CSS Accountancy & Auditing MCQs

This comprehensive collection of MCQs on Accountancy and Auditing for the Central Superior Services (CSS) examination is designed to equip candidates with a solid understanding of fundamental accounting principles, auditing standards, and financial management practices. Covering key topics such as financial statements, budgeting, taxation, and internal controls, these questions aim to enhance candidates’ analytical skills and practical knowledge essential for success in the CSS exams.

Who Should Practice Accountancy and Auditing MCQs?

CSS aspirants: Ideal for candidates preparing for the CSS examination who wish to strengthen their performance in the Accountancy and Auditing section.
Students of finance and business studies: Beneficial for individuals pursuing academic paths in accounting, finance, and related fields, providing a foundational grasp of critical concepts.
Job seekers in public service: Perfect for those aiming for government positions where financial literacy and auditing skills are crucial.
Professionals seeking certification: Suitable for anyone preparing for professional qualifications that include accountancy and auditing components.

1. The primary purpose of accounting is to:

A) Record transactions
B) Provide information for decision-making
C) Prepare tax returns
D) None of the above

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2. Which of the following is NOT considered a fundamental accounting principle?

A) Materiality
B) Consistency
C) Fairness
D) Prudence

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3. The accrual concept of accounting means that:

A) Transactions are recorded only when cash is exchanged
B) Revenues are recognized when earned, regardless of cash receipt
C) Expenses are recognized only when paid
D) None of the above

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4. Which of the following is a characteristic of financial statements?

A) They must be prepared annually
B) They are intended for internal users only
C) They provide information about the financial position of an entity
D) They are optional

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5. The going concern assumption implies that:

A) A business will close down soon
B) A business will continue to operate indefinitely
C) A business will operate at a loss
D) None of the above

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6. Which of the following financial statements provides information about a company’s profitability?

A) Balance Sheet
B) Cash Flow Statement
C) Income Statement
D) Statement of Changes in Equity

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7. In the accounting cycle, the first step is:

A) Preparing financial statements
B) Analyzing transactions
C) Posting to the ledger
D) Adjusting entries

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8. Which of the following is NOT part of the financial reporting framework?

A) International Financial Reporting Standards (IFRS)
B) Companies Ordinance 1984
C) Tax regulations
D) Generally Accepted Accounting Principles (GAAP)

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9. A trial balance is prepared to:

A) Confirm that total debits equal total credits
B) Determine net income
C) Prepare financial statements
D) All of the above

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10. The matching principle in accounting requires:

A) All transactions be recorded when cash is received
B) Expenses be matched with the revenues they help to generate
C) All assets be recorded at fair value
D) None of the above

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11. The attribute of accounting information that refers to its capacity to influence decisions is called:

A) Relevance
B) Reliability
C) Comparability
D) Understandability

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12. Which of the following is true regarding a sole proprietorship?

A) It is a separate legal entity
B) The owner has unlimited liability
C) It is taxed as a corporation
D) It requires formal incorporation

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13. Which accounting method requires recognizing revenues when they are earned?

A) Cash basis
B) Accrual basis
C) Modified cash basis
D) None of the above

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14. Depreciation is defined as:

A) The reduction in the market value of an asset
B) The allocation of the cost of a tangible asset over its useful life
C) A method of asset valuation
D) None of the above

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15. In the reducing balance method of depreciation, the rate is applied to:

A) The original cost of the asset
B) The book value of the asset at the beginning of the period
C) The residual value of the asset
D) None of the above

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16. Which of the following is NOT a liquidity ratio?

A) Current ratio
B) Quick ratio
C) Debt to equity ratio
D) Cash ratio

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17. Job-order costing is primarily used for:

A) Homogeneous products
B) Unique or custom orders
C) Mass production
D) None of the above

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18. The purpose of variance analysis is to:

A) Identify the causes of discrepancies between budgeted and actual performance
B) Determine the actual costs incurred
C) Justify expenses to management
D) None of the above

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19. Which of the following is a characteristic of managerial accounting?

A) Focus on external users
B) Historical reporting
C) Future-oriented analysis
D) None of the above

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20. The term “budget” refers to:

A) A financial plan for a specific period
B) An analysis of past financial performance
C) A legal document required by the government
D) A report of actual expenditures

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21. The primary goal of auditing is to:

A) Detect fraud
B) Provide reasonable assurance that financial statements are free from material misstatement
C) Prepare tax returns
D) Verify compliance with laws

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22. Which of the following is NOT an audit assertion?

A) Existence
B) Completeness
C) Relevance
D) Valuation

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23. The concept of “reasonable assurance” in auditing means:

A) Absolute certainty
B) A high but not complete level of assurance
C) Assurance with a financial guarantee
D) None of the above

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24. An auditor’s independence is critical to:

A) Maintaining objectivity and professionalism
B) Enhancing the auditor’s reputation
C) Reducing audit costs
D) None of the above

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25. An audit program is:

A) A detailed plan for conducting an audit
B) A summary of the financial statements
C) A legal requirement for auditors
D) None of the above

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26. Internal control systems are designed to:

A) Safeguard assets
B) Ensure compliance with laws and regulations
C) Enhance the reliability of financial reporting
D) All of the above

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27. An external audit focuses primarily on:

A) Internal controls
B) Financial statements
C) Operational efficiency
D) Compliance with laws

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28. Which of the following is a type of audit report?

A) Clean report
B) Qualified report
C) Adverse opinion
D) All of the above

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29. In which type of audit does the auditor express an opinion on the financial statements?

A) Compliance audit
B) Operational audit
C) Financial audit
D) Internal audit

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30. What is the primary purpose of the auditor’s report?

A) To detail the audit process
B) To summarize financial statements
C) To provide an opinion on the fairness of financial statements
D) To prepare tax returns

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31. Which of the following is a component of internal control?

A) Control environment
B) Risk assessment
C) Information and communication
D) All of the above

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32. The main purpose of an internal audit is to:

A) Provide assurance on financial statements
B) Evaluate the effectiveness of risk management processes
C) Ensure compliance with external regulations
D) All of the above

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33. The Sarbanes-Oxley Act was enacted to:

A) Increase transparency in financial reporting
B) Reduce the number of auditors
C) Eliminate corporate fraud
D) None of the above

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34. Which of the following is a form of tax in Pakistan?

A) Sales Tax
B) Income Tax
C) Property Tax
D) All of the above

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35. Under the Income Tax Ordinance 2001, which of the following is taxable?

A) Salary income
B) Income from business
C) Capital gains
D) All of the above

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36. The due date for payment of income tax in Pakistan is specified under which section?

A) Section 137
B) Section 2
C) Section 4
D) Section 18

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37. Sales tax is levied on:

A) Goods and services sold
B) Income earned
C) Property ownership
D) None of the above

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38. Which section defines “income for tax purposes” in Pakistan?

A) Section 9
B) Section 4
C) Section 10
D) Section 11

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39. In a partnership, which of the following is TRUE?

A) Partners have limited liability
B) Partnerships are not required to maintain formal accounting records
C) Profit sharing is determined by the partnership agreement
D) None of the above

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40. A joint stock company is characterized by:

A) Limited liability for its shareholders
B) Ownership is easily transferable
C) Separate legal entity status
D) All of the above

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41. The role of the Board of Directors includes:

A) Overseeing management performance
B) Ensuring compliance with laws
C) Protecting shareholder interests
D) All of the above

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42. The concept of “substance over form” means that:

A) Legal form always prevails over economic reality
B) Transactions should be recorded based on their economic reality
C) Only physical assets are recorded
D) None of the above

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43. Which of the following is NOT a responsibility of the auditor?

A) To detect fraud
B) To prepare financial statements
C) To assess risk
D) To communicate findings

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44. Which of the following best describes “accounting policies”?

A) The framework within which financial statements are prepared
B) A summary of financial performance
C) The legal obligations of a business
D) None of the above

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45. Under the International Accounting Standards, how should depreciation be calculated?

A) Based on market value
B) Using a consistent method
C) Randomly each year
D) None of the above

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46. The purpose of the statement of cash flows is to:

A) Show profitability
B) Reflect cash inflows and outflows
C) Show the financial position of a company
D) None of the above

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47. Which of the following financial statements provides a snapshot of assets, liabilities, and equity?

A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Changes in Equity

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48. Which of the following is an example of a non-current tangible asset?

A) Inventory
B) Cash
C) Property, Plant, and Equipment
D) Accounts Receivable

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49. In a cash flow statement, which activity typically generates cash inflows?

A) Investing activities
B) Operating activities
C) Financing activities
D) All of the above

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50. The term “liabilities” refers to:

A) Assets owned by a business
B) Obligations of a business to pay debts
C) The owner’s equity in a business
D) Revenue generated from sales

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51. Which of the following methods is used for inventory valuation?

A) FIFO
B) LIFO
C) Weighted average
D) All of the above

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52. Which section of the Income Tax Ordinance 2001 deals with capital gains?

A) Section 37
B) Section 15
C) Section 18
D) Section 11

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53. The purpose of financial analysis is to:

A) Evaluate financial performance
B) Make comparisons with industry standards
C) Assist in decision-making
D) All of the above

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54. Which of the following is a characteristic of a non-profit organization?

A) Operates for profit maximization
B) Focuses on social objectives
C) Distributes profits to owners
D) None of the above

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55. The term “working capital” refers to:

A) Current assets minus current liabilities
B) Total assets minus total liabilities
C) Long-term assets
D) None of the above

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56. In the context of cost accounting, “fixed costs” are:

A) Costs that change with production levels
B) Costs that remain constant regardless of production levels
C) Costs that vary over time
D) None of the above

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57. The break-even point is defined as:

A) The point at which total revenues equal total costs
B) The point at which profits are maximized
C) The point at which all debts are paid
D) None of the above

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58. Which of the following ratios assesses a company’s ability to meet short-term obligations?

A) Return on equity
B) Current ratio
C) Debt to equity ratio
D) Gross profit margin

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59. Which of the following is an example of a variable cost?

A) Rent
B) Salaries
C) Direct materials
D) Insurance

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60. In budgeting, a “flexible budget” is used to:

A) Adjust based on actual activity levels
B) Remain constant regardless of sales volume
C) Determine fixed costs only
D) None of the above

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61. The formula for calculating the contribution margin is:

A) Sales – Variable Costs
B) Sales – Fixed Costs
C) Fixed Costs + Variable Costs
D) Sales – Total Costs

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62. The primary focus of managerial accounting is to:

A) Provide information for external reporting
B) Assist management in planning and controlling operations
C) Ensure compliance with accounting standards
D) None of the above

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63. Which of the following is NOT a characteristic of a partnership?

A) Limited liability
B) Shared management
C) Partnership agreement
D) Profit sharing

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64. The statement of changes in equity shows:

A) The financial position of the business
B) Changes in owners’ equity during the period
C) Cash inflows and outflows
D) None of the above

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65. Which of the following is an external user of financial statements?

A) Management
B) Employees
C) Creditors
D) All of the above

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66. Which of the following accounting concepts is applied when preparing consolidated financial statements?

A) Historical cost
B) Substance over form
C) Accrual
D) Matching

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67. An operating budget includes:

A) Revenue and expense projections for day-to-day operations
B) Long-term capital expenditures
C) Non-cash expenses only
D) None of the above

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68. Which of the following would NOT be included in the cost of goods sold?

A) Direct materials
B) Direct labor
C) Administrative expenses
D) Factory overhead

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69. Which of the following is an advantage of budgeting?

A) Helps in financial planning
B) Provides a benchmark for performance evaluation
C) Improves resource allocation
D) All of the above

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70. Which financial statement summarizes an organization’s revenue and expenses over a period of time?

A) Balance Sheet
B) Cash Flow Statement
C) Income Statement
D) Statement of Changes in Equity

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71. The term “audit risk” refers to:

A) The risk that the auditor will issue an incorrect opinion
B) The risk of fraud in the organization
C) The risk that financial statements will not comply with GAAP
D) None of the above

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72. Which of the following is a purpose of financial statements?

A) To provide information to stakeholders
B) To comply with regulatory requirements
C) To assess performance over time
D) All of the above

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73. Which of the following statements about an audit is true?

A) An audit provides absolute assurance
B) An audit focuses on internal controls only
C) An audit can identify fraud, but it is not its primary purpose
D) All audits are required by law

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74. The term “accounting entity” refers to:

A) The legal structure of a business
B) The business itself as a separate unit for accounting purposes
C) The owners of the business
D) None of the above

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75. The role of an auditor does NOT include:

A) Assessing risk
B) Making management decisions
C) Evaluating internal controls
D) Issuing an audit report

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76. Which of the following is a common limitation of an audit?

A) Time constraints
B) Access to information
C) The inherent complexity of accounting estimates
D) All of the above

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77. Which of the following best describes the role of the external auditor?

A) To conduct internal assessments of a company’s operations
B) To provide assurance on the accuracy of financial statements
C) To manage the financial reporting process
D) To enforce compliance with tax regulations

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78. Which of the following is included in the cash flows from investing activities?

A) Sale of equipment
B) Issuance of stock
C) Payment of dividends
D) Operating expenses

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79. The cost of inventory is determined using which of the following methods?

A) FIFO
B) LIFO
C) Weighted average
D) All of the above

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80. Which financial statement would you examine to assess the liquidity of a company?

A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Changes in Equity

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81. The income tax payable for a business is classified as a:

A) Current liability
B) Long-term liability
C) Asset
D) Owner’s equity

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82. The going concern assumption implies that a business:

A) Will be liquidated in the near future
B) Will continue to operate for the foreseeable future
C) Is facing bankruptcy
D) None of the above

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83. The primary difference between financial and managerial accounting is:

A) Financial accounting is for internal users; managerial accounting is for external users
B) Financial accounting is historical; managerial accounting is future-oriented
C) Managerial accounting is less regulated than financial accounting
D) All of the above

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84. In which of the following types of businesses is the owner personally liable for debts?

A) Corporation
B) Limited liability company (LLC)
C) Sole proprietorship
D) Partnership

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85. A company’s retained earnings can be increased by:

A) Issuing new shares
B) Declaring dividends
C) Generating net income
D) None of the above

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86. Which of the following is a characteristic of managerial accounting?

A) Focus on historical data
B) Reports are mandatory
C) Future-oriented projections and decisions
D) Primarily for external reporting

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87. Which section of the Income Tax Ordinance 2001 covers taxation of individuals?

A) Section 86
B) Section 12
C) Section 4
D) Section 2

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88. A cost that remains unchanged despite changes in production volume is known as:

A) Variable cost
B) Fixed cost
C) Mixed cost
D) Direct cost

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89. The primary purpose of a statement of cash flows is to:

A) Provide details of revenues and expenses
B) Show the sources and uses of cash
C) Report on the company’s profitability
D) None of the above

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90. Which of the following is true regarding corporate governance?

A) It involves the system of rules and practices by which a company is directed and controlled
B) It is only relevant for publicly traded companies
C) It has no impact on financial reporting
D) None of the above

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91. The primary source of funding for a non-profit organization is:

A) Sales revenue
B) Donations and grants
C) Loans from banks
D) Issuing shares

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92. Which of the following accounting concepts ensures that financial statements reflect economic reality?

A) Going concern
B) Matching principle
C) Substance over form
D) Consistency

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93. The primary focus of tax accounting is to:

A) Prepare financial statements
B) Comply with tax laws and regulations
C) Assist in managerial decision-making
D) Provide information for external users

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94. The process of allocating the cost of intangible assets over their useful life is called:

A) Amortization
B) Depreciation
C) Depletion
D) Capitalization

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95. A company’s gross profit margin is calculated as:

A) Gross profit divided by total revenue
B) Net profit divided by total revenue
C) Operating income divided by total assets
D) None of the above

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96. The purpose of financial reporting is primarily to:

A) Satisfy tax requirements
B) Provide information to stakeholders for decision-making
C) Prepare internal management reports
D) None of the above

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97. In the context of auditing, the term “materiality” refers to:

A) The significance of financial information to users
B) The physical presence of assets
C) The completeness of financial statements
D) None of the above

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98. Which of the following is NOT a component of the statement of cash flows?

A) Operating activities
B) Investing activities
C) Financing activities
D) Profitability activities

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99. A budget variance is defined as:

A) The difference between budgeted and actual results
B) The total income for the period
C) The amount of cash available
D) None of the above

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100. In a partnership, the partners’ profit-sharing ratio is determined by:

A) The number of partners
B) The partnership agreement
C) The amount of capital contributed
D) None of the above

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