The 'Engagement Letter' in audit is: MCQ with Answer and Explanation

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The 'Engagement Letter' in audit is:

A. A letter of appointment of auditor

B. The audit programme

C. A written agreement between auditor and client detailing scope and terms of audit

D. Tax notice

Answer: Option C

Solution (By JKSSB Mock Tests)

Engagement letter formalises the audit engagement.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

The 'Rights Issue' is offered to:

A. Employees

B. Public

C. Existing shareholders in proportion to their holding

D. Promoters

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Correct Answer: Option C

Explanation:
Rights shares are offered to existing equity shareholders on a pro-rata basis.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #2

Creating a provision for doubtful debts is an application of which accounting convention?

A. Full Disclosure

B. Materiality

C. Consistency

D. Conservatism

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Correct Answer: Option D

Explanation:
Conservatism (Prudence) requires anticipating potential future losses (like bad debts) and providing for them immediately.

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Question #3

Which of the following is a capital profit?

A. Profit on sale of goods

B. Discount received

C. Profit on sale of investment (capital nature)

D. Rent received

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Correct Answer: Option C

Explanation:
Profit on sale of a capital asset (like long-term investment) is capital profit. Profit on sale of goods is revenue.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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