Scanner MCQ CA+Inter+Audit May+24

CA Inter with CA Himanshu
MCQ & Case Studies

30/30 Book
Auditing – May 24

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Contents
Multiple Choice Questions ........................................................................................................................................................... 3
SQC 1 ............................................................................................................................................................................................... 3
SA 200 .............................................................................................................................................................................................. 5
SA 210 .............................................................................................................................................................................................. 6
SA 220 .............................................................................................................................................................................................. 8
SA 230 .............................................................................................................................................................................................. 8
SA 260 ............................................................................................................................................................................................ 10
SA 265 ............................................................................................................................................................................................. 11
SA 299 ............................................................................................................................................................................................ 12
SA 300 ............................................................................................................................................................................................ 12
SA 315 ............................................................................................................................................................................................ 14
SA 320 ............................................................................................................................................................................................ 17
SA 330 ............................................................................................................................................................................................ 18
SA 450 ............................................................................................................................................................................................ 19
SA 500 ............................................................................................................................................................................................ 20
SA 501 ............................................................................................................................................................................................ 22
SA 505 ............................................................................................................................................................................................ 23
SA 510 ............................................................................................................................................................................................ 23
SA 520 ............................................................................................................................................................................................ 24
SA 530 ............................................................................................................................................................................................ 26
SA 550 ............................................................................................................................................................................................ 27
SA 560 ............................................................................................................................................................................................ 28
SA 570 ............................................................................................................................................................................................ 28
SA 580 ............................................................................................................................................................................................ 30
SA 610 ............................................................................................................................................................................................ 30
SA 700 ............................................................................................................................................................................................ 31
SA 701 ............................................................................................................................................................................................ 31
SA 705 ............................................................................................................................................................................................ 32
SA 706 ............................................................................................................................................................................................ 33
SA 710 ............................................................................................................................................................................................ 34
CARO ............................................................................................................................................................................................... 35
Bank Audit ..................................................................................................................................................................................... 36
Other ............................................................................................................................................................................................... 40
Integrated Cases ......................................................................................................................................................................... 52

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Multiple Choice Questions
SQC 1
1. Standard on Quality Control (SQC) 1 provides that,
(a) unless otherwise specified by law or regulation, audit documentation is the property of
the management.
(b) unless otherwise specified by law or regulation, audit documentation is the property of
those charged with governance.
(c) unless otherwise specified by law or regulation, audit documentation is the property of
the management or those charged with governance.
(d) unless otherwise specified by law or regulation, audit documentation is the property of
the auditor.
2. Which of the following is correct:
(a) The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date
of the auditor’s report.
(b) The auditor shall assemble the audit documentation in an audit file and shall not complete
the administrative process of assembling the final audit file.
(c) The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis before the date
of the auditor’s report.
(d) The auditor shall not assemble the audit documentation in an audit file.
3. An auditor signs a false audit report knowingly. Which of the following fundamental principles
of professional ethics is violated in such a case?
(a) Objectivity
(b) Integrity
(c) Professional Competence and due care
(d) Professional behaviour
4. The Firm R K & Associates has an extensive understanding of Code of Ethics that underlies the
fundamental principles relevant to the Auditor when conducting an Audit of Financial
Statements and provides a conceptual framework for applying these principles. Which of the
following does not form part of the fundamental principle?
(a) Integrity
(b) Professional Competence and due care
(c) Professional Skepticism
(d) Professional behaviour
5. CA Amar is the statutory auditor of XYZ Ltd. for the FY 2020-21. During the process of
assembling the audit file CA Amar briefed his team as to what all changes can be made to the
audit documentation at that stage. Which of the following changes cannot be made to the
audit documentation during the final assembly process?

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(a) Sorting, collating & cross referencing of working papers.
(b) Signing off completion checklists relating to the file assembly process.
(c) Deleting or discarding superseded documents.
(d) Recalculation of Depreciation.
6. As per SQC 1 the retention period for audit engagements ordinarily is no shorter than ………….
From the date of the auditor’s report.
(a) ten years

(b) five years
(c) seven years
(d) four years
7. Mr. A, auditor and Mr. B, Finance Manager of XYZ Pvt Ltd are friends. Mr. A prepares the
audit report according to the wishes and directions of Mr. B. In this situation which essential
quality of the auditor has been compromised:
(a) Professional Competence

(b) Independence
(d) Due care
8. In relation to completed engagements, procedures designed to provide evidence of compliance

by engagement teams with the firm’s quality control policies and procedures is known as:
(a) Monitoring
(b) Inspection
(c) Subsequent Audit procedures
(d) Compliance procedures
9. Mr. A, auditor and Mr. B, Finance Manager of XYZ Pvt Ltd are friends. Mr. A prepares the
audit report according to the wishes and directions of Mr. B. In this situation which essential
quality of the auditor has been compromised:
(a) Professional Competence

(b) Independence
(d) Due care
10. Identify the most appropriate statement in context of SQC 1.
(a) Assembly of engagement files should be completed in not more than 60 days after date
of auditor’s report in case of audit engagements.
(b) Engagement files should be completed before date of auditor’s report in case of audit
engagements.
(c) Engagement files should be completed in not more than 60 days after completion of an
engagement.
(d) Engagement files should be completed on date on which audit report is signed in case of
audit engagements.

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SA 200
11. Professional skepticism is necessary to the critical assessment of
(a) audit documentation

(b) audit evidence.
(c) audit procedures
(d) All of the above
12. Which of the following is not in accordance with spirit of “Professional Skepticism”?
(a) Being alert to conditions that may indicate possible fraud

(b) Overlooking unusual circumstances
(c) Using appropriate assumptions in determining nature, timing and extent of audit
procedures and evaluating results
(d) Being alert to circumstances that suggest need for audit procedures in addition to
those required by Standards on Auditing
(a) The auditor is not expected to, and cannot, reduce audit risk to zero and cannot
therefore obtain absolute assurance that the financial statements are free from
material misstatement due to fraud or error.
(b) The auditor is expected to and can reduce audit risk to zero and can therefore obtain
absolute assurance.
(c) The auditor is not expected to, and cannot, reduce audit risk to zero and cannot
therefore obtain reasonable assurance that the financial statements are free from
material misstatement due to fraud or error.
(d) The auditor is expected to and can reduce audit risk to zero and can therefore obtain
reasonable assurance that the financial statements are free from material misstatement
due to fraud or error.
14. Owing to the _______ limitations of an audit, there is _________ risk that some material
misstatements of the financial statements will not be detected, even though the audit is
properly planned and performed in accordance with the SAs.
(a) Inherent, unavoidable

(b) Inherit, complete
(c) Management, unavoidable
(d) Regulatory, control
15. Professional skepticism includes-
(a) Overlooking unusual circumstances.

(b) Using inappropriate assumptions in determining extent of audit procedures.
(c) Over generalising when drawing conclusions from audit observations.
(d) Being vigilant to conditions that might indicate possibilities of fraud.
16. The matter of difficulty, time, or cost involved is:

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(a) not in itself a valid basis for the auditor to omit an audit procedure for which there is no
alternative.
(b) in itself a valid basis for the auditor to omit an audit procedure for which there is no
alternative.
(c) not in itself a valid basis for the auditor to omit an audit procedure for which alternative
exists.
(d) not in itself a valid basis for the auditor to omit an audit procedure.
17. Which of the following is Incorrect:
(a) An auditor conducting an audit in accordance with SAs is responsible for obtaining
absolute assurance that the financial statements taken as a whole are free from
material misstatement, whether caused by fraud or error.
(b) As described in SA 200, owing to the inherent limitations of an audit, there is an
unavoidable risk that some material misstatements of the financial statements will not
be detected, even though the audit is properly planned and performed in accordance
with the SAs.
(c) The risk of not detecting a material misstatement resulting from fraud is higher than
the risk of not detecting one resulting from error.
(d) The risk of the auditor not detecting a material misstatement resulting from
management fraud is greater than for employee fraud.
18. With respect to auditing, which of the following statement is correct:
(a) Audited financial statements are absolutely free from all material misstatement due to
fraud or error.
(b) An audit is an official investigation into alleged wrongdoing and auditor has specific
legal powers to conduct investigation
(c) The auditor can obtain only a reasonable assurance about whether the financial
statement as a whole are free from material misstatement and report on it.
(d) An auditor’s opinion is an assurance as the future viability of the enterprise or the
efficiency or effectiveness of the management.
SA 210
19. If the auditor concludes that there is reasonable justification to change the engagement and
if the audit work performed complied with the SAs applicable to the changed engagement, the
report issued would be appropriate for the revised terms of engagement. In order to avoid
confusion, the report would not include reference to:
(a) the original engagement; or any procedures that may have been performed in the original
engagement.
(b) the original engagement;
(c) any procedures that may have been performed in the original engagement
(d) the original engagement and any procedures that may have been performed in the original
engagement.

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20. If the auditor is unable to agree to a change of the terms of the audit engagement and is not
permitted by management to continue the original audit engagement, the auditor shall:
(a) Withdraw from the audit engagement where possible under applicable law or regulation;
(b) Determine whether there is any obligation, either contractual or otherwise, to report
the circumstances to other parties, such as those charged with governance, owners or
regulators.
(c) Withdraw from the audit engagement where possible under applicable law or regulation
and determine whether there is any obligation, either contractual or otherwise, to report
regulators.
(d) Withdraw from the audit engagement where possible under applicable law or regulation
or determine whether there is any obligation, either contractual or otherwise, to report
regulators.
21. As per SA-210, preconditions for an audit do not include which of the following?
(a) Acceptability of financial reporting framework

(b) Responsibility of management regarding preparation of financial statements
(c) Making available records to the auditor
(d) Integrity of key management personnel
22. According to SA 210 “Agreeing the Terms of Audit Engagements”, The auditor shall agree the
terms of the audit engagement with:
(a) management
(b) those charged with governance
(c) management or those charged with governance, as appropriate.
(d) Audit committee
23. The agreed terms of the audit engagement shall be recorded in an audit engagement letter or
other suitable form of written agreement and shall include:
i. The objective and scope of the audit of the financial statements;

ii. The responsibilities of the auditor;
iii. The responsibilities of management;
iv. Identification of the applicable financial reporting framework for the preparation of the
financial statements; and
v. Reference to the expected form and content of any reports to be issued by the auditor
and a
vi. statement that there may be circumstances in which a report may differ from its expected
form and content.
Which of the following is correct?
(a) (i), (ii), (iii)
(b) (i), (ii), (iii), (iv), (v)
(c) (i), (ii), (iv), (v)
(d) (i), (ii), (iii), (iv)

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24. Which of the following is not necessary to establish preconditions for an audit?
(a) Acceptability of financial reporting framework.

(b) Acknowledgment of cooperation from management in designing audit procedures.
(c) Acknowledgment from management of providing access to persons within company.
(d) Acknowledgment of management in understanding its responsibility for preparation of
financial statements.
SA 220
25. Identify the most appropriate statement: -
(a) SA 220 applies at the level of firm.

(b) SQC 1 is premised on the basis that firm is subject to SA 220.
(c) SA 220 is premised on the basis that firm is subject to SQC 1.
(d) SA 220 applies to all engagements.
26. Well & Associates should have obtained a written confirmation of compliance with its policies
and procedures on independence from all of its firm personnel as per requirements of which
Statue / Standard and in what frequency? (CA Final)
(a) As per the requirements of Council Central Guidelines, 2008, at least annually, Well &
Associates should have obtained a written confirmation from all of its firm personnel.
(b) As per the requirements of Standard on Quality Control 1 at least annually, Well &
Associates should have obtained a written confirmation from all of its firm personnel.
(c) As per the requirements of SA 220 at least annually, Well & Associates should have
obtained a written confirmation from all of its firm personnel.
(d) As per the requirements of Code of Ethics at least half yearly, Well & Associates
should have obtained a written confirmation from all of its firm personnel.
SA 230
27. CA. Bobby is a recently qualified Chartered Accountant. He is appointed as an auditor of Droopy
Ltd. for the current Financial Year 2017-18. He is quite conservative in nature which is also
replicated in his professional work. CA. Bobby is of the view that he shall record all the matters
related to audit, audit procedures to be performed, audit evidence obtained and conclusions
reached. Thus, he maintained a file and recorded each and every of his findings during the audit.
His audit file, besides other thing, includes audit programmes, notes reflecting preliminary
thinking, letters of confirmation, e-mails concerning significant matters, etc. State which of the
following need not be included in the audit documentation?
(a) Audit programmes.

(b) Notes reflecting preliminary thinking.
(c) Letters of confirmation.
(d) E-mails concerning significant matters.

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28. An important factor in determining the form, content and extent of audit documentation of
significant matters is the extent of _________exercised in performing the work and evaluating
the results.
(a) professional skepticism

(b) professional integrity
(c) professional judgment
(d) Professional sincerity
29. The auditor may consider it helpful to prepare and retain as part of the audit documentation a
summary (sometimes known as a completion memorandum) that describes-
(a) evidence identified during the audit

(b) the significant matters identified during the audit and how they were addressed
(c) the significant evidence identified during the audit
(d) the significant matters identified during the audit
30. ______________refers to the record of audit procedures performed, relevant audit

evidence obtained,
and conclusions the auditor reached.
(a) Audit Techniques

(b) Audit evidence
(c) Audit Documentation
(d) Audit Procedures record
31. Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; or evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory requirements.
(b) evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; and evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory requirements.
(c) evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor
(d) evidence that the audit was planned and performed in accordance with SAs and applicable
legal and regulatory requirements.
32. Which of the following is not a likely purpose of audit documentation?
(a) It helps to show that audit was conducted in accordance with requirements of SQC 1.
(b) It serves as a record of matters of continuing significance to future audits.
(c) It assists engagement team to plan and perform the audit.
(d) It can directly help auditor in expanding client base.
33. Which of the following is not an example of audit documentation:
(a) Audit programmes

(b) Summaries of significant matters
(c) Audit file

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(d) Checklists.
34. A company has started its manufacturing operations from a newly constructed building. CA Z is
statutory auditor of company. Which of following is not likely to be an example of audit
documentation?
(a) E-mail correspondence with CFO of company concerning significant matters

(b) Audit programme
(c) Response to external confirmation requests
(d) Structural engineer’s report on strength of building
35. Which of the following statement is appropriately suited to preparation of audit

documentation?
(a) Audit documentation has to be prepared simultaneously as audit progresses.

(b) Audit documentation has to be prepared 60 days after date of audit report.
(c) Audit documentation has to be prepared when information is required by regulator.
(d) Audit documentation has to be prepared 60 days after completion of audit work.
36. Audit documentation is owned by: -
(a) Client
(b) Auditor
(c) Team member responsible for documentation
(d) Regulator
37. Which of the following is least likely to be included in audit documentation of a company
engaged in manufacturing and export of goods?
(a) Previous years audited financial statements

(b) Projected cash flow statement for next twelve months provided by management in
support of going concern assumption
(c) Statements showing dispatch of overseas consignments in accordance with delivery
schedules of overseas buyers
(d) Statement showing verification of ageing of trade receivables as on date of balance
sheet
38. Which of the following is false in relation to audit documentation when an external auditor
relies upon work of internal auditor?
(a) Evaluation of objectivity and competence of internal auditor has to be documented.

(b) Nature of work used and reason for relying upon work used forms part of
documentation.
(c) Documentation on whether quality control is exercised in internal audit work forms part
of audit documentation.
(d) Documentation on what specific recommendations were given by internal auditor for
risk assessment to external auditor forms part of audit documentation.
SA 260

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39. An auditor of a company communicates significant findings from audit with those charged with
governance in the company. Which of the statements is false in regard to communication
made?
(a) Evaluation of adequacy of communication process is required on part of the auditor.

(b) Planned scope and timing of audit has also to be communicated.
(c) Communication of rationale behind audit procedures is necessary.
(d) Significant difficulties encountered during audit, if any, have to be communicated.
SA 265
40. The auditor shall also, communicate the deficiencies in internal control to management at an
appropriate level of responsibility: (Other)
(a) On a timely basis

(b) Whenever the management asks for it
(c) At the Conclusion Stage
(d) At the Planning Stage
41. Significant deficiency is a deficiency or combination of deficiencies in internal control that, in

the auditor’s professional judgment, is of sufficient importance to merit the attention of
_________: (Other)
(a) Management
(b) Those Charged with Governance
(c) Employees
(d) Internal Audit Team
42. Scope of SA 265 includes: (Other)
(a) Auditor’s responsibility to communicate appropriately to those charged with governance

and management deficiencies in internal control identified by the auditor
(b) Obtaining an understanding of internal controls, designing and performing tests of
controls
(c) Reporting on the effectiveness of the internal controls
43. The significance of a deficiency or a combination of deficiencies in internal control depends

on: (Other)
(a) Actual occurrence of a misstatement

(b) Likelihood that a misstatement could occur
(c) Both of the above
(d) None of the above
44. Which of the following statements is correct regarding reporting of other deficiencies in
internal control other than significant deficiencies: (Other)
(a) Required to be communicated to those charged with governance always

(b) Required to be communicated to management always

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(c) Required to be communicated to management, if in the auditor’s professional judgment,
they are of sufficient importance to merit management’s attention
(d) Required to be communicated to both management and those charged with governance
SA 299
45. Which of the following is not an advantage of Joint Audit:
(a) Sharing of expertise.

(b) General superiority complexes of some auditors.
(c) Lower workload.
(d) Displacement of the auditor of the company taken over in a take – over often obviated.
46. Which of the following is correct, in case of joint audit, where there is disagreement with regard
to the opinion or any matters to be covered by the audit report.
(a) The auditors shall express their opinion in separate audit report.
(b) The audit report(s) issued by the joint auditor(s) shall make a reference to each other’s
audit report(s).
(c) Both (a) and (b) are correct
(d) The auditor who is having a separate opinion is bound by the opinion of the majority of
the auditors and needs to issue a common audit report.
47. Responsibilities of Joint Auditors are governed by:
(a) SA 200
(b) SA 229
(c) SA 299
(d) SA 230
48. A, B & C are joint auditors of P Ltd. During audit, A comes to know of a matter related to area
of work of B. Which of the following statement is correct: (Other)
(a) A is required to communicate this to both B &C

(b) A is not required to communicate this
(c) A is required to communicate this to B only
(d) A is required to communicate this to management
SA 300
49. Planning an audit involves
(a) establishing the overall audit strategy for the engagement and developing an audit plan.
(b) establishing the overall audit plan for the engagement and developing an audit strategy.
(c) establishing the overall audit plan for the engagement
(d) developing an audit strategy.
50. Which of the following statements is MOST APPROPRIATE?
(a) Audit programme is a detailed plan of audit strategy

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(b) Audit programme cannot be reviewed
(c) Audit programme is a detailed plan of applying audit procedures
(d) Audit programme is relevant for year for which it is prepared, it is useless for subsequent
years.
51. According to SA 300,
(a) planning is not a continual and iterative phase of an audit, but rather a discrete process
(b) planning is not a discrete phase of an audit, but rather a continual and iterative process
(c) planning is not continual and iterative process
(d) planning is not a discrete phase of an audit
52. CA R illustrated to his team that the utility of the Audit Programme can be retained and
enhanced only by keeping the programme as also the client’s operations and internal control
under recurrent assessment. Which attribute of the Audit Programme is highlighted here?
(a) Static Review

(b) Mechanical Review
(c) Periodic Review
(d) Obsolete Review
53. The overall audit strategy and the audit plan remain the _______ responsibility
(a) auditor’s
(b) management’s
(c) those charged with governance.
(d) both management and those charged with governance.
54. ________ sets the scope, timing & direction of the audit and guides the development of the
more detailed plan.
(a) Audit Programme

(b) Overall Audit Strategy
(c) Completion Memorandum
(d) Audit Plan
55. With reference to SA 300, the auditor shall document:
(a) The overall audit strategy

(b) The audit plan
(c) Any significant changes made during the audit engagement to the overall audit strategy
or the audit plan, and the reasons for such changes.
56. The auditor shall update and change ______as necessary during the course of the audit.
(a) overall strategy

(b) the overall audit strategy and the audit plan
(c) audit plan
(d) audit program
57. When planning the audit,

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(a) the auditor considers what would make the financial information materially misstated.
(b) the auditor need not consider what would make the financial information materially
misstated.
(c) the auditor need not consider what would make the financial information materially
misstated at planning stage
(d) the auditor needs to consider what would make the financial information materially
misstated while conducting audit only
58. Which of the following is not considered in planning an audit generally?
(a) Understanding of legal and regulatory framework of an entity

(b) Need to consider determination of materiality
(c) Evaluating audit evidence
(d) Need to consider involvement of expert
59. Which of the following is true about audit plan?
(a) Once an audit plan has been finalized for an engagement, changes cannot be made to it.
(b) Audit plan includes scope, timing and direction of planned risk assessment procedures.
(c) Changes in audit plan cannot lead to change in audit strategy.
(d) Audit plan has to be documented by auditor.
60. Which of the following is not included in an audit programme normally?
(a) Extent of checking

(b) Date of checking
(c) Nature or type of procedure
(d) Planning of risk assessment procedures
61. Which of the following is not an advantage of an audit programme?
(a) It acts as a guide for audit of coming years.

(b) It fixes responsibility of assistants.
(c) It serves as a shelter for assistants.
(d) It serves a proof of work done by auditor.
62. Which of the following is most important principle for formulating an audit plan?
(a) Gaining knowledge of client’s workforce

(b) Gaining knowledge of client’s business
(c) Gaining knowledge of client’s vendors
(d) Gaining knowledge of tax laws applicable to client
SA 315
63. Audit risk is a function of the
(a) risks of material misstatement and detection risk.

(b) audit risk and detection risk.
(c) control risk and detection risk.
(d) inherent risk and detection risk.

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64. SA 315 establishes requirements and provides guidance on identifying and assessing the risks
of material misstatement -
(a) at the financial statement levels only.

(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
65. ______refer to the audit procedures performed to obtain an understanding of the

entity and its environment, including the entity’s internal control, to identify and assess the
risks of material misstatement, whether due to fraud or error, at the financial statement and
assertion levels.
(a) Audit assessment procedures

(b) substantive procedures
(c) test of control
(d) Risk assessment procedures
66. Risk of material misstatement may be defined as the risk
(a) that the financial statements are materially misstated after audit.
(b) that the financial statements are materially misstated during audit.
(c) that the financial statements are materially misstated prior to audit.
67. The assessment of the risks of material misstatement may be expressed in
(a) quantitative terms, such as in percentages, or in non-quantitative terms.

(b) quantitative terms, such as in percentages,
(c) non-quantitative terms.
68. A company is engaged in manufacturing of wooden furniture. The auditor of company notes
that company has identified emerging risks pertaining to probable reduction in demand of
company’s products due to procurement of imported furniture from South East Asian nations.
It has also estimated how significant are those risks and their possibility of happening.
Besides, it has also formulated an action plan to deal with the situation, in case these risks
materialize. Which of the following options would be most appropriate to describe above
situation?
(a) An example of audit risk for auditor

(b) An example of component of internal control of company
(c) An example of control risk of company
(d) An example of inherent risk for auditor
69. _______________ are needed to support the functioning of _________________
(a) General IT Controls; Application Controls

(a) Application Controls; General IT Controls
(b) IT Dependent Controls; General IT Controls
(c) Application Controls; IT Dependent Controls

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70. Which of the following is incorrect- For the purpose of Identifying and assessing the risks of
material misstatement, the auditor shall:
(a) Identify risks throughout the process of obtaining an understanding of the entity and
its environment, including relevant controls that relate to the risks, and by considering
the classes of transactions, account balances, and disclosures in the financial
statements;
(b) Assess the identified risks, and evaluate whether they relate more pervasively to the
financial statements as a whole and potentially affect many assertions;
(c) Relate the identified risks to what can go wrong at the assertion level, taking account
of relevant controls that the auditor intends to test; and
(d) Not consider the likelihood of misstatement, including the possibility of multiple
misstatements, and whether the potential misstatement is of a magnitude that could
result in a material misstatement.
71. The risk that the financial statements are materially misstated prior to audit is called-
(a) Risk of material misstatement

(b) detection risk
(c) audit risk
(d) significant risk
72. SA 315 establishes requirements and provides guidance on identifying and assessing the risks
of material misstatement -
(a) at the financial statement levels only.

(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
73. The risks of material misstatement at the assertion level consist of two components:
(a) Inherent risk and detection risk

(b) control risk and detection risk
(c) audit risk and detection risk
(d) Inherent risk and control risk
74. The operations of a company are automated substantially. Which of the following statements
is most appropriate in this respect?
(a) It results in complex business environment.

(b) It results in simple business environment and easier audit.
(c) Automation has no relationship with complexity of business environment.
(d) It results in simple business environment. However, it increases complexity of audit.
75. Who is responsible for maintaining effective internal financial controls?
(a) Statutory auditor

(b) Audit Committee
(c) Management
(d) Shareholders

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76. Which of the following is not a risk to a company’s internal control due to its IT environment?
(a) Potential loss of data

(b) Inability to access data when required
(c) Unauthorized access to data
(d) Processing of large volumes of data
77. Which of the following is not an example of “General IT controls”?
(a) Controls pertaining to Disaster recovery plan

(b) Controls pertaining to batch preparation
(c) Controls pertaining to data security
(d) Controls pertaining to validation of input data in an application
SA 320
78. SA 320 on “Materiality in Planning and Performing an Audit” requires that an auditor
(a) should not consider materiality and its relationship with audit risk while conducting an
audit.
(b) should consider materiality and its relationship with audit risk while conducting an audit.
(c) should not consider materiality but should consider its relationship with audit risk while
conducting an audit.
(d) should consider materiality but need not consider its relationship with audit risk while
conducting an audit.
79. The concept of materiality is applied by the auditor:
(a) in planning and performing the audit

(b) in evaluating the effect of identified misstatements on the audit
(c) both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit
(d) none of the above is correct
80. Determining a percentage to be applied to a chosen benchmark (in relation to materiality)

involves the exercise of ___________
(a) Independence
(b) Professional Judgement
(c) Professional skepticism

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81. One of your junior audit team members is confused with the term ‘material misstatement’. You
explain him that a material misstatement is untrue information in a financial statement that
could affect the financial decisions of one who relies on the statement. Which of the following
would constitute material misstatement?
1. An error of Rs.5,000 in relation to assets of Rs.20 lakhs.

2. A payroll fraud of Rs.100 in a company where profit before tax is Rs.11,000.
3. Non-disclosure of a material uncertainty.
4. Financial statements have been prepared on a going concern basis when the company is in
the process of being liquidated.
(a) 1 and 2
(b) 3 and 4
(c) 2 and 3
(d) 1 and 4
82. Which of the following is true regarding materiality?
(a) It is unaffected by nature of an item.

(b) It is unaffected by requirements of law or regulations.
(c) It is not a matter of professional judgment.
(d) It is not always a matter of relative size.
83. In relation to materiality levels for financial statements as a whole, which of the following
statements is most appropriate? (CA Final)
(a) Materiality has to be decided by auditor after identification and assessment of risks of
material misstatements.
(b) Materiality has to be decided by auditor prior to identification and assessment of risks
of material misstatements.
(c) Materiality has to be decided by auditor after performing risk assessment procedures.
(d) Materiality has to be decided by auditor at time of designing tests of controls and
substantive procedures.
SA 330
84. When more persuasive audit evidence is needed regarding the effectiveness of a control,
(a) it may be appropriate to increase the extent of testing of the control and reduce the
extent of the degree of reliance on controls.
(b) it may be appropriate to decrease the extent of testing of the control as well as the
degree of reliance on controls.
(c) it may be appropriate to decrease the extent of testing of the control and increase the
extent of the degree of reliance on controls.
(d) it may be appropriate to increase the extent of testing of the control as well as the
degree of reliance on controls.
85. When deviations from controls upon which the auditor intends to rely are detected,

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(a) the auditor shall not make any inquiries to understand these matters and their potential
consequences
(b) the auditor shall make specific inquiries to understand these matters and their potential
consequences
(c) the auditor shall make general inquiries to understand these matters and their potential
consequences
(d) the auditor shall make both general as well as specific inquiries to understand these
matters and their potential consequences
86. Financial statements of a company have been put up for audit before the auditor. On going
through financial statements, he wants to verify some major bills debited in “Machinery
repair” account. The purpose of it is to ensure that bills are entered correctly and their
classification is proper. As regards verification of bills debited in “Machinery repair” account,
identify what he intends to perform?
(a) Tests of Controls

(b) Tests of transactions
(c) Tests of balances
87. In designing and performing test of controls, the auditor shall perform other audit procedures
in combination with inquiry to obtain audit evidence about the operating effectiveness of the
controls, including:
(i) How the controls were applied at relevant times during the period under audit.
(ii) The consistency with which they were applied.
(iii) By whom or by what means they were applied.

(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i), (ii) and (iii)
(d) (i) and (iii)
SA 450
88. Which of the following is false regarding communication of misstatements identified during
course of an audit?

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(a) The auditor should request those charged with governance for correction of identified
misstatements.
(b) The auditor should obtain written representation acknowledging management belief
that effect of uncorrected misstatements is material.
(c) The auditor should obtain written representation acknowledging management belief
that effect of uncorrected misstatements is immaterial.
(d) The auditor should communicate effect of uncorrected misstatements related to prior
periods on the relevant classes of transactions, account balances or disclosures, and
the financial statements as a whole.
SA 500
89. The management of Magoo Ltd. has developed a strong internal control in its accounting system
in such a way that the work of one person is reviewed by another. Since no individual employee
is allowed to handle a task alone from the beginning to the end, the chances of early detection
of frauds and errors are high. CA. Olive has been appointed as an auditor of the company for
current Financial Year 2017-18. Before starting the audit, she wants to evaluate the internal
control system of Magoo Ltd. To facilitate the accumulation of the information necessary for
the proper review and evaluation of internal controls, CA. Olive decided to use internal control
questionnaire to know and assimilate the system and evaluate the same. Which of the following
questions need not be framed under internal control questionnaire relating to purchases?
(a) Are authorized signatories for purchases limited to elected officials?

(b) Are payments approved only on original invoices?
(c) Does authorized officials thoroughly review the documents before signing cheques?
(d) Are monthly bank reconciliations implemented for each and every bank accounts of the
company?
90. Audit evidence is necessary to support the auditor’s opinion and report. It is_____in nature and
is primarily obtained from audit procedures performed during the course of the audit.
(a) cumulative
(b) regressive
(c) selective
(d) objective
91. A failure of the confirming party to respond, or fully respond, to a positive confirmation request,
or a confirmation request returned undelivered is called-
(a) Negative confirmation request

(b) Non-response
(c) Exception
(d) Positive confirmation request
92. A request that the confirming party respond directly to the auditor only if the confirming party
disagrees with the information provided in the request is-
(a) Positive confirmation request

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(b) Non-response
(c) Exception
(d) Negative confirmation request
93. CA X, auditor of Green Shoots Private Ltd. is going through financial statements of the
company. On perusing notes to accounts, he finds ageing of trade payables reflecting in
accordance with requirements of Schedule III of Companies Act, 2013. He wants to be sure
that ageing of trade payables forming part of notes of accounts is proper and carries out
ageing independently to confirm its veracity.
Identify audit procedure(s) being performed by CA X.
(a) Analytical procedures

(b) Recalculation
(c) Re-performance
(d) Observation
94. ____________ may be defined as the information used by the auditor in arriving at the
conclusions on which the auditor’s opinion is based. It includes both information contained in
the accounting records underlying the financial statements and other information.
(a) Audit procedure

(b) Audit evidence
(c) Audit plan
(d) Audit programme
95. Audit evidence includes
(a) information contained in the accounting records underlying the financial statements
(b) both information contained in the accounting records underlying the financial
statements and other information.
(c) other information.
(d) information contained in the accounting records underlying the financial statements or
other information.
96. While auditing the books of accounts of Mehra Limited for the financial year 2022-23, the
auditor of the company used an audit procedure according to which complete documents and
records of the company were checked in detail in order to obtain audit evidence. Explain the
audit procedure used by the auditor of company.
(a) Recalculation
(b) Analytical Procedures
(c) Inquiry
(d) Inspection
97. To evaluate the Internal Control of Kingsway Limited, a team member of the auditors used a
method according to which, number of questions relating to internal control of the company
were required to be answered by the employees of the company. After obtaining the answers
there was a discussion relating to those answers between team member of the auditor and

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employees of the company for a clear picture. State the method of evaluation of internal
control as discussed above.
(a) Narrative record

(b) Check List
(c) Internal Control questionnaire
(d) Flow chart
98. which of the following is incorrect:
(a) Inquiry consists of seeking information of unknown persons, both financial and non-
financial, within the entity or outside the entity.
(b) Inquiry is used extensively throughout the audit in addition to other audit procedures.
(c) Inquiries may range from formal written inquiries to informal oral inquiries. Evaluating
responses
to inquiries is an integral part of the inquiry process.
(d) Responses to inquiries may provide the auditor with information not previously possessed
or with corroborative audit evidence.
99. Mr. H and his team members in detail checked and evaluated the books of accounts and
relevant documents of WT Limited. This is an example of which audit procedure:
(a) Inspection.
(b) Re-performance.
(c) Recalculation.
(d) Observation.
SA 501
100. Coyote Ltd. is dealing in trading of electronic goods. Huge inventory (60% approximately) of
the company is lying on consignment (i.e. under the custody of third party). CA. Star, the
auditor of the company, wants to obtain sufficient appropriate audit evidence regarding the
existence and condition of the inventory lying on consignment. Thus, he requested & obtained
confirmation from the third party as to the quantities and condition of inventory held on
behalf of the entity, however, it raised doubts about the integrity and objectivity of the third
party. Which of the following other audit procedures may be performed by CA. Star to obtain
sufficient appropriate audit evidence regarding the existence and condition of the inventory
under the custody of third party?
(a) Attend third party’s physical counting of inventory.

(b) Arrange for another auditor to attend third party’s physical counting of inventory.
(c) Inspect warehouse receipts regarding inventory held by third parties.
(d) All of the above.
101. The auditor shall design and perform audit procedures in order to identify litigation and claims
involving the entity which may give rise to a risk of material misstatement, including:
(a) Inquiry of management and, where applicable, others within the entity, including in-house
legal counsel.

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(b) Reviewing minutes of meetings of those charged with governance and correspondence
between the entity and its external legal counsel.
(c) Reviewing legal expense accounts.
102. Which of the following matters is irrelevant for auditor in planning attendance at physical
inventory counts? (CA Final)
(a) Nature of inventory

(b) The timing of physical inventory counting
(c) The nature of the internal control related to inventory
(d) Whether 100% of inventory is covered in the count
SA 505
103. A company auditor receives external confirmation from an entity to whom company has sold
goods. The said amount is properly classified in financial statements of company. Which of the
following statements is not true in this regard?
(a) It shows that said trade receivable exists.

(b) It shows that said trade receivable is properly valued.
(c) It shows that company has a right to said trade receivable.
(d) It shows that amount of said trade receivable has been recorded in proper account.
104. Written representations are: -
(a) Necessary audit evidence

(b) Sufficient appropriate audit evidence
(c) Not audit evidence
(d) Audit evidence depending upon auditor’s professional judgment
105. External confirmations for receivables are not reliable in which of the following situations:
(CA Final)
(a) The response directly received by the auditor

(b) The confirmation has come from the address of the confirming party
(c) The confirmation is signed by the plant manager
(d) The confirmation is positive confirmation
SA 510
106. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances, the auditor shall express:
(a) a disclaimer opinion

(b) a qualified opinion
(c) a qualified opinion or a disclaimer of opinion, as appropriate, in accordance with SA 705.
(d) unmodified opinion

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107. The new auditor planned certain procedures with respect to opening balances. Which of the
following procedures is not in accordance with SA 510?
(a) Reading the most recent financial statements and audit report
(b) Where the prior period report is modified, the impact on the current period
(c) Correctly bringing forward of prior period closing balances
(d) Ascertaining whether predecessor auditor had attended physical inventory count
SA 520
108. Marvin Ltd. is a renowned food chain supplier in a posh area providing restaurant facility along
with food delivering. CA. Felix was appointed as an auditor of the company for the Financial
Year 2017-18. While examining the books of account of the company, CA. Felix came to know
about one of the major expenses of the company i.e. rent expense of Rs. 1,20,000 per month,
for which he applied substantive analytical procedure for verification purpose. Explain, how
would CA. Felix perform substantive analytical procedure in the given scenario?
(a) CA. Felix would inspect every single rent invoice per month of Rs. 1,20,000 and verify
other elements appropriately.
(b) CA. Felix would compare the rental expense of the company with that of another nearby
company having corresponding dimensions, for high degree of accuracy.
(c) CA. Felix would select the first month rent invoice of Rs. 1,20,000 and appropriately
verifying other elements would predict that the rent for the whole year would be Rs.
14,40,000 (i.e. Rs. 1,20,000 * 12). Thereafter, he would compare the actuals with his
prediction and follow-up for any fluctuation.
(d) (a) and (b), both.
109. Statement I: As per the Standard on Auditing (SA) 520 “Analytical Procedures”, the term
“analytical procedures” means evaluations of financial information through analysis of plausible
relationships among financial data.
Statement II: Analytical procedures also encompass such investigation as is necessary of

identified fluctuations or relationships that are inconsistent with other relevant information or
that differ from expected values by a significant amount.
(a) Only Statement I is correct
(b) Only Statement II is correct
(c) Both statements are correct
(d) Both Statements are incorrect
110. Which of the following is not an example of Analytical Procedures having consideration of
comparisons of the entity’s financial information:
(a) Comparable information for prior periods.

(b) Anticipated results of the entity, such as budgets or forecasts, or expectations of the
auditor, such as an estimation of depreciation.
(c) Similar industry information, such as a comparison of the entity’s ratio of sales to
accounts receivable with industry averages or with other entities of comparable size in
the same industry.

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(d) Among elements of financial information that would be expected to conform to a
predictable pattern based on the entity’s experience, such as gross margin percentages.
111. Which of the following statement is correct:
(a) Substantive analytical procedures are generally more applicable to large volumes of
transactions that tend to be predictable over time
(b) Substantive analytical procedures are generally less applicable to large volumes of
(c) Substantive analytical procedures are generally more applicable to small volumes of
112. Which of the following is not an analytical procedure?
(a) Tracing of purchases recurred in the purchase book to purchase invoices.

(b) Comparing aggregate wages paid to number of employees
(c) Comparing the actual costs with standard costs
(d) All of them are analytical procedures
(a) Different types of analytical procedures provide different levels of assurance.

(b) Different types of analytical procedures provide similar levels of assurance.
(c) Similar type of analytical procedures provide different levels of assurance.
(d) All are correct
(a) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical
procedures” means evaluations of financial information through analysis of financial data.
(b) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical
procedures” means evaluations of financial information through analysis of non-financial
data.
(c) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical
procedures” means evaluations of financial information through analysis of plausible
relationships among both financial and non-financial data.
(d) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical
procedures” means evaluations of financial information through ratio analysis.
115. Auditor Compares Gross Profit Ratio with that of Previous year and it is discovered that there
has been a fall in the ratio. This is an example of:
(a) Analytical Procedure

(b) Test of Controls
(c) Walk Through Test
(d) Audit Sampling
116. _____________ implies analysing account fluctuations by comparing current year to prior
year information and, also, to information derived over several years.

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(a) Trend analysis
(b) Ratio analysis
(c) Structural modelling
(d) Account fluctuations analysis
117. The auditor of Vishwas Ltd wants to know from you which of the following methods are
analytical procedures
I. Comparison of client and industry data
II. Comparison of client data with similar prior period data
III. Comparison of client data with client-determined expected results
IV. Comparison of client data with auditor-determined expected results
(a) I, II and III only

(b) I &, II only
(c) III &, IV only
(d) I, II, III and IV
118. Auditor Compares Gross Profit Ratio with that of previous year and it is discovered that there
has been a fall in the ratio. This is an example of:
(a) Analytical Procedure

(b) Test of Controls
(c) Walk through Test
(d) Audit Sampling
119. Statement I: As per the Standard on Auditing (SA) 520 “Analytical Procedures”, the term
“analytical procedures” means evaluations of financial information through analysis of plausible
relationships among financial data.
Statement II: Analytical procedures also encompass such investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other relevant information or
that differ from expected values by a significant amount.
(a) Only Statement I is correct

(b) Only Statement II is correct
(c) Both statements are correct
(d) Both Statements are incorrect
SA 530
120. It is a type of value-weighted selection in which sample size, selection and evaluation results in
a conclusion in monetary amounts:
(a) Haphazard sampling

(b) Monetary Unit Sampling
(c) Stratified Sampling
(d) Interval sampling
121. In the case of tests of details

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(a) the projected misstatement plus anomalous misstatement, if any, is the auditor’s best
estimate of misstatement in the population.
(b) the projected misstatement is the auditor’s best estimate of misstatement in the
population.
(c) the anomalous misstatement is the auditor’s best estimate of misstatement in the
population.
(d) the projected misstatement plus anomalous misstatement, if any, cannot be the auditor’s
best estimate of misstatement in the population.
122. The relationship between tolerable error and sample size is
(a) Inverse
(b) Direct
(c) Close
(d) There is no relationship.
(a) When the projected misstatement exceeds tolerable misstatement, the sample does not
provide a reasonable basis for conclusions about the population that has been tested.
(b) When the projected misstatement plus anomalous misstatement, if any, exceeds
tolerable misstatement, the sample does not provide a reasonable basis for conclusions
about the population that has been tested.
(c) When the anomalous misstatement exceeds tolerable misstatement, the sample does not
provide a reasonable basis for conclusions about the population that has been tested.
(d) When the projected misstatement plus anomalous misstatement, if any, exceeds
tolerable misstatement, the sample provides a reasonable basis for conclusions about the
population that has been tested.
124. Which of the following is not an advantage of statistical sampling?
(a) Sample size does not increase in proportion to size of area tested.
(b) Sample selection is more objective.
(c) It provides a means of deriving a calculated risk and corresponding precision.
(d) In case of verifying compliance with specific legal requirements, it is suitable.
SA 550
125. An auditor finds during course of an audit that the entity has entered into many related party
transactions. Which of the following statements is true?
(a) The risk that management may override controls in respect of related party
transactions is lower.
(b) The risk that management may override controls in respect of related party
transactions is higher.
(c) There is no effect on the risk that management may override controls in respect of
related party transactions.

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(d) Risk of overriding of controls by management has no relationship at all with related
party transactions.
SA 560
126. The auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of the auditor’s report. However, when, after the date of the
auditor’s report but before the date the financial statements are issued, a fact becomes
known to the auditor that, had it been known to the auditor at the date of the auditor’s
report, may have caused the auditor to amend the auditor’s report, the auditor shall:
(a) Discuss the matter with management and, where appropriate, those charged with
governance.
(b) Determine whether the financial statements need amendment.
(c) Inquire how management intends to address the matter in the financial statements.
127. The auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of the auditor’s report. However, when, after the date of the
auditor’s report but before the date the financial statements are issued, a fact becomes
known to the auditor that, had it been known to the auditor at the date of the auditor’s
report, may have caused the auditor to amend the auditor’s report, the auditor shall:
(a) Discuss the matter with management and, where appropriate, those charged with
governance.
(b) Determine whether the financial statements need amendment.
(c) Inquire how management intends to address the matter in the financial statements.
SA 570
128. CA. Goofy has been appointed as an auditor for audit of a complete set of financial statements
of Dippy Ltd., a listed company. The financial statements of the company are prepared by the
management in accordance with the Accounting Standards prescribed under section 133 of the
Companies Act, 2013. However, the inventories are misstated which is deemed to be material
but not pervasive to the financial statements. Based on the audit evidences obtained, CA.
Goofy has concluded that a material uncertainty does not exist related to events or conditions
that may cast significant doubt on the entity’s ability to continue as a going concern in
accordance with SA 570. Further, CA. Goofy is also aware of the fact that a qualified opinion
would be appropriate due to a material misstatement of the Financial Statements. State what
phrases should the auditor use while drafting such opinion paragraph?
(a) In our opinion and to the best of our information and according to the explanations
given to us, except for the effects of the matter described in the Basis for Qualified
Opinion section of our report, the aforesaid financial statements present fairly, in all

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material respects, or give a true and fair view in conformity with the applicable
financial reporting framework.
(b) In our opinion and to the best of our information and according to the explanations
given to us, with the foregoing explanation, the aforesaid financial statements present
fairly, in all material respects, or give a true and fair view in conformity with the
applicable financial reporting framework.
(c) In our opinion and to the best of our information and according to the explanations
given to us, subject to the misstatement regarding inventories, the aforesaid financial
statements present fairly, in all material respects, or give a true and fair view in
conformity with the applicable financial reporting framework.
(d) In our opinion and to the best of our information and according to the explanations
given to us, with the explanation described in the Basis for Qualified Opinion section of
our report, the aforesaid financial statements present fairly, in all material respects,
or give a true and fair view in conformity with the applicable financial reporting
framework.
129. A company is engaged in business of obtaining eggs from one day old chicks. Which of the
following is NOT an example of an event or condition that may cast significant doubt on the
ability of the company to continue as a going concern?
(a) Mortality of 90% of livestock of the company

(b) Decision by govt to ban commercial rearing of birds amidst protests by activists for
preventing cruelty to animals
(c) Shifting of farm labour to respective villages due to MGNREGA scheme of Govt causing
acute scarcity throughout the year
(d) Increase in cost of feed of chicks by 20% during the year
130. Which of the following is not an example of an event or condition that may cast significant
doubt on entity’s ability to continue as a going concern:
(a) Loss of key management without replacement

(b) Adverse key financial ratios
(c) Inability to pay creditors on due date
(d) Current year profit turns to loss after providing depreciation
131. Following are examples of events or conditions that may cast significant doubt on an entity’s
ability to continue as a going concern. Which of following is an example of operating
event/conditions?
(a) Adverse key financial ratios

(b) Inability to pay creditors on due dates
(c) Indications of withdrawal of financial support by creditors
(d) Shortages of important supplies
132. Which of the following is not an example of events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern?
(a) Adverse key financial ratios

(b) Inability to invest in modernisation of plant

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(c) Inability to pay creditors on time
(d) Inability to pay salary of staff
133. Which of the following is not a financial event/ condition that may cast significant doubt on
companies ability to continue as a going concern as per SA 570? (CA Final)
(a) Change from credit to cash on delivery model with suppliers

(b) Arrears or discontinuance of dividend
(c) Opening of a new chain of hotels by renowned competitor near the entity's area
(d) Adverse key financial ratios
SA 580
134. Which of the following is incorrect:
(a) Written representations are necessary information that the auditor requires in
connection with the audit of the entity’s financial statements.
(b) Similar to responses to inquiries, written representations are audit evidence.
(c) Written representations are requested from those responsible for the preparation and
presentation of the financial statements.
(d) Written representations provide necessary audit evidence and also, they provide
sufficient
appropriate audit evidence on their own about any of the matters with which they deal.
135. Which of the following is not an example of subsequent event?
(a) Event occurring between date of financial statements and date of auditor’s report.
(b) Event occurring on date of financial statements.
(c) Event occurring after filing audit report with tax authorities. Had such an event been
known earlier, auditor would have amended report.
(d) Event occurring during course of performing audit procedures after date of financial
statements.
SA 610
136. Which of the following is not one of functions of internal auditor of an organization?
(a) Performing assurance activities

(b) Performing consulting activities to improve governance of organization
(c) Performing risk management activities
(d) Expressing independent opinion on financial statements of organization
137. Which of the following is not an objective of a company’s policies for ensuring “internal
financial controls”?
(a) Efficient conduct of business

(b) Safeguarding of assets
(c) Prevention and detection of frauds and errors

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(d) Assessing audit risk
SA 700
138. An Audit report is:
(a) an opinion drawn on the entity’s financial statements to make sure that the records are
true and correct representation of the transactions they claim to represent.
(b) an opinion drawn on the entity’s books of accounts to make sure that the records are true
and fair representation of the transactions they claim to represent.
(c) an opinion drawn on the entity’s financial statements to make sure that the records are
true and
fair representation of the transactions they claim to represent.
(d) an opinion drawn on the entity’s books of accounts to make sure that the records are true
and
correct representation of the transactions they claim to represent.
139. Which of the following is not a Specific Evaluations by the Auditor:
(a) The financial statements adequately disclose the significant accounting policies selected
and applied;
(b) The accounting policies selected and applied are consistent with the applicable financial
reporting framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The sufficient appropriate audit evidence has been obtained;
140. Which of following is not an element of audit report in accordance with SA 700?
(a) Title
(b) Addressee
(c) Audit strategy
(d) Auditor’s opinion
141. While expressing an unmodified opinion on financial statements, the auditor shall not use which
of the following phrases?
(a) present fairly in all material respects

(b) give a true and fair view
(c) with the foregoing explanation
SA 701
142. Statement 1: Communicating key audit matter in the auditor’s report constitutes a substitute
for disclosure in the financial statements.
Statement 2: Instead of modifying an opinion in accordance with SA 705, the statutory
auditor can use Key Audit Matter paragraph in the audit report with an unmodified opinion.
(a) Only Statement 1 is correct

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(b) Only Statement 2 is correct
(c) Both the statements are correct
(d) None of the statement is correct
143. Description of each key audit matter in the “key audit matters section” needs to cover which
of the following aspects:
(a) Reference to related disclosures, if any, in the financial statements.

(b) Explanation on the matter given by management.
(c) How the matter was addressed in the audit.
(d) Why the matter was considered to be one of most significance in the audit and
therefore determined to be a key audit matter.
SA 705
144. A company did not disclose accounting policies required to be disclosed under Schedule III or
any other provisions of the Companies Act, 2013, the auditor should issue
(a) a qualified opinion

(b) an adverse opinion
(c) a disclaimer of opinion
(d) emphasis of matter paragraph
(a) Communicating key audit matters in the auditor’s report is not a substitute for
disclosures in the financial statements that the applicable financial reporting framework
requires management to make, or that are otherwise necessary to achieve fair
presentation;
(b) Communicating key audit matters in the auditor’s report is not a substitute for the
auditor expressing a modified opinion when required by the circumstances of a specific
audit engagement in accordance with SA 705 (Revised);
(c) Communicating key audit matters in the auditor’s report is not a substitute for reporting
in accordance with SA 570 when a material uncertainty exists relating to events or
conditions that may cast significant doubt on an entity’s ability to continue as a going
concern;
(d) Communicating key audit matters in the auditor’s report is a substitute for the auditor
expressing a modified opinion when required by the circumstances of a specific audit
engagement in accordance with SA 705 (Revised);
146. An auditor disclaims opinion when_________________?
(a) He is unable to obtain audit evidence and concludes that possible effects on financial
statements of undetected misstatements could be material.
(b) He is unable to obtain audit evidence and concludes that possible effects on financial
statements of undetected misstatements could be both material and adverse.
(c) He is unable to obtain audit evidence and concludes that possible effects on financial
statements of undetected misstatements could be both material and pervasive.

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(d) He is unable to obtain audit evidence and concludes that possible effects on financial
statements of undetected misstatements could be both material and perverse.
(a) The auditor shall express a qualified opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the
aggregate, are both material and pervasive to the financial statements.
(b) The auditor shall express a disclaimer opinion when the auditor, having obtained
sufficient appropriate audit evidence, concludes that misstatements, individually or in
the aggregate, are both material and pervasive to the financial statements.
(c) The auditor shall express an adverse opinion when the auditor, having obtained sufficient
aggregate, are both material and pervasive to the financial statements.
(d) The auditor shall express an adverse opinion when the auditor, having obtained sufficient
aggregate, are material, but not pervasive, to the financial statements
148. Which of the following is not correct?
(a) SA 700 - Forming an Opinion and Reporting on the Financial Statements

(b) SA 701- Key Audit Matters in the Independent Auditor’s Report
(c) SA 705- Comparative Information- Corresponding figures and Comparative Financial
Statements
(d) SA 706- Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report
SA 706
149. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances,
(a) the auditor shall express a qualified opinion in accordance with SA 705.
(b) the auditor shall express a disclaimer of opinion in accordance with SA 705.
(c) the auditor shall express a qualified opinion or adverse opinion, as appropriate, in
accordance with SA 705.
(d) the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate, in

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150. Which of the following is not correct:
(a) SA 700- Forming an Opinion and Reporting on Financial Statements

(b) SA 705- Modified Opinion
(c) SA 701- Communicating Key Audit Matters
(d) SA 706-Comparative Information
(a) When reporting on prior period financial statements in connection with the current
period’s audit, if the auditor’s opinion on such prior period financial statements differs
from the opinion the auditor previously expressed, the auditor need not disclose the
substantive reasons for the different opinion.
(b) When reporting on prior period financial statements in connection with the current
from the opinion the auditor previously expressed, the auditor shall disclose the
substantive reasons for the different opinion in an Other Matter paragraph in
(c) When reporting on prior period financial statements in connection with the current
substantive reasons for the different opinion in an emphasis of Matter paragraph in
(d) When reporting on prior period financial statements in connection with the current
substantive reasons for the different opinion in an Other Matter paragraph or
emphasis of matter paragraph in accordance with SA 706.
152. …………………… is a paragraph included in the auditor’s report that refers to a matter
appropriately presented or disclosed in the financial statements that, in the auditor’s
judgement, is of such importance that it is fundamental to the user’s understanding of the
(a) Emphasis of Matter Paragraph

(b) Other Matter Paragraph
(c) Key Audit Matter
(d) Management Responsibility Paragraph.
SA 710
153. When reporting on prior period financial statements in connection with the current period’s
audit, if the auditor’s opinion on such prior period financial statements differs from the
opinion the auditor previously expressed, the auditor shall disclose the substantive reasons for
the different opinion in:
(a) Emphasis of Matter Paragraph

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(b) Other Matter Paragraph
(c) Any of the Above
(d) No such disclosure is required
CARO
154. With respect to the forms specified by companies (Cost Records & Audit) Rule 2014, which of
the following is incorrect combination:
(a) Form CRA 1- Maintenance of cost records by the Company.

(b) Form CRA 2- Intimation of appointment of another cost auditor to Central Government.
(c) Form CRA 3- Submission of Cost Audit Report to the Board of Directors of the company.
(d) Form CRA 4- Submission of Cost Audit Report by the company to the Registrar.
155. During the course of audit of a listed company, CA P finds that solar power generating plant
capitalized in books for Rs. 5.00 crore during the year does not exist. It became known that
only bills were arranged and no assets were actually procured. Besides, financial statements
also reflect depreciation of Rs. 1.50 core on above. The bills of capitalized asset were
approved by procurement head. The matter was reported to audit committee by CA P.
However, no response was received. Considering above, choose the most appropriate option: -
(a) The matter needs to be reported to MCA in ADT-4. It also requires reporting under
CARO,2020.
(b) The matter needs to be reported to MCA in ADT-4. It does not require reporting under
CARO,2020.
(c) The matter need not be reported to MCA. However, it requires reporting under
CARO,2020.
(d) The matter needs neither reporting to MCA nor under CARO,2020.
156. Which of the following is FALSE regarding UDIN? (Unique document identification number)
(a) It is to be generated on UDIN portal.

(b) Its basic objective is to help ICAI in keeping and maintaining an online registry of
different services provided by all of its members.
(c) It has to be generated and stated for each audit report signed by a Chartered
Accountant.
(d) It has to be generated and stated for each certificate signed by a Chartered
Accountant.
157. In case of Frauds involving amount less than INR 1 crores, the auditor should report to the:
(a) Central Government

(b) Reserve Bank of India
(c) Bank’s Board/Audit Committee
(d) Comptroller & Audit General
158. While reporting under CARO, 2020, it is duty of statutory auditor of company to report:

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(a) Fraud of less than Rs. 1 crore committed by officers or employees of company during
the year
(b) Fraud of Rs. 1 crore or more committed by officers or employees of company during the
year
(c) Fraud of Rs. 5 crore or more committed by officers or employees of company during
the year
(d) Any fraud by the company or on the company noticed or reported during the year
159. UDIN (Unique Document Identification Number) is required to be stated by practising

Chartered Accountant on: -
(a) Each audit report only

(b) Each audit report and each certificate
(c) Each audit report issued under Companies Act, 2013 only
(d) Each audit report issued under Companies Act, 2013 only and each certificate
160. For which of following company, provisions of CARO,2020 would be applicable?
(a) Boost Up Training (OPC) Private Limited

(b) RCI Bank Limited
(c) PST Industries Limited
(d) Moon Insurance Limited
161. In case of a fraud involving less than Rs. 1 crore, the auditor shall
(a) report the matter to the audit committee constituted under section 177 or to the Board
in other cases within such time and in such manner as prescribed.
(b) report the matter to the audit committee constituted under section 177 within such time
and such manner as prescribed.
(c) report the matter to the Board within such time and in such manner as prescribed.
(d) report the matter to the audit committee constituted under section 177 and also to the
Board within such time and in such manner as prescribed.
Bank Audit
162. The term “Drawing Power” is associated with which of the following facilities as sanctioned by
any Bank:
(a) Letter of Credit

(b) Term Loan
(c) Staff Advances
(d) Cash Credit Limit
163. “Letters of credit” and “Foreign bills purchased and discounted” are examples of respectively:
(a) Funded facility and non- funded facility

(b) Non-funded facility and funded facility
(c) Funded facility and funded facility
(d) Non-funded facility and Non-funded facility

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164. A Ltd. has been assigned a Cash Credit limit of INR 20 lacs as against its Book Debts
furnished as security. What kind of Security creation is it?
(a) Pledge
(b) Mortgage
(c) Assignment
(d) Set-off
165. Which of the following is correct in case of Banks:
(a) The policy of income recognition should be subjective.

(b) The policy of income recognition should be objective and based on record of recovery
rather than on any subjective considerations.
(c) The policy of income recognition should be objective.
(d) The policy of income recognition may be objective or subjective.
(a) Sub-section (1) of section 30 of the Banking Regulations Act, 1949 requires that the
balance sheet and profit and loss account of a banking company should be audited by a
Firm of Chartered Accountants only.
(b) Sub-section (1) of section 30 of the Banking Regulations Act, 1949 requires that the
person duly qualified under any law for the time being in force to be an auditor of
companies.
(c) Sub-section (1) of section 30 of the Banking Regulations Act, 1949 requires that the
CAG Auditor only.
(d) Sub-section (1) of section 30 of the Banking Regulations Act, 1949 requires that the
balance sheet and profit and loss account of a banking company should be audited by a by
a person duly qualified under Banking Law.
167. The auditors should classify Credit card accounts as NPA, if ___________ amount due, as
mentioned in the credit card statement is not paid fully within ___________ days from next
statement date.
(a) Total, 90
(b) Minimum, 90
(c) Minimum, 30
(d) Minimum, 60
168. Which of the following statements is true regarding financial statements of a bank?
(a) Financial statements of a bank are to be prepared in accordance with Third Schedule to
Banking Regulation Act, 1949.
(b) Financial statements of a bank are to be prepared in accordance with Schedule III of
Companies Act, 2013.
(c) Financial statements of a bank are to be prepared in accordance with Schedule II of
Reserve Bank of India Act, 1934.

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(d) Financial statements of a bank are to prepared in accordance with format prescribed
by Comptroller and Auditor General of India.
169. Mrs. Reema has availed a Personal Loan for her Boutique of INR 5 lakhs and a Vehicle Loan to
purchase an Activa Scooter for INR 60,000. She is regular in depositing EMI of the Activa
Loan but has not made any payments towards the Personal Loan due to low business during the
year. In this case, which of the following facilities should be categorized as NPA?
(a) Activa Loan

(b) Personal Loan
(c) Higher of the two
(d) Both the Activa Loan & the Personal Loan
170. You are part of an engagement team conducting statutory audit of branch of a nationalized
bank. It is noticed that branch has sanctioned a cash credit limit for meeting working capital
requirements to a proprietary firm. The proprietor has also mortgaged his residential house in
the city by depositing title deed with branch. Keeping in view above, consider the following
table: -
Identify the most appropriate combination by matching Column X with Column Y:
(1) Stocks of firm (A) Primary Security

(2) Residential house (B) Secondary security
(3) Mode of security creation for residential house (C) Registered Mortgage
(4) Debtors of firm (D) Equitable Mortgage
(5) Mode of security creation for stocks and (E) Collateral security
debtors (F) Hypothecation
(a) 1-A, 2-B,3-D,4-A,5-C

(b) 1-A,2-E,3-D,4-A,5-F
(c) 1-A,2-B,3-C,4-B,5-D
(d) 1-A,2-E,3-D,4-B,5-D
171. The term “Drawing Power” is associated with which of the following facilities as sanctioned by
any Bank:
(a) Letter of Credit

(b) Term Loan
(c) Staff Advances
(d) Cash Credit Limit
172. You are at the planning stage for one of your firm’s client XYZ Bank for the year ended 31
March 2018. The bank is a commercial bank that provides a number of products and services
to the general public and other segments of the economy in the area of South Mumbai. You are
assigned the audit of one of the branches of XYZ Bank. The audit engagement team was called
to have a detailed discussion on the following matters. Which one of the following should not
be included in the discussion for the audit of banks?

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(a) Discuss on the error of last year in the application of accounting policies of the bank.
(b) Discuss on the method of fraud if any perpetrated by the bank employee within particular
balances and/or disclosures
(c) Discuss with the team the appointment and remuneration to be received on this bank
audit.
(d) Discuss the effect of the results of the risk assessment procedures on other aspects to
decide the nature, timing and extent of further audit procedures.
173. A Ltd. has been assigned a Cash Credit limit of INR 20 lacs as against its Book Debts furnished
as security. What kind of Security creation is it?
(a) Pledge
(b) Mortgage
(c) Assignment
(d) Set-off
174. Which of the following is included in “Interest Earned” in Profit & loss A/c of a bank?
(a) Discount on Bills

(b) Loan Processing fees
(c) Commission on bills for collection
(d) Credit Card Fees
175. While auditing advances of a bank as statutory auditor, which of the following is not a likely
concern of auditor?
(a) Appropriate documentation of advances

(b) Ensuring budgeted targets of advances given by bank management
(c) Compliance of sanctioned terms and conditions
(d) Operations in advance accounts
176. Any amount due to the bank under any credit facility is ‘overdue’ if: -
(a) it is not paid on the due date fixed by the bank

(b) it is not paid within 30 days of due date fixed by the bank
(c) it is not paid within 60 days of due date fixed by the bank
(d) it is not paid within 90 days of due date fixed by the bank
177. Which of the following statement is true regarding appointment of statutory branch auditor
of a nationalized bank?
(a) The appointment is made by bank acting through its board of directors with prior
approval of Central govt.
(b) The appointment is made by bank acting through its board of directors with prior
approval of RBI
(c) The appointment is made by bank acting through its board of directors with prior
approval of ICAI
(d) The appointment is made by shareholders in AGM.
178. Identify the correct statement: -

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(a) Income from non-performing assets is recognized on accrual basis
(b) Income from non-performing assets is never recognized.
(c) Income from non-performing assets is recognized on basis of actual recovery
(d) Income from non-performing assets is recognized only when such assets are upgraded
to standard assets
Other
179. A difference between the amount, classification, presentation, or disclosure of a reported

financial statement item and the amount, classification, presentation, or disclosure that is
required for the item to be in accordance with the applicable financial reporting framework is:
(a) Misstatement
(b) Error
(c) fraud
(d) Any of the above
180. While auditing the accounts of ThoughtCo Ltd., CA. Bliss, the auditor of the company came
across certain accounts payable balances for which direct confirmation procedure needs to be
applied. Thus, for the year ending 31st March, 2018, he sent positive confirmation requests
wherein the trade payables are requested to respond whether or not they are in agreement
with the balance shown. The auditor received all the confirmation replies from the trade
payables on time as correct except from five of them. What other option the auditor is left
with regard to trade payables from which no reply for confirmation requests received?
(a) Perform additional testing which may include agreeing the balance to subsequent cash
paid.
(b) Accept the balances as it is assuming other replies against received confirmation
requests being correct.
(c) Accept the balances as it is assuming that the trade payables must have replied in case
of any discrepancies.
(d) None of the above.
181. Most of the auditor’s work in forming the auditor’s opinion consists of:
(a) obtaining audit evidence.

(b) evaluating audit evidence.
(c) obtaining or evaluating audit evidence.
(d) obtaining and evaluating audit evidence.
182. Audit evidence is necessary to support the auditor’s opinion and report. It is_____in nature
and is primarily obtained from audit procedures performed during the course of the audit.
(a) cumulative
(b) regressive
(c) selective
(d) objective
183. Which of the following is correct as per section 143(10) of the Companies Act, 2013:

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(a) IFAC may prescribe the standards of auditing as recommended by the Institute of
Chartered Accountants of India, in consultation with and after examination of the
recommendations made by the National Financial Reporting Authority.
(b) the International Auditing Standards Board may prescribe the standards of auditing as
recommended by the Institute of Chartered Accountants of India, in consultation with
and after examination of the recommendations made by the National Financial Reporting
Authority.
(c) the MCA may prescribe the standards of auditing as recommended by the Institute of
Chartered Accountants of India, in consultation with and after examination of the
recommendations made by the National Financial Reporting Authority.
(d) the Central Government may prescribe the standards of auditing as recommended by the
Institute of Chartered Accountants of India, in consultation with and after examination
of the recommendations made by the National Financial Reporting Authority.
184. Tools and techniques that auditors use in applying the principles of data analytics are known
as-
(a) Computer Aided Audit Technique

(b) Computer Aided Audit Tools
(c) Computer Accounting and Auditing Technique
(d) Computer Assisted Audit Technique
185. Judging the significance of a matter requires _____of the facts and circumstances.
(a) objective analysis

(b) subjective analysis
(c) Both subjective and objective analysis
(d) qualitative analysis
186. Direct financial interest or materially significant indirect financial interest in a client is an
example of
(a) Self-review threats

(b) Self-interest threats
(c) Advocacy threats
(d) Intimidation threats
187. If, as a result of a misstatement resulting from fraud, the auditor encounters exceptional
circumstances that bring into question his ability to continue performing the audit, he shall-
(a) Withdraw from the engagement immediately.

(b) Report to Audit team regarding withdrawal.
(c) Determine the professional and legal responsibilities applicable in the circumstances.
(d) Ask the management for his withdrawal.
188. Which of following is not a threat to independence of auditor?
(a) Self-interest threats

(b) Self- review threats
(c) Advocacy threats

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(d) Peer group threats
189. ………….. is the threat which occurs when auditors are deterred from acting objectively with an
adequate degree of professional skepticism.
(a) Familiarity threat

(b) Advocacy threat
(c) Self Review threat
(d) Intimidation threat
190. ……………. refer to representations by management, explicit or otherwise, that are embodied in
the financial statements, as used by the auditor to consider the different types of potential
misstatements that may occur.
(a) Assertions
(b) Positive Confirmation
(c) Written representation
(d) Audit Evidence.
191. Consider the following statements pertaining to nature and meaning of “assertions”: -
Statement I—-Assertions are representations by the management which are present in

Statement II —-The assertions have to be necessarily explicit.

(a) Only Statement I is true.
(b) Only Statement II is true.
(c) Both statements I and II are true.
(d) Both statements I and II are false.
192. Obtaining trade receivables ageing report and analysis and identification of doubtful debts is
performed during audit of accounts receivable balances to address the following balance sheet
assertion:
(a) Valuation
(b) Rights and obligations
(c) Existence
(d) Completeness
193. The persons with responsibility for overseeing the strategic direction of the entity and
obligations related to the accountability of the entity are:
(a) management
(b) Those charged with governance
(c) audit committee
(d) board of directors
194. _____are self-evident, and occur when auditors form relationships with the client where they
end up being too sympathetic to the client’s interests.

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(a) Self-review threats
(b) Familiarity threats
(c) Intimidation threats
(d) Advocacy threats
195. During the audit of sales, the auditor found that recorded sales represent goods which were
ordered by valid customers and were dispatched and invoiced in the period. The auditor is
addressing which of the following assertions:
(a) Occurrence
(b) Measurement
(c) Cut-off
(d) Accuracy
196. ABC Ltd is engaged in manufacturing of fabrics from yarn purchased from different suppliers.
Occasionally, it also manufactures fabrics tailor made in accordance with requirements of
certain mills from yarn received from these mills. ABC Ltd raises bills of its labour charges
only on mills for converting yarn into fabrics. The auditor of ABC Ltd tries to ensure that
stocks of the company as at year end do not include stocks pertaining to these mills. Which
assertion auditor tries to verify in above situation:
(a) completeness
(b) Occurrence
(c) rights and obligations
(d) cut -off
197. Cut-off testing is performed during audit of sales to address the following assertion:
(a) Occurrence
(b) Measurement
(c) Cut-off
(d) Accuracy
198. Which of the following is the responsibility of the auditor:
(a) Preparation and presentation of the financial statements in accordance with applicable
financial
reporting
(b) Design, implementation and maintenance of internal controls
(c) Express an opinion on the Financial Statements
(d) To obtain limited assurance.
199. Statement 1: Audit procedures consist of Risk Assessments Procedures and other procedures.
Statement 2: Substantive procedures consist of test of details and analytical procedures.

(c) Both 1 & 2 are correct
(d) Both 1 & 2 are incorrect
200. Which of the following is not an advantage of audit?

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(a) It provides high quality financial information.
(b) It acts as a moral check on employees.
(c) It enhances risk of management bias.
(d) It helps in safeguarding interests of shareholders.
201. Which of the following is NOT TRUE about an assurance engagement?
(a) It relates to providing assurance about historical financial information only.

(b) The practitioner obtains sufficient appropriate evidence.
(c) There is some information to be examined by practitioner.
(d) A written assurance report in appropriate form is issued by practitioner.
202. Which of the following is TRUE about Engagement Standards?
(a) Engagement standards ensure proper rights to practitioners in course of performance

of their duties.
(b) Engagement standards ensure preparation and presentation of financial statements in a
standardized manner.
(c) Engagement standards ensure uniformity by practitioners in course of performance of
their duties.
(d) Engagement standards ensure savings in resources of clients.
203. Consider following statements in relation to “Limited assurance engagement”:
Statement I - It involves obtaining sufficient appropriate evidence to draw reasonable

conclusions.
Statement II - Review of interim financial information of a company is an example of limited

assurance engagement.
(a) Statement I is correct. Statement II is incorrect.

(b) Both Statements I and II are correct.
(c) Both Statements I and II are incorrect.
(d) Statement I is incorrect. Statement II is correct.
204. Which of the following is TRUE about Standards on auditing?
(a) These deal mainly with voluntary responsibilities of auditors.

(b) These deal mainly with mandatory responsibilities of auditors.
(c) Their sole purpose is to help government authorities in augmenting revenues.
(d) These deal mainly in carrying out audit according to legal provisions.
205. Most of the auditor’s work in forming the auditor’s opinion consists of:
(a) obtaining audit evidence.

(b) evaluating audit evidence.
(c) obtaining or evaluating audit evidence.
(d) obtaining and evaluating audit evidence.
206. In July, 2018, M/s Tom & Co. entered into an agreement with M/s Jerry & Co. under which a
machinery would be let on hire and M/s Jerry & Co. would have the option to purchase the
machinery in accordance with the terms of the agreement. Thus, M/s Jerry & Co. agreed to pay

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M/s Tom & Co. a settled amount in periodical instalments. The property in the goods shall be
passed to M/s Jerry & Co. on the payment of last of such instalments. While checking such hire-
purchase transaction, what would the auditor examine?
(a) That the periodical instalments paid are charged as an expenditure by M/s Jerry & Co.
(b) That the hire purchase agreement specifies clearly the hire-purchase price of the
machinery to which the agreement relates.
(c) That M/s Tom & Co. charges depreciation throughout the life of the machinery.
207. While auditing the books of accounts of QHMP Ltd., CA. Ranker, the statutory auditor of the
company, came to know that the management of the company has recognized internally
generated goodwill as a fixed asset. CA. Ranker discussed with the management that according
to accounting standards, internally generated goodwill is not recognized as an asset because it is
not an identifiable resource controlled by the enterprise that can be measured reliably at cost.
However, the management is quite rigid to the accounting treatment followed for internally
generated goodwill and not paying attention to the auditor. Thus, through an example, CA.
Ranker explained which type of goodwill may be recognized as a fixed asset for which the
management got justified. State which of the following examples the auditor must have given to
the management?
(a) If an item meeting the definition of an intangible asset is acquired in a business

combination, it forms part of the goodwill to be recognized at the date of the
amalgamation.
(b) Only those goodwill needs to be recognized as a fixed asset which can be touched like
physical assets, for example, land and buildings.
(c) Goodwill is recognised only when there is a contractual or other legal rights for a
physical asset which shall not be amortized over the period.
208. ________aims at ascertaining that the expenditure incurred has been on the purpose for
which the grant and appropriation had been provided and that the amount of such expenditure
does not exceed the appropriation made.
(a) Audit against provision of funds

(b) Propriety audit
(c) Audit of sanctions
(d) Audit against rules and orders
209. Which of the following is not correct:
(a) AS 18 – Related Party Disclosures

(b) AS 10 – Property, Plant & Equipment
(c) AS 28 – Impairment of Assets
(d) AS 16 – Intangible Assets
210. M/s PQR & Associates is appointed as the new auditors of M/s Prince Ltd. On conducting the
audit, the firm found that the accountant has entered fake invoices of credit purchases in the

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books of accounts aggregated of ₹ 75 Lakhs and cleared all the payments to the fake creditor.
The auditor M/s PQR & Associates should report such fraud to:

(b) Reserve Bank of India
(c) Board of Directors/Audit Committee
(d) Comptroller & Auditor General
211. The office of C&AG conducted audit in state of Gujarat to assess whether system for
enforcement of the provisions of the Air (Prevention and Control of Pollution) Act,1981 was
efficient and effective. It also evaluated whether various schemes and initiatives taken by
state government for abatement for air pollution were adequate. Besides, it also assessed
adequacy of human resources in State pollution control Board to regulate and monitor air
pollution. Which of the following terms best exemplifies such audit carried out by C&AG?
(a) Propriety audit

(b) Audit of sanctions
(c) Audit against rules and orders
(d) Performance audit
212. Sec. 52 of the Companies Act states that Security Premium Account can be applied by the
Company for one of the purpose mentioned below. Which of the following is a CORRECT option?
(a) To adjust loss on revaluation of Assets

(b) To pay dividend to equity shareholders
(c) Providing for the premium payable on redemption of Preference shares
(d) To use it as working capital for its business.
213. ………..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) Provisions
(b) Reserves
(c) Contingent Liabilities
(d) Liability
214. Springfield Hospital located in the rural area of Lonawala region is a government hospital run
by the local doctors who are appointed by the government. The hospital was registered on 1
October 2018. Which of the following is correct in respect of the appointment of the first
auditor for Springfield Hospital?
(a) The Board of Directors of the hospital have appointed the first auditor on 5th November
2018.
(b) The Comptroller Auditor-General of India appointed the first auditor on 15th December
2018.
(c) Since the Comptroller Auditor-General of India did not appoint the first auditor, the
Board of Director appointed the first auditor on 15th December 2018.
(d) Since the Comptroller Auditor-General of India did not appoint the first auditor, the
Board of Director appointed the first auditor on 10th November 2018.

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215. Which of the following is an example of revenue expenditure-
(a) Wages on installation of Machinery

(b) Regular repairs incurred on PPE
(c) Legal expenses in purchase of land and building
(d) Freight inwards on purchase of PPE
(a) Provisions
(b) Reserves
(d) Liability
217. _________are charges against profits to provide for known liabilities for which amounts
cannot be determined with accuracy
(a) Contingent Liabilities

(b) Provision
(c) Securities Premium Reserve.
(d) Liabilities
(a) Provisions
(b) Reserves
(d) Liability
219. Statement I: A capital reserve cannot be utilised for writing down fictitious assets or losses
or (subject to provisions in the Articles) for issuing bonus shares if it is realized.
Statement II: The amount of securities premium or capital redemption reserve account can be
utilised only for the purposes specified in Sections 52 and 55 of the Companies Act, 2013,
respectively.
(a) only Statement I is correct

(b) only Statement II is correct
(c) both the statements are correct
(d) both the statements are incorrect.
220. The Guidance Note on Audit of Internal Financial Controls over Financial Reporting has been
issued by?
(a) ICAI
(b) SEBI
(c) MCA

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(d) RBI
221. Article 151 requires that the reports of the C&AG relating to the accounts of the Union/State
shall be submitted to the ________ who shall cause them to be laid before House of
Parliament/State Legislature
(a) President/Governor
(b) Prime Minister/ Chief Minister
(c) Union Finance Minister/State Finance Minister
(d) Union Cabinet
222. The Auditor of a Sole Proprietor Concern is appointed by
(a) CAG
(b) Bank
(c) Sole Proprietor himself
(d) District Administration
223. After a Government expenditure has been incurred and the accounts are closed, the
Appropriation Accounts are prepared which are scrutinised by the
(a) CAG
(b) President
(c) Public Accounts Committee
(d) Parliament
224. The term Internal Financial Controls (IFC) basically refers to the policies and procedures put in
place by companies for ensuring:
i. Reliability of financial reporting
ii. Compliance with applicable laws and regulations
iii. Safeguarding of assets.
iv. Effectiveness and efficiency of operations
v. Prevention and detection of frauds
Which statement is correct?
(a) (i), (ii)and (iv)

(b) (i), (iii) (v) and(ii)
(c) (i), (ii), (iii) and (iv)
(d) (i), (ii), (iii), (iv)and (v)
225. The securities premium account may be applied by the Company for which of the following
purpose:
(a) payment to creditors for material

(b) purchase of fixed assets
(c) repayment of loans
(d) writing off the preliminary expenses
226. Public enterprises are required to maintain commercial accounts and are generally classified
under three categories. Which of the following is not a category relating to above:

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(a) departmental enterprises engaged in commercial and trading operations, which are
subject to the same laws, financial and other regulations as other government
departments and agencies;
(b) statutory bodies, corporations, created by specific statutes mostly financed by
government in the form of loans, grants, etc.; and
(c) government companies set up under the Companies Act, 2013.
(d) Charitable Trusts.
227. CA Tarini is in process of formulating audit plan for conducting audit of a company
engaged in business of dealing in commodity futures. Which of the following is not likely to be
an appropriate audit procedure to be included in audit plan for the abovesaid company?
(a) Verification of turnover of company

(b) Verification of cost of raw material consumed
(c) Examination of company’s accounting policy for revenue recognition
(d) Verification of contract notes with brokers
228. Mr. Y is statutory auditor of “Always on Air Limited” under Companies Act,2013 for
year 2021-22. He has to travel a lot in connection with professional audit work to different
locations in India. While travelling, he prefers tickets of “Always on Air Limited”. The tickets
are booked by him through portal of the company at prevailing market prices. He has
purchased tickets of Rs.5,05,000/- during year 2021-22 in above manner. Which of the
following statements is most appropriate in this regard?
(a) Mr. Y has become disqualified to be appointed as auditor of company by virtue of

business relationship with the company.
(b) Such a situation has no express disqualification under Companies Act. However, there is
threat to independence of Mr. Y by virtue of self-interest threats. Therefore, he
should withdraw from engagement.
(c) Mr. Y has not incurred disqualification under Companies Act.
(d) Such a situation has no express disqualification under Companies Act. However, there is
threat to independence of Mr. Y by virtue of advocacy threats. Therefore, he should
withdraw from engagement.
229. CA M is internal auditor of Crayon Products Limited. Which of the following is not TRUE about
scope of internal audit?
(a) Internal audit is an independent assurance activity.

(b) Internal audit helps in improving internal control of the company.
(c) Internal audit cannot review non-financial activities of company.
(d) Internal audit can review compliance of company with various laws and regulations.
230. An auditor is verifying purchases to ensure their genuineness. Consequently, he is also trying
to verify that no fake “trade payables” are present in financial statements. Which assertions
concerning purchase transactions and trade payables respectively are being verified by auditor?
(a) Occurrence; Existence

(b) Occurrence; Completeness
(c) Existence; Occurrence

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(d) Completeness; Occurrence
231. Which of the following statement is most appropriate as regards to disclosure of goods in
transit in financial statements of a company?
(a) No separate disclosure of goods in transit is required.

(b) Disclosure of total goods in transit under head of inventories is required.
(c) Disclosure of goods in transit under each sub-head of inventories is required.
(d) Disclosure of goods in transit for raw material and finished goods is required.
232. Sweat Equity shares are issued by a company at a discount or for consideration other than
cash to its:-
(a) Directors only

(b) Clients only
(c) Directors or employees
(d) Auditors only
233. Which of the following is not an element of cost of an item of machinery included under head
“Property, Plant and Equipment”?
(a) Installation costs

(b) Freight cost of bringing the item to its location
(c) Inaugural costs
(d) Employee benefit cost for making such an item suitable for production
234. Which of the classification is not required by a company in respect of its “Cash and cash
equivalents?”
(a) Balance with Banks

(b) Balance with scheduled banks
(c) Cash on hand
(d) Cheques on hand
235. The audit of municipal corporation of a large metro city is in progress. Which of the following
is not likely an objective of such as audit?
(a) To report on the adherence to legal and administrative requirements

(b) To report on whether value is being fully received for money spent
(c) To report on the weakness of systems of financial control
(d) To provide better civic amenities to residents of metro city
236. “Save Democracy” is an NGO working in cause of promoting democracy and democratic
institutions in many countries including India. Its Indian counterpart has received funds from a
renowned “Flower Trust” of US. As auditor of NGO, which of the following laws/orders would be
relevant to you in context of above information?
(a) Income Tax Act, 1961

(b) Foreign Contribution Regulation Act, 2010
(c) Companies Act, 2013
(d) Orders issued by Ministry of Social Justice and Empowerment

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237. The appointment of first auditor of a multi-state cooperative society is made by: -
(a) Central Registrar

(b) Board of society
(c) Members of society
(d) Central Government
238. Consider following revenue sources of Union Government.
(P) Revenues from direct taxes
(Q) Revenues from Goods and Services Tax
(R) Revenues from Custom Duties
(S) Revenues from Excise Duties
Out of P, Q, R and S, which of the following flow to “Consolidated Fund of India”?
(a) P, Q and R
(b) P, Q and S
(c) P and Q
(d) P, Q, R and S
239. An LLP files compliance returns with: -
(a) Registrar of firms & societies

(b) Central Registrar
(c) Registrar of Companies
(d) Local fund audit wing

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Integrated Cases
Integrated Case 1
M/s NSG & Associates have been appointed as auditors of Viaan Ltd. for the financial year 2019-
20. The processes, operations, accounting and decisions are carried out by using computers in Viaan
Ltd. The auditors understand that there are several aspects that they should consider to determine
the level of automation and complexity in the business environment of Viaan Ltd. While planning the
audit work, the engagement partners discussed with the audit staff about the various types of
controls in the automated environment.
The different types of audit tests that can be used in audit of an automated business environment
were also discussed within the engagement team. The responsibility regarding the Internal Financial
Controls was also discussed in detail. Further the tools and techniques that can be used to deal with
the enormous data and information of Viaan Ltd. were briefed to the audit staff by the engagement
partners.
Based on the above facts, answer the following:
1. ………. are the manual controls that make use of some form of data or information or report
produced from the IT systems and applications.
(a) Application Controls
(b) IT dependent Controls
(c) Automated Controls
(d) General IT Controls
2. Statement 1: Application controls include both manual and automated controls that operate at a
business process level.
Statement 2: General IT Controls apply to mainframe, miniframe as well as end user
environment.

(c) Both Statements 1 & 2 are correct
(d) Both Statements 1 & 2 are incorrect
3. …………… are also known as pervasive or indirect controls:

(a) General IT Controls
(b) Application Controls
(c) IT dependent Controls
4. Which of the following are not the types of audit tests that can be used in the audit in an
automated environment?

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(a) Observation
(b) Inspection
(c) Re performance
5. …………… is the combination of processes, tools and techniques that are used to tap vast amounts
of electronic data to obtain meaningful information:
(a) Computer Assisted Audit Techniques
(b) Automated Controls
(c) Data Analytics
Integrated Case 2
M/s JK & Associates have been appointed as auditors of Venus Ltd. for the financial year 2019-20.
The team consist of Mr. J & Mr. K both Chartered Accountants as also the engagement partners and
the audit staff consisting of 2 article assistants. While starting the audit work of Venus Ltd, the
engagement partners briefed the audit staff about the audit work, areas to be covered and the
various auditing concepts and their application in the audit of Venus Ltd along with applicable
Standard on Auditing.
Various topics like audit planning, overall audit strategy, audit programme were discussed in detail.
The team was told about the purpose and implication of various statements and guidance notes issued
by the Institute of Chartered Accountants of India (ICAI) from time to time. Mr. K also briefed
the team about the concept of materiality to be applied while planning and performing audit. The
team was also explained in detail about the area where benchmark materiality can be applied in case
of Venus Ltd.
1. .………. sets the scope, timing & direction of the audit and guides the development of the more
detailed plan.
(a) Audit Programme

(b) Overall Audit Strategy
(c) Completion Memorandum
(d) Audit Plan
2. Statement 1: The establishment of the overall audit strategy and the detailed audit plan are not
necessarily discrete or sequential process but are closely inter-related.
Statement 2: The auditor shall establish an overall audit strategy that guides the development
of audit plan.

(c) Both Statements 1 & 2 are correct
(d) Both Statements 1 & 2 are incorrect

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3. …………… means the amount set by the auditor at less than materiality for the financial
statements as a whole to reduce to an appropriately low level the probability that the aggregate
of uncorrected and undetected misstatement exceeds materiality for the financial statements
as a whole:
(a) Benchmark Materiality

(b) Materiality in Planning
(c) Performance Materiality
(d) Materiality.
4. Which of the following is not an example of benchmark that can be used in determining the
materiality in the case of financial statements:
(a) Total Revenue

(b) Profit before tax
(c) Net Asset Value
5. Guidance notes issued by ICAI provide guidance to members on matters which may arise in the
course of their professional work.
Statements are issued by ICAI with a view to secure compliance by members on some matters.
Guidance notes are recommendatory in nature.
Statements are mandatory in nature.
(a) All the above statements are correct.

(b) Statements 1 & 2 are correct
(c) Statements 1, 2 & 3 are correct
(d) Statements 1,2 & 4 are correct
Integrated Case 3
Kaur & Associates, a sole proprietor firm of Simran Kaur, is offered appointment as auditor of a
company engaged in manufacturing of automobile components for the first time. She is fact checking
about the integrity of promoters of the company and key managerial persons. Matters such as
competence of staff to perform the engagement are also considered by her. The appointment is
subsequently accepted by her.
She is also taking into account number and location of branches of the company, requirements of
Schedule III of Companies Act, 2013 and expected time by which audit has to be completed keeping
in view statutory requirements. Initially, she has thought it proper to inquire key employees of the
company in procurement and marketing departments and planned for the same. She has also planned
to visit three plants of the company. The purpose of planned inquiry and visit is to identify and assess
risk of material misstatements.
A detailed set of instructions has been prepared by her office and it has been handed over to
assistants in engagement team. These set of instructions include details of extent of checking and
nature of audit procedures to be performed regarding purchases, sales, items of income, items of
expenditure etc. During the course of execution of above set of instructions, it has been brought to
her notice that company is also producing substantial quantities of scrap generated during
manufacturing process. However, no instructions have been given to engagement team in this regard.

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Based on above, answer the following questions:
1. Auditor is fact checking about promoters and key managerial persons. She is also considering
competence of staff to perform engagement. What is she trying to do?
(a) She is establishing audit strategy.

(b) She is conducting preliminary engagement activities.
(c) She is designing audit plan.
(d) She is checking her compliance of ethical requirements.
2. Consideration of number and location of branches, requirements of financial reporting

framework and expected time of completion are relevant factors primarily for which of the
following -
(a) Developing audit plan

(b) Establishing overall audit strategy
(c) Designing audit programme
(d) Designing risk assessment procedures
3. Taking into account description of planned inquiry and visit, which of the following statements
is TRUE?
(a) Planned inquiry and visit fall in area of audit strategy.

(b) Planned inquiry and visit are planned risk assessment procedures and fall in field of
audit plan.
(c) The said description is not related to audit planning.
(d) Planned inquiry and visit fall in scope of audit programme.
4. What is detailed set of instructions given to assistants in engagement team known as?
(a) Audit guidelines

(b) Audit plan
(c) Audit Programme
(d) Audit Procedures
5. The issue of generation of scrap has been overlooked in detailed set of instructions given to
engagement team. What should be proper course of action by CA Simran Kaur?
(a) She should ignore this information as audit has already begun.
(b) She should modify earlier set of instructions.
(c) She should leave the matter to wisdom of engagement team.
(d) She should put the ball in court of management as she was not provided with complete
information earlier.
Integrated Case 4
CA Rajan Pillai is heading the engagement team conducting audit of a company. While audit is in
progress, consider following issues regarding audit documentation:
(A) Audit programme was prepared assigning responsibilities for different types of works to be
performed by team members. The engagement team consists of 4 members Mohit (CA final

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student), Rohit (CA final student), Shobhit (Paid CA) and CA Rajan Pillai (partner of audit
firm).
(B) The team has determined materiality for financial statements as a whole.
(C) The team has assessed risks of material misstatements to be low.
(D) CA Shobhit is responsible for attending inventory count process and putting down its
documentation part.
(E) During the course of audit, many related party transactions have come to notice.
On the basis of above, answer the following questions:
1. Work relating to verification of revenue was assigned to Mohit in audit programme. However, it
is being performed by Rohit actually. Verification of trade receivables was planned to be carried
out by Rohit in audit programme. However, it being performed by CA Rajan Pillai due to last
minute practical issues. Which of the following statements is most appropriate in this regard
relating to audit documentation?
(a) Audit programme contains names of persons and work to be performed. It is immaterial
whether work assigned to one person is performed by another person.
(b) Audit programme was already prepared. Only persons assigned specific responsibilities
can perform those duties.
(c) It is necessary that audit programme be suitably updated or notes are given in working
papers to this effect so that planned duties are in accordance with actual work
performance.
(d) Changes in audit programme or notes clarifying the matter are required only when a
person not forming part of engagement team is deputed to perform a duty. Otherwise,
this issue of inter-shuffling of team members is frivolous.
2. As regards materiality, which of the following statements is most appropriate in context of

audit documentation?
(a) Materiality has already been determined. There is no need to put it into working papers.
(b) Materiality depends upon professional judgment of auditor. Whatever amount has been
determined can be documented in working papers.
(c) Materiality arrived on basis of professional judgment along with factors considered in
the determination has to be documented.
(d) Materiality has been arrived upon professional judgment. It also depends upon
professional judgment of auditor whether he wants to document it or not.
3. As regards team’s assessment that risk of material misstatements is low, which of the following
statements is odd one relating to documentation of risk?
(a) Discussion amongst engagement team members and detail of significant decisions
reached has to be documented.
(b) Details of risk assessment procedures have to be documented.
(c) Details about how understanding of each component of internal control was obtained
has to be documented.
(d) Precise calculation of risk of material misstatements has to be documented.

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4. CA Shobhit is responsible for attending physical inventory count of the company. Which of the
following is usually not true in this regard relating to audit documentation?
(a) Dates on which physical inventory count process was attended by him should be
documented. It may also include photographs of that date showing his attendance of
inventory counting process at a particular location.
(b) Detail of test counting undertaken should form part of audit documentation.
(c) Detail of obsolete goods found should form part of audit documentation.
(d) Reports showing that stocks conform to quality control standards in accordance with
law are essential part of audit documentation.
5. As regards related party transactions, which of the following should not be part of audit
documentation?
(a) Management representation letter in this regard

(b) Related party transaction policy of the company
(c) Documentation to show that such transactions are at arm’s length basis
(d) Documentation to show that such transactions are at close length basis.
Integrated Case 5
SAM & Company, a Chartered Accountant firm, is in the process of finalising the audit of Health is
Wealth Limited which is a Company listed on the Bombay Stock Exchange. Health is Wealth Limited
has made its presence felt in over 10 countries, including India, making it a leader in the global
fitness industry. It runs a chain of fitness centres that offers energetic group workouts and multiple
workout formats to choose from. It also offers the best equipment, knowledgeable staff and
personal advice in a welcoming environment. SAM & Company being a very reputed firm, was appointed
for the statutory audit of Health is Wealth Limited. The Engagement Partner CA A and her team of
8 members have conducted the audit in an efficient and effective manner. The senior manager in
the team, CA K is of the opinion that they have obtained sufficient appropriate audit evidence, which
concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to
the financial statements. One of the articled clerks, Mr. N, is a fresher and this audit is his first
experience as an auditor in a limited company. He is a sharp boy and has grasped all the concepts and
techniques very well. However, the term “pervasive” confused him so CA K patiently explained to Mr.
N the pervasive effects on the financial statements as per the auditor’s judgement. He explained
that - Pervasive effects on the financial statements are those that, in the auditor’s judgement:
(a) Are not confined to specific elements, accounts or items of the financial statements;
(b) If so confined, represent or could represent a substantial proportion of the financial
statements; or
(c) In relation to disclosures, are fundamental to users’ understanding of the financial statements.
(d) Are confined to specific elements, accounts or items of the financial statements.
Mr. N understood the term well and thanked CA K for clearing all his doubts.
CA A disagreed with CA K that they have obtained sufficient appropriate audit evidence, which

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the financial statements. So, the entire team held various meetings and discussions, and finally
reached to a conclusion. They concluded that they have obtained reasonable assurance that the
financial statements as a whole are free from material misstatement, whether due to fraud or error.
That conclusion took into account:
(a) Whether sufficient appropriate audit evidence had been obtained.

(b) Whether uncorrected misstatements were material, individually or in aggregate.
(c) The evaluations.
The Auditor’s Report was prepared in writing and it was decided that an unmodified opinion would be
expressed. The first section of the auditor’s report included the auditor’s opinion and had the
heading “Opinion”. Following the Opinion section was a section with the heading “Basis for Opinion”.
When expressing an unmodified opinion on financial statements, the auditor’s opinion used the
following phrase,
“In our opinion, the accompanying financial statements give a true and fair view of […] in accordance
with [the applicable financial reporting framework].”
During the audit, the audit team had observed that there was uncertainty in Health is Wealth
Limited relating to the future outcome of a regulatory action. So, a paragraph was included in the
auditor’s report that referred to this matter which was appropriately disclosed in the financial
statements and that, in the auditor’s judgment, was of such importance that it was fundamental to
users’ understanding of the financial statements.
CA A also determined whether the financial statements included the comparative information
required by the applicable financial reporting framework and whether such information was
appropriately classified. One team member, Mr R was curious to know whether the auditor’s opinion
referred to the corresponding figures or not, whenever the corresponding figures are presented.
CA A explained the circumstances to Mr R in which, when the corresponding figures are presented,
auditor’s opinion referred to the corresponding figures.
Based on the above information, answer the following questions:
1. CA K explained to Mr. N the pervasive effects on the financial statements in the auditor’s
judgement. Which of the following combination best answers as explained by CA K?
(a) (i) and (ii)

(b) (ii) and (iii)
(c) (iii) and (iv)
(d) (i), (ii) and (iii)
2. When expressing an unmodified opinion on financial statements, SAM & Company used the
following phrase:
“In our opinion, the accompanying financial statements give a true and fair view of […] in
accordance with [the applicable financial reporting framework].”

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Which is the other phrase which is regarded as being equivalent to the above phrase and could
also be used by SAM & Company?
(a) In our opinion, the accompanying financial statements give a true and correct view of […]
in accordance with [the applicable financial reporting framework];
(b) In our opinion, the accompanying financial statements present correctly, in all material
respects, […] in accordance with [the applicable financial reporting framework];
(c) In our opinion, the accompanying financial statements present fairly, in all material
(d) In our opinion, the accompanying financial statements give a correct and fair view of […]
in accordance with [the applicable financial reporting framework].
3. Which of the following statements is not included in the section with the heading “Basis for
Opinion” in the Auditor’s Report?
(a) Audit was conducted in accordance with the Accounting Standards.

(b) Auditor is independent of the entity in accordance with the relevant ethical requirements
relating to the audit and has fulfilled the auditor’s other ethical responsibilities in
accordance with these requirements.
(c) Description of the auditor’s responsibilities under the SAs.
(d) States whether the auditor believes that the audit evidence the auditor has obtained, is
sufficient and appropriate to provide a basis for the auditor’s opinion.
4. A paragraph was included in the Auditor’s Report of Health is Wealth Limited that referred to
a matter which was appropriately disclosed in the financial statements that, in the auditor’s
judgment, was of such importance that it was fundamental to users’ understanding of the
financial statements. What is this section of the Auditor’s Report called?
(a) Other Matters.

(b) Emphasis of Matters.
(c) Key Audit Matters.
(d) Auditor’s Responsibilities for the Audit of the Financial Statements.
5. CA A explained the circumstances to Mr. R in which, when the corresponding figures are
presented, auditor’s opinion referred to the corresponding figures. Which of these
circumstances did he mention to Mr. R?
(a) If the auditor obtains audit evidence that a material misstatement exists in the prior
period financial statements on which a modified opinion has been previously issued.
(b) If the auditor’s report on the prior period, as previously issued, included a qualified
opinion, a disclaimer of opinion, or an adverse opinion and the matter which gave rise to
the modification is resolved.
(c) Prior Period Financial Statements are audited by another auditor.
(d) Prior Period Financial Statements not audited.
Integrated Case 6

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Bharat Bank, a nationalised bank, has branches all over India and has been the most popular public
sector bank in India for the past few years. The bank is governed by the Banking Regulations Act,
1949 and the Central Statutory Auditors of the bank, ABC & Associates, were appointed according
to the provisions of the relevant enactments. The engagement partner CA C commenced the audit
with his team of seven members so that the audit is completed on time and all the documents are
submitted before the due date. The audit at all the branches also started simultaneously and ABC
& Associates was in constant touch with all the branch auditors to ensure timely completion of
the audit.
As per the audit strategy and plan, CA Q along with Ms. R and Mr. P were assigned the audit of
the advances of Bharat Bank. Advances constituted the largest item on the assets side of the
balance sheet of the bank. Since audit of advances is one of the most important areas covered by
auditors in a bank audit, it was assigned to CA Q since he was aware of the various functional
areas of the bank/branches, its processes, procedures, systems and prevailing internal controls
with regard to advances.
CA Q started with verifying whether the advances were classified as per RBI Prudential Norms.
There were five categories of advances which were available to CA Q for verification. They were:
Standard Regular, Sub Standard, Doubtful, Loss and Special Mention Accounts. An ageing analysis
was available for doubtful advances and Special Mention Accounts which was examined in detail
by CA Q.
Ms. R, on being instructed by CA Q, verified the securities offered by the borrowers for the
bank finance. For a particular customer named Aquabrass Pvt Ltd., the security was in the form
of delivery of goods by Aquabrass to Bharat Bank with the intention of creating a charge thereon
as security for the advance. The legal ownership of the goods remained with Aquabrass. In case
of another customer named Prism Works, there was a transfer of a life insurance policy in favour
of the bank as security. The bank had absolute right over the policy. Ms. R examined all the
relevant documents for the above two cases in detail. She continued with her examination of
other securities based on the sample selected by her.
While checking the classification of NPA, Mr. P came across a customer named Trustworthy whose
term loan instalment was overdue for 90 days at the year-end, but it was 100% secured against
the office building. The same was classified as a Substandard asset. There was another customer
named Super40, who had a cash credit account and a term loan with the bank. Super40 had been
paying the instalments on the term loan as well as the interest on the cash credit account regularly
and there was no overdue amount. Mr. P verified the drawing power of Super40 and found it to
be less than the sanctioned limit throughout the year. The outstanding balance of Super40 during
the whole year exceeded the drawing power but was less than the sanctioned limit. Both the
advances to Super40 were classified as Standard Advances since the recoveries were regular and
outstanding balance in the cash credit was less than the sanctioned limit.
On examination of large advances, CA Q noticed that a customer named Stylish N Smart Private
Limited had one funded loan (term loan) and one non funded loan (bank guarantee) sanctioned from
the bank. CA Q checked in detail whether commission earned by the bank on the bank guarantee

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was provided for on accrual basis. CA Q along with Ms. R and Mr. P verified the advances in detail
and also recommended a few changes in the classification/provisions based on the examination of
the sample selected by them.
1. What are the sub categories of the special mention accounts?
(a) SMA 0 (accounts showing stress signals), SMA 1 (Overdue between 31-60 days) and SMA
2 (Overdue between 61-90 days)
(b) SMA 0 (accounts showing stress signals), SMA 1 (Overdue between 0-45 days) and SMA
2 (Overdue between 46-90 days)
(c) SMA 0 (accounts not yet due for payment), SMA 1 (Overdue between 31-60 days) and
SMA 2 (Overdue between 61-90 days)
(d) SMA 0 (accounts not yet due for payment), SMA 1 (Overdue between 0-45 days) and
SMA 2 (Overdue between 46-90 days)
2. Creation of security of Aquabrass Private Ltd. and Prism Works was in the form of:
(a) Mortgage and Hypothecation.

(b) Lien and Set-off.
(c) Hypothecation and Pledge.
(d) Pledge and Assignment.
3. In your opinion is Trustworthy a standard asset or a substandard asset?
(a) Though it is due for 90 days, it is 100% secured so it is a standard asset.

(b) Since it is due for 90 days, it is a substandard asset irrespective of the security.
(c) Since it is not due for more than 90 days, it is a standard asset irrespective of the
security.
(d) Since it is not due for more than 90 days and it is 100 % secured, it is a standard asset.
4. Is Super40 correctly classified as a standard asset?
(a) Yes, since the recoveries in both term loan and cash credit were regular and outstanding
balance in the cash credit was less than the sanctioned limit.
(b) No, since the outstanding balance of the cash credit facility exceeded the drawing power
for more than 90 days, so both the advances, that is, the term loan and cash credit
facility will be classified as NPA.
(c) No, since the outstanding balance of the cash credit facility exceeded the drawing power
for more than 90 days, the cash credit facility will be classified as NPA and term loan as
standard.
(d) Yes, since the recoveries in both term loan and cash credit were regular, there is no
relevance of sanctioning power/drawing power.
5. Which among the following is a non- funded loan?
(a) Demand Loans

(b) Bills Discounted and Purchased
(c) Letter of Credit

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(d) Participation on Risk Sharing basis
Integrated Case 7
A Partnership Firm of Chartered Accountants by the name of HS and Associates was appointed to
audit books of accounts of WT Limited for financial year 2019-20. HS and Associates consisted of
two partners CA H and CA S. While conducting audit of WT Limited for financial year 2019-20, CA
H, one of the partners of HS and Associates used different audit procedures in order to obtain
audit evidence.
The different audit procedures used by CA H were as follows:
1. As WT Limited was engaged in manufacturing business of wooden doors, CA H and his team
members carefully watched the whole process of counting of finished wooden doors by
employees of WT Limited. The counting of finished wooden doors was necessary for the purpose
of verification of stock of finished wooden doors.
2. In WT Limited the stock of finished wooden doors was valued manually by multiplying number of
finished wooden doors with value per finished wooden door. A team member of CA H again did
the calculation in order to verify the accuracy regarding valuation of stock of wooden finished
doors.
3. CA H with the help of his team members obtained information from people (who were
experienced in manufacturing business of wooden doors) about the purchase price of raw
materials required in manufacturing business of wooden doors and also obtained some non-
financial information.
4. CA H and his team members while conducting the audit of WT Limited for financial year 2019-
20 in detail checked and evaluated the books of accounts and relevant documents of W Limited.
5. CA H asked for written confirmations regarding account balances from Debtors and Creditors
of WT Limited.
Keeping the basic concepts about various audit procedures in mind, answer the following multiple -
choice questions:
1. CA H and his team members carefully watched the whole process of counting of finished wooden
doors by employees of WT Limited. This is an example of which audit procedure:
(a) External Confirmation.

(b) Observation.
(c) Inquiry.
(d) Inspection.
2. In order to verify the accuracy regarding valuation of stock of wooden finished doors, a team
member of CA H again did the calculation. This is an example of which audit procedure:
(a) Analytical Procedures.

(b) Inquiry.
(c) Inspection.
(d) Recalculation.
3. CA H with the help of his team members obtained information (both financial and non-financial
information) from experienced people in manufacturing business of wooden doors. These

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experienced people provided the required information. This whole method of obtaining
information is an example of which audit procedure:
(a) Inspection
(b) Reperformance.
(c) Inquiry.
(d) Investigation.
4. CA H and his team members in detail checked and evaluated the books of accounts and relevant
documents of WT Limited. This is an example of which audit procedure:
(a) Inspection.
(b) Reperformance.
(c) Recalculation.
(d) Investigation
5. Asking for written confirmations regarding account balances from Debtors and Creditors of WT
Limited by CA H is an example of which audit procedure:
(a) Inquiry
(b) Inspection
(c) Investigation.
(d) External Confirmation.
Integrated Case 8
RM & Associates have been appointed as Auditors of Techblocks Consulting Ltd. for the year 2020-
21. CA R and CA M were the Engagement partners.
Para 1
The Firm has freshly appointed 2 Article Clerks who had no practical knowledge in the area of
Auditing. They had to work to tight hard-headed factual issues and were baffling to understand the
various terms and their objectives in the field of Auditing.
Para 2
To make sure that the Article Clerk do not misplace or mis-handle the Working Papers, CA M also
described the relevance of Audit File and clarified that working papers are the property of Auditor.
Such Audit file should be preserved for a period of seven years.
Para 3
CA R while scrutinizing Books of Accounts suspected some fictitious sales as a result of which he
anticipated inflated Debtors. Management was reluctant to give the details. As CA R could not gather
more evidence from the Management, he sought to obtain details from the third party.
Para 4
On further perusal of Opening Balances, it is essential to perceive that Accounting Policies have
been consistently applied in the current period’s financial statements and whether any changes have
been properly accounted for and disclosed. CA M assigned this duty to his article clerk. The Article

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clerk explained to CA M about how he had observed that Accounting policies were not consistently
applied in relation to opening balances in accordance with the financial reporting framework or a
change is not properly accounted or not adequately disclosed.
Para 5
Subsequently, the Auditors gathered from the Management that there was a fire in the Factory
premises after the Balance Sheet date, as a result of which the company suffered loss of
Inventories. It did not provide any conditions on the Balance Sheet date. SA 560 deals with such
type of transactions.
1. The Auditor explained his Audit team the purpose of Audit Documentation. Which of the
following is incorrect with respect to the purpose of Audit Documentation?
(a) It enables the conduct of quality control reviews and inspections in accordance with SQC-
1.
(b) It helps in preparation of Financial Statements.
(c) It retains a record of matters of continuing significance to future audits.
(d) It enables the conduct of external inspections in accordance with applicable legal,
regulatory or other requirements.
2. An auditor strictly ensured that the audit team should document / assemble all the working
papers in Audit file. The completion of assembling the Audit File is an administrative process
and should be done in:
(a) It should be within 30 days from the date of Audit Report.

(b) It should be within 60 days from the completion of Audit.
(c) It should not be more than 60 days from the date of Audit Report.
(d) It should be before 90 days from the completion of Audit.
3. With reference to para 3 of Case scenario, this is a case of obtaining External Confirmation by
the Auditor. Which of the following is inappropriate with regard to External Confirmation?
(a) External Confirmations are restricted to Account balances only.

(b) It is also used in a case to obtain Audit evidence about the absence of certain conditions
say, Side Agreement.
(c) It can be also effective in obtaining Audit evidence about verification of Inventories
held by third parties at bonded warehouses for processing or on consignment.
(d) External Confirmation is also functional in case of Investments held for safekeeping by
third parties, or purchased from stockbrokers but not delivered at the Balance Sheet
date.
4. With reference to para 4, in such a situation CA M shall express a:
(a) A Disclaimer Opinion

(b) A qualified opinion
(c) A qualified opinion or an adverse opinion in accordance with SA 705
(d) An unmodified opinion
5. In respect to subject matter mentioned in Para 5, what procedures should Auditor perform to
identify

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such events?
Statement 1: Obtain an understanding of any procedures management has established as well as

Inquiry with Management and those charged with governance procedures for identification of
such subsequent events.
Statement 2: Inspection of Minutes of the meetings of the entity’s owners, management and
those charged with governance that have been held after the date of the financial statements
and inquiring about the matters discussed at any such meetings for which minutes are not yet
available.
Statement 3: The Auditor should not read the entity’s latest subsequent interim financial
statements, if any.

(c) Both Statements 1 and 2 are correct
(d) Only Statement 3 is correct
Integrated Case 9
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)
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
(a) Provision
(b) Reserve
(c) Contingent Liability
(d) Liability

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2. 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
(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
3. 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.
4. 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.
5. 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
Integrated Case 10
ABC Ltd. is a company dealing in products namely chocolate and coffee. ABC Ltd. approached audit
firm XYZ & Associates for the statutory audit of its financial statements for the year ended
31.03.2019. The Gross turnover of the company is Rs.105 crores, out of which turnover from one of
its product namely coffee is of Rs.95 crores during the immediately preceding Financial Year.
During the course of Audit, XYZ & Associates found certain delay in the payment of the Employees
Provident Fund by ABC Ltd. They understand that the same need to be reported under the relevant
provisions of Companies (Auditors Report) Order 2020.
Further, ABC Ltd. also approached the auditors to provide them the Investment Banking service to
which the auditors denied as per the provisions of Companies Act 2013.

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During the course of audit, XYZ & Associates has reason to believe that an offence of fraud involving
some amount has been committed in the ABC Ltd. by its General Manager. The auditors understand
that there is a requirement for reporting of fraud by the auditors under the Companies Act and the
relevant rules.
1. After the appointment of XYZ & Associates, ABC Ltd. should inform the auditor and file a notice
of such appointment with registrar within:
(a) 60 days
(b) 30 days
(c) 15 days
(d) 20 days
2. Under which section reporting of fraud by an auditor to the Central Government is required and
what is the amount of fraud:
(a) Section 143(12), 1 crore & above

(b) Section 139(12), 1 crore & above
(c) Section 143(12), 2 crore & above
3. What is the requirement for ABC Ltd as per the relevant provisions regarding maintenance of
cost records:
(a) Maintenance of cost records is mandatory, in form CRA 1.

(b) Maintenance of cost records is mandatory, in form CRA 2.
(c) Maintenance of cost records is mandatory, in any general format.
(d) No requirement of maintenance of cost records.
4. Under relevant clause of CARO,2020, XYZ & Associates is required to report the extent of
arrears of Employees Provident Fund as at the balance sheet date:
(a) Exceeding 9 months

(b) Exceeding 3 months
(c) Exceeding 6 months
(d) Exceeding 12 months
Integrated Case 11
▪ Mars Ltd is a public company having a turnover exceeding Rs 50 crores in the last 3 financial
years including the current financial year which is FY 2019-20
▪ The company comes under the class of companies specified under item (A) Regulated Sectors.
▪ M/s XYZ & Associates have been appointed as the auditors of Mars Ltd for FY 2019-20.
▪ Mars Ltd has a branch office in Dubai for which a separate auditor has been appointed.
▪ M/s XYZ & Associates understand that they need to communicate with the another auditor
appointed for the branch office in Dubai.
▪ Further Mars Ltd has taken a loan from a nationalized bank in 2015 amounting to Rs 1 crore
payable in 8 equal instalments of Rs. 12.50 lakhs each starting from 31st March 2016 onwards.

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It has repaid its 4 instalments, however the company has defaulted in the current financial
year. Mars Ltd has sought rescheduling of loan from the bank.
▪ The auditors, XYZ & Associates understand that they have certain reporting requirements
under Companies (Auditor’s Report) Order, 2016.
▪ Further, the auditors also attended the physical verification of inventory conducted by the
management at the year end.
1. With respect to the forms specified by companies (Cost Records & Audit) Rule 2014, which of
the following is incorrect combination:
(a) Form CRA 1- Maintenance of cost records by the Company.

(b) Form CRA 2- Intimation of appointment of another cost auditor to Central Government.
(c) Form CRA 3- Submission of Cost Audit Report to the Board of Directors of the company.
(d) Form CRA 4- Submission of Cost Audit Report by the company to the Registrar.
2. Within how many days of the receipt of the copy of Cost Audit Report. Mars Ltd is required to
forward the report to the Central Government:
(a) 30 days
(b) 60 days
(c) 15 days
(d) 90days
3. Whether reporting about maintenance of cost records required by Companies (Auditors Report)
Order, 2016. If yes, then under which clause and which is the relevant section under the
Companies Act 2013: -
(a) Yes - Clause vi, Section 148(1)

(b) No - Section 148(1)
(c) Yes - clause v, Section 143(1)
(d) No - section 143(1)
4. With respect to the branch office of Mars Ltd in Dubai, what is the duty of M/s XYZ &
Associates: -
(a) M/s XYZ & Associates might discuss with the branch auditor the audit procedures
applied by the branch auditor.
(b) M/s XYZ & Associates may also visit the branch auditor.
(c) M/s XYZ & Associates cannot advise the other auditor of accounting, auditing/ reporting
requirement as the other auditor is well versed with such provisions.
(d) Both a & b
(a) SA 200- Overall objectives of Independent Auditor

(b) SA 230- Audit Documentation
(c) SA 299- Joint Audit of Financial Statements
(d) SA 600- Subsequent Events

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Integrated Case 12
Sun Private Limited is a newly formed private limited company engaged in the manufacturing of solar
panels. Company has appointed M&S Associates, a Partnership Firm of Mr Meticulous and Mr Sincere
as their First Auditors. M&S Associates accepted the assignment and Mr Meticulous being the
engagement Partner, started their Audit.
During the course of Audit, Mr Meticulous asked the Management for name of the companies
operating in
similar business so that they can compare the Company’s Figures. During this procedure, Mr
Meticulous found that the Gross Margin of the Company is lower than the Industry Standard / Fellow
Companies. He prepared an Interim Report dealing with this matter and asked the Management about
the reasons for this deviation. Management asked him to give all the working along with the Working
Papers as they believed it is the Company’s Property. Mr Meticulous advised them that he can provide
working but cannot give them the working papers as they are the property of the Firm.
Management agreed to that and asked Mr Meticulous to go into detail and tell them the reasons for
lower Gross Margin to which he agreed. During the detailed audit, Mr Meticulous came to know about
the fact that the company dispatched its solar panels to its Distributors on Delivery Challans and
once the goods were accepted, Sales bills were raised. Checking each Challan against Sales Invoices,
Mr Meticulous found that there were many challans for which no Invoices were raised and thus Sales
was grossly understated and there was no mechanism where unbilled Challans were recorded or
tracked. Company employed a person to reconcile all the challans and prepared a list where Bills are
yet to be sent to the Customers. In addition, Company was also asked to seek confirmation of
balances from all its customers. The Management assured Mr Meticulous that Inventories are
physically verified and hence there will be no impact on them.
Multiple Choice Questions:
1. Mr. Meticulous asked about other Companies, he was intending to perform which audit
procedure?
(a) Analytical Procedures

(b) Substantive Procedures
(c) Random Sampling
(d) Statistical Sampling
2. What was the initial procedure carried on by Mr Meticulous?
(a) Trend Analysis

(b) Ratio Analysis
(c) Statistical Modelling
(d) Random Sampling
3. Who has the right to retain the working papers of the Company in current case?
(a) Audit Committee

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(b) Board of Directors
(c) Auditor
(d) Chairman of the Audit Committee
4. When Mr. Meticulous decided to go in detail checking of Sales, which Audit Procedure he applied
to obtain the evidence?
(a) Test of Transactions

(b) Test of Balances
(c) Both (a) and (b)
(d) Analytical Procedures
5. The impact of the exercise carried on by the Company for unbilled challans will have an impact
on
(a) Gross Receipts and Debtors

(b) Gross Receipts and Inventory
(c) Debtors
(d) Inventory
Integrated Case 13
Ghan Shyam & Associates have been appointed as the statutory auditors of ABC Ltd. for the FY
2019-2020. The engagement partner, CA Ghan Shyam established the overall audit strategy and
made the detailed plan with respect to the audit assignment of ABC Ltd. after discussing the same
with the engagement team. The strategy adopted by Ghan Shyam & Associates consisted of relying
on the internal control system of the company and the audit plan and programme were developed
accordingly & executed by the engagement team. During the course of audit, the engagement
partner, CA Ghan Shyam found that some internal control system of the company were not in place.
So, he decided not to rely on the internal control system of the company and accordingly changed
the firm’s overall audit strategy, audit plan & audit programme. While conducting audit, the
engagement partner also discussed with his team regarding the audit procedures to be performed
to verify the debtors’ balances of ABC Ltd. CA Ghan Shyam also asked for the addresses of various
debtors from the management of ABC Ltd. to send balance confirmation request to such debtors.
The management provided such addresses to the audit team. However, the management of ABC Ltd.
asked the debtors to send the responses to such confirmation request to General Manager of
accounts department who will in turn provide such responses to the audit team. Also, with respect
to five random debtors, CA Ghan Shyam decided to confirm the terms of agreement also along with
confirming the balance amount, by seeking responses to confirmation requests from such debtors.
During the course of audit, the auditor found that the inventory of ABC Ltd. is kept at its factories
and various other locations including warehouses. The audit team is unable to attend the physical
verification activity undertaken by the management at all such locations. During the course of audit,
the audit team found that legal cases have been filed against the company on account of customer
complaint. CA Ghan Shyam discussed with his team regarding the audit procedures that can be
performed by the audit team in this regard. CA Ghan Shyam also briefed his engagement team
regarding the documents to be included in the audit file with respect to the audit assignment of ABC
Ltd. Based on the above facts, answer the following:

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1. Is CA Ghan Shyam right in changing the overall audit strategy and plan after the audit team has
started working as per the earlier strategy established & plan so developed?
(a) CA Ghan Shyam is not right as once the audit team has started the audit work, it is not
correct to change the audit strategy and plan.
(b) CA Ghan Shyam is not right as once the overall audit strategy has been established the
same cannot be changed. Audit plan however can be revised.
(c) CA Ghan Shyam is right in making changes to the overall audit strategy and the audit
plan.
(d) CA Ghan Shyam can change the overall audit strategy and audit plan only after discussing
the same with the management of ABC Ltd.
2. Which of the following audit procedures should the audit team perform with respect to
verification of debtors balance?
(a) Ghan Shyam & Associates can compare the debtors balance reflected in financial
statement with the total balance of ledgers account in the books of ABC Ltd.
(b) Ghan Shyam & Associates can obtain direct balance confirmation from the debtors as
this is external evidence which is most reliable and relevant.
(c) Ghan Shyam & Associates can obtain management representations with respect to the
debtors balance from the management of ABC Ltd and need not perform other audit
procedure as obtaining written representation from management constitutes sufficient
and appropriate audit evidence.
(d) (d) Both a & b.
3. Statement 1: The reliability of information to be used as audit evidence is influenced by its

source and its nature, and the circumstances under which it is obtained.
Statement 2: The audit evidence obtained from sources external to the entity are generally
more reliable than the audit evidence from internal sources.
(a) Only statement 1 is true
(b) Only statement 2 is true
(c) Both the statements are true
(d) None of the statements is true
4. With respect to the inventory of ABC Ltd. kept in warehouse, which audit procedures can the
audit team perform to obtain sufficient and appropriate audit evidence?
(a) Checking of warehouse receipt with the inventory record of ABC Ltd.
(b) Obtaining direct confirmation with respect to quantity & condition of inventory of ABC
Ltd. from the warehouse.
(c) Both a & b
(d) Seeking a management representation regarding inventory valuation and mentioning the
fact regarding inventory being kept at the warehouse in the audit report.
5. Is management correct in asking the debtors to provide the reply of confirmation request of
auditor to the General Manager of accounts department of the company?
(a) Yes, the management has correctly asked the debtors to respond directly to the GM of
accounts department.

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(b) No, management is not correct in asking for a direct response to GM of accounts
department as external confirmation is the response obtained directly by the auditor.
(c) Yes, the management is correct in advising direct response to the GM of accounts
department as this will ensure that only correct confirmation are provided to the
auditors.
(d) No, management is not correct as this is the option of the auditor to see if the response
to external confirmation is to be obtained by management or auditor himself.
Integrated Case 14
RRM & Associates have been appointed as the statutory auditors of UVW Ltd. for the FY 2019-
2020. The engagement partner is CA Raj and his engagement team consists of 2 article assistants.
CA Raj briefed his audit team regarding the factors affecting the sample selection and the sample
size. The team was also told that the tolerable error should be zero and sample size should be
selected accordingly. CA Raj gave a detailed audit programme to his team. The audit programme with
respect to the checking of accounts receivable and accounts payable consists of checking the
accounts on sample basis. CA Raj asked the engagement team to divide the accounts receivables and
account payable balances into separate groups and to take sample from each of them.
During the course of audit, the audit team noticed that certain internal control system with respect
to the accounts receivable were not in place at few instances during the FY 2019-20.
Also, while checking the payment transactions on sample basis, the engagement team noticed that
on 9th and 10th of every month, the miscellaneous expense vouchers were not signed by the
authorised personnel. The engagement team discussed the implications of the same on their audit
procedures to be performed in this regard.
1. Which of the following factors should not be considered by CA Raj in deciding the extent of
checking while making the sample plan in case of UVW Ltd.?
(a) The size of UVW Ltd.

(b) The state of the internal control system of UVW Ltd.
(c) The tolerable error range decided in case of UVW Ltd.
(d) The competence of the engagement team.
2. With respect to the weakness in internal control system of accounts receivable during the FY
2019 -20, the audit team:
(a) Should consider a larger sample size or 100% examination of accounts receivables.
(b) Should consider a smaller sample size of accounts receivables.
(c) Should not consider applying sampling techniques.
(d) Should give a disclaimer of opinion.
3. Statement 1: While conducting an audit, it is obligatory for the auditor to apply sampling.
Statement 2: There may be sometimes where test checking or sampling may not be suitable.

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(a) Only statement 1 is true
(b) Only statement 2 is true
(c) Both the statements are true
(d) None of the statements is true
4. With respect to selecting sample for accounts receivable and accounts payable which method of
selecting of sample is advised by CA Raj to the engagement team?
(a) Stratified Sampling method

(b) Monetary Unit Sampling method
(c) Haphazard Sampling method
(d) Interval Sampling
5. With respect to the deviation identified by the auditor occurring on 9th and 10th of every
month, what course of action should the audit firm adopt?
(a) RRM & Associates should ignore such deviation as it exists only on a very few instances
during the entire year under audit.
(b) RRM & Associates should extend its audit procedures to such deviated transactions.
(c) RRM & Associates shall investigate the nature and causes of such deviations as such
deviations may be intentional and may indicate the possibility of fraud.
(d) Both b & c
Integrated Case 15
Mr. Laxman is appointed as statutory auditor of Best Limited for the Financial Year ended 31st
March, 2020. During the course of audit, it was found that few doubtful transactions had been
committed by finance manager who retired in March, 2020.
The fraud was going on since last 4-5 years and the total amount misappropriated is approximately
Rs. 75 lacs. Balance sheet of Best Ltd. reflected a cash balance of Rs. 7 crores. The company has
taken a loan of Rs. 2 crores from the bank despite of the huge cash balance with the company.
Also, Companies Act bestows some duties on auditors to report matters to Central Government in
case of fraud. On the basis of above facts answer below questions in relation to Mr. Laxman’s role
and duties while conducting statutory audit of Best Limited.
1. Mr. Laxman shall obtain ____________________ that the financial statements are free from
fraud and misstatement.
(a) Absolute assurance

(b) Reasonable assurance
(c) Management’s assurance
(d) Chief Financial Officer assurance
2. Mr. Laxman suspects that cash payments were inflated. Out of the below which could be
probable reason for such inflated cash payments.
(a) Not accounting for cash sales completely

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(b) Making payments against purchase vouchers
(c) Making payments against inflated vouchers
(d) Teeming and Lading
3. As per Section 143 (12) of Companies Act, 2013 & Rule 13 of CAAR, 2014; Mr. Laxman shall
(a) report the matter to the audit committee constituted under section 177 or to the Board
in other cases within such time and in such manner as prescribed.
(b) report the matter to the audit committee constituted under section 177 within such time
and in such manner as prescribed.
(c) report the matter to the audit committee constituted under section 177 and also to the
Board within such time and in such manner as prescribed.
(d) report the matter to the Board within such time and in such manner as prescribed.
4. Owing to the _______ limitations of an audit, there is _________ risk that some material
misstatements of the financial statements will not be detected, even though the audit is
properly planned and performed in accordance with the SAs
(a) Inherent, unavoidable

(b) Inherit, complete
(c) Management, unavoidable
(d) Regulatory, control
5. As an auditor what conclusion can Mr Laxman draw looking at the huge cash reserve of the
company and corresponding bank loan?
(a) Report this matter to the Central Government u/s 143(12) as there is a possibility of
fraud
(b) Obtain sufficient and appropriate audit evidence of existence of fraud
(c) Report the matter under CARO, 2020
(d) There is nothing to report as it’s a normal financial decision.
Integrated Case 16
Roop & Co. are the auditors of Onda group of Hotels. This is the first time the firm is auditing an
industry in food and beverages and it is day one of the audit. The engagement partner along with his
team wants to make a thorough understanding of the entity and its environment in order to identify
and assess the risks of material misstatements, whether due to fraud or error. The following are
some of the points identified by them on Day 1.
1. The hotel has two banquet halls. The documentation available for verification of banquet
hall revenue is only the invoice raised by the hotel and some mail conversations on customer
enquiry and finalization of price. In audit trail, it is found that finance approval of the
transaction is only after invoice is sent to them for accounting at final settlement. Advance
paid by the clients are not vetted through finance team. The auditor suspects a weakness in
this system.
2. The auditor also finds a control deficiency in the process of procurement of stores. A goods
receipt note is not prepared at the time of receipt of goods. On enquiry with management,

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the auditor finds that there exists a system control wherein goods receipt note is
automatically prepared and approved in the system once the quantity and price of goods is
entered against specific vendor. This entry is on real -time basis and system does not allow
back dated entries.
3. The auditor enquires of the management as to what is risk assessment process followed by
the entity for prevention and detection of risk of material misstatement due to fraud and
error. The auditor finds there is no documented risk assessment process.
With the help of the above facts, answer the following questions by choosing the correct
option.
Questions:
1. What kind of a risk is portrayed in the booking of revenue with respect to Banquet halls?
(a) Inherent risk in the class of transaction

(b) Control risk in the class of transaction
(c) Detection risk in the audit procedures
(d) Audit risk in the opinion on the financial statements.
2. Which among the following statement is incorrect in the context of Audit Risk?
(a) The more extensive the audit procedures performed, the lower is the detection risk
(b) Greater the risk of material misstatement the auditor believes exist, less is the
detection risk that can be accepted and accordingly more persuasive evidence is required
by the auditor.
(c) Audit risk means the risk that the auditor gives an appropriate audit opinion when the
financial statement are materially misstated.
(d) Risk of material misstatement at the assertion level is of two kinds – control risk and
inherent risk.
3. In the case of procurement of stores, the auditor has tested more than one control for the
same assertion. In that given case, what should be his reliance on the control?
(a) Since compensating controls are identified, if tested and evaluated to be effective, the
auditor can rely on the control.
(b) Even though compensating controls are there, since one control is ineffective, the auditor
should not rely on control for this assertion and should perform extensive procedures.
(c) Documentation in electronic medium cannot be accepted, hence, he cannot rely only on
system control.
(d) Even though compensating controls are there, since one control is ineffective, the auditor
should not rely on control for this assertion as well as associated assertions.
4. In the context of SA 315, which among the following is NOT a risk assessment procedure?
(a) Inquiries of management, of appropriate individuals within internal audit function and of
others within the entity
(b) Analytical Procedures
(c) Observation and Inspection

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(d) Audit Planning.
5. What should be the course of action of the auditor for the entity not having a documented risk
assessment process?
(a) The auditor should obtain management written representations on how risks are
identified
(b) The auditor shall discuss with management on how risks are identified, addressed and
determine whether the absence is appropriate in the circumstances or whether it
represents a significant deficiency in internal control.
(c) The auditor should advise the management to document the same immediately and
accordingly opine on the same in his audit report too.
(d) The auditor shall discuss with management on how risks are identified by system and
place reliance on the same as documentation in this context is immaterial.
Integrated Case 17
Honest Limited is a listed Company engaged in the construction business. The Company constructs
residential buildings after purchasing vacant land and then sells ready flats to customers. The
Company has not been earning good profits and so no dividend was declared in the last financial year
for which the statutory audit is to be conducted.
XYZ & Company has been appointed as the statutory auditor of Honest Limited. The audit firm has
seven partners and is a reputed firm with the partners having expert knowledge in various areas.
While conducting the audit, the engagement partner, CA Z suspects some fraudulent activities
undertaken by the officers and employees of the Company. CA Z is aware that for the purpose of
SAs, the auditor is concerned with fraud that causes a material misstatement in the financial
statements. He understands that misstatements in the financial statements can arise from either
fraud or error.
On detailed verification by the audit team, it was observed that accounts were manipulated with a
view to presenting a false state of affairs. The fraud was committed to avoid incidence of income-
tax and withhold declaration of dividend. There was also an incidence of cash receipts being
suppressed which came to the notice of the audit team.
CA Z had enough reasons to believe that the offence of fraud, involved individually an amount of
Rs.1 crore, and had been committed against the company by its officers or employees. The audit
team discussed the reporting requirements of the fraud committed.
One of the audit team members puts forward his recommendations on reporting which includes
disclosure in the Board’s Report. He states that sub-section (12) of section 143 of the Companies
Act, 2013 prescribes that the companies, whose auditors have reported frauds under this sub-
section (12) to the audit committee or the Board, but not reported to the Central Government, shall
disclose the details about such frauds in the Board’s report in such manner as may be prescribed.
CA Z discusses the reporting under Companies (Auditor’s Report) Order, 2020 [CARO, 2020]
wherein the auditor is required to report under clause (xi) of paragraph 3 of Companies (Auditor’s

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Report) Order,2020, about fraud by the company or any fraud on the Company. Based on the above
information, answer the following questions:
1. Misstatements in the financial statements can arise from either fraud or error. The
distinguishing factor between fraud and error is:
(a) Fraud causes a material misstatement in the financial statements.

(b) Fraud is an intentional act.
(c) Fraud is easier to detect than error.
(d) Fraud can be committed by only the management, those charged with governance, and
the employees.
2. To whom should XYZ & Company report the fraud committed in Honest Limited?
(a) Report the matter only to the Audit Committee constituted under section 177 since the
amount of fraud has not exceeded 1 crore.
(b) Report the matter to the Board or the Audit Committee, as the case may be, immediately
but not later than 2 days of his knowledge of the fraud, seeking their reply or
observations within 45 days and on receipt of such reply or observations, the auditor
shall forward his report and the reply or observations of the Board or the Audit
Committee along with his comments (on such reply or observations of the Board or the
Audit Committee) to the Central Government within 15 days from the date of receipt of
such reply or observations.
(c) Report the matter only to the Board since the amount of fraud is not less than 1 crore.
(d) Report the matter either to the audit committee constituted under section 177 or the
Central Government since the amount of fraud is neither less nor more than 1 crore.
3. Sub-rule (4) of Rule 13 of the Companies (Audit and Auditors) Rules,2014 states that the
auditor is required to disclose in the Board’s Report details of each of the fraud reported to
the Audit Committee or the Board under sub-rule (3) during the year. Which of the following
details is not required to be disclosed in the Board’s Report?
(a) Nature of Fraud with description.

(b) Parties involved, if remedial action taken.
(c) Approximate Amount involved
(d) Remedial actions taken.
4. For reporting under clause (xi) of paragraph 3 of Companies (Auditor’s Report) Order,2020,
which of the following points the auditor may consider?
(a) Fraud by the company or on the company by its officers, employees or third parties to
be reported.
(b) Only suspected frauds shall be included here and not the noticed frauds.
(c) Principles of materiality outlined in Standards on Auditing.
(d) The auditor’s withdrawal from the engagement and the reasons for the withdrawal.

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Integrated Case 18
SAM & Company, a Chartered Accountant firm, is in the process of finalising the audit of Health is
Wealth Limited which is a Company listed on the Bombay Stock Exchange. Since the past decade,
Health is Wealth Limited has made its presence felt in over 10 countries, including India, making it
a leader in the global fitness industry. It runs a chain of fitness centres that offers energetic group
workouts and multiple workout formats to choose from. It also offers the best equipment,
knowledgeable staff and personal advice in a welcoming environment.
SAM & Company being a very reputed firm, was appointed for the statutory audit of Health is Wealth
Limited. The Engagement Partner CA A and her team of 8 members have conducted the audit in an
efficient and effective manner. The senior manager in the team, CA K is of the opinion that they
have obtained sufficient appropriate audit evidence, which concludes that misstatements,
individually or in the aggregate, are material, but not pervasive, to the financial statements. One of
the article clerks, Mr N, is a fresher and this audit is his first experience as an auditor in a limited
company. He is a sharp boy and has grasped all the concepts and techniques very well. However, the
term “pervasive” confused him so CA K patiently explained to Mr N the pervasive effects on the
financial statements as per the auditor’s judgement. Mr. N understood the term well and thanked
CA K for clearing all his doubts.
CA A disagreed with CA K that they have obtained sufficient appropriate audit evidence, which
the financial statements. So, the entire team held various meetings and discussions, and finally
reached to a conclusion. They concluded that they have obtained reasonable assurance that the
financial statements as a whole are free from material misstatement, whether due to fraud or error.
That conclusion took into account:
(a) Whether sufficient appropriate audit evidence had been obtained;

(b) Whether uncorrected misstatements were material, individually or in aggregate;
(c) The evaluations.
The Auditor’s Report was prepared in writing and it was decided that an unmodified opinion would be
expressed. The first section of the auditor’s report included the auditor’s opinion, and had the
heading “Opinion”. Following the Opinion section, was a section with the heading “Basis for Opinion”.
When expressing an unmodified opinion on financial statements, the auditor’s opinion used the
following phrase,
“In our opinion, the accompanying financial statements give a true and fair view of […] in accordance
with [the applicable financial reporting framework].”

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During the audit, the audit team had observed that there was uncertainty in Health is Wealth
Limited relating to the future outcome of a regulatory action. So, a paragraph was included in the
auditor’s report that referred to this matter which was appropriately disclosed in the financial
statements and that, in the auditor’s judgment, was of such importance that it was fundamental to
users’ understanding of the financial statements.
CA A also determined whether the financial statements included the comparative information
required by the applicable financial reporting framework and whether such information was
appropriately classified. One team member, Mr R was curious to know whether the auditor’s opinion
referred to the corresponding figures or not, whenever the corresponding figures are presented.
CA A explained the circumstances to Mr R in which, when the corresponding figures are presented,
auditor’s opinion referred to the corresponding figures.
1. CA K explained to Mr. N the pervasive effects on the financial statements in the auditor’s
judgement. Pervasive effects on the financial statements are those that, in the auditor’s
judgement:
i. Are not confined to specific elements, accounts or items of the financial statements;
ii. If so confined, represent or could represent a substantial proportion of the financial
statements; or
iii. In relation to disclosures, are fundamental to users’ understanding of the financial
statements.

(a) (i), (iii)
(b) (ii), (iii)
(c) (i), (ii)
(d) (i), (ii) and (iii)
2. When expressing an unmodified opinion on financial statements, SAM & Company used the
following phrase:
“In our opinion, the accompanying financial statements give a true and fair view of […] in
accordance with [the applicable financial reporting framework].”
Which is the other phrase which is regarded as being equivalent to the above phrase and could
also be used by SAM & Company?
(a) In our opinion, the accompanying financial statements give a true and correct view of […]
in accordance with [the applicable financial reporting framework];
(b) In our opinion, the accompanying financial statements present correctly, in all material
(c) In our opinion, the accompanying financial statements present fairly, in all material
(d) In our opinion, the accompanying financial statements give a correct and fair view of […]
in accordance with [the applicable financial reporting framework].

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3. Which of the following statements is not included in the section with the heading “Basis for
Opinion” in the Auditor’s Report?
(a) Audit was conducted in accordance with the Accounting Standards.

(b) Auditor is independent of the entity in accordance with the relevant ethical requirements
relating to the audit and has fulfilled the auditor’s other ethical responsibilities in
accordance with these requirements.
(c) Description of the auditor’s responsibilities under the SAs.
(d) States whether the auditor believes that the audit evidence the auditor has obtained, is
sufficient and appropriate to provide a basis for the auditor ’s opinion.
4. A paragraph was included in the Auditor’s Report of Health is Wealth Limited that referred to
a matter which was appropriately disclosed in the financial statements that, in the auditor’s
judgment, was of such importance that it was fundamental to users’ understanding of the
financial statements. What is this section of the Auditor’s Report called?
(a) Other Matters.

(b) Emphasis of Matters.
(c) Key Audit Matters.
(d) Auditor’s Responsibilities for the Audit of the Financial Statements.
5. CA A explained the circumstances to Mr. R in which, when the corresponding figures are
presented, auditor’s opinion referred to the corresponding figures. Which of these
circumstances did he mention to Mr. R?
(a) If the auditor obtains audit evidence that a material misstatement exists in the prior
period financial statements on which a modified opinion has been previously issued.
(b) If the auditor’s report on the prior period, as previously issued, included a qualified
opinion, a disclaimer of opinion, or an adverse opinion and the matter which gave rise to
the modification is resolved.
(c) Prior Period Financial Statements are audited by another auditor.
(d) Prior Period Financial Statements not audited.
Integrated Case 19
AA & Associates, an audit firm based in New Delhi, was appointed as the Statutory Auditor of
Success Ltd., a listed Company having branches all over India. Success Limited is engaged in the
business of manufacturing furniture items from timber which is imported from South Africa. The
audit firm has six partners and partner CA A is the engagement partner for Success Ltd.
The audit team consisting of CA A and five more members prepared an audit strategy and audit plan
before commencing the audit. CA A was aware of the fact that the understanding of the internal
control of the organisation would assist the team in various ways. So, it was decided that the team
would first obtain an understanding of the internal control relevant to the audit before commencing
the audit.
CA A explained to the team that there is a direct relationship between an entity’s objectives and
the controls it implements to provide reasonable assurance about their achievement. The entity’s

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objectives, and therefore controls, relate to financial reporting, operations and compliance; however,
not all of these objectives and controls are relevant to the auditor’s risk assessment.
CA A educated the team about the factors relevant to the auditor’s judgment about whether a
control, individually or in combination with others, is relevant to the audit. The team then applied its
professional judgment to decide whether a control, individually or in combination with others, is
relevant to the audit.
One of the team members, CA P scheduled a meeting with the Director of Success Ltd., Mr. D, to
understand the risk assessment process of the entity. The entity’s risk assessment process formed
the basis for the risk to be managed. CA P, on the basis of his judgment, found the process to be
appropriate, and it helped him in in identifying the risks.
Once the risks were identified, CA P had to determine whether any of the risk identified is, in his
judgment, a significant risk. CA P considered all the factors which he should have considered to
exercise his judgement as to which risks are significant risks. He was aware that significant risks
often relate to certain type of transactions and matters.
In the meanwhile, CA A met the CFO of the Company, Mr. C to obtain an understanding of the major
activities that the entity uses to monitor internal control over financial reporting. Mr. C explained
to CA A the various monitoring activities undertaken by the management to monitor the internal
control performance of the company.
1. CA A was aware of the fact that the understanding of the internal control of the organization
would assist the team in various ways. Which of the following is not achieved by an understanding
of the internal control system?
(a) Identifying breakdown due to human error.

(b) identifying types of potential misstatements.
(c) designing the nature, timing, and extent of further audit procedures.
(d) identifying factors that affect the risks of material misstatement.
2. Which of the following factors is not relevant to the auditor’s judgment about whether a control,
individually or in combination with others, is relevant to the audit?
(a) The diversity and complexity of the entity’s operations.

(b) Applicable legal and regulatory requirements.
(c) The nature of the entity’s business, including its organization and ownership
characteristics.
(d) Nature, timing, and extent of further audit procedures.
3. CA P obtained an understanding of the risk assessment process of the entity. Which of the
following is a risk assessment process to be followed by an entity?
i. Identifying business risks relevant to financial reporting objectives.
ii. Estimating the significance of the risks.

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iii. Assessing the likelihood of their occurrence.
iv. Deciding about actions to address those risks.
(a) (i), (ii), (iii),

(b) (i), (ii)
(c) (i), (ii), (iii), (iv)
(d) (ii), (iii)
4. CA P considered all the factors which he should have considered to exercise his judgment as to
which risks are significant risks. Which of the following is a factor which he would have
considered to determine the same?
(a) Whether the risk is a risk of error.

(b) The complexity of transactions.
(c) Whether the risk involves significant transactions with non-related parties.
(d) The degree of objectivity in the measurement of financial information related to the
risk, especially those measurements involving a wide range of measurement uncertainty.
5. Which among the following is incorrect with reference to last para of the case study regarding
the auditor to obtain an understanding of the major activities that the entity uses to monitor
internal control over financial reporting:
(a) It involves assessing the efficiency of controls on a timely basis and taking necessary
remedial actions.
(b) Management accomplishes it through ongoing activities, separate evaluations etc.
(c) Management’s monitoring activities may include using information from communications
from external parties.
(d) In small entities, management’s monitoring of control is often accomplished by
management’s or the owner-manager’s close involvement in operations.
Integrated Case 20
Suresh Rana & Associates have been appointed as the statutory auditors of HAIL Ltd. by the
Comptroller & Auditor General for the FY 2021-22. HAIL Ltd. is a Government company engaged in
the manufacture of metro train coaches. During the course of audit, CA Suresh extended his scope
of audit to cover efficiency, effectiveness and economy audit. CA Suresh Rana also asked his audit
team to conduct expenditure audit as part of the audit engagement of HAIL Ltd.
During the course of audit, CA Suresh also found that the company has constructed its new
stockyard for parking its metro coaches and maintenance of its metro coaches. However, the
stockyard was not being used by the company for the designated purpose and the company continued
using the rented stockyard. Suresh considered such expenditure as infructuous and avoidable
expenditure.
The engagement partner also discussed with his team regarding the areas to be covered while
conducting the audit of receipts. The reporting responsibilities of the engagement team were also
discussed by the engagement partner with his team.

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1. Statement 1: Government audit provides public accounting of operational, management
programme and policy aspects of public administration as well as accountability of officials
administering them.
Statement 2: Government audit is equipped and intended to function as an investigating agency,
to pursue every irregularity or misdemeanour to its logical end.

2. ___________ is conducted to ensure that the various programmes, schemes, and projects
where large financial expenditure have been incurred are run economically and are yielding
results expected of them:
(e) (a) Propriety audit

(f) (b) Audit against Rules and orders
(g) (c) Performance Audit
(h) (d) Audit against Provision of funds
3. While conducting audit against provision of funds, the statutory auditors, M/s Suresh Rana &
Associates must check:
(a) That each item of expenditure is covered by a sanction either general or special of a
competent authority.
(b) That the expenditure incurred has been on the purpose for which the grant and
appropriation has been provided and the amount of expenditure does not exceed the
appropriation made.
(c) That the expenditure conforms to the relevant provision of the constitution.
(d) That the expenditure is in accordance with the financial rules, regulations and orders
issued by the competent authority.
4. Which part of expenditure audit covers the scrutiny of the expenditure incurred on the
construction of stockyard by the company which is considered as infructuous and avoidable by
CA Suresh Rana?
(a) (a) Propriety Audit

(b) (b) Audit against provision of funds
(c) (c) Audit of sanctions
(d) (d) Performance Audit
5. While conducting the audit of receipts of HAIL Ltd., which of the following area is to be covered
as part of Audit of Receipts?
1. Whether all revenues or other debts due to government have been correctly assessed,
realised and credited to government account by the designated authorities of HAIL Ltd.
2. Whether adequate checks are imposed to ensure the prompt detection and investigation
of irregularities, double refunds, fraudulent or forged refund vouchers or other loss of
revenue through fraud or willful omission or negligence to levy or collect taxes or to issue
refunds.

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3. Whether the expenditure incurred has been on the purpose for which the grant and
appropriation had been provided and that the amount of such expenditure does not exceed
the appropriation made.
4. Whether the various schemes/projects are executed and their operations conducted
economically
and whether they are yielding the results expected of them.

(b) Statements 1 & 2 are correct
(c) Statements 1,2,3,4 are correct
(d) Statements 1,2,3 are correct
Integrated Case 21
Mars Ltd. is a public limited Company incorporated during the previous financial year 2019-20. R S
Shah & Associates have been appointed as the Auditors of the Company.
Para 1
Its Authorized Capital was Rs. 75 Lacs. Subsequently it increased its Share Capital. They issued
Shares at a premium of Rs.25/- per share. The Company has transferred the amount received as
premium to the Securities Premium Account.
Para 2
CA R recommended his Engagement Team to prepare an Audit Strategy as well as Audit plan for
efficient conduct of audit. He advised to the team that they should include a series of verification
procedures to be applied to Financial Statements of the Company for accomplishing the Audit
objectives. CA R illustrated to his team the relationship between Audit strategy as well as Audit
plan.
Para 3
Encompassed by a huge clientele, one of the Auditee firm was a LLP. It was in the name of
Mangaldeep Geotech LLP. They conducted the business in a very efficient way but had allotted only
the Audit and the Income Tax work to CA R S Shah & Associates. The Partners of the LLP were
capable enough but however inadvertently bypassed the ROC Compliances. They had no knowledge
about the Compliances and its related penalties. Thus, they approached CA R S Shah and Associates
for their guidance. They were completely clueless as to filing of Annual Return with ROC.
Para 4
R S Shah and Associates have been appointed as Auditors of a large Enterprise namely Search
Results Ltd. Considering the overhaul required in the Organization’s Risk Management, Directors of
the listed companies braced the subject of Internal Financial Control with much seriousness and
rigor. The dawn of the Financial Year lays down the daunting task of establishing and implementing
Internal Financial Control in an Enterprise.
Para 5
The Auditors are performing their Audit work in the Company Search Results Ltd by using CAAT’s.
The Company is completely automated and all the processes, operations are carried out using the

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Computer systems. Testing is performed in an automated environment to increase the efficiency and
allow for more robust tools to be built. There are four types of testing methods in an Automated
environment. They are Inquiry, Observation, Inspection and Re-performance.
1. Sec. 52 of the Companies Act states that Security Premium Account can be applied by the
Company
for one of the purpose mentioned below. Which of the following is an INCORRECT option?
(a) To write off preliminary expenses of the Company

(b) To pay dividend to equity shareholders
(c) To provide premium on redemption of Preference share capital
(d) To purchase its own shares or other securities under Sec 68(Buyback)
2. In reference to para 2, which of the following Statement is inappropriate?
(a) Once the overall audit strategy is established, an audit plan can be developed to address
the various matters identified in the overall audit strategy.
(b) The establishment of overall audit strategy as well as detailed audit plan is a discrete
and sequential process.
(c) Audit Strategy and Audit plan are inter-related as changes in one may result in
consequential changes to the other.
(d) The Audit plan is more detailed than the Audit Strategy that includes the nature, timing
extent of audit procedures to be performed by engagement team members.
3. In reference to para 3, which form from the following should be filed by the Partners to avoid
penalty consequences?
(a) Form 11 within 90 day of end of closer of financial year and Form 8 within a period of 60
days from the end of six months of the financial year.
(b) Form 11 within 60 days of end of closer of financial year and Form 8 within a period of
30 days from the end of six months of the financial year.
(c) Form 11 within 30 days of end of closer of financial year and Form 8 within a period of
60 days from the end of three months of the financial year.
(d) Form 11 within 60 day of end of closer of financial year and Form 8 within a period of 90
days from the end of three months of the financial year.
4. With reference to para 4, which of the following point ensures implementation of policies and
procedures with regard to Internal Financial Control by the Companies?
(a) Reliability of Financial Reporting

(b) Effectiveness and efficiency of operations
(c) Compliance with applicable laws and regulations
5. Which of the following statement is inappropriate with regard to testing methods as mentioned
in Para 5 above?
(a) Inquiry in combination with Inspection gives the most effective and efficient audit
evidence.
(b) Re-performance is the most effective as an audit test and gives the best audit evidence.

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(c) Inquiry should always be used in combination with any other testing method.
(d) which audit test to use and in what combination does not require professional judgment.
Integrated Case 22
M/s SPR & Associates are appointed as auditors of XYZ Ltd. for the Financial Year 2021-22.
o The team consisted of Mr. S, Mr. P, Mr. R all Chartered Accountants and three article
assistants.
o Mr. S, the engagement partner, briefed the audit staff about various items of financial
statement to be checked in detail in case of XYZ Ltd and about various aspects to be
covered in the audit of the company.
o Mr. S told the audit staff about audit documentation, audit evidence, audit file, completion
memorandum and many other things along with relevant Standards of Auditing applicable.
o Mr. S also told the staff about the risk of material misstatement that the financial
statements are prone to and how it affects the sufficiency and appropriateness of audit
evidence.
o The audit staff was also apprised about the various audit procedures to be adopted while
conducting the audit of XYZ Ltd.
o Further discussions were done about various types of risks related to financial statement and
the audit work, the related audit procedures, and the risk assessment procedures.
o The engagement team is also very particular about the application of various Standards on
Auditing applicable in case of XYZ Ltd.
1. …………. is the summary of significant matters identified during audit and way they are
addressed:
(a) Audit File

(b) Audit Programme
(c) Completion memorandum
(d) Checklists
2. The susceptibility of an assertion to a misstatement that could be material before

consideration of any related control is………………
(a) Control Risk

(b) Inherent Risk
(c) Audit Risk
(d) Significant Risk
3. Statement 1: Audit procedures consist of Risk Assessments Procedures and other procedures.
Statement 2: Substantive procedures consist of test of details and analytical procedures.


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4. …………….. refers to the audit procedures performed to obtain an understanding of the entity
and its environment, including the entity’s internal control, to identify and assess the risks of
material misstatement, whether due to fraud or error at the financial statement and assertion
levels: -

(b) Risk Assessment Procedures
(c) Audit Procedures
(d) Substantive Analytical Procedures
5. Statement 1: Substantive Procedures alone can provide sufficient and appropriate audit
evidence at the assertion level.
Statement 2: Test of Control is audit procedure designed to evaluate the operating
effectiveness of controls in prevention, detection and correcting material misstatement at the
assertion level.

Integrated Case 23
M/s ABC & Associates have been appointed as auditors of Venus Ltd. for the Financial Year 2020-
21.
• During the course of audit, the auditors notice that certain legal expenses been charged to
revenue during the financial year by Venus Ltd.
• These legal expenses are related to litigations going against the company regarding its
Corporate Social Responsibility expenses incurred near its factory area.
• Further, M/s ABC & Associates noticed that there is a major change in the debtors and
creditors account of Venus Ltd. during the financial year under audit. The auditors have
decided to send balance confirmation requests to the debtors and creditors of Venus Ltd.
Also, the auditors decide to take management representation letters wherever required.
• The auditors have noticed certain related party transactions reflected in the financial
statements of Venus Ltd. during the financial year under audit. The transaction is between
Venus Ltd. and a Company owned by wife of one of the directors of Venus Ltd.
• The auditors have become aware of certain subsequent events occurring in case of Venus
Ltd. These are related to the outcomes of the litigations going against Venus Ltd.
• The auditors are also concerned whether the litigations going against Venus Ltd. and their
outcomes have any impact on the going concern of the company.
1. Statement 1: Although Written Representations provide necessary audit evidence, they do not
provide sufficient and appropriate audit evidence on their own about the matters with which
they deal.
Statement 2: Written Representations do not include financial statements, the assertions
within, or supporting books and records.

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(c) Both Statement 1 & 2 are correct
(d) None of Statement 1 & 2 is correct
2. The auditor can perform the following procedures to identify litigation and claims of Venus
Ltd.
i. Inquiry of management including in house legal counsel.
ii. Reviewing legal expenses account.
iii. Reviewing of minutes of meetings of those charged to governance and correspondence
between entity and external legal counsel.
(a) (i) & (i) are correct

(b) (i), (ii) & (iii) are correct
(c) (ii) & (iii) are correct
(d) only (i) is correct
3. Negative confirmation requests require the third party to respond in the following cases : -
(a) If there is agreement

(b) If there is disagreement
(c) In both cases of agreement as well as disagreement
(d) None of the above.
4. Statement 1:- A failure of the confirming party to respond, or fully respond to a positive
confirmation request or a confirmation request returned undelivered is a case of Non
Response.
Statement 2:- A response that indicates difference between information requested to be
confirmed and contained in entity’s records and information provided by the confirming part is
a case of Exception.

(c) Both Statement 1 & 2 are correct
(d) None of Statement 1 & 2 is correct
5. Which of the following is correct so far as the related party transactions are concerned: -
i. Many related party transactions are in the normal course of business.
ii. Related party transactions may not be conducted under normal market term and
conditions.
iii. In some circumstances, related party transactions may give rise to higher risks of
material misstatement.
(a) only (i) is correct

(b) (i) & (iii) are correct
(c) (i), (ii) & (iii) are correct
(d) (i) and (ii) are correct
Integrated Case 24

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Sookrit, a CA student, has decided to participate in “Mega Conference of CA Students” being
organized by Student Skills Enrichment Board, (Board of Studies-Operations), ICAI to be held in a
city in South India. He has decided to try his luck for presenting a paper in one of the technical
sessions of the conference on the topic of “Nature, Objective and Scope of Audit”. He has to first
submit for approval a soft copy of the paper to the competent authority.
While preparing a draft for the presentation, he has included some paragraphs on the topic. Para A
requires filling of certain gaps to explain nature of auditing to prospective audience at the
conference. Para B and C have certain misleading and false statements which need corrections.
Para D needs certain elaborations.
Para A
An audit of financial statements provides ________ assurance to the users of financial

statements. It is a___________ level of assurance but it is not__________ assurance. The
auditor has to see effect of misstatement(s) _______. Misstatements in financial statements can
arise due to frauds or ______ or both.
Para B
Audit of financial statements should be organized adequately to cover all aspects of the entity
relevant to the financial statements being audited. The auditor makes a judgment of reliability and
sufficiency of financial out appropriate tests and procedures. Due to professional training and
knowledge acquired by auditor, he can authenticate genuineness of documents. However, he is not
expected to perform duties which fall outside his domain of competence. Auditor is not an official
investigator.
Para C
The process of audit suffers from certain inbuilt limitations. Inherent limitations of audit may
arise due to nature of financial reporting, nature of audit procedures and need to strike a balance
between reliability of information and cost of obtaining it. The information being relied upon by
the auditor cannot lose its reliability due to historical nature of financial information presented in
financial statements. However, future events may affect an entity adversely.
Para D
The chief utility of audit lies in reliable financial statements on the basis of which the state of
affairs may be easy to understand. Its basic nature lies in providing assurance i.e., confidence to
users of financial statements. Apart from this obvious utility, there are other advantages of an
audit. Some or all of those are of considerable value even to those enterprises and organizations
where audit is not compulsory.
Try to help him by answering the following questions:
1. Identify appropriate words to be used in blanks to make the sentences meaningful and
relevant in context of theme of the topic.
(a) absolute, high, complete, individually, uncertainties

(b) reasonable, high, complete, in totality, errors
(c) reasonable, moderate, low, in totality, errors

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(d) moderate, low, complete, individually, judgments
2. After reading Para B, which of following statements is false as regards scope of an audit of
financial
statements is concerned?
(a) Audit of financial statements should be organized adequately to cover all aspects of
the entity
relevant to the financial statements being audited.
(b) The auditor makes a judgment of reliability and sufficiency of financial information by
making a
study and assessment of accounting systems and internal controls.
(c) Due to professional training and knowledge acquired by auditor, he can authenticate
genuineness of documents.
(d) Auditor is not an official investigator.
3. After reading Para C, which statement needs to be corrected in draft regarding inherent
limitations of audit?
(a) Inherent limitations of audit may arise due to nature of financial reporting, nature of
audit
procedures and need to strike a balance between reliability of information and cost of
obtaining it.
(b) The information being relied upon by the auditor cannot lose its reliability due to
historical nature of financial information presented in financial statements.
(c) Future events may affect an entity adversely.
(d) The process of audit suffers from certain inbuilt limitations.
4. Para D states that an audit provides advantages of considerable value to enterprises. Which of
following is not one of advantages of an audit of financial statements of a listed company?
(a) It acts as a moral check on employees.

(b) It acts as an appraisal function.
(c) Its chief advantage lies in safeguarding financial interest of management.
(d) It is useful for settling trade disputes for higher wages or bonus.
5. Para D states that audit can be of considerable value even to those enterprises where it is not
compulsory. In context of companies in India, which of following statements is correct in
relation to Companies Act, 2013?
(a) OPC and small companies are exempted from audit.

(b) OPC, small companies and section 8 companies are exempted from audit.
(c) For all companies in India, except Section 8 companies, audit is legally obligatory.
(d) For all companies in India, audit is legally obligatory.
Integrated Case 25
GSR & Company have been appointed as the statutory auditors of Raj Textiles Ltd. for the FY 2021-
22. The engagement partner, CA Rahul Dhawan established the overall audit strategy and made the

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detailed plan with respect to the audit assignment of Raj Textiles Ltd. after discussing the same
with the engagement team.
The strategy adopted by GSR & Company consisted of relying on the internal control system of the
company and the audit plan and program were developed accordingly and the audit team started to
work in accordance with the developed audit plan and program. During the course of audit, the
engagement partner, CA Rahul Dhawan found that some internal controls implemented by the
company were not operating effectively. So, he decided not to rely on the internal control system of
the company & accordingly changed the overall audit strategy, audit plan & audit program.
While conducting the audit, the engagement partner also discussed with his team regarding the audit
procedures to be performed to verify the debtors’ balances of the company. CA Rahul Dhawan asked
for the addresses of various debtors from the management of Raj Textiles Ltd. for the purpose of
sending balance confirmation request to such debtors. The management provided such addresses to
the audit team. However, the management of Raj Textiles Ltd. asked the debtors to send the
responses of such confirmation requests to General Manager of accounts department of the
company, who will in turn provide such responses to the audit team.
Further, the audit team found that a legal case has been filed against the company on account of
customer complaint. CA Rahul Dhawan discussed with his team regarding the audit procedures that
can be performed by the audit team to verify the implications of such litigation on the financial
statements of the company. One of the audit team members, Mr. Girish had the following
understanding with respect to the audit file to be maintained by the audit team with respect to the
audit assignment:
Point no. 1: The completion of assembly of final audit file after the date of the auditor’s report is
an administrative process involving the performance of new audit procedures or drawing of new
conclusions.
Point no. 2: After the assembly of the final audit file has been completed, the auditor shall not
delete or discard audit documentation of any nature before the end of its retention period.
CA Rahul Dhawan briefed his engagement team regarding the documents to be included in the audit
file with respect to the audit assignment of Raj Textiles Ltd. and also discussed with his team in
detail regarding the various aspects of audit file.
1. Is CA Rahul Dhawan right in changing the overall audit strategy and plan after the audit team
has started working as per the earlier strategy established & plan so developed?
(a) CA Rahul Dhawan is not right as once the audit team has started the audit work, it is
not correct to change the audit strategy and plan.
(b) CA Rahul Dhawan is not right as once the overall audit strategy has been established
the same cannot be changed. Audit plan however can be revised.
(c) CA Rahul Dhawan is right in making changes to the overall audit strategy and the audit
plan.
(d) CA Rahul Dhawan can change the overall audit strategy and audit plan only after taking
due permission from the management of Raj Textiles Ltd.
2. Which of the following audit procedures should the audit team perform with respect to
verification of debtors’ balances?

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(a) GSR & Company can compare the debtors’ balance reflected in financial statements
with invoices, debit notes, credit notes, monthly accounts statement sent to the
customers.
(b) GSR & Company can obtain direct balance confirmation from the debtors as this is
external evidence which is most reliable and relevant.
(c) GSR & Company can obtain management representations with respect to the debtors’
balances from the management of ABC Ltd and need not perform other audit procedure
as obtaining written representation from management constitutes sufficient and
appropriate audit evidence.
(d) Both a & b.
3. Is management correct in asking the debtors to provide the reply of confirmation request
directly to the General Manager of accounts department of the company?
(a) Yes, the management has correctly asked the debtors to respond directly to the GM of
accounts department.
(b) No, management is not correct in asking for a direct response to GM of accounts
department as external confirmation is the response obtained directly by the auditor.
(c) Yes, the management is correct in advising direct response to the GM of accounts
department as this will ensure that only correct confirmation is provided to the
auditors.
(d) No, management is not correct as this is the option of the auditor to see if the
response to external confirmation is to be obtained by management or auditor himself.
4. For confirming/verifying the litigation going against the company which of the following audit
procedures is not correct?
(a) GSR & Company can enquire the management including in house legal counsel.
(b) GSR & Company should review the minutes of meetings of those charged with
governance.
(c) GSR & Company can review the legal expense account.
(d) GSR & Company need not perform audit procedures with respect to litigation claims of
the company except for obtaining written representation from the management in this
regard.
5. Is the understanding of Mr. Girish regarding the assembly of audit fi le with respect to an
audit assignment, mentioned as point no. 1 & point no. 2 in the case scenario, correct?
(a) Only understanding as per point no. 1 is correct.

(b) Only understanding as per point no. 2 is correct.
(c) Understanding as per point no. 1 & point no. 2 both are correct.
(d) Understanding as per point no. 1 & point no. 2, both are incorrect.
Integrated Case 26
Star Private Limited is a newly formed private limited company, engaged in the manufacturing of
solar panels. Company has appointed Rajan Mehta and Associates, a Partnership Firm of CA Rajan
Mehta and CA Piyush Mehta - as their First Auditors. Rajan Mehta and Associates accepted the
assignment and CA Rajan Mehta being the engagement Partner, started their Audit.

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During the course of Audit, CA Rajan Mehta asked the Management for name of the companies
operating in similar business so that they can compare the Company’s Figures. During this procedure,
CA Rajan Mehta found that the Gross Margin of the Company is lower than the Industry Standard
/ Fellow Companies. He prepared an Interim Report dealing with this matter and asked the
Management about the reasons for this deviation. Management asked him to give all the working
along with the Working Papers as they believed it is the Company’s Property. CA Rajan Mehta advised
them that he can provide working but cannot give them the working papers as they are the property
of the Firm.
Management agreed to that and asked CA Rajan Mehta to go into detail and tell him about the
reasons for lower Gross Margin to which he agreed. During the detailed audit, CA Rajan Mehta came
to know about the fact that the company dispatched its solar panels to its distributors on delivery
challans and once the goods were accepted, sales bills were raised. Checking each challan against
sales invoices, CA Rajan Mehta found that there were many challans for which no invoices were
raised and thus sales was grossly understated and there was no mechanism where unbilled challans
were recorded or tracked. Company employed a person to reconcile all the challans and prepared a
list where bills are yet to be sent to the customers. In addition, company was also asked to seek
confirmation of balances from all its customers. The management assured
CA Rajan Mehta that inventories are physically verified and hence there will be no impact on them.
1. CA Rajan Mehta asked about other Companies, he was intending to perform which audit
procedure?

(b) Substantive Procedures
(c) Random Sampling
(d) Statistical Sampling
2. What was the initial procedure carried on by CA Rajan Mehta?
(a) Trend Analysis

(b) Ratio Analysis
(c) Statistical Modelling
(d) Random Sampling
3. Who has the right to retain the audit working papers of the Company in current case?
(a) Audit Committee

(b) Board of Directors
(c) Auditor
(d) Chairman of the Audit Committee
4. When CA Rajan Mehta decided to go in detail checking of Sales, which Audit Procedure he
applied to obtain the evidence?
(a) Test of Transactions

(b) Test of Balances
(c) Both (a) and (b)
(d) Analytical Procedures

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5. The impact of the exercise carried on by the Company for unbilled challans will have an impact
on
(a) Gross Receipts and Debtors

(b) Gross Receipts and Inventory
(c) Debtors
(d) Inventory
Integrated Case 27
Aastha Ltd. has published its audited financial statements for the year ended 31st March, 2023. A
shareholder of Aastha Ltd. raised a point to the promoter of the company questioning the
authenticity of the financial statements. The Management of the Company conveyed the
shareholder that the same have been audited by a Chartered Accountant as per the provisions of
Companies Act,2013.
The same shareholder then noticed that in the last year’s financial statements, there was a
disclosure regarding a legal dispute with its competitor. But in the current year’s financial
statements, there is neither such disclosure nor there is any update on the resolution of the
dispute. However, the management did not give any convincing answer regarding lack of disclosure
in current year’s financial statements.
The Management also revealed in the meeting that there were few fictitious vendors to whom
payments worth Rs. 50 lakhs were made by an employee who has been suspended from the office
with immediate effect and a case to that effect has been filed in the court of law. The same has
also been appropriately disclosed in the financial statements. The Company transferred Rs. 75
lakhs from current year’s profit to asset replacement reserve for making another building for the
operations of the company.
1. The financial statements audit is a report by the auditor:
(a) attesting to the truth and fairness of presentation of the financial statements and
related disclosures.
(b) attesting to the truth and fairness of presentation of the financial statements.
(c) attesting to the truth, transparency and fairness of presentation of the financial
statements and related disclosures.
(d) attesting to the truth, completeness and fairness of presentation of the financial
statements and related disclosures.
2. Payment to fictitious vendors by the employee of Aastha Ltd. Is:
(a) Misappropriation of assets

(b) Intentional misapplication of accounting principles
(c) Manipulation of accounts
(d) Misrepresentation in or intentional omission
3. The appropriation of Rs. 75 lakhs from the revenue profit to asset replacement reserve is:
(a) Revenue Reserve

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(b) Capital Reserve
(c) Capital Redemption Reserve
(d) Capital Revenue Reserve
Integrated Case 28
As per SA 210 “Agreeing the Terms of Audit Engagements”, preconditions for an audit may be
defined as the use by management of an acceptable financial reporting framework in the preparation
of the financial statements and the agreement of management and, where appropriate, those
charged with governance to the premise on which an audit is conducted.
Mridul & Co, a firm of Chartered Accountants agreed on the Terms of Audit Engagements of a
Private Limited Company, Jayshree Private Limited. Jayshree Private Limited has conveyed to Mridul
& Co that they want the firm to undertake the statutory audit as well as to examine the life of its
plant and machinery at Indore which is in existence for 10 years. While finalizing the scope of the
audit, the auditors agreed to cover all the units of the company based at Delhi and Indore. Mridul &
Co has asked Jayshree Private Ltd to make all the relevant disclosures in the financial statements.
The auditors were vigilant to inquire about any audit evidence that contradicts the other audit
evidence.
The auditors decided to cover following aspects under audit:
(i) An examination of the system of accounting and internal control

(ii) Reviewing the system and procedures.
(iii) Checking of the arithmetical accuracy of the books of account.
(iv) Verification of the authenticity and validity of transactions.
(v) Classification between capital and revenue expenditure.
(vi) Comparison of the balance sheet and profit and loss account or other statements with the
underlying record.
(vii) Verification of the title, existence and value of the assets.
(viii) Verification of the liabilities stated in the balance sheet. Checking the results shown by the
profit and loss and to see whether the results shown are true and fair.
(ix) Reporting to the appropriate person/body whether the statements of account examined do
reveal a true and fair view of the state of affairs and of the profit and loss of the
organisation.
(x) Where audit is of a corporate body, confirming that the statutory requirements have been
complied with.
While testing the accounts receivables of Jayshree Private Limited, the auditor decided to divide
the accounts receivables by age of receivables in the following manner:
• Below 15 days
• 15 days -30 days
• 31-60 days
• 61-90 days
• 91 days and beyond

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1. 1. According to you, what is the scope of the audit which Mridul & Co should cover in the audit
of financial statements of Jayshree Private Limited?
I. to examine the life of its plant and machinery at Indore which is in existence for 10 years.
II. to cover all the units of the company based at Delhi and Indore.
III to check whether the relevant disclosures are properly made in the financial statements.
(a) I,II,III
(b) I,II
(c) II,III
(d) I,III
2. What is the name of the method used by the auditor for segregation of accounts receivable?
(a) Value weighted selection

(b) Stratification
(c) Systematic method of Sampling
(d) Tests of Control
3. The aspects covered by auditor should be:
(a) i,ii,iii,x,vi,vii
(b) i,ii,iv,v,vi,vii.
(c) i,ii,iii,iv,v,vi,vii,viii,ix,x,xi.
(d) ii,iii,viii,x,xi
4. The auditor’s vigilance to question the audit evidence that contradicts the other audit
evidence is called as:
(a) Professional Skepticism

(b) Vigilant Skepticism
(c) Professional Judgement
(d) Judgement and Skepticism
5. With respect to the preconditions for an audit, which one of the following is correct:
i. The use by Management of an acceptable financial reporting framework in the
preparation of financial statements.
ii. Management’s responsibility for the internal control
iii. Giving auditor access to all information and access to the Entity’s premises.
(a) I, II
(b) I, II, III
(c) II, III
(d) I, III
Integrated Case 29
CA Sanjoy is conducting audit of PETA Education Solutions Private Limited for the first time. The
company is engaged in providing solutions to students appearing for competitive exams under
engineering and medical streams. Company’s business is operated from physical centres spread in
many states of the country.

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However, of late, number of aspirants availing company’s services are shrinking due to emergence of
new competitors and inability of company to switch to new technologies available in market to render
its services.
The company had taken bank loans in past years for expansion of its physical centres. However, due
to reduction in strength of aspirants opting for services provided by the company, management is
always looking for means to meet its financial commitments on time. During the course of audit, CA
Sanjoy wants to be sure about revenue and profit assertions reflected in financial statements of
the company. Therefore, he is planning to test company’s system for booking revenue in its books of
accounts.
He notices that during the year under consideration, many experienced teaching faculties have left
due to late payment of their contractual payments by the company. These have been replaced by
inexperienced faculties having lower contractual costs but leading to poor satisfaction outcomes
among aspirants. Besides, employee turnover of regular administrative staff also remains high. The
company has not organized any training programmes either for its faculties or administrative staff
for considerable period of time.
He has, in his wisdom, decided to increase the area of substantive checking in the company. He does
not want to suffer from probable adverse publicity or loss of his professional goodwill.
Based on above case scenario, answer the following MCQs:
1. After studying description of the company and its nature of operations, which of following
statements is most appropriate?
(a) Inherent risk for revenue and profit assertions is likely to be lower.
(b) Inherent risk for revenue and profit assertions is likely to be higher.
(c) Inherent risk for revenue and profit assertions cannot be assessed from given
situation.
(d) There does not exist inherent risk for revenue and profit assertions in described
situation.
2. The case scenario describes a situation of leaving of experienced faculties, high employee
turnover and absence of training programmes for staff of the company. Such indicators are an
example of ____________?
(a) Unsatisfactory risk assessment process used by the company

(b) Unsatisfactory control environment of the company
(c) Unsatisfactory performance reviews carried out by the company
(d) Unsatisfactory system of segregation of duties in the company
3. The auditor is planning to test company’s system for booking revenue in its books of accounts.
Identify the correct statement in this regard: -
(a) He is likely to place greater reliance on controls relating to booking of revenue.

(b) He is likely to place lower reliance on controls relating to booking of revenue.
(c) Reliance placed by him on controls relating to booking of revenue would be unaffected
due to reduction in contractual costs by company.

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(d) Reliance placed by him on controls relating to booking of revenue would be unaffected
due to shrinking number of aspirants.
4. The auditor has increased area of “substantive checking” in the company. It is due to the
reason that ________________
(a) he wants to lower detection risk

(b) he wants to lower control risk
(c) he wants to raise sample risk
(d) he wants to lower inherent risk
5. The auditor does not want to suffer from probable adverse publicity or loss of professional
goodwill. Such a situation is indicative of _____________?
(a) audit risk

(b) auditor’s business risk
(c) auditor’s detection risk
(d) non-sampling risk
Integrated Case 30
You are a partner in ABC & Company, a firm of Chartered Accountants based in New Delhi. ABC &
Company have been appointed as the statutory auditors of Onetime Limited, a public company which
manufactures and sells wall and table clocks and has many branches all over India. Onetime Limited
has been exporting the clocks since past two years. However, the domestic sales have contributed
towards major source of revenue for the Company.
One of the team members, CA B noticed that one of the suppliers of Onetime Limited, Mr AM had
sent some raw material to the Company for storage in their warehouse in March 2023. Due to
renovation going on at his warehouse, his stock could be damaged and so he had requested Onetime
Limited to keep the same in their warehouse. Onetime Limited contended that since the raw material
was anyway billed to the Company the next month, so the same had been included in the valuation of
stock, since physically the stock was present in the warehouse of Onetime Limited as on 31.03.2023.
While verifying the debtors, team member C noticed that there were a few trade receivables
pertaining to export sales mainly to England. Mr. C verified the same with respect to the invoices
issued and other supporting documents. The amount booked as on 31.03.2023 was based on the
exchange rate as on the date of the invoice.
Mr. T, another team member verified the PPE of the Company. Onetime Limited had purchased few
cars for its directors during the year of audit. The same were appearing in the PPE schedule of the
Company. Mr T verified the same with respect to the invoices as well as physically verified the assets
in the Company’s premises. Since the cars were for the official use of the Directors, they were
purchased in the name of the Directors of the Company. Mr. T verified the amount with the Invoice
and checked the registration and insurance documents. Besides, all items appearing in the PPE
schedule were verified and he was satisfied that all PPE items that should have been recorded have,
in fact, been recorded.
One of the articled clerks was assigned the work of verification of “Provisions” appearing in the
Balance sheet. He wanted to understand from you the circumstances in which a provision is

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recognised in the books of accounts. You explained him the situations in which an entity recognises
Provisions in its books.
Onetime Limited has invested in the shares of other companies. One of the Companies has declared
dividend on its shares. Onetime Limited has not recognised the same in the profit & loss account.
Team Member R has asked you to look into the matter since she is unable to understand the reasons
for the same.
1. Is the raw material lying in the warehouse of Onetime Limited accounted for correctly in its
books of account?
(a) No, since the same belongs to Mr. AM and should appear in his books.
(b) Yes, since the same is in possession of Onetime Limited and was billed to it the
following month.
(c) It should be shown in the books of both Onetime Limited and Mr. AM.
(d) It should not appear in the books of Onetime Limited or Mr. AM and the raw material
should be disclosed as a note in the final accounts of both the entities.
2. Which exchange rate is considered for accounting of foreign debtors at the year end?
(a) Exchange Rate on the date of the invoice.

(b) Exchange Rate on the last day of the financial year.
(c) Exchange Rate on the date of shipment of the products to the customer.
(d) Exchange Rate on the date of delivery of the products to the customer.
3. Which of the following management assertions is not satisfied with respect to Cars included in
the PPE items by the company:
(a) Existence
(b) Valuation
(c) Completeness
(d) Rights and Obligations
4. Which of the following condition is not required to be met for recognizing a provision?
(a) When a possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity.
(b) When an entity has a present obligation (legal or const ructive) as a result of a past
event.
(c) A reliable estimate can be made of the amount of the obligation.
(d) When it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation.
5. Which of the following conditions is not necessary for recognising dividends in the statement
of profit and loss of Onetime Ltd.:
(a) the entity’s right to receive payment of the dividend is established.

(b) it is probable that the economic benefits associated with the dividend will flow to the
entity.
(c) the amount of the dividend can be measured reliably.

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(d) payment of income tax on dividends received
Integrated Case 31
Meeta, Neeta, Rita and Babita are friends and all of them have joined office of an auditing firm
for undergoing articled training. It is still early days in the office. However, all of them are curious
about different issues of auditing. They have also studied auditing subject. They were going
through one audit file of a large manufacturing company as part of their training. In the file are
included some audit working papers and other related documents.
(A) Some papers contained in file reflect following: -
i. Are budgets for capital expenditure approved by the Board?

ii. Are approved budgets communicated in writing to accounts department and to
department originating the request?
iii. Is the authority to incur capital expenditure restricted to specified officials?
iv. Are receipts of capital items subject to controls as in case of purchases of raw material,
stores?
v. Is there proper check to see that amounts expended do not exceed the amount
authorised?
Further, “Yes”, “No” and “Not applicable” along with remarks/notes have been provided by the
employees of company against items stated at serial no.[i] to [v].
(B) Also included in audit working papers is a detailed note on process of employee recruitment
followed by company along with practices on related matters such as orientation, training,
evaluation, compensation and promotion of employees. In particular, it seemed that auditors had
shown keen interest in standards followed by the company in recruiting most qualified individuals.
(C) The audit file also includes documentation on how customs duty paid by company on imported
raw material was verified. The engagement team had examined the payment of custom duty with
reference to bill of entry available in client records. It was verified that customs duty was in
accordance with applicable duty rate on goods. In cases where duty was paid by clearing and
forwarding agent, bill of entry with reference to bill of forwarder was verified.
(D) The audit file includes a document, signed by CEO of company addressed to auditors, extract
of which is as under: -
We have provided you with: -
i. Access to all information of which we are aware that is relevant to the preparation of the
financial statements such as records, documentation and other matters;
ii. Additional information that you have requested from us for the purpose of the audit;
iii. Unrestricted access to persons within the entity from whom you determined it necessary
to obtain audit evidence.
iv. All transactions have been recorded in the accounting records and are reflected in the
(E) The audit file included following draft to be included in audit report: -

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“Revenue is one of the main profit drivers and is, therefore, susceptible to misstatement. Cut -off
is the main relevant assertion insofar as revenue recognition is concerned, since an inappropriate
cut -off can result in material misstatement of results for the year.
Our audit procedures with regard to revenue recognition included testing controls, automated and
manual- around deliveries, inventory reconciliations and substantive testing for cut -offs and
analytical review procedures.”
The issues pertaining to above for audit period under consideration were communicated with
responsible persons in management.
1. Regarding description of expenditure on capital items reflected in Para A, which of the

following views is Most appropriate?
(a) Meeta is of view that such a document is in nature of a checklist for evaluating internal
control over capital items.
(b) Neeta is of view that such a document is in nature of audit programme for verification
of capital items.
(c) Babita considers that such a document is in nature of an internal control questionnaire
for evaluating internal control over capital items.
(d) Rita considers it to be specific audit plan in relation to capital items.
2. On reading description in Para B, what were the auditors trying to do by studying employee
recruitment and related HR matters?
(a) Auditors were trying to gain an understanding of how the company is monitoring
controls.
(b) Auditors were gaining knowledge to understand how employee pay rolls are prepared
and whether there could be any misstatements in pay rolls due to non- inclusion of
Promotion increments
(c) Auditors were trying to understand control environment of the company.
(d) Auditors were trying to assess the control activities relevant to audit to assess risk of
material misstatement.
3. On the basis of description provided in Para C, identify audit procedure(s) performed by

auditors.
(a) Test of Controls

(b) Vouching
(c) Analytical Procedures
(d) Verification
4. What would the most appropriate nomenclature to extract of document described in Para D?
(a) Engagement letter

(b) Written Representation
(c) External confirmation
(d) Offer letter to auditor
5. Given draft in Para E, which of the following views is Most appropriate in accordance with
relevant Standards on Auditing?

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(a) Meeta is of the view that draft in Para E needs emphasis in audit report. Therefore, its
inclusion under heading “Emphasis of Matter” is proper.
(b) Neeta is of the view that draft in Para E is a residuary matter. Therefore, its inclusion
under heading “Other Matters” is proper.
(c) Rita is of the view that draft in Para E provides the basis on which opinion is to be
given. Therefore, its inclusion under heading “Basis for Opinion” is proper.
(d) Babita is of the view that draft in Para E relates to significant matter identified during
course of audit and it contains how the same was addressed. Therefore, its inclusion
under heading “Key Audit Matters” is proper.
Integrated Case 32
Rohan is part of an engagement team conducting statutory audit of branch of a nationalized bank.
The financial statements to be audited include Balance sheet and Profit & Loss account of the
branch drawn up in accordance with Form A and Form B respectively of the Third Schedule to the
Banking Regulation Act, 1949. Besides, various advances and other returns are also to be verified
as part of audit.
Rohan was part of all audit work pertaining to verification of deposits, advances, income and
expenditure of the branch. While verifying different items of profit and loss account, it was
noticed that income included income on account of interest earned and other income.
The team also verified system of branch prior to sanction of advances like verifying
creditworthiness of borrower etc. It was also verified whether there exists system for bringing
to the notice of higher authorities, accounts which exceed the sanctioned limits or drawing power.
Besides, the team also verified whether there exists a system for review of operations in accounts
once a year and more frequently in case of large advances.
During the course of audit, it was noticed that one advance, consisting of a term loan, having
outstanding balance of Rs. 20 crore as on balance sheet date has been guaranteed by Uttar
Pradesh government. The interest of term loan has remained overdue for more than 90 days. The
branch has classified advance as non-performing asset and made applicable provision and reversed
unrealized income. Rohan is perplexed as to whether classification, provisioning and reversal of
unrealized income made by branch is proper.
The auditee branch is a CBS branch and uses FINACLE software. The core banking system (CBS) is
the set of basic software components that manage the services provided by a bank to its
customers through its branches. The bank's customers can execute their transactions from any
branch, ATM, Service Outlets, Internet, Phone at their disposal. It helps banks to reduce risk
that can result from manual data entry and out of date information. It also helps banks to improve
service delivery quality and time to its customer. The software is accessed from different
branches of bank via communication lines like telephones, satellite , internet, etc.
The engagement team has kept record of audit documentation in accordance with SA 230.
1. Which of the following does not constitute “Other income” in the profit and loss account of
branch of a bank?
(a) Discount on Bills purchased

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(b) Commission on Bills sent for collection
(c) Loan processing fees
(d) Credit card fees
2. Identify what the engagement team is trying to do in respect to advances of the branch.
(a) The engagement team is carrying out analytical procedures in respect of advances.
(b) The engagement team is carrying out substantive procedures in respect of advances.
(c) The engagement team is evaluating internal control over advances.
(d) The engagement team is trying to select samples for verification of advances.
3. Considering state government guaranteed advance of `20 crore and its NPA classification
made by branch, which of the following statements is most appropriate?
(a) The branch has correctly classified account as NPA and has rightly made provisioning
and reversal of unrealized income in this regard. Uttar Pradesh government guarantee
has no effect on provisioning and income recognition.
(b) The branch has correctly classified account as NPA and has rightly made provisioning.
However, unrealized income should not have been reversed due to Uttar Pradesh
government guarantee.
(c) The branch should have classified account as Standard asset due to Uttar Pradesh
government guarantee without having recourse to provisioning and reversal of
unrealized income.
(d) The branch should have classified account as Standard asset due to Uttar Pradesh
government guarantee. No provisioning is required. However, for purposes of income
recognition, it should be treated as NPA and unrealized income should be reversed.
4. The branch is operating in CBS environment. In view of above, which of the following
statements is most appropriate?
(a) Due to CBS environment, substantive procedures alone are effective to reduce audit
risk to an acceptably low level.
(b) In CBS environment, in most situations, the auditors’ ability to reduce audit risk to an
acceptably low level would be affected by the internal control systems established by
the management.
(c) The extensive use of IT systems in CBS environment substantially reduces need to
assess inherent and control risks.
(d) Low level of branch staff sensitisation to the control expectations of management
requires fewer audit procedures.
5. With regards to audit documentation, consider the following: -
(P) NOC from previous auditor

(Q) Management certified trial balance of branch for year under consideration
(R) KYC verification details
(S) Latest RBI master directions/circulars
6. Which of the following statements is correct as regards to audit documentation?
(a) Only documents stated at Q and R form part of audit documentation.

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(b) Only documents stated at Q, R and S form part of audit documentation.
(c) Only documents stated at Q and S form part of audit documentation.
(d) All documents stated at P, Q, R and S form part of audit documentation.
Integrated Case 33
Rohit, Gurpreet, Ali and Goreti are friends since their school days based in Mumbai. They have
cleared CA foundation exams in the same attempt and now plan to appear for CA Intermediate
exams. All of them are avid news listeners and regularly keep track of business news even on social
media.
They are trying to understand new subjects including auditing. Rohit, Gurpreet and Ali have also
started attending Live Coaching Classes (LCC) being conducted by Board of studies of ICAI. Goreti
has not been able to join Live Coaching Classes yet as she was away on a holiday with her parents.
However, she plans to catch it up with her friends very soon. Ali had also joined the classes but he
had skipped some lectures.
During one informal get together, their discussions centred around new subject of auditing. They
discussed many things regarding its nature, scope, benefits and other general practical issues.
Goreti was regular in keeping track of audited results of companies being published in leading
newspapers. Her view was that audited financial statements of companies give 100% guarantee to
different stake holders. It is the main reason behind so much reliance upon auditing. But she could
not understand why wrong doings in financial matters are being discovered after many years have
gone by.
Ali also concurred with her view and added that when financial statements are audited, each and
every transaction appearing in books of accounts is verified. However, he could not give clarity to
Goreti.
Gurpreet was of the opinion that audit was conducted on the basis of sample checking. He was also
of the view that audited financial statements are not a guarantee against probable wrong doings in
financial matters of the companies. Not to be left behind, Rohit also jumped in the fray. He
supported Gurpreet and
also added something of his own.
1. Gurpreet was of the view that audited financial statements are not a guarantee against
probable wrong doings in financial matters of companies. What kind of assurance does audit of
financial statements provide?
(a) It provides reasonable assurance meaning a moderate level of assurance.

(b) It provides reasonable assurance meaning a low level of assurance.
(c) It provides reasonable assurance meaning a high level of assurance.
(d) It provides reasonable assurance meaning an absolute level of assurance.
2. Rohit added that auditor can force an employee of the company to provide him required
information and documents. Can he do so?
(a) Yes, he can do so. It is necessary to obtain audit evidence.

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(b) Yes, he can do so. There are express rights given to him in this respect.
(c) No, he cannot do so. He can only request for providing him with necessary information
and documents. But it cannot be forced by him.
(d) No, he cannot do so. He has no right of seeking information and documents. Therefore,
question of forcing does not arise.
3. Ali had listened in one of the classes that audit covers all aspects of an entity and concluded
that each and every transaction of entity is verified by auditor. Goreti also seemed to be in
agreement with him but she was of the view that besides this, it also meant that audit should
be so organized to cover all areas of an entity. Which of following statements is appropriate in
this regard?
(a) Only view of Ali is correct.

(b) Only view of Goreti is correct.
(c) Views of both Ali and Goreti are correct.
(d) Views of both Ali and Goreti are incorrect.
4. All of them also discussed about benefits of auditing. Which of the following is not a likely
benefit of auditing?
(a) Since auditing is connected to future events, audited information can be easily relied
upon by users.
(b) Errors or frauds may be discovered during audit.
(c) Government authorities can make use of audited accounts for different purposes.
(d) It can help in bringing out deficiencies in maintenance of financial records.
5. Goreti told her friends that she had read a news report about how a company had misled its
auditors by producing some fabricated documents. Which of following statements seems to be
appropriate in this regard?
(a) It was wrong on the part of auditor to rely upon fabricated documents. He must have
discovered it as the same falls within the scope of his duties.
(b) Although it was wrong on the part of auditor to rely upon fabricated documents, he
cannot do anything in the matter. He has to report on the basis of documents provided
to him. He has no duty in this regard.
(c) Auditor has to conduct audit by exercising professional skill. But he is not an expert in
discovering genuineness of documents. Hence, management consisting of dishonest
persons may have led him to rely upon fabricated documents deliberately.
(d) Management cannot mislead auditor due to high level of knowledge and expertise
possessed by him. The above is an outlier case-one of the rare odd cases.
Integrated Case 34
Me and You Private Limited has been newly incorporated. The plant of the company has recently
started production with the help of funds provided by a bank for purchase and installation of
machinery. Further, the company is also utilizing working capital credit facilities from the same
bank for meeting its day to day working capital requirements like for purchase of raw materials,

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labour payment etc. However, just within six months of its operations, the management feels that
working capital funds are inadequate and situation is creating liquidity issues in the company.
The management of the company has approached its bankers and requested for enhancement in
working capital credit facilities. The bank manager is insisting upon financial statements of the
company for half year along with report providing assurance in this respect duly signed by
Chartered Accountant as audit is far away.
It also requires projected financial statements for coming years along with a report from CA
providing assurance regarding these projections to consider request of management.
The management approaches CA P, who has qualified recently and started practising. Reports
providing assurance for half yearly results and projected financial statements are sought from CA
P. The Management provides necessary information and records to him in this regard.
Assume, in above case, the company only provides trial balance, financial statements in
draft/preliminary form along with accompanying records for the relevant half year to CA P and
requests him to provide duly signed financial statements with a report for mutually agreed
professional fees.
1. The management of company has engaged CA P to issue a duly signed report for half year.
Which of the following standards, if any, issued by ICAI are relevant for CA P?
(a) Standards on Review Engagements

(b) Standards on Auditing
(c) Standards on Related Services
(d) There are no standards for issuing report in such situation.
2. Which of the following statements is MOST APRROPRIATE in given case situation?
(a) CA P can assist management in preparation of financial statements of the company.

However, issue of a report in such a case is outside the scope of work.
(b) CA P can assist management in preparation of financial statements of the company and
he can issue an audit report.
(c) CA P can assist management in preparation of financial statements of the company and
he can issue a compilation report in this respect.
(d) The responsibility of preparation of financial statement is of company’s management.
CA P cannot assist management in preparation of financial statements of the company.
However, he can issue a review report.
3. In the above said scenario for issuance of signed financial statements for half year by CA P,
as discussed in last para of Case Study, identify the MOST APPROPRIATE statement:
(a) Standard on Quality control (SQC 1) is not applicable as CA P cannot issue audit report.
(b) Standard on Quality Control (SQC 1) is not applicable as CA P cannot issue review
report.
(c) Standard on Quality Control (SQC 1) is applicable in such type of engagement.
(d) Standard on Quality Control (SQC 1) is not applicable as CA P is barred from issuing any
report in such type of engagement.

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4. The banker of company has also requested for projected financial statements for coming
years along with a report from CA regarding these projections to consider request of
management. Which of the following standards issued by ICAI are relevant for CA P in such a
situation, if any?
(a) Standards on Review Engagements

(b) There are no standards for issuing such type of reports.
(c) Standards on Related Services
(d) Standards on Assurance Engagements
5. Suppose CA P also accepts work of issuing projected financial statements with a report to be
signed by him. The management has projected turnover of Rs 100 crore for the next year, Rs.
150 crore & Rs. 200 crore for following years respectively as compared to present turnover of
Rs. 25 crore in current half year. Identify the MOST APPROPRIATE statement in this
situation:
(a) CA P has to satisfy himself regarding arithmetical accuracy of projected data.

(b) CA P has to satisfy himself regarding reasonableness of assumptions underlying
projected turnover and its consistency with actuals.
(c) CA P has to satisfy himself regarding arithmetical accuracy of data along with its
proper presentation to banker.
(d) CA P has to satisfy himself regarding reasonableness of assumptions underlying
projected turnover, its consistency with actuals, disclosure and presentation.
Integrated Case 35
Kaur & Associates, a sole proprietor firm of Simran Kaur, is offered appointment as auditor of a
company engaged in manufacturing of automobile components for the first time. She is fact
checking about the integrity of promoters of the company and key managerial persons. Matters
such as competence of staff to perform the engagement are also considered by her. The
appointment is subsequently accepted by her.
She is also taking into account number and location of branches of the company, requirements of
Schedule III of Companies Act, 2013 and expected time by which audit has to be completed
keeping in view statutory requirements. Initially, she has thought it proper to inquire key
employees of the company in procurement and marketing departments and planned for the same.
She has also planned to visit three plants of the company. The purpose of planned inquiry and visit
is to identify and assess risk of material misstatements.
A detailed set of instructions has been prepared by her office and it has been handed over to
assistants in engagement team. These set of instructions include details of extent of checking and
nature of audit procedures to be performed regarding purchases, sales, items of income, items of
expenditure etc. During the course of execution of above set of instructions, it has been brought
to her notice that company is also producing substantial quantities of scrap generated during
manufacturing process. However, no instructions have been given to engagement team in this
regard.
Based on above, answer following questions:

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1. Auditor is fact checking about promoters and key managerial persons. She is also considering
competence of staff to perform engagement. What is she trying to do?
(a) She is establishing audit strategy.

(b) She is conducting preliminary engagement activities.
(c) She is designing audit plan.
(d) She is checking her compliance of ethical requirements.
2. Consideration of number and location of branches, requirements of financial reporting

framework and expected time of completion are relevant factors primarily for which of the
following -
(a) Developing audit plan

(b) Establishing overall audit strategy
(c) Designing audit programme
(d) Designing risk assessment procedures
3. Taking into account description of planned inquiry and visit, which of the following statements
is TRUE?
(a) Planned inquiry and visit fall in area of audit strategy.

(b) Planned inquiry and visit are planned risk assessment procedures and fall in field of
audit plan.
(c) The said description is not related to audit planning.
(d) Planned inquiry and visit fall in scope of audit programme.
4. What is detailed set of instructions given to assistants in engagement team known as?
(a) Audit guidelines

(b) Audit plan
(c) Audit Programme
(d) Audit Procedures
5. The issue of generation of scrap has been overlooked in detailed set of instructions given to
engagement team. What should be proper course of action by CA Simran Kaur?
(a) She should ignore this information as audit has already begun.
(b) She should modify earlier set of instructions.
(c) She should leave the matter to wisdom of engagement team.
(d) She should put the ball in court of management as she was not provided with complete
information earlier.
Integrated Case 36
CA Paritosh is auditor of a company. The financial statements of the company have just been
received for audit. Following issues have been flagged pertaining to the financial statements of the
company for purpose of risk assessment:
1. The revenue of company has fallen from Rs 50 crore in last year to Rs 5 crore in current year
(for which financial statements have been received for audit) due to lack of demand in the
market for company’s products.

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2. Due to advent of new products in the market, company’s products are fast becoming outdated.
3. A large customer having an outstanding balance of Rs 5 crore has failed to pay to the company
despite efforts made by the company.
4. Inventory holding period has increased from 30 days in last year to 90 days.
5. The company also gets carried out job operations from third parties. Therefore, parts of
inventories are lying with third parties.
1. Regarding drastic fall in revenue of the company, which of the following is an audit risk?
(a) Fall in revenue would result in fall of profits for the company.
(b) Drastic fall in revenue may imply that company is not able to carry out its operations in
foreseeable future due to lack of demand in the market for company’s products. There
is a risk that going concern disclosure is omitted to be made in financial statements.
(c) The company can explore some new line of activity, if demand of its products is falling.
(d) Fall in revenue would mean lower tax liabilities for the company.
2. The company’s products are getting outdated in the market. Which of the following is an audit
risk?
(a) The company should devise strategies to sell products in the market.
(b) Inventories may be understated in such a scenario.
(c) Inventories may be overstated in such a scenario.
(d) The company should launch a 1+1 free offer for its customers.
3. A large customer has failed to pay to the company. Identify audit risk from below:
(a) Receivables may be misstated if irrecoverable debt is not written off.

(b) Receivables may be overstated if irrecoverable debt is not written off.
(c) Writing off irrecoverable debt would impact profits of company adversely.
(d) Failure to recover outstanding debt would impact cash flows of company adversely.
4. Identify audit risk involved when inventory holding period has increased from 30 days to 90
days.
(a) There is a risk of overstatement of inventories.

(b) There is a risk relating to existence of inventories.
(c) There is a risk that slow movement of stocks would increase tax liability when GST
rates are increased.
(d) There is a risk relating to holding and storage cost of inventories.
5. Part of inventories are lying with third parties. Identify audit risk involved.
(a) There is a risk that third parties do not manufacture according to specifications of the
company.
(b) There is a risk that by getting job work done from third parties, company is increasing
its costs.
(c) There is a risk that sufficient and appropriate evidence would not be available in
respect of quantity and condition of inventories lying with third parties.

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(d) There is a risk that sufficient and appropriate evidence would not be available for
quality control in respect of inventories lying with third parties.
Integrated Case 37
CA Piyush is understanding internal controls as part of audit exercise of a company. It is a new

client. He has studied controls in place in various operational areas of the company. After studying
and gaining an understanding of such controls, he has decided to test few controls to actually see
whether these are operating as intended by the management.
Till now, he has studied controls over inventories and bank. Few of such controls are listed below:
Nature of Control Control description

Control over inventories Inventories of the company lying at each location should be
insured.
Control over inventories There should be inventory counts on a regular basis for each
location of the company.
Control over Bank Bank reconciliations are to be performed at regular intervals.
operations
1. Which of the following most appropriately describes test of control regarding insurance of
inventories?
(a) Inspect insurance policies to verify that inventories at each location are insured for
fire and burglary. The sum insured and period of validity of policy are not relevant.
(b) Inspect insurance policies to verify that inventories at each location are
comprehensively insured. Ensure adequacy of sum insured by comparing it with value of
inventories. Also ensure policy period has not expired.
(c) Inspect insurance policies to verify that inventories at each location are
comprehensively insured. Ensure policy period has not expired.
(d) Inspect insurance policies to verify that inventories at each location are insured for
fire and burglary. Ensure policy period has not expired.
2. Which of the following most appropriately describes test of control regarding inventory
counts?
(a) Obtain detail of inventory counting procedure and ensure that inventory count is
carried out according to laid down procedure.
(b) Obtain detail of inventory counting procedure and ensure that inventory count is
carried out according to laid down procedure. Attend inventory count.
(c) Obtain detail of inventory counting procedure and ensure that inventory count is
carried out according to laid down procedure. Attend inventory count and perform test
count.
(d) Attend inventory count and perform test count.
3. While testing control over bank reconciliations, it has been noticed that bank reconciliations
are not being performed at regular intervals. Identify the most appropriate description of
“control deficiency” in this regard: -

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(a) Bank reconciliations are not being performed regularly as concerned staff is
overburdened.
(b) Bank reconciliations are not being performed regularly as concerned staff is
overburdened. It could result in errors.
(c) Bank reconciliations are not being performed regularly as concerned staff is
overburdened. It could result in errors. It may result in misstatement of cash and bank
balance in financial statements.
(d) Bank reconciliations are not being performed regularly as concerned staff is
overburdened. These should be performed monthly and reviewed by senior accountant.
4. Which of the following statements is most appropriate regarding auditor’s response to

assessed risk of a new client?
(a) More substantive procedures would require to be performed.

(b) Less substantive procedures would require to be performed.
(c) There is no effect on substantive procedures.
(d) There is no effect on substantive procedures as audit risk is low.
5. Since the company is a new client, which of the following statements is most appropriate?
(a) There is reduced detection risk.

(b) There is increased detection risk.
(c) There is no effect on detection risk.
(d) Detection risk should be increased to lower audit risk.
Integrated Case 38
CA Drishti Khandelwal is conducting audit of a company engaged in manufacturing of towels and

bedspreads. The company is having its own manufacturing set-up. However, it also gets some
manufacturing processes outsourced from third parties.
The company has three locations having substantial quantities of inventories in the same city.
Besides, due to outsourcing of some processes, inventories are also held in premises of third
parties in the same city. As part of audit procedures, she is performing many audit procedures
required by different Standards on Auditing.
In particular, she is attending physical inventory count process of the company at year end in
accordance with requirements of SA 501.The inventory of the company includes raw materials
consisting mainly of natural and dyed yarns, work in process in different stages of manufacturing
and finished stocks of towels and bedspreads.
She is also planning sending confirmations to parties to whom the company has sold goods. On
reviewing trade receivables list, she finds that the list also contains large number of parties having
small balances. She further finds that these receivables have arisen due to sale of bedspreads to
small time retailers and possibility of difference in balances as per company’s records and as per
records of these 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.

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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.
Based on above description, answer the following questions:
1. 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.
2. 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.
3. 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
(c) She should plan and design positive confirmation requests for large number of parties
having small balances and meticulously analyse exception rate

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(d) She should plan and design negative confirmation requests for large number of parties
4. 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.
5. 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.
(d) Sampling risk will always be in existence.
Integrated Case 39
Financial statements of a firm have been put up for audit before CA Manushi. On going through
financial statements, she wants to verify assertions contained in financial statements and has
planned certain procedures for carrying out detailed checking.
(A) She plans to verify some major bills debited in “Machinery repair” account. The purpose of
it is to ensure that bills are entered correctly and their classification is proper.
(B) She plans to verify that all balances appearing under trade payables are genuine and not
fake.
(C) She plans to compare amount of wages paid in current year and last year. It is also planned
to verify relationship between the number of employees and wages paid in both years.
(D) She is of the view that it is necessary to examine title deeds of “land” appearing in financial
statements of the firm.
(E) The firm is engaged in export of goods to Europe. The sales invoices raised in Euros are
converted into Indian rupees as per applicable norms.
Based on above description, answer the following questions:
1. As regards description given regarding verification of bills debited in “Machinery repair”

account, identify what she intends to perform?
(a) Tests of Controls

(b) Tests of transactions
(c) Tests of balances
2. Identify which type of assertion she intends to focus when she wants to ensure genuineness of
trade payables.
(a) Occurrence
(b) Cut-off

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(c) Existence
(d) Accuracy
3. As regards comparison of wages of current year and last year and comparison of relationship
between the number of employees and wages paid in both years, identify what she is trying to
do?
(a) She is intending to perform tests of details.

(b) She is intending to perform tests of transactions.
(c) She is intending to perform tests of balances.
(d) She is intending to perform substantive analytical procedures.
4. In case of examination of title deeds of “land”, which of the following fits into most
appropriate description of such an audit procedure?
(a) Observation
(b) Inspection
(c) External confirmation
(d) Enquiry
5. She wants to verify whether conversion of foreign currency into Indian rupees is proper or
not. Identify what she is trying to do?
(a) Reperformance
(b) Recalculation
(c) Observation
(d) Inspection
Integrated Case 40
Sunsteel Ltd. is a company engaged in the manufacture of variety of stainless steel household
items ranging from hot pot, pressure cooker, cutlery set, bottles, to serving trays. The company
has its corporate office in Delhi and its plant in Raigarh, a city in the state of Chhattisgarh. The
company is planning to expand its manufacturing activities by setting up two new plants in the
Raipur district of the state. For this purpose, the company also raised funds by making a follow-on
public offer during the financial year 2022-23. R K Maheshwari & Associates are the statutory
auditors of the company since the year 2020-21.
The engagement team consisted of 5 members, with CA Raman as the engagement partner, CA
Madhu as the senior associate and three articled trainees namely, Aman, Chetanya and Depesh.
The company raised fresh capital of Rs 5 Cr during the FY 2022-23. The shares with the nominal
value of ` 10 per share were issued at a premium of Rs 5 per share.
The company has the Reserves and Surplus totaling to Rs 2 Cr, comprising of securities premium
and general reserve.
CA Raman directed CA Madhu to verify the issue of the share capital in detail giving special
consideration to the utilization of the securities premium amount. The audit engagement team
discussed with the management about the performance of the company during the year under
consideration. To this, the management told the engagement team that the company is performing

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very well and the company has doubled its revenue during the year as compared to the last year.
The management of the company also told the auditors that during the year the company has made
majority of its sales on credit basis to its customers.
CA Raman directed Mr. Aman to send balance confirmation requests to debtors having balance in
excess of Rs 1 lakh. During the course of audit, CA Raman, Chetanya and Depesh also visited the
power plants in Raigarh to get a detailed understanding of the manufacturing process.
The team performed analytical procedures to obtain audit evidence with respect to the overall
reasonableness of purchase quantity and price of inventory. More specifically, Chetanya collected
the reports from the management for composition of stock i.e. raw materials as a percentage of
total stock and compared the same with the data of the previous year. CA Raman and Chetanya
thereafter, discussed the reasons for the variations with the management.
Also, while considering the presentation and disclosure requirements as per Schedule III to the
Companies Act, CA Madhu discussed with CA Raman the disclosure with respect to the following
account balances:
• Current maturities to long term borrowings

• Long term maturities of finance lease obligations
• Interest accrued but not due on borrowings
• Interest accrued and due on borrowings
Based on the above facts, answer the following questions:
1. Which of the following is not correct with respect to shares issued at premium and securities
premium account in terms of Section 52 of the Companies Act, 2013?
(a) Where a company issues shares at a premium, whether for cash or otherwise, a sum
equal to the aggregate amount of the premium received on those shares shall be
transferred to a securities premium account.
(b) The securities premium account can be applied by the company in paying up unissued
equity shares of the company to be issued to members of the company as fully paid
bonus shares.
(c) The securities premium account cannot be applied by the company in writing off the
expenses of or the commission paid or discount allowed on any issue of equity shares of
the company.
(d) The securities premium account can be applied by the company for the purchase of its
own shares or securities under section 68.
2. Which of the following is not an example of capital reserve?
(a) Revaluation reserve arising from revaluation of fixed assets

(b) Securities Premium
(c) Capital redemption reserve
(d) General reserve
3. Statement 1: Confirmations as well as undelivered letters should be given/ returned to the

auditor and not to the client.

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Statement 2: When no reply is received, the auditor should perform alternate procedures
regarding the balances.

(c) Both statements 1 & 2 are correct
(d) Both statements 1 & 2 are incorrect
4. Mr. Chetanya performed which of the following analytical procedures to obtain the audit
evidence with respect to the overall reasonableness of purchase quantity and price of raw
material?
(a) Consumption Analysis

(b) Stock Composition Analysis
(c) Reasonableness test
(d) Ratio analysis
5. Which of the following is not correct with respect to the disclosure requirements of Schedule
III to the Companies Act 2013?
(a) Current maturities of long term borrowings is to be disclosed under the head long term
borrowings
(b) Long term maturities of finance lease obligations is to be disclosed under the head long
term borrowings
(c) Interest accrued but not due on borrowings is to be disclosed under the head Other
Current Liabilities
(d) Interest accrued and due on borrowings is to be disclosed under the head Other
Current Liabilities
Integrated Case 41
CA Rajan Pillai is heading the engagement team conducting audit of a company. While audit is in
progress, consider following issues regarding audit documentation:
(A) Audit programme was prepared assigning responsibilities for different types of works to be
performed to team members. The engagement team consists of 4 members Mohit (CA final
student), Rohit (CA final student), Shobhit (Paid CA) and CA Rajan Pillai (partner of audit
firm).
(B) The team has determined materiality for financial statements as a whole.
(C) The team has assessed risks of material misstatements to be low.
(D) CA Shobhit is responsible for attending inventory count process and putting down its
documentation part.
(E) During the course of audit, many related party transactions have come to notice.
On the basis of above, answer the following questions:
1. Work relating to verification of revenue was assigned to Mohit in audit programme. However,
it is being performed by Rohit actually. Verification of trade receivables was planned to be
carried out by Rohit in audit programme. However, it being performed by CA Rajan Pillai due to

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last minute practical issues. Which of the following statements is most appropriate in this
regard relating to audit documentation?
(a) Audit programme contains names of persons and work to be performed. It is immaterial
whether work assigned to one person is performed by another person.
(b) Audit programme was already prepared. Only persons assigned specific responsibilities
can perform those duties.
(c) It is necessary that audit programme be suitably updated or notes are given in working
papers to this effect so that planned duties are in accordance with actual work
performance.
(d) Changes in audit programme or notes clarifying the matter are required only when a
person not forming part of engagement team is deputed to perform a duty. Otherwise,
this issue of inter-shuffling of team members is frivolous.
2. As regards materiality, which of the following statements is most appropriate in context of

audit documentation?
(a) Materiality has already been determined. There is no need to put it into working papers.
(b) Materiality depends upon professional judgment of auditor. Whatever amount has been
determined can be documented in working papers.
(c) Materiality arrived on basis of professional judgment along with factors considered in
the determination has to be documented.
(d) Materiality has been arrived upon professional judgment. It also depends upon
professional judgment of auditor whether he wants to document it or not.
3. As regards team’s assessment that risk of material misstatements is low, which of the
following statements is odd one relating to documentation of risk?
(a) Discussion amongst engagement team members and detail of significant decisions
reached has to be documented.
(b) Details of risk assessment procedures have to be documented.
(c) Details about how understanding of each component of internal control was obtained
has to be documented.
(d) Precise calculation of risk of material misstatements has to be documented.
4. CA Shobhit is responsible for attending physical inventory count of the company. Which of the
following is not true in this regard relating to audit documentation?
(a) Dates on which physical inventory count process was attended by him should be
documented. It may also include photographs of that date showing his attendance of
inventory counting process at a particular location.
(b) Detail of test counting undertaken should form part of audit documentation.
(c) Detail of obsolete goods found should form part of audit documentation.
(d) Reports showing that stocks conform to quality control standards in accordance with
law are essential part of audit documentation.
5. As regards related party transactions, which of the following should not be part of audit
documentation?
(a) Management representation letter in this regard

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(b) Related party transaction policy of the company
(c) Documentation to show that such transactions are at arm’s length basis
(d) Documentation to show that such transactions are at close length basis.
Integrated Case 42
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 supplied 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.
1. 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.
2. 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) (d) Audit procedure seeking confirmation from banker regarding outstanding balance
relates to verification of going concern assumption.
3. Which of the following statements is true in respect of auditor’s responsibilities in respect of

subsequent events?

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(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 o f
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.
4. As regards use of qualifying language in written representations, which of the following

statement is most appropriate?
(a) It is reasonable for the auditor to accept such wording if the auditor is satisfied that
the representations are being made by those with appropriate responsibilities and
knowledge of the matters included in the representations.
(b) Written representations should be unconditional. Such a wording is not acceptable.
(c) Such a wording dilutes intent of written representations. However, it can be accepted
by auditor only in exceptional circumstances.
(d) Qualifying language in written representations is compulsory.
5. As regards auditor’s responsibility regarding matters communicated orally with those charged
with governance, which of following is most appropriate?
(a) Matters communicated orally have to be documented by the auditor stating when and to
whom these were communicated.
(b) Matters communicated orally need not be put into writing. It is sufficient for auditor
to have communicated orally.
(c) Matters communicated orally need not be put into writing. It is not practically feasible.
(d) Matters communicated orally have to be documented by the auditor stating to whom
these were communicated.
Integrated Case 43
M/s AB & Company is a firm of Chartered Accountants based in Mumbai. Mr. A and Mr. B are the
Partners of the Firm. The Firm is engaged in various assignments including Audits. The partners
are taking a summary of their work in order to prepare themselves to finalize the Audit and issue
the audit report to various clients. You are requested to go through the following and answer the
questions that follow:
• During the audit of M/s Persistent & Co, Mr. A found that the firm has changed the method
of Depreciation from WDV to SLM but has not given the retrospective effect. Mr. A has
calculated the difference of depreciation but M/s Persistent & Co. has stated that they
don’t want to change the financial statements and if auditor persists they may give the
effect in the next financial year.
• During the audit of M/s Dubious Brothers, Mr B observed that the firm had a very large
amount of cash sales and there were no details of the customers to whom the sales were
made. Further, cash generated was not even deposited into bank regularly. When Mr. B

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asked the firm to give him an opportunity to count cash, the manager of the firm said that
the cash is with the owner and it cannot be made available to the auditor for the checking
purpose. The manager also declined to give an opportunity for stock verification to Mr B.
• During the audit of M/s Honest & Associates, Mr. A came to know that the firm has
changed its method of valuation of stock. This change has a material impact on the financial
statement of the firm. The firm has made relevant disclosures in the financial statements
and has given proper accounting treatment to this exercise.
1. In case of M/s Persistent & Company, what would be an ideal Audit Opinion?
(a) Unmodified
(b) Qualified
(c) Mention the fact in Emphasis of Matter Paragraph
(d) Disclaimer
2. In case of M/s Dubious Brothers, what Audit Opinion should the Auditor give?
(a) Qualified
(b) Adverse
(c) Disclaimer
(d) Unmodified
3. According to you, what would be appropriate course to take in case of M/s Honest &
Associates?
(a) Issue Qualified Opinion

(b) Issue Adverse Opinion
(c) Mention the fact of change in method in Emphasis of Matter Paragraph
(d) Issue Disclaimer of Opinion
4. When the Auditor, after conclusion of an Audit exercise, is of the opinion that there are
material misstatements in the Financial Statements, but they are not pervasive, then what
should an Auditor do?
(a) Issue Unmodified Opinion

(b) Issue Qualified Opinion
(c) Issue Disclaimer of Opinion
(d) Mention it in Emphasis of Matter Paragraph
5. When the Auditor concludes that the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework, Auditor shall give:
(a) Modified Opinion

(b) Qualified Opinion
(c) Disclaimer of Opinion
(d) Unmodified Opinion
Integrated Case 44

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Consider the following five descriptions:
(A) Audit of “Implementation of Nagpur Metro Rail Project” was conducted by the Comptroller
and Auditor General of India.
Following is extract of few audit findings placed on website cag.gov.in.
“The location of New Airport station was not ideal from the viewpoint of ridership due to
sparse population in and around the station and also from the accessibility point of view.
Cotton Market station, the second additional station was projected to have high peak hour
peak direction trips but the work was kept on hold midway citing fund crunch due to non-
release of pending contribution from stakeholders. However, the situation could have been
managed through
prioritization of works.”
(B) Another set of audit findings in respect of audit of Haryana Power Generation Corporation
Limited, a wholly owned government company responsible for operation of power generation
plants in state of Haryana is as under: - “The main reason for low generation was higher
variable cost of thermal
power stations which resulted in backing down of plants.”
(C) A report was tabled in Parliament highlighting main features of direct taxes administration
of country as mandated in Constitution of India. This report primarily discussed compliance
to the provisions of the Income Tax Act, 1961 and the associated rules and procedures etc.
as applied to administration of direct taxes including irregularities noticed in finalizing
assessments etc.
(D) Radial finance corporation Limited is a government company. The audit of the company is
conducted by statutory auditors appointed by Comptroller and Auditor General of India.
(E) Bharat Insurance Company Limited is a general insurance government owned company. The
statutory auditor is appointed by Comptroller and Auditor General of India. The annual
report for a particular year also contains comments of statutory auditors on matters such
as whether company has carried out reconciliations in respect of its inter-company balances
with other government owned insurance companies.
1. Based upon plain reading of audit findings stated at Para (A), identify type of audit carried out
by office of the Comptroller and Auditor General of India.
(a) Audit against provision of funds

(b) Propriety audit
(c) Performance audit
(d) Compliance audit
2. Keeping in view audit findings in respect of Haryana Power Generation Corporation Limited,
identify type of audit carried out.
(a) Audit of Government Company

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(b) Audit against rules and orders
(c) Compliance audit
(d) Performance audit
3. Which of the following is the most appropriate statement in context of report tabled in
Parliament regarding administration of direct taxes?
(a) It is likely to be a report prepared for submission to the President under Article 151 of
the Constitution of India by Comptroller and Auditor General of India.
(b) It is likely to be a report prepared for submission to the Prime Minister under Article
151 of the Constitution of India by an independent task force of experts.
(c) It is likely to be a report prepared for submission to the President under Article 151 of
the Constitution of India by Central Board of Direct Taxes.
(d) It is likely to be a report prepared for submission to the Prime Minister under Article
151 of the Constitution of India by Central Board of Direct Taxes.
4. Who is empowered to conduct “supplementary audit” in case of Radial finance Corporation

Limited, a government company?

(b) Another independent auditor appointed by CAG
(c) CAG
(d) Another independent auditor appointed by Ministry of Corporate Affairs
5. As regards comments of auditors specified in respect of audit report of above insurance

company, which of the following is likely to be most appropriate statement?
(a) Such are likely to be comments of test audit carried out by CAG.
(b) Such are likely to be comments in respect of directions to statutory auditor by CAG for
reporting on specific aspect of their audit work.
(c) Such are likely to be comments of supplementary audit carried out by CAG
(d) Such are likely to be comments of statutory auditors in accordance with requirements
of Standards on Auditing
Integrated Case 45
CA M is conducting statutory audit of branch of MMC Bank. During the course of audit, it is noticed
as under:
(i) Loans under “Kisan credit card” are given by Bank to farmers to meet their short-term credit
needs for cultivation of crops. In respect of one agricultural advance classified under “Kisan
Credit Card”
having an outstanding balance of Rs 20 lacs as at year end, there is no transaction in account
since last 90 days. The said loan has been granted for cultivation of paddy which is harvested
in a period of 3-4 months from sowing. The branch has classified the said advance as
“Standard asset”.
(ii) It is also observed that account of one borrower availing cash credit limit of Rs 50 lacs was
taken over from another bank. The proposal was sanctioned by branch manager instead of
immediate next higher authority as required in “Manual of Delegation of Powers” of Bank.

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(iii) It is noticed that head office of bank has flagged a savings account maintained in branch in
which interest was wrongly paid at higher rate due to wrong data feeding entry. Now, situation
has been rectified by debiting excess interest paid in the account. Since there was little
balance in savings account, a debit balance of Rs 1.50 lac was created in the said savings
account due to above reversal. The matter was immediately informed to account holder.
However, he has not turned up for payment since matter was informed to him about six
months ago.
(iv) There are many cash credit accounts in the branch. Such borrowers are required to submit
monthly stock statements to branch showing calculation of drawing power.
(v) One borrower has availed a housing loan and a car loan from the branch. Housing loan EMIs
are overdue for 120 days as on date of Balance sheet. Car loan EMIs are overdue for 60 days
as on date of Balance sheet.
1. As regards description of agricultural advance, which of the following statements is most

appropriate in this regard?
(a) The branch has erred in making classification as per RBI norms. It is a “Sub-standard”
asset.
(b) The classification made by branch is proper. However, there are no transactions in
account since last 90 days, it is SMA.
(c) The classification made by branch is proper.
(d) The branch has erred in making classification as per RBI norms. It is a “doubtful” asset.
2. Regarding taken over account from another bank, which of following statements is most
appropriate?
(a) It is an internal issue of Bank and auditor is not concerned with it.
(b) It is an internal issue of Bank. However, the auditor may, at his discretion, report it.
(c) It is a serious violation of laid down procedures of bank for sanction of advances and
should be reported by auditor without fail.
(d) There is no issue involved as credit facility was properly sanctioned.
3. As regards debit balance of Rs 1.50 lacs in Savings account, which of the following is correct
from point of view of an auditor?
(a) The situation does not attract RBI norms on asset classification.
(b) The debit balance of Rs 1.50 lacs should be classified as NPA.
(c) The situation does not attract RBI norms on asset classification as no credit facility
was granted.
(d) The bank cannot demand excess interest paid to account holder.
4. Which of the following statements is not true about “drawing power” (DP)?
(a) Drawing Power refers to the amount calculated based on primary security less margin
as on particular date.
(b) It is always less than sanctioned limit.
(c) It can be different from sanctioned limit.

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(d) Creditors for goods are reduced for purpose of calculating Drawing Power.
5. Considering housing loan and car loan availed by a borrower, which of the following statements
is appropriate?
(a) Both Housing loan as well as car loan should be classified as “Non - Performing Assets”
in accordance with RBI norms on asset classification.
(b) Housing Loan should be classified as “Non-Performing Asset” in accordance with RBI
norms on asset classification. However, Car loan should be classified as Standard asset.
(c) Car Loan should be classified as “Non-Performing Asset” in accordance with RBI norms
on asset classification. However, Housing Loan should be classified as Standard asset.
(d) Both Housing as well as car loans should be classified as Standard assets.
Integrated Case 46
Das & Co, a firm of auditors, is offered appointment as auditor of a company, a prospective new
client. CA Sukanya, one of partners, is dealing with new client. While meeting with officers of the
company, she comes to know that Sushant, CFO of the company, was her class mate. In fact, both
of them had started CA together.
However, Sushant had left CA mid-way due to repeated failures and tried his luck to pursue MBA
(finance) from one of leading institutions. During initial discussions, it transpires that company is
going to launch new services in the field of “weather-forecasting”. Such services would be available
on web site of company and micro weather information would be available on payment of charges.
The company requests audit firm to be visibly associated with their marketing blitz.
Assume that firm choses to accept the offer and writes to previous auditor, Walker & Co., to
advise whether there exist any professional reasons for them not to accept the proposed offer.
However, Walker & Co. do not reply to the request of Das & Co.
During preliminary discussions, it also became known that the said company has acquired all shares
of another company. Under relevant provisions of law, financial statements of both companies
needed to be consolidated and audited. Despite this knowledge, Das & Co. failed to advise their
client regarding audit of consolidated financial statements.
The company also offers auditors contract for providing IT services pertaining to information
system of company.
1. Considering discussion about Sukanya and Sushant, which of the following statements seems
most appropriate?
(a) The above discussion is irrelevant in context of proposed offer.

(b) The proposed offer should be accepted by firm. The engagement team may be headed
by CA Sukanya for better coordination and results.
(c) The proposed offer should be accepted by firm. The engagement team may be headed
by a different partner of the firm.
(d) The matter is too trivial to be reported by CA Sukanya to other partners of firm.

Page 124 of 127
2. Keeping in view request of the company to be visibly associated with company’s new services,
identify which type of threat is being faced by audit firm.
(a) Self-interest threat

(b) Familiarity threat
(c) Self-review threat
(d) Advocacy threat
3. The previous auditors, Walker & Co., have not replied to communication of Das & Co. Which
fundamental principle of professional ethics is not followed by them?
(a) Objectivity
(b) Professional behaviour
(c) Professional competence and due care
(d) Integrity
4. Das & Co. have failed to advise the company regarding audit of consolidated financial
statements. Which fundamental principle of professional ethics is violated by Das & Co.?
(a) Professional behaviour

(b) Integrity
(c) Objectivity
(d) Professional competence and due care
5. Which of the following statements is most appropriate regarding providing offer of work of
IT services by auditors to the company?
(a) Such offer may create a self-review threat.

(b) Such offer may create an advocacy threat.
(c) Such offer does not constitute any threat.
(d) Such offer may create self-review and advocacy threats.
Final Audit Integrated Case 1:
CA Mritunjay is statutory auditor of a listed company engaged in providing services relating to

“tourism sector”. He is practicing in sole-proprietorship capacity. The audit of abovesaid listed
company was conducted by his proprietary firm and report was issued for year 2021-22.
Subsequently, audit report was selected by NFRA to oversee quality of service and compliance with
Standards. Necessary information was called from auditor towards above objective.
It was required of him to produce audit working papers to show that audit was carried out in
accordance with Standards on auditing. Details of the audit plan and details of risk assessment
procedures carried out to identify and assess risk of material misstatement in financial
statements were called. It was also required to show how response to assessed risks was designed
and implemented and communicated with those charged with governance. Audit working papers sent
by him through email included procedures on how some balances in financial statements were
verified. Also included in working papers were procedures performed by him relating to
verification of inventories, trade receivables and trade payables.

Page 125 of 127
The working papers sent by him to the authority did not include details on audit plan and manner of
identifying and assessing risks of material misstatement. On being asked to respond, it was
reasoned by him that audit was properly planned and required procedures were carried out in
relation to material items on test check basis.
It has been further clarified by him to the authority that audit was carried out in accordance with
Standards and it was practically not feasible for a firm of small size to make a detailed audit plan.
It was also put on record with authority that he had assessed risk of material misstatement to be
low based upon his understanding of the company. He has further reasoned that assessing risks is
a matter of professional judgment. Representation has also been made by him stating that
communications as necessary were made orally with those charged with governance.
It was also pointed out to him that engagement quality control review was not carried out. He has
answered that no contentious matter arose during the course of audit and therefore, no need was
felt to carry out this exercise.
Attention was also drawn to the fact that financial statements of company were required to be
prepared on basis of Ind AS. However, at some places in notes to accounts, reference is made to
accounting standards which are not applicable to the company. These errors have been attributed
to data feeding entry errors by junior staff.
Based upon above, answer the following questions: -
1. It has been contended by auditor that audit was properly planned. He has further stated that
it was practically not feasible for firm of small size to prepare a detailed audit plan. Which of
the following views is most appropriate in this regard?
(a) Audit was, in fact, planned as evidenced by auditor’s submissions.

(b) Although auditor has no record of audit plan, it does not affect compliance with SA
220.
(c) Since auditor has no record of audit plan, it goes on to show non-compliance with SA
220.
(d) Audit was, in fact, planned as evidenced by auditor’s submissions. However. there is an
exemption for small CA firms doing away with cumbersome documentation in relation to
audit plan.
2. The auditor has reasoned that risk of material misstatement has been assessed to be low
based upon his understanding of the company and it is a matter of professional judgment.
Identify the most appropriate statement from below in this regard.
(a) Assessing risks of material statement is a matter of professional judgment. It cannot

be demanded from him how his judgment was arrived at.
(b) Although auditor has not submitted record of how risk of material misstatement was
arrived at, it does not affect compliance with SA 220.
(c) Since auditor has no record of how risk of material misstatement was arrived at, it
goes on to show non-compliance with SA 220.
(d) Such a query, itself, is outside the mandate of authority.
3. Considering auditor’s point of view regarding engagement quality control review, identify the
most appropriate statement from below: -

Page 126 of 127
(a) Engagement quality control review is mandatory in such type of engagement. It was not
proper for auditor to bypass such review. He has violated mandatory requirement of SA
220.
(b) Engagement quality control review is optional in such type of engagement. Therefore,
question of not following SA 220 does not arise.
(c) No contentious matter arose during the course of engagement. Therefore, question of
not following SA 220 does not arise in respect of engagement quality control review.
(d) Engagement quality control review is dependent upon benchmarks established under
SQC 1. If those bench marks are satisfied, such a review is necessary.
4. Considering auditor’s reply regarding errors in data feeding entry by junior staff in relation to
accounting standards, which of the following statements is proper?
(a) Such are examples of clerical errors encountered during preparation of reports. There
is no question of non-compliance with SA 220.
(b) Such are examples of clerical errors encountered during preparation of reports. There
is no effect on auditor’s opinion and consequently question of non-compliance with SA
220 does not arise.
(c) Such are examples of serious lapses on part of auditor showing non-compliance with
SA 220.
(d) Such are examples of serious lapses on part of auditor. However, these are not related
to compliance with SA 220.
5. On your overall reading of the case study, which of the following statements appears to be
true?
(a) The firm has an effective system of quality control described in SQC 1. Audit
engagement has also been performed in accordance with SA-220.
(b) The firm does not have effective system of quality control described in SQC 1. Audit
engagement has also not been performed in accordance with SA 220.
(c) SQC 1 is not applicable in the case. Audit engagement has not been performed in
(d) SQC 1 is not applicable in the case. Audit engagement has been performed in

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CA Inter with CA Himanshu

MCQ & Case Studies

CA Inter with CA Himanshu

Bank Audit ..................................................................................................................................................................................... 36

Integrated Cases ......................................................................................................................................................................... 52

CA Inter with CA Himanshu

1. Standard on Quality Control (SQC) 1 provides that,

2. Which of the following is correct:

CA Inter with CA Himanshu

(a) ten years

(a) Professional Competence

8. In relation to completed engagements, procedures designed to provide evidence of compliance

(a) Professional Competence

10. Identify the most appropriate statement in context of SQC 1.

CA Inter with CA Himanshu

11. Professional skepticism is necessary to the critical assessment of

(a) audit documentation

(a) Being alert to conditions that may indicate possible fraud

13. Which of the following is correct:

(a) Inherent, unavoidable

15. Professional skepticism includes-

(a) Overlooking unusual circumstances.

16. The matter of difficulty, time, or cost involved is:

CA Inter with CA Himanshu

17. Which of the following is Incorrect:

18. With respect to auditing, which of the following statement is correct:

CA Inter with CA Himanshu

(a) Acceptability of financial reporting framework

i. The objective and scope of the audit of the financial statements;

CA Inter with CA Himanshu

(a) Acceptability of financial reporting framework.

25. Identify the most appropriate statement: -

(a) SA 220 applies at the level of firm.

(a) Audit programmes.

CA Inter with CA Himanshu

(a) professional skepticism

(a) evidence identified during the audit

30. ______________refers to the record of audit procedures performed, relevant audit

(a) Audit Techniques

31. Audit documentation provides:

32. Which of the following is not a likely purpose of audit documentation?

33. Which of the following is not an example of audit documentation:

(a) Audit programmes

CA Inter with CA Himanshu

(a) E-mail correspondence with CFO of company concerning significant matters

35. Which of the following statement is appropriately suited to preparation of audit

(a) Audit documentation has to be prepared simultaneously as audit progresses.

36. Audit documentation is owned by: -

(a) Previous years audited financial statements

(a) Evaluation of objectivity and competence of internal auditor has to be documented.

CA Inter with CA Himanshu

(a) Evaluation of adequacy of communication process is required on part of the auditor.

(a) On a timely basis

41. Significant deficiency is a deficiency or combination of deficiencies in internal control that, in

42. Scope of SA 265 includes: (Other)

(a) Auditor’s responsibility to communicate appropriately to those charged with governance

43. The significance of a deficiency or a combination of deficiencies in internal control depends

(a) Actual occurrence of a misstatement

(a) Required to be communicated to those charged with governance always

CA Inter with CA Himanshu

69. _ are needed to support the functioning of ___