MF 0013MCQS7. Auditors responsibility even extends to areas in which he has no adquate and fair view reporting is at true competence, if the true and fair view reporting is at risk.8. The scope of an audit depends upon the kind of audit being undertaken, and the terms agreed between the auditor and the client.9. The auditor is not responsible for preparing the financial reports or the company.10. The directors are ultimately responsible for maintain adequate records and preparation of annual accounts showing a true and fair view.11. Due audit care is concerned with the determination of reliability and adequacy of evidence in support of observations made in the audit report.12. A Bank Reconciliation statement (BRS) prepared by an internal auditor who is independent of the cashier and accountant.13. Accrual basis of accounting is a widely accepted practice whereas cash basis of accounting is not.14. Auditor should be self-governing in their approach and free from any biases and prejudices.15. Statutory financial audit gives the owners of a company and other stakeholders the assurance that annual financial reports give true and rational view.16. It should also be understood that audit of accounts does not guarantee the detection of all the errors.17. Financial audit is a systematic and independent check on the data, statements records, operations and performance of an enterprise for an identified purpose.18. The primary objective of financial audit is to examine the reliability and trust fullness and fairness of the presentations in those statements.19. The secondary objective of audit is to prevent and detect errors and frauds.20. Only a person who is a Chartered Accountant within the meaning of the chartered Accountants act 1949 and holds a certificate of practice.21. A general audit covers all areas of management and is company-focussed.22. A specific audit on the other hand covers one or more specific areas of management. 23. An independent audit is conducted by an independent, professionally qualified auditor.24. The financial statements portray the financial position at the end of an accounting period and the financial result- profit or loss for that period.25. An independent auditor is given the responsibility to ensure that the financials reflect a true and fair view of the financial health of the company.26. An audit which is mandatory under a law in force is called a statutory audit.27. Going concern the auditor should assess if the going concern concept can be applied to the entity and whether it will continue in the future.28. The financials are prepared on the basis of the accrual concept and therefore absolute certainly with respect to the accuracy of the figure is rarely attainable.29. Internal audit is another type of general audit.30. The comptroller and auditor general (CAG) shall perform such duties and exercise such powers in relation to the accountants of the union and of the states and or any other authority of body as prescribed by or under any law and by the Parliament.31. An interim audit is conducted between two annual audits.32. The objective is to ascertain and declare interim figures of a specific purpose like declaration of interim dividend.33. The income Tax Act has made tax audit compulsory for specified persons under section 44AB of the income Tax Act 1961.34. Tax audit may be defined as the verification of the financial records to ascertain the correctness of the taxable profits as per the provisions.35. Cost audit means the detailed checking of the costing system, techniques and accountant to verify their correctness and to ensure adherence to the objective of cost accounting.36. Cost accounting is primarily aimed at ascertaining the cost of goods produced or service provided by the enterprise.37. A VAT audit certificate / report that is issued by a chartered accountant in a specific format is required for VAT legislation.38. Management audit is the audit of the management processes of a company comprising of planning, organizing and controlling its operations with a view.39. Proprietary audit is an examination of management decisions, usually involving large sums of money, format he standpoint of reasonableness or appropriateness.40. CAG audit can be broadly classified into two categories regularity audit and performance audit.41. Investigation is an audit undertaken in a situation when there is suspicion of misappropriation of funds, fraud, fudging of accountants or other records.42. Operations audit is aimed at providing and independent and objective evaluation of the quality and effectiveness of internal operations including internal controls established by the management.43. Secretarial audit is the audit of statutory compliances of the company44. The companies Act has made secretarial audit mandatory for companies having paid-up share capital of two crore rupees or more.45. A business organization owes certain responsibilities towards the society at large.46. Social audit also known as social responsibility audit, is concerned with evaluating a companys fulfillment of its social obligations. 47.Systems audit may be defined as audit, control, monitoring and assessment of an organizations information technology and business systems.48. A continous audit is one where the auditors staff is occupied continuously on the accountants the whole year round.49.Annual audit is done at the end of the financial year when accountants are completed and books of accounts are closed.50. Balance sheet audit is mainly concerned with the items appearing in the balance sheet.51. Internal audit is an independent, objective assurance and consulting activity designed to add value and improve and organizations operations.52.The internal auditor should ideally report to the CEO and the Board of the company.53. Internal audit is audit with clear management and operations focus.54.The statutory auditor is independent of the organization which appoints him.55. The responsibility of external auditor is mainly towards the shareholders who have appointed him, and other external stakeholders of the company.56.The external auditors submits his report to the owners or shareholders.57. The external auditor should assess the quality of work done by internal auditor before relying upon the work of the latter.58. Internal check is an important process of internal control system.59.Purchases are managed by a separate department called the purchase department.60. The crux of the internal audit function as the focus is always on financial performance and viability of the enterprise.61. The national Securities Depository Ltd (NSDL) which was formed by the Governement of india in November 1996.62. Every Producer Company shall have internal audit of its accounts carried out, at such intervals and in such manner as may be specified in articles.63. You know the internal audit is an independent activity. But as the internal auditors is a management appointee.64. The internal auditors job is not to execute but to review and advise.65.Refraining from activities that may suggest a bias or personal preference.66. Internal auditors are considered independent when they can carry out their work freely and objectively.67. The person who is ultimately responsible for the audit is called the Auditors.68. Audit Firm mean either the partners of a firm providing audit services or soled practitioner providing audit services.69. Personnel means partners and professional staff engaged in the audit practice of the firm.70. Assistant means personnel involved in a individual audit other than the auditors.71.The firms personnel have to be follow the principles of independence, objectivity, confidentiality integrity and professional behavior.72. To ensure that the performed work meets appropriate standards of quality there should be sufficient direction, supervision and revision of work at all levels.73. Appropriate direction is required for assistants to whom work is delegated.74. Effectiveness means attainment of the internal audit objectives and efficiency means conduct of the audit with the maximum utilization of the internal audit resources.75. fine tuning the specific methods to be adopted for different segment of the audit.76. Making sure that the financial accounting reporting and disclosure are in line with the applicable generally accepted accounting practices (GAAP).77. The head of internal audit should ideally report directly to the managing director(MD) or the Chief Executive Officer (CEO) of the organization.78. Financial and Accounting Procedures Manaual (FAPM) and a Delegation of Authority Manual (DOA) which set out the organization policies and procedures.79. Management letter is a document given by statutory auditors on conclusion of the annual audit to the companys board on aspects of the financial reporting.80. Define audit risk as the risk that an auditor may give an inappropriate opinion on financial information that is materially misstated.81. Materially misstated, either individually or taken together with other account balances or transaction classes. This is referred to as its inherent risk.82. Detection risk may arise when the auditors examines samples of transactions or account balances that are not representative.83. Audit process a well-defined methodology for organizing an audit and achieving audit objectives.84. A fixed audit programme as the name suggests, has fixed framework regarding how and when the audit work is scheduled to be done.85.A flexible audit programme has greater flexibility compared to a fixed audit programme.86. A flexible audit programme provide for variability in audit approaches, tools and even resources deployed, to guarantee the best results.87. Fixed audit programmes are less expensive than flexible programmes, because the qualification of people required is not high, and time taken is less.88. A well-written internal audit programme sets out when and how the audit has to be done.89. The auditor first considers the specific audit objectives that need to be achieved and then the procedure that could be used to best achieve those objectives.90. The complete set of data from which the auditor wants to sample for a conclusion is referred to as the population.91. Sampling units are the individual items that comprise of a population.92. The maximum error in the population willingly accepted by the auditor, while also concluding that the sample result has achieved audit objective, is referred to as the tolerable error.93. The auditor needs to examine a larger sample if an error is expected in the population than when no error is expected.94. Sample items should selected by the auditor in a way that the sample represents the population.95. Error results of the sample to the population from which the sample was chosen is projected by the auditor.96. Audit tests are extensively used by auditors during all kinds of audit work.97 .Compliance tests are tests applied to check that the internal control procedures laid down are actually followed in practice.98. Depth test implies a thorough examination of transactions end to end. It includes detailed examination of documents and records created to each stage of that transaction.99. Rotation tests relate to either areas of audit or units of an enterprise. In view of time constraint audit is done on rotation.100. The committee of sponsoring Organizations (COSO) of the National Commission on Fraudulent Financial Reporting (also known as Treadway Commission).101. Proactive controls designed to discourage errors or prevent irregularities from occurred fall into this category.102. Retroactive controls designed to find irregularities that may have occurred fall into this category.103. These are methods and procedures that promote operational efficiency and adhere to managerial policies and are usally indirectly related to the financial records.104. Control environment is the basis of an internal control system. It includes and reflects the factors that influence the control consciousness of its people.105. A proper system, preferably in writing must be implemented so that origination, recording and accounting of business transactions take place in a standardized way.106. The authority and responsibility of every official should be fixed.107. The system should facilitate cross functional physical verification or assets.108. A reliable and accurate Management Information system (MIS) should be in place.109. A system of allocation of responsibility division of work and method of recording transactions, whereby the work an employees or group of employees is checked continuously by correlate ting it with the work of others.110. Internal Check is an important process of internal control system.111. Purchases are managed by a separate department called purchase department.112. The person is charge or receiving the goods prepares a goods received not (or Materials Received Report).113. Internal check is a preset system or carrying out and recording of transactions in such a way that error and frauds are prevented or get exposed is committed.114. Internal check system goes right through to the entry in the books of accounts, and so accounting becomes more exact. 115. The separation of functions of custodian and record keeper is an important purpose of internal check systems.116. The duties responsibilities and authorities of every employee should be clearly demarcated and communicated to them.117. Division of work amongst employees should be based on job requirements and the capability competence training and experience of the employees.118. Rotation of duties amongst employees after a reasonable time interval improves efficiency, helps detect errors and wrong practices and serves as a moral check.119. Internal check system ensures a proper division of responsibilities among the employees of an organization.120. Well set processes with internal checks promote efficiency of employees.121. Management Information system (MIS) the information and data generated in the organization which has an effective internal check system.122. Internal check is an important segment of internal control system.123. Around this time EDP auditors formed the Electronic Data Processing Auditors Association (EDPAA).124. Relation Database Management Systems (RDBMS) are increasingly being used though COBOL and flat files still find a place in batch processing.125. Methodology adopted for systems development is becoming crucial and CASE (computer Aided software Engineering) tools are increasingly used.126. Common business documents like cheqes, invoices etc. are being replaced by paperless Electronic Data Interchange (EDI) at least in large organizations.127. The responsibility for initiating transactions recording transactions and custody of assests, lies with separate individuals in a manual system.128. The separation of incompatible functions may be even more difficult to achieve in a minicomputer and microcomputer environment.129. An essential characteristic of internal control is a clear line of authority and responsibility.130. In a manual system auditors evaluate the adequacy of procedures of authorization by examining the work of employees.131. A manual system requires adequate documents and records if it is to provide an audit trail of activities within the system.132. It is critical for internal control to have physical control over assets and access total records.133. Management supervision of employee activities is relatively straightforward in a manual system.134. A periodical comparison between assests and the data that is a record of those assets must be done.135. Internal controls in an EDP environment are well-defined and formal.136. Emphasise segregation of EDP department from source and user departments.137. Built into computer equipment by the manufacturer to detect equipment failure.138. To prevent unauthorized use of data files, programmes and their support documentation and computer hardware, access must be limited to authorized individuals.139. EDP Manager in overall charge of the data processing activity.140. Systems Analysts to design new systems and modify existing systems according to the information needs of the users.141. Programmers to write and test programmes based on the system design and or modification.142. Computer Operators to process transactions through the system in accordance with the operator instruction for the application being updated.143. Input preparation Group to convert input data to machine readable form.144. Librarian to maintain custody over master files and programmes and control access based on proper authority.145. Data control Group to distribute output monitor reprocessing of errors, and compare input with output on a test basis.146. Independent handling of receipt and opening of mail and preparation of statement of receipts of money orders and cheques from the mail.147. Cash storage and handling controls including restriction of access to cash room, arrangement for safeguarding cash after business hours and cash in chest and cash in transit insurance and surprise verification of cash periodically by internal audit team.148. System for appointment and removal of workmen and staff and fixation and revision of wage rates.149. Division of the job of payroll preparation among different clerks so that sheets prepared by one clerk automatically checked by another and singed off.150. Checking and reconciliation of the number of employees shown in the payrolls and their remuneration rates with data as per official list of circumstances and with approval of the general manager of concerned function in writing.151. Focus on overtime payments to be allowed only in exceptional circumstances and with approval of the General Manager of concerned function in wrting.152. System for payment of salaries and wages by persons who are in no way connected with the preparation of payrolls.153. Policy, procedure and authority levels for issuing purchase requisitions.154. Copies of purchase orders (PO) and Goods Receipt and Inspection Reports (GRIR) to Accounts for effective linking with supplier invoices and other related documents.155.Detailed procedure for purchase from subcontractors, with appropriate link to material issued to them and excise documentation.156.Policies and procedures fro accepting customer orders.157. In case of production for specific customer orders performance report on quality and cost of production.160. Availability of duty authorized capital budget and system for authorization of unbudgeted items.161. Cash payments for small expenses like postage petty cash based on imprest system.162. Petty cashier to be an experienced and honest employee.163. Policy and procedure for acceptance of sales returns, with value limits, authority levels, and process steps and formats to be available and updated continually.164. Bank reconciliation and passing of entries arising therefrom.165. Determine the degree of reliance he can place on the systems and processes of the company.166.Discussion with managers at different levels on their comfort with the controls.167. Test checking of controls by simulating transactiosn and seeing if the controls work.168. Compliance tests are crucial in case of procedural controls that the auditor intends to rely upon in view of volume or other constraints.169. The flow chartis a visual presentation that facilitates a birds eye view of an activity or a transaction.170. A questionnaire is a list of questions about the activity or transaction, the answers to which help in understanding its dimensions.171.Flow charting is an important technique used in the evaluation of internal control system.172. A flow chart comprises boxes that symbolize activities, documents, reports, decisions, etc and connectors that link the boxes.173. A flowchart is normally drawn horizontally.174. Documents and activities flow horizontally from section to section and functions/sections are the vertical column heads.175. Standard symbols have been designed similarly for connectors inter links between flowcharts standard symbols exist and should be used.176.A questionnaire is an organized set of questions about each function, seeking descriptions of the steps involved in performing the function and the control aspects of each step.177. on the basis of their extensive experience in studying controls in a wide variety of businesses, auditing firms have developed standard internal control questionnaires over the years.178. The questionnaire is to be filled by the executive in charge of the area, and auditor may thereafter send it to him and await feedback.179. A professional accountant often formulates internal control schemes in various functional areas of an organization.