Students should practice these Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ based on the latest syllabus.

Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Question 1.
When credit purchases of ₹ 5100 is recorded on credit side and credit sales of ₹ 5100 is recorded on debit side, this kind of error is called
(a) Error of omission
(b) Compensating error
(c) Error of principle
(d) Error of commission
Answer:
(b) Compensating error

Question 2.
If, as a result of a misstatement resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit, he shall _____
(a) Withdraw from the engagement immediately
(b) Report to Audit team regarding withdrawal
(c) Determine the professional and legal responsibilities applicable in the circumstances
(d) Ask the management for his withdrawal
Answer:
(c) Determine the professional and legal responsibilities applicable in the circumstances

Question 3.
Which of the following is an example of inflating cash payments?
(a) Making payments against purchase vouchers
(b) Teeming and lading
(c) Not accounting for cash sales fully
(d) Making payments against inflated vouchers
Answer:
(d) Making payments against inflated vouchers

Question 4.
The type of errors, the existence of which becomes apparent in the process of compilation of accounts is known as _____
(a) Self-revealing errors
(b) Intentional errors
(c) Concealed errors
(d) Unconcealed errors
Answer:
(a) Self-revealing errors

Question 5.
Misappropriation of assets may occur because there is _____
(a) Adequate record keeping with respect to assets
(b) Known history of violations of securities laws
(c) Lack of complete and timely reconciliations of assets
(d) Dispute between shareholders in a closely held entity
Answer:
(c) Lack of complete and timely reconciliations of assets

Question 6.
SA 240 define fraud as ‘an intentional act by one or more individuals among management, those charged with governance, _____ , involving the use of deception to obtain an unjust or illegal advantage
(a) employees or third parties
(b) employees, vendors or third parties
(c) employees or others
(d) employees or vendors
Answer:
(a) employees or third parties

Question 7.
A situation where someone believes they have a favourable or promising combination of circumstances to commit an undetectable fraud is the description of:
(a) perceived pressure
(b) rationalisation
(c) management fraud
(d) perceived opportunity
Answer:
(d) perceived opportunity

Question 8.
Which of the following considerations of fraud and error by the auditor is not required by SA 240?
(a) the auditor should communicate to management any material weaknesses in internal control related to the prevention or detection of fraud and error
(b) based on the risk assessment the auditor should design audit procedures to obtain reasonable as-surance that material misstatements arising from fraud and error are detected
(c) when the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should inform regulatory bodies
(d) the auditor should be satisfied that those charged with governance have been informed of any material weaknesses in internal control related to the prevention and detection of fraud
Answer:
(c) when the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should inform regulatory bodies

Question 9.
Concerning fraud, the auditor’s current position is that:
(a) the auditor is responsible for obtaining reasonable assurance that the financial statements are free from material statement, whether caused by fraud or error
(b) when fraud is discovered by the auditor, they must report it in their audit opinion
(c) fraud detection is the objective of an audit
(d) the auditor can take no responsibility for fraud
Answer:
(a) the auditor is responsible for obtaining reasonable assurance that the financial statements are free from material statement, whether caused by fraud or error

Question 10.
Fraudulent financial reporting involves
(a) Management override of controls that otherwise may appear to be operating effectively
(b) Causing an entity to pay for goods and services not received
(c) Stealing physical assets or intellectual property
(d) Using an entity’s assets for personal use
Answer:
(a) Management override of controls that otherwise may appear to be operating effectively

Question 11.
Misappropriation of assets involves the theft of an entity’s assets and is often perpetrated by employees in relatively small and immaterial amounts. Misappropriation of assets can be accomplished in a variety of ways. Which of the following is not an example of misappropriation of assets?
(a) Misappropriating collections on accounts receivable or diverting receipts in respect of written-off accounts to personal bank accounts
(b) Inappropriately adjusting assumptions and changing judgments used to estimate account balances
(c) Stealing inventory for personal use or for sale, stealing scrap for resale, colluding with a competitor by disclosing technological data in return for payment
(d) Payments to fictitious vendors, kickbacks paid by vendors to the entity’s purchasing agents in return for inflating prices, payments to fictitious employees
Answer:
(b) Inappropriately adjusting assumptions and changing judgments used to estimate account balances

Question 12.
If, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor’s ability to continue performing the audit, the auditor shall:
(a) consider the nature of modifications to be made in the audit report
(b) consider whether it is appropriate to withdraw from the engagement, where withdrawal from the engagement is legally permitted
(c) communicate his inability to continue the audit to Central Government
(d) none of the above
Answer:
(b) consider whether it is appropriate to withdraw from the engagement, where withdrawal from the engagement is legally permitted

Question 13.
Cloud Ltd. appointed an auditor for the financial year 2018-19. While going through the audit procedure, the auditor observed that the management has entered into certain transactions which are irregular in nature and the management is personally benefited from such transactions
(a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material misstatement due to fraud could exist
(b) Auditor should consider the requirements of Section 143(12) of Companies Act, 2013 as to reporting of fraud to the Central Government
(c) Auditor should consider the requirements of Para 3(x) of CARO, 2016 as to reporting of fraud
(d) All of the above
Answer:
(d) All of the above

Question 14.
While conducting statutory Audit of ABC Ltd., you come across “I Owe You” amounting to ₹ 2 crores as against a cash balance shown in books of ₹ 2.10 crores. You also observe that despite similar high balances throughout the year, small amounts of ₹ 50,000 are withdrawn from the bank to meet day-to-day expenses
(a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material misstatement due to fraud could exist
(b) Auditor should carry out surprise verification of cash more frequently to ascertain whether it agrees as per the requirements of Guidance Note on Audit of Cash and Bank balances
(c) Both (a) and (b)
(d) Either (a) or (b)
Answer:
(c) Both (a) and (b)

Question 15.
M/s Honest Limited has entered into a transaction on 5th March, 2018, near year-end, whereby it has agreed to pay ₹ 5 lakhs p.m. to Mr. Y as annual retainer-ship fee for “engineering consultation”. No amount was actually paid, but ₹ 60 lakhs is provided in books of account as on March 31, 2018. Your inquiry elicits a response that need-based consultation was obtained round the year, but there is no documentary or other evidence of receipt of the service. As the auditor of M/s Honest Limited, what would be your approach?
(a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material misstatement due to fraud could exist
(b) Auditor should consider the requirements of Section 143(12) of Companies Act, 2013 as to reporting of fraud to the Central Government
(c) Auditor should consider the requirements of Para 3(x) of CARO, 2016 as to reporting of fraud
(d) All of the above
Answer:
(d) All of the above

Question 16.
As per Sec. 143(12) of Companies Act, 2013, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. The amount prescribed for this purpose is
(a) Individually ₹ 1 Cr. or above
(b) Individually above ₹ 1 Cr.
(c) ₹ 1 Cr. or above in aggregate
(d) above ₹ 1 Cr. in aggregate
Answer:
(a) Individually ₹ 1 Cr. or above

Question 17.
Reporting of fraud to Central Government re quired under Section 143(12) of Companies Act, 2013 read with Rule 13 of Companies (Audit & Auditor’s) Rules, 2014 shall be in the form of a statement as specified in and sent to
(a) Form ADT-3; Secretary, Institute of Chartered Accountants of India
(b) Form ADT-4; Secretary, Ministry of Corporate Affairs
(c) Form ADT-4; Secretary, Ministry of Law and Justice
(d) Form ADT-3; Secretary, Indian Institute of Corporate Affairs
Answer:
(b) Form ADT-4; Secretary, Ministry of Corporate Affairs

Question 18.
As per Sec. 143(15) of Companies Act, 2013, if any auditor, cost accountant or company secretary in practice do not comply with the provisions of Sec. 143(12), he shall be punishable with fine which shall not be less than but which may extend to
(a) ₹ 1 lac; ₹ 25 Lacs
(b) ₹ 5 lacs; ₹ 25 Lacs
(c) ₹ 1 lac; ₹ 5 Lacs
(d) ₹ 1 lac; ₹ 10 Lacs
Answer:
(a) ₹ 1 lac; ₹ 25 Lacs

Question 19.
Report u/s 143(12) with respect to fraud shall be sent to
(a) Registrar of Companies
(b) Company Law Board
(c) Secretary, Ministry of Home affairs
(d) None of the above
Answer:
(d) None of the above

Question 20.
As per Sec. 143(12) of Companies Act, 2013, if an auditor of a company in the course of the perfor-mance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or j amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. The amount so prescribed is
(a) ₹ 1 Cr. or above, individually as per Rule 13 of Companies (Audit and Auditor’s) Rules, 2014
(b) ₹ 1 Cr. or above, in aggregate as per Rule 13 of Companies (Audit and Auditor’s) Rules, 2014
(c) ₹ 1 Cr. or above, individually as per Rule 13 of Companies (Accounts) Rules, 2014
(d) ₹ 1 Cr. or above, in aggregate as per Rule 13 of Companies (Accounts) Rules, 2014
Answer:
(a) ₹ 1 Cr. or above, individually as per Rule 13 of Companies (Audit and Auditor’s) Rules, 2014

Question 21.
Which of the following is an example of inflating cash payments?
(a) Making payments against purchase vouchers.
(b) Teeming and lading.
(c) Not accounting for cash sales fully.
(d) Making payments against inflated vouchers.
Answer:
(d) Making payments against inflated vouchers.

Question 22.
The type of errors, existence of which becomes apparent in the process of compilation of accounts is known as
(a) Self-revealing errors.
(b) Intentional errors.
(c) Concealed errors.
(d) Unconcealed errors.
Answer:
(a) Self-revealing errors.

Question 23.
The standard that requires auditors to analyse journal entries in an audit is?
(a) SA 260
(b) SA 230
(c) SA 315
(d) SA 240
Answer:
(d) SA 240

Question 24.
If, as a result of a misstatement resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit, he shall-
(a) Withdraw from the engagement immediately.
(b) Report to Audit team regarding withdrawal.
(c) Determine the professional and legal responsibilities applicable in the circumstances.
(d) Ask the management for his withdrawal.
Answer:
(c) Determine the professional and legal responsibilities applicable in the circumstances.