Page 156 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(a) Only understanding as per point no. 1 is correct.
(b) Only understanding as per point no. 2 is correct.
(c) Understanding as per point no. 1 & point no. 2 both are correct.
(d) Understanding as per point no. 1 & point no. 2, both are incorrect.

63 (N22M)
Meeta, Neeta, Rita and Babita are friends and all of them have joined office of an auditing firm for
undergoing articled training. It is still early days in the office. However, all of them are curious about
different issues of auditing. They have also studied auditing subject. They were going through one audit
file of a large manufacturing company as part of their training. In the file are included some audit
working papers and other related documents.

(A) Some papers contained in file reflect following: -

(i) Are budgets for capital expenditure approved by the Board?
(ii) Are approved budgets communicated in writing to accounts department and to department
originating the request?
(iii) Is the authority to incur capital expenditure restricted to specified officials?
(iv) Are receipts of capital items subject to controls as in case of purchases of raw material, stores?
(v) Is there proper check to see that amounts expended do not exceed the amount authorised?

Further, “Yes”, “No” and “Not applicable” along with remarks/notes have been provided by the
employees of company against items stated at serial no.[i] to [v].

(B) Also included in audit working papers is a detailed note on process of employee recruitment followed
by company along with practices on related matters such as orientation, training, evaluation,
compensation and promotion of employees. In particular, it seemed that auditors had shown keen
interest in standards followed by the company in recruiting most qualified individuals.

(C) The audit file also includes documentation on how customs duty paid by company on imported raw
material was verified. The engagement team had examined the payment of custom duty with reference

to bill of entry available in client records. It was verified that customs duty was in accordance with
applicable duty rate on goods. In cases where duty was paid by clearing and forwarding agent, bill of
entry with reference to bill of forwarder was verified.

(D) The audit file includes a document, signed by CEO of company addressed to auditors, extract of
which is as under: -

We have provided you with: -

(i) Access to all information of which we are aware that is relevant to the preparation of the financial
statements such as records, documentation and other matters;
(ii) Additional information that you have requested from us for the purpose of the audit;
(ii) Unrestricted access to persons within the entity from whom you determined it necessary to obtain
audit evidence.
(iv) All transactions have been recorded in the accounting records and are reflected in the financial
statements.

(E) The audit file included following draft to be included in audit report: -

“Revenue is one of the main profit drivers and is, therefore, susceptible to misstatement. Cut -off is the
main relevant assertion insofar as revenue recognition is concerned, since an inappropriate cut -off can
result in material misstatement of results for the year.

Our audit procedures with regard to revenue recognition included testing controls, automated and
manual- around deliveries, inventory reconciliations and substantive testing for cut -offs and analytical

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