Auditing MCQ Questions and Solutions with Explanations | Commerce

The correct answer is Option D: All of the above.
Let's break down why:
Option A: Auditing uses the theory of evidence to verify the financial information made available by accountancy
Think of it like this: Accountants create financial statements, and auditors act like detectives.
They use evidence to check if those statements are accurate and follow the rules.
Option B: Auditing lends credibility dimension and quality dimension to the financial statements prepared by the accountant
Auditing adds trust and quality to financial statements.
When a company's financial statements are audited, people have more confidence in them because an independent expert has checked them.
Option C: Auditor should have a thorough knowledge of accounting concepts and convention to enable opinion on financial statements
To give an opinion on the fairness of financial statements, an auditor needs to understand accounting very well.
They need to know the rules and principles that accountants follow.
Since all three statements are true about the relationship between auditing and accounting, the answer is All of the above.

According to section 139 of the Companies Act of 2013, the First Auditor of a business other than an agency of the government must be chosen by the Board within 30 days after incorporation

Section 224(8) of the Companies Act, 1956 deals with the remuneration of auditors.

According to this section, the remuneration of the auditor is determined depending on the type of appointment.

For the first auditor, the remuneration is fixed by the Board of Directors.

For subsequent auditors, the remuneration is fixed by the shareholders of the company at a general meeting or in the manner prescribed therein.

Thus, the correct section of the Companies Act, 1956 that discusses the remuneration of auditors is Section 224(8).

Note: This provision has changed in the Companies Act, 2013, where the remuneration of auditors is now dealt with under Section 142.

Correct Answer: A: The fairness of the financial statements

Let's break down why this is the right answer and why the others aren't the best fit:

Option A: The fairness of the financial statements - This is the primary goal of an audit. Auditors want to determine if the financial statements present a fair view of the company's financial position and performance, meaning they are free from material misstatement and comply with accounting standards.

Option B: The accuracy of the financial statements - While accuracy is important, an audit focuses more on 'fairness' rather than absolute accuracy. It's impractical and often impossible to guarantee that every single transaction is 100% accurate. Auditors focus on material misstatements, which are errors that could influence decisions.

Option C: The accuracy of the annual report - The annual report contains more than just financial statements. It also includes management's discussion and analysis, and other information. Audits specifically target the financial statements.

Option D: The balance sheet and income statement - While the balance sheet and income statement are important components, an audit covers all the financial statements which also includes the statement of cash flows and statement of changes in equity (or retained earnings). The audit opinion applies to the complete set of financial statements.

In summary: The core objective of an audit is to provide an opinion on whether the financial statements 'fairly present' the company's financial position and performance.