MODEL PAPER

INTERNAL AUDIT AND CONTROL

SECTION A - 1 MARK QUESTIONS

Answer all the questions

SL.NO DESCRIBTION
1 Internal control in financial reporting is needed because
A. Share holders do not have access to the accounting records
B. Managers and owners have diverse interests
C. Managers have got to fulfill the aspirations of stakeholders
D. Managers are interested in profit maximization
2 Choose the correct and relevant principle of internal control
from the following
A. Personal discipline
B. Confidentiality
C. Truthfulness
D. Timeliness
3 Who is appointed to oversee the effective implementation of
internal control system in an organization?
A. An accountant
B. An Internal Auditor
C. An administrator
D. A Director
4
What is a check List?
A. List of items to be checked with reference to a function of
business
B. List of checks to overcome
C. List of books to be referred to examine a transaction
D. List of areas to be observed
5 How does an error of omission affect P & L A/c?
A. The net profit increases
B. The net loss increases
C. The net result of P&L a/c may increase or decrease
D. The total operating result is decreased
6 Error of commission is disclosed by ----------
A. P & L A/c
B. Trading Account
C. Balance Sheet
D. Trial Balance
7 What is a fraud?
A. Fraud is an economic offence
B. Fraud may be cheating
C. Fraud is unintentionally committed offence
D. Fraud is a wrong statement

8 It is a convention the firm is required to disclose the fact and

explain the impact of it on profit or assets or liabilities. When
a. Accounting convention change
b. Accounting policies change
c. Accounting concepts change
d. Accounting standard change
9 Financial statements should be prepared at definite intervals
say, every year so that comparison is possible. This relates to:
a. Money measurement concept
b. Periodicity concept
c. Business entity concept
d. Cost concept
10 _____________concept is to safe guard the assets of the
business and to be transparent to all state holders.
a. Matching concept
b. Dual aspect
c. Conservatism
d. Materiality
11 ___________provides detailed guidelines for setting up, identifying
and implementing internal controls in the area of financial reporting.
a. SEBI Act
b. Dept of company affairs
c. SOX Act
d. COSO
12 Which committee suggested regarding the need for a corporate
governance code on failure of corporate to be transparent in that
country?
a. Blue Ribbon committee
b. Cadbury committee
c. Kumar Mangalam Birla committee
d. Narasimham committee
13 What is the general assumption of an audited financial statement? The
audited financial statement.
a. Reveals true picture of the business
b. Is assumed to be free from any kind of errors or fraud
c. Acknowledges that the financial statement contain certain loop holes
 d. Is assumed to provide the general condition of the business
14 What is the need of standards and benchmarks?
a. Opinions can differ among independent auditors
b. Accounting practices may differ among independent auditors
c. Self interest may prevail among independent auditors
d. Professional rivalry may prevail among independent auditors
15 In united states, private audits are performed by
a. Congress government accountability office
b. Chartered public accounts
c. COSO
d. Certified public accounts
16 Internal auditors are appointed by
a. Shareholders
b. Management
c. Statutory auditors through management
d. None
17 Safe guarding the assets & detection & prevention of errors &
frauds is a :
a. Protective function
b. Constructive function
c. Financial audit function
d. Management consultancy function
18 The pronouncement of auditing standards are in the form of:
a. Standards
b. Guidance notes / expert opinions
c. Code on corporate governance
d. Code of conduct
19 During internal audit due professional care is required at every
stage. This quality relates to:
a. Competence & skill
b. Objectivity
c. Due diligence & care
d. Confidentiality
20 Standard auditing practices (SAOs) are issued by
a. IFAC
b. AASB
c. ICAI
d. ASB
 SECTION B - 2 MARK QUESTIONS
SL.NO DESCRIBTION
1 What are the two broad classes of internal controls?
A. Monetary and Physical control
B. Administrative and Accounting controls
C. Human and Marketing controls
D. Information and systems controls
2
i)You appoint a watchman in your organization in order to
reduce the risk of burglary. ii) You maintain a stock book to
record the receipts and issues of materials.
What type of controls are they?
A. Physical control and Accounting control
B. Accounting control and access control
C. Accounting control and supervisory control
D. Personnel control and financial control
3 When goods sold are dispatched, the fact of the transaction
should match with two other documents. What are they?
A. Tax paid receipt and invoice.
B. Sales invoice and Transportation document
C. Excise duty payment records
D. Sales ledger and purchases ledger
4 What is the purpose of preparing bank reconciliation
statement?
A. To check the cash balance in the bank
B. To examine whether all cheques issued are paid out or not
C. To find out if all cheques presented for collection, are
collected
D. To find out reasons why cash book balance and pass book
balance did not tally and suitably rectify them
5 What is the difference between an error and fraud?
A. Error is innocent mistake and fraud is intentional mistake
B. Error is less harmful than fraud
C. Error can be corrected but not fraud
D. Error is easily identified and it is difficult to find a fraud.
6
A bank employee inserts a program into the bank's servers,
that deducts a small amount of Rs.5 per month from every
account holder. Account holders may not notice this seriously
but this becomes a sizeable amount. What type of cyber
fraud is this?
 A. Data diddling
B. Web jacking
C. Phishing
D. Salami attack
7 Nothing should be omitted from financial statement. All
transactions should be recorded denotes.
a. Full disclosure
b. Fair disclosure
c. Adequate disclosure
d. No disclosure
8 Auditing & assurance standards board publishes
a. Technical guides
b. Guidance notes
c. Studies & other papers
d. Essential procedures to be followed in audit

9 SOX (Sarbanes- Oxley Act) became law on July 30, 2002 after the:
a. Sathyam scan
b. Enron scam
c. Arther Anderson scam
d, Bofors scam
10 How important is financial audit to companies?
a. To meet the needs of diverse stakeholders
b. Goal conflict that may raise due to short term goals
c. Prevention of fraud & errors
d. Effective corporate governance
11 The Financial audit and operational audit are:
a. Independent function
b. Mutually exclusive / Inter-linked
c. Independent in some areas while interlinked in the rest
d. Optional
 SECTION C - 4 MARK QUESTIONS
SL.NO DESCRIBTION
1
State whether the following statements are true or false.
i) Management Information System is of general control.
ii) In organization chart, the roles and responsibilities of
different personnel are not clearly defined.
iii) Application controls are related to financial and
operational matters
iv) Safeguarding and preserving the assets from wear and
tear and insurance coverage to assets are examples of
supervisory control
A. True, True, False, False
B. True, False, False, True
C. False, True, False, True
D. True, False, True, False
2 Match the following
1. AAS-9 a. Representations by management
2. AAS-10 b. Using the work of an expert
3. AAS-11 c. Responsibility of joint auditors
4. AAS-12 d. Using the work of another auditor
a. 1a, 2b, 3d, 4c
b. 1b, 2d, 3a, 4c
c. 1b, 2a, 3c, 4d
d. 1a, 2b, 3c, 4d

3
Match the following Companies and the scandals in which
they were involved.
Set -A: Name of the Company
1. Enron Corporation
2. World.Com
3. Adelphia
4. Parmlat
Set-B: The type scandal
a. Top management overstated reported profits and assets
for more than a decade
b. Showing revenue expenditure on maintenance of
telephone lines as capital expenditure
c. The company did not disclose huge speculation losses
suffered on technology stocks
 d. The family helped itself to secret loans from the bank

A. 1- a, 2- b, 3 -c, 4 - d
B. 1- d, 2 - c, 3 - a, 4 - b
C. 1 - c, 2 - b, 3 - d, 4 - a
D. 1 - b, 2 - a, 3 - d, 4 - c
4 Match the following
1. AS 1 a. Disclosure of accounting polities
2. AS2 b. Contingencies & events occurring
after
3. AS3 c. Valuation of inventories
4. AS4 d. Cash flow statement
a. 1c, 2a, 3d, 4b
b. 1a, 2c, 3d, 4b
c. 1c, 2a, 3b, 4d
d. 1d, 2c, 3a, 4b
5 Match the following
1. Director's responsibility a. 6 months
statement
2. The time limit for holding b. 21 days before the data of
AGM is AGM
3. Share holders are to be c. COSO
sent a notice at least
4. Internal audit framework d. Deals with matter related to
was developed by answers to question raised
by the auditors
e. 9 months
a. 1a, 2c, 3e, 4d
b. 1d, 2a, 3b, 4c
c. 1d, 2a, 3c, 4b
 d. 1a, 2e, 3d, 4b
6 Match the following
1. Non-audit service
2. Compilation service
3. Special assignment
4. Review service
various
a. No assurance is given by the auditor
b. Provides limited assurance
c. Management consultancy
d. Special kind of service due to
laws, statutes etc.

a. 1c, 2a, 3d, 4b

b. 1a, 2c, 3b, 4d
c. 1a, 2b, 3c, 4d
d. 1a, 2b, 3d, 4c
7 Match the following
1. Internal check is a component a. An internal job
2. Management consultancy is b. Management
3. Internal auditors are appointed by c. Internal audit
4. Safe guarding the assets d. An external job
e. Protective function
a. 1c, 2d, 3b, 4e
b. 1e, 2a, 3b, 4c
c. 1c, 2d, 3b, 4c
d. 1e, 2a, 3c, 4b