CH.01P03SA 300

MCQ--320.1

The profits of XYZ Ltd was Rs. 1000 crores for the financial year ended 31 March 2018. While planning the audit of the financial statements of XYZ Ltd, the auditor determined the materiality of Rs. 50 crores. The materiality was taken as 5% of profits of XYZ Ltd. During the course of audit, on becoming aware of information during the audit t, audit adjustments were passed which resulted in significant decline in the profits of XYZ Ltd. Post audit adjustments, the profits reduced to Rs. 500 crores. Because of the changes in profits of the company, the materiality may get reduced to Rs. 25 crores. XYZ Ltd is a large size company having a turnover of Rs. 20,000 crores for the financial year ended 31 March 2018. Considering the size of the company, the auditor believes that materiality amount should not go below Rs. 50 crores as that would result in significant increase in their work and the work of the auditor may not get completed within the required timelines. Accordingly, the auditor wants to change the basis of materiality by increasing the percentage of profits or taking revenue as the basis for computation of materiality. In the given situation, which one of the following options is correct?

(CNO-SA320.080)

• a) Considering the size of the company, the auditor may be appropriate in changing the basis of materiality to save his work.

• b) The basis of materiality cannot be changed to save the increased work of auditor if there has been additional information which resulted in decline of profits during the course of audit

• c) The auditor need not change the materiality basis. He can complete his audit using the materiality of Rs. 50 crores which was determined initially by him while planning the audit.

• d) Since the profits of XYZ Ltd have got reduced due to audit adjustments, the same cannot be considered to be the basis for computation of materiality. Materiality has to be based on management computed numbers

MCQ--320.2

Judgements about materiality are made in the light of surrounding circumstances, and are affected by:

(CNO-Unique)

• a) The auditor's perception of the financial information needs of users of the financial statements.

• b) Both the auditor's perception of the financial information needs of users of the financial statements, the size or nature of a misstatement.

• c) The size or nature of a misstatement.

• d) The company's control environment.

MCQ--320.3

The amount of materiality initially determined needs to be revised as the audit progresses:

(CNO-SA320.080)

• a) If there is a delay in the audit.

• b) In the event of becoming aware of information during the audit that would have caused the auditorto have determined a different amount (or amounts) initially.

• c) Only in the event of becoming aware of information during the audit that would have caused the auditor to have determined a higher amount (or amounts) initially

• d) Only in the event of becoming aware of information during the audit that would have caused the auditor to have determined a lower amount (or amounts) initially.

MCQ--330.1

The audit work of Amrut & Co is underway for the year ended 31 March 2018. Your audit manager asked you to look at the completeness of trade payables. The supplier statement balance for one of entity’s supplier PR Co showed a difference of Rs.62,000 higher than recorded in the payable’s ledger balance. Which of the following audit procedures should be performed in relation to the balance with PR Co to determine if the payables balance is understated?

(CNO-SA330.100)

• a) Inspect the goods received note to determine when the goods were received.

• b) Inspect the purchase order to confirm it is dated before the year end.

• c) Review the post year-end cashbook for evidence of payment of the invoice.

• d) Send a confirmation request to PR Co to confirm the outstanding balance.

MCQ--330.2

The main operations of PT Co are conducting training programs for the newly qualified commerce graduates to make them ready for the jobs available. The company owns a 2- storey building in the centre of the city, where they could attract lot of students for the courses offered. Currently, the trainings are provided in-house. PT has plans to expand and offer online courses as well. You are the audit senior for PT Co for the year ended 31 March 2018 and in charge of audit work on non-current assets. New furniture and white boards have been purchased during the current year. The total non-current assets shown in the financial statements stands at Rs.289.5 lakhs. Which of the following audit procedures are appropriate to test the VALUATION assertion for non-current assets?

1. Ensure disposals are properly accounted for and recalculate gain/loss on disposal

2. Recalculate the depreciation charge for a sample of assets ensuring that it is being applied consistently and in accordance with Ind AS 16 Property, Plant and Equipment

3. Review the repairs and maintenance expense account for evidence of items of a capital nature.

4. Review board minutes of PT for evidence of disposals during the year and verify that these are appropriately reflected in the non-current assets register

5. Agree a sample of additions included in the non-current assets register to purchase invoice and cash book. Mainly the new furniture purchased during the year by PTCo.

6. Review physical condition of non-current assets for any sign of damage.

(CNO-SA330.100)

• a) Audit Procedures 1, 2, 5 and 6

• b) Audit Procedures 1, 3, 4 and 6

• c) Audit Procedures 2, 3, 4 and 5

• d) Audit Procedures 3, 4, 5 and 6

MCQ--330.3

The year-end audit of your client Alpha Co began shortly after the reporting period 31 March 2018. Alpha Co deals in manufacture and retailer of stationery items. Last year, you had worked on the non-current assets. This year you requested your manager to give you the work on revenue. You have been given a list of procedures to carry out on revenue and you have decided to prioritise those which deal with the key assertion of occurrence. The revenue for the current year has increased y 10% from the previous year. Which of the following substantive procedures provide evidence over the OCCURRENCE assertion for revenue?

1. Compare the reported revenue figure to the budget and to the previous year, investigating any significant differences.

2. Select a sample of goods despatched notes (GDNs) and agree to invoices in the sales day book.

3. Select a sample of invoices from the sales day book and agree to GDNs of Alpha Co

4. Select a sample of invoices and recalculate the invoiced amount agreeing to price list shared by the finance director of Alpha Co. Option

(CNO-SA330.100)

• a) Procedure 1 and 3

• b) Procedure 1 and 2

• c) Procedure 2 and 4

• d) Procedure 3 and 4

MCQ--330.4

Top Pizzas Co-operates a large chain of fast-food restaurants. You are an audit supervisor of Shivam& Associates and are currently preparing the audit programmes for the audit of Top Pizza’s financial statements for the year ended 31 March 2018. You are reviewing the notes of last week’s meeting between the audit manager and finance director where two material issues were discussed. One of the issue was on Property, plant and equipment of the entity In the past Top Pizza has received negative press reports over the condition of its fast-food restaurants, with comments suggesting they are old fashioned and tired looking. Therefore, during the year, the company undertook a full review of all its assets and carried out extensive refurbishments to the majority of its restaurants. This review resulted in a significant amount of ageing fixtures and fittings being disposed of and a significant amount of capital expenditure was invested in all remaining restaurants. Which of the following is not a substantive procedure to be used by the auditor to obtain sufficient and appropriate audit evidence on property, plant and equipment?

(CNO-SA330.100)

• a) Obtain a breakdown of additions, cast the list and agree included in the non-current assets register to confirm completeness of fixtures and fittings.

• b) Select a sample of additions and agree cost to supplier invoice to confirm valuation.

• c) Verify rights and obligations by agreeing the addition of fixtures and fittings to a supplier invoice in the name of Top Pizza.

• d) Review the evidence for recalculation of depreciation charge on the additions and disposals made in the year of acquisition according to the company policy.

MCQ--330.5

You are an audit manager of DC & Co and you are currently responsible for the audit of Beauty pal Co, a company which develops and manufactures health and beauty products and distributes these to wholesale customers. Its draft profit before tax is Rs.43 lakhs and total assets are Rs.38 lakhs for the financial year ended 31 March 2018. The final audit is due to commence shortly, and the following matter has been brought to your attention: Beauty pal Co has a large portfolio of property, plant and equipment (PPE). In January 2018, the company carried out a full review of all its PPE and updated the useful lives, residual values, depreciation rates and methods for many categories of asset. The finance director felt the changes were necessary to better reflect the use of the assets. This resulted in the depreciation charge of some assets changing significantly for this year. Which of the following substantive procedure should the auditor perform to obtain sufficient and appropriate audit evidence in relation to matter of depreciation on property, plant and equipment?

(CNO-SA330.100)

• a) Review the capital expenditure budgets for the next few years to assess whether the revised asset lives correspond with the planned period until replacement of the relevant asset categories.

• b) Inspect non-current asset accounts for a sample of purchases to ensure they have been properly allocated

• c) Consider whether the proceeds on disposals of PPE are reasonable and recalculate the profit or loss disposal.

• d) For a sample of fully depreciated assets, inspect the register to ensure no further depreciation is charged

MCQ--330.6

Refer the image

(CNO-SA330.100)

• a) Verify by checking paying-in slips that the uncleared banking’s (deposits outstanding – re (112 and 113) were paid in prior to the year end, and review whether they cleared quickl after the year end. Any that have not cleared soon after the year end should be investigated.

• b) Verify that the year-end balance per the general ledger according to the reconciliation (Rs.1,50,237.35) agrees with the general ledger account balance at 31 March 2018 and tha this has been properly reflected in the financial statements.

• c) Scrutinize the cash book and bank statements before and after the period end for exception entries or transfers which have a material effect on the balance shown to be in hand.

• d) Agree the balance per bank statement at 31 March 2018 as shown on the reconciliatio (Rs.1,35,111.00) to the bank statement and to the amount for that account shown on th bank letter.

MCQ--330.7

ASM Motor Cars co. manufactures a range of motor cars and its year end is 31 March 2018. You are the audit supervisor of Khanna & Associates and currently preparing the audit programmes for the year-end audit of ASM. The entity undertakes continuous production of cars, 24 hours a day, seven days a week. An inventory count is to the undertaken at the year end and Khanna & Associates will attend. You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material. ASM values WIP according to percentage of completion, and standard costs are then applied to these percentages. Which of the following is NOT a substantive procedure the auditor could perform to obtain sufficient and appropriate audit evidence in relation to the valuation of work in progress?

(CNO-SA330.100)

• a) Discuss with management how the percentage completions are attributed to WIP.

• b) Observe the procedures carried out in the count in assessing the level of WIP; consider reasonableness of the assumptions used.

• c) During the count, verify all the percentage completions if they are in accordance with ASM’s policies.

• d) Review the level of variances between standard and actual costs.