All Free Accounting MCQs with Answers

• A. The risk of the auditor carrying out a test the wrong way round
• B. The risk of reliance on unsuitable audit evidence
• C. The risk that the sample does not reflect the population
• D. The risk of the auditor reaching the wrong conclusions from testing

Explanation: Sampling risk arises when the selected sample does not adequately represent the population, causing a conclusion different from one based…

• A. the timing of the audit
• B. whether corrections from the inventory count have been implemented
• C. last year's audit
• D. the potential use of internal auditGet Study Guides

Explanation: Planning covers timing, prior-year audit information, and the possible use of internal audit.

• A. The timing of the audit
• B. Analytical review
• C. Last year's written representation letter
• D. Obtaining written representations

Explanation: Written representations are normally obtained near the end of the audit, usually dated the same day as the auditor's report.

• A. Compliance risk
• B. Detection risk
• C. Control risk
• D. Inherent risk

Explanation: Audit risk consists of inherent risk, control risk, and detection risk.

• A. Background i.e. industry
• B. Previous year's audit i.e. any qualifications in the report
• C. Considering the work to be done by the client staff e.g. internal audit
• D. Considering whether the financial statements show a true and fair view

Explanation: Planning considers the industry, previous audits, and work performed by client staff such as internal audit.

• A. A matter is material only if it changes the audit report
• B. A matter is material if the auditor and the directors both decide that further work needs to be done in the area under question
• C. A matter is material only if it affects directors' emoluments
• D. A matter is material if its omission or misstatement would reasonably influence the decisions of an addressee of the auditors' report

Explanation: A matter is material when omitting or misstating it could reasonably affect the economic decisions of users of the audit report.

• A. Until the audit is complete
• B. Until the financial statements are complete
• C. Until the next AGM (Annual General Meeting)
• D. Until the directors remove them Source Heavy Machinery

Explanation: An auditor normally remains in office until the conclusion of the next AGM, when members may reappoint or replace the auditor.

• A. the directors
• B. the company's creditors (payables)
• C. the company's bank
• D. the shareholders

Explanation: The auditor is appointed to serve the shareholders or members and reports the audit opinion to them.

• A. The shareholders in a general meeting
• B. The managing director
• C. The board of directors in a board meeting
• D. The audit committee Hire An Accountant

Explanation: After the first appointment, the shareholders generally appoint or reappoint the auditor in a general meeting, commonly at the AGM.

• A. Duty to report to the company's bankers
• B. Duty to report to the members
• C. Duty to sign the audit report
• D. Duty to report on any violation of law Get Executive Coaching

Explanation: The auditor’s statutory reporting duties are primarily to the members and may include reporting legal non-compliance, as well as signing…

• A. Circulate representations to members
• B. Apply to the court to have the proposal removed
• C. Speak at the AGM/EGM where the removal is proposed
• D. Receive notification of the AGM/EGM where the removal is proposed

Explanation: A proposed removal allows the auditor to circulate written representations, receive meeting notice, and speak at the meeting.

• 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

Explanation: Management is responsible for preventing and detecting fraud and errors through proper controls, while the auditor provides reasonable…

• A. International Accounting Standards Board
• B. International Federation of Accountants
• C. International Standards Board
• D. Auditing Practices Board

Explanation: International Standards on Auditing are developed through the International Auditing and Assurance Standards Board, which operates under…

• A. Reporting to the shareholders on the accuracy of the accounts
• B. Establishment of internal controls
• C. Keeping proper accounting records
• D. Supplying information and explanations to the auditor

Explanation: The auditor, not the directors, reports independently to shareholders on the financial statements.

• A. Because they are easier to audit
• B. Because it reduces the audit time
• C. Because the risk to the accounts of their being incorrectly stated is greater
• D. Because the directors have asked for it

Explanation: Material items can significantly influence users’ decisions, so an error in them creates greater risk of misleading financial statements.

• A. Are responsible for ensuring that the company complies with the law
• B. Are responsible for ensuring that the company pays its tax by the due date
• C. Safeguard the company's assets and manage them on behalf of the shareholders
• D. Report suspected fraud and money laundering to the authorities

Explanation: Stewardship means directors control and protect company resources as trustees for the shareholders.

• A. Protect the interests of the minority shareholders
• B. Detect and prevent errors and fraud
• C. Assess the effectiveness of the company's performance
• D. Attest to the credibility of the company's accounts Hire An Accountant

Explanation: The auditor's fundamental objective is to form and report an independent opinion on whether the financial statements are credible and…

• A. Embezzlement
• B. Misappropriation
• C. Lapping
• D. None of these

Explanation: Lapping conceals a cash shortage by postponing the recording of one receipt and using a later receipt to cover it.

• A. Small scale business
• B. Partnership firms
• C. Joint stock Companies
• D. Proprietary Concerns

Explanation: Joint stock companies are generally subject to statutory audit because they operate through capital contributed by shareholders and must…

• A. Auditing
• B. Testing
• C. Vouching
• D. Verification

Explanation: Vouching is the examination of documentary evidence supporting recorded transactions, such as invoices, receipts and vouchers.