Answers+Part+1 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 ............................................................................................................................................................................................. 11
SA 265 ............................................................................................................................................................................................. 11
SA 299 ............................................................................................................................................................................................ 12
SA 300 ............................................................................................................................................................................................ 13
SA 315 ............................................................................................................................................................................................ 15
SA 320 ............................................................................................................................................................................................ 17
SA 330 ............................................................................................................................................................................................ 19
SA 450 ............................................................................................................................................................................................ 20
SA 500 ............................................................................................................................................................................................ 20
SA 501 ............................................................................................................................................................................................ 23
SA 505 ............................................................................................................................................................................................ 24
SA 510 ............................................................................................................................................................................................ 24
SA 520 ............................................................................................................................................................................................ 24
SA 530 ............................................................................................................................................................................................ 27
SA 550 ............................................................................................................................................................................................ 28
SA 560 ............................................................................................................................................................................................ 28
SA 570 ............................................................................................................................................................................................ 29
SA 580 ............................................................................................................................................................................................ 31
SA 610 ............................................................................................................................................................................................ 31
SA 700 ............................................................................................................................................................................................ 31
SA 701 ............................................................................................................................................................................................ 32
SA 705 ............................................................................................................................................................................................ 33
SA 706 ............................................................................................................................................................................................ 34
SA 710 ............................................................................................................................................................................................ 35
CARO ............................................................................................................................................................................................... 36
Bank Audit ..................................................................................................................................................................................... 37
Other ............................................................................................................................................................................................... 41
Integrated Cases ......................................................................................................................................................................... 54

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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

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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?
(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.

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(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 issigned in case of
audit engagements.
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-

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(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:
(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

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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.
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
the circumstances to other parties, such as those charged with governance, owners or
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 the circumstances to other parties, such as those charged with governance,
owners or 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;

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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) (a) (i), (ii), (iii)
(b) (b) (i), (ii), (iii), (iv), (v)
(c) (c) (i), (ii), (iv), (v)
(d) (d) (i), (ii), (iii), (iv)
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

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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.
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.

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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
(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?

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(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
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

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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
(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

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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

(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) (a) auditor’s

(b) (b) management’s
(c) (c) those charged with governance.
(d) (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:

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(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,
(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?

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(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.
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

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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
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.

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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
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.

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(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
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)

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(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,
(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
(d) Risk assessment procedures

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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?
(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

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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

(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

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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 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.

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(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.
(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

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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
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

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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.
(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?

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(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
113. which of the following is correct:
(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.
(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

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(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
(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.

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(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.
(d) Risk of overriding of controls by management has no relationship at all with related
party transactions.
SA 560

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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
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

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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
(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)

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(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
(d) Assessing audit risk
SA 700

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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

(b) Only Statement 2 is correct
(c) Both the statements are correct
(d) None of the statement is correct

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143. Description of each key audit matter in the “key audit matters section” needs to cover
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
145. Which of the following is incorrect:
(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
(c) The auditor shall express an adverse opinion when the auditor, having obtained
(d) The auditor shall express an adverse opinion when the auditor, having obtained
the 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
financial statements.
(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

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(d) Non-funded facility and Non-funded facility
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
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

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Act, 2013.
(c) Financial statements of a bank are to be prepared in accordance with Schedule II of
Reserve Bank of India Act, 1934.
(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

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(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?
(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?

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(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: -
(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.

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(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:
(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

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(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
(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

financial
statements.
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:

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(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.
(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

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(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.
(a) Only Statement 1 is correct

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

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(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
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.

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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
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:
(a) Central Government

(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 a ir
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

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(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.
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
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
(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

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(c) Securities Premium Reserve.
(d) Liabilities
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
(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
(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

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(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:
(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?

Page 50 of 131
(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
(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?

Page 51 of 131
(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
237. The appointment of first auditor of a multi-state cooperative society is made by: -
(a) Central Registrar

(b) Board of society

Page 52 of 131
(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

Page 53 of 131

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CA Inter with CA Himanshu

MCQ & Case Studies

CA Inter with CA Himanshu

Bank Audit ..................................................................................................................................................................................... 37

Integrated Cases ......................................................................................................................................................................... 54

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) Sorting, collating & cross referencing of working papers.

(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-

CA Inter with CA Himanshu

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

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.

27. CA. Bobby is a recently qualified Chartered Accountant. He is appointed as an auditor of

CA Inter with CA Himanshu

(a) Audit programmes.

(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:

CA Inter with CA Himanshu

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

(a) Audit programmes

(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

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

CA Inter with CA Himanshu

(a) Actual occurrence of a misstatement

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

45. Which of the following is not an advantage of Joint Audit:

(a) Sharing of expertise.

47. Responsibilities of Joint Auditors are governed by:

(a) A is required to communicate this to both B &C

CA Inter with CA Himanshu

69. _ are needed to support the functioning of ___