Page 119 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(d). An audit programme is the policies and procedures adopted by the company for ensuring orderly
and efficient conduct of audit, including timely provision of records to auditors and prompt
response to audit queries."

33
"Deenan and Co. is the auditor of a service industry Niranjan Groups. The auditor during the course of
identifying and assessing the risk of material misstatement through understanding the entity and its
environment and during the course of performing the audit procedures comes across the following
circumstances:
Issue 1: The auditor, in general, finds that there are a lot of discrepancies in accounting. These
circumstances indicate to the auditor that there is a possibility of fraud.
Issue 2: The auditor finds that there is something unusual about the balances outstanding in the
receivables. Date wise verification of the bank reconciliation performed by the auditor has resulted in
mismatch in dates in most of the receivable ledger. The auditor has identified a pattern in the
mismatches. He suspects that there might be a misappropriation of cash and the detection of this
misappropriation is being prevented by crediting the amount received subsequently to the account of
customer who paid earlier.
Issue 3: On deeper scrutiny, the auditor also finds that the company is holding significant bank accounts
and having branch operations in tax haven jurisdictions. Also, there are significant related party
transactions which do not appear to be in the ordinary course of business.
Issue 4: During the course of verification, it is found by the auditor that there is no proper hierarchy and
approval procedure for the senior management expenditure such as travel re-imbursement.
Issue 5: The auditor also assesses and suspects material misstatements in asset value. As a response to
this, he plans to carry out physical observation of certain assets by using computer assisted audit
techniques.
From the above facts, answer the following questions by choosing the right option."
I. "Which among the following is NOT a fraud risk factor leading to a fraud in an organization?
(a). Incentive or pressure to commit fraudulent financial reporting
(b). A perceived opportunity to commit fraud
(c). Individuals being able to rationalize the act of committing a fraudulent act
(d). Taking undue advantage of the inefficient internal control in the organization"
II. "What is the kind of fraud that the auditor has faced in Issue 2 raised in the case above?

(a). Teeming and Lading
(b). Cash skimming
(c). Defalcation of cash by inflating cash payment
(d). Misappropriation of receivables

III. "Which among the following statement is incorrect in the context of the two types of fraud
“Fraudulent financial reporting” and “Misappropriation of assets”?
(a). Fraudulent financial reporting is achieved by manipulation, falsification or alteration of
accounting records from which financial statements are prepared
(b). Misappropriation of assets is achieved by intentional misapplication of accounting principles
relating to amount, classification, presentation and disclosure.
(c). Fraudulent financial reporting is achieved by management override of controls
(d). Misappropriation of assets is achieved by causing an entity to pay for goods and services not
received."
IV. "Issue 3 identified by the auditor is a fraud risk factor. What is the condition created by that fraud
risk factor and what fraud does it result in?
(a). The risk factor creates a rationalization for the fraud and results in a misstatement due to
fraudulent financial reporting.
(b). The risk factor creates an incentive/pressure for the fraud and results in a misstatement due to
misappropriation of assets
(c). The risk factor creates a perceived opportunity for the fraud and results in misstatement due to
fraudulent financial reporting.

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