MCQ Bank

In a purchase system, auditors test credit notes by ensuring they are supported by valid goods returned notes. This confirms that credits issued are properly authorized and related to actual returns.

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Q101

Which one of the following is TRUE about Auditing requirements for transparency of the sales system of a company?

A) The Copies of cancelled invoices should be retained by the companies
B) The Copies of cancelled invoices should be kept in electronic records
C) The Copies of cancelled invoices should be given to the suppliers also
D) The Copies of cancelled invoices is not required to be retained by the companies

AI Explanation

Cancelled invoices should be retained to maintain a complete audit trail and support the sequence of sales documentation. This helps auditors verify that cancelled transactions are properly controlled.

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Q102

Purchase invoices should be matched with which one of the followings?

A) Copies of purchase invoice
B) Purchase register and ledger entries
C) Goods received notes and company orders
D) Requisition notes

AI Explanation

Purchase invoices are matched with goods received notes and purchase orders to confirm that goods were ordered, received, and correctly invoiced. This is an important control in the purchase cycle.

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Q103

How unused cheques should be handled in order to exercise effective internal control?

A) Should be discarded immediately
B) Should be sent to the central bank
C) Should be held in a secure place
D) Should be sent to the clearing agency

AI Explanation

Unused cheques should be safeguarded in a secure location to prevent unauthorized use or fraud. Proper control over cheque stationery is an important part of cash control procedures.

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Q104

Which one from the following is NOT included in the category of cash?

A) Deposit with banks
B) Postdated checks
C) Money orders
D) Checks

AI Explanation

Postdated checks are not considered cash because they cannot be deposited or used until the future date written on them. Cash generally includes bank deposits, money orders, and valid checks available for immediate use.

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Q105

Determining the sufficiency of the appropriate audit evidence is based upon which one of the following?

A) Upon the client’s judgment
B) Upon the auditing standard - 8
C) Upon the auditor’s judgment
D) Upon the auditor’s qualification

AI Explanation

The sufficiency of audit evidence depends on the auditor's professional judgment based on assessed risks, materiality, and the reliability of evidence. Auditing standards provide guidance, but the final assessment is made by the auditor.

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Q106

According to the requirements of auditing standards for Salaries, the salary cheque should be signed by how many signatory/signatories?

A) No signatory
B) One signatory
C) Three signatory
D) Two signatory

AI Explanation

Salary cheques generally require authorization by two signatories to provide proper control and reduce the risk of unauthorized payments. This creates a system of independent approval.

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Q107

Test of controls over inventory systems may include the following EXCEPT:

A) Assess adequacy of inventory counting procedures and attend count to ensure they are carried out
B) Check sequences of dispatch and goods received notes for completeness
C) Observe physical security of inventories and environment in which they are held
D) Count physical inventory daily and check inventory stock outs

AI Explanation

Testing inventory controls involves evaluating counting procedures, document sequences, and physical security. Daily physical counting of inventory and checking stock outs is not a normal control test procedure.

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Q108

Employer total cost for wages and salaries consists of:

A) Total wages & Total salaries plus Employer’s provident contribution
B) Gross wages & Gross salaries plus Employer’s provident contribution
C) Gross wages & Gross salaries
D) Total wages & Total salaries

AI Explanation

Employer total cost includes the gross wages and salaries paid to employees along with additional employer contributions such as provident fund contributions. It represents the complete employment cost to the organization.

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Q109

Those items which are easily acceptable to a bank for deposits and are free from restrictions is(are):

A) Undeposited checks
B) Bank deposits certificates
C) Checks
D) Cash

AI Explanation

Cash consists of items that are readily acceptable by banks, available for immediate use, and free from restrictions. Other items such as certificates or undeposited checks may have limitations.

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Q110

When should cash payments receipts of each day be recorded?

A) Should be recorded next day in the cash book
B) Should be recorded monthly in the cash book
C) Should be recorded promptly in the cash book
D) Should not be recorded in the cash book

AI Explanation

Cash receipts should be recorded immediately or promptly to maintain accurate records and reduce the risk of errors or misappropriation. Delayed recording weakens cash controls.

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Q111

Which one of the following is the most important area of the businesses which requires development of a large number of controls?

A) Purchase system in order to
B) Cash system
C) Pay roll system
D) Sales system

AI Explanation

The cash system requires extensive controls because cash is highly liquid and vulnerable to theft or misuse. Strong procedures are needed for authorization, recording, and safeguarding cash.

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Q112

In auditing, verification of equity refers to which one of the following?

A) All of the given options
B) Reserves are properly classified and presented
C) To confirm the movements in reserves are properly authorized
D) Share capital is properly classified and described in the accounts

AI Explanation

Verification of equity includes checking share capital classification, authorization of reserve movements, and proper presentation of reserves. All listed areas are relevant parts of equity verification.

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Q113

When should the petty cash book entries be made for keeping effective control?

A) Next day
B) Monthly
C) At the day end
D) Promptly

AI Explanation

Petty cash book entries should be made promptly to maintain accurate records and effective control over small cash transactions. Delayed recording increases the risk of errors and misuse of petty cash.

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Q114

Which one of the following may NOT consist of any asset verification methods?

A) Acquisitions
B) Disposals
C) Reconciliation
D) Closing balance

AI Explanation

Asset verification methods commonly include acquisitions, disposals, and checking closing balances. Reconciliation is an audit procedure but is not generally categorized as an asset verification method.

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Q115

Which control objective from the followings has least importance for controlling the cash system?

A) Control over petty cash
B) Bank invoices
C) Bank reconciliations
D) Control over cash sales

AI Explanation

Bank invoices are not a major control objective for managing the cash system. Controls over petty cash, bank reconciliations, and cash sales are more directly related to cash control.

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Q116

Statements from suppliers should be checked against which of the following accounts?

A) Ledger
B) Supplies
C) Disbursements
D) Expense

AI Explanation

Supplier statements are checked against ledger accounts to verify that recorded balances agree with supplier records. This helps identify missing invoices, errors, or unrecorded liabilities.

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Q117

When auditor obtains management’s representation about the cost of an asset acquired, he should:

A) Accept it as final evidence
B) Disclose the fact of having received the management’s representation in his report
C) Seek evidence of such cost which is ordinarily available
D) Disclose the fact of having received management’s representation in the financial statements

AI Explanation

Management representations alone are not sufficient evidence for verifying asset costs. Auditors should obtain supporting documentation such as invoices, contracts, or other available evidence.

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Q118

Petty cash book should be maintained by which one of the following personnel?

A) Teller
B) Petty cashier
C) Accountant
D) Operations manager

AI Explanation

The petty cash book should be maintained by the petty cashier, who is responsible for recording and controlling small cash transactions. This separation helps maintain accountability and reduces the risk of misuse.

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Q119

Auditing Standards require that all cheques and postal orders should be restrictively crossed for the control purposes. According to your knowledge, this control procedure explains which one of the following statements?

A) Can be presented on the cash counter
B) Account payee only, not negotiable
C) Account payee only, and negotiable
D) Cheque may not be paid for a specific time period

AI Explanation

Restrictive crossing ensures that cheques and postal orders can only be deposited into the account of the named payee and cannot be transferred by negotiation. This provides stronger control over cash receipts.