Page 185 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
Chapter 07

86 (SM23)
CA. Gaurav Gogoi is about to conclude audit of a company. It has been noticed during the course of audit
that there is shortage of important raw material supplies being imported from China due to prevailing
geo-political situation. The company has shared with him its plan to deal with the situation. He is
satisfied with assessment of the company for dealing with the matter. The issue is disclosed in financial
statements and considering management’s assessment, it is felt that use of going concern assumption
by company in preparation of financial statements is appropriate.

Besides, he also wants to be sure that all subsequent events till now have been considered and
accounted for, where ever necessary, in financial statements.

Before concluding audit, he requests written representations from management regarding its
responsibilities. However, it is noticed that such written representations provided by management use
qualifying language.

He has also communicated significant findings from audit in writing with those charged with governance
in the company and has retained copy of relevant mails. Besides, there are certain matters which were
communicated by him orally from time to time during the course of audit to those charged with
governance.
I. As regards description of matter above concerning issue of going concern, which of the following
statements is most appropriate for auditor’s report?
(a) The auditor should express an unmodified opinion.
(b) The auditor should express a qualified opinion as material uncertainty exists related to
events or conditions that may cast significant doubt on the entity’s ability to continue as a
going concern.
(c) Besides expressing an unmodified opinion, the auditor’s report shall include a separate
section under the heading “Material Uncertainty Related to Going Concern” drawing
attention to the note in which such disclosure is made in financial statements along with
related matters.
(d) Such an issue does not affect auditor’s opinion.
II. As regards going concern basis of accounting is concerned, which of the following statements is
true?
(a) A company showing net loss in its financial statements is essentially not a going concern.
(b) Following going concern assumption of accounting is primary duty of auditor.
(c) In case, a company is not a going concern, its financial statements must be prepared on
liquidation basis.
(d) Audit procedure seeking confirmation from banker regarding outstanding balance relates to
verification of going concern assumption.
III. Which of the following statements is true in respect of auditor’s responsibilities in respect of
subsequent events?
(a) There is no obligation for an auditor to perform audit procedures for events occurring
between date of financial statements and date of auditor’s report.
(b) There is no obligation for an auditor to perform audit procedures after signing of auditor’s
report, even if he comes to know of an event, which if known to him earlier would have
caused him to amend the audit report.
(c) The auditor has only to rely upon written representation of management regarding
subsequent events. He has no other means to know about such events.
(d) The auditor should perform necessary audit procedures to know about events occurring
between the date of financial statements and date of auditor’s report.
IV. As regards use of qualifying language in written representations, which of the following
statement is most appropriate?

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