Internal Audit & Control 1 MF0013

Internal Audit & Control

Semester – III (Fin) December 24, 2011

Section - A

(1 mark each)

1. The statutory auditor is a representative of _______________.

a. Shareholders of the company.

b. Board of Directors

c. Employees

d. Government

2. When an interim audit is being conducted?

a. Between two annual audit

b. Between two half yearly audit

c. Between two quarterly audit

d. Between two Internal audit

3. Which one is a kind of General Audit?

a. Cost audit

b. Internal audit

c. Tax audit

d. Interim audit

4. Which one is a kind of Specific Audit?

a. Management audit

b. Independent audit

c. Government audit

d. Internal audit

5. Out of the following activities, which one will be classified as financial audit?

a. The examination and the ascertainment of the extent to which established

policies, plans and procedures are complied with.

b. A continuous review of internal accounting control.

c. The assessment of budgetary standard setting

d. The study and assessment of operating practices to promote increased efficiency

and economy

6. To whom External auditor of a company submits his report?

a. Management

b. Shareholders

c. Audit committee

d. Government

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7. What is the main purpose of internal check?

a. Prevention of errors

b. Prevention of fraud

c. Prevention of errors and frauds

d. Find errors and frauds.

8. Which one is the ultimate objective of internal audit?

a. Suggesting improvements

b. Safeguarding and adequate utilization of business assets

c. Enhancing reliability of Management Information System (MIS)

d. Evaluation of business control system

9. Name the tool which auditors use to communicate of audit directions to their

assistants.

a. Audit programme

b. Audit procedure

c. Audit policy

d. Audit manual

10.Out of the following attributes of internal auditor, which one is different from others?

a. Internal auditor should have a basic knowledge of commerce.

b. Internal auditor should have a basic knowledge of economics.

c. Internal auditor should be a person of high integrity and ethics.

d. Internal auditor should have a basic knowledge of information technology.

11.What is the specific qualification for an internal auditor as per law?

a. Chartered Accountant

b. Cost Accountant

c. Company secretary

d. No specific qualification

12.What is last phase of Internal Audit Planning?

a. Internal audit programme.

b. Acquiring of knowledge of internal control processes

c. Development of an overall internal audit plan

d. Development of internal audit policies

13.What is the full form of GAAPs?

a. Generally Accepted Accounting Principles

b. Generally Accepted Accounting Practices

c. Generally Accepted Accounting Policies

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d. Generally Accepted Accounting Programmes

14.What is the the key to an effective and efficient internal audit?

a. Internal Audit Policies

b. Internal Audit Planning

c. Internal Audit Procedures

d. Internal Audit Programme

15.Which matters from the following, an internal auditor must consider in developing his

overall audit plan?

a. The terms of his engagement and any statutory responsibilities or

professional obligations.

b. The company

c. New or closed premises and plant facilities.

d. Relevance of the audit reports given by the statutory auditors.

16.If you develop a fixed audit programme, which item you will keep last for checking?

a. Balance sheet

b. Sales Book

c. Cash Book

d. Profit & loss account

17.The auditor is willing to accept lower risk, what should be the sample size?

a. Sample size should be larger

b. Sample size should be smaller

c. Sample size does not matter

d. Sample size should be equal to population

18.Tolerable error is considered during the ____________.

a. Planning stage

b. Execution stage

c. Reporting stage

d. Follow up stage

19.Under which SA , Risk assessment and internal control issued by the Institute of

Chartered Accountants of India.

a. SA 400 Correct

b. SA 500

c. SA 300

d. SA 200

20.Which element is the foundation of the all the other elements of internal controls?

Internal Audit & Control 4 MF0013

a. Information and Communication

b. Control Activities

c. Risk Assessment

d. Control Environment

21.Who is ultimately responsible for establishing an effective internal control in a

company?

a. Internal auditor

b. Statutory auditor

c. Management

d. Shareholders

22.Internal check is an important process of _________.

a. Internal control system

b. Internal audit system

c. Financial control system

d. Accounting control system

23.The mechanism of compulsory checking of every individuals work, by another, helps

directly in ___________.

a. increasing the reliability of books of account and records

b. early detection of errors and frauds

c. increasing the profitability of Business

d. appropriate division of work

24.What is the full form of RDBMS?

a. Relative Database Management Systems

b. Rotational Database Management Systems

c. Relational Database Management Systems

d. Reverse Database Management Systems

25.Which company believed to be the first user of a computerized accounting system in

1954?

a. General Electric

b. General Motors

c. Unilever

d. Proctor and Gamble

26.Which one is a kind of General Electronic Data Process Control?

a. Hardware controls

b. Output controls

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c. Processing controls

d. Input controls

27.Credit policy is related to _________.

a. Purchases and Creditors

b. Sales and Debtors

c. Stocks

d. Fixed assets

28.For having an effective internal control system for cash and bank balances, how

frequently Cheques should be deposited into the bank?

a. Daily

b. Weekly

c. Fortnightly

d. Monthly

29.For having an effective internal control system for cash and bank balances, who should

carried out surprise verification of cash periodically?

a. Cashier

b. Accounts officer

c. Internal auditor

d. Manager

30.Into how many categories, Stocks can be classified?

a. Four

b. Three

c. Two

d. Five

31.If the requirement for narration is slightly bigger, where the narration should be given

on the flow chart?

a. At the top of the chart

b. At the bottom of the chart

c. At the left of the chart

d. At the right of the chart

32.Normally, investments and cash are physically verified ___________

a. at the beginning of the year

b. at the end of the year

c. at the end of the month

d. at the beginning of the month

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33.The flow charting technique is ___________

a. a pictorial presentation of internal controls

b. a symbolic presentation of internal controls

c. a graphic presentation of internal controls

d. a questionnaire presentation of internal controls

34.Name the letter through which the communication of inadequacies and weaknesses in

the internal control system is made by the auditor.

a. Letter of weaknesses

b. Letter of inadequacies and weaknesses

c. Letter of inadequacies

d. Letter from auditor

35.Reporting and reviewing reconciliations' is related to which component of Internal

control system in banks?

a. Control Environment

b. Risk Recognition and Assessment

c. Control Activities

d. Segregation and Rotation of Duties

36.When planning the audit approach, the auditor should consider the initial assessment

of:

a. control risk

b. control risk and inherent risk

c. control risk and detection risk

d. control risk, inherent risk and detection risk

37.Which factors are reflected in the control environment?

a. The entity's organizational structure and methods of assigning authority and

responsibility.

b. The function of the board of directors and its committees in the case of a

company or the corresponding governing body in case of any other entity.

c. Management's philosophy and operating style

d. All of the above

38.Through which Standard Auditing Practices (SAP), ICAI has issued "Basic Principles

Governing an Audit".

a. SAP 4

b. SAP 3

c. SAP 2

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d. SAP 1

39.Which Audit has become the buzzword in modern Auditing?

a. Statutory audit

b. Internal audit

c. Cost audit

d. Efficiency audit

40.Financial Statements do not cover:

a. Balance sheet

b. Profit and Loss Account

c. Statements of changes in financial position

d. Cash Book

Section - B

(2 marks each)

41.Which audit is being conducted as per provisions of Income tax Act?

a. Internal Audit

b. Statutory Audit

c. Tax Audit

d. Cost Audit

42.Which one is not a primary concept of philosophy of Auditing?

a. Evidence

b. Due audit care

c. Good presentation

d. Independence

43.Which audit is generally related to Proprietary audit?

a. Social audit

b. cost audit

c. Government Audit

d. Tax audit

44.Which one is a different audit in nature with rests?

a. Internal audit

b. Independent audit

c. Cost audit

d. Governmental Audit

45.Which one of the following is an element of internal audit?

a. Internal audit is an independent activity.

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b. It provides assurance and consulting services.

c. It helps the organization to achieve its objectives.

d. All of the above

46.Who determines the scope of internal audit in an organization?

a. Management

b. External auditor

c. Internal auditor

d. Shareholders

47.The internal auditor should necessarily follow the key fundamental principles of audit

namely:

a. integrity

b. objectivity

c. professional diligence

d. all of the above

48.The internal auditor should possess necessary expertise to evaluate:

a. business control systems

b. financial control systems

c. accounting control systems

d. business control systems, especially financial and accounting controls

49.Due to which reason mentioned below Detection risk may arise?

a. Due to the selection of an inappropriate audit procedure

b. Due to the misapplication of an audit procedure

c. Due to misinterpretation of audit results

d. All of the above

50.Name the test which an auditor applied to check that the internal control procedures

as laid down are actually followed in practice.

a. Compliance tests

b. Depth tests

c. Rotational tests

d. All of the above

51.Under which SA, ICAI has described regarding Audit Evidence.

a. SA 500

b. SA 400

c. SA 300

d. SA 200

Internal Audit & Control 9 MF0013

52.Name the last element of internal control system.

a. Monitoring and Supervision

b. Information and Communication

c. Control Activities

d. Risk Assessment

53.Which objective, the internal check system achieves by separating the custodial and

recording functions?

a. Prevention of errors and frauds

b. Detection of errors and frauds

c. Increase the profitability of Business

d. Proper division of work

54.Which one is not an advantage of Internal Check?

a. Efficiency and cost savings

b. Prevention of errors and frauds

c. Non occurrence of errors and frauds

d. Early preparation of Final Accounts

55.In a computer system, delegating authority and responsibility in an unambiguous way

___________.

a. may be difficult

b. is very easy

c. is not required

d. is not possible

56.In a well designed computer systems. Audit trails are often __________.

a. more intensive than those maintained in manual systems.

b. more extensive than those maintained in manual systems. Correct

c. more accurate than those maintained in manual systems.

d. more authentic than those maintained in manual systems.

57.Which department should examine in details all the travel expenditure before its

approval for re-imbursement?

a. Personnel department

b. Accounts department

c. Administration department

d. Internal audit department

58.Who should be authorized to write off the Stocks?

a. Store Manager

Internal Audit & Control 10 MF0013

b. Finance Manager

c. Top Management

d. Production Manager

59.Which are some of the tools to have an idea, about internal controls system, out of the

following?

a. Organization charts and procedure manuals

b. Procedure manuals and flow chart

c. Organization charts and flow chart

d. Organization charts, procedure manuals and flow chart

60.Internal control structure of any organization depends upon ______________.

a. Its size

b. Its complexity

c. the risk profile of its operation

d. All of the above

Section - C

(4 marks each)

61.Internal control incorporates:

a. Only administrative controls

b. Only accounting controls

c. Either accounting controls or administrative controls

d. Accounting controls and administrative controls both

62.Who are responsible for the preparation of financial accounts of the company?

a. Statutory Auditor

b. Directors

c. Shareholders

d. Internal Auditors

63.What is the most important object of internal audit?

a. To express an opinion as to the accuracy and fairness of financial statements.

b. To study and evaluate the coverage and effectiveness of accounting,

financial and operating controls.

c. To express an opinion as to the truthfulness and fairness of financial

statements.

d. To detect errors and frauds

64.The purchase department should send copies of the order to the:

a. Accounts Department

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b. Stores department

c. The department which has made the requisition

d. The department which has made the requisition

65.Which of the following are professional requirement for the personnel of an audit firm

as per SA 220?

a. Independence and integrity

b. Objectivity and confidentiality

c. Confidentiality and professional behavior

d. Independence, integrity, objectivity, confidentiality and professional

behavior

66.Which of the following is one of the action for achieving compliance of security

integrity?

a. Avoid taking part in activities or relations which may damage his/her unbiased

assessment.

b. Perform his/her job honestly, diligently and with responsibility.

c. Avoid accepting anything that may damage his/her objective professional

assessment.

d. Protect his/her objectivity against political influence.

67.Inherent risk is a function of ________________.

a. the entity

b. the nature of the account balance

c. class of transactions

d. all of above

68.Fixed Audit Programme has a frame work, regarding how and within what period the

particular audit work is to be completed, which is _______________.

a. Variable in nature

b. Fixed in nature

c. Semi Fixed in nature

d. Does not required a framework

69.Segregation of incompatible functions helps in fixing accountability is the example of

which factor that influences the control environment?

a. Organization Structure

b. Board of Directors and their committees

c. Managements philosophy and operating style

d. Management control system

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70.The Finance Manager did not check the Goods Received Note before authorizing the

payment to supplier’s bill. The result was excess payments made to supplier without

receiving the materials. This is an example of which type of inherent limitations of

internal control?

a. Possibility of collusion

b. Human error

c. Manipulation by Management

d. Managements consideration that a control be cost effective

71.What is the ultimate objective of an effective internal check system?

a. Appropriate division of work

b. Clear-cut demarcation of authority and responsibility

c. Prevention of errors and frauds

d. Increase the profitability of Business

72.Some organizations have attempted to overcome, which problems of EDP relating to

Internal Control, by designating a single user as the owner of data?

a. Separation of duties

b. Competent and trustworthy personnel

c. Delegation of authority and responsibility

d. System of authorizations

73.Who should check records regarding time and piece wages of permanent and casual

workers?

a. Production department

b. Internal audit department

c. Personnel department

d. Accounts department

74.Auditing is primarily related to ____________

a. early detection of error and fraud

b. forming an opinion on financial statements of an enterprise

c. early preparation of financial statements of an enterprise

d. accuracy of books of accounts

75.Which one of the following is not a direct objective of Internal Control ?

a. The orderly and efficient conduct of its business

b. Maximization of profit

c. The safeguarding of assets

d. Prevention and detection of fraud and error