Audit of Items of Financial Statements \u2013 CA Inter Audit MCQ<\/h1>\n
Question 1.
\nWhich assertion is common among income statement and balance sheet captions:
\n(a) Existence
\n(b) Valuation
\n(c) Completeness
\n(d) Measurement
\nAnswer:
\n(c) Completeness<\/p>\n
Question 2.
\nDirect confirmation procedures are performed during audit of trade receivable balances to address the following balance sheet assertion:
\n(a) Measurement
\n(b) Existence
\n(c) Rights and Obligations
\n(d) Completeness
\nAnswer:
\n(b) Existence<\/p>\n
Question 3.
\nWhere no reply is received during the performance of direct confirmation procedures as part of audit of trade receivable balances, the auditor should perform:
\n(a) Additional testing including agreeing the balance to cash received; agreeing the detail of the respective balance to the customer\u2019s remittance advice
\n(b) Additional testing including preparing a detailed analysis of the balance, ensuring it consists of identifiable transactions and confirming that these revenue transactions actually occurred
\n(c) No additional testing
\n(d) Both (a) and (b)
\nAnswer:
\n(d) Both (a) and (b)<\/p>\n
Question 4.
\nObtaining trade receivables ageing report and analysis and identification of doubtful debts is performed during audit of trade receivable balances to address which of the following balance sheet assertion:
\n(a) Valuation
\n(b) Rights and obligations
\n(c) Measurement
\n(d) Completeness
\nAnswer:
\n(a) Valuation<\/p>\n
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Question 5.
\nObserving inventory being counted and personally performing test counts to verify counts is performed during audit of inventory balances to address which of the following balance sheet assertion:
\n(a) Existence
\n(b) Rights and obligations
\n(c) Measurement
\n(d) Cut-off
\nAnswer:
\n(a) Existence<\/p>\n
Question 6.
\nWages paid to workers will be classified as:
\n(a) Revenue expenditure
\n(b) Capital expenditure
\n(c) Deferred revenue Expenditure
\n(d) Revenue or capital expenditure depending upon facts and circumstances
\nAnswer:
\n(d) Revenue or capital expenditure depending upon facts and circumstances<\/p>\n
Question 7.
\nDuring the course of audit of intangible assets, expenditure incurred during which of the following phase is generally not capitalised:
\n(a) Research phase
\n(b) Development phase
\n(c) Both (a) and (b)
\n(d) None of the above
\nAnswer:
\n(a) Research phase<\/p>\n
Question 8.
\nSearch for unrecorded liability is performed during audit of current liabilities to address which of the following balance sheet assertion:
\n(a) Rights and obligations
\n(b) Existence
\n(c) Completeness
\n(d) Occurrence
\nAnswer:
\n(c) Completeness<\/p>\n
Question 9.
\nCut-off testing is performed during audit of sales to address which of the following assertion:
\n(a) Occurrence
\n(b) Measurement
\n(c) Completeness
\n(d) Existence
\nAnswer:
\n(c) Completeness<\/p>\n
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Question 10.
\nABC\u2019s investee company- XYZ declares Final dividend for financial year 2018-19 in the meeting of board of directors held on April 15, 2019. In which financial year should ABC account for the dividend income:
\n(a) Proportionately i.e. considering 15 days of financial year 2019-20 and 350 days of financial year 201819
\n(b) Financial year 2018-19
\n(c) Financial year 2019-20
\n(d) Equally between financial year 2018-19 and financial year 2019-20
\nAnswer:
\n(c) Financial year 2019-20<\/p>\n
Question 11.
\nAll inventory units held by the audit entity and that should have been recorded, has been recognized in the financial statements. The assertion involved is:
\n(a) Rights and Obligations
\n(b) Existence
\n(c) Completeness
\n(d) Valuation
\nAnswer:
\n(c) Completeness<\/p>\n
Question 12.
\nWhich of the following is not an example of revenue expenditure?
\n(a) Salaries and wages of employees engaged directly or indirectly in production
\n(b) Repairs, maintenance and renewals of non-current assets
\n(c) Development expenditure on land
\n(d) Legal and professional expenses
\nAnswer:
\n(c) Development expenditure on land<\/p>\n
Question 13.
\nABC Ltd. is a renowned food chain supplier in a posh area providing restaurant facility along with food delivering. CA. Ram was appointed as an auditor of the company for the Financial Year 2018-19. While examining the books of account of the company, auditor came to knowabout one ofthe major expenses of the company i.e. rent expense of \u20b9 1,20,000 per month, for which he applied substantive analytical procedure for verification purpose. Explain, how would auditor perform substantive analytical procedure in the given scenario?
\n(a) Auditor would inspect every single rent invoice per month of \u20b9 1,20,000 and verify other elements appropriately
\n(b) Auditor would compare the rental expense of the company with that of another nearby company having corresponding dimensions, for high degree of accuracy
\n(c) Auditor would select the first month rent invoice of \u20b9 1,20,000 and appropriately verifying other elements would predict that the rent for the whole year would be \u20b9 14,40,000 (i.e. \u20b9 1,20,000 \u00d7 12). Thereafter, he would compare the actual with his prediction and follow-up for any fluctuation
\n(d) Both (a) and (b)
\nAnswer:
\n(c) Auditor would select the first month rent invoice of \u20b9 1,20,000 and appropriately verifying other elements would predict that the rent for the whole year would be \u20b9 14,40,000 (i.e. \u20b9 1,20,000 \u00d7 12). Thereafter, he would compare the actual with his prediction and follow-up for any fluctuation<\/p>\n
Question 14.
\nIn July, 2018, M\/s ABC & Co. entered into an agreement with M\/s X & Co. under which a machinery would be let on hire and M\/s X & Co. would have the option to purchase the machinery in accordance with the terms of the agreement. Thus, M\/s X & Co. agreed to pay M\/s ABC & Co. a settled amount in periodical instalments. The property in the goods shall be passed to M\/s X & Co. on the payment of last of such instalments. While checking such hire-purchase transaction, what would the auditor examine?
\n(a) That the periodical instalments paid are charged as an expenditure by M\/s X & Co.
\n(b) That M\/s ABC & Co. charges depreciation through-out the life of the machinery
\n(c) That the hire purchase agreement specifies clearly the hire purchase price of the machinery to which the agreement relates
\n(d) All of the above
\nAnswer:
\n(c) That the hire purchase agreement specifies clearly the hire purchase price of the machinery to which the agreement relates<\/p>\n
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Question 15.
\nThe management of M Ltd. has developed a strong internal control in its accounting system in such a way that the work of one person is reviewed by another. Since no individual employee is allowed to handle a task alone from the beginning to the end, the chances of early detection of frauds and errors are high. CA. Amar has been appointed as an auditor of the company for current Financial Year 2018-19. Before starting the audit, he wants to evaluate the internal control system of M Ltd. To facilitate the accumulation of the information necessary for the proper review and evaluation of internal controls, CA. Amar decided to use internal control questionnaire to knowand assimilate the system and evaluate the same. Which of the following questions need notbe framed under internal control questionnaire relating to purchases?
\n(a) Are authorized signatories for purchases limited to elected officials?
\n(b) Are payments approved only on original invoices?
\n(c) Are monthly bank reconciliations implemented for each and every bank accounts of the company?
\n(d) Does authorized officials thoroughly review the documents before signing cheques?
\nAnswer:
\n(c) Are monthly bank reconciliations implemented for each and every bank accounts of the company?<\/p>\n
Question 16.
\nWhile auditing the books of account of ABC Ltd., CA. Sanyam, the statutory auditor of the company, came to know that the management of the company has recognized internally generated goodwill as a fixed asset. CA. Sanyam discussed with the management that according to AS 26, internally generated goodwill is not recognized as an asset because it is not an identifiable resource controlled by the enterprise that can be measured reliably at cost. However, the management is quite rigid to the accounting treatment followed for internally generated goodwill and not paying attention to the auditor. Thus, through an example, CA. Sanyam explained which type of goodwill may be recognized as a fixed asset for which the management got justified. State which of the following examples he must have given to the management?
\n(a) If an item meeting the definition of an intangible asset is acquired in abusiness combination, it forms part of the goodwill to be recognized at the date of the amalgamation
\n(b) Goodwill is recognised only when there is a contractual or other legal rights for a physical asset which shall not be amortized over the period
\n(c) Only those goodwill needs to be recognized as a fixed asset which can be touched like physical assets, for example, land and buildings
\n(d) Any of the above
\nAnswer:
\n(a) If an item meeting the definition of an intangible asset is acquired in abusiness combination, it forms part of the goodwill to be recognized at the date of the amalgamation<\/p>\n
Question 17.
\nThe notes to the account statement of A Ltd. shows the break-up of accounts payable for the Financial Year 2018-19 as follows:<\/p>\n