Q.1 Which of the following is the primary objective of a company audit?
To prepare financial statements
To detect and prevent fraud
To ensure compliance with company law
To improve operational efficiency
Explanation - The primary objective of a company audit is to verify the accuracy of financial statements and detect or prevent errors or fraud.
Correct answer is: To detect and prevent fraud
Q.2 Under the Companies Act, who is responsible for appointing the auditor of a company?
Board of Directors
Shareholders in the Annual General Meeting
Company Secretary
Registrar of Companies
Explanation - Auditors of a company are appointed by the shareholders during the Annual General Meeting as per the Companies Act provisions.
Correct answer is: Shareholders in the Annual General Meeting
Q.3 Which type of audit opinion indicates that the financial statements are free from material misstatement?
Qualified Opinion
Adverse Opinion
Unmodified/Unqualified Opinion
Disclaimer of Opinion
Explanation - An unmodified opinion signifies that the auditor believes the financial statements are presented fairly and free from material misstatements.
Correct answer is: Unmodified/Unqualified Opinion
Q.4 What is the maximum tenure of an individual auditor for a public company as per Companies Act, 2013?
5 years
7 years
10 years
15 years
Explanation - An individual auditor can be appointed for a maximum period of 5 consecutive years for a public company under the Companies Act, 2013.
Correct answer is: 5 years
Q.5 Which of the following is NOT a type of company audit?
Statutory Audit
Internal Audit
Secretarial Audit
Tax Audit
Explanation - Tax audit is conducted under the Income Tax Act and is not classified as a company audit, which includes statutory, internal, and secretarial audits.
Correct answer is: Tax Audit
Q.6 The auditor’s report is addressed to whom in the case of a company?
Board of Directors
Shareholders
Company Secretary
Government
Explanation - The auditor's report is primarily addressed to the shareholders of the company, reflecting their independent opinion on financial statements.
Correct answer is: Shareholders
Q.7 Which document is essential for commencing an audit of a company?
Memorandum of Association
Articles of Association
Auditor’s Appointment Letter
Board Resolutions
Explanation - The auditor can officially commence work only after receiving the appointment letter from the company.
Correct answer is: Auditor’s Appointment Letter
Q.8 Which section of the Companies Act, 2013 deals with the maintenance of books of accounts by a company?
Section 128
Section 139
Section 143
Section 149
Explanation - Section 128 of the Companies Act, 2013 requires companies to maintain proper books of accounts in respect of all financial transactions.
Correct answer is: Section 128
Q.9 Which of the following audit procedures involves obtaining direct confirmation from third parties?
Inspection
Observation
Confirmation
Recalculation
Explanation - Confirmation involves seeking direct verification from external parties to validate the accuracy of account balances.
Correct answer is: Confirmation
Q.10 Which term refers to the principle that an auditor should remain impartial and free from bias?
Independence
Objectivity
Confidentiality
Due Care
Explanation - Independence ensures that auditors can perform their duties without influence from the company or its management.
Correct answer is: Independence
Q.11 A company audit primarily aims to give reasonable assurance about:
Absolute accuracy of records
Fair presentation of financial statements
Profit maximization
Compliance with tax laws only
Explanation - Auditors provide reasonable assurance that financial statements are free from material misstatement and reflect true financial position.
Correct answer is: Fair presentation of financial statements
Q.12 Which of the following is a limitation of a company audit?
It guarantees fraud detection
It ensures absolute accuracy
It relies on sampling and judgment
It prepares financial statements
Explanation - Audits have inherent limitations; auditors use sampling techniques and professional judgment, so not all errors or frauds may be detected.
Correct answer is: It relies on sampling and judgment
Q.13 What is the primary legal requirement for the appointment of auditors in a public company?
Appointment by Board of Directors
Appointment by Shareholders
Appointment by Central Government
Appointment by Company Secretary
Explanation - Public company auditors are appointed by shareholders in the Annual General Meeting, ensuring accountability and transparency.
Correct answer is: Appointment by Shareholders
Q.14 Which of the following is covered under 'statutory audit' of a company?
Verification of internal controls
Examination of financial statements as per law
Operational efficiency review
Tax compliance check
Explanation - Statutory audit involves examination of financial statements as required under the Companies Act to ensure they comply with statutory requirements.
Correct answer is: Examination of financial statements as per law
Q.15 Which section of Companies Act, 2013 deals with the auditor’s right to access books and vouchers?
Section 143
Section 128
Section 139
Section 148
Explanation - Section 143 empowers auditors to access books, accounts, and vouchers of a company to perform their audit duties effectively.
Correct answer is: Section 143
Q.16 Which audit report indicates that the auditor is unable to express an opinion?
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion
Unmodified Opinion
Explanation - A disclaimer is issued when the auditor cannot obtain sufficient appropriate audit evidence to form an opinion on financial statements.
Correct answer is: Disclaimer of Opinion
Q.17 The term 'materiality' in auditing refers to:
Significance of transactions or misstatements
Legal compliance only
The auditor’s independence
Number of audit procedures performed
Explanation - Materiality relates to the importance of an item or misstatement in influencing the economic decisions of users of financial statements.
Correct answer is: Significance of transactions or misstatements
Q.18 Which of the following is true regarding internal control in company audit?
Auditors design internal controls
Auditors evaluate the effectiveness of internal controls
Internal controls are optional
Auditors ignore internal controls
Explanation - Auditors review and assess the design and operational effectiveness of a company’s internal control system.
Correct answer is: Auditors evaluate the effectiveness of internal controls
Q.19 Which document shows the auditor’s findings and opinion after audit?
Board Report
Financial Statement
Auditor’s Report
Memorandum of Association
Explanation - The auditor’s report communicates the findings, conclusions, and opinion on the financial statements to shareholders and stakeholders.
Correct answer is: Auditor’s Report
Q.20 Which type of company audit focuses on compliance with Companies Act and regulations?
Internal Audit
Statutory Audit
Operational Audit
Management Audit
Explanation - Statutory audit ensures the company’s compliance with the Companies Act, 2013, and other statutory regulations.
Correct answer is: Statutory Audit
Q.21 Which type of audit evidence is considered most reliable?
Oral evidence from management
Auditor’s personal knowledge
External documentary evidence
Internal memos
Explanation - Evidence obtained from independent external sources is generally more reliable than internal or oral evidence.
Correct answer is: External documentary evidence
Q.22 Which of the following is a responsibility of company management during an audit?
Providing complete books of accounts
Issuing audit report
Designing audit procedures
Appointing independent auditors
Explanation - Management is responsible for maintaining proper books of accounts and providing them to auditors for examination.
Correct answer is: Providing complete books of accounts
Q.23 Which audit technique involves comparing financial data over multiple periods?
Analytical Procedures
Confirmation
Inspection
Observation
Explanation - Analytical procedures involve evaluating financial information by analyzing plausible relationships and trends over time.
Correct answer is: Analytical Procedures
Q.24 Which of the following indicates a significant risk in company audit?
Routine transactions
Complex estimates and judgments
Regular bank reconciliation
Inventory counting
Explanation - Significant risks often arise from complex estimates, unusual transactions, or areas requiring management judgment.
Correct answer is: Complex estimates and judgments
Q.25 Which of the following best defines 'qualified audit opinion'?
Financial statements are fully accurate
Auditor disagrees with certain matters but overall statements are correct
Auditor is unable to form an opinion
Financial statements are misleading
Explanation - A qualified opinion is issued when the auditor has reservations about certain aspects but overall financial statements are fairly presented.
Correct answer is: Auditor disagrees with certain matters but overall statements are correct