Page 133 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
of the company, Mr. Sudesh, to the Central Government. The statutory auditors are considering their
reporting responsibilities in this regard.
The audit team also realized that there is inadequate Internal Control System with respect to the
following:
• The system of authorization and approval of transactions specially in the process of making purchases.
• The system of record keeping with respect to the assets.
Based on the above facts, answer the following:-
I. “As the management of MNO Ltd. has given a written representation regarding its responsibility
for prevention and detection of misstatement on account of fraud and error, M/s RS &
Associates:-
(a). Should rely on such management representation and conduct its audit procedures without
wasting much time and resources towards detection of fraud and error.
(b). Should not consider such management representation as a substitute for obtaining sufficient and
appropriate audit evidence and design its audit procedures accordingly.
(c). Should not rely on such management representation and should obtain written representation
from those charged with governance.
(d). Should concentrate on audit of accounting system and accounting policies so used by the
company as the prevention and detection of fraud and error is the responsibility of the
management.
II. “The inclusion of dummy workmen in the workmen list by the management of MNO Ltd. as
noticed by CA Ramesh amounts to:-
(a). Suppressing cash receipts
(b). Casting wrong total in cash book
(c). Inflating cash payment
(d). Misappropriation of goods
III. “With respect to the fraud which has already been reported by The Cost accountant of the
company, Mr. Sudesh, what is the responsibility of M/s RS & Associates in this regard?
(a). Since the reporting has been done to the Central Government by the cost accountant of the
company, the statutory auditor has no responsibility for such fraud and its reporting.
(b). The cost accountant has detected and reported the fraud to the Central Government. The
statutory auditor should not interfere in the work of the Cost Accountant.
(c). CA Ramesh should review the steps taken by the management with respect to the reported fraud
and if he is not satisfied with such steps, he should request the management to perform
additional procedures to enable him to satisfy himself that the matter has been appropriately
addressed.
(d). CA Ramesh should obtain written representation from the management that once the matter is
appropriately addressed, he will be duly informed by the management.
IV. “……………..refers to events or conditions that indicate an incentive or pressure to commit fraud
or provide an opportunity to commit fraud:-
(a). Fraud Risk Factors
(b). Misappropriation of assets
(c). Incentives/ Pressures
(d). Fraud
V. Statement 1: The risk of auditor not detecting a material misstatement resulting from employee
fraud is greater than for management fraud.

Statement 2: The risk of not detecting a material misstatement resulting from fraud is higher than
the risk of not detecting one resulting from error.
(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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