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Principles and Procedures of Auditing Questions and Answers

1.

Section ______ of the Companies Act, 2013, provides that the auditor of a company, at all times, shall have a right of access to the books of account and voucher of the company.

Exam Year(s)

DSSSB - 2023,

Answer: B

Section 143(1) of the Companies Act, 2013 gives the auditor of a company the right of access at all times to the books of account and vouchers of the company, whether kept at the head office or elsewhere, and the right to ask the officers for the information and explanations he needs. Section 135 deals with corporate social responsibility, section 149 with the board of directors and section 156 with the register of members on holding of shares. Only section 143(1) concerns the auditor's access.

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2.

_______________ consists of all the methods and procedures adopted to assist in achieving the objective of efficient conduct of business

Exam Year(s)

DSSSB - 2023,

Answer: D

The answer is internal control. Internal control consists of all the methods and procedures adopted by management to assist in achieving the objective of efficient and orderly conduct of business, including adherence to policies, safeguarding of assets, prevention of fraud and error, and the completeness of the accounting records. Internal check is only one part of it, concerned with the allocation of duties, and internal audit is a separate review function. An internal report is not a system of controls.

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3.

__________ is a system of allocation of responsibility, division of work, and methods of recording transactions, whereby the work of an employee is checked continuously by another

Exam Year(s)

DSSSB - 2023,

Answer: B

The answer is internal check. Internal check is a system of allocating responsibility, dividing work and fixing methods of recording transactions in such a way that the work of one employee is checked continuously by another, so that errors and fraud are detected at once. Internal control is the wider framework, internal audit is a separate review done by or for management, and an internal report is merely a document.

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4.

With respect to Investigation, which of the following statement is incorrect

Exam Year(s)

DSSSB - 2023,

Answer: A

The incorrect statement is that an investigation is conducted for proprietors only. An investigation may be carried out for many parties, such as a prospective buyer or investor, a lender, the management, the court, or a regulator, and not only for the owner. The other statements are correct: it may cover more than one accounting year, it may be undertaken at any time if some transaction is suspected, and it has a wider scope than a routine audit, going beyond the balance sheet.

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5.

__________________ means "Proving the truth".

Exam Year(s)

DSSSB - 2023,

Answer: B

Verification means proving the truth, that is, establishing that the assets and liabilities shown in the balance sheet exist, are owned by the business and are fairly valued. Vouching is the examination of the documentary evidence supporting entries in the books, book-keeping is the recording of transactions, and environmental accounting is about the cost of environmental effects. Only verification means proving the truth of the balance sheet items.

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6.

With respect to audit evidence, which of the following statement/s is/are correct
Statement-1: Audit evidence is defined as the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based.
Statement-2: Audit evidence includes both information contained in the accounting records underlying the financial statements and other information

Exam Year(s)

DSSSB - 2023,

Answer: C

Both statements are correct. Audit evidence is the information the auditor uses to arrive at the conclusions on which the audit opinion is based, which is statement-1. It includes both the information in the accounting records that underlie the financial statements and other information, such as confirmations, inspection and inquiry, which is statement-2. As both statements agree with the auditing standard on audit evidence, the answer is that both are correct.

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7.

With respect to the steps before commencement of audit, which of the following statement is incorrect

Exam Year(s)

DSSSB - 2023,

Answer: D

The incorrect statement is that the auditor must not ascertain the reasons why the previous auditor was changed. In fact, before accepting an audit the auditor should find out why the previous auditor was replaced, and should communicate with him as the professional code requires. The other statements are right: the auditor must examine the terms of his appointment, study the memorandum and articles of association to know the powers of the company and its management, and obtain the list of the books of account and records kept.

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8.

____________ is given when the Auditor is unable to form an overall opinion about the matters contained in the Financial Statements

Exam Year(s)

DSSSB - 2023,

Answer: B

A disclaimer of opinion is given when the auditor cannot form an overall opinion on the matters in the financial statements, usually because he could not get sufficient appropriate audit evidence and the possible effect is both material and pervasive. A qualified report is given when the auditor has a reservation on one matter but the statements are otherwise fair. An adverse opinion says that the statements do not give a true and fair view, and a clean report says they do.

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9.

While conducting the special audit, which of the following point is not taken into consideration

Exam Year(s)

DSSSB - 2023,

Answer: D

The point that is not taken into consideration is the salary paid to the administrative staff. In a special audit of an organisation such as a trust or society, the auditor examines its constitution, its bye-laws or rules and regulations or trust deed, and the powers of the members of the management and other officers, so that he can check that transactions are within those powers. Routine salary payments to staff are not a special point of the audit.

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10.

______________ is said to be "the essence of auditing" or may be termed as the "backbone of auditing"

Exam Year(s)

DSSSB - 2023,

Answer: A

Vouching is called the essence or backbone of auditing. It is the examination of the documentary evidence, such as bills, receipts and invoices, that supports each entry in the books, and it shows that the transaction was authorised, was properly recorded and took place. Verification is about the balance sheet items, investigation is a special inquiry, and forensic accounting is a method of investigating fraud, so they are not given this description.

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