MCQ On Auditing

Model Multiple Choice Questions (MCQs) on Auditing Methods and Techniques
Q.1. The PPP framework requires
A) Securing a reasonable return at manageable risk for the govt.

B) Assuring the user of adequate service quality at any cost.
C) Facilitating the govt in procuring value of money.
D) None of the above
Q.2. Which is not a characteristic of PPP
A) Long term service provisions

B) The retention of risks by the public sector partner
C) Different forms of long-term contracts drawn up between the parties
Q.3. The major criticism against PPP Project is
A) The govt is just mortgaging the future

B) Encouraging the private sector is the policy of the day
C) The overall responsibility to provide public services is retained by the private partner
D) None of the above.
Q.4. The key to successful PPPs is
A) The value for money should be the criterion for the private partner
B) Predictability and risk mitigation
C) Transferring the entire risk to the private sector
Q.5. Which among the following is an institutionalised PPP
A) Highway projects contracted out by NHAI

B) Delhi Metro Rail Corporation
C) Container terminal project at Ennore
D) Bangalore International Airport Limited.
Q.6 The duration of the contract is indefinite in ____PPP option
A) Lease contract
B) Concession
C) Divestiture
D) BOT
Q.7. Which is not true as to privatisation
A) The transfer of ownership to the private sector

B) The shifting of responsibility to the purchaser
C) The govt can not set standards and retain price/quality control
Q.8. The lack of well-performing institutions w.r t PPP is reflected in
A) Protracted length of negotiations between the public and private partners

B) The slowness of reaching closure
C) Lack of flexibility in risk-sharing
D) All of the above.
Q.9. Find out the incorrect statement w.r.t PPP arrangement
A) The profit motive alone impels the private partner to assume the risks.
B) The public sector partner retains the accountability
C) Both the parties are not competing between them.
D) All of the above
Q.10. The scope of PPP audit does not emphasise on
A) The end results of the project

B) The means to achieve the project
C) The transfer of operational risks to the private partner.
D) The private sector partner controlling the majority stake.
MCQ No. 6 - PMS Sir

Divestiture or divestment means reduction of an asset or business through sale. Liquidation,
exchange or closure. It is the opposite of investment.
Q.11. In 'Market Testing' private companies are invited to tender for a contract to
A) Use private sector methods in public bodies

B) Provide public services in competition with the existing public sector partner
C) Provide and charge the public for services in return for a fee
Q.12. 'Unsolicited proposals' is otherwise called
A) Privatisation of retail trading network

B) Service improvement
C) Swiss change
D) Market testing
Q.13. When the PPP is used so that project is accounted for off balance sheet is a risk concerning
A) Clarity about partnership objectives

B) Negotiating an appropriate partnership
C) Monitoring the state's interests in the partnership
D) The state's exposure in the event of difficulties
Q.14. ' Swiss challenge' method is actively discouraged because
A) It brings information asymmetrics into the procurement process

B) It results in lack of fair and adequate treatment of potential bidders
C) It is suitable only for smaller PPP projects
D) All of the above
Q.15. Find out the incorrect statement w.r.t PPP
A) The authorities should not treat PPP as an off balance sheet funding method
B) PPP should not be used as the first delivery mechanism
C) It is necessary to explore options for sourcing long-term capital at low cost
D) States to treat Central PPP-VGF as a source of additional grants
Q.16. Improving a PPP's risk profile can be accomplished
A) Monetization of viable projects that have stable revenue flows after EPC delivery
B) Encouraging banks to issue Deep Discount Bonds/ zero coupon bonds
C) Through partial recourse to credible third-party institutions.
Q. 17. The final decision on a renegotiated concession agreement must be based on

A) Full disclosure of the renegotiated estimated long-term costs
B) Comparison with the financial position for govt at the time of signing the agreement
C) Comparison with the existing financial position for govt just prior to renegotiation
D) All of the above
Q. 18. '"Obsolescing Bargain" in PPP occurs because
A) Emergence of risks that may not have been contemplated at the time of signing.
B) Abrupt changes in the economic or policy environment which are beyond the control of private
partner
C) Ex-ante provision for a renegotiation framework in the bid document itself
Q.19. The argument that SOEs/ PSUs should not be allowed to bid for PPP is
A) The SOEs/PSUs do not have technical competency

B) Inherent in the concept of PPP is the role of a 'private sector partner' that will implement the
project
C) The SOEs/PSUs can not bear the risks involved
Q. 20. When public policy objectives clash with the private sector's interest as to profitable element
of service, the risk is managed by
A) Performance based rewards linked to user satisfaction

B) Select the partnership which best suits the public sector's objectives
C) By protecting private sector's commercial interests might reasonably be protected
Q.21. How to manage the risk when there is only one potential partner for a PPP project
A) Through the use of Chinese Walls

B) Appoint advisors after a competition
C) Take market soundings at the feasibility stage to assess the level of private sector interest
Q.22. When the guarantees given to the private partner is not fully priced into agreement , the SAI
should
A) Consider whether the contract price fairly reflects the risks borne by both parties.
B) Consider the value to the private sector of having control
C) Consider the private partner's performance indicators
Q 23. The risk as to contractual disputes could be managed by
A) Appropriate dispute resolution

B) Representation on the management board of the partnership
C) Joint monitoring of the risks to the partnership
Q.24.The private partner to the Ennore port Rs.1400 cr container terminal PPP pulled out of (Sep
2012), even after three extended deadlines .the agreement was signed in Aug 2010. The port trust
cancelled the bid forfeited the Bank Guarantee(Rs.14 cr).this is the case of
A) Inadequate diligence and appraisal

B) Lending appetite to private sector
C) Aggressive bidding by the developer
D) Lack of flexibility in contractual agreements
Q.25. RIL entered into PPP for the KG basin project for the exploration of oil. During the course of
concession work RIL sold a part of its stake in the KG basin to British Petroleum for a whopping $
7.5 billion. This could happen owing to
A) The absence of claw-back clause in the contract

B) The absence of adequate Regulatory mechanism
C) The absence of exclusive law on PPP
D) Inherent uncertainties in the contract.
MCQ
Pl refer question no.12. & 14. Swiss challenge method is universally adopted in PPP
arrangements, the Kelkar Committee recommended that such method should be strongly
discouraged. vide para 6.2.7 of chapter 6 of the report.
MCQ 25
Claw back clause: A claw back clause is a contract provision that requires a party who has
received a benefit to return that benefit due to specially arising conditions.
Q.26. Which among the following risk to be SOLELY allocated to the public sector in PPP.
A) Land acquisition
B) Expropriation and nationalisation
C) Environment protection
D) Market damage change
Q.27. Which among the following risk to be MOSTLY allocated to the private sector in PPP
A) Improper contracts
B) Tariff change
C) Uncompetitive tender
D) Consortium inability
Q 28. Which among the following risk to be equally shared by both parties to PPP.
A) Insufficient financial audit

B) Approval and permit
C) Change in law
D) Immature justice system
Q.29. Which among the following risk to be MOSTLY allocated to the public sector in PPP
A) Inflation
B) Interest rate
C) Competition
D) Payment risk
Q.30. By inflating the total project cost,developers
A) Source higher debt than actual requirement

B) Achieve financial closure at an amount substantially reasonable TPC
C) The funds at risk are those of the lenders if the project is jeopardized
D) All of the above
Q.31. 'Aggressive Bidding' happens due to
A) Absence of effective co-ordination among various govt agencies

B) Inadequate statutory and vigilance in the PPP
C) All of the above
Q.32. Find out the incorrect statement w.r.t PPP

A) Profit motives of private sector is incompatible with the service motive of public sector
B) PPPs increase user tariffs
C) Once a private sector partner is brought in,there is little or no role for public sector
D) Money for PPPs comes from private pockets
Q.33. Find out the financial issue in PPP arrangement
A) Variation with cost savings

B) Higher than forecast return on equity
C) Changes in tax
D) Variation with cost increases
Q.34. The reason for renegotiation of long term contract is
A) Abusing the sovereign authority by govt authorities

B) Absence of willingness to pay dispute resolution
C) Rigidity in concession documents
D) Liabilities along with risk allocation not being ensured
Q.35. Kelkar committee favours utilisation of VGF
A) Where user charges cannot guarantee a robust stream

B) Where dispute resolution mechanisms are slow
C) Where failure to build in mitigation measures
D) Where myopic assessment of possible risk factors occurs.
Q.36. Total Project Cost (TPC) as a bid parameter is more suited to
A) Small or social sector projects

B) Large hard infrastructure transport projects
C) Port projects
D) Airport modernisation projects
Q.37. The problem with Total Project Cost (TPC) as a bid parameter is
A) Possibilities of cartelisation to ensure higher TPC.

B) Base cost comparator vis-a-vis discovered TPC complicating bid evaluation
C) Problem with post-bid analysis by audit and vigilance authorities
D) All of the above
Q.38. Which among the following is a limitation of PPP
A) The role of private sector partner that implements the project

B) PPP is used as a first delivery mechanism
C) It ignores the contingent liabilities to govt
Q.39. Most power sector projects have not been developed under PPP NOT because of
A) Fuel linkages
B) Over leveraging
C) DISCOM-related issues
D) Ability to support investments across the board
Q.40. In case of projects not viable on BOT toll basis,the option available is to
A) Fund the project through hybrid models

B) Grant Viability Gap Fund
C) Fund through debt instruments
D) All of the above
Q.41. Considerable ambiguity whether the PPP is an agreement/ lease or licence exists in
_______PPP projects.
A) Road sector
B) Port sector
C) Airport sector
D) Urban development sector
Q.42. The likely resistance to access the documents of private partner to public audit is
A) The plea of commercial confidentiality

B) Absence of mandate for public auditor
C) Absence of necessary clause in MCA
D) Documents available with public sector agency promoting PPP
Q. 43. If financial support through VGF is provided, the question of _______the user charges so as
to ________viability gap is prohibited.
A) Reducing, increase
B) Increasing, reduce
C) Increasing, increase
D) Reducing , reduce
Q.44. Since SAI's audit is post audit which is not possible
A) Contract between PPP partners can not be altered/ amended

B) Benefits accruing for the contract audit is for future probity
C) Value for money being involved , the contract needs to be amended
Q.45. Find out the incorrect statement

A) TPC is the lowest capital cost plus equity
B) TPC is the actual capital cost of the project on completion minus grants
C) TPC determines the cost of construction, O&M and debt-equity mix
Q.46. "Actionable stress" refers to
A) Problem in wholesale renegotiation of the contract

B) Imminent threats to economic foundations of the project
C) Facing legal disputes
Q.47. The slowdown of PPP projects could be attributed to
A) Weak regulatory and institutional frameworks

B) Delay in issue of clearances by the authorities
C) Over-leveraged debt and paucity of equity
D) A combination of above events
Q.48. India's infrastructure deficit is the consequences of
A) Slow pace of urbanisation

B) Poor competitiveness
C) High costs
D) All of the above
Q.49. PPPs make the most lasting contribution in the end by increasing efficiency gain, does not
include
A) On-time and on-budget delivery

B) Rigidity in MCA
C) Shifting appropriate construction and maintenance risk to the private partner
D) Stronger customer service orientation
Q.50. "3 PI" denotes
A) A centre of excellence in PPPs

B) A PPP appraisal committee
C) A financial institution through VGF scheme
D) A national capacity building programme
Q.51. The 3PI
A) Enables research, review, roll out to build capacity

B) Supports more nuanced & sophisticated models of contracting
C) Supports a dynamic process of infrastructure design,build and operate
D) All of the above
Q.52. Final decision for a wholesale renegotiation of concession agreement must be based on
A) Full disclosure of long-term costs , risks and potential benefits

B) Comparison with the financial position for govt at the time of signing agreement
C) Comparison with the financial position for govt at the time prior to renegotiation
D) All of the above
Q 53. Find out the correct statement
A) A good stage for the first examination of PPP is soon after the contract is signed
B) Public auditor must step in even before the agreement is signed
C) To include a clause in MCA to provide for the audit oversight of CAG
D) All of the above
Q.54. The role of the public auditor w.r.t focus of audit on construction risk is
A) To see how the end results are achieved

B) To see whether PPP has achieved its end results
C) To focus on technical issues relating to procurement, construction etc
D) All of the above
Q.55. Which among the following is the condition precedent risk
A) Raising the required finance for the project

B) Selection of best suited partner for the project
C) Environmental and other statutory clearances
Q.56. Which among the following risk is borne by the promoting public sector partner?
A) Risk from unforeseen developments

B) Termination risk
C) Revenue risk
D) Demand risk.
Q.57. Which among the following is common to PPP audit and Performance Auditing
A) The accountability of the public participant to provide service at affordable cost continues even
before PPP arrangement.
B) Public auditors to assess 3Es of the operations of the PPP from the public accountability angle
C) Though the entity to PPP is the private partner the entire operations carried out by it will impact
the public sector partner
D) All of the above
Q.58. In more complex PPP the risks are widely shared with risk taken by one element of the
arrangement being_______by the risks taken by another element of the arrangement on a
_________basis.
A) Balanced, back to back

B) Counterbalanced, back to back
C) Back to back ,balanced
D) Back to back, counterbalanced
Q.59. Find out the correct statement
A) The agreement between the concessionaire and the O&M contractor would come within the
scope of public audit
B) The private sector partner has to ensure the quality of maintenance & standard of service
C) The public sector partner will bear the consequences of under performance of O&M .
Q 60. Selection of PPP Project for audit will depend on
A) Financial closure of the concessionaire

B) Substantial investment of the concessionaire in the project
C) System for monitoring and evaluation of the performance of the service provider
D) Risk factors associated with the project
Q.61. Engaging external expert by SAI to conduct PPP audit is required when
A) Lacking of commercial expertise to evaluate protection of state's own interest

B) To review the financial risks over a long time frame through variable analyses
C) Only complex projects .
D) All of the above
Q.62. Sequential approach to audit of PPP means
A) To ensure safeguarding the value for public money

B) Limited audit of construction & engineering to verify quality and innovation
C) To cover various aspects of the partnerships arrangement as they occur in actual practice
Q.63. The audit of project formulation, the following issue is irrelevant
A) The adoption of PPP models merely to overcome govt budgeting constraints

B) The transparency of cost estimates
C) The review of concession granted in terms of quantum and the period of concession
D) The pattern of state funding worked out.
Q.64. The risk as to private partner to PPP failing in his obligations can be averted by
A) By shifting the risk entirely to private partner

B) By including "step in" , "but out" clauses on MCA.
C) By extending the concession period
D) By reassuring the traffic and revenue volume
Q.65. If the financial closure was not done within the sanctioned time the option available is
A) Suo-motu extension by the public sector partner

B) Granting extension sought by the private sector partner
C) Levying penalty stipulated in the agreement
Q.66. Undue loading of total project cost occurs
A) When there is over-engineering of the project

B) When there is "padding up" of the cost element
C) Either A or B
D) Both A and B
Q.67. Which among the following is not a criteria to provide VGF
A) Infrastructure projects which are economically justified

B) When the project fall short of viability due to long generation period
C) Inability to raise the user charges to commercial levels
D) The private participant would hold less than 50% of the share holding of the PPP
Q.68. The Rate of Return should not be linked directly to the TPC because
A) The TPC consists of both equity and debt usually expended in a reasonable debt equity ratio
B) The toll/tariff/user charges are subject to regulations by independent authorities
C) Possible ambiguities and pitfalls in the fixation of Tariff & user charges
D) All of the above
Q.69. In case of refinancing of the TPC with reduced interest burden,the agreement should provide
for automatic _______of the TPC, with appropriate ________to user charges
A) Increase, decrease
B) Reduction, increase
C) Reduction, adjustments
D) Increase, increase
Q.70. When there is likely push up project cost, the public auditor
A) Should insist the transfer of most of the risks to the private partner
B) Should eschew the temptation of expecting the public authority to transfer most of the risks to
the private partner
C) Should verify whether 'revenue expenditures wrongly included in capital expenditure
Q.71. PPP contract should be awarded to the bidder who offered the best terms in respect of
A) Lowest VGF, lowest revenue sharing
B) Highest VGF, highest revenue sharing
C) Lowest VGF, highest 'revenue sharing
D) Highest VGF, lowest revenue sharing
Q.72. The emphasis of audit scrutiny of the construction of the project is that of end product
because
A) Construction risk is transferred to the private partner

B) PWD audit has been a mainstay of conventional Auditing
C) The monitoring of the construction activities is the concern of independent engineer
D) All of the above
Q.73. "Change of scope" in the construction is effected
A) At the instance of private sector

B) At the instance of public sector partner
C) Due to faulty planning by the DPR consultant
D) All of the above
Q.74. When the "change of scope" is effected due to faulty planning the responsibility to be fixed
on
A) Independent engineer
B) Concessionaire
C) DPR consultant
Q.75. With respect to 'commercial development' of PPP, the public auditor has to comment
A) On indexing the user charges in line with inflation

B) On any hidden benefits to private partner
C) On the concessionaire remitting the concession fee to the public sector partner
Q.76. Which is the criteria for auditing Value for Money Evaluation
A) Has the project led to private sector monopoly in place of public sector
B) Has the PPP brought in technological excellence & innovation in construction
C) Is the revenue sharing agreement justified from public finance point of view
D) All of the above
Q.77. The important principle the public auditor should note w.r.t PPP audit findings & reporting is
A) The report should focus on what have been achieved

B) The report should focus on how the project was achieved
C) The report should focus equally on technical issues
D) The findings should focus against reasonable and calculated risk taking by public sector
Q.78. The recommendations included in the PPP audit report should not
A) Suggest amendments) to the contract wherever necessary

B) Focus on the lessons learnt rather than fault findings
C) Bring out the deficiencies for further guidance
D) Help to make the officials who processed the agreement accountable
Q.79. Public Sector Comparator (PSC) is
A) Lowest cost of the project

B) An estimate of what it would cost to undertake the project using traditional procurement
methods
C) An estimate of what it would cost to undertake the project using international best practices
D) Opportunity cost of the capital
Q.80. The shortfall in Infrastructure facilities in a given geographical confinement as compared to

what it should be saturated condition is
A) Contractual PPP deficit

B) Institutional PPP deficit
C) Infrastructure deficit
D) Deficit as to eligible sectors for VGF
Q.81. Conflict of interest between JV and public sector partner arises because
A) JV would normally have profit maximization as its objectives

B) The public sector entity would be the "regulator" as well as the "regulated" under the same
agreement
C) The public sector entity is the grantor of the concession as also a partner in the concession
D) ALL of the above
Q.82. It is not advisable to form a JV with a stake of 50:50 between a public sector and private
sector because
A) Such a JV is regarded as public sector entity

B) Equal shareholding has the potential of a deadlock where the public interest may be
compromised
C) Such a JV is not accountable to parliament
Q.83. The disadvantage of financing PPP through Zero Coupon Bond is
A) The issuer of ZCB can repay the bond at maturity value in various ways
B) Useful source of long-term capital particularly during construction phase.
C) No periodic interest to the holder
D) The project would not have cash flows to create a sinking fund.
Q.84. _________is responsible for the appraisal of PPP projects.
A) IIPDF
B) IIFCL
C) PPPAC
D) IPRC
Q.85. The Kelkar committee's recommendation as to 'scaling up finance’ includes
A) Restrict number of banks banks in a consortium

B) Equity in completed/successful projects to be diverted by offering to long-term investors
C) RBI to provide guidelines to lenders on encashment of Bank Guarantee in line with ICC norms
Q.86. Which among the following is not a general objective of Internal Control
A) Fulfilling accountability obligations

B) Complying with applicable laws and regulations
C) Safeguarding resources against loss, misuse and damage
D) Providing absolute level of assurance.
Q.87. Find out the incorrect statement w.r.t internal control
A) It should be built on rather than built in

B) Its actions are pervasive and inherent in the way the management runs the organisation
C) It is a series of actions that permeate an entity's activities
D) All of the above
Q.88. The task of management in relation to internal control is to identify and responds to risks
A) Because public sector is generally concerned with the delivery of service in the public interest
B) In order to maximise the likelihood of achieving the entity's mission
C) Because internal control is affected by human nature
Q.89. Internal control provides only a reasonable level of assurance which reflects
A) That qualitative considerations cannot be considered in precision

B) Management cannot identify the risks inherent in their operations
C) The notion that uncertainty and risk relate to the future which no one can predict with certainty
D) The risks cannot be assessed both quantitatively and qualitatively.
Q .90. Which of the following is not an inherent limitation of internal control system
A) Management override
B) Collusion among employees
C) Inefficiency of internal auditor
D) Abuse of authority
Q.91. Tests of internal control are not concerned with
A) Existence of control
B) Effectiveness of control
C) Continuity of control
D) Designing of control
Q.92. Which of the following is an inherent limitation of internal control
A) Incompatible duties
B) Lack of segregation of duties
C) Faulty human judgement
D) Lack of an audit committee
Q.93. Find out incorrect statement w.r.t internal control
A) Internal control cannot by itself ensure the achievement of the general objectives
B) The excessive control in one area of operations will adversely affect other operations
C) The cost of internal control should exceed the benefits derived
D) People do not always understand , communicate or perform consistently
Q.94. Which among the following factor is beyond management's control and require to redesign
the control
A) Resource constraints
B) Organisational changes
C) Demographic changes
D) Poor manager/management
Q 95. The manner in which the management applies the control varies with which of the following
entity-specific factor
A) Risk profile
B) Direct relationship between the general objectives and the control components
C) Monitoring of the internal control system
D) Compliance with laws and regulations
Q.96. "commitment to competence" includes
A) Exhibiting a supportive attitude

B) Good understanding of individual responsibilities w.r.t control
C) Series of choices regarding complexity of processes and methodologies
Q.97. Reporting "conflict of interest" is an example of compliance with
A) Timely communication related to external events

B) The applicable code of conduct
C) The laws and regulations
D) Fulfilment of accountability purposes
Q.98. Which among the following is relevant as to "tone at the top"
A).Counselling and performance appraisal

B) Creation of an internal audit unit
C) Management setting a good example through its own actions
D) All of the above
Q.99. Which of the following is true as to "management intervention"
A) An action to overrule prescribed policies/procedures for legitimate purposes

B) A series of actions taken by the management to run an entity
C) An action necessary to deal with recurring and standard transactions that otherwise be handled
misappropriately
D) Abuse of entrusted power for private gain
Q.100. Which among the following is not relevant as to "management override"
A) Overruling of prescribed policies/procedures for illegitimate purpose (s)

B) Presence of the intention of personal gain
C) Enhanced presentation of an entity's financial condition
Q.101. Which is the precondition to risk assessment
A) Executing ethical operations

B) Setting objectives
C) Safeguarding resources against loss
D) To remove resource constraints
Q.102. Govt entities have to ________that are likely to have an impact on service delivery and
achievement of desired outcomes.
A) Tolerate the risks

B) Transfer the risks
C) Manage the risks
D) Terminate the risks
Q.103. Which of the following is not relevant w.r.t identifying the risks
A) To identify the most important areas to which the resources in risk assessment should be
allocated
B) To allocate responsibility for management of the risks
C) Relating the risks to the previous review
Q.104. "Clean sheet of paper" approach means
A) Facilitating the identification of changes in the risk profile of an organisation

B) Developing framework for categorizing all risks
C) Formulating the overall risk strategy
D) All of the above
Q.105. __________is the amount of risk to which an entity is prepared to be exposed before it
judges action to be necessary
A) Risk evaluation
B) Risk identification
C) Risk treatment
D) Risk appetite
Q.106. Which among the following is difficult to quantify
A) Financial risks
B) Reputation risks
C) High risks
Q.107. Risk self assessment is a _______
A) Top-down procedure
B) Bottom up approach
C) Combination of A and B
D) Neither A nor B
Q.108. When the cost of taking any action is disproportionate to the potential benefit gained , the
response is
A) To transfer the risks

B) To tolerate the risks
C) To terminate the risks
D) To contain the risks
Q.109. Risk profiles and related controls have to be regularly revisited and reconsidered
A) In order to have an assurance that the risk profile continues to be valid

B) That responses to risk remain appropriately targeted and proportionate
C) In order to mitigate controls remain effective as risks change over time
D) All of the above
Q.110. ABC Ltd. conducts quarterly review of its operations and discovers that unrest in Arab
countries may affect the supply of raw materials in the next quarter. This is an example of
A) Risk assessment
B) Control procedure
C) Supervision
D) Control environment
Q.111. After testing internal control activities an auditor discovers a number of significant
deficiencies in the operations of a client internal controls. Under the circumstances the auditor
most likely would
A) Issue a disclaimer of opinion about the internal controls as part of auditor's report
B) Increase the assessment of control risk and increase the extent of substantive test
C) Issue a qualified opinion of this finding as part of auditor's report
D) Withdraw from the audit because the internal controls are ineffective
Q.112. Which among the following control activities are both detective and preventive
A) Controls over access to resources and records

B) Segregation of duties
C) Supervision and review of operations and processes
D) Review of operating performance
Q.113. Segregation of duties does not involve
A) Rotation of employees
B) Encouraging or requiring annual holidays
C) Bypassing when key personnel are away or the workload is heavy
Q.114. "Costs of fraud" does not involve
A) Loss of public confidence

B) Loss of reputation of the innocent
C) Punishment of the perpetrator
D) Abuse of reporting systems through periodic returns
Q.115. If there was a 50% risk of material misstatement in the financial statement item in the
unaudited financial statements and a probability of 80% that the misstatement would be detected
by the auditor, audit risk would be equal to
A) 50%
B) 10%
C) 20%
D) 0 %
Q.116. Assume that there was an 80% inherent risk of a material misstatement in a financial
statement item, and a 30% probability of such a misstatement being deducted by the entity and a
probability of 40% that,if not deducted by the entity the misstatement would be deducted by the
auditor, audit risk is equal to _________
A) 20%
B) 70%
C) 60 %
D) 33.6 %
Q.117. The primary purpose of performing tests of control is to provide reasonable assurance that
A) There are no material misstatements due to fraud or error in financial statements

B) Accounting system is well documented
C) Written evidence is there to support transactions
D) If internal control is effective
Q.118. If the auditor assesses the control risk is high__________
A) Documents the conclusions

B) Documents the reason along with conclusions
C) Perform tests of controls
D) Perform walk through tests
Q.119.Which of the following are included in the tests of controls
A) Reperformance and observation.

B) Inquiry and analytical procedures
C) Comparison and confirmation
D) Inspection and verification
Q.120. Control risk is assessed at
A) Overall financial statement level

B) Fraud risk factor level
C) Financial statements assertion level
D) Control environment level
Q.121. An auditor assesses control risk because it
A) Affects the audit risk

B) Affects the level of detection risk the auditor may accept
C ) Helps him to fix materiality for each financial assertion
D) Is directly related to inherent risk
A) Inherent risk and control risk are uncontrollable

B) Detection risk is related directly to the effectiveness of the auditor prosecutor
C) Detection risk related inversely to control risk
D) Inherent risk and control risk are highly interrelated
Q.123. In comparison to the independent auditor,an internal auditor is more likely to be concerned
with
A) Cost accounting system

B) Internal control system
C) Legal compliance
D) Accounting system
Q.124. When an independent auditor relies on the work of an internal auditor , he should
A) Examine the scope of internal auditor's work

B) Examine the system of supervising review and documentation of internal auditor's work
C) Adequacy of related audit programme.
D) All of the above
Q.125. When an auditor tests the internal controls of a computerised system,which of the following
is true of the test data approval?
A) Test data are coded to a dummy subsidiary so they can be extracted from the system under
actual operating condition
B) Test data programmes need not be tailor-made by the auditor for each entity's computer
applications
C) Test data programmes usually consists of possible valid and invalid conditions regarding
compliance with internal controls
D) Test data are processed with entity's computer and the results are compared with the auditor's
predetermined results.
Q.126. As a result of tests of controls, an auditor assesses control risk too high.This incorrect
assessment most likely occurred because
A) Control risk based on auditor's sample is less than the true operating effectiveness of the
entity's control activity
B) The auditor believes that the control activity relates to the entity's assertion when, in fact it does
not
C) Control risk based on the auditor's sample is greater than the true operating effectiveness of the
entity's control activity
D) The auditor believes that the control activity will reduce the extent of substantive testing, in fact,
it will not.
Q 127. When an entity use information technology exclusively, evidence may be available only in
electronic form.What is the auditor's best course of action in such situation?
A) Assess the control risk as high

B) Use audit software to perform analytical procedures.
C) Use generalised audit software to extract evidence from entity's databases
D) Perform limited tests of controls over electronic data.
Q.128. In considering the adequacy of control the auditor should not
A) Start with higher levels of controls which affect the whole system.
B) Work down to the lower level controls such as those over individual transactions
C) Adopt an absolute measure of what constitutes adequate control
D) Use their judgement in determining what level of control is appropriate.
Q.129. "Materiality" in evaluating the adequacy of control means
A) Strategic planning which affects the whole system.

B ) Viewing the risk as the chance of one or more of management's objectives not being met
C) Likelihood of undesirable events occurring and their significance to the organisation
D) All of the above
Q.130. In considering "materiality" in relation to evaluation of the adequacy of existing control,

which of the following is not relevant
A) The possible direct and indirect financial consequences

B) The importance of particular management objectives in the context of overall objectives
C) The potential for embarrassment to higher management
D) Testing the actual operation of internal controls.
Q.131. Controls should not be evaluated in isolation
A) As they interrelate and often operate in a hierarchy

B) A they refers both to unwanted outcomes which may arise and the potential failure to realise
desired results
C) As the transactions are executed in accordance with management's general/specific
authorisation
Q.132. If the auditor is not satisfied that the existing controls are adequate or if no controls exist at
all
A) The auditor should search for other controls which compensate for the apparent weakness
B) The auditor should use professional judgement in deciding whether controls are adequate
C) The auditor should search for other controls which enable the control objectives to be met
Q.133. "Walk through" tests are designed to confirm the auditor's understanding of how a system
operates which can be derived from
A) Observations
B) Interviews
C) Examination of management's documentation
D) A combination of all the above
Q.134. Conducting "walk through" tests involve
A) Examining a number of different transactions at each stage of the process
B) Following the same transactions from start to finish.
C) Either (A) or (B)
D) Neither (A) nor (B)
Q.135.____________is a method of recording and describing a system which can show the flow
documents, information or process es and the related controls within that system
A) Internal control questionnaires

B) Flow charting
C) Level of testing
D) Compliance testing
Q.136. Compliance testing is not intended primarily
A) To obtain assurance that controls are operating as intended and are effective
B) As a means of identifying errors or failures to achieve objectives
C) To ensure that sample selected for testing takes account , as far as practicable, of such
variations
Q. 137. In compliance testing , the auditor is more concerned with the __________and the
effectiveness of controls rather than the _______themselves.
A) Mistakes, errors or omissions

B) Mistakes, reason for errors or omissions
C) Reason for errors or omissions, mistakes
D) Errors or omissions, mistakes
Q.138. Errors found in compliance testing may indicate_________
A) Changes in operating conditions

B) Mistakes
C) Errors or omissions
D) Control weaknesses
Q.139. Reperformance is particularly relevant
A) To discover any instances where the control has not been performed correctly
B) Where calculations or measurements have been supposedly checked and the auditor wishes to
check that control actually operated
C) The auditor may check on a sample of that percentage
D) All of the above
Q.140. The role of audit is to confirm the validity of data as an end in itself
A) Correct. B) incorrect
Q.141. Which among the following is not a separate condition of financial audits.
A) Inadequate provisions for the safeguarding of assets.

B) Absence of sufficient level of control consciousness within the organisation
C) Failure to follow up and correct previously identified deficiencies
D) Test controls over types of transactions which occur infrequently
Q.142. Which is incorrect statement w.r.t achievable level of audit risk (AR)
A) AR is the risk the audited financial statements will contain a material misstatement.
B) AR is the risk of a material misstatement in financial statements that are acceptable to the
auditor
C) AR is an ex ante concept rather than ex post concept
A) The acceptable level of audit risk is estimated by reference to the expected reliance on the
audited financial statements
B) The achievable level of audit risk is estimated by reference to the value of inherent, control and
detection risks
C) The aim of an auditor in relation to internal control is to achieve an achievable level of audit risk
D) The aim of an auditor in relation to internal control is to achieve a level of an audit risk that is
acceptable to the auditor.
Q.144. Which among the following is incorrect statement w.r.t detection risk
A) The acceptable level of detection risk is the maximum level of detection risk an auditor can allow
to occur
B) The achievable level of detection risk is ,that a material misstatement in the unaudited
information will not be detected by the auditor
C) Detection risk is an ex post concept rather than an ex ante concept
D) All of the above
Q.145. The importance of assessment of internal control by the external auditor is
A) In view of huge volume of transactions, it will not be possible to carry out a detailed audit
B) Greater reliance on the internal controls in the computerised systems
C) The audit can be more efficient of substantive procedures are determined on the basis of
evaluation of control
D) All of the above
Q.146. Where the external auditor finds that internal controls in certain areas are not adequate , he
may
A) Decide to apply more extensive substantive procedures
B) Change the timing of the tests to be applied
C) Carry out a more detailed examination of the unsatisfactory aspects of the internal control
system
D) All of the above
Q.147. In respect of _________assessment is mainly of controls that assist management in

complying with laws and regulations
A) Regulatory (financial) audit

B) Regulatory (compliance) Audit
C) Performance audit
Q.148. External auditor's assessment of internal control procedures does not imply
A) Identifying and understanding the relevant internal controls

B) Determining what is already known about control effectiveness
C) Assessing the adequacy of internal control
D) Reliability and integrity of financial and operational information
Q.149. Internal audit is, in effect, part of the performance monitoring system
A) True
B) Not true.
Q.150. Which of the following is an auditor required to communicate to those charged with
governance
A) Adjustments that were suggested by the auditor and recorded by management that have
significant effect on the entity's financial reporting process
B) The auditor's consideration of risk factors in assessing the risk of material misstatement arising
from the misappropriation of assets
C) The results of the auditor's analytical procedures performed in the review stage of the
engagement that indicate significant variances from expected amounts
D) Changes in the auditor's preliminary judgement about materiality that were caused by projecting
the results of statistical sampling for tests of transactions.
Q.151. Which among the following amounts to a fraud?
A) A mistake in gathering or processing data from which financial statements are prepared
B) An incorrect accounting estimate arising from oversight or misrepresentation of facts
C) Making off-the-books or inadequately identified transactions.
D) A mistake in the application of accounting principle relating to disclosure
Q.152. Which among the following is not relevant to a fraud
A) Fraud is an intentional act by one or more individuals

B) The use of deception to obtain undue or illegal financial advantage
C) Deliberate misrepresentation of facts and significant information
D) An act committed in good faith which by subsequent turn of events proves to be incorrect
Q.153. An act which the law declares to be fraudulent because certain acts carry on themselves an
irresistible evidence is ____________
A) Management fraud
B) Presumptive fraud
C) Constructive fraud
D) Employee fraud
Q.154. ___________is the gaining of one's ends in treating with another.

A) Guile
B) Circumvention
C) Fraud
D) Collusion
Q.155. Fraud may not involve
A) Misapplication of accounting policies

B) Recording of transactions without substances
C) Manipulation, calcification or alteration of records.
D) Any act that would not be against public interest
Q.156. What is not true as to consideration of materiality in case of Fraud detection
A) While audit looks at records ,fraud examination goes beyond audit

B) Audit can not always establish and determine whether a misrepresentation is an error or fraud
C) Since fraud is illegal ,materiality assumes higher significance.
D) Adjustments to the materiality level make audit more responsive to risk arising from fraud.
A) Corruption hurts the poor disproportionately by diverting funds intended for development
B) Corruption undermines a govt' s ability to provide basic services
C) Corruption feeds inequality and injustice
D) Corruption encourages foreign aid and investment
Q.158. Which among the following public finance activity ensures transparency and accountability
as a measure of controlling corruption
A) Timely reporting on revenue and expenditure

B) A system of accounting and auditing standards and related oversight
C) Effective and efficient system of risk management and internal control
D) All of the above
Q.159. An act of corruption would comprise of the following
A) There is an offer but no acceptance of inducement

B) There is a misuse of office or position but not for private gain
C) An alleged corrupt act but involves no breach of trust
D) An attempt to solicit an offer of inducement as benefit for performance of an official act
Q.160. In some cases, corruption may have only a consequential, and not a visible and direct
effect on the accounting records,find out such an example
A) When the quality specifications are compromised in a supply order to benefit a supplier
B) Where a tax officer collects a bribe from an entity to provide tax relief
C) Where an entity pays an influential decision-maker a bribe to secure a contract
D) All of the above
Q.161. The problem which corruption poses for audit is that
A) The corrupt employee may benefit from the corruption, but there may not be any loss to the
auditee
B) Corruption is linked with the acts of bribery.
C) The corrupt practice is not normally covered up through an accounting ,compliance or reporting
fraud.
Q.162. The common characteristic of Fraud and corruption is
A) Both are without proper authority

B) Both involves breach of trust
C) Both are either illegal or irregular
D) All of the above
Q.163. Detection of Fraud is not the primary objective of audit
A) True
B) False
Q.164. The conduct of audit personnel can be called in question
A) When the management takes no measures to improve control environment

B) If the evidence was such as would arouse suspicion in an auditor of normal prudence
C) An indication that fraud may have occurred which would have a material effect on Audit finding
Q.165. During The Audit of financial statements_________ intentional misstatement is relevant

w.r.t fraud
A) Misstatements resulting from fraudulent financial reporting
B) Misstatements resulting from misappropriation of assets
C) Either ( A) or (B)
D) Both (A) and (B)
Q.166. To ensure through _________ that entity establishes and maintains ________ to provide
reasonable assurance w.r.t reliability of financial reporting
A) Oversight of management, internal audit

B) Oversight of management, internal control
C) External audit, oversight of management
D) Internal audit, oversight of management
Q.167. The responsibility for the prevention of Fraud or error rests primarily with the management
of the entity through
A) Implementation and continued operation of accounting and control systems

B) Adequate and timely disclosure of cases of fraud and corruption
C) Ensuring reliability and results of operations must include concerns arising from risk of Fraud
and Corruption
D) All of the above
Q.168. The objective of an audit of financial statements to enable the auditor to express an opinion
is
A) To obtain reasonable assurance that the financial statements taken as a whole are free from
material misstatements
B) To obtain an absolute assurance that the financial statements taken as whole are free from
material misstatements
C) To obtain absolute assurance that financial misstatements will be detected
Q.169. Professional skepticism helps to identify the existence of fraud having a material effect on
audit findings.which is not relevant for an auditor?
A) Considering the potential for management override of controls

B) Recognising the fact that audit procedures that are effective for detecting error may not be
appropriate
C) Relying upon auditor's past experience with the entity about the honesty and integrity of the
management
D) All of the above
Q.170. Corruption is a
A) Matter of local government

B) Transnational phenomenon
C) Matter affecting economy of the nation.
D) Matter affecting all economies
Q.171. An example of high risk area to be considered at the planning stage in relation to audit of
Fraud is
A) Cases of misuse of financial powers

B) Payment made for services/ suppliers not received
C) Cash management
D) Delegation of powers particularly in vulnerable areas.
Q 172. What is irrelevant w.r.t fraud awareness at the audit planning stage?
A) Risk of Fraud and Corruption could be higher in procurement of goods and services
B) Past performance of the audited entity is relevant only when there was previous instances of
Fraud
C) As audit can not insure against fraud professional scepticism attaches less important than
public and media information
D) Audit plan should focus on high risk areas
Q. 173. In identification of potential areas of risk the following is irrelevant
A) Taking expenditure as the sole criterion is simplistic and unsophisticated

B) Areas of specific concern potentially having a material impact on financial statements is relevant
C) Audit can reasonably assume, without the necessity of under taking a detailed examination that
the results produced by the system would be fairly accurate
Q.174. Acceptance of substandard goods or obtaining unauthorised information is an example of
A) Collusive bidding
B) Aggressive bidding
C) Defective pricing
D) Bribery and kickbacks
Q. 175. Purchase made from a fake supplier or contractor is known as
A) Pilferage of public assets

B) Phantom contractor
C) False invoices
D) Defective pricing
Q.176. Front- loading of contract is made
A) To increase the price of the original contract through change orders

B) To increase the price of the contract through subsequent modifications of the contract
C) Fixing artificially high prices for goods and services supplied by the contractor
D) Either (A) or (B)
Q.177. What information the auditor needs to obtain at the commencement of audit w.r.t fraud
awareness
A) Cumulative effect of numerous petty errors or irregularities as being indicative of carelessness
and inefficiency
B) System to establish accountability for fraud/ corruption
C) Payment made for services/ supplies not received
D) Delegation of powers particularly in vulnerable areas
Q.178. An auditor concerning fraud or corruption should understand that audit evidence obtained
can be
A) Conclusive and not pervasive

B) Pervasive and not conclusive
C) Ought to be closer to conclusive
Q.179. Which among the following is a Red Flag item
A) Collusion between the supplier and employees

B) Effectiveness and adequacy of internal control in various areas
C) Document matching and cross linking of documents
D) False statements and false claims
Q 180. When auditors suspect the possibility of Fraud and Corruption, they should
A) Ensure the reliability of audit evidence by verifying it with source documents including third party
evidence
B) Establish whether it has taken place and there has been resultant effect on the financial
reporting
C) Without automatically assuming the management and staff are dishonest investigate the control
failure
D) All of the above
Q.181. The fraud risk concerning operating information irrespective of whether possible fraud is
related to the entity's financial statement is
A) Embezzlement through incorrect accounts of receipts

B) Intentional misstatements on financial reporting in order to receive unlawful grants.
C) Overstatement/understatement of accomplishments
Q.182. Which is not an fraud risk concerning operating systems
A) Progress in meeting performance goals

B) Number of citizens served
C) Compliance with policies
D) Manipulation of bidding terms and evaluation.
Q.183. Which is not a fraud specific internal controls

A) Segregation of duties and functions.
B) Non - production of basic records
C) Real time inventory control
D) Physical asset control
Q 184. In order to incorporate an element of unpredictability in the selection of nature, timing and
extent of audit procedures, the auditor should
A) Perform audit procedures at different locations

B) Design external confirmation
C) Perform analytical procedures at a more detailed level.
D) All of the above
Q.185. A retrospective review of management judgements and assumptions applied in prior period
provide
A) Insight about the reasonableness of judgements and assumptions supporting management

estimates
B) The risk of management override of controls
C) Understanding of the entity and its environment
D) External confirmation with inquires of non-financial personnel in the entity
Q.186. To respond to the risk of management override of controls, the auditor should design and
perform audit procedures to
A) Obtain an undertaking of the business rationale of significant transactions that the auditor
becomes aware
B) Review accounting estimates for biases that could result in material misstatement due to fraud
C) Test the appropriateness of journal entries and other adjustments made in the preparation of
financial statements
D) All of the above
Q. 187. Non-reporting of losses or shortages of public money as required by GFR can be
A) An conclusive evidence suggesting non-transparency

B) An indicator suggesting non-transparency and the presence of an element of fraud or corruption
though not conclusive
C) An indicator for fraud and Corruption in some cases
D) All of the above
Q.188. Which type of IT fraud will cause deliberate damage
A) Manipulation of input of a computer system

B) Manipulation of output of a computer system
C) By hacking into the system
D) Manipulation of throughput of a computer system
Q.189. The situations/events that may be suggestive of fraud/presumptive fraud
A) Should be highlighted in the Inspection Report with a recommendation for detailed investigation
and response
B) Should be addressed confidentially
C) Should be reported to investigating agencies such as CBI and CVC
D) All of the above
Q.190. ____________may be reported through separate confidential letter to the specified

investigating agency
A) All individual cases of suspected/presumptive fraud/corruption

B) Situations/events that may be suggestive of fraud/corruption
C) Material /significant cases of fraud/corruption
Q.191.The term fraud or corruption may not be used in a conclusive sense by audit unless
A) Such action is investigated by CBI or CVC

B) Such action is established by audit by resorting to taking expert opinion
C) Such action is established in a court of law
D) Such action is established by audit itself, by professional scepticism.

MCQ On Auditing

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Model Multiple Choice Questions (MCQs) on Auditing Methods and Techniques

Q.1. The PPP framework requires

A) Securing a reasonable return at manageable risk for the govt.

Q.2. Which is not a characteristic of PPP

A) Long term service provisions

Q.3. The major criticism against PPP Project is

A) The govt is just mortgaging the future

Q.4. The key to successful PPPs is

Q.5. Which among the following is an institutionalised PPP

A) Highway projects contracted out by NHAI

Q.6 The duration of the contract is indefinite in ____PPP option

Q.7. Which is not true as to privatisation

A) The transfer of ownership to the private sector

Q.8. The lack of well-performing institutions w.r t PPP is reflected in

A) Protracted length of negotiations between the public and private partners

Q.9. Find out the incorrect statement w.r.t PPP arrangement

Q.10. The scope of PPP audit does not emphasise on

A) The end results of the project

MCQ No. 6 - PMS Sir

A) Use private sector methods in public bodies

Q.12. 'Unsolicited proposals' is otherwise called

A) Privatisation of retail trading network

A) Clarity about partnership objectives

A) It brings information asymmetrics into the procurement process

Q.15. Find out the incorrect statement w.r.t PPP

Q.16. Improving a PPP's risk profile can be accomplished

Q. 17. The final decision on a renegotiated concession agreement must be based on

Q. 18. '"Obsolescing Bargain" in PPP occurs because

A) The SOEs/PSUs do not have technical competency

A) Performance based rewards linked to user satisfaction

A) Through the use of Chinese Walls

Q 23. The risk as to contractual disputes could be managed by

A) Appropriate dispute resolution

A) Inadequate diligence and appraisal

A) The absence of claw-back clause in the contract

A) Insufficient financial audit

Q.30. By inflating the total project cost,developers

A) Source higher debt than actual requirement

Q.31. 'Aggressive Bidding' happens due to

A) Absence of effective co-ordination among various govt agencies

Q.32. Find out the incorrect statement w.r.t PPP

Q.33. Find out the financial issue in PPP arrangement

A) Variation with cost savings

Q.34. The reason for renegotiation of long term contract is

A) Abusing the sovereign authority by govt authorities

Q.35. Kelkar committee favours utilisation of VGF

A) Where user charges cannot guarantee a robust stream

Q.36. Total Project Cost (TPC) as a bid parameter is more suited to

A) Small or social sector projects

A) Possibilities of cartelisation to ensure higher TPC.

Q.38. Which among the following is a limitation of PPP

A) The role of private sector partner that implements the project

A) Fund the project through hybrid models

A) The plea of commercial confidentiality

Q.44. Since SAI's audit is post audit which is not possible

A) Contract between PPP partners can not be altered/ amended

Q.45. Find out the incorrect statement

Q.46. "Actionable stress" refers to