MCQ Govt Audit

Process of Budgeting
A grant made in advance by the Parliament, in respect of the estimated expenditure for a part of new
financial year, pending the completion of the procedure relating to the voting of the demand for grants and
the passing of the Appropriation Act is called
Advance from the contingency fund
Advance for meeting immediate

expenditure
Vote on account
Charged account
Explanation : The most appropriate answer is C. When the Government does not have enough time to
obtain the vote for a full budget before the commencement of the new financial year, a special provision is
made to make sure that there is enough money at the disposal of the government to allow it to run the
administration of the country.
2. Which of the following statement is NOT true about Demands for Grants?
Demands for grants contain only estimates relating to the contingency fund of India
Demands for grants contain only estimates relating to the capital expenditure
Demands for grants contain only estimates relating to the expenditure for which vote of the
lok sabha is required
All of the above

Explanation : The most appropriate answer is D.
3. Which of the following statement is NOT TRUE about the finance bill?
Finance Bill is a money bill which is presented in the Lower House of the Parliament.
Finance bill is a secret bill copies of which are not made available in advance of its
introduction in the legislature.
Introduction of the Finance bill can be opposed only on the grounds of bringing out
economy in the state
The introduction of the finance bill cannot be opposed at all

Explanation : The most appropriate answer is C.
4. Gender budgeting essentially means:
Allocation of more money for the women
Re-prioritising the policies and programmes in a way that would tackle gender imbalances,
promote gender equality and development
Giving tax concessions to women and educational concessions to girls
Empowering the women for facing the atrocities inflicted on them by men
Explanation : The most appropriate answer is B. Adopting gender budgeting does not necessarily mean
allocating more resources for women or girls
5. Which of the following statement is TRUE about gender budgeting?
Gender budgets refers to making separate budgets for both men and women
Gender budget refers to making budget allocations 50 per cent for men and 50 per cent for women
Gender budgeting refers to the process of conceiving, planning, approving, executing, monitoring,
analysis and auditing budgets in a gender sensitive way
Gender budgeting is done only in the government sector

Explanation : The most appropriate answer is C
6. On the last day of the days allotted for discussion on the Demands for Grants, at the time fixed in
advance, the Speaker puts all the outstanding Demands for Grants to the vote of the House. This device
for bringing the debate on financial proposals to an end within a specified time is called:
Cut motion
End motion
Guillotine
Token
motion
7. A document prepared and presented annually to the Parliament, reflecting the purposes and objectives
for which funds were provisioned,the cost of various programmes and activities proposed for achieving
these objectives and quantitative projection of the work performed and services rendered under each
programme and activity is generally called as:
Annual Financial
Statement
Appropriation Account
Outcome Budget
Income Budget
Explanation : The most appropriate answer is C. An outcome budget measures the development outcomes
of all government programmes. For instance, it will tell a citizen if money has been allocated for building a
primary health centre, has indeed come up. In other words it is a means to develop a linkage between the
money spent by a government and the results which follow. The concept has developed in many
democracies to make budgets more cost effective. According to experts it signals the emergence of an
important tool for effective government management and accountability
8. Rule of lapse in budget means:
All appropriations granted by the Parliament expire at the end of financial year
The estimation in the budget was incorrect and there was a lapse on the part of the estimating
officer
The budget estimates cannot be prepared accurately as there is a lapse of time between estimates
send by the departments and actual expenditure. Budgets should take this lapse of time into account
All of the above
Explanation : The most appropriate answer is A. All appropriations granted by the Parliament expire at the
end of financial year and no deduction of unspent budget can be appropriated for meeting the demands in
the next financial year. Thus, all unutilized funds within the year lapse at the end of the financial year.
9. A measure of the physical quantities of the goods or services produced through an activity under a
scheme or programme is referred to as:
Outcom
e
Output
Outlay
Outset
Explanation : The most appropriate answer is B. outlays refers to the total financial resources deployed on
certain activity or a programme. Output refers to the physical quantities of services produced through and
activity or a programme. Outcome refers to the end products or results of various activities and
programmes. For example construction of a school building is an output whereas outcome could be
measured in terms of increase in the literacy rate in the area. Both outputs and outcomes can be
expressed in measurable terms. The outcome will be measured keeping in mind the objectives of the
programmes by following appropriate methodology
10. The budget is prepared on
Cash basis
Accrual basis
Double Entry system

format
Balance Sheet format

Explanation : The most appropriate answer is A.
11. In which year, budgeting for gender equity was adopted as a mission by the ministry of women and
child development, government of india?
2000-
01
2010-
11
2004-
05
2011-
12
Explanation : The most appropriate answer is C. In 2004-05, the ministry of women and child development
adopted budgeting for gender equity as a mission statement. A strategic framework of activities to
implement this mission was also framed and circulated to all the departments of government of India
12. Which of the following statement is TRUE about the public accounts of India referred to in Article
266(2) of the Constitution?
The receipts and disbursements such as deposits, reserve funds, remittances etc which do not
form part of the Consolidated Fund of India are included in the Public Account of India.
Disbursements from the Public Account are not subject to vote by the Parliament, as they are not
moneys issued out of the Consolidated Fund of India
The Annual Financial Statement also exhibits the estimated receipts and expenditure under the
Public Accounts and net transactions under the Contingency Fund
All of the above

13. The General Discussions on Budget is held in parliament:
After the presentation of the economic survey and before the presentation of the budget
Before the presentation of the economic survey
Before the presentation of the budget on any day the speaker may decide in consultation with the
ministry of parliamentary affairs
Subsequent to the day of presentation of the Budget and for such period of time as the Speaker
may decide
14. Preparation of budget separating the two flows of the revenue and expenditure without allowing them
to be netted out is referred to as:
Budget on gross basis
Budget on actual basis
Budget on net basis
Budget on consolidated
basis
Explanation : The most appropriate answer is A. Budget is prepared both on the gross basis and net basis.
The gross figures of receipts and expenditure of the Government are reflected separately for voting by
Parliament and the Departments/Ministries are normally not permitted to utilize the receipts or deduct
expenditure in their budget proposals. Net basis of budgeting is done in case of some Grants e.g. Defence
Ordnance Factories, and Department of Posts wherein the departmental receipts are allowed to be utilized
and outlays on gross as well as net basis are reflected
15. The estimates of expenditure from the Consolidated Fund included in the Budget Statements and
required to be voted by the Lok Sabha are submitted in the form of:
Appropriation
Demands for
Grants
Demands for
finances
Appropriation of
Grants
Explanation : The most appropriate answer is B.
16. Expenditure arising out of a new policy decision, not brought to the notice of Parliament earlier,
including a new activity or a new form of investment is generally termed as:
A New instrument of
service
A new service
A proposal
A demand for grant

Explanation : The most appropriate answer is B. New Service means expenditure arising out of a new
policy decision, not brought to the notice of Parliament earlier, including a new activity or a new form of
investment. New Instrument of Service means relatively large expenditure arising out of important
expansion of an existing activity
17. In the context of gender budgeting, the distinguishing biological make up of men and women, boys and
girls, the physical attributes with which human being are born is referred to as:
Gender
Sex
Physiqu
e
Body
Explanation : The most appropriate answer is B. The biological make of men and women, boys and girls,
the physical attributes with which human beings are born is referred to as Sex. Gender and sex have
different connotations. Gender refers to the culturally and socially constructed roles, responsibilities,
privileges, relations and expectation of women, men, boys and girls. Gender is not another word for
women. Gender is also not another word for sexual difference
18. Which of the following is NOT a type of cut motion normally available for a member of the legislature
during the discussion of budget?
Disapproval of
Policy Cut
Economy Cut
Token cut
Voted Cut
19. An approach to planning that treats women, men, boys and girls as if they were part of one
homogenous group is referred to as:
Gender neutral
planning
Gender equitable
planning
Gender blind planning
Gender biased
planning
Explanation : The most appropriate answer is A. Gender bias refers to an approach which impacts more
positively on male than female or on female than male. Gender equitable approach refers to an approach
that results in just and fair treatment of women and men and recognition and appreciation of the potential
of both men and women. Gender blind is an approach that does not recognize that there may be
differences in situations, needs, feelings, interests etc. of men, women, boys and girls. An approach to
planning that treats women, men, boys and girls as if they were part of one homogenous group are
referred to as gender neutral planning.
20. The form and content of the budget is specified by the which of the following?
Comptroller and Auditor General

of India
Controller General of Accounts
Ministry of Finance
Public Accounts Committee of

Parliament
21. Gender budgeting involve which of the following?
An analysis of the situation for both men and women and girls and boys in a given sector
An assessment of the extent to which the sectors policy addresses the gender issues
An assessment of the adequacy of budget allocations to implement the gender sensitive

policies and programmes
All of the above

Explanation : The most appropriate answer is D
22. The Demands for Grants of individual Ministries/Departments are taken up in the Lok Sabha for
discussion and voted upon.When a Demand is taken up for discussion, any Member may seek reduction in
the amount of the Demand. This is done by moving
Cut Motions
Guillotine
Appropriation bill
Presenting an alternate demand

for grant
23. Which of the following is NOT a cut motion?
Disapproval of
policy cut
Economy Cut
Guillotine Cut
Token Cut
24. Under Article 112 of the Indian Constitution, the President shall in respect of every financial year cause
to be laid before both the Houses of Parliament, the House of People (Lok Sabha) and the Council of States
(Rajya Sabha), a statement of the estimated receipts and expenditure of the Government for that year.
This statement is called:
Annual Accounts
Balance Sheet
Annual Financial
Statement
Budgetary Control
25. Which of the following committees appointed by the Government of India recommended
commencement of financial year from January every year?
Rangarajan
Committee
Bimal Jalan
Committee
L.K Jha Committee
Kelkar Committee
26. Which of the following best describes the term Estimate Committee?
(b) to suggest alternative policies in order to bring about efficiency and economy in administration
(c) to examine whether the money is well laid out within the limits of the policy implied in the estimates
and
(d) to suggest the form in which the estimates shall be presented to Parliament
Estimates committee is a committee appointed by head of each department for supervising the
preparation of budgetary estimates.
Estimates committee is a committee headed by the Finance Minister which estimates the receipts
and expenditure for the year which will be used for the preparation of the annual budget
Estimates committee is a committee appointed by the Finance Commission to determine the plan
expenditure
Estimates committee is a parliamentary committee consisting of members of parliament elected

every year by the lokh sabha and whose chairman is appointed by the Speaker.
Explanation : The most appropriate answer is D. The functions of the Estimates Committee include (a) to
report what economies, improvements in organisation, efficiency or administrative reform, consistent with
the policy underlying the estimates may be effected
27. Which one of the following is a document that gives a detailed analysis of the economic situation of the
country and is presented to Parliament a few days before presentation of the Annual Budget for the
ensuing year. It includes a Statement about the position of budgetary transactions of the Central and State
Governments, and their overall surplus/deficit positions in the current year and the past trends
Demand for Grants
Appropriation
Accounts
Annual Financial
Statement
Economic Survey
If you were to examine the efficiency aspects in a hospital, what would you address?
costs of resource procurement.
average cost per patient admitted.
achievement of goals in number of

surgeries.
none of the above

Explanation :
2. Which of the following is NOT likely to be major consideration for selecting individual performance audit
topics?
Significance of the topic
Materiality of the topic
Visibility of the topic
Available manpower in-

house
Explanation :
3. One of the considerations while undertaking risk assessment for prioritizing the subjects identified for
performance auditing is past coverage. Which of the following is NOT true with reference to the
coverage?
Coverage refers not only to previous SAI coverage but also to other independent reviews of the
activity. Such reviews may have been conducted by internal audit, external consultants or government
committees or the activity could have been subject to programme evaluation
As a general rule, a low ranking would occur when there has been a substantial review of the
activity within the past two years.
Even though the topic was covered by independent reviews extensively in the past two years, a
higher ranking would be warranted where the audit has been requested by the legislature or by the
government and the previous performance audit indicated that such a follow-up should occur
Coverage refers only to previous SAI coverage other independent reviews of the activity are not
relevant to SAI performance Audit
Explanation :
4. A field unit of SAI decides to conduct performance audit on a topic prevention of adultration of food
and beverages. The total expenditure on the activity during the five year period was a mere 5 lakh
rupees. SAI field office decides to conduct a performance audit deploying three performance audit parties.
Whether selection of such a topic is justifiable in terms of with reference to the conditions imposed by the
performance audit guidelines on selection of performance audit topic?
No. According to the performance audit guidelines, care should be taken while selecting
performance audit topics and audit resources should be engaged in high material value transactions
Yes. According to the performance audit guidelines only topics where no money value is involved
should be selected
Yes. According to performance audit guidelines, while selecting people centric topics, the criteria to
be applied for selection is not just financial materiality.
No. According to the performance audit guidelines, SAI should not be sentimental in dealing with
selection of topics. SAIs audit resources should be deployed without being sensitive to the issue of
the people
Explanation :
5. The audit team would like to verify the quality of the Patients Management System bought by the
Hospital last year. What would be an appropriate method that the team can use to best allow for gathering
of audit data in an efficient and effective manner?
Physical observation of patients and interview with doctors
Physical observation and documentary review of payments to the

supplier
Documentary review, statistical sampling of equipment and

interview with patients
Survey with the system users and review of complaints made to

the hospital IT unit
Explanation :
6. The strategic plan for performance audits, in pursuance of the strategic goals and objectives, prepared
by each Accountant General will be approved by SAI top management. The strategic plan document
forwarded to the SAI Headquarters should be self-contained. Which of the following is LEAST likely to be
part of the strategic plan document?
Strategic goals and strategic objectives set for the office/ SAI to be attained through performance
audits over the perspective plan period
Risk assessment of all programmes or activities of the entitys operations that are within the
audit jurisdiction of the Accountant General
Executive summary containing a gist of the strategic plan including categorisation of the types of
subjects selected for performance audit viz:financial, non-financial, public interest and governance
related subjects, recent policy shift issues, concurrent and prescience subjects
A tentative programme of entity field offices to be visited including the details of the personnel
who were proposed to be deployed for the performance audit.
Explanation :
7. Which of the following feature measures the extent to which objectives are achieved and the
relationship between the intended impact and the actual impact of an activity?
Efficiency
Effectivene
ss
Economy
Equity
Explanation :
8. The audit techniques applied to performance audit of subjects relating to sustainable development and
environment management are generally similar to those applied to other sectors though the audit
objectives and approach may vary. Which of the following statement are correct in respect of audit of
subjects relating to sustainable development?
The performance audit on sustainable development would deal with programmes and activities in
the context of explicit commitments consequent upon international treaties on environment /
sustainable development.
The performance audit on sustainable development should take into consideration national
environmental management programmes.
The performance audits of all development projects should also address the environmental impact
and its management
All of these
Explanation :
9. Which of the following statement is TRUE with reference to Performance Auditing and Programme
Evaluation?
Performance auditing shares similar approaches and methodologies with programme evaluation
but does not generally extend to assessing policy effectiveness or policy alternatives
Auditors cannot employ tools of programme evaluation in performance auditing as programme

evaluation techniques are mainly statistical based
Programme Evaluation techniques cannot be employed in performance auditing as it requires

special skills and knowledge
Performance auditing and programme evaluation have the same scope and both uses the same
tools and techniques
Explanation :
10. Based on strategic planning and further risk assessment, Accountant General identifies a performance
audit subject with high priority and whose postponement may be associated with risk. But available
manpower put a constraint on undertaking such tasks. Which of the following could be the best alternative
in such a situation?
Accountant General may postpone the other performance audits selected for the year and divert
the resources
Accountant Genearal may request the Internal Audit wing of the entity to undertake a performance
Audit.
Accountant General may document in details the reasons for not being able to undertake the high
priority task after analyzing the resources
Accountant General may examine the possibility of outsourcing works in part or full other than the
core audit functions with the approval of SAI top management in accordance with the extant policy
within the SAI.
Explanation :
11. PERT refers to:
Programme Efficiency Review

Technique
Programme Evaluation and Review

Technique
Programme effectiveness review time
Programme efficiency review time

Explanation :
12. In instances where an audit body disagrees with the audit criteria then the SAI should:
convene a meeting with the head of the audited body and get him/her to agree on the
audit criteria
amend the criteria to suit the requirements of the audited body.
weigh the facts and arguments presented by the audited body against other relevant
facts and arguments.
none of the above

Explanation :
13. The audit perception of risk to value for money is one of the criteria in selecting an entity or
programme for audit and subsequently, for focusing attention on specific areas within the entity or
programme. Which of the following questions are important in assessing the risk?
a. What can go wrong?
b. What is the probability of going wrong?
c. What are the consequences of things going wrong?
a, b,
c
a, b
a
only
b
only
Explanation :
14. Which of the following documents can act as source documents for strategic planning for performance
auditing?
Documents of the entity including their administrative policies
Parliamentary interest in the form of legislation, parliamentary questions,

reports of PAC etc
Academic research on entity activities
All of these
Explanation :
15. In considering the steps of the performance audit process, which of the following is more likely to
provide information on the implementation of audit recommendations?
Reportin
g
follow-up
main
study
Planning
Explanation :
16. Accountants General should be alive to people -centric cutting edge issues while selecting performance
audit topics. Which of the following statements are true with reference to selection of people centric topics
for performance auditing?
SAI may select topics for performance audit, for which there are either no budgets or these are
insignificant, or whose materiality cannot be determined with reference to expenditure, receipts or
assets and liabilities only if the subject or the deficient performance could affect a large or vulnerable
section in a significant manner.
The materiality of such topics could be determined with reference to the size of the population that
is affected and the risk may be assessed with reference to consequence of deficient performance or
non-existent intervention by the entity, expected to address such issues.
Both A and B
None of the Above

Explanation :
17. Which of the following is LEAST likely to be the objectives of strategic planning in SAI?
provide a firm basis for the SAI management to give strategic direction for
future audit coverage
provide a platform for communication with agencies and the legislature on

SAI audit strategies
understand entity risks and take them into account in audit selection
initiate disciplinary actions against the non-performing audit staff in SAI

Explanation :
18. If new information/problems have come to the notice of audit team during the conduct of audit, then
changes should not be made to increase the scope of the audit work plan even if the new audit
procedure could have a significant impact on the overall audit question as such increase in scope will
cost more time and money.
procedure could have a significant impact on the overall audit question, but the information/issue
could be recorded for subsequent audits or for coverage during follow-up audit.
changes should always be made to the audit work plan on collection of new information as
performance audit plans are required to be flexible.
none of the above is correct

Explanation :
19. The audit findings in the report are put into perspective and congruence is ensured when:
(1) Audit objectives link with audit questions
(2) Audit link conclusions with findings
(3) Recommendations link with overall objectives
only 1 is correct
only 2 is correct
only 3 is correct
All of the above are

correct
Explanation :
20. The first stage in performance auditing is:
Implementation of performance audit for

individual subjects
Strategic planning for performance audits
Follow up process and impact assessment
Drafting guidelines for performance auditing

Explanation :
21. Which of the following is NOT an advantage of setting audit objectives in the performance audit?
It ensures good quality performance audits and therefore, is one of the most important
quality assurance measures
It fosters discipline and precision
It helps focused data gathering activities
It helps in undertaking the risk analysis

Explanation :
22. Which of the following is part of the performance audit impact analysis?
The analysis should provide a comparison of the actual impact against the expected outcome
anticipated in the strategic plan and in the audit plan for the individual subjects.
The evaluation will have to necessarily refer to the strategic goals and objectives set out in the
performance audit strategic plan and would need to address the extent of contribution of each
performance audit to fulfilling the strategic goals and objectives
The impact should be assessed in both qualitative and quantitative terms and be classified in
qualitative and quantitative terms.
All of the above

Explanation :
23. It is important to identify and analyse the risks associated with the entities under audit jurisdiction. In
the context of performance audit which of the following statement about risk would be appropriate?
The risk to delivery of an activity/scheme/programme of the entity with economy,

efficiency and effectiveness
The risk to material misstatements in the financial statements of the entity

The risk to programme implementation due to natural calamities such as flood,
earthquake etc
The risk to programme implementation due to fraudulent activities

Explanation :
24. The most important measure of quality of a performance audit would be:
The extent of positive impact on the policies and programmes of the government
through performance audit
The number of pages of the report turned down by the performance audit team
The number of recommendations made in the report based on the audit evidence
The extent of audit analysis and auditing techniques used in the conduct of performance
auditing
Explanation :
25. Which of the following is MOST likely to be the time frame covered by a strategic plan document?
One year
Six
months
One
quarter
Five years
Explanation :
26. A diagrammatic representation of the analysis of utilisation of the resources made available for a
programme which facilitates a comparison of the budgeted resources with the actual utilization is called:
Financial
statement
Budget Tree
Finance Inverse
Tree
Regression Chart
Explanation :
27. A performance Auditor is expected to demonstrate and practice ethical principles and code of conduct
and standards while undertaking performance audits. Which of the following statement is true in this
regard?
a. The performance auditor should comply with ethical principles and code of conduct governing the
auditors professional behaviour and responsibilities, which include integrity, objectivity and fairness,
confidentiality, technical standards
b. It may be desirable that the performance auditor adopts an attitude of professional scepticism
throughout the audit, recognising that circumstances may exist that could cause the information relating
to performance to be materially mis-stated
Both a and
b
Only a
Only b
None of
these
Explanation :
28. The performance auditor might seek to assess or measure effectiveness by comparing outcomes or
impacts with the goals set in the policy or programme objectives. Such an assessment is also called:
Improvement Analysis
Goal-Achievement
Analysis
Financial Inverse Tree
Regression Analysis
Explanation :
29. What does the word reasonable assurance signify with reference to performance auditing?
a.Reasonable assurance relates to the accumulation of audit evidence necessary for the auditor to
conclude whether there are any material misstatements in the information relating to performance
b.What is reasonable is dependent on the facts of that situation and is to be determined by what
evidence could reasonably be expected to be gathered and what conclusions could reasonably be
expected to be drawn in the particular situation.
c.A performance audit conducted in accordance with applicable auditing standards provides reasonable
assurance as to whether the information relating to performance is free from material misstatement
d.Performance Audit does not embrace the concept of providing any reasonable assurance because the
concept of reasonable assurance is with reference to the true and fair view of the financial statements.
a, b, c,
d
a, b, c
b,c,a
only d
Explanation :
30. Which of the following method is suggested in the performance auditing guidelines for obtaining a 360
degree feedback for the performance audit endeavour?
Setting up a system for internal evaluation of impact of performance audits at the close of each
year on governance in general and on the entitys policies and programme management, in particular.
maintain an inventory of recommendations, which are included in the performance audits and
follow them up to their implementation, both from the point of nominal count as well as from the point
of the quality of implementation
Both A and B
None of the Above

Explanation :
31. Performance audit is concerned with the audit of economy, efficiency and effectiveness. Which of the
following statement is NOT TRUE with reference to performance auditing?
It embraces audit of the economy of administrative activities in accordance with sound

administrative principles and practices and management policies
B. It embraces audit of the efficiency of utilisation of human, financial and other resources,
including examination of information systems, performance measures and monitoring arrangements
and procedures followed by audited entities for remedying identified deficiencies
It embraces audit of the effectiveness of performance in relation to the achievement of the

objectives of the audited entity and audit of the actual impact of activities compared with the intended
impact
It embraces verification of the account balances with reference to the books of accounts to ensure
whether statement of accounts presents a true and fair view of the state of affairs of the organization.
Explanation :
32. Suitable criteria should be identified to enable the performance auditors to assess the activities subject
to audit and to achieve the audit objectives. Which of the following is NOT a characteristic of good criteria?
Reliabilit
y
Objectivit
y
Usefulne
ss
Complexi
ty
Explanation :
33. An expert is a person or firm possessing special skill, knowledge and experience in a particular field
other than auditing. Performance auditing may use the services of experts. Which of the following
statement is CORRECT with reference to the procurement of the services of the expert or using the work of
the experts from time to time?
a. When using the work performed by an expert, sufficient and appropriate audit evidence should be
obtained to ensure that such work is adequate for the purposes of the audit.
b.Because of the diverse range of activities/subjects to performance auditing, Accountant General may
need to obtain audit evidence in the form of reports, opinions, valuations and statements of an expert.
c.When the performance auditor uses the work of an expert as audit evidence, the responsibility for the
conclusions in the audit report lies with the expert
a, b,
c
a, b
a, c
c
only
Explanation :
34. Which of the following statement is INCORRECT with reference to the area and scope of performance
auditing?
It is always necessary to conduct performance audits of the entity or the programme as a whole by
engaging sufficient manpower.
The scope and audit objectives of a performance auditing can be confined only to significant
aspects of the programmes or activities.
Where desirable, the subjects of performance audit may be selected cutting across various
departments or entities
The selection of the components or parts of the programme may be guided by the materiality and
risk profiles of each part or component
Explanation :
35. Which of the following should the auditor first consider when planning the audit:
the audit objectives and

criteria.

findings.

methodology.
the audit objectives and scope.

Explanation :
36. Selection of audit topics for performance audits should be determined on which of the following stages
of the audit:
pre-study
research and
evaluation
main study
none of the above

Explanation :
37. Economy, efficiency, effectiveness, equity and ethics are, in effect, three plus two issues rather than
five issues. Which of the following is correct with reference to this statement?
Equity and ethics issues in performance audits add value only if the audit findings against these
two standards affect one or more of the three i.e. economy, efficiency and effectiveness
Ethics and equity are related to the policy issues and an Auditor has no role in ensuring the ethical
and equitable behavior of the management
Ethics and equity are difficult to ensure if economy, effectiveness and efficiency has to be ensured
Ethics and equity are automatically ensured if economy, effectiveness and efficiency issues are
addressed
Explanation :
38. Spending less, spending well, and spending wisely refers to:
Economy, Efficiency and Effectiveness
respectively
Efficiency, Economy and Effectiveness

respectively
Effectiveness, economy and efficiency

respectively
Effectiveness, efficiency and economy

respectively
Explanation :
39. The SAI must use its power of access to information tactfully. This implies that:
the audited entity must be informed of the intention to audit and audit scope at least three months
in advance
requests sought by the audited entity for changes in the dates of audit must be considered
it is desirable that the audited entity is informed of the methods to gather evidence like survey of
beneficiaries, interview with employees
giving advance information about the audit to the audited entity takes away the surprise element
from audit and hence could be avoided
Explanation :
40. It will demonstrate the cerebral competence of the SAI if it is able to display an ability for prescience of
the policy shifts and more importantly anticipation of the risks to programmes, performance and public
interest. Which of the following statement is relevant in this regard?
Accountants General and the SAI should be alive to major shifts in the policies and programmes of
the entity and the consequential new public sector programmes and select critical cutting-edge
subjects for performance audits in the context of policy changes.
Performance audits of sunrise issues are likely to contribute value to the implementation of the
policy shifts
Both A and B
None of these
Explanation :
41. Which of the following is Least likely to be part of a performance auditing?
Examination and reporting on the quality of information and advice available to government for the
formulation of policy
Examination and reporting on the existence and effectiveness of administrative to inform the
government whether programme objectives and targets have been determined with a view to fulfilling
policy objectives
Examination and reporting on compliance to applicable laws and regulations in the context of the
performance audit objectives
Examination and reporting on policies formulated by the government per se

Explanation :
42. Which of the following are considered quality assurance activities?
1. Report to management on progress against budget
2. Report to management on progress against schedule
3. Supervision
4. Allocation of responsibilities
only 1, 3 and
4
only 1 and 4
only 3 and 4
All of the
above
Explanation :
43. Which of the following is generally considered as the last stage in a performance audit life cycle?
Finalizing the audit observations
Submission of an audit report incorporating

the findings
Follow-up procedures on audit

recommendations
Planning for next performance audit

Explanation :
44. Which of the following statement signify the difference between the term performance audit process
documentation and performance audit documentation?
Performance audit process documentation is the documentation of the performance audit

management whereas performance audit documentation refers to the working papers for performance
audit in support of audit findings, conclusions and recommendations.
Performance Audit documentation is the documentation of the performance audit management

and performance audit process documentation is the documentation of the working papers
Both A and B
None of these
Explanation :
45. Which of the following is not a type of programme evaluation techniques commonly used in
performance auditing?
Process
evaluation
Outcome
evaluation
Impact
evaluation
Policy Evaluation
Explanation :
46. Which of the following is NOT correct regarding the strategic plan document in the context of
performance auditing?
Strategic planning is the process of determining the long-term goals of performance auditing and
the best approach for attaining them.
The strategic planning document define the long-term mission statement consisting of goals to be
achieved through the performance audits, statements of detailed objectives expected to be
accomplished through performance audits and the subjects of performance audits to be carried out in
pursuance of the strategic goals and objectives
Strategic planning for performance auditing and overall strategic planning of SAI are one and the
same
All of the above

Explanation :
47. An independent assessment or examination of the extent to which an entity, programme or

organisation operates efficiently and effectively, with due regard to economy is called:
Independent
Auditing
Entity auditing
Performance
Auditing
Financial Auditing
Explanation :
48. Which of the following statement is INCORRECT with respect to strategic planning of SAI?
All SAI field offices may carry out in-depth exercise for performance audit strategic planning.
After setting the strategic goals and objectives, the data on entity contained in budget papers,
programme papers, plan documents, annual reports, parliamentary debates and reports, media
concerns, research and reports of international agencies, follow-up and leads from the past audits, etc.
should be analysed on the parameters of risk, materiality, significance, visibility, coverage, etc. to
select subjects for performance audits to be carried out over the strategic plan period.
SAI top management may conduct brain storming meetings with Accountants General from time to
time in respect of audit strategic and annual operational plan and risk assessment to select the subject
which addresses the SAIs concerns for high risk programmes and activities.
The strategic planning is normally done for a period of five years and after approval by the SAI top
management, it becomes a static document. No deviations from the plan are permissible until a review
is taken up after five years as a rollover exercise.
Explanation :
49. Which of the following is CORRECT with reference to the Performance Audit Annual Plan?
1. Performance Audit Annual operational Plan prepared for a financial year
2. The time schedule for completion of all stages of a selected performance Audit subject can spread over
more than one financial year
Only 1
Only 2
None of
these
Both 1 and
2
Explanation :
Selection of audit topics for performance audits should be determined on which of the following stages of
the audit:
pre-study
research and
evaluation
main study
none of the above

Explanation :
2. The Governor of a State or the Administrator of a Union Territory having a Legislative Assembly can
entrust, in public interest, the audit of the accounts of a corporation established by law made by the
State/Union Territory Legislature to the Comptroller and Auditor General after prior consultation with him
and after giving reasonable opportunity to the corporation to make representation with regard to the
proposal for such audit. Which of the following section of the CAGs DPC Act provides for this?
Section 21
Section 18
Section
19(3)
Section
20(2)
Explanation : Under Sub-section (3) of Section 19 of the Act, the Governor of a State or the Administrator
of a Union Territory having a Legislative Assembly can entrust, in public interest, the audit of the accounts
of a corporation established by law made by the State/Union Territory Legislature to the Comptroller and
Auditor General after prior consultation with him and after giving reasonable opportunity to the corporation
to make representation with regard to the proposal for such audit
3. Analytical review in audit involves analysis of significant ratios and trends that deviate from
expectations. Expectations in this context refer to:
Expectations of the Executive
Expectations of the Reader of the

Audit Report
Expectations of the Auditor
Expectations of the Legislature

Explanation : Analytical review is a procedure that involves analysis of significant ratios and trends
including the fluctuations that are inconsistent with other relevant data or which deviate from
expectations. Expectations in this context refer to the auditors expectations of what a figure in the
accounts being audited should approximately be as worked out from other relevant financial and non-
financial information
4. Comptroller and Auditor General of Indias Manual of Standing Orders is issued under:
Section 23 of the CAGs DPC Act
Chapter 4 of the Manual of Office

Procedure
Chapter 3 of the Manual of Officer

Procedure
Explanation : Article 149 of the Constitution of India and Section 23 of the Comptroller and Auditor
Generals (Duties, Powers and Conditions of Service) Act, 1971 empower the C&AG to frame rules and
give directions in all matters pertaining to audit of the accounts for which he is responsible. The Manual of
Standing Orders (Audit) 2002 is issued in pursuance of the aforesaid provisions
5. In respect of bodies and corporations where the Comptroller and Auditor General is the sole auditor, the
Accountants General concerned are required to issue:
Separate Audit Reports

(SARs)
Separate Annual Reports

(SARs)
General Audit Reports

(GARs)
General Annual
Reports(GARs)
Explanation : The most appropriate answer is A
6. Which of the following is the purpose of conducting supplementary or test audit on the accounts of a
government company?
Verification of the technical accuracy of the accounting records, books of account and financial
results with reference to the Accounting Standards.
Detection or prevention of misstatements in and window dressing of the financial statements
Examination of the achievement, by the company, of the objectives for which it was established
All of the above

7. The duty of audit of receipts which are payable into the Consolidated Fund of the Union and of each
State and Union Territory having a Legislative Assembly is enjoined upon the Comptroller and Auditor
General of India byof the CAGs DPC Act 1971.
Section
21
Section
19
Section
15
Section
16
Explanation : Section 16 of the Comptroller and Auditor Generals (Duties, Powers and Conditions of
Service) Act, 1971, enjoins upon the Comptroller and Auditor General the duty of auditing all receipts
which are payable into the Consolidated Fund of the Union and of each State and Union Territory having a
Legislative Assembly.
8. Which one of the following would be the best course of action before placing orders for supplies in cases
where a formal written contract is not entered into:
A written agreement in regard to price should be entered into before placing

orders for supply
It should be instructed that all supplies be made on a designated day
It should be mandated that all supplies should conform to the specifications
An informal agreement through oral confirmation with regard to price and

specifications
Explanation : Even in cases where a formal written contract is not entered into, no order for supplies
should be placed without at least a written agreement in regard to price.
9. Which of the following are considered quality assurance activities?

1. Report to management on progress against budget
2. Report to management on progress against schedule
3. Supervision
4. Allocation of responsibilities
only 1, 3 and
4
only 1 and 4
only 3 and 4
All of the
above
Explanation :
10. Which of the following statement is TRUE regarding the physical observation by audit personnel for
collecting the audit evidence:
Physical observation for collecting the audit evidence is not permitted
Physical observation for collecting the audit is permitted only if audit personnel are accompanied
by the departmental personnel
physical observation, including joint inspection by the auditors and the executive, the resultant
observations being signed by both as confirmation of performance or achievements is permitted
Physical observation for collecting the audit evidence is not allowed without the permission of the
departmental personnel
11. In public works department, Register of the Divisional Accountants Objections (Form MSO (Audit)-2)
would contain which of the following:
All the observations pointed out by the audit parties of the accountant general (Audit) for watching
their prompt settlement
Minor observations pointed out by the audit parties to be settled departmentally during the course
of next audit
Major audit observation pointed out by the audit parties which needs highest priority in compliance
and settlement with the accountant general
Notes of the Divisional Accountant providing advice to the Divisional Officer in respect of certain
transactions and their settlement
Explanation : If the Divisional Accountant considers that any transaction or order affecting receipts or
expenditure is such as would be challenged by the Accountant General if the latter were to apply the
preliminary internal check, it is his duty to bring this fact to the notice of the Divisional Officer with a
statement of his reasons and to obtain the orders of that officer. It will then be his duty to comply with
these orders; if, however, he has been overruled and is not satisfied with the decision, he should at the
same time make a brief note of the case in the Register of the Divisional Accountants Objections (Form
MSO (Audit)-2) and submit the register to the Divisional Officer so that he may have an opportunity to
either accept the Divisional Accountants advice on reconsideration and order action accordingly, or to
record, for the information of the Accountant General, his reasons for disregarding that advice. An
objection entered in this register should not be considered as finally disposed of until it has been reviewed
by the Accountant General (Audit), for whose inspection the register should be available at all times.
12. Match the following

serial section of the serial
the area of audit
number DPC act number
1 Section 13 A Audit of reciepts
2 Section 19 B Audit of expenditure
Audit of stores and
3 Section 16 C
stock
Audit of autonomous
4 Section 17 D
bodies
1-A, 2-B, 3-C,

4-D
1-B, 2-D, 3-A,

4-C
1-B, 2-D, 3-C,

4-D
1-A, 2-B, 3-D,

4-C
Explanation :
13. In considering the steps of the performance audit process, which of the following is more likely to
provide information on the implementation of audit recommendations?
Reportin
g
follow-up
main
study
Planning
Explanation :
14. The commonly used analytical review techniques include all of the following EXCEPT:
system
analysis
random
analysis
predictive
analysis
business
analysis
Explanation : The commonly used analytical review techniques are (a) comparisons involving a single
component; (b) comparison across components; (c) system analysis (d) predictive analysis; (e) regression
analysis and (f) business analysis.
15. In audit of revenue receipts, Audit has to examine the judicial decisions or judgements with a view to:
Check whether the judgement was sound and in accordance with the provisions of the repective
acts
Check whether the judgement was consistent with the previous judgement or judgement of a
higher court
Check whether the revenue authorities has submitted appeals to ensure that no loss of revenue
occurred due to erroneous judgements
Check the effectiveness of the assessment procedures and recovery procedures in the light of the
judgement.
Explanation : It is not the duty of Audit to review a judicial decision nor does Audit normally review the
judgment exercised by officers in individual cases in areas purely falling in their discretion. But it must be
recognized that an examination of such cases is important for judging the effectiveness of assessment
procedures, recovery procedures, etc. Where the information available on an individual case is insufficient
to enable Audit to ascertain how the requirements of the law have been complied with, Audit may consider
it is its duty to ask for any further information to enable it to form the judgment required of it as to the
effectiveness of the system.
16. The audit team would like to verify the quality of the Patients Management System bought by the
Hospital last year. What would be an appropriate method that the team can use to best allow for gathering
of audit data in an efficient and effective manner?
Physical observation of patients and interview with doctors
Physical observation and documentary review of payments to the

supplier
Documentary review, statistical sampling of equipment and
interview with patients
Survey with the system users and review of complaints made to

the hospital IT unit
Explanation :
17. In the audit of assessments of revenue receipts, the assessment files and returns themselves may not
always reveal under declaration of sales or income. In such cases, audit
may obtain Informal Evidence directly from Assesses
may obtain additional Evidence through Survey of Assessees
may undertake a Cross Verification of information with data available with other
departments
may complete its examination with the evidence available in the assessment files duly
recording the constraints
Explanation : F. In the audit of assessments, the assessment files and returns themselves may not always
reveal under declaration of sales or income. In such cases, a unit-based approach may not suffice and an
inter-disciplinary approach may be called for. For example, in the case of check of Sales Tax assessment of
dealers who are also manufacturers, the data furnished in their returns could be verified with the
corresponding data furnished by them in their Central Excise returns to see whether there are any
variations or discrepancies. Similar cross verification may also be possible with the income tax returns
18. The Comptroller and Auditor General of India derives his authority and functions mainly from the
provisions of -------------
Articles 148 to 151 of the

Constitution of India



Explanation : The Comptroller and Auditor General of India derives his authority and functions mainly from
the provisions of Articles 148 to 151 of the Constitution of India. Article 148 of the Constitution of India
states as follows:
(1) There shall be a Comptroller and Auditor General of India who shall be appointed by the President by
warrant under his hand and seal and shall only be removed from office in like manner and on the like
grounds as a Judge of the Supreme Court
(2) Every person appointed to be the Comptroller and Auditor General of India shall, before he enters upon
his office, make and subscribe before the President, or some person appointed in that behalf by him, an
oath or affirmation according to the form set out for the purpose in the Third Schedule
(3) The salary and other conditions of service of the Comptroller and Auditor General shall be such as may
be determined by Parliament by law and, until they are so determined, shall be as specified in the Second
Schedule: Provided that neither the salary of a Comptroller and Auditor General nor his rights in respect of
leave of absence, pension or age of retirement shall be varied to his disadvantage after his appointment
(4) The Comptroller and Auditor General shall not be eligible for further office either under the Government
of India or under the Government of any State after he has ceased to hold his office
(5) Subject to the provisions of this Constitution and of any law made by Parliament, the conditions of
service of persons serving in the Indian Audit and Accounts Department and the administrative powers of
the Comptroller and Auditor General shall be such as may be prescribed by rules made by the President
after consultation with the Comptroller and Auditor General
(6) The Administrative expenses of the office of the Comptroller and Auditor General, including all salaries,
allowances and pensions payable to or in respect of pensions serving in that office, shall be charged upon
the Consolidated Fund of India
Article 149 of the Constitution provides that the Comptroller and Auditor General of India shall exercise
such powers and perform such duties in relation to the accounts of the Union and of the States and of any
other authority or body as may be prescribed by or under any law made by Parliament. Article 150 of the
Constitution states that form of accounts of the Union and of the States shall be kept in such form as the
President may, on the advice of the Comptroller and Auditor General of India, prescribe. Article 151
discusses about Audit reports. Article 151 states that the reports of the Comptroller and Auditor General of
India relating to the accounts of the Union shall be submitted to the President, who shall cause them to be
laid before each House of Parliament. The reports of the Comptroller and Auditor General of India relating
to the accounts of a State shall be submitted to the Governor of the State, who shall cause them to be laid
before the Legislature of the State
19. If you were to examine the efficiency aspects in a hospital, what would you address?
costs of resource procurement.
average cost per patient admitted.
achievement of goals in number of

surgeries.
none of the above

Explanation :
20. The duties entrusted to the Comptroller and Auditor General of India under the provisions of the Act fall
broadly under two categories, namely those relating to ----------- and -----------
compilation and keeping of

accounts, audit
audit, consultation and

recommendations
audit, reporting and follow up
audit, reporting
Explanation : The duties entrusted to the Comptroller and Auditor General of India under the provisions of
the Act fall broadly under two categories, namely those relating to (i) compilation and keeping of accounts,
and (ii) audit.
21. Which of the following statement is NOT Correct with regard to the submission of utilization certificate
for a grant?
Ministries and departments of the Central Government are not required to furnish utilization
certificates
State Governments directly incurring expenditure out of Central grants are also not required to
furnish utilization certificates
In respect of expenditure out of central grants incurred by the state government through local
bodies and co-operative institutions, there is no need of furnishing the utilization certificates
All of the above

22. The SAI must use its power of access to information tactfully. This implies that:
the audited entity must be informed of the intention to audit and audit scope at least three months
in advance
requests sought by the audited entity for changes in the dates of audit must be considered
it is desirable that the audited entity is informed of the methods to gather evidence like survey of
beneficiaries, interview with employees
giving advance information about the audit to the audited entity takes away the surprise element
from audit and hence could be avoided
Explanation :
23. Which of the following procedure could be adopted, according to the Manual of Standing Orders (Audit)
issued by CAG, while auditing the accounts of furniture in the residences of high officials?
The high official can be asked to vacate the house during a specified day during the audit period
and the audit staff along with the department staff could verify the furniture stock with actual stock
The high official can be asked to certify to the effect that he uses the furniture in the residence
only for his official purpose and no furniture is used for his personal purpose.
Audit may require, where necessary, the furnishing, by the executive authority nominated for the
purpose, of an annual certificate of verification incorporating the details of verification.
The furniture supplied to the residence of a high level officer need not be audited
24. The audit findings in the report are put into perspective and congruence is ensured when:
(1) Audit objectives link with audit questions
(2) Audit link conclusions with findings
(3) Recommendations link with overall objectives
only 1 is correct
only 2 is correct
only 3 is correct
All of the above are

correct
Explanation :
25. Accounts which relate to the expenditure brought to account during a financial year, to the several
items specified in the law made in accordance with the provisions of the Constitution or of the Government
of Union Territories Act, 1963 (20 of 1963) for the appropriation of moneys out of the Consolidated Fund of
India or of a State, or of a Union Territory having a Legislative Assembly, as the case may be is called:
Appropriation
accounts
Finance Accounts
Balance Sheet\
Annual Financial
Statement
26. Which of the following should the auditor first consider when planning the audit:

criteria.

findings.

methodology.
the audit objectives and scope.

Explanation :
27. In instances where an audit body disagrees with the audit criteria then the SAI should:
convene a meeting with the head of the audited body and get him/her to agree on the
audit criteria
amend the criteria to suit the requirements of the audited body.
weigh the facts and arguments presented by the audited body against other relevant
facts and arguments.
none of the above

Explanation :
28. If new information/problems have come to the notice of audit team during the conduct of audit, then
procedure could have a significant impact on the overall audit question as such increase in scope will
cost more time and money.
procedure could have a significant impact on the overall audit question, but the information/issue
could be recorded for subsequent audits or for coverage during follow-up audit.
changes should always be made to the audit work plan on collection of new information as
performance audit plans are required to be flexible.
none of the above is correct

Explanation :
29. Which of the following is part of the functions of the objectives of Central Audit?
Check whether vouchers are in the prescribed form and have been prepared
according to extant rules.
Scrutinize whether the rules and orders issued by Government themselves are intra
vires.
Examine whether the contract agreements are definite and precise and are based
on standard practices
All of the above

30. Tax audits are primarily legality and regularity audit. When auditing the application of tax laws, Audit
should examine the system and efficiency of tax collection. Which of the following statement would be
appropriate in case of a tax audit?
The Audit is empowered to audit the collection of taxes as extensively as possible and to
examine individual tax files
The Audit is not empowered to audit the collection of taxes extensively
The Audit is not empowered to examine individual tax files
The Audit is empowered to audit the collection of taxes but not empowered to examine
individual tax files
Explanation : The audit department is empowered to audit the collection of taxes as extensively as
possible and, in doing, so, to examine individual tax files.
Tax audits are primarily legality and regularity audit; however, when auditing the application of tax laws,
Audit should also examine the system and efficiency of tax collection, the achievement of revenue targets,
and if appropriate, propose improvements to the legislative body.
31. In public works department, the position responsible for undertaking preliminary checks in works
transactions is called:
PWD auditor
Divisional
Accountant
Sub-ordinate
Accountant
State Accountant
Explanation : In Public Works Department, Divisional Accountants are charged with the responsibility of
applying preliminary checks on the initial accounts, vouchers, etc
32. In cases of audit of bodies entrusted to comptroller and auditor general of India, the expenditure
incurred by the Comptroller and Auditor General in connection with the audit will be payable to him by the
institution. In such cases where the audit fees are collected from the institution:
The scope, extent and manner of conducting audit shall be as decided by the Comptroller and
Auditor General
The scope, extent and manner of conducting audit can be as decided by the auditee institution
The scope, extent and content of the audit can be mutually agreed upon by the comptroller and
auditor general and the auditee institution
The scope and extent of the audit alone can be decided by the audit institution and the CAG has
full powers to get access to the records which are required for the audit.
33. VLC means in Accounts and Entitlement Offices refers to:
Voucher Level
Compilation
Voucher Level
Computerization
Very Large
Computerization
Very Large Level

Compilation
Explanation : Voucher Level Computerisation (VLC) is a system of voucher processing implemented in the
Accounts and Entitlement Offices with the objective of
improving the efficiency and effectiveness of Voucher processing.
producing monthly civil accounts and Annual accounts viz. Finance Accounts and Appropriation Accounts
and various other Management Information Reports to the State Government in an efficient manner.
providing accurate and timely information at various levels to assist the concerned State Government
Authorities in effective decision making and effectively monitoring expenditure incurred by various State
Government departments against the budget.
34. Who among the following is responsible for making financial rules and putting in place an adequate
internal control mechanism that will guard against misuse of public funds in central and state
governments?
Indian Audit and Accounts

Department
The Executive Government
Internal Audit
All Drawing and Disbursing

Officers
Explanation : It is the function of the Executive Government to make financial rules and orders and put in
place an adequate internal control mechanism that will guard against misuse of public funds. It is the duty
of audit not only to verify that the administrative departments properly apply these internal controls but
also to point out weaknesses, if any, as may be noticed in the functioning of the control mechanisms.
35. The audit of accounts of the stores would include which of the following?
i.a particular official has been responsible for the custody of stores for prolonged periods and, if so,
whether the stores have been physically verified regularly to guard against any loss, pilferage, etc.
ii. discrepancies, if any, between the book balances and the ground balances have been reconciled
promptly
iii. appropriate and effective follow-up action has been taken on reports of physical verification of stores for
making good any losses, shortages, etc. and to fix responsibility
Only i
Only ii
Only ii and
iii
All i, ii, and

iii
36. In the eventuality of non- production of vital records by the person in charge of an office or department
under audit, which of the following course of action has to be taken
Issue a disclaimer stating that audit could not ensure the correctness of the transactions owing to
non-production of the vital records
Report the non-production of the vital records in the Inspection Report so that the Audit can verify
the records during the next audit
Report the non-production of the vital records in the inspection report stating clearly the money
value that could not be verified in audit
Call off the audit and report the matter to the Chief Secretary in the State or to the Secretary to
the Government of India in the Centre
Explanation : Under Sub-section (2) of Section 18 of the Act, it is the statutory obligation of the person in-
charge of the office or the department, the accounts of which are to be inspected/audited by the
functionaries of the Comptroller and Auditor General, to afford all facilities for the inspection/audit and
comply with requests for information in as complete a form as possible and with all reasonable expedition.
In the eventuality of non- production of vital records, the audit should be called off and the matter should
be reported by the Accountant General to the Chief Secretary in the State or to the Secretary to the
Government of India in the Centre, as the case may be.
37. This is a statistical technique that creates an equation to reveal how one variable is related to one or
more other variables. Such method of analysis with the use of mathematical tools is called
Regression
Analysis
Predictive
Analysis
System Analysis
Casual Analysis
38. ------- enables the Central Government to make rules after consultation with the Comptroller and
Auditor General for carrying out the provisions of the DPC Act in so far as they relate to maintenance of
accounts.
Section 24 of the Manual of

Standing Orders
Section 26 of the Manual of

Standing Orders
Explanation : Section 22 enables the Central Government to make rules after consultation with the
Comptroller and Auditor General for carrying out the provisions of the Act in so far as they relate to
maintenance of accounts
Which of the following international document re-emphasises the independence of supreme audit
institutions?
Supreme Audit Declaration

1977
French Declaration 1987
Mexico Declaration 2007
Audit Declaration 1987

Explanation :
2. If, during the course of an annual audit of a publicly held manufacturing company, an independent
auditor becomes aware of a reportable condition in the company's internal control, the auditor is required
to communicate the reportable condition to
The senior management and the board of directors of

the company
The senior management of the company
The board of directors of the company
The audit committee of the board of directors

3. Tone at the top forms part of which of the component of the internal control?
Risk Assessment
Control Activities
Monitoring
Control
Environment
4. Which of the following statement is TRUE regarding the process of risk assessment
Risk Assessment and Internal Control are two independent processes
Risk Assessment is a one-time process which shall be taken up at the time of setting organizational
objectives
Risk Assessment is the process of determining the amount of insurance premium to be paid for
safeguarding organizational assets
Risk assessment is the process of identifying and analysing relevant risks to the achievement of
the entitys objectives and determining the appropriate response
Explanation :
5. Evaluation of Internal Control refers to which of the following activities?

Determine the significance and sensitivity of the risk
Assessing the susceptibility to misuse of resources, failure to attain objectives regarding ethics,
equity, economy, efficiency, effectiveness
Identifying and understanding the relevant controls
All of the above

6. Which of the following is an example of control objective? i. To ensure that invoices are paid only for
goods or services which have been received ii. To make sure that make sure that only accredited staff and
visitors are permitted to enter the building iii. To ensure that payments are made only to the valid
employees of the organization iv. To ensure that cash in hand is protected from theft or other loss
None of the
Above
All of the Above
Only i and ii
Only iii and iv

Explanation :
7. Which of the following is NOT a part of an internal control mechanism?
Control Environment
Risk Assessment
Information and
Communication
Cash flow management

Explanation :
8. Which statement is correct concerning the definition of internal control developed by the Committee of
Sponsoring Organizations (COSO)?
Its applicability is largely limited to internal auditing applications
It is recognized in the Statement on Auditing Standards
It emphasizes the effectiveness and efficiency of operations rather than the reliability of financial
reporting
It suggests that it is important to view internal control as an end product as contrasted to a process
or means to obtain an end
9. INTOSAI stand for which of the following?
International Society of Supreme Audit Institutions
International Organisation of Supreme Audit

Institutions
Intercontinental Society of Supreme Audit
Institutions
Intercontinental Organisation of Supreme Audit

Infrastructure
Explanation :
10. The use of fidelity bonds may indemnify a company from embezzlement losses. The use also
Reduces the company's need to obtain expensive business interruption insurance
Protects employees who make unintentional errors from possible monetary damages
resulting from such errors
Allows the company to substitute the fidelity bonds for various parts of internal control
Reduces the possibility of employing persons with dubious records in positions of trust
11. While obtaining an understanding of a client's risk assessment policies, an auditor does not ordinarily
include how management
Identifies risk
Eliminates significant risks
Assesses the likelihood of occurrence of events due to

significant risks
Relates risk assessment to financial reporting

Explanation : The most appropriate answer is B
12. An auditor may compensate for a weak condition in the Internal Control System by increasing the
Level of detection risk
Extent of tests of controls
Preliminary judgment about

audit risk
Extent of analytical procedures

13. Which of the following is intended to detect deviation from prescribed Accounting procedures?
Substantive test specified by a standardized audit program
Tests of controls designed specifically for the entity
Analytical procedures as designed in the industry audit guide
Computerized analytical tests tailored for the configuration of EDP

equipment in use
14. Which of the following will NOT reduce the effectiveness of internal control in an organization
Human factors such as design flaws, errors of judgment and interpretation, misunderstanding,
carelessness, fatigue, distraction, collusion, abuse etc.
The resource constraints
Management lack of understanding about the need of internal controls
Total computerization of the organizational processes

15. An auditor is considering the internal control system for purchasing and disbursement procedures. The
auditor will be LEAST influenced by
The availability of a company manual describing purchasing and disbursement procedures
The scope and results of audit work by the company's internal auditor
The existence within the purchasing and disbursement area of internal control strengths
that offset weaknesses
The strength or weakness of internal control in other areas, e.g., sales and accounts
receivable
16. Which of the following is NOT a part of an internal control mechanism?
Control Environment
Risk Assessment
Information and
Communication
Cash flow management

17. Which of the following is NOT CORRECT with reference to the term control activities ?
Control Activities are the policies and procedures established to address risks and to achieve
organizational objectives
Control activities occur throughout the organization at all levels and in all functions. They include a
range of detective and preventive activities
Control activities must be appropriate, function consistently according to plan throughout the
period and be cost effective, comprehensive reasonable and directly relate to the control objective
Control Activities if implemented effectively would ensure absolute protection against the
perceived risks in the organization
Explanation :
18. An entity's ongoing monitoring activities often include
Periodic audits by the audit committee

Reviewing the purchasing function
The audit of the annual financial statements
Control risk assessment in conjunction with

quarterly reviews
19. Which of the following is NOT a general objective of Internal Control System?
Accountability and Reporting
Compliance with laws and regulations
Orderly ethical economical efficient and effective operations
Absolute assurance on the achievement of the objectives of

an organization
Explanation :
20. After considering the client's internal controls, an auditor has concluded that Internal Control is well
designed and is functioning as intended. Under these circumstances, the auditor would most likely:
Perform tests of controls to the extent outlined in the audit program
Determine the control procedures that should prevent or detect errors and irregularities
Not increase the extent of predetermined substantive tests
Determine whether transactions are recorded to permit preparation of Financial Statement in

conformity with GAAP
21. Which of the following is LEAST likely to reduce the effectiveness of internal control in an organization
Human factors such as design flaws, errors of judgment and interpretation, misunderstanding,
carelessness, fatigue, distraction, collusion, abuse etc.
The resource constraints
Management's lack of understanding about the need of internal controls
Total computerization of the organizational processes

Explanation :
22. The independent auditor should acquire an understanding of the internal audit function as it relates to
the independent auditor's consideration of the Internal Control because
The audit program, working papers and reports of internal auditors can often be used as a
substitute for the work of the independent auditor's staff
The procedures performed by the internal audit staff may eliminate the independent auditor's need
for an extensive consideration of the Internal Control
The work performed by internal auditors may be a factor in determining the nature, timing and
extent of the independent auditor's procedures
The understanding of the internal audit function is an important substantive test to be performed
by the independent auditor
23. Which of the following statement is NOT Correct?
Internal control is not one event, action or circumstance but a series of actions
Internal control is should be separate from the basic management functions of planning organizing
leading and controlling
Internal control is effected by management and other personnel
Internal control is affected by human nature

Explanation :
24. The auditor's understanding of the client's Internal Control is documented in order to substantiate
Conformity of the accounting records with generally accepted

accounting principles
Compliance with generally accepted auditing standards
Adherence to requirements of management
The fairness of the financial statement presentation

25. When tests of controls reveal that controls are operating as anticipated, it is most likely that the
assessed level of control risk will
Be less than the planned assessed level of

control risk
Equal the planned assessed level of control

risk
Equal the actual control risk
Be less than the actual control risk

26. Which of the following is a type of risk?
Inherent Risk
Control Risk
Detection
Risk
All of the
above
Explanation :
27. Monitoring is considered

A component of internal control
An element of the control

environment
The primary asset safeguarding

technique
A portion of information and

communication
28. A consideration of the Internal Control System made in connection with an annual audit is usually not
sufficient to express an opinion on an entity's internal control because
Weaknesses in the Internal Control System may go unnoticed during the audit
period
A consideration of the Internal Control System is not necessarily made during an

audit engagement
Only those controls on which an auditor intends to rely are reviewed, tested and
evaluated
Internal controls can change each year

29. When an auditor considers an entity's internal control, which of the following is ordinarily a type of
control activity that is considered?
Risk assessment over cash disbursements
Segregation of duties
Inclusion of the president as a member of the audit

committee
Management's monitoring policies over cash

receipts
30. If the independent auditors decide that the work performed by the internal auditor may have bearing
on their own procedures, they should consider the internal auditor's
Competence and
objectivity
Efficiency and experience
Independence and review

skills
Training and supervisory

skills
31. In general, a reportable condition may be defined as a condition in which material errors or
irregularities ordinarily would not be detected within a timely period by
An auditor during the normal consideration of the

internal controls
A controller when reconciling accounts in the general

ledger
Employees in the normal course of performing their

assigned duties
The chief financial officer when reviewing interim

Financial Statement
32. Which of the following is not a factor included in the control environment?
Integrity and ethical

values
Risk assessment
Commitment to
competence
Organizational
structure
33. Which of the following is not a control that is designed to protect investment securities?
Custody over securities should be limited to individuals who have record keeping
responsibility over the securities
Securities should be properly controlled physically in order to prevent unauthorized usage
Access to securities should be vested in more than one individual
Securities should be registered in the name of the owner

34. The independent auditor should acquire an understanding of a client's internal audit function to
determine whether the work of internal auditors will be a factor in determining the nature, timing and
extent of the independent auditor's procedures. The work performed by internal auditors might be such a
factor when the work includes:
Verification of the mathematical accuracy of invoices
Review of administrative practices to improve efficiency and achieve

management objectives
Consideration of the internal control structure
Preparation of internal financial reports for management purposes

35. When an independent auditor decides that the work performed by internal auditors may have a
bearing on the nature, extent and timing of the independent auditor's procedures, the independent auditor
should evaluate the competence and objectivity of the internal auditors. Relative to objectivity, the
independent auditor should
Consider the organizational level to which internal auditors report the

results of their work
Review the training program in effect for the internal auditors.
Examine the quality of the internal audit reports
Consider the qualifications of the internal audit staff

36. According to the principles underlying the internal controls, which of the following is NOT correct?
Internal Controls should reasonably assure that public resources are protected
Internal controls should reasonably assure that public goals are achieved efficiently and
effectively
Internal Controls should reasonably assure that public servants serve the public with fairness
and impartially
Internal controls should be reasonably assure that even an inherently poor public manager
will be made a good one
Explanation :
37. Which of the following is TRUE regarding the internal control in an organization?
No matter how well designed and operated, internal control cannot provide management absolute
assurance regarding the achievement of the general objectives.
No matter what the cost of an internal control is Audit should see that the control is implemented
in an organization
No matter what are the ethical standards of the management, once well defined internal controls
are in place, Audit can satisfy itself that the organizational goals will be achieved
No matter how deficient the communication and monitoring methods of management is in an

organization, if other internal controls are working Audit can assure itself that the organization will
meet its objectives
Explanation :
38. When considering the entitys Internal Control System to determine whether the necessary
procedures are prescribed and are followed satisfactorily, an auditor must
Develop questionnaires and checklists
Review the Internal Control System and perform

tests of controls
Perform tests of controls and analytical procedures
Evaluate administrative policies

39. Which of the following component of internal control is treated as the foundation for all other
components?
Control Activities
Risk Assessment
Control Environment
Information and
Communication
Explanation :
40. Which of the following is the LEAST important class of control activity normally adopted in an
organization from the internal control point of view?
Authorizations and approval

procedures
Segregation of Duties
Access control over resources and

records
Incentives for staff operations

Explanation :
41. Which of the following best describes the primary reason for the auditor's use of flowcharts during an
audit engagement?
To comply with the requirements of Accounting Standards
To interpret the operational effectiveness of the client's existing organizational structure
To classify the client's documents and transactions by major operating functions e.g., cash
receipts, cash disbursements, etc
To record the auditor's understanding of the client's Internal Control

42. Effective Internal Control in a small company that has insufficient employees to permit proper division
of responsibilities can be best enhanced by
Employment of temporary personnel to aid in the separation of duties
Direct participation by the owner of the business in the recordkeeping

activities of the business
Engaging a Chartered Accountant to perform monthly "write-up" work
Delegation of full, clear-cut responsibility to each employee for the functions

assigned to each
43. During the audit, the independent auditor identified the existence of a reportable condition in the
client's system of internal controls and orally communicated this finding to the client's senior management
and audit committee. The auditor should:
Consider the reportable condition a scope limitation and therefore disclaim an
opinion
Document the matter in the working papers and consider the effects of the
condition on the audit
Suspend all audit activities pending directions from the client's audit
committee
Withdraw from the engagement

44. Which of the following is NOT a method of responding to a perceived risk
Transfer the Risk
Tolerate the Risk
Treat the Risk
Supplement the
risk
Explanation :
45. Proper segregation of functional responsibilities calls for separation of the
Authorization, approval and execution

functions
Authorization, execution and payment

functions
Receiving, shipping and custodial

functions
Authorization, recording and custodial

functions
46. Which of the following is not an internal control objective?
Ensuring Accountability
Safeguarding the
organizational assets
Segregation of duties
Compliance to rules and

regulations
Explanation :
47. The controls in an information technology environment are generally classified as
General Controls and Application

controls
System Controls and software Controls
Hardware controls and Software

Controls
Software Controls and Human Resource

Controls
Explanation :
48. Which of the following is TRUE with reference to Information in an organization?
Organisation should have system for prompt recording and classifying of all transactions
and significant events
Managments decisions are affected by the quality of information
Information systems produce reports that allow management to control the

organizational activities
All of the Above

Explanation :
49. Which of the following is the aim of an internal control mechanism?
Fulfilling accountability obligations
Safeguarding resources against loss, misuse

and damage
Complying with applicable laws and

regulations
All of the Above

Explanation :
50. After the auditor has prepared a flowchart of the Internal Control surrounding sales and evaluated the
design of the Internal Control System, the auditor would perform tests of controls on all internal control
procedures
Documented in the flowchart
Considered to be weaknesses that might allow errors to enter the

accounting system
Considered to be strengths that the auditor plans to rely on
That would aid in preventing irregularities

Which of the following would not be considered an analytical procedure?
Converting dollar amounts of income statement account balances to percentages of net sales for
comparison with industry averages
Developing the current year's expected net sales based on the sales trend of similar entities within
the same industry
Projecting a deviation rate by comparing the results of a statistical sample with the actual
population characteristics
Estimating the current year's expected expenses based on the prior year's expenses and the
current year's budget
2. Management has requested the internal auditor to perform an operational audit of the marketing
operations of a major division and recommend policies and procedures for improving management control
over the operation. The internal auditor should:
Accept the engagement, but indicate to management that recommending controls would impair
audit independence so that management knows that future audits of that area would be impaired.
Accept the audit engagement because independence would not be impaired.
Not accept the engagement because audit departments are presumed to have expertise on
accounting controls, not marketing controls
Not accept the engagement because recommending controls would impair future objectivity of the
department regarding this auditee.
3. Which of the following have to be ensured while preparing an Audit report?

1. Audit findings should be arranged in a logical flow and the findings should set the stage for Audit
recommendation
2. Audit report should include just enough information for the reader to understand the message that is
being conveyed
3. Audit report should not be long-winded as the report would end up being too long and difficult to read,
but they should not be so scanty as to provide insufficient information to justify the conclusion reached
4. Audit report should not offer any recommendations to the organization.
All of the
above
1,2 and 3
2,3,4
1,3,4
4. The chief audit executive should develop and maintain a quality assurance and improvement program
that covers all aspects of the internal audit activity and continuously monitors its effectiveness.
All of the following are included in a quality program except:
Annual appraisals of individual internal auditors'

performance.
Periodic internal assessment.
Supervision.
Periodic external assessments

5. Which of the following is an example of control objective?

i. To ensure that invoices are paid only for goods or services which have been received
ii. To make sure that only accredited staff and visitors are permitted to enter the building
iii. To ensure that payments are made only to the valid employees of the organization
iv. To ensure that cash in hand is protected from theft or other loss
None of the
Above
All of the Above
Only i and ii
Only iii and iv

6. Which of the following statement is NOT CORRECT regarding the sampling technique?
Attribute sampling provides answer to the question How many items display the characteristic or
attribute an Auditor is seeking to identify
Variables sampling provides answer to the question How much? It is usually applied to stated
monetary amounts and attempts to provide information about their accuracy
Attribute sampling selection technique is normally used in compliance testing and variable
sampling technique is widely used in substantive testing.
Statistical sampling techniques are not normally employed in Auditing as nothing should replace
Auditors professional judgement
7. An organization is in the process of establishing its new internal audit activity. The financial controller
has no previous experience with internal auditors. Due to this lack of experience, the financial controller
advised the applicants that the CAE would be reporting to the external auditors. However, the new chief
audit executive will have free access to the financial controller to report anything important.The financial
controller will then convey the CAE's concerns to the board of directors. The IAA will:
Be independent because the CAE has direct access to the board
Not be independent because the CAE reports to the external auditors
Not be independent because the financial controller has no internal auditor experience.
Not be independent because the organization did not specify that the applicants must be
Certified Internal Auditors
8. An Audit firm would best provide itself reasonable assurance of meeting its responsibility to offer
professional services that conform with professional standards by:
Establishing an understanding with each client concerning individual responsibilities in a signed

engagement letter
Assessing the risk that errors and fraud may cause the financial statements to contain material
misstatements.
Developing specific audit objectives to support management's assertions that are embodied in
the financial statements.
Maintaining a comprehensive system of quality control that is suitably designed in relation to its
organizational structure
9. Which of the following are the five elements of a system?
Objectives, Inputs, Processes, Outputs and

Controls
Objectives, Inputs, Processes, Efficiency and

Effectiveness
Objectives, Inputs, Effectiveness, Efficiency and

Economy
Objectives, Effectiveness, Efficiency, Economy

and Outcomes
10. Risk should be identified and recorded for each control objective. Which of the following criteria is
normally used to classify the risk?
Poor, Good and Excellent
Sensitive, Critical,
Important
High, Medium and Low
Transparent, Objective,
Subjective
11. From a modern internal auditing perspective, which one of the following statements represents the
most important benefit of an internal audit department to management of the company?
Assurance that the organization is complying with legal

requirements
Assurance that fraudulent activities will be detected.
Assurance that there is reasonable control over day-to-

day operations
Assurance that published financial statements are

correct
12. A Chief Audit Executive has reviewed credentials, checked references, and interviewed a candidate for
a staff position. The CAE concludes that the candidate has a thorough understanding of internal auditing
techniques, accounting, and finance. However, the candidate has limited knowledge of economics and
information technology. Which action is most appropriate?
Reject the candidate because of the lack of knowledge required by the Standards.
Offer the candidate a position despite lack of knowledge in certain essential areas.
Encourage the candidate to obtain additional training in economics and information technology
and then reapply.
Offer the candidate a position if other staff members possess sufficient knowledge in economics
and Information technology
13. Which of the following is the best way to compensate for the lack of adequate segregation of duties in
a small organization?
Disclosing lack of segregation of duties to the external auditors during

the annual review
Replacing personnel every three or four years
Requiring accountants to pass a yearly background check
Allowing for greater management oversight of incompatible activities

14. Which of the following BEST describes a system based auditing?
A systems based audit is concerned particularly with identifying organizational processes and
designing controls for mitigating the associated risks
A systems based audit is concerned particularly with establishing the link between internal controls
and organizational objectives in order to gather evidence to support the auditors professional opinion
on the adequacy and effectiveness of internal control in that system.
A systems based audit is concerned particularly with undertaking substantive tests to a system to
identify weaknesses in the internal controls and assist the organization in revising the organizational
objectives
A systems based audit is concerned particularly with undertaking compliance tests to a system to
identify weaknesses in the internal controls and assist the organization in revising the organizational
objectives by providing recommendations
15. Which of the following is a characteristic of a good audit recommendation?
They should be specific, clear and concise, address the underlying cause of the problem and not
subject to different interpretations
They should include a description of the potential benefit from implementing them e.g. efficiency
gains, increasing the reliability and integrity of information, safeguarding assets etc
In cases involving financial implications such as loss, savings and recoveries, every effort should be
made to quantify the financial implication and the amount stated in the text of the recommendation
All of the Above

16. These tests are undertaken by an Auditor for collecting evidence to determine whether the control
procedures are correctly implemented and are reliable. These tests are performed to guarantee the
effectiveness of the functioning of internal control measures. Such tests are generally called:
Compliance
Tests
Substantive
Tests
Statistical
sampling
Risk based
tests
17. Audit Files are generally classified as:
Permanent Audit File and Current

Audit File
System Audit File and Substantive

Audit File
Risk Audit File and Control Audit File
Manual Audit file and Electronic

Audit file
18. Sampling technique need not be adopted in which of the following situations in an Audit?
Sampling technique need not be applied when the number of transactions are very high and it is
impossible to check all the individual transactions
Sampling technique need not be applied when the population is very small
Sampling is not always required and it may be possible to apply audit procedures to the entire
population if all the data is held on computer systems and data analysis software like IDEA is available
Both B and C
19. Which of the following is the best means of aiding an internal audit activity in determining whether its
goals are being met?
Having the board periodically review the quality of the internal audit
activity's work.
Developing measurement criteria to accompany its goals.
Scheduling an external assessment every 3 years
Having external auditors review and evaluate the work of the

internal audit activity
20. The sample size in a statistical sampling is determined by which of the following factors?
The population size, the variability in the population, desired confidence level, tolerable and
expected deviation rates
The population size, desired confidence level, auditors judgement and the time available for
Audit
The population size, desired confidence level, auditors judgement and the scope of the audit
The population size, desired confidence level, estimated number of errors and time available
for audit
21. The independence or objectivity of an Auditor is said to be impaired in fact or appearance, in which of
the following circumstances?
I. Internal auditors assess specific operations for which they were previously responsible
II. Internal auditors provide assurance services for an activity for which the auditor had responsibility within
the previous year.
III. Internal Auditors provides assurance services on functions over which the chief audit executive has
responsibility
IV. Internal auditors provide assurance services on operations for which they had earlier provided
consulting services
None of the
Above
All of the Above
Only I and II
Only III and IV

22. An internal auditor has some suspicion of, but no information about, potential misstatement of financial
statements. The internal auditor has failed to exercise due professional care if he or she:
Identified potential ways in which a misstatement could occur and ranked the items for
investigation.
Informed the engagement manager of the suspicions and asked for advice on how to proceed.
Did not test for possible misstatements because the engagement work program had already been
approved by management.
Expanded the engagement work program, without the engagement client's approval, to address
the highest ranked ways in which a misstatement may have occurred
23. The understanding with the client regarding a financial statement audit generally includes which of the
following matters?
The expected audit procedures to be adopted by

the Auditor
The responsibilities of the auditor
The contingency fee structure
The preliminary judgment about materiality

24. An audit committee should be designed to enhance the independence of both the internal and external
auditing functions and to insulate them from undue management pressures. Using this criterion, audit
committees should be composed of:
A rotating subcommittee of the board of directors or its equivalent.
Only members from the relevant outside regulatory agencies.
Members from all important constituencies, specifically including representatives from banking,
labor, regulatory agencies, shareholders, and officers.
Only external members of the board of directors or its equivalent

25. Which of the following activity is NOT likely to be a part of the Preparation and planning part of the
Audit process?
Preliminary Survey
Entry Conference or Kick-off

meeting
Preparation of an Audit Plan
Substantive Testing
26. Prior to releasing results of an internal audit to users outside the organisation the chief audit executive
must:
Assess the potential risk to the organisation
Consult with senior management and/ or legal counsel

as appropriate
Control dissemination by restricting the use of the

results
All of the above

27. Which of the following is a disadvantage in using flow charts in Audit?
The flow charting techniques and conventions have to be learned and practiced and the Auditors
may not be fluent or experienced in preparing them
Flowcharts highlight the relationship between different parts of the system
Auditor can see and visualise the whole flow of documents
Information can be easily communicated and assimilated and cross referencing between systems
is easier
28. Which of the following tasks need not be undertaken before an auditor arrives at audit conclusions on a
process?
Frame Recommendations
Risk Assessment
Test of Controls
Understand the process

objectives
29. The purpose, authority, and responsibility of the internal audit activity should be formally defined and
the document is normally called
Internal Audit
Document
Internal Control
Document
Internal Audit Charter
Internal Audit Working

Paper
30. Which of the following steps are normally taken by an Auditor for evaluating the system design and to
determine the adequacy of control?
1. Identify the controls starting at higher level controls and working down to lower level controls over
individual transactions.
2. Consider the probability that something will go wring and the significance (materiality) to the
organization if it does go wrong
3. Consider the compensating controls which may enable the control objectives to be met
4. Looking for unnecessary and irrelevant controls which may be too costly to apply
4,3,2,
1
1,2,3,
4
3,4,1,
2
1,3,2,
4
31. During the course of an internal audit, the chief audit executive concludes that management has
accepted a level of risk that may be unacceptable to the organization. Chief audit executive discussed the
matter with senior management but the management was not convinced and the matter remained
unresolved. The Chief Audit Executive must:
Consider that their job ends with informing the management and if the management is not ready
to consider their opinion nothing can be done about it
If the chief audit executive determines that the matter has not been resolved, the chief audit
executive must communicate the matter to the board
The Chief Audit executive should immediately report to the outside regulators concerned with
management of the organization
The chief audit executive should inform the management that they will be solely responsible for
any future losses and thereafter drop the opinion from the audit report
32. In which of the following situations does an internal auditor potentially lack objectivity?
An internal auditor reviews the procedures for a new electronic data interchange (EDI) connection
to a major customer before it is implemented
A former purchasing assistant performs a review of internal controls over purchasing 4 months
after being transferred to the internal auditing department.
An internal auditor recommends standards of control and performance measures for a contract
with a service organization for the processing of payroll and employee benefits.
A payroll accounting employee assists an internal auditor in verifying the physical inventory of
small motors
33. Which of the following statement is NOT CORRECT with reference to sampling?
Non-statistical sampling is based on the auditors judgement
The decision whether to use a statistical or non-statistical sampling approach is a matter for the
auditors professional judgement.
Non-statistical sampling should never be used in an Audit as it is unscientific
The results obtained through statistical sampling can be extrapolated

34. Which of the following discipline can be described as an independent, objective assurance and
consulting activity designed to add value and improve an organisations operations?
Internal Control
Internal Audit
Risk Evaluation
Control
Evaluation
35. Which of the would best describe the concept of Due Care ?
The appropriate element of care and skill which a trained auditor would be expected to apply
having regard to the complexity of the audit task, including careful attention to planning, gathering
and evaluating evidence, and forming opinions, conclusions and making recommendations.
Internal auditors should apply the care and skill expected of a reasonably prudent and competent
internal auditor. Due professional care imply infallibility
Both A and B
None of the above

36. An auditor has determined that controls in a process are weak or inadequate. He decides to test the
controls further with the purpose of determining if any significant losses have occurred due to such weak
controls. Such testing of controls are generally called:
Compliance testing
Substantive testing
Loss assessment
testing
Risk based testing

37. When an engagement was assigned, management asked the internal auditor to evaluate the
appropriateness of using self-insurance to minimize risk to the organization. Given the scope of the
engagement requested by management, should the internal auditor engage an actuarial consultant to
assist in the engagement if these skills do not exist on staff?
No. The internal audit activity is skilled in assessing controls, and the insurance control concepts
are not distinctly different from other control concepts.
No. It is a normal internal auditor function to assess risk; this engagement is therefore not unique.
Yes. An actuary is essential to determine whether the health care costs are reasonable.
Yes. The actuary has skills, not usually found among internal auditors, to identify and quantify self
insurance risks
38. Which of the following statements is generally correct about the sample size in statistical sampling
when testing internal controls?
As the population size doubles, the sample size should

increase by about 67%
The sample size is inversely proportional to the expected error

rate
There is no relationship between the tolerable error rate and

the sample size
The population size has little or no effect on the sample size

39. An auditor is required to confirm accounts receivable if the accounts receivable balances are:
Older than the prior year.
Material to the financial

statements
Smaller than expected
Subject to valuation
estimates
40. Who among the following is primarily responsible for communicating the audit findings in respect of
internal audit of an organisation?
The Chief Audit Executive
The External Auditor of that

organisation
The Chief Executive Officer
The Information Officer

41. Which of the following statement is TRUE about Audit files?
The working papers and any other documentation related to each audit assignment should be held
on dedicated audit files
The Audit files should be structured in a clear and logical way in order to make it easy for anyone
to find what they need and to understand what has been done, and why. The files can be held in
electronic or paper form
Appropriate use of indexes and of cross-referencing between documents and sections of the files is
vital if documentation is to be accessible and assist the auditor to carry out the audit efficiently
All of the Above

42. Which of the following controls should prevent an invoice for the purchase of materials from being paid
twice?
The check signer accounts for the numerical sequence of receiving reports used in
support of each payment
An individual independent of cash operations prepares a bank reconciliation
The person who signs the cheques reviews and cancels all the vouchers
Two check signers are required for all checks over a specified amount
43. An Auditor may decide not to sample if:

1. he feels that sampling is too tedious a process
2. the population is very small
3. he is unwilling to accept the sampling risk
4. he is searching for rare but important occurances
All the
above
1,2,3
2,3,4
1,2,4
44. Documenting the system under Audit is an important part of the Audit process. Which of the following
is normally employed to document the system under Audit
Narrative Descriptions of the

System
Flow Charting
A Combination of A and B
A or B or C
45. Which of the following courses of action is the most appropriate if an auditor concludes that there is a
high risk of material misstatement?
Use smaller, rather than larger,

sample sizes
Perform substantive tests as of an

interim date
Select more effective substantive

tests
Increase of tests of controls

46. A charter is being drafted for a newly formed internal audit activity. Which of the following best
describes the appropriate organizational status that should be incorporated into the charter?
The chief audit executive should report to the chief executive officer but have access to
the board of directors
The chief audit executive should be a member of the audit committee of the board of
directors.
The chief audit executive should be a staff officer reporting to the chief financial officer.
The chief audit executive should report to an administrative vice president

47. Which of the following international organization is primarily engaged in providing institutional support
to the internal audit profession?
Institute of internal auditors
International organization for supreme

internal auditors
International federation of accountants
International organization for supreme audit

institutions
48. Which of the following is an attribute of a quality audit report?

1. The findings in the audit report should be free from errors and distortions and are faithful to the
underlying facts
2. The audit report should be presented in a fair, impartial and unbiased and should present a balanced
assessment of all relevant facts and circumstances
3. The audit report should be helpful to the client and the organisation and lead to improvements where
needed
4. The Audit report should be opportune and expedient depending on the significance of the issue, allowing
management to take appropriate corrective action
1 and
2
2 and
3
3 and
4
1,2,3,
4
49. Which of the following statements best describes why an auditor would use substantive procedures
alone to evaluate specific relevant assertions and risks?
The relevant internal control components are not well documented
The internal auditor already has tested the relevant controls and
found them effective
Testing the operating effectiveness of the relevant controls would not

be efficient
The cost of substantive procedures will exceed the cost of testing the
relevant controls
50. Each of the following is a type of known misstatement, except:
An inaccuracy in processing data.
The misapplication of accounting principles.
Differences between management and the auditor's judgment regarding estimates.
A difference between the classification of a reported financial statement element and the
classification according to generally accepted accounting principles
51. Which of the following is an activity an Auditor is LEAST likely to undertake while carrying out an Audit?
Preparing for and Planning the Audit

Assignment
Ascertaining and recording the system
Identifying and understanding System

Objectives
Setting organizational objectives and
designing controls
52. Which of the following statement is NOT CORRECT with reference to Control?
Controls are actions and procedures established by the organizations management to ensure
that the objectives of a system are met
Even if the objectives are met in an organization without any controls, Auditor should report on the
deficiency of controls as they cannot rely upon a system which functions without controls
Controls are generally classified as low, medium and high
Controls are normally classified as preventive, detective, directive and corrective controls
53. The authority of the internal audit activity is limited to that granted by:
The board and the financial controller.
Senior management and the Standards.
Management and the board.
The audit committee and the Chief

Financial Officer
54. Under which of the following circumstances should an auditor consider confirming the terms of a large
complex sale?
When the assessed level of control risk over the sale is low.
When the assessed level of detection risk over the sale is high.
When the combined assessed level of inherent and control risk over the
sale is moderate.
When the combined assessed level of inherent and control risk over the
sale is high
55. Which of the following statements is true with respect to due professional care?
Internal auditor should perform detailed tests of all transactions before communicating results.
An item should not be mentioned in an engagement communication unless the internal auditor is
absolutely certain of the item.
An engagement communication should never be viewed as providing an infallible truth about a

subject.
An internal auditor has no responsibility to recommend improvements

56. Which of the following procedures would an Auditor most likely perform in the planning phase of a
financial statement audit?
Make inquiries of the client's lawyer concerning

pending litigation
Perform cutoff tests of cash receipts and

disbursements
Compare financial information with nonfinancial

operating data
Recalculate the prior year's accruals and deferrals

57. Which of the following procedures would an auditor most likely perform in the planning stage of an
audit?
Make a preliminary judgment about materiality
Confirm a sample of the entity's accounts payable with known creditors
Obtain written representations from management that there are no

unrecorded transactions
Communicate management's initial selection of accounting policies to the

audit committee
58. The results of testing a sample using which of the following sampling approach should not be
extrapolated over the population as the sample is unlikely to be representative of the population?
Non-statistical
sampling
Statistical Sampling
Both A and B
None of the Above

59. Which of the following is NOT the objective of carrying out a preliminary survey?
To determine the broad objectives of the Audit
To determine the extent of sampling to be employed while carrying out the Audit
To determine the scope of Audit and any specific areas that are to be given
importance during Audit
To determine the target dates for completion of each stage of Audit

60. An internal auditor fails to discover an employee fraud during an assurance engagement. The non-
discovery most likely suggests a violation of the Standards if it was the result of a:
Failure to perform a detailed review of all transactions in the area.
Determination that any possible fraud in the area would not involve a material
amount.
Determination that the cost of extending procedures in the area would exceed the
potential benefits.
Presumption that the internal controls in the area were adequate and effective
Two determinants of the persuasiveness of evidence are:
competence and
sufficiency.
relevance and reliability.
appropriateness and
sufficiency.
independence and
effectiveness
2. Which of the following is not a characteristic of the reliability of evidence?
Effectiveness of client internal

controls.
Education of auditor.
Independence of information
provider.
Reliability of the source of

information
3. Observation consists of looking at a process or procedure being performed by others. Which of the
following statement is TRUE with regard to the use of observation in Audit
Observation is not an acceptable method for collection of audit evidence as it is limited to the point
in time at which the observation takes place
Observation cannot be used for examination of tangible assets to verify its existence and assess its
state of maintenance
Observation is not an acceptable method for collection of audit evidence as observation would
upset the normal flow of work in the organization.
Everything which is observed should be carefully recorded since it may become key audit
evidence.
4. Which of the following statement is NOT CORRECT with reference to the audit evidence?
Auditing Standards require that competent, relevant and reasonable evidence should be obtained
to support the auditors judgement and conclusions regarding the organization, progamme, activity or
function under audit
Audit evidence should be available till the time audit report is approved by the CAG and it can be
discarded only after the approval of the audit report
A considerable amount of audit work consists of obtaining, examining and evaluating evidence
Appraisal of evidence is centred around the quality characteristics of evidence as the appraisal
procedure is actually a confirmation of the quality of evidence
5. Which of the following is NOT a purpose of analytical procedures?
Understand the clients industry
Assess the clients ability to continue as a

going concern.
Evaluate internal controls
Reduce detailed audit tests

6. Which of the following is an evidence gathering technique used in Audit for gathering specific
information from a group of people or an organization where a questionnaire is administered to a group of
people representative of the larger population and their responses to the questionnaire are analysed and
projected to the whole population?
A survey
Bench
marking
Focus
groups
Case
studies
7. Which of the following are the stated core values of SAI India?
Audit quality, audit reliability, audit competence, audit evidence, excellent reporting
Independence, Objectivity, Integrity, Reliability, Professional Excellence, Transparency, Positive

Approach
Audit quality, audit independence, audit objectivity, audit excellence, audit approach, audit values,
balanced reporting
Audit independence, audit surveillance, high quality assurance, audit visibility, assistance to
legislature, balanced reporting
8. Which of the following is a method of collecting audit evidence?
Interviews
Questionnaires
Reviewing other studies and previous

audit reports
All of the Above

9. If an audit evidence is said to be persuasive audit evidence, it means which of the following:
It means the evidence collected offers confidence to the auditors in reaching conclusions with
respect to audit objectives
It means the evidence collected is sufficient, competent and relevant to the audit objective
It means it conforms to the common sense and professional judgment of the auditor with
reference to an audit objective
All of the above

10. Which of the following statements regarding the relevance of evidence is correct?
To be relevant, evidence must pertain to the audit objective of the

evidence
To be relevant, evidence must be persuasive
To be relevant, evidence must relate to multiple audit objectives
To be relevant, evidence must be derived from a system including

effective internal controls
11. Which of the following forms of evidence is most reliable?
General ledger account balances.
Confirmation of accounts receivable balance received

from a customer.
Internal memo explaining the issuance of a credit memo.
Copy of month-end adjusting entries

12. Which of the following are considered as the advantages of using benchmarking as an audit evidence
gathering tool?
It stimulates an objective review of processes,

practices, and systems
It supports recommendations for making changes
It presents a target for improvement in the audited

organizations
All of the above

13. An audit team has encountered highly technical subject which were too complex for them to form an
opinion about. Which of the following would be an acceptable course of action in such a circumstances?
Auditors are eligible to comment or report on items where they are competent to report. The best
option will be to qualify the report stating the inability of the audit team in evaluating the complex
subject area
Auditors can remove the subject area from the scope of audit and mention specifically in the
preamble of the Audit Report
Expert opinion can be sought individually or experts can be consulted interactively and opinion
from recognized experts can be used as the primary source of evidence in support of audit conclusions.
Auditors are expected to obtain an undertaking from the audited entity that their internal controls
with regard to the complex subject area are well maintained
14. The database of an audited entity contains confidential information. When the information is sought,
the entity refuses to part with the required information. Which of the following IT tools can be employed to
obtain the information which is relevant to audit in such a circumstance?
If the database is accessible from the website of the entity use hacking tools as Computer Assisted
Audit Technique to obtain the confidential information from the entity
Information which have only restricted access cannot normally be used, unless the agency allows
access of their database by Audit
If the audit team is provided with an access to the network by the audited entity try accessing the
confidential information through the network using CAAT tools.
Audit team should obtain the password of the database administrator and try accessing the
confidential information through the network using tools such as IDEA
15. An example of a document the auditor receives from the client, but which was prepared by someone
outside the clients organization, is a(n):
confirmation.
sales invoice.
vendor invoice.
bank
reconciliation
16. When auditors use documents to support recorded transactions, the process is often called:
Inquiry
Confirmation.
Vouching.
Physical
examination
17. Which of the following statements is not true? The evidence-gathering technique of inquiry:
cannot be regarded as conclusive

requires the gathering of corroborative evidence.
is the auditors principal method of evaluating the clients

internal control
does not provide evidence from an independent source.

18. When making decisions about evidence for a given audit, the auditors goal is to obtain a sufficient
amount of timely, reliable evidence that is relevant to the information being verified, and to do so:
No matter the cost involved in obtaining such

evidence.
At any cost because the costs are borne by

the auditee.
at the lowest possible total cost
at the cost suggested in the engagement

letter
19. Auditors will replace tests of details with analytical procedures when possible because the:
Analytical procedures are more

reliable.
Tests of details are relatively more

expensive.
Analytical procedures are more

persuasive
Tests of details are more difficult to

interpret
20. Which of the following statements about confirmations is true?
Confirmations are expensive and so are often not used.
Confirmations may inconvenience those asked to supply them, but they are
widely used.
Confirmations are sometimes not reliable and so auditors use them only as
necessary
Confirmations are required for several balance sheet accounts but no income
statement accounts
21. Which of the following is the vision statement of SAI india?
To be a global leader and initiator of national and international best practices in public sector
auditing and accounting and recognised for independent, credible, balanced and timely reporting on
public finance and governance
To uphold the constitution of India and promote good governance so as to promote efficiency,
effectiveness and economy of the public finance
To uphold the constitution of India and perform the duties specified by the constitution and CAGs
DPC Act
To uphold the constitution of India and to perfom duties as mandated by the constitution and CAGs
DPC act to promote efficiency, effectiveness and economy in public finance
22. Which one of the following is NOT one of the primary purposes of audit documentation?
A basis for planning the audit.
A record of the evidence accumulated and the results

of the tests.
A basis for review by supervisors and partners.
A basis for determining work deficiencies by peer

review teams
23. Which of the following is important to ensure that the photographs qualify as competent audit
evidence?
In respect of photos proposed as evidence, the date, time and place of the event or object
recorded may be noted in the photo itself with proper attestation by the auditor and a representative
of the entity to avoid any dispute when the Audit Reports are discussed.
In respect of photos proposed as evidence it should be ensured that the photos are captured by
the representative of the entities as the photos taken by the audit team are likely to be disputed at a
later stage
In respect of photos proposed as evidence it should be ensured that photos are captured only in
respect of permanent structures like buildings so that even at a later stage if anyone wants to verify
the spot, the same state of affairs should be available so that they audited entity cannot dispute the
evidence in the photographs
Photographs never qualify as a competent audit evidence as the evidence collected in the form of
photographs can be easily manipulated and therefore such evidence are not reliable
24. Which of the following statement is NOT correct with reference to the persuasiveness of an audit
evidence?
Corroborated evidence is usually more persuasive than uncorroborated evidence
Timely evidence is typically more persuasive than evidence produced after a delay
Evidence from within the audited entity is more persuasive than the evidence obtained
from third parties
Evidence obtained from larger samples are generally more persuasive than those obtained
from smaller samples
25. Which of the following is NOT a guideline issued by the CAG of India to guide the working of the Indian
audit and accounts department?
Manual of standing orders(Audit)
Performance Auditing Guidelines
Manual of instructions for Audit of

Autonomous bodies
Indian Audit and Assurance Standards 2007

26. Which of the following is the mission statement of SAI India?
To promote accountability, transparency and good governance through high quality auditing and
accounting and provide independent assurance to our stakeholders, the Legislature, the Executive and
the Public, that public funds are being used efficiently and for the intended purposes.
To uphold the constitution of India and promote good governance so as to promote efficiency,
effectiveness and economy of the public finance
To uphold the constitution of India and perform the duties specified by the constitution and CAGs
DPC Act
To uphold the constitution of India and to perfom duties as mandated by the constitution and CAGs
DPC act to promote efficiency, effectiveness and economy in public finance
27. Physical examination is the inspection or count by the auditor of items such as:
Cash, inventory, and payroll timecards.
Cash, inventory, canceled checks, and sales documents
Cash, inventory, canceled checks, and tangible fixed

assets.
Cash, inventory, securities, notes receivable, and

tangible fixed assets
28. Which of the following statements regarding documentation is not correct?
Documentation includes examining client records such as general ledgers and supporting journals.
Internal documents are documents that are generated within the company and used to
communicate with external parties
External documents are documents that are generated outside of the company and are used to
communicate the results of a transaction
External documents are considered more reliable than internal documents

29. Tone at the top policy of the SAI india is influenced mainly by which of the following documents?
Constitution of India and CAGs
DPC Act
MSO Administration
MSO Audit
MSO Training Manual

30. Which of the following is normally applied to test the validity of the responses in survey questions?
To introduce counter questions within the questionnaire at appropriate stages
To translate the questions in the local language
To undertake surveys twice on the same population after a specified interval of time
To introduce leading questions so that the respondent may give the answer required
by the survey team
31. Calculating the gross margin as a percent of sales and comparing it with previous periods is a type of
evidence gathering technique known as:
Physical
examination.
Analytical
procedures.
Observation.
Inquiry
32. Which of the following is taken as an advantage of using focus groups as a method of collecting audit
evidence?
Focus group allows an issue to be discussed in depth. Opinions and ideas that will not be available
otherwise but are important for the study can be obtained by the technique. Different perspectives of
the issue are revealed. Respondents in individual interviews may not express opinions freely but in a
group situation, the individuals may be more open.
The members of the focus group are not selected statistically. As such their opinion may not be
representative and the results of the focus group cannot be projected on the population at large.
A focus group is a social situation; there can be pressure on individual participants to conform to
group opinions. This allows to form a single opinion
All of the above

33. An audit team decides to take a count of inventory instead of relying on the counted figure of a third
party. The audit evidence thus collected would be:
Treated as incompetent audit evidence as the audit party has no authority to count the inventory
directly. Such direct evidence will not be a persuasive audit evidence
Treated as irrelevant and the audit objective can be analysed solely with reference to the figures
given by the third party
A direct count of inventory by auditors is more persuasive than someone elses counted figure
and therefore can be accepted as an audit evidence
Third party evidence is generally more persuasive than the audit evidence collected by the
auditors though direct observation.
34. Which of the following statement with reference to the audit evidence is correct?
Documentary evidence is more reliable than the oral evidence
Evidence obtained through direct observation is more reliable than the indirectly obtained
evidence
Photocopies being less reliable evidence than the originals, the source of photocopies should be
identified by noting the source and as far as possible, the photocopies should be certified
The reliability of entity generated information is more reliable if the internal control system within
the entity is weak
35. Which of the following best describes the term corroborated evidence?
Corroborated evidence refers to the same or similar evidence acquired from two or more
independent sources.
Corroborate evidence refers to the evidence obtained in a timely manner from the audited entity
which are accepted by the audited entity
Corroborated evidence is evidence collected by the audit team through direct observation of the
process under audit
Corroborated evidence is evidence is evidence obtained employing statistical methods such as

sampling
36. Which of the following statement describes the concept of bench marking?
Bench marking is a process of preparing standard questions relating to a subject in the order of
importance which could be used as a benchmark at the time of interviewing the audit personnel
Benchmarking is the process of arranging the audit evidence in the order of their relevance so that
the most competent and relevant audit evidence is available readily to support the audit conclusions
Benchmarking is the process of assessing performance of public utility, service delivery projects,
commercial undertakings etc. by comparing with entities performing similar functions or with the best
practices.
Benchmarking is the process of arranging the audit evidence against the audit criteria and the
findings in the report so as to ensure that audit evidence, audit criteria and audit findings are linked in
an audit report
37. Which of the following is TRUE with regard to use of survey as a method of evidence gathering in
audit?
Surveys provide a framework for gathering evidence when information required for addressing the
audit objective cannot be gained from files and administrative records
Survey is not an acceptable form of collecting audit evidence because the responses of the
population may be highly subjective
Survey can be easily administered without much planning and their analysis does not require any
special skills
All of the above

38. Audit evidence obtained directly by the auditor will not be reliable if:
the auditor lacks the qualifications to evaluate the evidence.
it is provided by the clients attorney.
the client denies its veracity.
it is impossible for the auditor to obtain additional

corroboratory evidence
39. An audit team has completed an audit. The audit evidence collected was mainly in the form of internal
documentation from the entity. Which of the following would be a factor adding to the persuasiveness of
the evidence at the time of evaluating the audit evidence?
The sampling method used was judgemental sampling instead of statistical sampling
Smaller samples are employed to save time and early completion of the audit assignment
Documentary evidence could not be collected in respect of several audit issues due to paucity of
time
The evaluation of the internal control system showed that the audited entity is having a well
developed internal control system and is functioning well.
40. According to the Audit Quality Management Framework approved by the CAG of India, which are the
five broad parameters for quality management in Indian Audit and Accounts Department?
Leadership and Direction, Human Resources Management, Audit Management, Clients and Stake
holder relations, Continuous improvement
Auditing Planning, Human Resources Management, Audit Implementation, Clients and Stake holder
relations, Audit follow-up
Continuous improvement, Human resources management, Audit management, Clients and

stakeholder relations, Audit planning
Auditing Planning, Human Resources Management, Audit Implementation, Public Relations

Management, Media Management
41. Three common types of confirmations used by auditors are 1) negative confirmations 2) blank form
positive confirmations, and 3) positive confirmations with information included. Arrange the confirmations
in order of reliability from highest to lowest.
1, 2,
3.
3, 2,
1.
2, 3,
1.
3, 1,
2.
42. An example of an external document is:
employees time reports.
bank statements.
purchase order for company

purchases.
carbon copies of checks

43. An interview is a question-answer session to elicit specific information. Which of the following
statement is NOT CORRECT with regard to an interview
Interviews can be held telephonically or more commonly face-to-face
Interviews generally are very strong evidence and need not be corroborated through information
from other independent sources as the evidence is directly taken from the relevant person familiar with
the subject matter
In case of interviews related to complex subject areas, auditor could seek the participation of an
expert in the interview
Structured interviews often form a part of surveys

44. The auditing standards of CAG states competent, relevant and reasonable evidence should be
obtained to support the auditors judgement and conclusions regarding the organization, progamme,
activity or function under audit. These standards are:
Mandatory in application and should be followed by all auditors in all audit assignments
They are optional in nature and can be applied depending on the circumstances under which the
audit is conducted
Audit report can be approved even if it is not supported by competent, relevant and sufficient audit
evidence provided the audit team is satisfied that their observations are absolutely correct. In such
cases an assurance memo from the audit team is mandatory.
Audit report can be approved even if it is not supported by competent, relevant and sufficient audit
evidence provided the report does not contain sensitive and substantial money value objections.
45. Which of the following forms of evidence would be least persuasive in forming the auditors opinion?
Responses to auditors questions by the president and controller regarding the investments
account.
Correspondence with a stockbroker regarding the quantity of clients investments held in

street name by the broker.
Minutes of the board of directors authorizing the purchase of stock as an investment.
The auditors count of marketable securities

46. A qualitative research technique used in evidence gathering where selected people are brought
together to discuss specific issues in an informal setting and the reactions of these people are used to
explore attitudes, beliefs, perceptions, and problems or to search for causes of problems and their solution,
is called
A survey
Bench
marking
Focus
groups
Case
studies
47. Which of the following statements is not correct?
It is possible to vary the sample size from one unit to 100% of the items in the population.
The decision of how many items to test should not be influenced by the increased costs of
performing the additional tests
The decision of how many items to test must be made by the auditor for each audit procedure.
The sample size for any given procedure is likely to vary from audit to audit.
48. Which of the following is the most objective type of evidence?
A letter written by the lawyer of the client discussing the likely outcome of
outstanding lawsuits.
The physical count of securities and cash
Inquiries of the credit manager about the collectability of noncurrent accounts

receivable.
Observation of cobwebs on some inventory bins

49. Appropriateness of evidence is a measure of the:
Quantity of
evidence.
Quality of
evidence.
Sufficiency of
evidence.
Meaning of
evidence.
50. The reason why expert opinion is not treated as an audit evidence is because
When several experts are consulted, each one may give differing opinion and it would be difficult
for audit team to form an opinion
Audit being a professional job cannot be delegated to a third party who has no understanding
about the professional standards of auditing
There is no bar in using expert obtaining in audits. Opinion from recognized experts can be used as
the primary source of evidence in situations that are inherently subjective or difficult to quantity
Their expertise is recognized based on their qualifications and experience as also on the currency
of their knowledge and their involvement in the field. The users of audit reports will have a different
opinion on the quality of the experts
51. Evaluations of financial information made by a study of plausible relationships among financial and
nonfinancial data involving comparisons of recorded amounts to expectations developed by the auditor
is a definition of:
Analytical
procedures.
Tests of
transactions.
Tests of balances.
Auditing
52. An evidence gathering technique which involves an indepth examination of some selected incidents,
events, transactions or items in order to understand a programme or activity and to explore the audit
issues is called:
A survey
Bench
marking
Focus
groups
Case
studies
53. Which of the following are parts of the continuous improvement activities of the SAI India?
Internal Audit, Internal Quality Assurance Review, Peer Review, Self-Evaluation and
lessons learnt documents
Peer Review and Internal Audit
Assurance Memo
Self Evaluation
Which of the following agency is entrusted with the responsibility of ensuring a uniform policy of
accounting and audit in the government sector as a whole in India?
Institute of Chartered Accountants of

India
The Comptroller and Auditor General

of India
The Controller General of Accounts
The Ministry of Finance, Government

of India
Explanation : The most appropriate answer is B. The CAG is responsible for ensuring a uniform policy of
accounting and audit in the Government sector as a whole. The Act authorises the CAG to lay down for the
guidance of the Government departments, the general principles of Government accounting and the broad
principles in regard to audit of receipts and expenditure.
2. Which of the following entities can be treated as entities managing public money?
1.Central Government?
2. State government
3. Government companies established under companies act
4. Government autonomous bodies
1 and
2
1,2,3,
4
1 and
3
1,2,4
Explanation : The most appropriate answer is B. The entities managing public resources include
commercial undertaking, e.g., entities established by statute or public sector undertakings established
under the Companies Act in which the Government has a controlling interest. Irrespective of the manner in
which they are constituted, their functions, degree of autonomy or funding arrangements, such entities are
ultimately accountable to the Supreme law making body
3. An auditor and audit institution should maintain independence. This include independence from
1. The Legislature
2. The Audited Entity
3. The Executive.
Only 2
Both 2
and 3
Only 3
1,2 and 3
Explanation : The most appropriate answer is D. The general standards require that auditor and the audit
institutions should be independent. These include independence from the legislature, independence from
the executive, and independence from the audited entity
4. The SAI should comply with the INTOSAI Auditing Standards in all matters that are deemed material. A
matter is considered material if
In general terms, a matter may be judged material if knowledge of it would be likely to influence
the user of the audit report.
Materiality is often considered in terms of value but the inherent nature of an item or a group of
items may also render a matter material as for example mandatory disclosure requirements of statutes
regardless of the amounts involved.
A matter may be material because of the context in which it occurs, for example, considering an
item relating to (a) The overall view given to the financial information; (b) The total of which it forms a
part; (c) Associated terms (d) The corresponding amount in previous years
All of the above

5. Auditor has a right to inspect any office of accounts of the Union or of a State, to require that any books,
papers and other documents which are relevant to the transactions to be sent to him and to put such
questions to the persons in charge of the office or make such observations and call for such information as
he may require for the preparation of any account or report which it is his duty to prepare. Which of the
following is a requirement imposed by the auditing standards on auditor with regard to the information so
acquired?
The information so acquired should be properly arranged and all such information should be kept
safely under lock and key wherever possible
Information about an audited entity acquired in the course of fie Auditor's work must not be used
for purposes outside the scope of audit
Information obtained during the course of audit should be kept secret at least till the audit report is
presented before the parliament
Information obtained during the course of audit should not be shared with the audited entity unless
with the specific approval of the Accountant General
Explanation : The most appropriate answer is B. Information about an audited entity acquired in the course
of fie Auditor's work must not be used for purposes outside the scope of audit and formation of an opinion
or in reporting not in accordance with the 'Auditor's responsibility. It is essential that Audit maintain
confidentiality regarding audit matters and the information obtained while carrying out audit
engagements.
6. Which of the following assumptions and premises for the auditors and audit institutions do not form part
of the basic postulates of auditing standards issued by the CAG for the auditors and audit institutions to
adopt?
The SAI should comply with the INTOSAI auditing standards in all matters that are deemed
material.
The SAI should apply its own judgement to the diverse situations that arise in the course of
Government auditing
With increased public consciousness, the demand for public accountability of persons or entities
managing public resources has become increasingly evident so that there is a need for challenging the
policy decisions of the executive government.
With increased public consciousness, the demand for public accountability of persons or entities
managing public resources has become increasingly evident so that there is a need for the
accountability process to be in place and operating effectively
Explanation : The most appropriate answer is C. The auditing standards does not require the auditors and
audit institutions to challenge the policies adopted by the executive government
7. Which of the following is NOT considered to be a responsibility of the management of an organization or

enterprise in the context of good governance?
Correctness and sufficiency of the form and content of the financial reports and other information
Develop adequate internal control systems and to protect the resources of the organization
Ensure that internal controls are in place and functioning to help ensure that applicable statutes
and regulations are complied with and that probity and propriety are observed in decision making
To ensure that the enterprise earns profit or surplus consistently and is able to discharge all the
liabilities in a timely manner.
Explanation : The most appropriate answer is D. Though making surplus or earning profit may seem
important, it need to be achieved in a systematic manner through fulfilling the requirements of good
governance
8. According to auditing standards audit institution should work towards improving techniques for auditing
the validity of performance measures. Which of the following would NOT be an appropriate action in
fulfilling such requirement?
Develop new techniques and methodologies to assess whether reasonable and valid performance
measures are used by the audited entity
Acquaint with the techniques and mythologies adopted in development of information technology
Acquaint with the concepts of environment science and behavioral science.
Develop methodologies to collect audit evidence from the database of the audit entity without the
explicit knowledge of the audit entity using computer assisted audit techniques
Explanation : The most appropriate answer is D. The expanding audit role of the auditors will require them
to improve and develop new techniques and methodologies to assess whether reasonable and valid
performance measures are used by the audited entity. Wherever practicable the auditors should acquaint
themselves with techniques and methodologies of other relevant disciplines. Stealing information without
the knowledge of the audited entity is not an acceptable form of evidence collection.
9. Essential qualifications of the auditor and the auditing institution in carrying out the audit of an
institution are covered in which part of the auditing standards?
Basic postulates
General
standards
Field Standards
Reporting
Standards
Explanation : The most appropriate answer is B. The general auditing standards describe the qualifications
of the auditor and the auditing institution so that they may carry out the tasks related to field and
reporting standards in a competent and effective manner
10. According to the auditing standards the materiality is NOT decided by
The value of the transaction
The nature of the item of

transaction
The context in which the

transaction occurs
The year in which the transaction is

made.
Explanation : The most appropriate answer is D. The year in which the transaction is made has least
significance in deciding the materiality of the transaction. In general terms, a matter may be judged
material if knowledge of it would be likely to influence the user of the audit report. Materiality is often
considered in terms of value but the inherent nature of an item or a group of items may also render a
matter material as for example mandatory disclosure requirements of statutes regardless of the amounts
involved. A matter may be material because of the context in which it occurs, for example, onsidering an
item relating to (a) The overall view given to the financial information; (b) The total of which it forms a
part; (c) Associated terms (d) The corresponding amount in previous years etc.
11. Which of the following statement on the Auditing Standards is Correct?
The Auditing Standards applicable for the Indian Audit and Accounts Department were first issued
by the Department in 1994.
by the Department in 2007
Explanation : The most appropriate answer is A. The Auditing Standards applicable for the Indian Audit and
Accounts Department were first issued by the Department in 1994
12. According to the auditing standards issued by the comptroller and auditor general of India which of the
following is NOT a requirement for the audit institutions?
Audit institutions should adopt policies and procedures to recruit personnel with suitable
qualifications
Audit institutions should adopt policies and procedures to develop and train employees to enable
them to perform their tasks effectively, and to define the basis for the advancement of auditors and
other staff
Audit institutions should adopt policies and procedures to prepare manuals and other written
guidance notes and instructions concerning the conduct of audits
Audit institutions should adopt policies and procedures to prepare alternative policy and legislative
frameworks so as to provide recommendations for improving the existing policies of the executive
government
Explanation : The most appropriate answer is D. All except D are the responsibility of the audit institutions.
13. The auditing standards require that SAI should maintain independence from political influence. This
would mean:
The SAI should not work closely with the legislature, including with committees empowered by the
legislature. They should be politely informed about this and audit institution should keep a distance
The SAI should not give members of the legislature factual briefings on audit reports in order to
preserve an impartial approach to its audit responsibilities.
SAI should not be responsive, nor give the appearance of being responsive, to the wishes of
particular political interests
All of the above

Explanation : The most appropriate answer is C. The SAI works closely with the legislature, including with
committees empowered by the legislature to consider audit reports. The SAI may give members of the
legislature factual briefings on audit reports, but it is important that the SAI maintains his independence
from political influence, in order to preserve an impartial approach to its audit responsibilities. This implies
that the SAI not be responsive, nor give the appearance of being responsive, to the wishes of particular
political interests.
14. Which among the following is responsible for enforcing economy and efficiency in the expenditure of
public money?
Comptroller and auditor general of india
The executive government
Comptroller and auditor gender of India and executive government with primary responsibility with
comptroller and auditor general
The president of India

Explanation : The most appropriate answer is B. The executive Government and not Audit is responsible for
enforcing economy and efficiency in the expenditure of public money. It is, however, the duty of Audit to
bring to light wastefulness, failures, system weaknesses, deficiencies and the circumstances leading to
infructuous expenditure
15. The Auditing Standards are issued by the CAG of india for the Guidance of
Auditors
Auditees
Auditor and Audit institutions coming under CAG
Auditors, Auditees and Audit institutions coming

under CAG
Explanation : The most appropriate answer is C. The standard is intended for the use of both auditors and
audit institutions. Auditing Standards prescribe the norms of principles and practices, which the Auditors
are expected to follow in the conduct of Audit. They provide minimum guidance to the Auditor that helps
determine the extent of auditing steps and procedures that should be applied in the audit and constitute
the criteria or yardstick against which the quality of audit results are evaluated
16. The auditing standards issued by the Comptroller and Auditor General of India consist of mainly four
parts. Which of the following is not a part of these document?
Basic
postulates
General
Standards
Field Standards
Quality
Standards
Explanation : The most appropriate answer is D. The fourth part of the standard is Reporting Standards.
Answer D is just a distractor
17. According to the auditing standards issued by the CAG of India the responsibility of correctness and
sufficiency of the form and content of the financial reports and other information is with:
Ultimately with the auditors who certify the financial statements
With the executive authorities and management of the auditees
With the auditors where CAG is the sole auditor
Both the management and the auditors share the responsibility of development of adequate
information, control, evaluation and reporting systems within the Government will facilitate the
accountability process so as to ensure the correctness and sufficiency of the financial reports
18. Which of the following standards are applicable to both auditors and audit institutions? A. The auditor
and the audit institutions must be independent.
The auditor and the audit institutions must be independent.
The auditor and the audit institutions must possess the required competence.
The auditor and the audit institutions must exercise due care and concern in complying with
these auditing standards
All of the above

19. The Auditing Standards issued by the CAG in 2002 brings out mainly which of the following changes?
The basic elements of INTOSAI 'code of ethics' has been

incorporated
The concept of professional scheptisim was brought in
The concept of bringing out relevant reliable audit evidence

was introduced
The elements of ASOSAI fraud guidelines has been

incorporated
20. According to the auditing standards issued by the CAG of India, the SAI should:
Promote conflict of interest with the auditee institutions
Avoid conflict of interest between the auditor and the institution under audit.
Promote a conflict of interest so that audit is carried out with professional skepticism
Avoid conflict of interest as the audited institutions would not relish the unwanted
comments in the audit report
21. According to auditing standards, information about an audited entity acquired in the course of fie
Auditor's work must not be used for purposes outside the scope of audit. This is essential to maintain:
The integrity and superiority of the Audit The suspense and sensitivity
of the Audit
Confidentiality of the audit matters None of the above

MCQ Govt Audit

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

MCQ Govt Audit

Caricato da

Copyright:

Formati disponibili

Process of Budgeting

Advance from the contingency fund

Advance for meeting immediate

All of the above

The introduction of the finance bill cannot be opposed at all

4. Gender budgeting essentially means:

Allocation of more money for the women

Giving tax concessions to women and educational concessions to girls

Gender budgeting is done only in the government sector

8. Rule of lapse in budget means:

10. The budget is prepared on

Double Entry system

Balance Sheet format

All of the above

13. The General Discussions on Budget is held in parliament:

Before the presentation of the economic survey

Budget on gross basis

Budget on actual basis

Budget on net basis

A demand for grant

Gender blind planning

Comptroller and Auditor General

Controller General of Accounts

Public Accounts Committee of

21. Gender budgeting involve which of the following?

An assessment of the adequacy of budget allocations to implement the gender sensitive

All of the above

Presenting an alternate demand

L.K Jha Committee

Estimates committee is a parliamentary committee consisting of members of parliament elected

Demand for Grants

costs of resource procurement.

average cost per patient admitted.

achievement of goals in number of

none of the above

Significance of the topic

Materiality of the topic

Visibility of the topic

Available manpower in-

Physical observation of patients and interview with doctors

Physical observation and documentary review of payments to the

Documentary review, statistical sampling of equipment and

Survey with the system users and review of complaints made to

Auditors cannot employ tools of programme evaluation in performance auditing as programme

Programme Evaluation techniques cannot be employed in performance auditing as it requires

11. PERT refers to:

Programme Efficiency Review

Programme Evaluation and Review

Programme efficiency review time

amend the criteria to suit the requirements of the audited body.

none of the above

Documents of the entity including their administrative policies

Parliamentary interest in the form of legislation, parliamentary questions,

Academic research on entity activities

None of the Above

provide a platform for communication with agencies and the legislature on

initiate disciplinary actions against the non-performing audit staff in SAI

none of the above is correct

All of the above are

20. The first stage in performance auditing is:

Implementation of performance audit for

Strategic planning for performance audits

Follow up process and impact assessment

Drafting guidelines for performance auditing