CA Final Audit – Chapter 1 – Auditing Standards, Statements and Guidance Notes – An Overview MCQs – Set I

The evidence available to auditor is _______ in nature, rather _______ in nature.

The guidance note contains ________ audit procedures in case of audit of liabilities

The guidance notes on audit of capital reserves gives special consideration to which of the following pesons.

As per SQC 1, for listed entity, engagement partner should be rotated in every ____ year.

As per SA 230 read with _______, working paper should be preserved for minimum period of ___.

The complaints and allegation against the firm as regards to the non-compliance of professional standards or allegation of non-compliance of firm‟s system of quality control shall be dealt with ______.

All firms to have system of Quality control that provide reasonable assurance that firms and personnel comply with __________

What is not an element of system of Quality control

Firms should obtain Written representations of compliance with policies and procedures on independence from all personnel in terms of requirements of code in what time duration.

Engagement quality control review should be completed

If the auditor is unable to draw reasonable assurance, he should either withdraw from engagement if permitted by law or Disclaim his opinion is given in which Standard of Auditing?

Professional judgment means a judgment taken by the auditor out of his ______ in an audit situation

Sufficiency is the measure of the _____ of audit evidence.

Appropriateness means _______ of audit evidence.

An auditor is expected to, reduce audit risk to zero and can obtain absolute assurance that the financial statements are free from material misstatement due to fraud and error. The given statement is?

An auditor is required to determine the ________ of his audit procedures according to the requirements of Standards of Auditing.

Independence comprises of ____________

What is the term that includes an attitude of questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

SA 210 deals with the key considerations that Independent Auditor needs to keep in mind on the _______ with Management or those charged with governance.

MINSAN Ltd., an unlisted company in South India, is engaged in the business of spice oil extraction. Total paid up capital of the company is Rs. 9 crore. Details of annual turnover and profit of the company for the last 3 years are given below: Year ended Turnover (Rs. in crore) Profit (loss)before tax (Rs. in crore)
31-03-2019 527.21 (Audited) 50.16
31-03-2020 301.37 (Audited) 01.25
31-03-2021 104.13 (provisional) (10.25)
The company is using conventional method for extraction of oil from spices. This requires more human intervention and hence, cost of production is high as compared to innovative method used by other new companies. Though the company had significant growth in the past years, it has not done well over the last two financial years due to competition.
A new competitor viz, Natural Extracts Ltd, had come in the market during the year 2019 and by the end of March, 2020, they captured around 75% of market share by offering the product at a reduced price. They use new machinery which allows whole range of automated extraction method, thus, minimizing manual steps and reducing cost of labour.
In order to reduce cost of production and thereby re-capture the market, the management of MINSAN Ltd. has planned to erect a new plant with an automatic machine. The estimated cost of plant & machinery is Rs. 90 lakh. The company approached SA Bank Ltd. for a term loan of Rs. 80 lakh which would be repaid in 5 years. On 28-12-2020, the bank had sanctioned the loan; and disbursed Rs. 40 lakh till 31st March, 2021.
MINSAN Ltd. has appointed M/s Check & Check, Chartered Accountants, as auditors of the company at its AGM held on 18-09- 2020 for a period of 5 years. As agreed, the audit team commenced their audit work for the year 2020-2021 in February, 2021 and completed the work by the end of May, 2021. The audit team submitted following findings to the engagement partner:
➢ PX Ltd., one of the material suppliers, filed a case against the company on 12-09-2020 for a compensation of Rs. 3 crore.
➢ Company has made an estimate for allowance of debtors @5%.
➢ 70% of the value of inventory was only covered in physical verification during the year 2020-21 due to outbreak of Novel Corona Virus (COVID-19) and subsequent lockdown thereof.
➢ Company got a show cause notice from State Pollution Control Board for the contravention of the provisions of Hazardous and waste Management Rule.
➢ Three incidences of fraud noticed (total Rs. 1.02 crore)- fraud committed by the Purchase manager Rs. 85 lakh, by Accounts manager Rs. 15 lakh and by a cashier Rs. 2 lakh.

As an auditor of MINSAN Ltd. for the year 2019-20, answer the following
questions based on the facts given in the above paragraph:

Based on the above facts, answer the following:

1. Though the company had significant growth in the past years, it has not done well over the last two financial years. As per SA 570, there are certain events or conditions that individually or collectively may cast significant doubt about the going concern assumptions. In order to assess whether MINSAN Ltd is a going concern or not, which of the following audit procedures should NOT be performed?

Company has made an estimate for allowance of debtors @5%. Some financial statement items cannot be measured precisely but can only be estimated. The nature and reliability of information available to management to support the making of an accounting estimate varies widely, which thereby affects the degree of estimating uncertainty associated with accounting estimates. Please advise which among the following may have higher estimate uncertainty and higher risk as per SA 540?

The company in the notes accompanying its financial statements disclosed the existence of suit filed against the company with full details. Based on the audit evidence obtained, it is necessary to draw user’s attention to the matter presented in the financial statement by way of clear additional communication as there is an uncertainty relating to the future outcome of the litigation. In this situation, which of the following reporting option would be correct if auditor is satisfied with the conclusions reached by the management and this matter is fundamental to the reader of financial statements?

Company got a show cause notice from State Pollution Control Board. As per SA 250, the auditor shall perform the audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements. As the audit team of the company became aware of information concerning an instance of non- compliance with law, what would NOT be the audit procedure to be performed?

The company had availed some amount of loan for new plant and machinery during the year under audit. Out of the total loan sanctioned an amount of ` 25 lakh was earmarked for the purchase of the machinery-Oil Extractor; but the company has acquired an improved model of machinery, viz, Oil extractor with Dryer instead. State which of the reporting option would be correct.

It is not mandatory to send a new engagement letter in recurring audit, but sometimes it becomes mandatory to send a new letter. The given statement is

What Are The Circumstances Requiring Revision In Terms of engagement as per SA 210

When client request the auditor to change the terms of engagement, auditor should consider whether changed terms provide _________ of assurance.

Whose responsibility is to use acceptable financial reporting framework in preparation of financial statement

The auditor shall assemble the audit documentation in an audit file within how many days of completion of audit.

The firm’s quality control ________ should be effectively communicated to its personnel.

Audit Documentation is a record of

Statement 1: The size and complexity of the entity is one of the Factors affecting form, content & extent
Statement 2: The Identified RMM is not a Factors affecting form, content & extent.
Choose the correct option

Documentation is the property of the _____

Process of collecting and preparing working papers is known as __________.

Whihc documents are more reliable than mere photocopy.

Most of the audit evidence are in which form

_______ is the file containing the records and data that compromise the audit documentation for a specific engagement.

Audit documentation shall be maintained for a period of 7 years from the__________

___________is Intentional Act involving use of deception to
obtain an unjust or illegal advantage

Auditor is concerned with Fraud that causes _______

Recording fictitious journal entries to manipulate operating results is an example for _____

Embezzling receipts is an example for

Primary responsibility for prevention & detection of fraud rests with _______

The auditor shall obtain ______ that the financial statements are free from fraud and misstatement

Auditor shall enquire about the management‟s assessment of the ______ risk and how frequently management assesses the same.

SA 240 deals with the auditor‟s responsibilities towards _____ in the financial statement audits.

Which of the following is not an example of misappropriation of assets?

Which of this is not an example of Fraudulent Financial Reporting?

Non – compliance means act of omission by the entity, ________, which are contrary to the prevailing laws and regulations

Which of the following is not an indicator of non-compliance of regulatory requirement

XYZ Ltd. is violating the laws about depositing the amount of Provident fund, the statutory auditor noticed the same and wish to inform the concern authority. The statutory auditor must report the same to whom?

The auditor shall make a reporting requirement as per SA 250 on non-compliance in an audit of financial statement to ______

The Auditor has to _________ L&R having direct effect on determination
of material amount and disclosures in F.S.

The auditor was unable to conclude on the compliance made by the company of its applicable laws and regulations due to unavoidable circumstances. What should be the right course of action?

Which of the following steps management should take to comply with the regulatory requirements?

SA 260 focuses primarily on communications from the auditor to which authority

According to SA 260, In case of listed entities, the auditor shall communicate with those charged with governance that, the engagement team and others in the firm as appropriate and the applicable network firms have complied with relevant ________ regarding independence.

The matters which are most significant in professional judgment of the auditor shall along with communicating to those charged with governance has to be included in _________.

Which of the following are an examples of Significant difficulties

The auditor is required to obtain an understanding of internal control relevant to the audit when identifying and assessing the risks of ______.