Students should practice these Audit of Banks – CA Inter Audit MCQ based on the latest syllabus.

Audit of Banks – CA Inter Audit MCQ

Question 1.
Regulating body in case of banks is:
(a) SEBI
(b) IRDA
(c) RBI
(d) ICAI
Answer:
(c) RBI

Question 2.
Long Form Audit report is to be submitted by:
(a) 30th April every year
(b) 30th June every year
(c) 30th Sep. every year
(d) None of the above
Answer:
(b) 30th June every year

Question 3.
The matters which the banks require their auditors to deal with in the long form audit report have been specified by the
(a) Central Government
(b) State Bank of India
(c) Board of Directors of respective banks
(d) Reserve Bank of India
Answer:
(d) Reserve Bank of India

Question 4.
During stage of initial considerations in a bank audit, which of the following aspect is not covered:
(a) Acceptance & Continuance
(b) Terms of Audit Engagements
(c) Communication with Previous Auditor
(d) Engagement Team Discussions
Answer:
(d) Engagement Team Discussions

Question 5.
During stage of “understanding the business operations” in a bank audit, auditor is required to obtain understanding of various aspects. Which of the following aspect is not covered?
(a) Bank and its Environment including Internal Control
(b) Bank’s Accounting Process
(c) Risk Management Process
(d) None of the above
Answer:
(d) None of the above

Question 6.
During stage of “Risk Assessment” in a bank audit, auditor is required to identify and assess risks. Risks to be identified and assessed include:
(a) Risks of Material Misstatements and Risk of Fraud including Money Laundering
(b) Risks of Material Misstatements and Risk of Fraud including Money Laundering and Specific Risks
(c) Risk Associated with Outsourcing of activities and Risk of Fraud including Money Laundering
(d) Risks of Material Misstatements, Risk of Fraud including Money Laundering, Specific Risks and Risk Associated with Outsourcing of activities
Answer:
(d) Risks of Material Misstatements, Risk of Fraud including Money Laundering, Specific Risks and Risk Associated with Outsourcing of activities

Question 7.
Which of the following activity is generally not form part of execution stage in a bank audit:
(a) Establish Engagement Team
(b) Engagement Team Discussions
(c) Response to the Assessed Risks
(d) Appropriateness of Going Concern
Answer:
(a) Establish Engagement Team

Question 8.
You are at the planning stage for one of your firm’s clientXYZBankfor the year ended 31st March 2019. The bank is a commercial bank that provides a number of products and services to the general public and other segments of the economy in the area of South Mumbai. You are assigned the audit of one of the branches of XYZ Bank. The audit engagement team was called to have a detailed discussion on the following matters. Which one of the following should not be included in the discussion for the audit of banks?
(a) Appointment and remuneration to be received on this engagement
(b) Errors of last year in the application of accounting policies of the bank
(c) Methods of fraud if any perpetrated by the bank employee within particular balances and/or dis-closures
(d) Effect of the results of the risk assessment procedures on other aspects to decide the nature, timing and extent of further audit procedures
Answer:
(a) Appointment and remuneration to be received on this engagement

Question 9.
Which of the following activity is generally not form part of execution stage in a bank audit:
(a) Engagement Team Discussions
(b) Response to the Assessed Risks
(c) Understanding of bank accounting policies
(d) Audit Planning Memorandum
Answer:
(c) Understanding of bank accounting policies

Question 10.
Which of the following is fund based advance?
(a) Term loans
(b) Cash credits
(c) Demand Loans
(d) All of the above
Answer:
(d) All of the above

Question 11.
Which of the following is not classification of NPA?
(a) Impaired
(b) Sub Standard
(c) Doubtful
(d) Loss
Answer:
(a) Impaired

Question 12.
Agricultural advances are classified as NPA if interest and/or Instalment of principal is overdue for __________ in case loans granted for Short Duration crops and __________ in case loans granted for Long Duration crops (i.e. more than 1 year)
(a) two crop seasons; one crop season.
(b) one crop season; one crop season.
(c) two crop seasons; two crop seasons.
(d) one crop season; two crop season.
Answer:
(a) two crop seasons; one crop season.

Question 13.
Your firm has been appointed as auditors of a branch of a nationalised Bank. The bank is a consortium member of Cash Credit Facilities of ₹ 5 0 crores to X Ltd. Bank’s own share is ₹ 10 crores only. During the last two quarters against a debit of ₹ 1.75 crores towards interest, the credits in X Ltd. account are to the tune of ₹ 1.2 5 crores only. Based on the certificate of lead bank, the bank has classified the account of X Ltd. as performing
(a) Classification of advance as performing is in order as in case of consortium advances, classification is to be done on the basis of certificate of lead bank
(b) Classification of advance as performing is in order subject to confirmation from branch statutory auditor
(c) Classification of advance as performing is in order subject to confirmation from Central Statutory auditor
(d) Classification of advance as performing is not in order
Answer:
(d) Classification of advance as performing is not in order

Question 14.
M/s. S Ltd. is a MSME unit. The company does multiple banking. The company is availing cash credit limit from U Bank of ₹ 25 crores. The limit availed remained less than ₹ 5.00 crores during all the days of F.Y. 2017-18. The company has not done any credit in cash credit account during the year as it is operating current account in newly opened another bank branch adjoining to company premises. The company is having sufficient security of stocks and debtors and DP of ₹ 25.00 crores remains all over the year. The company is availing term loans from other bank branches. Now the Bank Manager is insisting to route the sale proceeds through U Bank, otherwise cash credit limit and term loan accounts with other banks will be treated as Non-Performing Accounts
(a) Cash credit facility with U Bank need to be classified as NPA as there are no credit in the account to serve the interest charged in the account. Classification of term loan with other banks depends upon the payment made to that bank
(b) Cash credit facility with U Bank as well term loans with other bank branches need to be classified as NPA
(c) Cash credit facility with U Bank as well term loans with other bank branches need to be classified as performing
(d) Cash credit facility with U Bank need to be classified as performing whereas classification of term loan with other banks depends upon the payment made to that bank
Answer:
(a) Cash credit facility with U Bank need to be classified as NPA as there are no credit in the account to serve the interest charged in the account. Classification of term loan with other banks depends upon the payment made to that bank

Question 15.
Which of the following is correct in case of Banks?
(a) The policy ofincomerecognitionshouldbe objective
(b) The policy of income recognition should be subjective
(c) The policy of income recognition maybe objective or subjective
(d) The policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations
Answer:
(d) The policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations

Question 16.
In course of audit of Good Samaritan Bank as at 31st March 2019 you observed the following: in a particular account there was no recovery in the past 18 months. The bank has not applied the NPA norms as well as income recognition norms to this particular account. When queried the bank management replied that this account was guaranteed by the central government and hence these norms were not applicable. The bank has not invoked the guarantee
(a) Bank is correct to the extent of not applying the NPA norms for provisioning purpose. But this exemption is not available in respect of income recognition norms
(b) Bank is not correct to the extent of not applying the NPA norms for provisioning purpose. But this exemption is available in respect of income recognition norms
(c) Bank is correct in not applying the NPA norms and income recognition norms
(d) Bank is not correct in not applying the NPA norms and income recognition norms
Answer:
(a) Bank is correct to the extent of not applying the NPA norms for provisioning purpose. But this exemption is not available in respect of income recognition norms

Question 17.
In carrying out audit of deposits and liabilities in a bank, the auditor is primarily concerned with obtaining __________ that all known liabilities are recorded and stated at appropriate amounts
(a) Absolute assurance
(b) Reasonable assurance
(c) Moderate assurance
(d) Limited assurance
Answer:
(b) Reasonable assurance

Question 18.
Management develops controls and uses performance indicators to aid in managing key business and financial risks. Requirements of Risk Management System in a Bank may include:
1. Oversight by Those Charged with Governance
2. Identification, measurement and monitoring of risks
3. Control activities
4. Monitoring activities
5. Reliable information systems
6. Assess the Risk of Fraud including Money Laun-dering by audit team
7. Identifying and Assessing the Risks of Material Misstatements by auditor
8. Assess Specific Risks at engagement level that may cause material misstatement
Identify the reqc irements:
(a) 1, 2, 3 and 4
(b) 5, 6, 7 and 8
(c) 1, 2, 3,4 and 5
(d) 6, 7 and 8
Answer:
(b) 5, 6, 7 and 8

Question 19.
Which of the following is correct?
(a) Sub-section (1) of section 30 of the Banking Regulation Act, 1949 requires that the balance sheet and profit and loss account of a banking company should be audited by a Firm of Chartered Accountants only.
(b) Sub-section (1) of section 30 of the Banking Regulation Act, 1949 requires that the balance sheet and profit and loss account of a banking company should be audited by a person duly qualified under any law for the time being in force to be an auditor of companies.
(c) Sub-section (1) of section 30 of the Banking Regulation Act, 1949 requires that the balance sheet and profit and loss account of a banking company ; should be audited by a CAG Auditor only.
(d) Sub-section (1) of section 30 of the Banking Regulation Act, 1949 requires that the balance sheet and profit and loss account of a banking company should be audited by a person duly qualified under Banking Law.
Answer:
(b) Sub-section (1) of section 30 of the Banking Regulation Act, 1949 requires that the balance sheet and profit and loss account of a banking company should be audited by a person duly qualified under any law for the time being in force to be an auditor of companies.

Question 20.
A Ltd. has been assigned a Cash Credit limit of INR 20 lacs as against its Book Debts furnished as security. What kind of Security creation is it?
(a) Pledge
(b) Mortgage
(c) Assignment
(d) Set-off
Answer:
(c) Assignment