CH.01P02 SA 200

MCQ-200.1

Don’t Pay for Fun (DPF)’ is a start-up who is trying to get funding from investors. One of the investors has expressed interest in looking at the investment proposal but has insisted that the proposal also contain DPF’s financial statements which are audited by an independent auditor. DPF engages CA Abhishek to conduct an independent audit and Abhishek issues an engagement letter for the independent audit to the owner of DPF which is duly acknowledged. DPF while finalising the financial statements is facing some difficulties so its owner requests Abhishek to provide advice as it needs to furnish the proposal to the investor fast. Since Abhishek is already engaged in the audit of the transactions, he assists DPF’s accounting officer and the financial statements are finalised. Abhishek also completes the audit and presents the audit report which is provided to the investor. Has the condition set by the investor been fulfilled? (CNO--SA200.060)

• a) No, the investor had asked for independent audit.

• b) Yes, as the audit report is issued after proper audit engagement letter and also examination of the books of accounts.

• c) No, because CA Abhishek did not change the terms of engagement to include the advice part along with the independent audit. In order for his audit report to be independent, he should have charged separate fees for the advice.

• d) Yes, DPF has hired a qualified CA to conduct the audit. Not only there is no evidence to suggest that the auditor allowed any misrepresentation, but the auditor himself advised DPF in finalising the financial statements which speaks highly of the quality of financial statements.

MCQ-200.2

In order to form the opinion, the auditor shall conclude as to whether the auditor has obtained _________about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

(CNO--SA200.020)

• a) reasonable assurance

• b) absolute assurance

• c) Limited assurance

• d) None of the above

MCQ--200.3

he auditor’s _________ safeguards the auditor’s ability to form an audit opinion without being affected by any influences.

(CNO-SA200.060)

• a) Objectivity

• b) Independence

• c) Confidentiality

• d) Integrity

MCQ--200.4

Professional scepticism is defined as:

(CNO-SA200.080)

• a) An attitude to avoid significant mistakes which could influence the economic decisions of users taken on the basis of the financial statements.

• b) The application of relevant training, knowledge and experience in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.

• c) An analysis of management decisions in terms of failed outcomes.

• d) An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.

MCQ--200.5

Professional judgement is defined as:

(#Unique)

• a) The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.

• b) An attitude to avoid significant mistakes which could influence the economic decisions of users taken on the basis of the financial statements.

• c) Decision making about the requirements of the accounting profession.

• d) An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.

MCQ--200.6

The following inherent limitations in an audit affect the auditor's ability to detect material misstatements except:

(CNO-SA200.040)

• a) Test and sampling.

• b) Audit process permeated by judgement.

• c) Poor corporate governance.

• d) Audit evidence.

MCQ--210.1

Mr. Vijay Kapoor, Chartered Accountant, has been appointed the statutory auditor by M/s. XYZ Private Limited for the audit of their financial statements for the year 2015-16. The company has mentioned in the audit terms that they will not be able to provide internal audit reports to Mr. Vijay during the course of audit. Advise, whether Mr. Vijay should accept the proposed audit engagement and on what grounds he can accept/ refuse the proposal? (i). As per SA 210 the auditor can refuse to accept the audit engagement as the management is not giving access to internal audit reports which are necessary in determining the internal controls in the company. (ii). There is no limitation on the scope of the auditor’s work, so the auditor should accept the appointment. (iii).The auditor can accept the audit engagement if the management gives representation on its responsibility. Which of the following option is correct:

(CNO-SA210.040)

• a) (ii) only

• b) Both (i) and (iii)

• c) Both (ii) and (iii)

• d) (iii) only.

  C

MCQ--210.2

he agreed terms of the audit engagement shall be recorded in an audit engagement letter which shall include the following except

(CNO--SA210.060)

• a) Responsibilities of the auditor

• b) Description of methods to be followed for obtaining audit evidence.

• c) Responsibilities of management

• d) Objective and scope of the audit of the financial statements.

MCQ--210.4

Your audit firm has been appointed as auditors of Red White Limited a manufacturing entity. The year under audit is 31 March 2018. While verifying account heads with high-risk areas like revenue and inventory, you identify certain issues for which you are not provided satisfactory replies and documents by the client. At the same time Red White Limited approaches, you to change the scope of the engagement. They give you the reason that they have misunderstood the scope of assignment earlier. What course of action would you adopt in this situation?

(CNO--SA210.110)

• a) Accept the revised terms of engagement, as the change is resultant of change in circumstance which affect entity’s requirements or misunderstanding concerning nature of service originally requested and consider aforesaid as reasonable basis for requesting change in the engagement.

• b) Accept the revised terms of engagement and record justification of the change in the engagement letter.

• c) Disagree to the revised terms and withdraw from the engagement where possible under applicable law and regulations and determine whether there is any obligation, either contractual or otherwise, to report the circumstance to other parties such as those charged with governance, owners or regulators.

• d) Disagree to the revised terms of the engagement and have your terms of increased fees since the scope of the engagement has changed.

MCQ--210.5

AJ Private Ltd is in the business of telecom and have significant operations across India predominantly in Northern India. The statutory auditors of the company have been continuing for the last 3 years and have been issuing clean report. For the financial year ended 31 March 2019, the statutory auditors commenced their work in March 2019 as per discussions with the management and with a plan to complete the audit by first week of May 2019. The audit team concluded the work as per the agreed timelines and the financial statements and audit report were signed on 5 May 2019 along with the engagement letter for the financial year ended 31 March 2019.In the given situation, please advise which of the following would be correct.

(CNO--SA210.110)

• a) The engagement letter should have been signed before commencing the audit work.

• b) The engagement letter should have been signed at least a day before signing the audit report.

• c) The engagement letter should have been signed at least a day before signing the financial statements.

• d) The engagement letter is optional in case of a private company and hence can be signed anytime.