Page 90 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
5 (N20R)
"M/s JJ & associates having office in Chennai are statutory auditors under Companies Act, 2013 of a
company viz. Sweet Aroma Private Limited engaged in business of obtaining and manufacturing rice
from paddy catering to both domestic as well as international market mainly in Gulf nations. The
company has a huge plant capacity for rice extraction in one of the states in Northern India. Needless
to state that inventories are in huge quantity in such type of business consisting of raw material, work
in progress and finished goods. The auditors want to obtain sufficient appropriate audit evidence
regarding inventories. In above context, answer the following questions: -"
I. " Which of the following is most likely correct in relation to obtaining of sufficient appropriate
audit evidence regarding existence and condition of inventory?
(a). It is mandatory for the auditor to attend physical inventory counting on the date of financial
statements in all circumstances.
(b). Physical inventory counting may be attended by auditor on the date of financial statement or at
a date other than date of financial statements in his discretion mandatorily in all circumstances.
(c). The attendance of auditors at physical inventory counting is impracticable due to time and costs
involved because of auditor’s office location vis-à-vis company’s plant location. Hence,
attendance at physical inventory counting may be skipped and alternative audit procedures may
be performed to obtain sufficient appropriate evidence.
(d). The auditor shall attend at physical inventory counting unless impracticable. However, issue of
time and costs involved because of auditor’s office location vis-à-vis company’s plant location is
not a valid basis for skipping physical inventory counting."
II. " Below are given certain cluster of matters which are relevant in planning attendance of auditor
at physical inventory counting. Which of the following clusters consists of a likely inappropriate
combination?
(a). Nature of inventory, timing of physical inventory counting and stages of completion of work in
progress
(b). Nature of inventory, timing of physical inventory counting and valuation method of inventory
(c). Nature of inventory, timing of physical inventory counting, considerations regarding
maintenance of a perpetual inventory system
(d). Risks of material misstatements related to inventory, nature of internal control pertaining to
inventory, considerations regarding maintenance of a perpetual inventory system"
III. " Which of the following is the most likely logical sequence of steps in relation to attendance at
physical inventory counting by auditor?
(a). Observance of performance of management’s count procedures, inspection of inventory,
performing test counts and evaluation of management’s procedures for recording and controlling
results of physical inventory counting
(b). Observance of performance of management’s count procedures, performing test counts,
inspection of inventory and evaluation of management’s procedures for recording and controlling
results of physical inventory counting
(c). Performing test counts, inspection of inventory, Observance of performance of management’s
count procedures and evaluation of management’s procedures for recording and controlling
results of physical inventory counting.
(d). Evaluation of management’s procedures for recording and controlling results of physical
inventory counting, Observance of performance of management’s count procedures, inspection
of inventory and performing test counts.
IV. "During attendance at physical inventory counting, the auditor inspects inventory. Following
outcomes stated as I, II & III are given below of this inspection procedure: -
Outcome I --- Existence of inventory
Outcome II ---- Ownership of inventory
Outcome III ------ Condition of inventory

Which of following statements is most likely true?
(a). Outcomes I, II and III are all necessarily established after inspection.
(b). Only Outcomes I and III are established after inspection and Outcome II is never established.

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