Page 104 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(d). It is obtained when the auditor has obtained sufficient and appropriate audit evidence to reduce
audit risk i.e. (the risk that the auditor expresses an inappropriate opinion when the financial
statements are materially misstated) to an acceptably low level."

III. " Consider the following statements which may or may not be erroneous.
Statement I--- Detection risk relates to nature, timing and extent of audit plans to reduce audit
risks.
Statement II--- Inherent risk and control risk are dependent upon audit of financial statements.
Statement III--- The acceptable level of detection risk varies in direct proportion to the assessed
risk of material misstatement at assertion level.
Which of the following options is correct?
(a). Statement I is true. Statements II and III are false.
(b). Statement I and II are true. Statement III is false.
(c). Statement I and II are false. Statement III is true.
(d). Statements I, II and III are false."
IV. " Identify correct group of meaningful words to replace underlined erroneous words in para 4 in
the same order in which these are underlined: -
(a). Prevent, binding and conclusive
(b). Prevent, conclusive and binding
(c). Forego, conclusive and persuasive
(d). Reduce, persuasive and persuasive"
V. " Consider accompanying underlined statement: The SAs deal with general rights of the auditor
as well as further considerations relevant to application of those rights to specific topics. Which
of the following is likely to be true? #Unique
(a). The above underlined statement is completely correct.
(b). The above underlined statement is completely incorrect.
(c). The above statement is partly correct.
(d). No inference about correctness of statement can be drawn."

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"M/s Arun Karun & Associates have been appointed as the statutory auditors of HKM Ltd. for the FY
2019-20. HKM Ltd. is a company engaged in the manufacture of computer hardware’s. CA Arun is the
engagement partner, and his team consists of two article assistants, namely Mr. Ram & Mr. Shyam.

While performing the audit procedures, Mr. Ram did production analysis and calculated the expenditure
per unit and compared the same with the previous year and the present year industry trends. When Mr.
Ram asked the management about the reasons for variations, he was told that such reasons have
already been explained to the cost auditors and the statutory audit team need not spend their time on
matters which are of concern for the cost auditor. Mr. Ram was convinced and agreed to the suggestions
of the management of HKM Ltd.

Further, during the course of audit, CA Arun found that there has been an increase in the paid-up share
capital of the company. CA Arun obtained a written representation from the management with respect
to such increase in the share capital. Also, CA Arun found that in the company there is a cashier, a petty
cashier and in addition there are imprest balances with the employees. Further, the audit team verified
all the travelling expenses recognised during the period to confirm whether they relate to the current
accounting period only.

CA Arun directed Mr. Ram to verify whether the employee benefit expense has been fairly allocated
between the operating expenses incurred in production activities and the general expenses. CA Arun
also directed his team to check in detail the particulars of Revenue reserve and share premium account
of the company. Based on the above facts, answer the following:-"
I. " With respect to the contention of the management of HKM Ltd. regarding the production
analysis and the related variances, which of the following is correct?

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