WorksheetsCH.01P05 SA 500
Total questions: 38
Worksheet time: 19mins
MCQ--500.3
The measure of the quality of audit evidence about its relevance and reliability in providing support for the conclusions on which the auditor’s opinion is based is:
(CNO-SA500.080)
a) Sufficiency of audit evidence
b) Appropriateness of audit evidence
c) Accounting estimates
d) Reasonableness of audit evidence
MCQ--500.5
You are an audit senior at Ghaisas & Co and are currently performing the final audit of Bingham Co. for the year ended 31 March 2018. The company is a manufacturer and retailer of table lamps. The current audit senior is ill, and you have been asked to complete the audit of payroll in their absence. On arrival at the head office of Bingham Co, you determine the following data from a review of the current year and prior year audit files:
• As at 31 March 2017, the company had 350 employees
• On 1 April 2017, 10% of staff were made redundant, effective immediately, due to discontinuation of a product line
• On 1 June 2017, all remaining staff received a 5% pay rise.
• Over the course of the year, sales levels met performance targets which resulted in a fixed bonus of Rs.8,000 being paid to each employee on 31 March 2018. The following audit evidence has been gathered relating to the accuracy of wages and salaries for BinghamCo.
1. Proof in total calculation performed by an audit team member.
2. Written representation from the directors of Bingham Co confirming the accuracy of wages and salaries.
3. Verbal confirmation from the finance director of Bingham Co confirming the accuracy of wages and salaries.
4. Recalculation of the gross and net pay for a sample of employees by an internal audit team member of Bingham Co. What is the order of reliability of the audit evidence starting with the MOST RELIABLE first?
(CNO-SA500.080)
a) Audit evidence - 1, 2, 3, 4
b) Audit evidence - 1, 4, 2, 3
c) Audit evidence - 4, 1, 2, 3
d) Audit evidence - 4, 1, 3, 2
MCQ--500.6
RIM Private Ltd is engaged in the business of manufacturing of steel having annual turnover of INR 10,000 crores. The company is very capital intensive and has its plants at two locations – Mohali and Hosur. During the year ended 31 March 2021, the company carried out a detailed physical verification of its property, plant and equipment and also reassessed their useful lives by engaging a consultant. The consultant submitted its report to the management on 21 April 2021. The statutory auditors of the company started their audit work from May 2021 and when this information was given to them regarding the physical verification and the reassessment of the useful lives of property, plant and equipment, the auditors told the management that the consultant should have submitted its report to the auditors also independently. Further, in the absence of this direct communication of the report of the consultant to the auditors, the audit team would have to review the work of the consultant which is not efficient, but it cannot be avoided now. Management did not agree with both the points of the auditors that the consultant should have shared report with the auditors directly and that the auditors need to review the work of the consultant. The management would like to have your views on this matter.
(CNO-SA500.100)
a) The view of the management seems to be correct because there is no such requirement that any consultant of the company should share his report directly with the auditor. Also, when the consultant has already submitted a detailed report, no further review is required on that.
b) Both the management and auditors are not correct. The auditor is not supposed to receive the report directly. Further, the auditor needs to review the work of the consultant irrespective of the fact whether he received the report directly or not.
c) The auditor’s requirements are reasonable because he carries duty in respect of audit of financial statements and by not getting report directly from the consultant, he would not know whether it belongs to that consultant or not. And now only because of this lack of proper communication the auditor would have to review the work of the consultant.
d) Both management and auditors should find a solution to this problem. The management may request the consultant to send the report to the auditor directly now. On the basis of the same, the auditor can avoid unnecessary procedure related to review of report of the consultant.
MCQ--500.7
You are the audit senior of Tey & Co. are responsible for the audit work to be managed for the fixed assets of the company. Tey & Co.has 4 properties amounting to ` 12.5 crore. One of the important tasks ahead for you is to confirm the ownership of these properties. Which of the following would provide the most persuasive evidence of the ownership?
(CNO-Unique)
a)To conduct a physical inspection of all the properties located at different areas.
b) To ask the management registration documents of these properties and inspect and verify them.
c) To check whether all the properties are recorded properly in the fixed asset register and depreciation has been calculated correctly.
d) Enquire with the management, if these properties are insured and review the insurance documentation
MCQ--500.8
You are the audit manager of Ranker & Co are responsible for the audit work to be managed for the fixed assets of the company. Ranker & Co has 5 properties amounting to Rs.11.5 crore. One of the important tasks ahead for you is to confirm the ownership of these properties. Which of the following would provide the most persuasive evidence of the ownership?
(CNO-Unique)
a) To conduct a physical inspection of all the properties located at different areas
b) To ask the management registration documents of these properties and inspect and verify them
c) To check whether all the properties are recorded properly in the fixed asset register and depreciation has been calculated correctly
d)Enquire with the management if these properties are insured and review the insurance documentation
MCQ--501.1
You have only eight working hours for raw material inventory verification. Based on your observation during these eight hours, you have to form an opinion with respect to the correctness of inventory value calculated by the management. The company uses ERP system for updating and recording raw material inventory. The ERP system of the company has passed all the ITGC checks and inventory rates are calculated by ERP on moving average price (MAP) basis. The company has done ABC analysis of all raw material inventory items and has vast number of items in each category. You will form your opinion based on
(CNO-Unique)
a) Based on ABC analysis, check physical inventory of all “A” class items during allotted time and matching it with ERP stock.
b) Understand the process of recording of inventory in ERP to ascertain potential weaknesses and checking physical inventory of mostly “A” class items, some “B” class items and some “C” class items.
c) Check physical inventory of “A” class items as much as possible along with certain “B” class items and certain “C” class items on sample basis in value wise descending order, compare the physical stock with ERP system, and tabulate the result. The exercise should be continued till the end of allotted eight hours.
d) Check physical stock of only those items, which have standard packaging so that verification is faster considering the eight-hour time limit.
MCQ--501.2
Your firm has been appointed as the statutory auditors of GBM Private Limited for the financial year 2017-18. While verification of company’s inventories as on 31st March 2018 you found that the significant amount of inventories belonging to the company are held by other parties. However, the company has kept all the records of the inventories maintained by other parties, what is your duty as an auditor in order to ensure that third parties are not such with whom the stock should not be held, and the stock as disclosed in company’s records actually belongs to them?
(CNO-SA501.100)
a) Ensure that the total stock including the stock with third party tally with the stock register maintained by the company.
b) Obtain confirmation from the third party/s with whom the inventories of the company are held and reconcile the same with stock register.
c) Conduct a physical verification of stock maintained with third party/s.
d) Obtain a written confirmation from the departmental head of the company for the inventories maintained at other places as audit evidence.
MCQ--501.3
M/s Brahmi and Associates have been appointed as the statutory auditor of Prompton Leaves Limited, a manufacturer of gas geysers for the FY 2021-22. During the course of audit, the auditor found that two customer complaints have been filed against the company in the FY 2021-22, for the use of sub standard pipes and wires in manufacture of gas geysers. The gas geyser blasted at high temperature leading to severe injuries to the family of complainant along with damage to their property. They have sought a demand of rupees 10 crore. However, the lawyer of Prompton Leaves Limited believes that such claim is unsustainable as the incident occurred due to short circuit at both the complainants place. The management of Prompton Leaves Limited accordingly did not include any reference to the litigation in the financial statements. The auditor obtained legal advice from some independent lawyer according to whom the outcome of the case is not ascertainable as of now
(CNO-SA501.120)
a) The statutory auditor should give an unqualified opinion.
b) The statutory auditor should give an unqualified opinion with Emphasis of Matter paragraph.
c) The statutory auditor should withdraw from the audit engagement
d) The statutory auditor should give a qualified opinion.
MCQ--505.1
ALM Ltd. is a trading company engaged in the business of selling readymade garments with a turnover of around Rs. 85 crore in the year 2017-18. Your firm has been appointed as statutory auditors for the year 2018-19. In the process of audit for the half year ending 30th September 2018 your senior has instructed you to verify the debtors of the company. While verifying the same it came to your notice that the company is not taking balance confirmations from the debtors and the balance shown in the books of company is considered final for the preparation of accounts. As a statutory auditor what should be your decision on the debtor’s balances:
(CNO-Unique)
a) Statutory auditor should review the internal audit report and ensure as per section 143 of the Companies Act, 2013 that the company has adequate internal financial controls in place.
b) There is no need to take debtors confirmation as it is immaterial for the purpose of Audit Report.
c) The auditor is required to take external confirmation independently and wherever the auditor gets negative or no response or the response is doubtful an alternative audit procedure should be followed.
d) A management representation letter should be obtained by the auditor.
MCQ--505.2
As a Central Statutory auditor of KG Ltd. for the year 2018-19 you need to verify the bank balances for the half year ending 30th September 2018. The company is holding Bank accounts in five different banks, but you found that the bank reconciliation is not complete for some of the bank accounts. When discussed with the management they explained that the number of transactions in these accounts is very huge on daily basis and there are some old entries (existing in the reconciliation statement from the year 2008 and they are not material in nature) so it is difficult to reconcile these bank accounts. As a Central Statutory Auditor what will be your decision:
(CNO-Unique)
a) The unusually old outstanding entries, as are not material in nature, should be removed from reconciliation statement and the balance in books of accounts should be considered as the balance for the balance sheet purpose.
b) The auditor should confirm the appropriateness of the old outstanding entries by taking bank confirmations for the same to reduce audit risk and obtain a management representation letter on pending reconciliation.
c) The auditor should disclose the matter in Notes to accounts of the audit report with respect to incomplete bank reconciliation
d) The auditor should communicate it to those charged with governance as deficiency in internal control.
MCQ--505.3
BC Ltd. is the business of manpower consulting. The company has a huge cash and bank balance including fixed deposits with banks. During the course of audit of the financial statements of the company for the year ended 31 March 2017, auditors circulated independent bank balance confirmations. The auditors received all the balance (covering fixed deposits) confirmations independently. Auditors observed that the fixed deposits balance as per the independent balance confirmation did not match with the books balances in some cases. Management produced the fixed deposit certificates to the auditors wherein the balances of fixed assets matched with the balances as per the books. How should the auditor deal with this matter?
(CNO-Unique)
a) Auditor should qualify the audit report in respect of differences in book balances of fixed deposits vis a vis independent balance confirmation.
b) Auditor should consider the fixed deposit certificates produced by the management and basis that any differences in book balances of fixed deposits vis a vis independent balance confirmation should be ignored.
c) Auditor should consider the documentation provided by the management i.e. the fixed deposit certificates, however, independent balance confirmations is also required to be considered by the auditor which shows various difference. The auditor should obtain balance confirmations again.
d) Auditor should consider the documentation provided by the management i.e. the fixed deposit certificates, however, independent balance confirmations is also required to be considered by the auditor which shows various difference. The auditor should look to perform alternate procedures and basis that the matter should be looked at.
MCQ--505.4
Refer the image
(CNO-Unique)
a) No further audit procedures need to be carried out in relation to the outstanding balances with M Co and P Co
b) The difference in relation to N Co represents a timing difference and should be agreed to a pre-pre-year end invoice.
c) The difference in relation to O Co represents a timing difference and should be agreed to pre year-end bank statements.
d) Due to the non-reply, the balance with R Co cannot be verified and a different customer balance should be selected and circularized.
MCQ--505.6
Direct confirmation procedures are performed during audit of accounts receivable balances to address the following balance sheet assertion
(CNO-SA505.020)
a) Right and obligations
b) Valuation
c) Completeness
d) Existence
MCQ--505.7
MNO Ltd. is a company engaged in the manufacture of Kids toys. The company sells its goods on credit basis. M/s. Ajay Vijay & Associates have been appointed as statutory auditors of MNO Ltd. for the FY 2020-21. During the course of audit, CA Ajay, the engagement partner asks the management about the email addresses of trade receivables of the company for the purpose of obtaining balance confirmation from the trade receivables. The management of the company asked its sales supervisor to send confirmation request to the trade receivables and collect all the responses and provide all such responses to the auditor. The management of MNO Ltd. also informed CA Ajay that confirmation with respect to two of its trade receivables namely Sports Star Ltd. and Kids Zone Ltd. won’t be available as a dispute between MNO Ltd. and both the trade receivables is going on. With respect to other trade receivables, the sales supervisor provided CA Ajay with all the balance confirmation. With respect to the balance confirmation request, which of the following is warranted as per the requirement of the relevant SA
(CNO-SA505.100)
a) CA Ajay should not have relied on the explanation provided by the management with respect to the trade receivables namely Sports Star Ltd. and Kids Zone Ltd. and he should perform alternative procedures with respect to such trade receivables.
b) CA Ajay should have obtained direct response from all other trade receivables instead of sales supervisor receiving direct responses from trade receivables and providing them to the auditor.
c) Both a and b.
d) CA Ajay should give a qualified opinion as balance confirmation with respect to two trade receivables is not available
MCQ--505.8
Below is an extract from the list of supplier statements as at 31st March 2021 held by the Company and corresponding payables ledger balances at the same date
along with some commentary on the noted differences:
(CNO-Unique)
a) 1, 2 and 3.
b) 1 and 3 only.
c) 1 and 2 only.
d) 2 and 3 only.
MCQ--505.9
Below is an extract from the list of supplier statements as at 31st March 2022 held by the Company and corresponding payables ledger balances at the same date along with some commentary on the noted differences:
(CNO-Unique)
a) 1, 2 and 3.
b) 1 and 3 only.
c) 1 and 2 only.
d) 2 and 3 only
MCQ--510.2
SKJ Private Ltd is engaged in the business of construction. The company has also got some real estate projects few years back on which it started the work in the last 2 years. The annual turnover of the company is INR 600 crores and profits of INR 40 crores. The statutory auditors of the company got rotated by another audit firm due to mandatory audit rotation requirements as per the Companies Act 2013. The new statutory auditors of the company started audit of the financial statements for the year ended 31 March 2021 in May 2021. The audit team also requested the client to provide certain information on the opening balances to perform their audit procedures. Initially the management did not provide any information to the auditors on the opening balances thinking that this is not within the scope of their work, however, after going through the auditing standards, the management agreed and provided the required information. Later on, the audit team also started requesting information for the period from 1 April 2021 to 31 May 2021. With this requirement, CFO of the company got very upset and angry and set up a meeting with the senior members of the audit team. CFO raised a concern that the audit team has not been doing the work properly and has been asking for unnecessary information like information on opening balances and then the information for the period after 31 March 2021. The audit partner explained to the CFO that everything requested by the audit team has been as per the auditing standards, however, CFO said that in the earlier years, the previous auditors never asked for such information. You are requested to give your view in respect of this matter.
(CNO-SA510.040)
a) The requirement of the auditors for opening balances was valid but for the period after 31 March 2021 is completely wrong as that is out of their scope for the current year’s audit. They can ask for those details during the audit of next year.
b) The concern of the CFO was valid. He has seen the previous auditors not performing such audit procedures and hence the new audit team should also follow the same approach which was followed by previous auditors as that would lead to efficient in audit.
c) The audit team should set up a meeting with previous auditors wherein it should be assessed why different approach was followed by the previous auditors. On the basis of that discussion with the previous auditors, next course of action should be decided.
d) The requirement of the auditors for opening balances as well as for the period after 31 March 2021 is valid. After the requirements of SA 510 and SA 560, audit team is required to perform these procedures.
MCQ--520.1
You are an audit manager with Shah & Associates and are currently performing the final audit of Kapoor Industries for the year ended 31 March 2018. The company is a manufacturer and retailer of shoes and boots. The audit senior has provided you with the following information from the review of the current year and prior year audit files, to complete the audit of payroll:
• As at 31 March 2018, Kapoor Industries had 450 full time employees and 50 part time employees.
• One of the product lines was discontinued during the year, and on 1 May 2017, 10% of full-time staff and all the part time employees were made redundant. This was from immediate effect.
• 10% of the employees were promoted and they received a 8% rise in their salaries. Over the course of the year, sales levels met performance targets which resulted in a fixed bonus of Rs.15,000 being paid to each employee on 31 March 2018. Which of the following are substantive Analytical Procedures to be performed to complete the audit work for wages and salaries of Kapoor Industries?
1. Trace and agree the total wages and salaries expense per the payroll system to the draft financial statements of Kapoor Industries.
2. Recalculate the gross and net pay for a sample of full time and part time employees, agree to payroll records and investigate any discrepancies.
3. Compare the current year total payroll expense to the prior year and investigate any significant differences.
4. Perform a proof in total calculation and compare expected expense to actual expense within the draft financial statements. Option.
(CNO-Unique)
a) Analytical procedure 1 and 2
b) Analytical procedure 1 and 3
c) Analytical procedure 2 and 4
d) Analytical procedure 3 and 4
MCQ--520.2
As the external auditor of Olive Co, you have performed analytical procedures which have highlighted a 36%
increase in purchases compared to the previous period. Olive Co. manufactures tools required for heavy
machinery and the year under audit is 31 March 2018. Which further audit procedures would you perform in
response tothis?
1. For a sample of purchase invoices around the period end, inspect the dates and compare with the dates
of goods received notes and the dates recorded in the purchases and payables to confirm the application
of correct cut-off.
2. Trace a sample of shipping documentation to purchases invoices and into the purchases and payables
ledger.
3. For a sample of purchase transactions recorded in the ledger, vouch the purchase invoice back to supplier
orders and shipping documentation.
4. For a sample of purchase invoices, examine for proper classification into purchase accounts.
Option
(CNO-SA520.140)
a) Procedure (1) and (2)
b) Procedure (1) and (3)
c) Procedure (2) and (4)
d) Procedure (3) and (4)
MCQ--520.3
The basic assumption underlying the use of analytical procedures is:
(CNO-SA520.020)
a) It helps the auditor to study relationship among elements of financial information
b) Relationship among data exist and continue in the absence of known condition to the contrary
c) Analytical procedures will not be able to detect unusual relationships
d) None of the above
MCQ--520.4
The draft financial statements of Tex Co for the year ended 31 March 2018 show the following information:
Rs.
Revenue 52,00,000
Cost of sales 37,00,000
Gross profit 15,00,000
Trade receivables 18,00,000
Trade payables 10,00,000
The auditor has confirmed the trade payables payment period with the Tex Co staff as 98 days during the current year. This was compared with the payment period with the last year records and found out there has been a decrease of 20 days in average. Which of the following audit procedures will provide the auditor with the assertion of valuation of trade payables at the year end?
(CNO-Unique)
a) Review the trade accounts payables listing to identify any large debits which should be recorded as trade receivables or deposits.
b) For a sample of vouchers, inspect supporting documentation, such as authorized purchase orders.
c) Test transactions around the year end to determine whether amounts have been recognized in the correct financial period.
d) Compare the amounts owed to a sample of individual suppliers in the trade accounts payables listing with amounts owed to these suppliers in the previous year.
MCQ--520.5
ZOV is a private limited company engaged in the business of mining. The company’s operations are fairly large, and its turnover is INR 4,000 crores on an annual basis. Due to the nature of the business and the size of the company, the company has appointed a firm of Chartered Accountants as its statutory auditors who have the relevant experience of the industry in which the company has been operating. During the course of the audit of the financial statements for the year ended 31 March 2021, the audit team had various observations which resulted in many adjustments in the financial statements of the company and that was also appreciated by the CFO of the company. At the time of final reviews of the audit team, the audit partner requested working paper on final analytical procedures from the engagement team, however, the engagement team explained that they performed substantive testing procedures which also resulted in some adjustments and the same was incorporated in the final set of financial statements given to the audit partner for the review and accordingly there was no need to perform final analytical procedures. Audit partner was not convinced with this and requested the engagement team to perform this procedure. Considering that the timeline to conclude the audit was approaching, the audit partner also requested the CFO that the audit team would need some more time to perform final analytical procedures. CFO was very impressed with the engagement team and agreed for the time, but he also told the audit partner that work of the team was excellent and hence the audit partner should avoid these additional procedures. You are requested to give your view in respect of this matter as per SA 520.
(CNO-SA520.160)
a) The explanation of the audit team was correct. After doing substantive testing which also resulted in audit adjustments, there was no need to perform final analytical procedures.
b) The suggestion of CFO should have been considered by the audit partner as the CFO was observing the work of the engagement team and hence, he could assess that better than the audit partner.
c) The requirement in view of the audit partner was valid. The conclusions drawn from the results of final analytical procedures are intended to corroborate conclusions formed during the audit of individual components or elements of the financial statements.
d) The audit team did the right thing by not performing final analytical procedures, however, one additional procedure in that case should have been - obtain the document containing the analysis performed by the client on the financial statements. This document is required to be assembled in the audit file.
MCQ--520.6
One of your team members has taken leave for her final exams due in 15 days. She was working on the accruals balance of Karce & Co which could not be completed before she went on study leave. The audit manager has asked to complete the task on accruals. For the current year ended 31 March 2018, there has been an increase in the accruals by 15% as compared to the previous years. Which of the following procedures should be performed to determine if the accruals are accurate, valued and allocated correctly?
(CNO-SA520.140)
a) Test transaction around the year end to determine whether amounts have been recognized in the correct financial period.
b) For a sample of accruals, recalculate the amount of the accrual to ensure the amount accrued is correct.
c) Confirm payment of net pay per payroll records to cheque or bank transfer summary for the accruals on salaries.
d) For a sample of vouchers, compare the dates with the dates they were recorded in the ledger for application of correct cut-off
MCQ--530.1
You are an audit senior of Pendse Accountants and are currently conducting the audit
of Stalwart Co for the year ended 31 March 2018. Below is an extract from the list of supplier
statements as at 31 March 2018 held by the company and corresponding payables ledger
balances at the same date along with some commentary on the noted differences:
Supplier Statement balance Payables ledger balance
Rs. Rs.
AB Co 90,000 70,000
CD Co 1,85,000 1,15,000
AB Co: The difference in the balance is due to an invoice which is under dispute due to faulty goods which were returned on 29 March 2018. CD Co: The difference in the balance is due to the supplier statement showing an invoice dated 27 March 2018 for Rs.70,000 which was not recorded in the financial statements until after the year end. The payables clerk has advised the audit team that the invoice was not received until 3 April 2018. The audit manager has asked you to review the full list of trade payables and select balances on which supplier statement reconciliations will be performed. Which of the following statement is correct in respect of including or excluding from your sample?
(CNO-Unique)
a) Exclude with material balances at the year-end.
b) Exclude suppliers which have a high volume of business with Stalwart Co
c) Include major suppliers with nil balances at the year-end.
d) Include suppliers where the statement agrees to the ledger.
MCQ--530.2
RK Co is a retailer in stationery items and runs 10 shops in and around South Mumbai. In the audit plan
prepared for the current year ended 31 March 2018, you have included statistical sampling method for testing
the accounts payable balance. You asked your audit senior to review the results of some statistical sampling
testing, which resulted in 20% of the payables balance being tested.
The testing results indicate that there is a Rs. 58,000 error in the sample:
Rs. 30,000 which is due to invoices not being recorded in the correct period as a result of weak controls and
additionally there is a one-off error of Rs. 28,000 which was made by a temporary clerk.
What would be an appropriate course of action on the basis of these results?
(CNO-SA530.160)
a) The error is immaterial and therefore no further work is required
b) The effect of the control error should be projected across the wholepopulation
c) RK Co should be asked to adjust the payables figure by Rs. 58,000
d) A different sample should be selected as these results are not reflective of the population
MCQ--530.3
BDJ Private Ltd was established in 2001 and since then the company’s operations have grown significantly. The company is based in Kanpur and has branch offices outside Kanpur. The company is engaged in tours and travels business and because of the nature of the business, it has voluminous transactions. The annual turnover of the company is INR 700 crores. During the audit of the financial statements of the company for the year ended 31 March 2021, the auditors observed wide variation in various details of sales and various expenses as compared to last year. Various balances of trade receivables, loans and advances, statutory liabilities showed significant increase and many balances were found to be non-moving which were aged for more than 3 years. On the basis of the materiality and planned procedures, the audit team requested the client for testing of various samples for sales, expenses etc. The client observed that the number of samples that the team has requested increased as compared to last year and asked the team to cut down on the number of samples so that it is the same number of samples which were tested in the previous years. The audit team did not agree with this and explained various factors which the team had considered for sample selection and the reasons for changes in the samples and also explained the requirements of SA 530 to the client but the client still did not agree. Now there is a situation of deadlock and you are requested to provide your guidance to resolve this matter.
(CNO-SA530.080)
a) The argument of the client is not valid. Sample selection is based on certain principles as per SA 530 and that is on the assessment of the audit team. It may change year on year and hence the client should provide the required information to the audit team.
b) The explanation of the audit team is not valid. Referring SA 530 was not correct in this case. The audit team should have explained their entire approach around risk assessment to the client before starting the fieldwork and should have formally shared that with the client in writing.
c) In the given situation, the audit team instead of getting into any arguments should cut down the number of samples and should increase their procedures around analytical work. That would resolve the problem.
d) The audit team should make a formal request in writing for these details from the client and if the client still refuses then they should report this matter to the audit partner. In that case, the auditing standards require audit partner to check some of the documents which may not be provided by the client to the audit team.
MCQ--530.4
Auditors do not normally examine all the information available to them as it would be impractical to do so and using audit sampling will produce valid conclusions. Random selection ensures that all items in the population have an equal chance of selection, e.g. by use of random number tables or random number generators. Block sampling method includes selection of a block or blocks of continuous items from within the organisation. Which of the following selection can be considered as block sampling method?
(CNO--SA530.120)
a) Auditor Mr. A divided the trade receivables into 2 groups as: balances above ` 20 lakh and balances between ` 10 lakh to ` 20 lakh and selected different percentage of items from each group.
b) Auditor Mr. A determined the starting point as 10 for the list of receivables and selected every 10th balance for receivables thereafter as samples to perform the tests.
c) Auditor Mr. A selected sample size as all the high-value balances from the list of trade receivables to ensure that these balances shown are correctly recorded.
d) Auditor Mr. A uses a sample of 50 consecutive cheques to test whether cheques are signed by authorised signatories rather than picking 50 single cheques throughout the year.
MCQ--
While auditing Veer Ltd., CA. Vardhman divided the whole population of trade receivables balances to be tested in a few separate groups called ‘strata’ and started taking a sample from each of them. He treated each stratum as if it was a separate population. He divided the trade receivables balances of Veer Ltd. for the Financial Year 2020-21 into groups on the basis of personal judgment as follows:
From the abovementioned groups, CA. Vardhman picked up different percentage of items fo examination from each of the groups, for example, from the top group i.e. balances in excess of 10,00,000, he selected all the items to be examined; from the second group, he opted for 25 % of th items to be examined; from the lowest group, he selected 2% of the items for examination; and so o from rest of the groups. Which one of the following methods of sample selection is he following?
(CNO-SA530.120)
a) Systematic sampling.
b) Stratified sampling.
c) Section sampling.
d) Selection sampling.
MCQ--530.6
………….. approach to sampling has the following characteristics: I. Random selection of the sample items; and II. The use of probability theory to evaluate sample results, including measurement of sampling risk.
(CNO-SA530.120)
a) Statistical sampling
b) Non-statistical sampling
c) Stratified sampling
d) Haphazard sampling
MCQ--550.1
As per SA 550 on Related Parties, existence of which relationship indicate the presence of control or significant influence?
(CNO-Unique)
a) Friend of a family member of a person who has the authority and responsibility for planning.
b) Holding debentures in the entity.
c) The entity’s holding of debentures in other entities.
d) The entity’s holding of equity in other entities.
MCQ--550.2
XYZ Printers is a medium size printing press with turnover of Rs.100 crore for the financial Year 2015-16. The company buy paper rims for its press from different suppliers. You are the statutory auditor of the company for the year 2015-16 and the management has informed you that the company has bought paper rims from one of the supplier who is related to one of the director of XYZ Printers. What audit evidence do you need to collect for identifying and assessing the risk of material misstatement associated with related party transaction?
(CNO-Unique)
a) Prior approval of the audit committee/shareholders for the transactions with the supplier, materiality/ significance of the transactions on company’s financial statements, agreement entered into with the supplier and internal control for the transactions with the supplier.
b) Only the prior approval of the audit committee/ shareholders for the transactions with the supplier is sufficient.
c) Check whether the company has formulated any policy on dealing with related party transactions and materiality of transactions.
d) As a statutory auditor you should check the internal controls and internal audit reports only
MCQ--550.3
"M/s Ram Raj & Associates have been appointed as statutory auditors of Venus Ltd. for the FY 2020 -21. During the year, the company has entered into some related party transactions. CA Ram, the engagement partner has taken a management representation letter regarding the proper accounting, presentation and disclosure of such related party transactions. Is there any further responsibility of CA Ram with respect to the other procedures to be performed for related party transactions?
(CNO-Unique)
a) No, there is no further responsibility of CA Ram as the best audit evidence for the related party transaction is the management representation letter.
b) No, there is no further responsibility of CA Ram as the audit firm is responsible for verifying the balances and disclosure of related party transactions. The identification of related party transactions is the responsibility of the management of Venus Ltd.
c) Yes, the audit firm has the responsibility to perform the audit procedures to identify, assess and respond to the risk of material misstatement arising from the entity’s failure to appropriately account for related party relationships, transactions and balances, and obtaining merely management representation letter can be considered to be sufficient
appropriate audit evidence.
d) Yes, the auditor has the responsibility to detect fraud and error with respect to the related party transactions."
MCQ--550.4
XYZ & Associate Chartered Accountants were appointed auditors for Weknow LLP. The engagement manager of the audit team, while designing the auditor response to assessed risk, concluded that there are no requirements of the applicable financial reporting framework for disclosing the related party transaction in the Firm’s Financial Statement and hence the audit team is not required to perform any audit procedures with respect to identification and disclosure of related party relationship and transaction in financial statement. You as an engagement partner guide the engagement manager by selecting the appropriate response from below:
(CNO-Unique)
a) Even if the applicable financial reporting framework establishes minimal or no related party requirements, the auditor nevertheless needs to obtain an understanding of the entity’s related party relationships and transactions and should sufficiently be able to conclude whether the financial statements, insofar as they are affected by those relationships and transactions achieve a true and fair presentation and are not misleading.
b) If the applicable financial reporting framework establishes minimal or no related party requirements, then the auditor is not required to obtain an understanding of the entity’s related party relationships and transactions.
c) Even if the applicable financial reporting framework establishes minimal or no related party requirements, the auditor nevertheless needs to obtain an understanding of the entity’s related party relationships and transactions and should sufficiently be able to conclude whether the financial statements, as a whole, are free from all the material related party transactions.
d) Because related parties are not independent of each other, hence auditor can obtain the written representation from the Related Party’s auditor regarding the accuracy and completeness of the related party transactions disclosed in Firm’s Financial Statement. This should only be carried where the applicable financial reporting framework establishes minimal or no related party requirements.
MCQ--570.1
AMS & Co is a computer hardware specialist and has been trading for over 6 years. The company is funded through overdrafts and loans and by several large shareholders. The financial year end is 31 March 2017. AMS had significant growth in business in previous years; however, in the current year a new competitor BOM & Co, has entered the market and through competitive pricing has gained considerable market share from AMS. One of AMS’s customers has stopped trading with them and has moved its business to BOM. In addition, a few specialist developers have left the company and joined the new company BOM. AMS has found it difficult to replace these employees due to the level of their skills and knowledge. AMS has just received notification that its main supplier who provides the company with specialist electrical equipment has ceased to trade. Which of the following audit procedures should NOT be performed in assessing whether or not AMS is a going concern?
(CNO-SA570.040)
a) Evaluating management’s plans for the future of the business, by finding out from the financial director whether the company has gained any new customers to replace the customers lost.
b) Review board meeting minutes for evidence of progress on recruiting specialist developers to replace the ones who have left to join BOM.
c) Analyze and discuss the entity’s last 2 years of financial statements to determine whether it is consistent with the cash flow forecast.
d) Review the correspondence with the shareholders to assess the probability that any of the shareholders choose to increase or sell their investment.
MCQ--570.2
The auditor has determined that there is a significant going concern uncertainty at PQR Ltd. due to the requirement to refinance the company’s debt. Discussions with the management and the auditor’s evaluation of management’s plans for future actions in relation to its going concern assessment have revealed that plans to raise new equity finance are realistic and likely to deal with the problem. Is it appropriate for PQR Ltd. to prepare its financial statements on a going concern basis?
(CNO-SA570.060)
a) No, PQR Ltd. cannot prepare its financial statements on a going concern basis because a significant uncertainty exists.
b) Yes, PQR Ltd. can prepare its financial statements on a going concern basis. However, the auditor is required to express a qualified opinion.
c) Yes, PQR Ltd. can prepare its financial statements on a going concern basis. No additional disclosure is necessary in the financial statements or the auditor’s report.
d) Yes, PQR Ltd. can prepare its financial statements on a going concern basis. However, disclosure of both the nature of the uncertainty and management’s plan is required.
MCQ--570.3
The auditor is required to evaluate management’s assessment of the entity’s ability to continue as a going concern. Certain events/ conditions were identified that may cast significant doubt on the entity’s ability to continue as a going concern but, based on the audit evidence obtained, the auditor concludes that no material uncertainty exists, and no disclosures are explicitly required by the applicable financial reporting framework regarding these circumstances. If management’s assessment of the entity’s ability to continue as a going concern covers less than twelve months from the date of the financial statements, the auditor is required to request management to extend its assessment period to at least twelve months from that date. The management of the company would provide the financial support letter extended by its parent company. In the given case, which one of the following options is correct?
(CNO-SA570.040)
a) The auditor may obtain the financial support letter from the parent company for r a period of 12 months from year end date.
b) The auditor may obtain the financial support letter from the parent company for a period of 12 months from date of signing of the financial statements.
c) The auditor may obtain the financial support letter from the parent company for a period of 12 months or less from year end date.
d) The auditor may obtain the financial support letter from the parent company for a period of 12 months or less from date of signing of the financial statements
MCQ--570.4
Which of the following is not an indicator about material uncertainty over the entity’s ability to continue as a going concern:
(CNO-SA570.020)
a) Net liability or net current liability position.
b) Cancellation of company’s production license due to change on government policies.
c) Non-declaration of dividend to equity shareholders.
d) Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.
MCQ--580.1
Your firm has been appointed as the auditors of Stuart Limited, a well-established consumer goods manufacturing company. During the audit you were provided with various oral representation during meetings and discussions. While finalizing the audit you requested the management to provide such representations in writing. The management has however informed you that they are not accustomed to providing any representations to the external auditor in writing. The management is of the view that it has provided full access to whatever records, documents and evidence were available with it without any exception and that now it is the auditor’s responsibility to correlate the same with the oral representations. What would be your response to the above?
(CNO-SA580.060)
a) Agree with management since you have been provided full access to whatever records, documents and evidence were available with management without any exception.
b) Document that management gave oral representation in audit working paper and issue unmodified opinion.
c) After corroborating the audit evidence, consider this as a scope limitation and then consider to express a qualified opinion or disclaimer of opinion or re-assess the continuation of engagement with the audit client if integrity of the management is in question.
d) Give unmodified opinion and include the observation in “other matter” paragraph, stating that the written representations of the concerned matters could not be obtained
