Page 168 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
IV. The auditor has decided to merely verify arithmetical accuracy and reconciliation of ageing
schedule relating to trade payables. The use of above audit procedure can lead to ?
(a) Sampling risk
(b) Non-sampling risk
(c) Inherent risk
(d) Control risk
V. Keeping in view inherent limitations of audit of financial statements, which of following
statements is likely to be most appropriate?
(a) Due to inherent limitations of audit, auditor obtains conclusive audit evidence.
(b) Due to inherent limitations of audit, auditor can be satisfied with less than persuasive
evidence.
(c) Due to inherent limitations of audit, subsequent discovery of material misstatement in
financial statements after audit, which was conducted in accordance with SAs, does not
indicate a failure of audit.
(d) Due to inherent limitations of audit, auditor can skip a difficult, time-consuming and costly
procedure.

73 (N23M)
Following is the extract of information taken from financial statements of AAF Private Limited for the
financial year 2022-23: - (All Figs in tables are in ₹ 000s)

Particulars 31/03/23 31/03/22
Paid up share capital 75000 75000
Long term borrowings 24500 30000
Short term borrowings 55000 50000
Other current liabilities 350 550
Property, Plant and Equipment 48500 56000
Depreciation 7500 9500
Profit/(Loss) after tax (5000) (6000)

Assume that there are no taxation adjustments.
The schedule of short-term borrowings reflects as under: -
Particulars 31/03/23 31/03/22
Loans repayable on demand from MMT Bank (secured) 55000 50000
(Cash credit limit against hypothecation of stocks
guaranteed by all directors)

It has been further noticed during the course of audit that quarterly statements filed by company with
its bank for availing cash credit facilities of ₹ 5.50 crores during the year vis-à-vis books of accounts
reflect following details: -

Period ending Value of stocks as per Value of stocks per
quarterly statements Books of accounts
30.6.22 80000 70000
30.9.22 70000 65000
31.12.22 85000 70000
31.3.23 80000 80000

It has also been noticed that long term borrowings consist of a term loan from MMT Bank. Term loan
outstanding has reduced in comparison to last year. However, during the year 2022-23, company has
not paid one instalment of ₹ 5 lakhs on time which is overdue for 65 days as on balance sheet date. The
credit facilities have been classified as Standard assets by the Bank in accordance with prudential
guidelines of RBI.

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