Q.1 What is the primary objective of an audit?
To detect fraud
To express an opinion on financial statements
To prepare accounts
To maintain books of accounts
Explanation - The main purpose of an audit is to express an opinion on whether financial statements give a true and fair view, not to prepare accounts or maintain them.
Correct answer is: To express an opinion on financial statements
Q.2 Which principle requires auditors to maintain independence in both fact and appearance?
Objectivity
Confidentiality
Professional skepticism
Integrity
Explanation - Objectivity ensures auditors remain impartial, avoiding bias or conflict of interest, while independence enhances credibility.
Correct answer is: Objectivity
Q.3 Auditing is primarily concerned with:
Recording transactions
Expressing an opinion
Preparing reports for management
Valuing assets
Explanation - Auditing is an independent examination of accounts with the purpose of expressing an opinion on their accuracy.
Correct answer is: Expressing an opinion
Q.4 Which of the following is NOT a principle of auditing?
Integrity
Confidentiality
Taxation
Objectivity
Explanation - Taxation is not a principle of auditing; it is a separate branch of accounting and finance.
Correct answer is: Taxation
Q.5 The concept of 'True and Fair View' is associated with:
Cost Accounting
Auditing
Bookkeeping
Tax Audit
Explanation - Auditors ensure financial statements present a 'True and Fair View' of the entity’s financial position.
Correct answer is: Auditing
Q.6 Professional skepticism means:
Assuming all management is honest
Always assuming fraud exists
Maintaining a questioning mind
Preparing accounts carefully
Explanation - Professional skepticism requires auditors to critically assess evidence and not take information at face value.
Correct answer is: Maintaining a questioning mind
Q.7 Which standard guides the basic principles of auditing?
Accounting Standards
Auditing Standards
Tax Laws
Company Law
Explanation - Auditing Standards provide the framework for performing audits in a systematic and consistent manner.
Correct answer is: Auditing Standards
Q.8 The responsibility for preparing financial statements rests with:
Auditor
Shareholders
Management
Government
Explanation - Management prepares financial statements; the auditor’s role is to verify and express an opinion.
Correct answer is: Management
Q.9 Which of the following is an inherent limitation of auditing?
Sampling
Independence
Objectivity
Confidentiality
Explanation - Auditing often uses sampling, making it impossible to check every transaction, which is a limitation.
Correct answer is: Sampling
Q.10 The audit evidence should be:
Sufficient and appropriate
Minimal
Only external
Only internal
Explanation - Evidence must be both sufficient (quantity) and appropriate (quality) to support the auditor’s opinion.
Correct answer is: Sufficient and appropriate
Q.11 Which principle requires auditors to maintain client information secrecy?
Integrity
Confidentiality
Objectivity
Skepticism
Explanation - Confidentiality ensures auditors do not disclose client information without proper authority or legal duty.
Correct answer is: Confidentiality
Q.12 An audit carried out as per law is known as:
Management audit
Tax audit
Statutory audit
Cost audit
Explanation - A statutory audit is mandated by law, for example, under the Companies Act for certain entities.
Correct answer is: Statutory audit
Q.13 Who appoints the first auditor of a company?
Shareholders
Board of Directors
Government
Registrar of Companies
Explanation - The first auditor is usually appointed by the Board of Directors within a specified time after incorporation.
Correct answer is: Board of Directors
Q.14 Auditing provides assurance about:
Accuracy of accounting records
Absolute correctness of accounts
Reliability of financial statements
Future profitability
Explanation - Auditing enhances users’ confidence in the reliability of financial statements.
Correct answer is: Reliability of financial statements
Q.15 Which of the following is NOT a type of audit evidence?
Physical inspection
Written confirmation
Inquiry
Future projections
Explanation - Future projections are estimates and not considered audit evidence.
Correct answer is: Future projections
Q.16 The auditor’s report is addressed to:
Management
Shareholders
Government
Employees
Explanation - Auditors report to shareholders as they are the real owners of the company.
Correct answer is: Shareholders
Q.17 Which audit principle ensures that auditors remain straightforward and honest?
Objectivity
Integrity
Confidentiality
Skepticism
Explanation - Integrity ensures auditors act honestly and ethically in their professional duties.
Correct answer is: Integrity
Q.18 Which of the following best describes an audit?
Preparation of accounts
Examination of records
Checking all transactions
Expressing absolute assurance
Explanation - An audit is the independent examination of accounting records and statements.
Correct answer is: Examination of records
Q.19 Auditing cannot provide:
Reasonable assurance
Detection of errors
Detection of fraud
Absolute assurance
Explanation - Due to inherent limitations, auditing provides reasonable, not absolute, assurance.
Correct answer is: Absolute assurance
Q.20 The principle of 'Due Care' requires auditors to:
Avoid all mistakes
Act diligently and carefully
Always detect fraud
Ignore minor issues
Explanation - Due care ensures auditors perform their work responsibly, following professional standards.
Correct answer is: Act diligently and carefully
Q.21 Which type of audit is voluntary and conducted for internal purposes?
Statutory audit
Internal audit
Tax audit
Cost audit
Explanation - Internal audit is conducted voluntarily by management to strengthen internal controls.
Correct answer is: Internal audit
Q.22 The audit process begins with:
Audit report
Planning
Evidence collection
Testing
Explanation - Every audit begins with planning, setting scope, objectives, and strategy.
Correct answer is: Planning
Q.23 Audit evidence obtained directly by the auditor is:
Less reliable
Equally reliable
More reliable
Not reliable
Explanation - Evidence obtained directly by auditors (e.g., physical inspection) is more reliable than indirect evidence.
Correct answer is: More reliable
Q.24 Which principle prevents conflict of interest in auditing?
Confidentiality
Independence
Integrity
Skepticism
Explanation - Independence ensures auditors are unbiased and avoid conflicts of interest.
Correct answer is: Independence
Q.25 The auditor’s opinion is based on:
Personal judgment
Audit evidence
Management assurance
Government approval
Explanation - Auditors base their opinions only on sufficient and appropriate audit evidence.
Correct answer is: Audit evidence