Page 88 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
3 (M20M)
• M/s TPR & Associates have been appointed as the auditors of Octopus Ltd. for the Financial Year 2019-
20.
• During the course of audit, the auditor notices that there is significant change in the number of debtors
of the company. The auditor decided to check the debtors account in detail.
• Further the company has made various provisions like the provisions for taxation, provision for bad &
doubtful debts.
• Also during the current Financial Year, the auditor attended the physical verification of the inventory
being carried out by the management.
• The auditor notices that there is no substantial change in the bifurcation of amount of items
representing the liabilities side of the balance sheet of Octopus Ltd. Still the auditor understands that
he needs to check the liability side in detail.
• Further the company has also recognised various income like interest income and dividend income
which auditor understands need to be checked in detail.
• The auditor is of the understanding that certain matters need to be reported under Companies
Auditors Report Order (CARO).
I. Based on the above facts, answer the following:-
1. ………..is a possible obligation that arises from the past events and whose existence will be
confirmed only by the occurrence/ non-occurrence of one or more uncertain future events not
wholly within the control of the entity:-
(a) Provision
(b) Reserve
(c) Contingent Liability
(d) Liability
II. Which of the following is not correct with respect to the inventory held by Octopus Limited:-

(a) All inventory units held by the company should have been recorded and recognized in the
financial statements.
(b) Any inventory held by a third party on behalf of the company should not be included as part
of the inventory balance.
(c) Inventory should be recognized at cost or net realizable value whichever is lower.
(d) Inventory balance as at the year-end does not include any element of next year
III. If the management of Octopus Ltd. refuses to allow the auditor, to send the confirmation request
to the debtors, the auditor should:-
(a) Withdraw from the engagement.
(b) Not listen at all to any requests of the management.
(c) Consider the management’s request for refusal and assess its validity and decide the nature,
timing, extent of his audit procedures accordingly.
(d) Agree to management request and proceed with audit of other items of the financial
statements.
IV. Which of the following statements is not true so far as the liabilities of a company are concerned:-
(a) Liabilities are the financial obligations of a company including owner’s funds.
(b) Liabilities include borrowing, trade payable and other current liabilities and provisions.
(c) Verification of liabilities is an important as that of assets.
(d) All of the above.
V. Statement 1: Confirmations as well as undelivered letters should be given/ returned to the
auditor and not to the client
Statement 2: When no reply is received, the auditor should perform alternate procedures
regarding the balances:-
(a) Only statement 1 is correct
(b) Only statement 2 is correct
(c) Both 1 & 2 are correct
(d) Both 1 & 2 are incorrect

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