601. The auditor while verifying prepaid insurance has concluded that there is inadequate insurance of building He should__
A. Modify his audit report
B. Insist it should be disclosed in the notes to financial statements
C. Write it in letter of weakness
D. Both (b) and (c)

602. While verifying intangible assets, an auditor would recompute amortization charges and determine whether amortization period is reasonable. The auditor tries to establish ….by doing it
A. valuation
B. existence
C. disclosure
D. possession

603. When auditing prepaid insurance, an auditor discovers that the insurance policy bond on building is not available for inspection. This may indicate__
A. No insurance has been undertaken for building
B. Lien on building
C. Insurance premium has not been paid
D. Insurance premium paid but not recorded

604. Which of the following would give the assurance that debtors mentioned on the date of balance sheet actually exist?
A. Sending debtor’s confirmation letters
B. Reviewing subsequent collection
C. Verify debtors against sales document
D. Both (a) and (b)

605. Analytical procedures are least likely to be use in the audit of –
A. cash balance
B. investments
C. bills receivables
D. debtors

606. Which of the following statements is not true with regard to teeming and lading ?
A. It results in the deliberate misappropriation of cash receipts
B. It is associated with cash receipts
C. If same individual maintains cash receipts and cash payments teeming and lading is likely to exist
D. To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily agreement so that a bank reconciliation will not detect the irregularity.

607. The balance of cash in often between one to five percent of total assets. Tick the most appropriate statement with regard to verification of cash in context of this
A. Cash in always material as materiality is qualitative concept
B. No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a
relative concept
C. The cash balance need only be audited if the balance is in overdraft
D. Cash is to be verified if control risk is assessed as high

608. When counting cash on hand the auditor should ___
A. ensure presence of somebody from management
B. obtain a receipt from custodian as to its return
C. ensure postage and revenue stamps are not counted in physical count
D. temporary advances to employees are counted to calculate balance of cash in hand

609. Which of the following statement is not true regard to auditor’s attendance at stock taking?
A. Auditor should attend physical stock taking only if inventory is material
B. Auditor may not attend physical verification of stock by management, if he does not find it
appropriate to rely on it
C. If inventory is material, even when the auditor is not placing reliance on the physical verification by the management, he should attend it
D. The primary objective of an auditor’s observation of an entity’s observation of an entity’s
stock take is to obtain direct knowledge that the stock and has been property counted

610. While observing a client’s annual physical inventory, an auditor conducted test counts for certain test counts were higher than the recorded quantities in the client’s perpetual records. This situation could be the result of the client’s failure to record –
A. purchase returns
B. sales returns
C. goods with consignor
D. purchase discounts


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