Page 94 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
management that it acknowledges and understands that it has responsibility for the preparation
of financial statements."

Author’s Note :
Answer given by ICAI is “d” but correct is “b”, As per SA 210 Para 11 of SA 210
“If law or regulation prescribes in sufficient detail the terms of the audit engagement referred to in
paragraph 10, the auditor need not record them in a written agreement, except for the fact that such law
or regulation applies, and that management acknowledges and understands its responsibilities as set out
in paragraph 6(b)”.
II. " With respect to the treatment of discount on redemption of points in payback card, what should
be the action of the external auditor?
(a). The auditor can place reliance and go by the opinion of the branch auditor and internal auditor
as they have only done a thorough and detailed audit of the accounts
(b). The auditor can place reliance on the management’s accounting policy as prima facie they are
only responsible for preparation of financial statements.
(c). The external auditor has sole responsibility for the audit opinion expressed and hence he should
perform issue opinion accordingly.
(d). The auditor can advise management on correct treatment but cannot qualify his opinion as
branch auditor’s opinion has higher authority than external auditor’s opinion."
Author’s Note: Answer given by ICAI is “b”, but correct answer is “c”. As auditor cannot just blindly rely
on management’s accounting policy. As per AS 29 & IND AS 115 provision should be made for such reward
points.
III. " What is the main objective of the external auditor, when he uses the work of the internal audit
function of Ram & Co.?
(a). To determine as to which areas, what extent the work can be used and whether that work is
adequate for the purposes of the audit.
(b). To appropriately direct, supervise and review the work of the internal audit function
(c). Review the internal audit report and audit the areas not covered by the internal audit function
(d). Enquire from management on the special points that arose during internal audit and follow up
on the course of action on those points."
Author’s Note: Answer given by ICAI is “d”, but correct answer is “a” as per SA 610. Option “b” is relevant
for taking direct assistance from internal auditor further option “c” and “d” cannot be considered as
objective.
IV. " The external auditor finds that the branch auditor of the outlet in the Chennai region, which is
in the verge of closing down, is audited by an auditor who is not a member of the Institute of
Chartered accountants of India. What should the external auditor do? #Unique
(a). Since the professional competence of the auditor is in question, the external auditor should
himself visit the premise and audit the accounts.
(b). Since the financial statement of the component is immaterial, the provisions of SA 600 do not
apply.
(c). The auditor can rely on the financial statements of that component by obtaining written
representation from management that the branch auditor is otherwise well qualified.
(d). Since the professional competence of the auditor is in question, the external auditor should co-
ordinate with the branch auditor and call for the books of accounts and other explanations."
Author’s Note: ICAI answer is “c” but correct answer seems “d”. Option “c” is incorrect because it talks of
using only written representation, further option “a” is the last step if not satisfied with option “d”.
V. " Which of these is not a factor affecting the external auditor’s evaluation of the objectivity of the
internal audit function? #Unique
(a). Whether the organizational status of the internal audit function supports the ability of the
function to be free from bias, conflict of interest or undue influence of others to override
professional judgment.
(b). Whether the internal audit function is free of any conflicting responsibilities.
(c). Whether the internal auditors have adequate technical training and proficiency in auditing.

www.auditguru.in 88 | P a g e