Auditing Past Papers Short Questions & Answers

(University of Sargodha)

1. Audit
Audit is an exercise that auditors carry out in order to be able to give a legal opinion whether the
financial statement give true and fair view.
2. Who is Auditor?
Auditor is a person who is appointed to examine the books of account and he must be charted
accountant as well as the member of ICAP in Pakistan.
3. Define statutory audit / Compulsory Audit
An audit which is compulsory for public limited companies under the companies act 2017,
banking companies ordinance 1962, Insurance act 1938 performed by a chartered accountant is
called statutory audit.
4. Define cost audit?
Cost audit is the verification of the correctness of the cost accounts and of the adhere hence to
the cost accounting plan.
5. What is audit evidence?
It is the information obtained by the auditor in arriving at the conclusion on which audit opinion
is based.
6. What is sinking fund reserve?
It is the reserve created out of the profits and usually invested outside the business in readily
marketable securities and shares.
7. Define continuous audit?
The audit which remain continue throughout the year is called continuous audit.
8. What is interim audit?
When audit is conducted up to a particular date within the accounting period is called interim
audit.
9. Define final audit?
A final audit is an audit which is commenced after the end of the financial period and is then
carried on until completed.

Prepared By Professor Abid iqbal (M.com Accounting) Page 1

 10. What is audit programme?
Audit programme is the detailed approach for implementation of general strategy of the audit work.

11. What are audit working papers?

Audit working papers refer to the document in which the auditor writes facts, data and analysis of
accounts while performing audit of the enterprise. It is a written record that an auditor keeps relating to.

 Evidence found during the process of audit

 Methods and procedures that an auditor follows
 Conclusion drawn

12. Define audit note book?

Audit note book is that part of audit documentation where auditor writes down the significant
matters arising during the audit and their settlement.
13. Define auditing principles?
Audit principles are the basic rules, which are indicative of the objective of auditing.
14. What is meant by internal check?
An accounting procedure whereby routine entries for transactions are handled by more than one
employee in such a manner that the work of one employee is automatically checked against the work
of another for detection of errors and irregularities
15. What is voucher?
Any written evidence in support of a business transaction is called voucher.
16. What is audit risk?
Audit risk is defined as 'the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated.
17. What is compensatory error
When second error is committed to compensate the effect of the first error which are committed in
such a way that the net result of these errors on the debit side and credit side would nullify the effect
of the error
18. What is error of omission?
When a transaction is completely omitted from the book of accounts is called errors of omissions.
19. What is capital expenditure?
Cost incurred for the purchase of any asset in the business is called capital expenditure and these
costs shown in the balance sheet as well

Prepared By Professor Abid iqbal (M.com Accounting) Page 2

 20. What is internal audit
An audit which is conducted by the internal auditor which is appointed by the management of the
company to supervise the accounting system of the business concern
21. What is test checking?
Test checking is a process of selecting and checking of a few transactions from a large volume of
transactions. If the entries checked are found to be correct then the auditor assumes that the
remaining entries are also correct.
22. Define window dressing?
The term window dressing means manipulation of accounts so as to present the financial statements
in a way to show better position than the actual. e.g., assets may be overstated and liabilities may be
understated.
23. Define materiality?
Materiality is a concept or convention within auditing and accounting relating to the importance of an
amount, transaction, or discrepancy. However, in practice, determining materiality is more effective on
a relative basis. For example, instead of looking at whether a transaction of Rs. 1.00 or Rs. 1,000,000
is considered to be material, the auditor will refer to the percentage impact that the misstatement may
have on the financial statements.
24. What is statutory report?
The report that is submitted to the shareholder by the director in the statutory meeting of the
company verified by the auditor known as statutory report
25. What is verification?
Verification of assets is a process by which the auditor examines the accuracy of the assets appearing
in the balance sheet.
26. What is true and fair view?
A True and fair view in accounting means that a financial statement is free from material
misstatements and faithfully represents the financial performance and positioning of an entity
27. What is meant by quality control
Quality control is the set of measures and procedures to follow in order to ensure that the quality of a
product is maintained and improved against a set of benchmarks and that any errors encountered are
either eliminated or reduced.
28. Define Contigent liabilities?
A contingent liability is a liability or a potential loss that may occur in the future depending on the
outcome of a specific event. Potential lawsuits, product warranties, and pending investigation are
some examples of contingent liability.
29. What is qualified audit report?
A report containing objections material discrepancies qualifications or exceptions regarding financial
position of business,

Prepared By Professor Abid iqbal (M.com Accounting) Page 3

 30. What is the scope of audit?
The scope of an audit is the determination of the range of the activities and the period of records that are
to be subjected to an audit examination.
31. What are audit standards?
Generally Accepted Auditing Standards (GAAS) are a set of principles and requirements that provide
the basis for how an auditor prepares for, performs, and reports the results of audits.
32. What is audit planning?
An audit plan is the specific guideline to be followed when conducting an audit. It helps the auditor
obtain sufficient appropriate evidence for the circumstances, helps keep audit costs at a reasonable
level, and helps avoid misunderstandings with the client.
33. What is routine checking?
Routine checking is the checking of the daily transactions of a business. It means checking the
arithmetical accuracy of the entries in the books of account to detect any clerical errors and minor
frauds.
34. What is authorization?
Authorization and approval are control activities that decrease the risk of inappropriate transactions.
They serve as fraud deterrents and enforce segregation of duties.
35. What is partial audit?
Partial Audit is a kind of audit, where the work of the auditor is reduced. For example, an auditor may
be asked to check only the cash book” to detect misappropriation of cash.
36. What is unclaimed dividend?
Unclaimed dividend is the dividend which is being paid by the company but the shareholder has not
yet taken the dividend or claimed the dividend. Unclaimed dividend is to be paid by the company as
and when demanded and hence is a liability for the company.
37. Who is co-signatory?
When two parties makes an agreement and signs each party on the agreements than these parties
are called co-signatory , for examples an auditor makes an agreement with client to conduct an audit
when client and the auditor signs the agreement of conducting audit are called co-signatory.
38. What is proper valuation?
Valuation means estimation of various assets and liabilities. It is the duty of Auditor to confirm that
assets and liabilities are appearing in the balance sheet showing their proper and correct value.
39. What is calling over?
Calling over means the completion of entries in a book of accounts with its supporting documents or
vouchers .This job is done by two clerks one reading the item to the other clerk pronunciation is
necessary to distinguish between some words like these 31-40, 45-65 etc.

Prepared By Professor Abid iqbal (M.com Accounting) Page 4

 40. What are contigent assets?
Contingent assets are possible assets whose existence will be confirmed by the occurrence or non-
occurrence of uncertain future events that are not wholly within the control of the entity, e-g A
company involved in a lawsuit that expects to receive compensation has a contingent asset because
the outcome of the case is not yet known and the amount of the compensation is yet to be
determined.
41. What is lapping?
Lapping is the illegal practice of allocating one customer’s payment to another customer’s account,
accountant does this to make the books balance, usually to hide a theft or shortfall of cash.
42. What are safety measures?
An action, procedure or setup designed to lower the happening or risk of injury, loss and danger to
persons, property or the environment. It is the implied objective of audit that auditor sure that client
take all the safety measures that can harm the employee and society.
43. What is prospectus?
Prospectus is a document which is advertises by the company to raise the capital of the company in
which the general public is invited to purchase the shares of the company.

Prepared By Professor Abid iqbal (M.com Accounting) Page 5