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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162 questions · page 8 of 9
- 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.
Correct answer: whether corrections from the inventory count have been implemented- 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.
Correct answer: Obtaining written representations- A. Compliance risk
- B. Detection risk
- C. Control risk
- D. Inherent risk
Explanation: Audit risk consists of inherent risk, control risk, and detection risk.
Correct answer: Compliance 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.
Correct answer: Considering whether the financial statements show a true and fair view- 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.
Correct answer: A matter is material if its omission or misstatement would reasonably influence the decisions of an addressee of the auditors' 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.
Correct answer: Until the next AGM (Annual General Meeting)- 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.
Correct answer: the shareholders- 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.
Correct answer: The shareholders in a general meeting- 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…
Correct answer: Duty to report to the company's bankers- 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.
Correct answer: Apply to the court to have the proposal removed- 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…
Correct answer: He is responsible for detection and prevention of frauds and errors in financial statements- 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…
Correct answer: International Federation of Accountants- 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.
Correct answer: Reporting to the shareholders on the accuracy of the accounts- 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.
Correct answer: Because the risk to the accounts of their being incorrectly stated is greater- 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.
Correct answer: Safeguard the company's assets and manage them on behalf of 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…
Correct answer: Attest to the credibility of the company's accounts Hire An Accountant- 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.
Correct answer: Lapping- 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…
Correct answer: Joint stock Companies- 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.
Correct answer: Vouching- A. Blood haunt
- B. Watch dog
- C. May both according to situation
- D. None of these
Explanation: An auditor is called a watchdog because the auditor independently examines accounts and reports material irregularities, rather than…
Correct answer: Watch dog