Free Auditing MCQs with Answers
162 Auditing MCQs from Accounting, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Auditing examines accounting records and financial statements to determine whether they present a reliable and fairly stated position. The subject covers audit objectives, internal controls, audit evidence, materiality, vouching, verification, working papers, auditor independence, audit reports, and the distinction between an audit and accounting or investigation.
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- A. To prepare the entity’s accounting records
- B. To provide reasonable assurance on fair presentation
- C. To detect every instance of fraud
- D. To guarantee the entity’s future profitability
Explanation: An audit provides reasonable assurance that the financial statements are free from material misstatement and are fairly presented.
Correct answer: To provide reasonable assurance on fair presentation- A. Checking the physical condition of assets
- B. Comparing recorded transactions with supporting documents
- C. Estimating the useful life of fixed assets
- D. Recalculating the entity’s tax liability
Explanation: Vouching tests recorded transactions by tracing them to documents such as invoices, receipts and payment records.
Correct answer: Comparing recorded transactions with supporting documents- A. The physical size of an accounting document
- B. The importance of a misstatement to users’ decisions
- C. The total value of all assets in an entity
- D. The number of transactions recorded during a year
Explanation: A matter is material when its omission or misstatement could influence the decisions of financial statement users.
Correct answer: The importance of a misstatement to users’ decisions- A. One employee authorizes, records and safeguards cash
- B. The cashier prepares and approves the bank reconciliation
- C. Different employees authorize, record and handle transactions
- D. The accountant keeps all accounting documents personally
Explanation: Segregation of duties divides authorization, recording and custody among different people.
Correct answer: Different employees authorize, record and handle transactions- A. An oral explanation given by the client’s cashier
- B. A management-prepared estimate without supporting records
- C. An external confirmation received directly by the auditor
- D. An unsigned schedule prepared by an accounting clerk
Explanation: Evidence obtained directly from an independent external source is generally more reliable than unsupported internal explanations or…
Correct answer: An external confirmation received directly by the auditor- A. They replace the entity’s permanent accounting records
- B. They document the audit work, evidence and conclusions
- C. They serve as the entity’s official financial statements
- D. They provide management with a complete operating manual
Explanation: Working papers record the procedures performed, evidence obtained and conclusions reached by the auditor.
Correct answer: They document the audit work, evidence and conclusions- A. The auditor reviews the client’s accounting policies
- B. The auditor owns a significant financial interest in the client
- C. The auditor requests supporting documents from management
- D. The auditor discusses audit findings with the audit committee
Explanation: A significant financial interest creates a direct self-interest threat because the auditor may benefit from the client’s financial…
Correct answer: The auditor owns a significant financial interest in the client- A. When financial statements contain material and pervasive misstatements
- B. When the auditor finds no material misstatement
- C. When the auditor cannot attend the inventory count but obtains other evidence
- D. When management corrects all material errors before the report date
Explanation: An adverse opinion is issued when misstatements are both material and pervasive, so the financial statements do not present fairly.
Correct answer: When financial statements contain material and pervasive misstatements- A. Accounting examines records, while auditing records transactions
- B. Accounting records and summarizes transactions, while auditing evaluates them
- C. Accounting investigates suspected fraud, while auditing prepares ledgers
- D. Accounting issues audit opinions, while auditing prepares trial balances
Explanation: Accounting involves recording, classifying and summarizing financial transactions.
Correct answer: Accounting records and summarizes transactions, while auditing evaluates them- A. An investigation addresses a specific question or suspected irregularity
- B. An investigation always covers every transaction in the entity
- C. An investigation is performed only to prepare annual accounts
- D. An investigation never uses documentary or testimonial evidence
Explanation: An investigation is normally directed at a particular matter, such as suspected fraud, misconduct or a disputed claim.
Correct answer: An investigation addresses a specific question or suspected irregularity- A. Absolute assurance
- B. Reasonable assurance
- C. Limited assurance
- D. Probable assurance
Explanation: An audit provides reasonable assurance because audit procedures and sampling cannot eliminate every risk of error.
Correct answer: Reasonable assurance- A. Management override of controls
- B. Preparation of a trial balance
- C. Use of source documents
- D. Periodic bank reconciliation
Explanation: Management or employees may override established procedures, so internal controls cannot provide complete protection.
Correct answer: Management override of controls- A. Profitability
- B. Valuation
- C. Liquidity
- D. Turnover
Explanation: Asset verification examines whether the asset exists, belongs to the entity, and is stated at an appropriate value.
Correct answer: Valuation- A. To calculate depreciation on bank assets
- B. To compare recorded and bank-reported balances
- C. To authorize payments to suppliers
- D. To determine the entity's gross profit
Explanation: A bank reconciliation compares the cash book balance with the bank statement and explains timing differences or errors.
Correct answer: To compare recorded and bank-reported balances- A. The entity reports a net profit
- B. Sufficient appropriate audit evidence was obtained
- C. Every transaction was examined
- D. No accounting estimate was used
Explanation: An unmodified opinion requires sufficient appropriate evidence supporting the conclusion that the statements are fairly presented under…
Correct answer: Sufficient appropriate audit evidence was obtained16. An auditor should generally issue a qualified opinion when a material misstatement or limitation is:
- A. Immaterial and isolated
- B. Material but not pervasive
- C. Pervasive and fundamental
- D. Limited only to cash transactions
Explanation: A qualified opinion is appropriate when the matter is material but does not affect the financial statements pervasively.
Correct answer: Material but not pervasive- A. Immaterial but frequent
- B. Material and pervasive
- C. Certain but favorable
- D. Limited to one trivial balance
Explanation: A disclaimer is used when a severe scope limitation prevents the auditor from forming an opinion and the possible effects are material and…
Correct answer: Material and pervasive- A. The external auditor
- B. The entity's management
- C. The audit committee alone
- D. The tax authority
Explanation: Management is responsible for preparing the financial statements and maintaining the underlying records and controls.
Correct answer: The entity's management- A. Replace all internal controls
- B. Draw a conclusion about a population from selected items
- C. Guarantee detection of every fraud
- D. Avoid documenting audit procedures
Explanation: Audit sampling uses selected items to obtain evidence and draw a conclusion about the larger population.
Correct answer: Draw a conclusion about a population from selected items- A. Adjustment for that condition
- B. Deletion of all prior-year figures
- C. Conversion to cash accounting
- D. Removal of the audit opinion
Explanation: A subsequent event that confirms a condition existing at the reporting date is usually an adjusting event.
Correct answer: Adjustment for that conditionAuditing MCQs: common questions
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