Page 140 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
52 (N21M)
RM & Associates have been appointed as Auditors of Techblocks Consulting Ltd. for the year 2020-21.
CA R and CA M were the Engagement partners.

Para 1
The Firm has freshly appointed 2 Article Clerks who had no practical knowledge in the area of Auditing.
They had to work to tight hard-headed factual issues and were baffling to understand the various terms
and their objectives in the field of Auditing.

Para 2
To make sure that the Article Clerk do not misplace or mis-handle the Working Papers, CA M also
described the relevance of Audit File and clarified that working papers are the property of Auditor. Such
Audit file should be preserved for a period of seven years.

Para 3
CA R while scrutinizing Books of Accounts suspected some fictitious sales as a result of which he

anticipated inflated Debtors. Management was reluctant to give the details. As CA R could not gather
more evidence from the Management, he sought to obtain details from the third party.

Para 4
On further perusal of Opening Balances, it is essential to perceive that Accounting Policies have been
consistently applied in the current period’s financial statements and whether any changes have been
properly accounted for and disclosed. CA M assigned this duty to his article clerk. The Article clerk
explained to CA M about how he had observed that Accounting policies were not consistently applied
in relation to opening balances in accordance with the financial reporting framework or a change is not
properly accounted or not adequately disclosed.

Para 5
Subsequently, the Auditors gathered from the Management that there was a fire in the Factory premises
after the Balance Sheet date, as a result of which the company suffered loss of Inventories. It did not
provide any conditions on the Balance Sheet date. SA 560 deals with such type of transactions.
I. “The Auditor explained his Audit team the purpose of Audit Documentation. Which of the
following is incorrect with respect to the purpose of Audit Documentation?
(a). It enables the conduct of quality control reviews and inspections in accordance with SQC-1.
(b). It helps in preparation of Financial Statements.
(c). It retains a record of matters of continuing significance to future audits.
(d). It enables the conduct of external inspections in accordance with applicable legal, regulatory or
other requirements.
II. “An auditor strictly ensured that the audit team should document / assemble all the working
papers in Audit file. The completion of assembling the Audit File is an administrative process and
should be done in :
(a). It should be within 30 days from the date of Audit Report.
(b). It should be within 60 days from the completion of Audit.
(c). It should not be more than 60 days from the date of Audit Report.
(d). It should be before 90 days from the completion of Audit.
III. “With reference to para 3 of Case scenario, this is a case of obtaining External Confirmation by
the Auditor. Which of the following is inappropriate with regard to External Confirmation?
(a). External Confirmations are restricted to Account balances only.
(b). It is also used in a case to obtain Audit evidence about the absence of certain conditions say, Side
Agreement.
(c). It can be also effective in obtaining Audit evidence about verification of Inventories held by third
parties at bonded warehouses for processing or on consignment.
(d). External Confirmation is also functional in case of Investments held for safekeeping by third
parties, or purchased from stockbrokers but not delivered at the Balance Sheet date.

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