MCQ Govt Audit [PDF]

Zitiervorschau

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 Explanation : The most appropriate answer is C. 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:

e

Outcom 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? 200001 201011 200405 201112 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is D. 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 e

Physiqu 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is C. 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 sector�s 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 Explanation : The most appropriate answer is A.

23. Which of the following is NOT a cut motion? Disapproval of policy cut Economy Cut Guillotine Cut Token Cut Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is D

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 inhouse 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. SAI�s 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 entity�s 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 ss

Effectivene 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. 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, 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 auditor’s 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.

d

a, b, c, 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 entity’s 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?

y y ss ty

Reliabilit Objectivit Usefulne Complexi

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. the audit objectives and findings. the audit objectives and 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

4

only 1, 3 and 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 SAI�s 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 CAG�s 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 auditor�s expectations of what a figure in the accounts being audited should approximately be as worked out from other relevant financial and nonfinancial information 4. Comptroller and Auditor General of India�s Manual of Standing Orders is issued under:

Section 23 of the CAG�s DPC Act Section 24 of the CAG�s 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 General�s (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 Explanation : The most appropriate answer is D 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 by��of the CAG�s DPC Act 1971.

21 19 15

Section Section Section Section

16 Explanation : Section 16 of the Comptroller and Auditor General�s (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. 1. 2. 3. 4.

Which of the following are considered quality assurance activities? Report to management on progress against budget Report to management on progress against schedule Supervision Allocation of responsibilities

4

only 1, 3 and 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 Explanation : The most appropriate answer is C 11. In public works department, Register of the Divisional Accountant�s 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 Accountant�s 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 Accountant�s 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 number

section of the DPC act

serial number

the area of audit

1

Section 13

A

Audit of reciepts

2

Section 19

B

Audit of expenditure

3

Section 16

C

Audit of stores and stock

4

Section 17

D

Audit of autonomous 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?

g

Reportin

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 Articles 147 to 150 of the Constitution of India Articles 150 to 154 of the Constitution of India Articles 150 to 155 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is A 26. Which of the following should the auditor first consider when planning the audit: the audit objectives and criteria. the audit objectives and findings. the audit objectives and 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 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. 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, 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 Explanation : The most appropriate answer is D 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. Explanation : The most appropriate answer is A 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 iii iii

Only ii and All i, ii, and

Explanation : The most appropriate answer is D 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 incharge 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 Explanation : The most appropriate answer is A. 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 23 of the CAG�s DPC Act Section 22 of the CAG�s DPC Act 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 Explanation : The most appropriate answer is D. 3. �Tone at the top� forms part of which of the component of the internal control? Risk Assessment Control Activities Monitoring Control Environment Explanation : The most appropriate answer is D 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 entity’s 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is B

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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is D. 16. Which of the following is NOT a part of an internal control mechanism? Control Environment Risk Assessment Information and Communication Cash flow management Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is A

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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is C.

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 Explanation : The most appropriate answer is A. 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 entity�s 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 Explanation : The most appropriate answer is B

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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 44. Which of the following is NOT a method of responding to a perceived risk Transfer the Risk Tolerate the Risk Treat the Risk risk

Supplement the

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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C. 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. Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is C. 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-today operations Assurance that published financial statements are correct Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is D. 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 auditor�s 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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is C. 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

1 4 2 4

4,3,2, 1,2,3, 3,4,1, 1,3,2,

Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 33. Which of the following statement is NOT CORRECT with reference to sampling? Non-statistical sampling is based on the auditor�s judgement The decision whether to use a statistical or non-statistical sampling approach is a matter for the auditor�s 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 Explanation : The most appropriate answer is C. 34. Which of the following discipline can be described as �an independent, objective assurance and consulting activity designed to add value and improve an organisation�s operations? Internal Control Internal Audit Risk Evaluation Control Evaluation Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is A

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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is B

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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C.

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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is A. 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

2 3 4 4

1 and 2 and 3 and 1,2,3,

Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is D. 52. Which of the following statement is NOT CORRECT with reference to Control? Controls are actions and procedures established by the organization�s 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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is D. 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 Explanation : The most appropriate answer is C.

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 Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is B 60. An internal auditor fails to discover an employee fraud during an assurance engagement. The nondiscovery 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 Explanation : The most appropriate answer is D.

Two determinants of the persuasiveness of evidence are: competence and sufficiency. relevance and reliability. appropriateness and sufficiency. independence and effectiveness Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is B. 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. Explanation : The most appropriate answer is D 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 auditor�s 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 Explanation : The most appropriate answer is B 5. Which of the following is NOT a purpose of analytical procedures? Understand the client�s industry Assess the client�s ability to continue as a going concern. Evaluate internal controls Reduce detailed audit tests Explanation : The most appropriate answer is C. 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is D.

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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 15. An example of a document the auditor receives from the client, but which was prepared by someone outside the client�s organization, is a(n): confirmation. sales invoice. vendor invoice. bank reconciliation Explanation : The most appropriate answer is C 16. When auditors use documents to support recorded transactions, the process is often called: Inquiry Confirmation. Vouching. Physical examination Explanation : The most appropriate answer is C 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 auditor�s principal method of evaluating the client�s internal control� does not provide evidence from an independent source.� Explanation : The most appropriate answer is C 18. When making decisions about evidence for a given audit, the auditor�s 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is C.

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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is B 29. Tone at the top policy of the SAI india is influenced mainly by which of the following documents?

Constitution of India and CAG�s DPC Act MSO Administration MSO Audit MSO Training Manual Explanation : The most appropriate answer is A. 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is A 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 else�s 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. Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is C.

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 Explanation : The most appropriate answer is A 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 client�s attorney. the client denies its veracity. it is impossible for the auditor to obtain additional corroboratory evidence Explanation : The most appropriate answer is A 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. Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is A

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.

3. 1. 1. 2.

1, 2, 3, 2, 2, 3, 3, 1,

Explanation : The most appropriate answer is C. 42. An example of an external document is: employees� time reports. bank statements. purchase order for company purchases. carbon copies of checks Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B 44. The auditing standards of CAG states �competent, relevant and reasonable evidence should be obtained to support the auditor�s 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. Explanation : The most appropriate answer is A 45. Which of the following forms of evidence would be least persuasive in forming the auditor�s opinion? Responses to auditor�s questions by the president and controller regarding the investments account. Correspondence with a stockbroker regarding the quantity of client�s investments held in street name by the broker. Minutes of the board of directors authorizing the purchase of stock as an investment. The auditor�s count of marketable securities Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is C 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. Explanation : The most appropriate answer is B 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 Explanation : The most appropriate answer is B

49. Appropriateness of evidence is a measure of the: Quantity of evidence. Quality of evidence. Sufficiency of evidence. Meaning of evidence. Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is C 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 Explanation : The most appropriate answer is A 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 Explanation : The most appropriate answer is D 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 Explanation : The most appropriate answer is A

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

2 4 3

1 and 1,2,3, 1 and 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. 1. 2. 3.

An auditor and audit institution should maintain independence. This include independence from The Legislature The Audited Entity 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 Explanation : The most appropriate answer is D. 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. The Auditing Standards applicable for the Indian Audit and Accounts Department were first issued by the Department in 2007 The Auditing Standards applicable for the Indian Audit and Accounts Department were first issued by the Department in 1950 The Auditing Standards applicable for the Indian Audit and Accounts Department were first issued by the Department in 1971 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 Explanation : The most appropriate answer is B. 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 Explanation : The most appropriate answer is D 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 of the Audit Confidentiality of the audit matters

The suspense and sensitivity None of the above