Page 162 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(c) Both 1 & 2 are correct
(d) Both 1 & 2 are incorrect
IV. …………….. refers to the audit procedures performed to obtain an understanding of the entity and
its environment, including the entity’s internal control, to identify and assess the risks of material
misstatement, whether due to fraud or error at the financial statement and assertion levels: -
(a) Analytical Procedures
(b) Risk Assessment Procedures
(c) Audit Procedures
(d) Substantive Analytical Procedures
V. Statement 1:- Substantive Procedures alone can provide sufficient and appropriate audit
evidence at the assertion level.
Statement 2:-Test of Control is audit procedure designed to evaluate the operating effectiveness
of controls in prevention, detection and correcting material misstatement at the assertion level.
(a) Only Statement 1 is correct
(b) Only Statement 2 is correct
(c) Both 1 & 2 are correct
(d) Both 1 & 2 are incorrect

68. (M23M)
M/s ABC & Associates have been appointed as auditors of Venus Ltd. for the Financial Year 2020-21.
• During the course of audit, the auditors notice that certain legal expenses been charged to revenue
during the financial year by Venus Ltd.
• These legal expenses are related to litigations going against the company regarding its Corporate
Social Responsibility expenses incurred near its factory area.
• Further, M/s ABC & Associates noticed that there is a major change in the debtors and creditors
account of Venus Ltd. during the financial year under audit. The auditors have decided to send
balance confirmation requests to the debtors and creditors of Venus Ltd. Also, the auditors decide

to take management representation letters wherever required.
• The auditors have noticed certain related party transactions reflected in the financial statements of
Venus Ltd. during the financial year under audit. The transaction is between Venus Ltd. and a
Company owned by wife of one of the directors of Venus Ltd.
• The auditors have become aware of certain subsequent events occurring in case of Venus Ltd. These
are related to the outcomes of the litigations going against Venus Ltd.
• The auditors are also concerned whether the litigations going against Venus Ltd. and their outcomes
have any impact on the going concern of the company.
I. Statement 1: Although Written Representations provide necessary audit evidence, they do not
provide sufficient and appropriate audit evidence on their own about the matters with which
they deal.
Statement 2: Written Representations do not include financial statements, the assertions within,
or supporting books and records.

(a) Only Statement 1 is correct
(b) Only Statement 2 is correct
(c) Both Statement 1 & 2 are correct
(d) None of Statement 1 & 2 is correct
II. The auditor can perform the following procedures to identify litigation and claims of Venus Ltd.:-
(i) Inquiry of management including in house legal counsel.
(ii) Reviewing legal expenses account.
(iii) Reviewing of minutes of meetings of those charged to governance and correspondence
between entity and external legal counsel.
(a) & (i) are correct
(b) (i), (ii) & (iii) are correct.
(c) (ii) & (iii) are correct
(d) only (i) is correct

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