Page 164 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(d) Misrepresentation in or intentional omission from financial statements.

III. Payment to fictitious vendors by the employee of Aastha Ltd. Is:
(a) Misappropriation of assets
(b) Intentional misapplication of accounting principles
(c) Manipulation of accounts
(d) Misrepresentation in or intentional omission
IV. The appropriation of ₹ 75 lakhs from the revenue profit to asset replacement reserve is:
(a) Revenue Reserve
(b) Capital Reserve
(c) Capital Redemption Reserve
(d) Capital Revenue Reserve

70. (M23M)
As per SA 210 “Agreeing the Terms of Audit Engagements”, preconditions for an audit may be defined
as the use by management of an acceptable financial reporting framework in the preparation of the
financial statements and the agreement of management and, where appropriate, those charged with
governance to the premise on which an audit is conducted.

Mridul & Co, a firm of Chartered Accountants agreed on the Terms of Audit Engagements of a Private
Limited Company, Jayshree Private Limited. Jayshree Private Limited has conveyed to Mridul & Co that
they want the firm to undertake the statutory audit as well as to examine the life of its plant and
machinery at Indore which is in existence for 10 years. While finalizing the scope of the audit, the
auditors agreed to cover all the units of the company based at Delhi and Indore. Mridul & Co has asked
Jayshree Private Ltd to make all the relevant disclosures in the financial statements. The auditors were
vigilant to inquire about any audit evidence that contradicts the other audit evidence.

The auditors decided to cover following aspects under audit:
(i) An examination of the system of accounting and internal control
(ii) Reviewing the system and procedures.
(iii) Checking of the arithmetical accuracy of the books of account.
(iv) Verification of the authenticity and validity of transactions.
(v) Classification between capital and revenue expenditure.
(vi) Comparison of the balance sheet and profit and loss account or other statements with the
underlying record.
(vii) Verification of the title, existence and value of the assets.
(viii) Verification of the liabilities stated in the balance sheet.
(ix) Checking the results shown by the profit and loss and to see whether the results shown are
true and fair.
(x) Reporting to the appropriate person/body whether the statements of account examined do
reveal a true and fair view of the state of affairs and of the profit and loss of the organisation.
(xi) Where audit is of a corporate body, confirming that the statutory requirements have been
complied with.
While testing the accounts receivables of Jayshree Private Limited, the auditor decided to divide the
accounts receivables by age of receivables in the following manner:
• Below 15 days
• 15 days -30 days
• 31-60 days
• 61-90 days
• 91 days and beyond
Based on the above facts, answer the following:
I. According to you, what is the scope of the audit which Mridul & Co should cover in the audit of
financial statements of Jayshree Private Limited?
I. to examine the life of its plant and machinery at Indore which is in existence for 10 years.

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