Students should practice these Nature, Objective and Scope of Audit – CA Inter Audit MCQ based on the latest syllabus.

Nature, Objective and Scope of Audit – CA Inter Audit MCQ

Question 1.
Objective of Audit is to :
(a) safeguarding of assets
(b) prevention and detection of fraud and error
(c) compliance of laws and regulations
(d) express an opinion on financial Statements
Answer:
(d) express an opinion on financial Statements

Question 2.
As per SA-200 “Overall Objectives of the Indepen¬dent Auditor”, in conducting an audit of financial statements, the overall objectives of the auditor is:
(a) to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement and to report on the financial statements, and communicate as required by the SAs, in accordance with the auditor’s findings
(b) to guide the management as to design, implemen-tation and maintenance of internal controls which are necessary to obtain reasonable assurance that financial statements are free from material mis-statements
(c) to communication with Those Charged with Gover-nance, the weaknesses identified during the course of audit
(d) to ensure compliance of laws and regulations that are applicable over the entity
Answer:
(a) to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement and to report on the financial statements, and communicate as required by the SAs, in accordance with the auditor’s findings

Question 3.
Which of the following is an example of Voluntary Audit?
(a) Audit of companies governed by Companies Act, 2013
(b) Audit of Individuals under Section 44AB of Income Tax Act, 1961
(c) Audit of companies under Section 44AB of Income Tax Act, 1961
(d) Audit of Individuals on the directives of Government for the purpose of sanction of grants
Answer:
(d) Audit of Individuals on the directives of Government for the purpose of sanction of grants

Question 4.
Which of the following is not an inherent limita¬tion of audit?
(a) Nature of Financial Reporting
(b) Nature of Audit procedures
(c) Nature and Size of Business Entity
(d) Existence of related party transactions
Answer:
(c) Nature and Size of Business Entity

Question 5.
The IAASB functions as an independent standard-setting body under the auspices of :
(a) International Federation of Auditors
(b) International Federation of Accountants
(c) Auditing Practices Committee
(d) International Ethical Standard Board of Accountants
Answer:
(b) International Federation of Accountants

Question 6.
As per SQC-1, which of the following element is not part of the firm’s system of quality control:
(a) Leadership responsibilities for quality within the firm
(b) Ethical requirements including independence
(c) Preparation of financial statements in compliance of applicable Financial reporting Framework
(d) Acceptance and continuance of client relationships and specific engagements
Answer:
(c) Preparation of financial statements in compliance of applicable Financial reporting Framework

Question 7.
SQC1 requires the firm to obtain information be-fore accepting an engagement. Which of the following information will not assist the engagement partner in determining whether the decisions regarding the acceptance and continuance of audit engagements are appropriate:
(a) The integrity of the principal owners, key management and those charged with governance of the entity;
(b) Whether the engagement team is competent to perform the audit engagement and has the necessary capabilities, including time and resources;
(c) Whether the firm and the engagement team can comply with relevant ethical requirements;
(d) Whether the firm and the engagement partner are able to communicate with the TCWG
Answer:
(d) Whether the firm and the engagement partner are able to communicate with the TCWG

Question 8.
SQC1 “Quality Control for Firms that perform Audits and Review of Historical Financial Information, and other Assurance and related services”, requires firms to establish policies and procedures for the timely completion of the assembly of audit files. An appropriate time limit within which to complete the assembly of the Final audit File is
(a) Ordinarily not more than 60 days after the date of the auditor’s report
(b) Ordinarily not more than 30 days after the date of the auditor’s report
(c) Ordinarily not more than 90 days after the date of the auditor’s report
(d) Ordinarily not more than 120 days after the date of the auditor’s report
Answer:
(a) Ordinarily not more than 60 days after the date of the auditor’s report

Question 9.
SQC 1 requires firms to establish policies and procedures for the retention of
(a) Audit File
(b) Engagement documentation
(c) Final Audit file
(d) Audit Documentation
Answer:
(b) Engagement documentation

Question 10.
SQC 1 requires firms to establish policies and procedures for the retention of engagement documentation. The retention period for audit engagements ordinarily is:
(a) No shorter than eight years from the date of the auditor’s report, or, if later, the date of the group auditor’s report
(b) No shorter than six years from the date of the auditor’s report, or, if later, the date of the group auditor’s report
(c) No shorter than seven years from the date of the auditor’s report, or, if later, the date of the group auditor’s report
(d) No shorter than ten years from the date of the auditor’s report, or, if later, the date of the group auditor’s report
Answer:
(c) No shorter than seven years from the date of the auditor’s report, or, if later, the date of the group auditor’s report

Question 11.
As per SA 210 “Agreeing the Terms of Audit Engagements”, preconditions for an audit may be defined as the use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of managementand, where appropriate, those charged with governance to the premise on which an audit is conducted. In order to establish whether the precon-ditions for an audit are present, the auditor shall:
(a) determine whether the audit can be performed in accordance with Quality Control and Engagement Standards
(b) determine whether the financial reporting framework is acceptable
(c) determine whether the audit can be performed in accordance with legal and regulatory requirements
(d) determine whether policies and procedures as followed for internal control are acceptable
Answer:
(b) determine whether the financial reporting framework is acceptable

Question 12.
The agreed terms of the audit engagement shall be recorded in an audit engagement letter which shall include the following except-
(a) Responsibilities of the auditor
(b) Description of methods to be followed for obtaining audit evidence
(c) Responsibilities of management
(d) Objective and scope of the audit of the financial statements
Answer:
(b) Description of methods to be followed for obtaining audit evidence

Question 13.
Which of the following is correct?
(a) Auditing implies systematic, critical and special examination of the records of a business for a specific purpose
(b) The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements
(c) Auditing is legally obligatory for all types of business organisations
(d) Auditor’s Opinion is an assurance as to the future viability of the enterprise or the efficiency or effec-tiveness with which management has conducted the affairs of the enterprise
Answer:
(b) The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements

Question 14.
Which of the following is not an advantage of independent audit?
(a) Settlement of Taxes
(b) Protection of Interest of Stakeholders
(c) Guarantee as to future viability of the entity
(d) Moral Check on employees
Answer:
(c) Guarantee as to future viability of the entity

Question 15.
Threats occur when, because of a relationship, a professional accountant becomes too sympathetic to the interests of others, are known as:
(a) Self-interest threats
(b) Self-review threats
(c) Familiarity threats
(d) Intimidation threats
Answer:
(c) Familiarity threats

Question 16.
Loan or guarantee to or from the concerned client is an example of –
(a) Self-review threats
(b) Self-interest threats
(c) Advocacy threats
(d) Intimidation threats
Answer:
(b) Self-interest threats

Question 17.
When an auditor deals with shares or securities of the audited company is an example of:
(a) Self-review threats
(b) Self-interest threats
(c) Advocacy threats
(d) Intimidation threats
Answer:
(c) Advocacy threats

Question 18.
Intimidation threats occur:
(a) when a professional accountant may be deterred from acting objectively by threats, actual or per-ceived
(b) whenaprofessional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised
(c) when a previous judgment needs to be re-evaluated by the professional accountant responsible for that judgment
(d) as a result of the financial or other interests of a professional accountant or of a relative
Answer:
(a) when a professional accountant may be deterred from acting objectively by threats, actual or per-ceived

Question 19.
Which of the following is correct?
(a) To maintain an adequate accounting system incorporating various controls is the responsibility of Management
(b) The term independence implies that the auditor should respect the confidentiality of client information
(c) An unqualified opinion in audit report is aguarantee as to the future viability of the company
(d) The audit engagement letter is sent by the client to auditor
Answer:
(a) To maintain an adequate accounting system incorporating various controls is the responsibility of Management

Question 20.
An attitude that includes a questioning mind, beingalertto conditions whichmay indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence, is known as
(a) Professional Judgment
(b) Professional Skepticism
(c) Professional Competence
(d) Professional Behaviour
Answer:
(b) Professional Skepticism

Question 21.
The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement, is known as:
(a) Professional Judgment
(b) Professional Skepticism
(c) Professional Competence
(d) Professional Behaviour
Answer:
(a) Professional Judgment

Question 22.
SA 210 deals with:
(a) Agreeing the terms of Review Engagement
(b) Agreeing the terms of Audit Engagement
(c) Agreeing the terms of Compilation Engagement
(d) Agreeingthe terms of Other Assurance Engagement
Answer:
(b) Agreeing the terms of Audit Engagement

Question 23.
Which of the following is incorrect?
(a) Auditor is able to obtain only reasonable assurance due to inherent limitation of audit
(b) The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain ab-solute assurance that the financial statements are free from material misstatement due to fraud or error
(c) An Auditor is considered to lack independence if the partner of the audit firm deals with shares and securities of the audited entity
(d) The preparation of financial statements does not involve judgment by management in applying the requirements of the entity’s applicable financial reporting framework to the facts and circumstances of the entity
Answer:
(d) The preparation of financial statements does not involve judgment by management in applying the requirements of the entity’s applicable financial reporting framework to the facts and circumstances of the entity

Question 24.
Which of the following standard requires implementation of quality control procedures while performing an audit engagement:
(a) SQC 1
(b) SA 220
(c) SQC 1 and SA 220
(d) SA 200 and SA 220
Answer:
(b) SA 220

Question 25.
Which of the following aspect is not covered in audit of financial statements:
(a) Examination of Accounting System & Internal Control
(b) Vouching of the transactions
(c) Verification of Assets & Liabilities
(d) Design, implementation and maintenance of internal Control System
Answer:
(d) Design, implementation and maintenance of internal Control System

Question 26.
Which of the following is true?
(a) Management of the organisation is solely responsible for the compliance of auditing standards while preparing financial statements
(b) The matter of difficulty, time, or cost involved is in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative
(c) The basic objective of audit does not change with reference to nature, size or form of the entity
(d) Audit procedures used to gather audit evidence may be effective for detecting an intentional mis-statement
Answer:
(c) The basic objective of audit does not change with reference to nature, size or form of the entity

Question 27.
Standards on Assurance Engagements are to be applied in:
(a) the audit of historical financial information
(b) the review of historical financial information
(c) assurance engagements, engagements dealing with subject matter other than historical financial information
(d) engagements involving application of agreed upon procedures to information and other related services such as compilation engagements
Answer:
(c) assurance engagements, engagements dealing with subject matter other than historical financial information

Question 28.
Ethical requirements are defined as the Code of Ethics issued by the ICAI establishes the fundamen¬tal principles of professional ethics. Which of the following is not specified in Code of Ethics, as such:
(a) Objectivity
(h) Professional competence
(c) Confidentiality
(d) Communication Skills
Answer:
(d) Communication Skills

Question 29.
Which of the following is false?
(a) Engagement letter need to be entered for each year of the period of auditor’s appointment
(b) The objective of auditor is to obtain reasonable assurance and to report on the financial statements
(c) An audit is not an official investigation into alleged wrongdoing
(d) Guidance Notes are recommendatory in Nature
Answer:
(a) Engagement letter need to be entered for each year of the period of auditor’s appointment

Question 30.
In case of recurring audits, the auditor shall assess whether circumstances require revision in terms of the audit engagement and whether there is a need to remind the entity of the existing terms of the audit engagement. Which of the following circumstance do not require revision in the terms of the audit engagement or to remind the entity of existing terms:
(a) significant change of senior management
(b) significant change in ownership
(c) significant change in nature or size of the entity’s business
(d) significant change in engagement ream members
Answer:
(d) significant change in engagement ream members

Question 31.
Judging the significance of a matter requires analysis of the facts and circumstances.
(a) objective
(b) subjective
(c) both subjective and objective
(d) qualitative
Answer:
(a) objective

Question 32.
An important factor in determining the form, content and extent of audit documentation of significant matters is the extent of exercised in performing the work and evaluating the results.
(a) professional skepticism
(b) professional integrity
(c) professional judgment
(d) professional sincerity
Answer:
(c) professional judgment

Question 33.
Standard on Quality Control (SQC) 1 provides that, unless otherwise specified by law or reg¬ulation, audit documentation is the property of
(a) Management.
(b) Those charged with governance.
(c) Management or Those charged with governance.
(d) Auditor.
Answer:
(d) Auditor.

Question 34.
Professional skepticism is necessary to the critical assessment of
(a) audit documentation
(b) audit evidence
(c) audit procedures and techniques
(d) none of the above
Answer:
(b) audit evidence

Question 35.
As per SA 210 “Agreeing the Terms of Audit Engagements”, the auditor shall agree the terms of the audit engagement with:
(a) Management
(b) Those charged with governance
(c) Management or those charged with governance, as appropriate,
(d) Engagement team members
Answer:
(c) Management or those charged with governance, as appropriate,

Question 36.
The matter of difficulty, time, or cost involved is:
(a) not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative.
(b) in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative.
(c) not in itself a valid basis for the auditor to omit an audit procedure for which alternative exists.
(d) not in itself a valid basis for the auditor to omit an audit procedure.
Answer:
(a) not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative.

Question 37.
____________ are self-evident, and occur when auditors form relationships with the client where they end up being too sympathetic to the client’s interests.
(a) Self-review threats
(b) Familiarity threats
(c) Intimidation threats
(d) Advocacy threats
Answer:
(b) Familiarity threats

Question 38.
If the auditor concludes that there is reason¬able justification to change the engagement and if the audit work performed complied with the SAs applicable to the changed engagement, the report issued would be appropriate for the revised terms of engagement. In order to avoid confusion, the report would not include reference to:
(a) the original engagement; or any procedures that may have been performed in the original engagement.
(b) the original engagement;
(c) any procedures that may have been performed in the original engagement
(d) the original engagement and any procedures that may have been performed in the original engagement.
Answer:
(a) the original engagement; or any procedures that may have been performed in the original engagement.

Question 39.
Which of the following is correct?
(a) The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain ab-solute assurance that the financial statements are free from material misstatement due to fraud or error.
(b) The auditor is expected to and can reduce audit risk to zero and can therefore obtain absolute assurance.
(c) The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain reasonable assurance that the financial statements are free from material misstatement due to fraud or error.
(d) The auditor is expected to and can reduce audit risk to zero and can therefore obtain reasonable assurance that the financial statements are free from material misstatement due to fraud or error.
Answer:
(a) The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain ab-solute assurance that the financial statements are free from material misstatement due to fraud or error.

Question 40.
Direct financial interest or materially significant indirect financial interest in a client is an example of
(a) Self-review threats
(b) Self-interest threats
(c) Advocacy threats
(d) Intimidation threats
Answer:
(b) Self-interest threats

Question 41.
M/s KYC & Co. is a reputed Audit firm in Mumbai. They are appointed as Statutory Auditors of Blessed Ltd. Which of the below is the responsibility of M/s KYC & Co.
(a) Preparation of financial statements
(b) Designing, implementation and maintenance of internal control system
(c) Reporting on true and fair view of financial statements
(d) Compliance with the applicable law and regulation
Answer:
(c) Reporting on true and fair view of financial statements

Question 42.
Mr. A, auditor and Mr. B, Finance Manager of XYZ Pvt. Ltd. are friends. Mr. A prepares the audit report according to the wishes and directions of Mr. B. In this situation which essential quality of the auditor has been compromised:
(a) Professional Competence
(b) Independence
(c) Professional Skepticism
(d) Due care
Answer:
(b) Independence

Question 43.
Mr. Salman, is an engagement partner of Khan & Co. Chartered Accountants for an audit of Lava Ltd., he died of a stroke on 30.09.2020 after completing the entire routine audit work of Lava Ltd. Mr. Shoaib, one of the partners of Khan & Co. will be signing the accounts of Lava Ltd. What is the course of action to be taken by Mr. Shoaib?
(a) Sign the accounts of Lava Ltd. without reviewing the work of his partner
(b) Sign the balance sheet after reviewing the work of his partner
(c) Withdraw the audit as the person who has per-formed the audit is no more
(d) Issue an adverse report
Answer:
(b) Sign the balance sheet after reviewing the work of his partner