Q. What is ‘Financial Audit’ versus ‘Cost Audit’?
Answer: Financial Audit verifies the overall accuracy of financial statements, while Cost Audit verifies the correctness of cost accounts and adherence to the cost accounting plan.
Q. What is ‘Over-capitalization’?
Answer: A situation where a company has more capital than it needs for its operations, leading to low earnings per share.
Q. In auditing, what is ‘Detection Risk’?
Answer: The risk that the auditor’s procedures will fail to detect a material misstatement that exists in an account balance.
Q. What is ‘Float’ in cash management?
Answer: The difference between the balance shown in a company’s checkbook and the balance shown on the bank’s records due to processing delays.
Q. Which accounting concept requires that ‘Stock’ be valued at cost or net realizable value, whichever is lower?
Answer: Prudence (Conservatism) Concept.
Q. What is ‘Consolidated Financial Statement’?
Answer: The combined financial statements of a parent company and its subsidiaries, presented as a single economic entity.
Q. What is ‘Audit Trail’?
Answer: A step-by-step documented history that allows a financial transaction to be traced back to its source.
Q. What is ‘Negative Confirmation’ in auditing?
Answer: A request that the third party respond only if they disagree with the amount stated in the auditor’s letter.
Q. What is ‘Capital Reserve’?
Answer: Profits created from capital transactions which cannot be used to distribute dividends.
Q. What is ‘Operating Leverage’?
Answer: The degree to which a firm uses fixed costs in its operations.
Q. In a company liquidation, who is paid first?
Answer: Secured Creditors.
Q. What is ‘Statutory Audit’?
Answer: An audit mandated by law to ensure the fairness of financial reports.
Q. What is ‘Sunk Cost’?
Answer: A cost that has already been incurred and cannot be recovered.
Q. What is ‘Internal Check’?
Answer: A system of allocation of duties where the work of one employee is automatically checked by another.
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