Page 126 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(b) Cheenu & Co. has identified the benchmark for the materiality level. However, there is a
difference of opinion in documenting materiality for the financial statements. One of the
partners is of the opinion that there is no need to document the same as per SA 230.
(c) During the course of the audit, Cheenu & Co. wants to verify the inventory of the company held
under the custody and control of the third party. The management refuses the same as it is not
practicable.
(d) There exists a litigation matter in which the auditor assesses a risk of material misstatement
and wants to directly communicate with the entity’s external legal counsel. The management
however refuses to give the auditor permission to communicate or meet the entity’s external
legal counsel. Further, the auditor is unable to obtain sufficient appropriate audit evidence by
performing alternate procedures.
From the above information, answer the following by choosing the correct option:"
I. "As per SQC1, what is the retention period of the audit documentation?
(a). It should be no shorter than seven years from the date of the auditor’s report.
(b). It should be no shorter than eight years from the date of the auditor’s report
(c). There is no such retention period; audit documentation must be there permanently as a defense
in favour of the auditor in any litigation
(d). It should be no shorter than eight years from the date of entering into the audit agreement with
client"
II. "As part of the audit documentation, the auditor may consider it helpful to prepare and retain a
summary that describes significant matters identified during the audit and how they were
addressed. What is this summary known as?
(a). Audit File
(b). Completion Memorandum
(c). Evidence summary
(d). Control Memorandum
III. "How should the auditor verify the inventory held in custody with the third party?
(a). SA 501 mandates auditor to verify the same physically, hence management refusal will lead to a
disclaimer of opinion
(b). The auditor should perform other procedures like requesting confirmation from third party or
inspecting documentation like warehouse receipts to confirm existence of the inventory
(c). The auditor should obtain written representation from management on the inventory held in
custody with third party
(d). Inventory of client held with third party is outside the scope of audit; hence auditor need not
verify the same for his audit opinion on the financial statements."
IV. "Is the opinion of the auditor on not to document the materiality level correct?
(a). Yes, SA 230 does not prescribe any documentation of materiality level as it is derived out of
auditor’s professional judgment.
(b). Yes, none of the auditing standards prescribe documentation of materiality level.
(c). No, though SA 230 does not prescribe any documentation, it should be documented as per SA
320.
(d). No, SA 230 explicitly states that materiality level should be documented."
V. "Which among the following is not a factor for identification of an appropriate benchmark?

(a). The elements of the financial statements
(b). The relative volatility of the benchmark
(c). The entity’s ownership structure and the way it is financed.
(d). Previous experience of audit with the entity"

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"A Partnership Firm of Chartered Accountants by the name of WN and Associates was appointed to
audit books of accounts of Healthy and Talented Private Limited for the financial year 2020-21. WN and

Associates consisted of two partners, Mr. W and Mr. N. The main responsibility to audit books of
accounts of Healthy and Talented Private Limited for the financial year 2020-21 was given to Mr. W by

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