Q.1 Which of the following is the first stage of the audit process?
Audit Reporting
Audit Planning
Audit Evidence Collection
Audit Risk Assessment
Explanation - Audit planning is the first stage where the auditor develops a strategy to conduct the audit efficiently and effectively.
Correct answer is: Audit Planning
Q.2 What is the main objective of audit planning?
To detect fraud
To form audit opinion
To minimize audit risk
To check vouchers
Explanation - Audit planning helps the auditor design procedures to reduce audit risk to an acceptable level.
Correct answer is: To minimize audit risk
Q.3 In which stage of the audit process does the auditor gather sufficient and appropriate evidence?
Audit Reporting
Audit Planning
Audit Execution
Audit Review
Explanation - During audit execution, the auditor performs substantive and compliance tests to collect evidence.
Correct answer is: Audit Execution
Q.4 Which of these is NOT part of the audit process?
Planning
Evidence Gathering
Reporting
Bookkeeping
Explanation - Bookkeeping is not part of the audit process; it is an accounting activity.
Correct answer is: Bookkeeping
Q.5 Why is an engagement letter important in auditing?
It reduces audit fees
It defines auditor responsibilities
It provides audit evidence
It ensures independence
Explanation - The engagement letter formally outlines the scope, objectives, and responsibilities of the auditor.
Correct answer is: It defines auditor responsibilities
Q.6 Audit risk is composed of inherent risk, control risk, and ______?
Planned risk
Residual risk
Detection risk
Operational risk
Explanation - Audit risk comprises inherent risk, control risk, and detection risk as per auditing standards.
Correct answer is: Detection risk
Q.7 Which audit stage includes evaluating internal controls?
Planning
Execution
Reporting
Follow-up
Explanation - Internal control evaluation is part of audit execution when tests of controls are performed.
Correct answer is: Execution
Q.8 Working papers are primarily prepared during which audit stage?
Planning
Execution
Reporting
Engagement Acceptance
Explanation - Audit working papers are prepared when audit procedures are executed and evidence is collected.
Correct answer is: Execution
Q.9 Which of the following is the final stage of an audit?
Audit Planning
Audit Testing
Audit Reporting
Audit Risk Assessment
Explanation - The audit report is the final output of the audit process, containing the auditor's opinion.
Correct answer is: Audit Reporting
Q.10 Analytical procedures are usually performed at which stage?
Only in Planning
Only in Reporting
Planning and Review stages
Execution only
Explanation - Analytical procedures are used both at the planning stage for risk assessment and at the review stage for overall evaluation.
Correct answer is: Planning and Review stages
Q.11 Which document provides the basis for audit strategy?
Audit Program
Engagement Letter
Management Letter
Audit Report
Explanation - The audit program outlines specific procedures to be performed, forming the basis of the audit strategy.
Correct answer is: Audit Program
Q.12 The process of checking whether financial statements are free from material misstatement is known as?
Review
Investigation
Auditing
Accounting
Explanation - Auditing ensures that financial statements present a true and fair view without material misstatement.
Correct answer is: Auditing
Q.13 In audit terminology, what does 'substantive testing' refer to?
Tests of control
Detailed verification of transactions
Audit planning
Audit reporting
Explanation - Substantive testing involves verifying balances, transactions, and disclosures for accuracy.
Correct answer is: Detailed verification of transactions
Q.14 Which audit stage involves communication with management regarding deficiencies?
Planning
Execution
Reporting
Post-Audit
Explanation - In the reporting stage, auditors communicate deficiencies through the management letter and audit report.
Correct answer is: Reporting
Q.15 Risk assessment procedures are performed at which stage?
Planning
Execution
Reporting
Finalization
Explanation - Risk assessment is a crucial part of planning to design appropriate audit procedures.
Correct answer is: Planning
Q.16 The auditor’s opinion is expressed in which document?
Audit Program
Management Letter
Audit Report
Working Papers
Explanation - The auditor’s opinion on the financial statements is formally expressed in the audit report.
Correct answer is: Audit Report
Q.17 Which of the following is NOT an audit evidence collection method?
Inspection
Observation
Inquiry
Bookkeeping
Explanation - Bookkeeping is an accounting task, not an audit evidence collection method.
Correct answer is: Bookkeeping
Q.18 Compliance testing is used to check what?
Accuracy of balances
Effectiveness of internal controls
Presentation of statements
Disclosure requirements
Explanation - Compliance tests verify whether internal controls are operating effectively.
Correct answer is: Effectiveness of internal controls
Q.19 Which audit stage includes preparing the management letter?
Planning
Execution
Reporting
Engagement Acceptance
Explanation - The management letter is prepared at the reporting stage to communicate weaknesses in controls.
Correct answer is: Reporting
Q.20 The audit program is usually developed at which stage?
Planning
Execution
Reporting
Finalization
Explanation - The audit program is developed during planning to guide the audit procedures.
Correct answer is: Planning
Q.21 Which of the following describes an interim audit?
Audit conducted after year-end
Audit conducted during the year
Special audit
Internal audit
Explanation - An interim audit is performed during the financial year, before year-end.
Correct answer is: Audit conducted during the year
Q.22 Which concept ensures auditors maintain independence and neutrality?
Professional Ethics
Audit Risk
Audit Report
Audit Evidence
Explanation - Professional ethics require auditors to remain independent and objective.
Correct answer is: Professional Ethics
Q.23 Which audit stage ensures that sufficient evidence has been obtained before forming an opinion?
Planning
Execution
Completion and Review
Reporting
Explanation - In completion and review, auditors ensure that all necessary evidence has been gathered before issuing the report.
Correct answer is: Completion and Review
Q.24 What type of evidence is obtained by physically verifying assets?
Documentary evidence
Oral evidence
Physical evidence
Analytical evidence
Explanation - Physical verification provides direct evidence of the existence of assets.
Correct answer is: Physical evidence
Q.25 In audit process, vouching is primarily concerned with?
Checking books of accounts
Verifying supporting documents
Confirming management claims
Testing internal controls
Explanation - Vouching involves verifying the authenticity of transactions using supporting documents.
Correct answer is: Verifying supporting documents