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CA RAVI TAORI CA INTER AUDIT MCQs
and appropriate to provide a basis for the auditor ’s opinion.
IV. A paragraph was included in the Auditor’s Report of Health is Wealth Limited that referred to a
matter which was appropriately disclosed in the financial statements that, in the auditor’s judgment,
was of such importance that it was fundamental to users’ understanding of the financial statements.
What is this section of the Auditor’s Report called?
(a) Other Matters.
(b) Emphasis of Matters.
(c) Key Audit Matters.
(d) Auditor’s Responsibilities for the Audit of the Financial Statements.
V. CA A explained the circumstances to Mr. R in which, when the corresponding figures are presented,
auditor’s opinion referred to the corresponding figures. Which of these circumstances did he
mention to Mr. R?
(a) If the auditor obtains audit evidence that a material misstatement exists in the prior period
financial statements on which a modified opinion has been previously issued.
(b) If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a
disclaimer of opinion, or an adverse opinion and the matter which gave rise to the modification
is resolved.
(c) Prior Period Financial Statements are audited by another auditor.
(d) Prior Period Financial Statements not audited.

59 (M22M)
AA & Associates, an audit firm based in New Delhi, was appointed as the Statutory Auditor of Success
Ltd., a listed Company having branches all over India. Success Limited is engaged in the business of
manufacturing furniture items from timber which is imported from South Africa. The audit firm has six
partners and partner CA A is the engagement partner for Success Ltd.

The audit team consisting of CA A and five more members prepared an audit strategy and audit plan
before commencing the audit. CA A was aware of the fact that the understanding of the internal control
of the organisation would assist the team in various ways. So, it was decided that the team would first
obtain an understanding of the internal control relevant to the audit before commencing th e audit.

CA A explained to the team that there is a direct relationship between an entity’s objectives and the
controls it implements to provide reasonable assurance about their achievement. The entity’s
objectives, and therefore controls, relate to financial reporting, operations and compliance; however,
not all of these objectives and controls are relevant to the auditor’s risk assessment. CA A educated the
team about the factors relevant to the auditor’s judgment about whether a control, individually or in
combination with others, is relevant to the audit. The team then applied its professional judgment to
decide whether a control, individually or in combination with others, is relevant to the audit.

One of the team members, CA P scheduled a meeting with the Director of Success Ltd., Mr. D, to
understand the risk assessment process of the entity. The entity’s risk assessment process formed the
basis for the risk to be managed. CA P, on the basis of his judgment, found the process to be appropriate,
and it helped him in in identifying the risks.

Once the risks were identified, CA P had to determine whether any of the risk identified is, in his
judgment, a significant risk. CA P considered all the factors which he should have considered to exercise
his judgement as to which risks are significant risks. He was aware that significant risks often relate to
certain type of transactions and matters.

In the meanwhile, CA A met the CFO of the Company, Mr. C to obtain an understanding of the major
activities that the entity uses to monitor internal control over financial reporting. Mr. C explained to CA
A the various monitoring activities undertaken by the management to monitor the internal control
performance of the company.

Based on the above information, answer the following questions:

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