Page 167 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(b) Reviewing GST returns and their reconciliation with revenue stated in statement of profit &
loss
(c) Reviewing credit notes issued by company post year end
(d) Reviewing debit notes issued by company post year end

72 (N23R)
CA X has accepted offer of conducting statutory audit of financial statements of DOS Solutions Private
Limited. Keeping in mind requirements of Standards on Auditing including those relating to SA 300, he
plans audit so that it is conducted in an effective manner. He knows that because of inherent limitations
of an audit, there is audit risk in audit of financial statements even though audit is properly planned and
performed in accordance with Standards on Auditing.
Considering nature of operations of the company, he has decided to use audit sampling in performing
audit procedures. The various areas of his testing include testing controls over revenues, expenditures,
assets and liabilities of the company. Besides, he has decided to perform tests of details in respect of all
these areas of financial statements.
While verifying tests of controls over purchase orders placed by the company based
on selected audit samples, he has erroneously concluded that Standard operating procedures (SOP) for
placing purchase orders are not being followed strictly and controls are less effective than they actually
are.
Further, while testing controls over wage payments, he has tested 20 sample wage sheets of different
sections of company and finds that one wage sheet has not been signed by authorized officer of the
company. The rate of deviation was earlier set by him at 3%.
During the course of designing procedures for selecting samples for verification of trade receivables, he
has decided to divide trade receivable balances into groups viz. balances in excess of ₹ 10 lakh, balances
in range of ₹ 7,50,001 to ₹ 10,00,000, balances in range of ₹ 5,00,001 to ₹ 7,50,000, balances in range of
₹ 2,50,001 to ₹ 5,00,000 and balances of ₹ 2,50,000 and below. He has planned to pick up different
percentage of items from each of above groups. Random sample is chosen from each group using
random number tables.

Some of the trade payables of the company were outstanding since long. He has decided to merely
verify arithmetical accuracy of ageing schedule and its reconciliation with books of accounts.
Therefore, nature of audit procedures, nature of financial reporting itself and need for audit to be
conducted within a reasonable period of time and at a reasonable period of cost all lead to inherent
limitations of audit.
I. The auditor has erroneously concluded that Standard operating procedures (SOP) for placing
purchase order are not being followed strictly and controls are less effective than they actually
are. Which of the following statements is likely to be true in this regard?

(a) It is a sampling risk and might lead to auditor expressing inappropriate audit opinion.
(b) It is a sampling risk and affects audit effectiveness.
(c) It is a sampling risk and affects audit efficiency.
(d) It is a control risk and affects audit effectiveness.

II. The auditor has tested 20 sample wage sheets in different sections of the company and finds that
one wage sheet has not been signed by authorized officer of the company. It represents ?
(a) Tolerable misstatement
(b) Misstatement
(c) Tolerable rate of deviation
(d) Actual rate of deviation
III. Which method of selecting samples for verification of trade receivables has been planned by
auditor?
(a) Simple random sampling
(b) Systematic sampling
(c) Block sampling
(d) Stratified sampling

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