiry of the term?
A. He is removed at a general meeting.
B. The shareholders are authorized to do so
C. The approval of the central government is required for such
removal.
48. The retiring auditor does not have a right to _________.
A. make written representations.
B. get his representation circulated.
C. be heard at the meeting.
D. speak as a member of the company.
49. Auditor of a _______ company does not have right to visit
foreign branches of the company.
A. unlimited liability.
B. manufacturing
C. banking
D. non-profit making.
50. Audit of transactions does not include __________.
A. propriety audit.
B. efficiency cum performance audit.

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C. audit of receipts.
D. audit of expenditure.
51. Audit of rent, deposits and remittances does not cover
____________.
A. audit of borrowings.
B. audit of amortization of debt.
C. audit of sanctions
D. remittance audit.
52. Goods sold on the basis of ‘sales or return ‘ should
A. Be included in the stock
B. Not be included in the stock
C. Not be checked by auditor
D. None of the above
53. The nature, timing and extent of substantive procedures is
related to assessed level of control risk
A. Randomly
B. Disproportionately
C. Directly
D. Inversely
54. Which of the following factors is most important in
determining the appropriations of audit evidence?
A. The reliability of audit evidence and its relevance in meeting the
audit objective
B. The objectivity and integrity of the auditor
C. The quantity of audit evidence
D. The independence of the source of evidence
55. Which of the following is not corroborative evidence?
A. Minutes of meetings
B. Confirmations from debtors
C. Information gathered by auditor through observation
D. Worksheet supporting consolidated financial statements
56. Which of the following affects audit effectiveness?
A. Risk of over reliance

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B. Risk of incorrect rejection
C. Risk of incorrect acceptance
D. Both (a) and (c)
57. What would most effectively describe the risk of incorrect
acceptance in terms of substantive audit testing?
A. The auditor has ascertained that the balance is materially correct
when in actual fact it is not
B. The auditor concludes the balance is materially misstated when in
actual fact is not
C. The auditor has rejected an item from sample which was not
supported by documentary evidence
D. He applies random sampling on data which is inaccurate and
inconsistent
58. Audit programme is prepared by
A. The auditor
B. The client
C. The audit assistants
D. The auditor and his audit assistants
59. The working papers which auditor prepares for financial
statements audit are: _
A. Evidence for audit conclusions
B. Owned by the client
C. Owned by the auditor
D. Retained in auditor’s office until a change in auditors

60. The quantity of audit working papers complied on engagement

would most be affected by
A. Management’s integrity
B. Auditor’s experience and professional judgment
C. Auditor’s qualification
D. Control risk
61. Which of the following best describes the primary purpose of
audit programme preparation?

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A. To detect errors or fraud.
B. To comply with GAAP
C. To gather sufficient appropriate evidence
D. To assess audit risk
62. The auditor’s permanent working paper file should not
normally, include
A. Extracts from client’s bank statements
B. Past year’s financial statements
C. Attorney’s letters
D. Debt agreements
63. For what minimum period should audit working papers be
retained by audit firm?
A. For the time period the entity remains a client of the audit firm.
B. For a period of ten years
C. For a period auditor opines them to be useful in servicing the client
D. For the period the audit firm is in existence.
64. Which of the following factors would least likely affect the
quantity and content of an auditor’s working papers
A. The assessed level of control risk
B. The possibility of peer review
C. The nature of auditor’s report
D. The content of management representation letter
65. Which of the following statement is true regarding an auditor’s
working papers?
A. They document the level of independence maintained by the auditor
B. They should be considered as the principle support for the auditor’s
report
C. They should not contain details regarding weaknesses in the
internal control system
D. They help the auditor to monitor the effectiveness of the audit firm’s
quality control
66. The current file of the auditor’s working papers, generally,
should include

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A. A flowchart of the internal controls
B. Organisation charts
C. A copy of financial statements
D. Copies of bond and debentures
67. Knowledge of the entity’s business does not help the auditor to
A. Reduce inherent risk
B. Identify problem areas
C. Evaluate reasonableness of estimates
D. Evaluate appropriates of GAAP.

68. Payment for wage should be vouched with the help of

A. Piece Work Statement.
B. Wage sheets
C. Minutes book
D. Bank pass book
69. 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
70. Purchase returns should be vouched with the help of
A. Bought notes
B. Credit notes
C. Goods inward book
D. Cash book
71. Receipts from sale of investments should be vouched with the
help of
A. Brokers bought notes
B. Brokers Sold notes
C. Minutes book
D. Inventory of investment
72. Which of the following is not a revenue expense?

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A. Cost of raising a loan
B. Cost of accessories of motor vehicles spent at the time of purchase
C. Expenses incurred for laying of sewers on land purchased
D. Insurance premium paid at the time of registration of the ship
73. Depreciation does not arise form _______
A. Effluxion of time
B. Use
C. Obsolescence through technology be market changes
D. Remarket expectation
74. Which of the following is a revenue reserve?
A. Capital redemption reserve
B. Security premium account
C. Debenture redemption reserve
D. Capital reserve
75. Which of the following will not lead to creation of secret
reserve?
A. Undervaluation of closing stock
B. Charging capital expenditure to revenue
C. Goods sent on consignment being shown as actual sales
D. Charging higher rates of depreciation on fixed assets than actually
required
76. Who is responsible for the appointment of statutory auditor
of a limited company?
A. Directors of the company
B. Members of the company
C. The Central Government
D. All of the above

77. Which of the following statement is not true?

A. A partnership firm can be appointed as a statutory auditor of
limited company

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B. Appointment can be made in the name of the firm
C. Majority of the partners should be practicing in India
D. All partners should be chartered accountants
78. The board of directors shall appoint first auditor of a
company
A. Within one month of completion of capital subscription state of the
company
B. Within one month of the promotion of the company
C. Within one month of the commencement of the business of the
company
[Link] one month of incorporation of the company
79. The term of the auditor ship of first auditor would be from
the date of appointment till__
A. the conclusion of statutory meeting
B. the conclusion of first annual general meeting
C. the conclusion of next annual general meeting
D. the date of removal
80. When restrictions that significantly affect the scope of the

audit are imposed bythe client, the auditor generally should issue

which of the following opinion?

A. Qualified opinion

B. Disclaimer of opinion

C. Adverse opinion

D. Unqualified report with ‘an emphasis of matter’ paragraph;

81. Which of the following report not result in qualification of

the auditor’s opinion due to a scope limitation?

A. Restrictions the client imposed

B. Reliance on the report of other auditor

C. Inability to obtain sufficient appropriate evidential matter

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D. Inadequacy of accounting records

82. The inventory consists of about one per cent of all assets. The

client has imposed restriction on auditor to prohibit observation

of stock take. The auditor cannot apply alternate audit

procedures.

A. Unqualified opinion

B. Qualified opinion

C. Disclaimer of opinion

D. Adverse opinion

83. The auditor has serious concern about the going concern of

the company. It is dependent on company’s obtaining a working

capital loan from a bank which has been applied for. Then

management of the company has made full disclosure of these

facts in the notes to the balance sheet. The auditor is satisfied

with the level of disclosure. He should issue_

A. Unqualified opinion

B. Unqualified opinion with reference to notes to the accounts

C. Qualified opinion

D. Disclaimer of opinion

84. The client changed method of depreciation from straight line

to written down value method. This has been disclosed as a note to

the financial statements. It has an immaterial effect on the

current financial statements. It is expected, however, that the

change will have a significant effect on future periods. Which of

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the following option should the auditor express?

A. Unqualified opinion

B. Qualified opinion

C. Disclaimer of opinion

D. Adverse opinion

85. In case the auditor gives a disclaimer of opinion in the audit

report which of the following paragraph(s) of a standard

unqualified audit report are modified?

A. Scope paragraph

B. Opinion paragraph

C. Scope and opinion paragraphs

D. Introductory, scope and opinion paragraph

86. A departure from recognized accounting principle is disclosed

in a note to the financial statements. The auditor should

A. Issue a standard unqualified audit report

B. Issue a qualified report

C. Issue an unqualified report with ‘emphasis of matter’ paragraph

D. Disclaim opinion

87. The auditor should state the reasons for his reservations in

audit report and should try to quantify the effect on them. This

should be done in case he has expressed _ i) A qualified opinion ii)

an unqualified opinion with emphasis of matter paragraph iii) An

adverse opinion IV) a disclaimer of opinion

A. i) only

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B. i) and (iv) only

C. i), iii) and (iv) only

D. All of the above

88. Which of the following documents is not relevant for

vouching cash sales?

A. Daily cash sales summary

B. Salesmen’s summary

C. Monthly statements sent to customers

D. Bank statement

89. The auditor should examine subsequent realization of

revenue such as dividends, interest, commission, etc to

A. Identify cases of unrecorded revenue

B. Ensure proper disclosure in the balance sheet

C. Recomputed accrued income on the data of balance sheet

D. Any of these

90. To test whether sales have been recorded, the auditor should

draw a sample from a file of

A. Purchase orders

B. Sales orders

C. Sales invoices

D. Bill of loading

91. For vouching of which item, the auditor is most likely to

examine cost records?

A. Commission earned

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B. Bad debts recorded

C. Credit sales

D. Sale of scrap

92. An auditor conducts a surprise check on the pay day (i.e) the

day wages and salaries are paid. The primary purpose of this

audit procedure is

A. To ensure that there are no ghost workers

B. To ensure the casual workers employed are authorized by the

supervisor

C. To test procedures for distributing pay cheques

D. To obtain understanding of internal control system

93. Which of the following would prevent double payment of the

same voucher?

A. The person signing the cheque should cancel the supporting

documents

B. Cheques should be signed by at best two persons

C. The data of payment of vouchers of similar nature should be the

same or close to each other

D. All of the above

94. In case of unclaimed wages, the auditor should examine

whether

A. The amount has been deposited in a separate bank account

B. Deposited with the cashier

C. Held in a safe deposit box

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D. All of these

95. While vouching wages, auditor should examine whether there

is proper segregation of duties. Which of the following activities

should not be done by same department?

A. Maintaining personnel records and approving changing in wages

rates

B. Proposing pay roll summary and disbursement of wages

C. Making salary statements and filing tax returns

D. Comparing time clock records with time reports prepared by

supervisors and preparing list of workers employed along with the

units of production for each one of them

96. In order to vouch, which of the expenses, the auditor will

examine Bill of Entry?

A. Custom

B. Excise duties

C. Sales tax

D. Income tax

97. While vouching, how will the auditor ensure himself that all

credit salestransactions have been recorded by the entity?

A. Examining cut-off points

B. Matching entries in the sales book against renumbered sales

invoices and goods outward notes

C. Counting the number of invoices and matching the number with

entries on sales book

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D. Both (a) and (b)

98. In case of sales return, the auditor should examine which

documents?

A. Credit notes, advice notes and inward return notes

B. Debit notes, advice notes and inward return notes

C. Purchase invoices, advice notes and inward return notes

D. Credit notes, inspection report and inward return notes

99. An internal auditor discovered that fictitious purchases have

been recorded by the purchase clerk. This indicates absence of

which control?

A. Purchase invoices are independently matched with purchase orders

and goods received notes

B. Goods received notes requires the signature of individual who

authorized the purchase

C. Routine checks are performed by internal auditor fortnightly.

D. Purchase function and production function are clubbed in one

department

100. Which of the following is most crucial to a purchase

department?

A. Reducing the cost of acquisition

B. Selecting supplies

C. Authorizing the acquisition of goods

D. Assuring the quality of goods

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ANSUWER
1. E
2. A
3. B
4. D
5. A
6. A
7. D
8. B
9. D
10. B
11. C
12. A
13. B
14. B
15. B
16. B
17. B
18. A
19. C
20. B
21. B
22. A
23. B
24. C
25. D
26. D
27. C
28. B
29. C
30. A

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31. D
32. B
33. C
34. B
35. D
36. A
37. D
38. B
39. D
40. C
41. D
42. A
43. D
44. A
45. B
46. C
47. D
48. B
49. B
50. C
51. A
52. C
53. A
54. D
55. D
56. A
57. D
58. C
59. B
60. C
61. A
62. C
63. D

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64. B
65. C
66. A
67. B
68. A
69. B
70. B
71. B
72. D
73. C
74. C
75. B
76. C
77. D
78. B
79. B
80. A
81. B
82. C
83. B
84. A
85. C
86. B
87. A
88. C
89. A
90. C
91. D
92. C
93. A
94. A
95. B
96. A

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97. D
98. D
99. A
100.C

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