Accounting and Auditing MCQ Quiz - Objective Question with Answer for Accounting and Auditing - Download Free PDF

The correct answer is Voucher

Key Points

Vouching:

• Vouching is defined as the verification of entries in the books of account by examination of documentary evidence or vouchers, such as invoices, debit and credit notes, statements, receipts, etc.
• All such types of documentary evidence are known as vouchers.

Additional Information Journal Entry: The recording of a transaction in the books of account is called journal entry.

Cash book: Cash book is a subsidiary book in which all cash transactions are recorded.

Pass book: All the cash inflow and outflow transactions in the bank account is recorded in pass book which is maintained by Bank.

The Correct Answer is- In verification of assets, the duty of auditor is to satisfy himself with regard to the existence, ownership and value of the assets.

Key Points

•  Verification is an auditing approach in which the auditor verifies the accuracy of all assets and liabilities listed on the balance sheet.
• In his report, the auditor attests to the accuracy of the asset and liability side of the balance sheet. Verification of assets and liabilities is the basis for the auditor's confirmation.

Important Points

Duty of an auditor in relation to verification of assets:​

While verifying assets, the auditor should pay close attention to the following:

1. Whether or not all assets are listed on the balance sheet.
2. Whether or not the valuation was done correctly.
3. Whether or not assets existed on the date of the balance sheet and were owned by the company.

The Correct Answer is- In vouching, an auditor verifies both the authority and authenticity of transactions.

Key Points

• Vouching is the process of examining documentation evidence to evaluate if it adequately supports accounting entries.
• An auditor who is vouching is looking for any inaccuracies in the amount recorded in the accounting records, as well as ensuring that the transactions are documented in the correct accounts. The auditor also checks to see if transactions were lawfully authorized.
• When vouching reveals an issue, the auditor may need to expand the sample size being audited to ensure that the system is functioning properly. A different option is to engage in various auditing techniques.

The correct answer is Verification.

Key PointsVerification

• Verification is the process of ensuring that the organization's assets and liabilities are valued correctly.
• It refers to the verification of assets and liabilities as of the balance sheet date, as well as the inspection of title documentation.
• It typically refers to the verification of any organization's assets, which can be accomplished by looking at the values, ownership, existence, and possession of any assets as well as making sure they are free from any debts.
• Verification can be defined as "proving the truth or confirmation" in basic terms.

 Important PointsDefinition given by Spicer and Pegler, Verification as, “An inquiry into the value, ownership and title, existence and possession and the presence of any charge on the asset”.

Objectives of Verification

• To accurately display the worth of both assets and liabilities.
• To determine whether the balance sheet accurately and fairly depicts the company's financial situation.
• To learn who owns, has, and is entitled to the assets listed on the balance sheet.
• To ascertain the existence of assets.
• To find any frauds or mistakes made when documenting assets in the company's finances.
• To determine whether the asset acquisition, use, and disposal processes are adequately controlled internally.
• To check the accounts' accuracy in mathematics.
• To make certain the assets have been accurately reported.

Hence, it can be concluded that the correct answer is option 1. 

The correct answer is Vouching includes valuation. whereas verification does not include valuation. 

Key Points

• Vouching:
  • It is the process of checking the authenticity of the transactions recorded in the books of accounts.
  • In this process, the auditor compares the entries in the business's books with the corresponding supporting documents such as invoices, receipts, and others to confirm that the transactions are recorded correctly and are legitimate.
  • Vouching does not include the process of valuation as it is primarily focused on the verification of financial transactions and their supporting evidence, not the value of assets or liabilities.
• Verification: 
  • It refers to the process of validating the existence, ownership, and value of the assets and liabilities that appear on a company's balance sheet.
  • It involves checking things like legal ownership documentation for fixed assets, valuation records, and physical counts of inventories, among other details.
  • This means that verification does include valuation, as it requires checking that assets and liabilities are recorded in the accounts at their correct, appropriate value.
• So, in simple terms, while vouching is about scrutinizing evidentiary details of transactions to ensure their credibility, verification involves a deeper examination of assets and liabilities to ensure their rightful existence, possession, and valuation, making statement 4 in your original list incorrect.

The correct answer is Disclosure of Accounting Policies.

Key Points Accounting Standards-

• Financial reporting standards are based on accounting standards (GAAP).
• Financial statements must be recognized, measured, presented, and reported according to accounting standards.
• Its aim is to  provide financial information to investors, lenders, creditors, donors, and others to help them decide to fund the company.

AS-1 

• The disclosure of relevant accounting policies used in the preparation and presentation of financial statements is the subject of this standard.

Additional Information

The incorrect Answer is Convention of accrual accounting

Key Points

• Accounting conventions are rules followed by business organisation as a practice worldwide.
• There is no binding on such organisations to strictly follow those conventions, but same type of industries in the market follows the practices, thats why other organisations follows the same. 
• There are four major accounting conventions namely
  • Convention of full disclosure
  • Convention of materiality
  • Convention of Conservatism
  • Convention of consistency

Hence, Convention of accrual accounting is not an accounting convention

The correct answer is objectivity.

Key Points

• Accounting Principles: GAAP (Generally Accepted Accounting Principles) are a set of general accounting principles and guidelines that serve as the foundation for formal accounting regulations, standards, and other industry-specific accounting procedures. In other words, these are the set of rules and regulations a company must follow while preparing its financial data.

Important Points

• These accounting principles are based on Objectivity, which means Verifiability. This implies that the information to be entered in the books of accounts must be factual in nature and can also be verified at later stages when needed. Even though subjective data appears to be superior to verified data, verified data should always be used.

The correct answer is +3rd schedule; 2nd schedule

Key Points

•  The Comptroller and Auditor General (CAG) of India takes the oath of office as per the form set out for the purpose in the Third Schedule of the Constitution of India.
• The salary and other conditions of service of the CAG are determined as per the provisions mentioned in the Second Schedule of the Constitution of India.
• The Comptroller and Auditor General of India holds a significant constitutional office and is responsible for auditing all receipts and expenditures of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The CAG is an authority, established by the Constitution of India under Chapter V, that audits all receipts and expenditures of the Government of India and the state governments.

Important Points Here are some additional points on the role and responsibilities of the Comptroller and Auditor General (CAG) of India within the constitutional framework:

1. Tenure: The CAG is appointed for a tenure of six years or up until the age of 65 years, whichever comes earlier. They can only be removed from office on similar grounds and in a similar manner to a judge of the Supreme Court.
2. Role & Responsibilities: The CAG audits all expenditures from the Consolidated Fund of India, whether they pertain to the central or state level. The CAG is also the external auditor of government-owned corporations and conducts supplementary audits of government companies, i.e., any non-banking/ non-insurance company in which the state and union governments have an equity share of at least 51%.
3. Reports: Upon completion of the audits, the CAG submits three audit reports to the President of India - An audit report on appropriation accounts, an Audit report on finance accounts, and an Audit report on public undertakings. These reports are subsequently tabled in both houses of the Parliament and state legislatures at the state level.
4. Independence: The CAG does not hold any office of profit nor is eligible for further office under the Government of India or any state after he/she has ceased to hold their office. These measures ensure the independence of the CAG.
5. Importance: The CAG plays a significant role in ensuring transparency and accountability in the financial administration in India, functioning as the supreme audit institution of India.
6. Constitutional Provisions: The roles, duties, and powers of the Comptroller and Auditor General of India are enumerated in Articles 149-151 of the Indian Constitution.

The CAG has a crucial role in maintaining the accountability of the government and its instrumentalities to the people of India, thereby strengthening the democratic structure of the country.

The correct answer is Rs. 22,450

Important Points

Old Profit Sharing Ratio (X and Y) = 3:2

Z is admitted for a 1/5th share.

New Profit Sharing Ratio (X and Y) = 1 - 1/5 = 4:5

A's New Profit Sharing Ratio = 3/5 * 4/5 = 12/25

B's New Profit Sharing Ratio = 2/5 * 4/5 = 8/25

A: B: C = 12/25: 8/25: 1/5

Using the L.C.M method to make denominators common, 

New Profit Sharing Ratio Of A:B: C is 12:8:5

Thus, option 1 is the correct answer.

Audit:

1. Audit, as it exists today, is the result of the Industrial Revolution in the 18th century. 
2. The word 'audit' is derived from the Latin word 'audire' which means 'to hear'. 
3. Auditing is the systematic and scientific examination of the books of accounts and records of a business to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or loss for the financial period. 

Some of the duties of an auditor:

• Verifying ownership of fixed assets by examining the title deed by the auditor,
• ascertaining that the assets are in the possession of the client, 
• satisfying himself that the assets have been valued in the financial statements according to the accounting principles, etc.

Physical verification of fixed assets is primarily the responsibility of the Management. 

Therefore, Physical verification of fixed assets is primarily the responsibility of the auditor is NOT correct regarding the duties of an auditor.

The capital of R and T after S's retirement is Rs. 3,12,500 and Rs. 1,37,500 respectively.

Key Points

Gaining ratio of R and T on S's retirement.

Gaining Ratio = New Ratio - Old Ratio

Gaining ratio of R = 3/4 - 3/6 = 6/24

Gaining ratio of T = 1/4 - 1/6 = 2/24

Gaining Ratio of R : T :: 3 : 1 

Rs. 1,50,000 (capital of S will be contributed by R and T in their gaining ratio which is 3 : 1 respectively).

So, R will bring = Rs. (1,50,000 x 3)/4 = Rs. 1,12,500

T will bring = Rs. (1,50,000 x 1)/4 = Rs. 37,500

So, the total capital of:

R = Rs. 2,00,000 + Rs. 1,12,500 = Rs. 3,12,500

T = Rs. 1,00,000 + Rs. 37,500 = Rs. 1,37,500

The correct answer is Management audit

Key Points Management audit:

• An independent and systematic analysis and evaluation of a company's overall operations and performances constitutes a management audit.
• It is a useful tool for evaluating the effectiveness, roles, successes, and accomplishments of the business.
• The main goal of a management audit is to spot mistakes in management processes and recommend potential improvements.
• It directs management to oversee activities in the most efficient and effective manner possible. 

Important Points Objectives Of Management Audit:

• Verify Efficiency- It aims to boost productivity at all levels of management and policy implementation.
• Evaluates the Potential of Policies and Planning: It examines and assesses the management-structured policies and plans to see whether they are being properly carried out.
• Increase Profit - By offering ways to effectively maximise the company's resources, it helps to raise the profit margin.

Option1 is correct.

Monthly Demand = 1,350 units (Given)

Annual demand = 1350 x 12=16200 (monthly units x 12)

Ordering Cost = 2400 (given)

Price paid = Rs. 20 per unit.

Carrying Cost = 30% x 20 = 0.03 x 20 = 6  (As carrying cost of inventory being 30 percent of the price paid)

where:

• AR– Consumption of the article concerned (in units) during a year;
• OC = Cost of placing one order including the cost of receiving the goods or ordering cost; and
• C = Interest payment per unit per year including another variable cost of storing it (carrying cost per unit per annum)

= \(\sqrt{{2\times16200\times2400}\over{6}}\)

EOQ= 3600 Units