2 MARKS QUESTIONS:

1. What is Internal Audit?

An internal audit is a continuous and systematic review of accounting, financial and other
operations of a concern by the staff specially appointed for the purpose.
It implies the audit of accounts by the staff of the business.

2. What is an Audit Strategy?

An audit strategy is a roadmap for auditors to plan and execute an audit. It sets the
direction, timing, and scope of an audit. It also helps develop an audit plan, which includes
detailed responses to an auditor's risk evaluation.
The audit strategy ensures that the audit objectives are met and the audit is conducted in
accordance with applicable auditing standards.

3. What is Audit Engagement?

An audit engagement is a contractual agreement between a client and an independent
auditor.
The auditor agrees to perform an audit of the client's financial statements and accounting
records and agrees to provide an objective opinion on the client's financial statements.

4. What is a Cost Audit?

A cost audit is a detailed examination of a company's cost structure. It assesses the
accuracy of cost accounting records to ensure compliance with relevant laws and
standards.
Cost audit ascertains the accuracy of cost accounting records to ensure that they conform
with cost accounting principles, plans, procedures, and objectives.

5. State the meaning of Tax Audit.

A tax audit is the process of verification and inspection of the accounts of a taxpayer to
confirm their adherence to the provisions of the Income Tax law.
A tax audit is an examination or review of accounts of any business or profession carried out
by taxpayers from an income tax viewpoint.

6. State the meaning of Audit Working Papers.

Audit working papers are documents that auditors create during an audit engagement. They
record the evidence and procedures used by auditors during their work.
The purpose of audit working papers is to document the audit process and provide a basis
for the auditor's opinions and conclusions.

7. What is Audit Planning?

Audit planning is the process of developing a strategy and approach for the nature, timing,
and extent of an audit.
It involves deciding what needs to be done, who will do it, how it will be done, and when it
will be done.
8. What is Tax Audit?
A tax audit is the process of verification and inspection of the accounts of a taxpayer to
confirm their adherence to the provisions of the Income Tax law.
A tax audit is an examination or review of accounts of any business or profession carried out
by taxpayers from an income tax viewpoint.

9. What is an Environmental Audit?

An environmental audit is a systematic, documented, and objective assessment of an
organization's activities and services.
It's a management tool that helps organizations verify compliance with environmental
requirements and norms.

10. State the meaning of the Audit Note Book.

The Audit Note Book is a register maintained by the audit staff to record important points
observed, errors, doubtful queries, explanations, and clarifications to be received from the
clients.
It also contains definite information regarding the day-to-day work performed by the audit
clerks.

11. What is an Audit Program?

An Audit Program is an auditor’s plan of action, specifying the auditing work to be
performed, the procedures to be followed for doing the work, the persons responsible for
the completion of the work, and the estimated duration of time required within which the
work has to be completed.
The goal of the audit program is to devise a guide for the auditor to follow. This guide comes
with predetermined goals.

12. What is Audit Evidence?

Audit evidence is information that auditors gather to document their findings. Auditing
evidence is information collected to review a company's financial transactions, internal
control practices, and other items needed for an audit.
Audit evidence is the primary support for an auditor's opinion on whether a company's
financial statements are materially misstated due to error or fraud.

13. What is Written Representation?

A written representation is a statement provided by management to an auditor to confirm
certain matters or to support other audit evidence.
Written representations are part of audit evidence and are obtained from management
during the fieldwork phase of the audit.

14. What is Audit Documentation?

Audit documentation is the principal record of auditing procedures applied, evidence
obtained, and conclusions reached by the auditor in the engagement.
The quantity, type, and content of audit documentation are matters of the auditor's
professional judgment.
15. What is Internal Control?
Internal control is the whole system of controls, financial or otherwise, established by the
management to carry on the business of the company in an orderly manner to safeguard its
assets and secure as far as possible the accuracy and reliability of its record.
It is a plan of organization and all methods and procedures adopted by the management of
an entity to assist in achieving management objectives.

16. State the meaning of the Internal Check System.

It is the arrangement of the accounting duties under which the work of one person comes
under the scrutiny of another person so that it is not possible to commit fraud without
collusion between 2 or more persons.
An internal check system is a system that ensures that no one person has complete control
over an organization's accounting procedures.

17. What are Fraud Risk Factors? Give examples.

Fraud risk factors are conditions or situations that present opportunities for fraud to occur.
These factors can increase the likelihood of fraud happening within an organization. They
are mainly classified as opportunity, pressure (or incentive), and rationalization.
Examples: Heavy dependence on a few key employees, who have too much power and too
few checks and balances, asset misappropriation for personal purposes and weak internal
controls.

18. What is Audit Risk?

Audit risk is the possibility that financial statements are not truly representative of an
organization's financial position. They are mainly inherent risks and detection risks.
It can also be defined as the risk that an auditor expresses an inappropriate opinion when
financial statements are materially misstated.

19. State the meaning of Verification and Valuation of Assets.

Verification is a process by which an auditor satisfies himself about the accuracy of the
assets and liabilities appearing in the balance sheet by inspection of the documentary
evidence available. It is proving the truth or confirmation of the assets and liabilities
appearing in the balance sheet.
Valuation is a judgment that someone makes about how much something is worth.
Valuation are highly subjective calculation that aims to determine the fair market value of a
company.

20. State any two Disqualifications of an Auditor.

Certain persons are disqualified from being appointed as auditors of a company, they are:
 A body corporate
 An officer or employee of the company
 A director or member of a private company.

21. What is Professional Ethics?

Professional ethics refers to the behaviour of a member of the professional body towards
other members of his profession and the member of the public.
For example, professional ethics means the relationship of Chartered Accountants with
their clients, employees, fellow members of the group and the public generally
22. What is Professional Misconduct?
Professional misconduct is unethical or unprofessional behaviour that falls short of the
ethical or professional standards, guides, or codes of conduct of a particular profession.
It can also be defined as a violation of the rules or boundaries set by the governing body of a
profession.

23. Define Audit Report.

An audit report may be defined as an organized statement of facts relating to the audit book
of account of the company prepared after an inquiry and presented to the shareholders.
According to Lancaster, “A report is a statement of collected and considered facts, so drawn
up to give clear and concise information to persons who are not already in possession of the
full facts of the subject matter of the report”.

24. What is a Clean Audit Report?

A clean audit report, also known as an unqualified opinion, is a report that states that a
company's financial statements comply with GAAP and are free of material misstatement.
A clean report indicates that the auditors are satisfied with the company's financial
reporting and that they comply with the governing principles and laws applicable.

25. What is an Unqualified Audit Report?

An unqualified audit report is a report that concludes that a company's financial statements
are fair and transparent.
Auditors conclude that the financial statements present the company's affairs fairly in all
material aspects. The opinion assumes that the business complied with generally accepted
accounting principles and statutory requirements.

26. What is a Qualified Audit Report?

A qualified audit report is a report that expresses a qualified opinion on financial
statements.
It means that the company's financial records are not maintained under Generally Accepted
Accounting Principles (GAAP) but no misinterpretations are involved.

27. State the meaning of the Code of Ethics.

A code of ethics for auditing is a statement of values and principles that guide the work of
auditors. It sets the tone for a culture of integrity and honesty.
The code of ethics describes the minimum requirements for conduct and behavioural
expectations, rather than specific activities