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. Analytical procedure
- B. Physical inspection
- C. External confirmation
- D. Document examination
Explanation: Analytical procedures compare recorded amounts with expected relationships, trends, or ratios to identify unusual items.
Correct answer: Analytical procedure- A. Completeness
- B. Occurrence
- C. Valuation
- D. Cut-off
Explanation: The occurrence assertion addresses whether recorded transactions and events actually took place.
Correct answer: Occurrence23. What is the main purpose of an external confirmation sent to a customer about its account balance?
- A. To test the existence of a receivable
- B. To calculate the depreciation expense
- C. To assess staff performance
- D. To inspect the sales ledger format
Explanation: A customer confirmation provides evidence about whether the receivable exists and, often, whether its balance is accurate.
Correct answer: To test the existence of a receivable- A. Prepare incorrect accounting records
- B. Express an inappropriate opinion
- C. Fail to record every transaction
- D. Overstate the entity's profits
Explanation: Audit risk is the possibility that an inappropriate audit opinion is issued on financial statements containing a material misstatement.
Correct answer: Express an inappropriate opinion- A. Recalculation of depreciation
- B. Inspection of goods received notes
- C. Confirmation of bank balances
- D. Observation of stock counting
Explanation: Goods received notes provide evidence about when goods were received, helping the auditor test the cut-off of purchases.
Correct answer: Inspection of goods received notes26. When an auditor performs a test of controls, the auditor is mainly assessing whether the controls:
- A. Prevent every possible fraud
- B. Operate effectively during the period
- C. Guarantee profitable operations
- D. Replace substantive audit procedures
Explanation: A test of controls evaluates whether a control operated effectively during the relevant period.
Correct answer: Operate effectively during the period- A. The auditor's responsibility to prepare all records
- B. The agreed terms and scope of the audit
- C. A guarantee that fraud will be detected
- D. The final amount of the client's profit
Explanation: An engagement letter records the agreed objectives, scope, responsibilities, and other terms of the audit.
Correct answer: The agreed terms and scope of the audit- A. The entity will remain in operation for the foreseeable future
- B. The entity must earn a profit every year
- C. The entity may never borrow funds
- D. The entity's assets are all held in cash
Explanation: The going concern assumption means that the entity is expected to continue operating for the foreseeable future rather than being forced…
Correct answer: The entity will remain in operation for the foreseeable future29. Which situation most strongly indicates a need for the auditor to consider a going concern problem?
- A. A temporary increase in office supplies
- B. Recurring operating losses and serious cash shortages
- C. A change in the entity's logo
- D. A minor difference in stationery costs
Explanation: Recurring losses and severe cash shortages may indicate that the entity cannot meet its obligations or continue normal operations.
Correct answer: Recurring operating losses and serious cash shortages- A. To replace all other audit evidence
- B. To confirm management's stated responsibilities and assertions
- C. To transfer the audit opinion to management
- D. To guarantee that no employee committed fraud
Explanation: Written representations document management's acknowledgment of its responsibilities and support particular matters discussed during the…
Correct answer: To confirm management's stated responsibilities and assertions- A. Occurrence of recorded sales
- B. Completeness of recorded sales
- C. Rights over trade receivables
- D. Valuation of trade receivables
Explanation: Tracing starts with source documents and follows them into the accounting records, so it tests whether transactions have been completely…
Correct answer: Completeness of recorded sales- A. Preparing the annual financial statements
- B. Expressing an independent external audit opinion
- C. Evaluating risk management and internal controls
- D. Determining the organisation’s final tax liability
Explanation: Internal audit evaluates and helps improve risk management, governance, and internal controls.
Correct answer: Evaluating risk management and internal controls- A. Management’s commitment to integrity and ethical values
- B. A schedule comparing actual and budgeted expenses
- C. A procedure for identifying new business risks
- D. A report listing exceptions in reconciliations
Explanation: The control environment reflects management’s attitude, ethical values, governance, and commitment to competent personnel.
Correct answer: Management’s commitment to integrity and ethical values- A. A test of controls
- B. A substantive procedure
- C. An engagement acceptance procedure
- D. A subsequent events procedure
Explanation: The recalculation directly tests whether a recorded financial amount is accurate, making it a substantive procedure.
Correct answer: A substantive procedure- A. Accepting management explanations without further work
- B. Maintaining a questioning mind when evaluating evidence
- C. Assuming that every management estimate is fraudulent
- D. Relying only on evidence obtained from outside parties
Explanation: Professional scepticism means maintaining a questioning mind and critically assessing audit evidence.
Correct answer: Maintaining a questioning mind when evaluating evidence- A. The audited company’s shareholders
- B. The company’s chief financial officer
- C. The independent auditor
- D. The company’s external legal adviser
Explanation: Audit working papers are normally the property of the auditor because they document the auditor’s procedures, evidence, and conclusions.
Correct answer: The independent auditor- A. Adjust the factory balance at the reporting date
- B. Disclose the event if it is material
- C. Ignore the event in every circumstance
- D. Recognise the loss in the earlier period
Explanation: A fire caused by conditions arising after the reporting date is generally a non-adjusting subsequent event.
Correct answer: Disclose the event if it is material- A. The date on which the entity prepared its ledger
- B. The date on which the auditor completed necessary audit procedures
- C. The date on which shareholders approved the accounts
- D. The date on which the accounting period began
Explanation: The auditor’s report date normally indicates that the auditor has completed the procedures required up to that date and has obtained…
Correct answer: The date on which the auditor completed necessary audit procedures- A. The entity’s management and those charged with governance
- B. The external auditor alone
- C. The entity’s tax consultant alone
- D. The shareholders acting individually
Explanation: Management and those charged with governance are primarily responsible for designing controls and managing the risk of fraud.
Correct answer: The entity’s management and those charged with governance- A. The quantity of audit evidence obtained
- B. The legal ownership of audit evidence
- C. The source location of audit evidence
- D. The wording used in audit evidence
Explanation: Sufficiency is the measure of the quantity of audit evidence needed to support an audit conclusion.
Correct answer: The quantity of audit evidence obtained