Page 151 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
I. CA A was aware of the fact that the understanding of the internal control of the organization would
assist the team in various ways. Which of the following is not achieved by an understanding of the
internal control system?
(a) Identifying breakdown due to human error.
(b) identifying types of potential misstatements.
(c) designing the nature, timing, and extent of further audit procedures.
(d) identifying factors that affect the risks of material misstatement.

II. Which of the following factors is not relevant to the auditor’s judgment about whether a control,
individually or in combination with others, is relevant to the audit?

(a) The diversity and complexity of the entity’s operations.
(b) Applicable legal and regulatory requirements.
(c) The nature of the entity’s business, including its organization and ownership characteristics.
(d) Nature, timing, and extent of further audit procedures.

III. CA P obtained an understanding of the risk assessment process of the entity. Which of the following
is a risk assessment process to be followed by an entity?
(i) Identifying business risks relevant to financial reporting objectives.
(ii) Estimating the significance of the risks.
(iii) Assessing the likelihood of their occurrence.
(iv) Deciding about actions to address those risks.
(a) (i), (ii), (iii),
(b) (i), (ii)
(c) (i), (ii), (iii), (iv)
(d) (ii), (iii)

IV. CA P considered all the factors which he should have considered to exercise his judgment as to which
risks are significant risks. Which of the following is a factor which he would have considered to
determine the same?
(a) Whether the risk is a risk of error.
(b) The complexity of transactions.
(c) Whether the risk involves significant transactions with non-related parties.
(d) The degree of objectivity in the measurement of financial information related to the risk,
specially those measurements involving a wide range of measurement uncertainty.
V. Which among the following is incorrect with reference to last para of the case study regarding the
auditor to obtain an understanding of the major activities that the entity uses to monitor internal
control over financial reporting :
(a) It involves assessing the efficiency of controls on a timely basis and taking necessary remedial
actions.
(b) Management accomplishes it through ongoing activities, separate evaluations etc.
(c) Management’s monitoring activities may include using information from communications from
external parties.
(d) In small entities, management’s monitoring of control is often accomplished by management’s
or the owner-manager’s close involvement in operations.

60 (M22M)
Suresh Rana & Associates have been appointed as the statutory auditors of HAIL Ltd. by the Comptroller
& Auditor General for the FY 2021-22. HAIL Ltd. is a Government company engaged in the manufacture
of metro train coaches. During the course of audit, CA Suresh extended his scope of audit to cover
efficiency, effectiveness and economy audit. CA Suresh Rana also asked his audit team to conduct
expenditure audit as part of the audit engagement of HAIL Ltd.

During the course of audit, CA Suresh also found that the company has constructed its new stockyard
for parking its metro coaches and maintenance of its metro coaches. However, the stockyard was not
being used by the company for the designated purpose and the company continued using the rented
stockyard. Suresh considered such expenditure as infructuous and avoidable expenditure.

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