Page 111 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(d). Substantive Analytical Procedures"
V. "Statement 1:- Substantive Procedures alone can provide sufficient and appropriate audit
evidence at the assertion level.
Statement 2:-Test of Controls is audit procedure designed to evaluate the operating effectiveness
of controls in prevention, detection and correcting material misstatement at the assertion level.
(a). Only Statement 1 is correct
(b). Only Statement 2 is correct
(c). Both 1 & 2 are correct
(d). Both 1 & 2 are incorrect"

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"M/s UVW & Associates have been appointed as auditors of Mars Ltd. for the Financial Year 2019-20.
• During the course of audit, the auditors notice that there are certain legal expenses been
charged to revenue during the financial year by Mars Ltd.
• These legal expenses are related to litigations going against the company regarding its
Corporate Social Responsibility expenses incurred near its factory area.
• Further, M/s UVW & Associates noticed that there is a major change in the debtors and
creditors account of Mars Ltd. during the financial year under audit. The auditors have decided
to send balance confirmation requests to the debtors and creditors of Mars Ltd. Also the
auditors decide to take management representation letters wherever required.
• Also, the auditors have noticed certain related party transactions reflected in the financial
statements of Mars Ltd during the financial year under audit. The transaction is between Mars
Ltd and a Company owned by wife of one of the directors of Mars Ltd.
• The auditors have become aware of certain subsequent events occurring in case of Mars Ltd.
These are related to the outcomes of the litigations going against Mars Ltd.
• The auditors are also concerned whether the litigations going against Mars Ltd. and their
outcomes have any impact on the going concern of the company.

Based on the above facts, answer the following:-"
I. "Statement 1: Although Written Representations provide necessary audit evidence, they do not
provide sufficient and appropriate audit evidence on their own about the matters with which
they deal.
Statement 2: Written Representations do not include financial statements, the assertions within,
or supporting books and records.
(a). Only Statement 1 is correct
(b). Only Statement 2 is correct
(c). Both Statement 1 & 2 are correct
(d). None of Statement 1 & 2 is correct"
II. "The auditor can perform the following procedures to identify litigation and claims of Mars Ltd:-

(a). Inquiry of management including in house legal counsel.
(b). Reviewing legal expenses account.
(c). Reviewing of minutes of meetings of those charged to governance and correspondence
between entity and external legal counsel.
(d). All of the above."
III. "Negative confirmation requests require the third party to respond in the following cases :-
(a). If there is agreement
(b). If there is disagreement
(c). In both cases of agreement as well as disagreement
(d). None of the above."
IV. "Statement 1:- A failure of the confirming party to respond, or fully respond to a positive
confirmation request or a confirmation request returned undelivered is a case of Non-Response.

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