MCQs on Verification & Valuation of Assets in Audits

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1. When counting cash on hand the auditor should:
(A) Ensure presence of somebody from management
(B) Obtain a receipt from custodian as to its return
(C) Ensure postage and revenue stamps are not counted in physical count
(D) Temporary advances employees are counted to calculate balance of cash in hand

2. Which is not true regarding to auditor’s presence at stock taking?
(A) Auditor should attend physical stock taking only if inventory is material
(B) Auditor may not attend physical verification of stock by management
(C) Even when the auditor is not placing reliance on the physical verification by the management, he should attend it
(D) The primary objective of an auditor’s observation of an entity’s stock take is to obtain direct knowledge that the stock and has been properly counted

3. While observing a client’s annual physical inventory, the auditor conducted test counts. Some test counts were higher than the recorded quantities. This may indicate failure to record:
(A) Purchase returns
(B) Sales returns
(C) Goods with consignor
(D) Purchase discounts

4. Which of the following assets is least likely to be subjected to lien?
(A) Freehold land
(B) Plant and machinery
(C) Lease hold property
(D) Motor vehicles

5. An analysis of fixed properties account has exposed possibility of unrecorded sale of plant and machinery. Which of the following audit procedures may be adopted to discover it?
(A) Examination of property tax files
(B) Inquiry of plant manager
(C) Examination of debits to collected reduction
(D) All of the above

6. The auditor has noticed presence of recurrent losses on sale of fixed assets. This indicates:
(A) Depreciation charges are insufficient
(B) Policy of sale or disposal of fixed assets needs to be reviewed
(C) The sale of assets have not been properly authorized
(D) Accounting errors

7. Analytical measures are least likely to be used in the audit of:
(A) Cash balance
(B) Investments
(C) Bills receivables
(D) Debtors

8. The auditor while verifying prepaid insurance has concluded that there is insufficient insurance of building. He should:
(A) Modify his audit report
(B) Insist it should be disclosed in the notes to financial statements
(C) Write it in letter of weakness
(D) Both (B) and (C)

9. While verifying intangible assets, an auditor would check amortization charges and determine whether the amortization period is reasonable to establish:
(A) Valuation
(B) Existence
(C) Disclosure
(D) Possession

10. When auditing prepaid cover, an auditor discovers that the cover policy bond on building is not available for inspection. This may indicate:
(A) No insurance has been undertaken for the building
(B) Lien on building
(C) Insurance premium has not been paid
(D) Insurance premium paid but not recorded

11. Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock Holding Company of Pakistan Limited. The auditor may verify this investment by:
(A) Reviewing last year’s working papers
(B) Obtaining a certificate from an accountable official of ABC Ltd.
(C) Obtaining a certificate from SHCIL
(D) Obtaining a certificate from XY Ltd.

12. Which of the following controls would ensure that securities are not lost, stolen or diverted?
(A) Establish physical barriers over investment securities
(B) Maintain files of authorized signatures
(C) Segregate investment approval from accounting and from custody of securities
(D) All of the above

13. The balance of cash is often between one to five percent of total assets. Which is the most appropriate statement regarding verification of cash in this context?
(A) Cash is always material as materiality is a qualitative concept
(B) No audit of cash is needed when, in auditor’s opinion, cash is immaterial
(C) The cash balance need only be checked if the balance is in overdraft
(D) Cash is to be confirmed if control risk is measured as high

14. Which of the following would give confirmation that debtors mentioned on the balance sheet date actually exist?
(A) Sending debtor’s confirmation letters
(B) Reviewing subsequent collections
(C) Verify debtors against sales documents
(D) Both (A) and (B)

15. Which of the following financial statements assertions are tested by verifying the cut-off for plant asset additions?
(A) Existence and ownership
(B) Valuation and disclosure
(C) Possession and ownership
(D) Completeness and valuation

16. Which of the following statements is not true regarding teeming and lading?
(A) It results in the deliberate misuse of cash receipts
(B) It is associated with cash receipts
(C) If the same individual maintains cash receipts and cash payments, teeming and lading is likely to exist
(D) To conceal the shortage, the fraud usually tries to keep bank and book amounts in agreement to avoid detection

17. Which of the following is not a proper third party to hold funds on behalf of the client?
(A) Regional level custodian
(B) National level custodian
(C) Pakistan Trills – National level stock broking firm
(D) AEZ Securities Ltd, a stock broking firm

18. Which of the following is not true with regard to verification of assets?
(A) It involves confirmation of occurrence of transactions
(B) Its objective is to establish existence, possession, ownership, valuation and disclosure of assets
(C) The auditor has to form an opinion on different aspects
(D) All are true

19. Which of the following statements is not true?
(A) Valuation of assets is the responsibility of management
(B) The auditor can rely on a certificate issued by an authorized valuer for asset valuation
(C) The auditor should value the asset as per generally accepted accounting principles
(D) Valuation is no part of auditor’s duty

20. An auditor is verifying valuation of a building which has been self-constructed by the client. Which of the following documents is least relevant for verification purposes?
(A) Bills of contractor
(B) Minutes of meeting of board of directors
(C) Certificates of engineer and architect
(D) Loan agreement

21. Inspection report/receiving report supports entries in:
(A) Sales book and sales return book
(B) Purchase book and sales return book
(C) Cash book and purchase book
(D) Sales book and purchase return book

MCQs on Verification & Valuation of Assets in Audits
By: Prof. Dr. Fazal Rehman | Last updated: May 29, 2025

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