Page 180 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
small-time retailers is low. Risk of misstatements in relation to trade receivables has been assessed as
low. Besides, there is nothing to suggest that small-time retailers would disregard such requests.

While conducting audit, she is testing controls operating in the company. She is also conducting tests of
various items of income and expenditure as well as balances appearing in balance sheet. She intends to
rely upon sampling extensively.
I. Which of the following statements is most appropriate regarding inventory count by auditor in
accordance with SA 501?
(a) She should inspect the inventory to ascertain its existence and condition at all locations,
observe how company personnel are carrying out count procedures and perform test
counting.
(b) She should inspect the inventory to ascertain its existence at all locations, observe how
company personnel are carrying out count procedures and perform test counting. The
matter of condition of inventories falls in domain of expert.
(c) She should inspect the inventory to ascertain its existence at selected location, observe how
company personnel are carrying out count procedures and perform test counting. The
matter of condition of inventories falls in domain of expert.
(d) She should inspect the inventory to ascertain its existence and condition at all locations and
perform counting of each and every item.
II. As regards inventories lying with third parties, which of following statements meets requirements
of SA 501?
(a) She should request confirmation from third parties regarding quantity and condition of
inventories held on behalf of the company as well as request third parties to allow her to
inspect inventories held by them. Both requirements are necessary to be complied with.
(b) She should request confirmation from third parties regarding quantity and condition of
inventories held on behalf of the company or request third parties to allow her to inspect
inventories held by them. Compliance of any one of these or both is required for purposes
of SA 501.
(c) There is no obligation cast upon an auditor in respect of inventories lying with third parties.
(d) She should request confirmation from third parties regarding quantity, condition and value
of inventories held on behalf of the company or request third parties to allow her to inspect
inventories held by them. Compliance of any one of these is sufficient for purposes of SA
501.
III. Keeping in view description regarding trade receivables, identify the most appropriate statement
in context of SA 505?
(a) She should not plan and design confirmation requests for large number of parties having
small balances.
(b) She should plan and design positive confirmation requests for large number of parties having
small balances.
(c) She should plan and design positive confirmation requests for large number of parties having
small balances and meticulously analyse exception rate
(d) She should plan and design negative confirmation requests for large number of parties
having small balances.
IV. As regards sampling, which of the following statements is most appropriate in terms of
requirements of SA 530?
(a) Sampling is used in tests of transactions as well as tests of controls.
(b) Sampling is used in tests of balances as well as tests of controls.
(c) Sampling is used in tests of details.
(d) Sampling is used in tests of details as well as tests of controls
V. Since she intends to rely upon sampling extensively, which of the following statements is true
about sampling risk?
(a) Sampling risk can be eliminated.
(b) Increase in sampling risk would lead to decrease in detection risk.
(c) Decrease in sampling risk would lead to increase in detection risk.

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