Page 143 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
appointment, if the Auditor himself or his relative acquires the security exceeding the prescribed limit
in the Company.

Para 2
Further, the Auditors, S K and Associates also had to bank on the policies and procedures adopted by
the Company for ensuring the efficient conduct of its business. They have to state about the adequacy
of Internal Financial Controls in the Company. The Company had a turnover of Rs. 60 Crores as per the
latest Audited Balance Sheet and its Borrowings during the year were Rs. 20 Crores from Banks.

Para 3
The CFO of the Company, Mrs. Darshana felt dubious in the Accounts department of the Company. She
entreated the Auditors to perform a thorough investigation of the Accounts department. Mrs. Darshana
was also anticipating a fraud in this situation. Both the Auditor as well as the CFO of the Company
analyzed the various risk factors. The Auditors observed that the Head Accountant of the Department
has inflated the Sales amount to finish his targets. There was collusion between the Head Accountant
& Employees of the Company. Employees were presented incentives on accomplishing their targets.
This resulted in a fraud by the Head Accountant of amount aggregating to Rs.75 Lacs.

Para 4
Mr. X, an acquaintance of CA S, wanted to form an LLP with his distant relatives. He wanted to possess
in depth knowledge about LLP. CA S explained him that LLP is a separate legal structure and is liable to
full extent of its assets but the partners are liable to the extent of their agreed contribution in LLP. Mr.
X additionally wanted to know the criteria for the accounts of LLP to be audited. CA S enlightened him
that the accounts of every LLP shall be audited in accordance with Rule 24 of LLP, Rules 2009.

Para 5
Big Box Ltd. is expanding its business. Consequently it requires many Computers. Purchasing computers
may involve paying a huge upfront cost. Cash flow may get disrupted. Hence the Company came up with
an idea of getting the Computers on lease. It will allow the businesses to have access to the latest
technology without harming their cash flow.

The Auditors explained to the Directors that leasing Computers shall come under the purview of
Operating Lease
I. “With reference to para 1, S K and Associates can take corrective actions within _______days. The
relative may hold security or interest in the company of face value not exceeding ____________
(a). 45 days, Face Value Rs.100000/-
(b). 60 days, Market Value Rs.500000/-
(c). 30 days, Face Value Rs. 500000/-
(d). 60 days, Face Value Rs.100000/-
II. “The Auditors of S K and Associates were doubtful concerning the applicability of Internal
Financial Controls in the Company Big Box Ltd. With reference to details provided in Para 2 above,
please guide them in this regard.
(a). It will be applicable as Turnover exceeds the threshold limit of Rs.50 Crores.
(b). It is not applicable as the Borrowings are less than 25 Crores during the financial year.
(c). It will be applicable as the Company is a Public Listed Company.
(d). Reporting on Internal Financial Control is not under the scope of Auditors reporting. Hence, Not
Applicable.
III. “With reference to para 3, wherein a fraud was observed by the Auditor, what should be the
course of action of the Auditor?
(a). The Auditor should report the fraud details to Central Government.
(b). The Auditor shall report the fraud to the audit Committee or to the Board within the prescribed
time.
(c). The Auditor shall disclose it in the Audit Report and report the fraud details to RBI too.
(d). Both a & c above.
IV. “With regard to information provided in Para 4, which of the following is a CORRECT option?
www.auditguru.in 137 | P a g e