Page 174 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
CASE SCENARIOS OF ICAI SM 23
Chapter 1

77 (SM23)
Rohit, Gurpreet, Ali and Goreti are friends since their school days based in Mumbai. They have cleared
CA foundation exams in the same attempt and now plan to appear for CA Intermediate exams. All of
them are avid news listeners and regularly keep track of business news even on social media.

They are trying to understand new subjects including auditing. Rohit, Gurpreet and Ali have also started
attending Live Coaching Classes (LCC) being conducted by Board of studies of ICAI. Goreti has not been
able to join Live Coaching Classes yet as she was away on a holiday with her parents. However, she plans
to catch it up with her friends very soon. Ali had also joined the classes but he had skipped some
lectures.

During one informal get together, their discussions centred around new subject of auditing. They
discussed many things regarding its nature, scope, benefits and other general practical issues. Goreti
was regular in keeping track of audited results of companies being published in leading newspapers. Her

view was that audited financial statements of companies give 100% guarantee to different stake
holders. It is the main reason behind so much reliance upon auditing. But she could not understand why
wrong doings in financial matters are being discovered after many years have gone by.

Ali also concurred with her view and added that when financial statements are audited, each and every
transaction appearing in books of accounts is verified. However, he could not give clarity to Goreti.

Gurpreet was of the opinion that audit was conducted on the basis of sample checking. He was also of
the view that audited financial statements are not a guarantee against probable wrong doings in
financial matters of the companies.

Not to be left behind, Rohit also jumped in the fray. He supported Gurpreet and also added something
of his own.
I. Gurpreet was of the view that audited financial statements are not a guarantee against probable
wrong doings in financial matters of companies. What kind of assurance does audit of financial
statements provide?
(a) It provides reasonable assurance meaning a moderate level of assurance.
(b) It provides reasonable assurance meaning a low level of assurance.
(c) It provides reasonable assurance meaning a high level of assurance.
(d) It provides reasonable assurance meaning an absolute level of assurance.
II. Rohit added that auditor can force an employee of the company to provide him required
information and documents. Can he do so?
(a) Yes, he can do so. It is necessary to obtain audit evidence.
(b) Yes, he can do so. There are express rights given to him in this respect.
(c) No, he cannot do so. He can only request for providing him with necessary information and
documents. But it cannot be forced by him.
(d) No, he cannot do so. He has no right of seeking information and documents. Therefore,
question of forcing does not arise.
III. Ali had listened in one of the classes that audit covers all aspects of an entity and concluded that
each and every transaction of entity is verified by auditor. Goreti also seemed to be in agreement
with him but she was of the view that besides this, it also meant that audit should be so organized
to cover all areas of an entity. Which of following statements is appropriate in this regard?
(a) Only view of Ali is correct.
(b) Only view of Goreti is correct.
(c) Views of both Ali and Goreti are correct.
(d) Views of both Ali and Goreti are incorrect.

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