Page 179 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(d) Inspect insurance policies to verify that inventories at each location are insured for fire and
burglary. Ensure policy period has not expired.

II. Which of the following most appropriately describes test of control regarding inventory counts?
(a) Obtain detail of inventory counting procedure and ensure that inventory count is carried out
according to laid down procedure.
(b) Obtain detail of inventory counting procedure and ensure that inventory count is carried out
according to laid down procedure. Attend inventory count.
(c) Obtain detail of inventory counting procedure and ensure that inventory count is carried out
according to laid down procedure. Attend inventory count and perform test count.
(d) Attend inventory count and perform test count.
III. While testing control over bank reconciliations, it has been noticed that bank reconciliations are
not being performed at regular intervals. Identify the most appropriate description of “control
deficiency” in this regard: -
(a) Bank reconciliations are not being performed regularly as concerned staff is overburdened.
(b) Bank reconciliations are not being performed regularly as concerned staff is overburdened.
It could result in errors.
(c) Bank reconciliations are not being performed regularly as concerned staff is overburdened.
It could result in errors. It may result in misstatement of cash and bank balance in financial
statements.
(d) Bank reconciliations are not being performed regularly as concerned staff is overburdened.
These should be performed monthly and reviewed by senior accountant.
IV. Since the company is a new client, which of the following statements is most appropriate?

(a) There is reduced detection risk.
(b) There is increased detection risk.
(c) There is no effect on detection risk.
(d) Detection risk should be increased to lower audit risk.
V. Which of the following statements is most appropriate regarding auditor’s response to assessed
risk of a new client?
(a) More substantive procedures would require to be performed.
(b) Less substantive procedures would require to be performed.
(c) There is no effect on substantive procedures.
(d) There is no effect on substantive procedures as audit risk is low.

Chapter 04
82 (SM23)

CA Drishti Khandelwal is conducting audit of a company engaged in manufacturing of towels and
bedspreads. The company is having its own manufacturing set-up. However, it also gets some
manufacturing processes outsourced from third parties. The company has three locations having
substantial quantities of inventories in the same city. Besides, due to outsourcing of some processes,
inventories are also held in premises of third parties in the same city. As part of audit procedures, she
is performing many audit procedures required by different Standards on Auditing.

In particular, she is attending physical inventory count process of the company at year end in accordance

with requirements of SA 501.The inventory of the company includes raw materials consisting mainly of
natural and dyed yarns, work in process in different stages of manufacturing and finished stocks of
towels and bedspreads.

She is also planning sending confirmations to parties to whom the company has sold goods. On
reviewing trade receivables list, she finds that the list also contains large number of parties having small
balances. She further finds that these receivables have arisen due to sale of bedspreads to small time
retailers and possibility of difference in balances as per company’s records and as per records of these

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