UPSC EPFO APFC • EPFO EO/AO • SEBI Grade A • PFRDA Grade A
⚡ Quick Answer & AI Exam Snapshot (TL;DR)
Paper 08 of the UPSC EPFO APFC syllabus explicitly pairs ‘Accountancy, Auditing and Insurance’ as a high-weightage scoring block (typically 15 to 22 questions out of 120). While aspirants over-prepare journal entries, UPSC repeatedly tests conceptual edge cases in Auditing (Vouching, Verification, Audit Risk, Sections 138–148, and Audit Reports) and Insurance (7 Principles, Insurable Interest timing, Marine Average, Reinsurance, and IRDAI norms). This 100-question master drill covers every testable concept.
1. Part I — Auditing Principles, Errors, Fraud & Vouching (Questions 1–25)
Solve this structured 25-question block covering Audit Objectives (SA 200/240), Classification of Errors, and Vouching:
| Q# | UPSC-Pattern Statement / Question | Correct Answer & Core Rule |
|---|---|---|
| Q1 | Primary objective of an independent financial audit under SA 200 is: | Expression of Opinion on ‘True and Fair View’ (Fraud detection is secondary). |
| Q2 | Cartage paid ₹15,000 for bringing a newly purchased machine was debited to Cartage A/c. Type of error? | Error of Principle (Capital expenditure treated as Revenue; Trial Balance still agrees). |
| Q3 | Goods sold to Ramesh for ₹6,800 recorded in Sales Book as ₹8,600. Type of error? | Error of Commission (Transposition error of ₹1,800; Trial Balance still agrees since both accounts get ₹8,600). |
| Q4 | Sales Book overcast by ₹2,000 and Purchases Book also overcast by ₹2,000. Type of error? | Compensating Error (Excess credit in Sales offsets excess debit in Purchases; TB agrees). |
| Q5 | Concealing cash shortage from Customer X’s remittance by crediting receipts later collected from Customer Y: | Teeming and Lading (Lapping). |
| Q6 | Showing fictitious year-end sales and overvaluing inventory to obtain a larger bank overdraft is called: | Window Dressing. |
| Q7 | Creating excessive provision for depreciation or writing off capital assets to P&L to hide super-profits creates: | Secret Reserves (Generally prohibited except under banking/financial prudence norms). |
| Q8 | Case law establishing “An auditor is a watchdog and not a bloodhound”: | In Re: Kingston Cotton Mill Co. (1896) (Justice Lopes). |
| Q9 | Case law establishing that Audit Working Papers belong exclusively to the Auditor: | Chantrey Martin & Co. v. Martin (1953) (Codified in SA 230). |
| Q10 | Which technical process is known as “the essence or backbone of auditing”? | Vouching (Ronald A. Irish). |
| Q11 | Original supplier tax invoice is a ___ voucher, whereas Goods Received Note (GRN) and Gate Pass are ___ vouchers: | Primary Voucher; Collateral (Secondary) Vouchers. |
| Q12 | Minimum cash payment receipt amount requiring a ₹1 Revenue Stamp under the Indian Stamp Act: | Exceeding ₹5,000. |
| Q13 | Best audit procedure to detect ‘Dummy / Ghost Workers’ on factory payroll: | Surprise attendance at physical wage disbursement + cross-checking biometric/time cards with Foreman records. |
| Q14 | How should an auditor vouch ‘Bad Debts Written Off’? | Authorization by Board/MD + insolvency/legal correspondence + debtor schedule. |
| Q15 | How should an auditor vouch ‘Receipts from Bad Debts Written Off in earlier years’? | Cash Book receipt + Dividend sheet from Official Receiver/Liquidator (High risk of embezzlement since account was closed!). |
| Q16 | Cut-off procedures are primarily applied during the audit of: | Inventories, Purchases, and Sales right around the year-end (31st March) to ensure correct period matching. |
| Q17 | Audit conducted continuously at regular or irregular intervals throughout the financial year is: | Continuous Audit. |
| Q18 | Audit conducted between two annual audits specifically to declare an Interim Dividend is: | Interim Audit. |
| Q19 | Audit that examines whether expenditure is incurred with ‘wisdom, faithfulness and economy’ (Value for Money): | Propriety Audit (6 clauses embedded in Section 143(1) of Companies Act 2013). |
| Q20 | Standard on Auditing governing the ‘Audit Engagement Letter’: | SA 210 (Agreeing the Terms of Audit Engagements). |
| Q21 | Can a client restrict the statutory scope of an auditor’s duties under Section 143 via the Engagement Letter? | No — statutory duties cannot be curtailed by contract or Articles of Association (Newton v. Birmingham Small Arms Co.). |
| Q22 | A rolling file containing Memorandum/Articles, long-term leases, and internal control manuals used year after year is: | Permanent Audit File. |
| Q23 | A file containing the current year’s audit programme, trial balance, and bank reconciliation statement is: | Current Audit File. |
| Q24 | How many years must an auditor preserve Audit Working Papers under ICAI SQC-1 / SA 230? | Minimum 7 years from the date of the Auditor’s Report (8 years for books of account by company under Sec 128). |
| Q25 | Surprise checks during an audit are governed by the principle of: | Unpredictability in audit procedures (SA 240) — especially for Cash, Investments, and Stores. |
2. Part II — Verification, Valuation, Internal Control & Audit Risk (Questions 26–50)
| Q# | UPSC-Pattern Statement / Question | Correct Answer & Core Rule |
|---|---|---|
| Q26 | Four core assertions verified during ‘Verification of Assets’: | Existence, Ownership/Title, Possession, and Freedom from Unrecorded Charge/Lien. |
| Q27 | Standard basis of valuation of Inventories under AS-2 / Ind AS 2: | Lower of Historical Cost or Net Realisable Value (NRV). |
| Q28 | Accounting convention underlying the rule ‘Lower of Cost or NRV’ for closing stock: | Convention of Conservatism (Prudence) — anticipate no profit, provide for all possible losses. |
| Q29 | Which two inventory cost formulas are allowed under AS-2 for interchangeable items? | FIFO (First-In, First-Out) and Weighted Average Cost (LIFO is prohibited). |
| Q30 | How are ‘Wasting Assets’ (Coal Mines, Oil Wells, Quarries) valued in the Balance Sheet? | Historical Cost less Provision for Depletion based on quantity extracted. |
| Q31 | How is ‘Self-Generated Goodwill’ valued in the Balance Sheet under AS-26 / Ind AS 38? | Zero / Never recognized in books of account (only Purchased Goodwill is recognized). |
| Q32 | How are ‘Floating / Current Assets’ (like Marketable Securities / Current Investments) valued? | Lower of Cost or Fair/Market Value. |
| Q33 | How are ‘Fictitious Assets’ (Preliminary Expenses, Discount on Issue of Debentures) verified? | They have no physical existence or realisable value; verify Board authorization and amortisation schedule. |
| Q34 | Which statutory register is inspected to verify whether Freehold Land & Building is mortgaged? | Register of Charges (Form CHG-7 under Section 85 of Companies Act, 2013). |
| Q35 | If a property is mortgaged with a Bank, from whom should the auditor obtain a direct certificate of Title Deeds? | Directly from the Mortgagee Bank / Financial Institution holding possession of the title deeds. |
| Q36 | How are ‘Contingent Liabilities’ (e.g., Bills Discounted not matured, Arrears of Cumulative Pref Dividend) shown? | As a Footnote / Explanatory Note below the Balance Sheet (never added to Balance Sheet liabilities). |
| Q37 | Division of routine clerical duties so one employee’s work automatically checks another’s is called: | Internal Check. |
| Q38 | Which three incompatible duties must ALWAYS be segregated in a sound Internal Check system? | 1. Authorization of transaction, 2. Custody of assets, and 3. Recording in books of account. |
| Q39 | Audit procedures performed to test the operating effectiveness of Internal Controls are called: | Compliance Procedures (Tests of Controls). |
| Q40 | Audit procedures performed to detect material misstatements in account balances (Tests of Details + Analytical Review): | Substantive Procedures. |
| Q41 | What is the mathematical formula for Audit Risk (AR)? | AR = Inherent Risk (IR) × Control Risk (CR) × Detection Risk (DR). |
| Q42 | Which risk component is the risk that a misstatement occurs in an assertion assuming NO internal controls exist? | Inherent Risk (IR). |
| Q43 | Which risk component is the risk that the entity’s internal control fails to prevent or detect a material misstatement? | Control Risk (CR). |
| Q44 | Which risk component is the ONLY risk directly controllable by the Auditor by varying sample size? | Detection Risk (DR). |
| Q45 | If Risk of Material Misstatement (IR × CR) increases, how must Acceptable Detection Risk (DR) change? | Acceptable Detection Risk must DECREASE (Inverse relationship), requiring larger substantive sample sizes. |
| Q46 | In an Internal Control Questionnaire (ICQ), what does an answer of “NO” signify? | A weakness or deficiency in the Internal Control system. |
| Q47 | Document issued by the auditor to management pointing out internal control weaknesses (SA 265): | Letter of Weakness / Management Letter. |
| Q48 | Does relying on an Internal Auditor under SA 610 reduce the Statutory Auditor’s legal liability for the opinion? | Never — the Statutory Auditor bears 100% sole responsibility for the audit report. |
| Q49 | Under Section 138, what is the turnover threshold for mandatory Internal Audit in a Private Limited Company? | Turnover ≥ ₹200 Crore (or Outstanding Bank Loans/Borrowings > ₹100 Crore) in preceding FY. |
| Q50 | Standard on Auditing governing ‘Audit Sampling’ (Test Checking): | SA 530 (Audit Sampling). |
3. Part III — Company Auditor (Sec 139–148), CARO 2020 & Audit Reports (Questions 51–75)
| Q# | UPSC-Pattern Statement / Question | Correct Answer & Core Rule |
|---|---|---|
| Q51 | Time limit for Board of Directors to appoint the First Auditor of a Non-Government Company (Sec 139(6)): | Within 30 days of registration (failing which, Members appoint within 90 days at an EGM). |
| Q52 | Time limit for C&AG to appoint the First Auditor of a Government Company (Sec 139(7)): | Within 60 days of registration (failing which, Board in next 30 days; then Members in 60 days). |
| Q53 | Time limit for C&AG to appoint the Subsequent Auditor of a Government Company (Sec 139(5)): | Within 180 days from the commencement of the financial year. |
| Q54 | Form in which a company intimates the Registrar of Companies (RoC) about Auditor appointment within 15 days: | Form ADT-1. |
| Q55 | Maximum consecutive tenure of an Individual Auditor vs an Audit Firm in a listed company under Sec 139(2): | Individual: 1 term of 5 years; Audit Firm/LLP: 2 terms of 5 years (10 years), followed by a 5-year cooling period. |
| Q56 | Paid-up share capital threshold for mandatory Rotation of Auditors in an Unlisted Public Co vs Private Co: | Unlisted Public Co: ≥ ₹10 Crore; Private Co: ≥ ₹50 Crore (or Public Borrowings ≥ ₹50 Crore for any company). |
| Q57 | Procedure to remove an auditor before expiry of term under Section 140(1): | Board Resolution + Prior Central Govt approval (Form ADT-2 within 30 days) + Special Resolution at GM. |
| Q58 | Form filed by a resigning auditor within 30 days of resignation under Section 140(2): | Form ADT-3. |
| Q59 | Maximum number of statutory company audits per partner under Section 141(3)(g): | 20 companies (excluding OPC, Small, Dormant, and Private companies with paid-up capital < ₹100 Cr). |
| Q60 | Maximum face value of securities a ‘Relative’ of an auditor can hold in the client company without disqualifying him: | Up to ₹1,00,000 (₹1 Lakh) (Auditor himself or partner can hold ZERO securities). |
| Q61 | Indebtedness threshold above which an auditor, partner, or relative becomes disqualified under Sec 141(3)(d)(ii): | Exceeding ₹5,00,000 (₹5 Lakh). |
| Q62 | Guarantee threshold above which an auditor, partner, or relative becomes disqualified under Sec 141(3)(d)(iii): | Exceeding ₹1,00,000 (₹1 Lakh). |
| Q63 | Threshold of fraud that a Statutory Auditor must report directly to the Central Government (Form ADT-4) under Sec 143(12): | ₹1 Crore or more (Frauds < ₹1 Crore are reported only to the Audit Committee/Board). |
| Q64 | Prohibited non-audit services under Section 144 include: | Book-keeping, Internal Audit, Investment Banking/Advisory, Actuarial Services, and Management Services. |
| Q65 | Section governing Cost Records and Cost Audit under the Companies Act, 2013: | Section 148 (Conducted by a practicing Cost Accountant; Report in Form CRA-3). |
| Q66 | Section governing Secretarial Audit by a practicing Company Secretary (Form MR-3): | Section 204 (Mandatory for Listed Companies + Public Cos with Paid-up Capital ≥ ₹50 Cr or Turnover ≥ ₹250 Cr). |
| Q67 | Number of reporting clauses in CARO 2020 (issued under Section 143(11)): | 21 Clauses. |
| Q68 | When accounts give a ‘True and Fair View’ free from material misstatement, the auditor issues: | Unmodified / Unqualified / Clean Audit Report (SA 700). |
| Q69 | When misstatements (or scope limitations) are Material but NOT Pervasive, the auditor issues: | Qualified Opinion (SA 705) using the words “Except for…” |
| Q70 | When audit evidence proves misstatements are BOTH Material AND Pervasive, the auditor issues: | Adverse (Negative) Opinion (SA 705). |
| Q71 | When the auditor is unable to obtain audit evidence and possible effects are BOTH Material AND Pervasive: | Disclaimer of Opinion (SA 705). |
| Q72 | Paragraph under SA 706 that highlights a matter ALREADY disclosed in the Notes to Accounts without modifying the opinion: | Emphasis of Matter (EoM) Paragraph. |
| Q73 | Paragraph under SA 706 that highlights a matter NOT presented in the financial statements (e.g., branch audit by another CA): | Other Matter (OM) Paragraph. |
| Q74 | Standard on Auditing governing ‘Key Audit Matters’ (KAM) for Listed Entities: | SA 701. |
| Q75 | Who fixes the remuneration of the First Auditor vs Subsequent Auditors under Section 142? | First Auditor: Board of Directors; Subsequent Auditors: Shareholders in General Meeting. |
4. Part IV — Principles of Insurance, Life, Fire, Marine & IRDAI Framework (Questions 76–100)
| Q# | UPSC-Pattern Statement / Question | Correct Answer & Core Rule |
|---|---|---|
| Q76 | Latin maxim meaning ‘Utmost Good Faith’ in insurance contracts: | Uberrimae Fidei (Carter v. Boehm, 1766). |
| Q77 | An insurance policy taken without any ‘Insurable Interest’ is legally treated as: | A Void Wagering Agreement (Section 30, Indian Contract Act, 1872). |
| Q78 | When must Insurable Interest exist in a Life Insurance contract? | ONLY at the time of taking the policy (Inception) — need not exist at death/maturity. |
| Q79 | When must Insurable Interest exist in a Fire Insurance contract? | BOTH at the time of inception AND at the time of loss. |
| Q80 | When must Insurable Interest exist in a Marine Cargo Insurance contract? | ONLY at the time of loss (Section 8, Marine Insurance Act, 1963). |
| Q81 | Why is Life Insurance NOT a Contract of Indemnity? | Human life cannot be valued in money; it is a Contingent / Benefit Contract paying a fixed sum assured. |
| Q82 | Which two principles are corollaries to Indemnity and NEVER apply to Life Insurance? | Principle of Subrogation and Principle of Contribution. |
| Q83 | Principle under which an insurer steps into the legal shoes of the insured after paying full indemnity: | Principle of Subrogation. |
| Q84 | Principle under which multiple insurers share a single loss ratably in case of Double Insurance: | Principle of Contribution. |
| Q85 | Latin maxim ‘Causa Proxima Non Remota Spectatur’ means: | Look to the proximate (dominant/efficient) cause of loss, and not the remote cause. |
| Q86 | Formula for Fire Claim under an ‘Average Clause’ (when property is under-insured): | Claim = (Sum Insured / Actual Total Value of Property) × Actual Loss. |
| Q87 | Under Section 45 of the Insurance Act, 1938, after how many years is a Life Policy indisputable on any ground? | After 3 years from date of issuance, commencement of risk, or revival. |
| Q88 | Sections of the Insurance Act, 1938 governing Assignment vs Nomination of Life Policies: | Section 38 (Assignment) and Section 39 (Nomination). |
| Q89 | Who are recognized as ‘Beneficial Nominees’ under Section 39(7) of the Insurance Act, 1938? | Spouse, Parents, and Children of the policyholder. |
| Q90 | Fire policy that covers stocks lying across multiple godowns under a single sum insured: | Floating (Floater) Policy. |
| Q91 | Fire policy that pays the cost of replacing destroyed machinery with a brand-new asset without deducting depreciation: | Reinstatement (Replacement) Value Policy. |
| Q92 | Marine loss caused by intentionally throwing cargo overboard (‘Jettison’) to save the ship and remaining cargo: | General Average Loss (shared proportionately by Ship, Freight, and Cargo owners). |
| Q93 | Insurance that protects an employer against embezzlement or fraud committed by its own employees: | Fidelity Guarantee Insurance. |
| Q94 | First Life Insurance Company established in India (1818) vs First Indian-Owned Life Insurer (1870): | 1818: Oriental Life Insurance Co. (Calcutta); 1870: Bombay Mutual Life Assurance Society. |
| Q95 | Year of nationalisation of Life Insurance (LIC Act) vs General Insurance (GIBNA): | LIC Act: 1956 (245 insurers merged); GIBNA: 1972 (107 insurers merged into GIC + 4 subsidiaries). |
| Q96 | Committee that recommended establishing IRDA and opening insurance to private sector: | R.N. Malhotra Committee (1993–94). |
| Q97 | Minimum Paid-up Capital for Life/General/Health Insurer vs Reinsurer (Section 6, Insurance Act): | ₹100 Crore (Life/General/Health); ₹200 Crore (Reinsurer). |
| Q98 | Minimum Solvency Ratio mandated by IRDAI for all insurers in India: | 150% (1.50 times Required Solvency Margin). |
| Q99 | Statutory Reserve for Unexpired Risk (URR) in General Insurance for Fire vs Marine Hull business: | Fire / Misc: 50% of Net Premium; Marine Hull: 100% of Net Premium. |
| Q100 | Maximum award limit of the Insurance Ombudsman and the term for a Reinsurer reinsuring with another Reinsurer: | Ombudsman Limit: ₹50 Lakh; Reinsurer-to-Reinsurer transfer: Retrocession. |
🎯 High-Yield Exam One-Liners (Last-Minute Revision Box)
- Paper 08 of UPSC EPFO APFC explicitly groups Accountancy, Auditing, and Insurance into a high-scoring module.
- Errors of Principle and Compensating Errors never cause the Trial Balance to disagree.
- Audit Risk = Inherent Risk × Control Risk × Detection Risk; Detection Risk is inversely related to RMM.
- First Auditor: Board in 30 days (Non-Govt Co.) vs C&AG in 60 days (Govt Co.).
- Subsequent Auditor of a Govt Co. is appointed by C&AG within 180 days from the start of the financial year.
- Auditor disqualification thresholds (Sec 141): Relative holding shares > ₹1 Lakh Face Value; Indebtedness > ₹5 Lakh; Guarantee > ₹1 Lakh.
- Fraud reporting to Central Government (Form ADT-4 under Sec 143(12)) is triggered when fraud is ₹1 Crore or more.
- SA 705 Modified Opinions: Qualified (Material, Not Pervasive), Adverse (Material & Pervasive Misstatement), Disclaimer (Material & Pervasive Scope Limitation).
- Insurable Interest timing: Life (At Inception only), Fire (Both at Inception and at Loss), Marine Cargo (At Loss only).
- Minimum Paid-up Capital: ₹100 Cr (Life/General/Health) and ₹200 Cr (Reinsurance); Minimum Solvency Ratio: 150%.
📝 UPSC & Regulatory Level Practice MCQs (With Detailed Solutions)
Q1. Match List-I (Standard on Auditing / Section) with List-II (Subject Matter) and select the correct answer:
List-I: (a) Section 138, (b) Section 144, (c) SA 705, (d) SA 706
List-II: (1) Prohibited Non-Audit Services, (2) Internal Audit, (3) Emphasis of Matter Paragraph, (4) Modified Audit Opinions (Qualified/Adverse/Disclaimer)
List-I: (a) Section 138, (b) Section 144, (c) SA 705, (d) SA 706
List-II: (1) Prohibited Non-Audit Services, (2) Internal Audit, (3) Emphasis of Matter Paragraph, (4) Modified Audit Opinions (Qualified/Adverse/Disclaimer)
Correct Answer: (A) — Section 138 governs Internal Audit (2), Section 144 lists Prohibited Non-Audit Services (1), SA 705 governs Modifications to the Opinion (4), and SA 706 governs Emphasis of Matter & Other Matter paragraphs (3).
Q2. A factory valued at ₹50,00,000 is insured with Company A for ₹20,00,000 and with Company B for ₹30,00,000. A fire causes a loss of ₹15,00,000. Under the Principle of Contribution, how much will Company A and Company B pay respectively?
Correct Answer: (B) — Total Sum Insured = 20L + 30L = 50L (Ratio 2:3). Company A pays (20/50) × 15,00,000 = ₹6,00,000; Company B pays (30/50) × 15,00,000 = ₹9,00,000.
Q3. Which of the following combinations of statements is COMPLETELY TRUE regarding UPSC EPFO Auditing & Insurance?
Correct Answer: (C) — An Error of Principle (misclassifying Capital vs Revenue) keeps debit and credit equal so the Trial Balance agrees, and Life Insurance is a contingent contract where Indemnity does not apply.
❓ Frequently Asked Questions (Exam FAQs)
Q: How many questions from Auditing and Insurance appear in UPSC EPFO APFC?
Across recent UPSC EPFO APFC papers, Accountancy, Auditing, and Insurance together account for 15 to 22 questions out of 120, with Auditing and Insurance contributing 6 to 10 high-scoring conceptual questions.
Q: Which sections of the Companies Act, 2013 are mandatory for UPSC EPFO Auditing?
Sections 128 to 137 (Books of Account, Financial Statements, NFRA, CSR) and Sections 138 to 148 (Internal Audit, Statutory Auditor Appointment, Rotation, Removal, Disqualifications, Powers/Duties, Prohibited Services, and Cost Audit) are mandatory.
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