Page 171 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
II. After reading Para B, which of following statements is false as regards scope of an audit of
financial statements is concerned?
(a) Audit of financial statements should be organized adequately to cover all aspects of the entity
relevant to the financial statements being audited.
(b) The auditor makes a judgment of reliability and sufficiency of financial information by making
a study and assessment of accounting systems and internal controls.
(c) Due to professional training and knowledge acquired by auditor, he can authenticate
genuineness of documents.
(d) Auditor is not an official investigator.
III. After reading Para C, which statement needs to be corrected in draft regarding inherent
limitations of audit?
(a) Inherent limitations of audit may arise due to nature of financial reporting, nature of audit
procedures and need to strike a balance between reliability of information and cost of
obtaining it.
(b) The information being relied upon by the auditor cannot lose its reliability due to historical
nature of financial information presented in financial statements.
(c) Future events may affect an entity adversely.
(d) The process of audit suffers from certain inbuilt limitations.
IV. Para D states that an audit provides advantages of considerable value to enterprises. Which of
following is not one of advantages of an audit of financial statements of a listed company?
(a) It acts as a moral check on employees.
(b) It acts as an appraisal function.
(c) Its chief advantage lies in safeguarding financial interest of management.
(d) It is useful for settling trade disputes for higher wages or bonus.
V. Para D states that audit can be of considerable value even to those enterprises where it is not
compulsory. In context of companies in India, which of following statements is correct in relation
to Companies Act, 2013?
(a) OPC and small companies are exempted from audit.
(b) OPC, small companies and section 8 companies are exempted from audit.
(c) For all companies in India, except Section 8 companies, audit is legally obligatory.
(d) For all companies in India, audit is legally obligatory.

75 (N23M)
CA Sanjoy is conducting audit of PETA Education Solutions Private Limited for the first time. The
company is engaged in providing solutions to students appearing for competitive exams under
engineering and medical streams. Company’s business is operated from physical centres spread in many
states of the country. However, of late, number of aspirants availing company’s services are shrinking
due to emergence of new competitors and inability of company to switch to new technologies available
in market to render its services.
The company had taken bank loans in past years for expansion of its physical centres. However, due to
reduction in strength of aspirants opting for services provided by the company, management is always
looking for means to meet its financial commitments on time. During the course of audit, CA Sanjoy
wants to be sure about revenue and profit assertions reflected in financial statements of the company.
Therefore, he is planning to test company’s system for booking revenue in its books of accounts.

He notices that during the year under consideration, many experienced teaching faculties have left due
to late payment of their contractual payments by the company. These have been replaced by
inexperienced faculties having lower contractual costs but leading to poor satisfaction outcomes among
aspirants. Besides, employee turnover of regular administrative staff also remains high. The company
has not organized any training programmes either for its faculties or administrative staff for
considerable period of time.

He has, in his wisdom, decided to increase the area of substantive checking in the company. He does
not want to suffer from probable adverse publicity or loss of his professional goodwill.

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