Page 134 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
47 (M21M)
Ghan Shyam & Associates have been appointed as the statutory auditors of ABC Ltd. for the FY 2019 -
2020. The engagement partner, CA Ghan Shyam established the overall audit strategy and made the
detailed plan with respect to the audit assignment of ABC Ltd. after discussing the same with the
engagement team.
The strategy adopted by Ghan Shyam & Associates consisted of relying on the internal control system
of the company and the audit plan and programme were developed accordingly & executed by the
engagement team. During the course of audit, the engagement partner, CA Ghan Shyam found that
some internal control system of the company were not in place. So, he decided not to rely on the internal
control system of the company and accordingly changed the firm’s overall audit strategy, audit plan &
audit programme.
While conducting audit, the engagement partner also discussed with his team regarding the audit
procedures to be performed to verify the debtors’ balances of ABC Ltd. CA Ghan Shyam also asked for
the addresses of various debtors from the management of ABC Ltd. to send balance confirmation
request to such debtors. The management provided such addresses to the audit team. However, the

management of ABC Ltd. asked the debtors to send the responses to such confirmation request to
General Manager of accounts department who will in turn provide such responses to the audit team.
Also with respect to five random debtors, CA Ghan Shyam decided to confirm the terms of agreement
also along with confirming the balance amount, by seeking responses to confirmation requests from
such debtors.
During the course of audit, the auditor found that the inventory of ABC Ltd. is kept at its factories and
various other locations including warehouses. The audit team is unable to attend the physical
verification activity undertaken by the management at all such locations.
During the course of audit, the audit team found that legal cases have been filed against the company
on account of customer complaint. CA Ghan Shyam discussed with his team regarding the audit
procedures that can be performed by the audit team in this regard. CA Ghan Shyam also briefed his
engagement team regarding the documents to be included in the audit file with respect to the audit
assignment of ABC Ltd.
Based on the above facts, answer the following:-
I. “Is CA Ghan Shyam right in changing the overall audit strategy and plan after the audit team has
started working as per the earlier strategy established & plan so developed?
(a). CA Ghan Shyam is not right as once the audit team has started the audit work, it is not correct to
change the audit strategy and plan.
(b). CA Ghan Shyam is not right as once the overall audit strategy has been established the same
cannot be changed. Audit plan however can be revised.
(c). CA Ghan Shyam is right in making changes to the overall audit strategy and the audit plan.
(d). CA Ghan Shyam can change the overall audit strategy and audit plan only after discussing the
same with the management of ABC Ltd.
II. “Which of the following audit procedures should the audit team perform with respect to
verification of debtors balance?
(a). Ghan Shyam & Associates can compare the debtors balance reflected in financial statement
with the total balance of ledgers account in the books of ABC Ltd.
(b). Ghan Shyam & Associates can obtain direct balance confirmation from the debtors as this is
external evidence which is most reliable and relevant.
(c). Ghan Shyam & Associates can obtain management representations with respect to the debtors
balance from the management of ABC Ltd and need not perform other audit procedure as
obtaining written representation from management constitutes sufficient and appropriate audit
evidence.
(d). Both a & b.
III. Statement 1: The reliability of information to be used as audit evidence is influenced by its source
and its nature, and the circumstances under which it is obtained.

Statement 2: The audit evidence obtained from sources external to the entity are generally more
reliable than the audit evidence from internal sources.

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