@CACell CA Inter Audit Correct OR Incorrect Nov22

CH 1 5 .
2 – CORR EC T OR INC ORR ECT
CH 15.2
CORRECT OR INCORRECT
TOPICS COVERED
CH 1 – NATURE, OBJECTIVE & SCOPE OF AUDIT ................................................................................1
CH 2 – AUDIT STRATEGY, AUDIT PLANNING & AUDIT PROGRAMME ............................................4
CH 3 – AUDIT DOCUMENTATION & AUDIT EVIDENCE .........................................................................5
CH 4 – RISK ASSESSMENT & INTERNAL CONTROL ............................................................................7
CH 5 – FRAUD & RESPONSIBILITIES OF AUDITOR IN THIS REGARD ...........................................10
CH 6 – AUDIT IN AUTOMATED ENVIRONMENT ....................................................................................12
CH 7 – AUDIT SAMPLING ............................................................................................................................13
CH 8 – ANALYTICAL PROCEDURES ........................................................................................................15
CH 9 – AUDIT OF ITEMS OF FINANCIAL STATEMENTS .....................................................................16
CH 10 – COMPANY AUDIT ..........................................................................................................................19
CH 11 – AUDIT REPORT ..............................................................................................................................23
CH 12 – AUDIT OF BANKS ..........................................................................................................................25
CH 13 – AUDIT OF DIFFERENT TYPES OF ENTITIES ..........................................................................27
State with reasons (in short) whether the following statement is correct or incorrect:
CH 1 – NATURE, OBJECTIVE & SCOPE OF AUDIT

1. An audit is an official investigation into alleged wrongdoing.
2. The basic objective of audit does not change with reference to nature, size or form of
an entity (IMP)
3. The purpose of an audit is to enhance the degree of confidence of intended users in the
financial statements
4. 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. (IMP)
5. The audit engagement letter is sent by the client to auditor.
6. Specific disclosure is required of the fundamental accounting assumptions followed in
the financial statements.
7. An Auditor is considered to lack independence if the partner of the audit firm deals with
shares and securities of the audited entity.
8. The Audit Engagement documentations should ordinarily be retained by the auditor for
minimum of six years from the date of the auditor's report or the date of the group
auditor's report, whichever is later. (IMP)
9. Mr. S, one of the new team members of the auditor of Extremely Effective Limited was
of the view that for the purpose of conducting an audit, only knowledge of direct tax is
required whereas no knowledge of indirect tax is required.
15.2.1 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

CH 1 5 .2 – CORR EC T OR INC ORR ECT
10. According to Mr. H, one of the team members of the auditor of Very Essential Limited
was of the view that no relation exists between accounting and auditing from the point
of view of a company.
11. The term “Engagement Standards” refer to Standards on Auditing only. (IMP)
12. Preconditions for an audit have not been defined in SA 210 “Agreeing the Terms of
Audit Engagements.”
13. SA 210 does not require the auditor to agree management’s responsibilities in an
engagement letter or other suitable form of written agreement.
14. Familiarity threats, which occur when auditors are deterred from acting objectively with
an adequate degree of professional skepticism. Basically, these could happen because
of threat of replacement over disagreements with the application of accounting
principles, or pressure to disproportionately reduce work in response to reduced audit
fees. (IMP)
15. Even if law or regulation prescribes sufficient details of the terms of the audit
engagement the auditor should record them in a written agreement. (IMP)
16. There is a very thin difference between advocacy threats and intimidation threats to an
auditor while performing his duty.
Answers
1. Incorrect: An audit is not an official investigation into alleged wrongdoing. Accordingly,
the auditor is not given specific legal powers, such as the power of search, which may
be necessary for such an investigation.
2. Correct: An audit is an independent examination of financial information of any entity,
whether profit oriented or not, and irrespective of its size or legal form, when such an
examination is conducted with a view to expressing an opinion thereon. It is clear that
the basic objective of auditing, i.e., expression of opinion on financial statements does
not change with reference to nature, size or form of an entity.
3. Correct: As per SA 200 “Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing”, the purpose of an audit
is to enhance the degree of confidence of intended users in the financial statements.
This is achieved by the expression of an opinion by the auditor on whether the financial
statements are prepared, in all material respects, in accordance with an applicable
financial reporting framework.
4. Correct: As per SA 200 “Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing”, 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. This is because there are inherent limitations of an audit, which result in
most of the audit evidence on which the auditor draws conclusions and bases the
auditor’s opinion being persuasive rather than conclusive.
5. Incorrect: As per SA 210 “Agreeing the Terms of Audit Engagements”, the Audit
engagement letter is sent by the auditor to his client.
6. Incorrect: As per AS 1, “Disclosure of Accounting Policies”, specific disclosure of the
fundamental accounting assumption is required if they are not followed in the financial
statements.
7. Correct: As per section 141(3)(d), a person shall not be eligible for appointment as an
auditor of a company namely- a person, or his relative or partner is holding any security
of or interest in the company or its subsidiary, or of its holding or associate company or
a subsidiary of such holding company. From the above it can be concluded that if the

partner deals with shares and securities of the audited entity, he would be lacking
independence, hence, disqualified to be appointed as an auditor.
Further, the Code of Ethics for Professional Accountants, prepared by the International
Federation of Accountants (IFAC) identifies five types of threats and if partner of the
firm deals with shares and securities of the audited firm then such threat is known as
the Advocacy Threats and auditor will be lacking independence.
8. Incorrect: SQC 1 requires firms to establish policies and procedures for the retention of
engagement documentation. The retention period for audit engagements ordinarily is
no shorter than seven years from the date of the auditor’s report, or, if later, the date of
the group auditor’s report.
9. Incorrect: The viewpoint of Mr. S is incorrect because for the purpose of conducting an
audit, proper knowledge of both direct tax as well as indirect tax is required.
10. Incorrect: The viewpoint of Mr. H is incorrect because there exists a proper relation
between accounting and auditing from the point of view of a company. Audit is
conducted for financial statements of a company and those financial statements are
prepared with the help of books of accounts of that company. In order to properly
conduct an audit of a company, an auditor is required to be aware of accounting
principles and accounting policies of that company.
11. Incorrect: Engagement Standards refer not only to Standards on auditing but also to
Standards on review engagements, Standards on assurance engagements and
Standards on related services.
12. Incorrect: As per SA 210 “Agreeing the Terms of Audit Engagements”, preconditions
for an audit may be defined as the use by management of an acceptable financial
reporting framework in the preparation of the financial statements and the agreement of
management and, where appropriate, those charged with governance to the premise
on which an audit is conducted.
13. Incorrect: SA 210 requires the auditor to agree management’s responsibilities in an
engagement letter or other suitable form of written agreement.
14. Incorrect: Intimidation threats, which occur when auditors are deterred from acting
objectively with an adequate degree of professional skepticism. Basically, these could
happen because of threat of replacement over disagreements with the application of
accounting principles, or pressure to disproportionately reduce work in response to
reduced audit fees.
Familiarity threats are self-evident, and occur when auditors form relationships with the
client where they end up being too sympathetic to the client’s interests.
15. Incorrect: If law or regulation prescribes in sufficient detail the terms of the audit
engagement, the auditor need not record them in a written agreement, except for the
fact that such law or regulation applies and that management acknowledges and
understands its responsibilities.
16. Incorrect: Advocacy threats, which occur when the auditor promotes, or is perceived to
promote, a client’s opinion to a point where people may believe that objectivity is getting
compromised. e.g. when an auditor deals with shares or securities of the audited
company, or becomes the client’s advocate in litigation and third party disputes.
Intimidation threats, which occur when auditors are deterred from acting objectively with
an adequate degree of professional skepticism. Basically, these could happen because
of threat of replacement over disagreements with the application of accounting
principles, or pressure to disproportionately reduce work in response to reduced audit
fees. So, it can be concluded that there is not very thin difference between the
advocacy threats and intimidation threats.

CH 2 – AUDIT STRATEGY, AUDIT PLANNING & AUDIT PROGRAMME

1. The establishment of the overall audit strategy and the detailed audit plan are not
necessarily discrete or sequential processes, but are closely interrelated since changes
in one may result in consequential changes to the other.
2. Establishing an overall audit strategy that sets the scope, timing and direction of the
audit, and that guides the development of the audit plan is prerogative of the
management. (IMP)
3. Planning is a discrete phase of an audit (IMP)
4. Materiality for the financial statements as a whole (and, if applicable, the materiality
level or levels for particular classes of transactions, account balances or disclosures)
does not need any revision.
5. A detailed Audit Programme once prepared for a business can be used for all business
under all circumstances.
6. The audit plan is more detailed than the overall audit strategy
7. There is no relation between Audit Plans and knowledge of the client’s business
8. The auditor need not discuss elements of planning with the entity’s management in any
case. (IMP)
9. When establishing the overall audit strategy, the auditor need not determine materiality
for the financial statements as a whole. (IMP)
10. A well designed and drafted audit plan and audit strategy which takes care of all the
uncertainties and conditions, need not be changed during the course of audit.
11. Under a properly framed audit programme by the auditor, the danger is significantly
less and audit can proceed systematically. (IMP)
Answers
1. Correct: Once the overall audit strategy has been established, an audit plan can be
developed to achieve the audit objectives through the efficient use of the auditor’s
resources. The establishment of the overall audit strategy and the detailed audit plan
are not necessarily discrete or sequential processes, but are closely inter-related since
changes in one may result in consequential changes to the other.
2. Incorrect: The auditor shall establish an overall audit strategy that sets the scope,
timing and direction of the audit, and that guides the development of the audit plan.
3. Incorrect: Planning is not a discrete phase of an audit, but rather a continual and
iterative process that often begin shortly after (or in connection with) the completion of
the previous audit and continues until the completion of the current audit engagement.
Planning, however, includes consideration of the timing of certain activities and audit
procedures that need to be completed prior to the performance of further audit
procedures
4. Incorrect: Materiality for the financial statements as a whole (and, if applicable, the
materiality level or levels for particular classes of transactions, account balances or
disclosures) may need to be revised as a result of a change in circumstances that
occurred during the audit (for example, a decision to dispose of a major part of the
entity’s business), new information, or a change in the auditor’s understanding of the
entity and its operations as a result of performing further audit procedures.
5. Incorrect: Businesses vary in nature, size and composition; work which is suitable to
one business may not be suitable to others; efficiency and operation of internal controls
and the exact nature of the service to be rendered by the auditor are the other factors

that vary from assignment to assignment. On account of such variations, evolving one
audit programme applicable to all business under all circumstances is not practicable
6. Correct: The audit plan is more detailed than the overall audit strategy that includes the
nature, timing and extent of audit procedures to be performed by engagement team
members. Planning for these audit procedures takes place over the course of the audit
as the audit plan for the engagement develops.
7. Incorrect: The auditor should plan his work to enable him to conduct an effective audit
in an efficient and timely manner. Plans should be based on knowledge of the client’s
business
8. Incorrect: The auditor may decide to discuss elements of planning with the entity’s
management to facilitate the conduct and management of the audit engagement.
9. Incorrect: When establishing the overall audit strategy, the auditor shall determine
materiality for the financial statements as a whole.
10. Incorrect: The auditor shall update and change the overall audit strategy and the audit
plan as necessary during the course of the audit. As a result of unexpected events,
changes in conditions, or the audit evidence obtained from the results of audit
procedures, the auditor may need to modify the overall audit strategy and audit plan
and thereby the resulting planned nature, timing and extent of further audit procedures,
based on the revised consideration of assessed risks.
11. Correct: Without a written and pre-determined programme, work is necessarily to be
carried out on the basis of some ‘mental’ plan. In such a situation there is always a
danger of ignoring or overlooking certain books and records.
Thus, under a properly framed programme, the danger is significantly less and the audit
can proceed systematically.
CH 3 – AUDIT DOCUMENTATION & AUDIT EVIDENCE

1. As per SA 230 on “Audit Documentation”, the working papers are not the property of
the auditor.
2. Purchase invoice is an example of internal evidence.
3. Sufficiency is the measure of the quality of audit evidence.
4. Inquiry alone is sufficient to test the operating effectiveness of controls. (IMP)
5. Mr. A is a statutory auditor of ABC Ltd. The branch of ABC Ltd. is audited by Mr. B,
another Chartered Accountant. Mr. A requests for the photocopies of the audit
documentation of Mr. B pertaining to the branch audit.
6. When auditor inquires the management as part of the audit procedures it should be
formal written form only and not informal oral inquiries. (IMP)
7. Assertions refer to the representations by the auditor to consider the different types of
the potential misstatements that may occur. (IMP)
8. The matter of difficulty, time, or cost involved is in itself a valid basis for the auditor to
omit an audit procedure for which there is no alternative. (IMP)
9. Audit documentation is a substitute for the entity’s accounting records.
10. Subjective examination connotes critical examination and scrutiny of the accounting
statements. (IMP)
11. In considering the qualitative aspects of the entity’s accounting practices, the auditor
may not become aware of possible bias in management’s judgments. (IMP)
12. One of the objectives of the written representation is to support other audit evidence
relevant to the financial statements

13. The auditor must include in audit documentation superseded drafts of working papers
and financial statements, notes that reflect incomplete or preliminary thinking etc. (IMP)
14. If the auditor assesses a risk of material misstatement regarding litigation or claims that
have been identified, the auditor need not seek direct communication with the entity’s
external legal counsel.
15. During the audit process, the Auditor can easily identify all mistakes or manipulations
that may exist in the accounts through routine checking processes. (IMP)
16. An auditor is not concerned with consistency of accounting policies relating to opening
balances.
17. Audit evidence obtained from external confirmation is always reliable.
18. External confirmation procedures are restricted to the items of addressing assertions
associated with account balances & their elements only. (IMP)
Answers
1. Incorrect: As per SA 230 on “Audit Documentation” the working papers are the
property of the auditor and the auditor has right to retain them. He may at his discretion
can make available working papers to his client. The auditor should retain them long
enough to meet the needs of his practice and legal or professional requirement.
2. Incorrect: Internal evidence is the evidence that originates within the client’s
organisation. Since purchase invoice originates outside the client’s organisation,
therefore, it is an example of external evidence.
3. Incorrect: Sufficiency is the measure of the quantity of audit evidence. On the other
hand, appropriateness is the measure of the quality of audit evidence.
4. Incorrect: Inquiry along with other audit procedures (for example observation,
inspection, external confirmation etc.) would only enable the auditor to test the
operating effectiveness of controls. Inquiry alone is not sufficient to test the operating
effectiveness of controls.
5. Incorrect: SA 230 issued by ICAI on Audit Documentation, and “Standard on Quality
Control (SQC) 1, provides that, unless otherwise specified by law or regulation, audit
documentation is the property of the auditor. He may at his discretion, make portions of,
or extracts from, audit documentation available to clients, provided such disclosure
does not undermine the validity of the work performed, or, in the case of assurance
engagements, the independence of the auditor or of his personnel.
6. Incorrect: When auditor inquires the management as part of audit procedures such
inquiries may range from formal written inquiries to informal oral inquiries.
7. Incorrect: Assertions refer to representations by management that are embodied in the
financial statements as used by the auditor to consider the different types of the
potential misstatements that may occur.
8. Incorrect: The matter of difficulty, time, or cost involved is not in itself a valid basis for
the auditor to omit an audit procedure for which there is no alternative. Appropriate
planning assists in making sufficient time and resources available for the conduct of the
audit. Notwithstanding this, the relevance of information, and thereby its value, tends to
diminish over time, and there is a balance to be struck between the reliability of
information and its cost.
9. Incorrect: The auditor may include copies of the entity’s records (for example,
significant and specific contracts and agreements) as part of audit documentation. Audit
documentation is not a substitute for the entity’s accounting records.
10. Incorrect: Objective examination connotes critical examination and scrutiny of the
accounting statements of the undertaking with a view to assessing how far the

statements present the actual state of affairs in the correct context and whether they
give a true and fair view about the financial results and state of affairs.
11. Incorrect: In considering the qualitative aspects of the entity’s accounting practices, the
auditor may become aware of possible bias in management’s judgments. The auditor
may conclude that lack of neutrality together with uncorrected misstatements causes
the financial statements to be materially misstated.
12. Correct: One of the objectives of the written representation is to support other audit
evidence relevant to the financial statements or specific assertions in the financial
statements by means of written representation. Written representations cannot be a
substitute for other evidence that the auditor could expect to be reasonably available.
13. Incorrect: The auditor need not include in audit documentation superseded drafts of
working papers and financial statements, notes that reflect incomplete or preliminary
thinking, previous copies of documents corrected for typographical or other errors, and
duplicates of documents.
14. Incorrect: If the auditor assesses a risk of material misstatement regarding litigation or
claims that have been identified, or when audit procedures performed indicate that
other material litigation or claims may exist, the auditor shall, in addition to the
procedures required by other SAs, seek direct communication with the entity’s external
legal counsel.
15. Incorrect: Routine checking cannot be depended upon to disclose all the mistakes or
manipulation that may exist in accounts. Certain other procedures also have to be
applied like trend and ratio analysis including review of internal control.
16. Incorrect: In conducting an initial audit engagement, one of the objective of the auditor
with respect to opening balances is to obtain sufficient appropriate audit evidence about
whether appropriate accounting policies reflected in the opening balances have been
consistently applied in the current period’s financial statements, or changes thereto are
properly accounted for and adequately presented and disclosed in accordance with the
applicable financial reporting framework.
17. Incorrect: The reliability of information to be used as audit evidence, and therefore of
the audit evidence itself, is influenced by its source and its nature, and the
circumstances under which it is obtained, including the controls over its preparation and
maintenance where relevant. Even when information to be used as audit evidence is
obtained from sources external to the entity, circumstances may exist that could affect
its reliability. For example, information obtained from an independent external source
may not be reliable if the source is not knowledgeable, or a management’s expert may
lack objectivity.
18. Incorrect: External confirmation procedures frequently are relevant when addressing
assertions associated with certain account balances and their elements. However,
external confirmation need not be restricted to account balances only.
CH 4 – RISK ASSESSMENT & INTERNAL CONTROL

1. Inquiry alone provides sufficient audit evidence of the absence of a material
misstatement at the assertion level and of the operating effectiveness of controls.
2. As per section 138 of the Companies Act, 2013 private companies are not required to
appoint internal auditor.
3. There is direct relationship between materiality and the degree of audit risk. (IMP)
4. Control risk is the susceptibility of an account balance or class of transactions to
misstatement that could be material either individually or, when aggregated with

misstatements in other balances or classes, assuming that there were no related

internal controls. (IMP)
5. Tests of control are performed to obtain audit evidence about the effectiveness of
Internal Controls Systems.
6. Maintenance of Internal Control System is the responsibility of the Statutory Auditor.
7. One of the directors of Very Fresh Fruits Limited was of the view that internal auditor to
be appointed must be an employee of Very Fresh Fruits Limited.
8. Mr. W, one of the team members of auditor of Different Limited was of the view that
understanding the Internal Control of Different Limited will not help in developing an
Audit Programme.
9. Information obtained by performing risk assessment procedures shall not be used by
the auditor as audit evidence to support assessments of the risks of material
misstatement. (IMP)
10. When the auditor has determined that an assessed risk of material misstatement at the
assertion level is a significant risk, the auditor shall not perform substantive procedures
that are specifically responsive to that risk.
11. The SAs ordinarily refer to inherent risk and control risk separately. (IMP)
12. The assessment of risks is a matter capable of precise measurement. (IMP)
13. Risk assessment procedures are not performed to obtain an understanding of the entity
and its environment. (IMP)
14. When we are designing audit procedures to address an inherent risk or “what can go
wrong”, we consider the nature of the risk of material misstatement. (IMP)
15. Judgemental matters are transactions that are unusual due to either its size or nature
and that therefore occur infrequently. (IMP)
16. Satisfactory Control environment is not an absolute deterrent to fraud. (IMP)
17. For an auditor, the Risk assessment procedure provides sufficient appropriate audit
evidence to base the audit opinion.
18. Risks of material misstatement may be greater for significant judgmental matters that
require the development of accounting estimates.
19. The objectives and scope of internal audit functions are restricted to activities relating to
evaluation of internal control only.
20. In the context of related parties, the potential effects of inherent limitations on the
auditor's ability to detect material misstatements are greater. (IMP)
Answers
1. Incorrect: Although inquiry may provide important audit evidence, and may even
produce evidence of a misstatement, inquiry alone ordinarily does not provide sufficient
audit evidence of the absence of a material misstatement at the assertion level, nor of
the operating effectiveness of controls.
2. Incorrect: Section 138 of the Companies Act, 2013 requires every private company to
appoint an internal auditor having turnover of Rs. 200 crore or more during the
preceding financial year; or outstanding loans or borrowings from banks or public
financial institutions exceeding Rs. 100 crore or more at any point of time during the
preceding financial year.
3. Incorrect: There is an inverse relationship between materiality and the degree of audit
risk. The higher the materiality level, the lower the audit risk and vice versa. For
example, the risk that a particular account balance or class of transactions could be
misstated by an extremely large amount might be very low but the risk that itt could be
misstated by an extremely small amount might be very high.

4. Incorrect: Inherent risk is the susceptibility of an account balance or class of

transactions to misstatement that could be material either individually or, when
aggregated with misstatements in other balances or classes, assuming that there were
no related internal controls.
5. Correct: Tests of Control are performed to obtain audit evidence about the
effectiveness of:
(a) the design of the accounting and internal control systems that is whether, they are
suitably designed to prevent or detect or correct material misstatements and
(b) the operation of the internal controls throughout the period.
6. Incorrect: The management is responsible for maintaining an adequate accounting
system incorporating various internal controls to the extent appropriate to the size and
nature of the business. Maintenance of Internal Control System is responsibility of
management because the internal control is the process designed, implemented and
maintained by those charged with governance/management to provide reasonable
assurance about the achievement of entity’s objectives.
7. Incorrect: As per section 138, the internal auditor shall either be a chartered
accountant or a cost accountant (whether engaged in practice or not), or such other
professional as may be decided by the Board to conduct internal audit of the functions
and activities of the companies. The internal auditor may or may not be an employee of
the company.
8. Incorrect: Understanding the Internal Control of Different Limited will help in
developing an Audit Programme because it will assist the auditor and his team to
understand as to how much they can rely on internal control of the company and what
audit procedures would be appropriate to be used during the course of audit.
9. Incorrect: Information obtained by performing risk assessment procedures and related
activities may be used by the auditor as audit evidence to support assessments of the
risks of material misstatement.
10. Incorrect: When the auditor has determined that an assessed risk of material
misstatement at the assertion level is a significant risk, the auditor shall perform
substantive procedures that are specifically responsive to that risk. When the approach
to a significant risk consists only of substantive procedures, those procedures shall
include tests of details.
11. Incorrect: The SAs do not ordinarily refer to inherent risk and control risk separately,
but rather to a combined assessment of the “risks of material misstatement”. However,
the auditor may make separate or combined assessments of inherent and control risk
depending on preferred audit techniques or methodologies and practical
considerations. The assessment of the risks of material misstatement may be
expressed in quantitative terms, such as in percentages, or in non-quantitative terms. In
any case, the need for the auditor to make appropriate risk assessments is more
important than the different approaches by which they may be made.
12. Incorrect: The assessment of risks is based on audit procedures to obtain information
necessary for that purpose and evidence obtained throughout the audit. The
assessment of risks is a matter of professional judgment, rather than a matter capable
of precise measurement.
13. Incorrect: Risk assessment procedures 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.
14. Correct: When we are designing audit procedures to address an inherent risk or “what
can go wrong”, we consider the nature of the risk of material misstatement in order to

determine if a substantive analytical procedure can be used to obtain audit evidence.

When inherent risk is higher, we may design tests of details to address the higher
inherent risk. When significant risks have been identified, audit evidence obtained
solely from substantive analytical procedures is unlikely to be sufficient.
15. Incorrect: Significant risks often relate to significant non-routine transactions or
judgemental matters. Non-routine transactions are transactions that are unusual, due to
either size or nature, and that therefore occur infrequently. Judgemental matters may
include the development of accounting estimates for which there is significant
measurement uncertainty. Thus, judgemental matters are not always unusual due to
their size or nature.
16. Correct: The existence of a Satisfactory Control environment can be a positive factor
when an auditor assesses the risk of material misstatement. However, although it may
help reduce the risk of fraud, a satisfactory Control environment is not an absolute
deterrent to fraud.
17. Incorrect: The auditor shall perform risk assessment procedures to provide a basis for
the identification and assessment of risks of material misstatement at the financial
statement and assertion levels. Risk assessment procedures by themselves, however,
do not provide sufficient appropriate audit evidence on which to base the audit opinion.
18. Correct: Risks of material misstatement may be greater for significant judgmental
matters that require the development of accounting estimates, arising from matters
such as the following:
• Accounting principles for accounting estimates or revenue recognition may be
subject to differing interpretation.
• Required judgment may be subjective or complex, or require assumptions about
the effects of future events, for example, judgment about fair value.
19. Incorrect: As per SA-610, “Using the Work of an Internal Auditor”, the objectives of
internal audit functions vary widely and depend on the size and structure of the entity
and the requirements of management and, where applicable, those charged with
governance. The objectives and scope of internal audit functions typically include
assurance and consulting activities designed to evaluate and improve the effectiveness
of the entity’s governance processes, risk management and internal control.
From the above, it can be concluded that the objective and scope of internal audit
function are not restricted to activities relating to evaluation of control only.
20. Correct: In the context of related parties, the potential effects of inherent limitations on
the auditor’s ability to detect material misstatements are greater for such reasons as the
following:
• Management may be unaware of the existence of all related party relationships.
• Related party relationships may present a greater opportunity for collusion,
concealment or manipulation by management.
CH 5 – FRAUD & RESPONSIBILITIES OF AUDITOR IN THIS REGARD

1. Audit procedures used to gather audit evidence may be effective for detecting an
intentional misstatement. (IMP)
2. Teeming and lading is one of the techniques of inflating cash payments. (IMP)
3. Fraud can be termed as intentional error.
4. Auditor needs to report to Central Government in case of fraud involving 20 lakhs
rupees.

5. The primary responsibility for the prevention and detection of fraud rests with both
those charged with governance of the entity and management. (IMP)
6. Fraudulent financial reporting only involves manipulation, falsification or alteration of
accounting records or supporting documents from which financial statements are
prepared. (IMP)
7. Unusual delays by the entity in providing requested information shows problematic or
unusual relationships between the auditor and management. (IMP)
8. In comparing management fraud with employee fraud, the auditor’s risk of failing to
discover the fraud is less for management fraud.
9. Excessive interest by management in maintaining or increasing the entity’s inventory
price or earnings trend is an example of fraud risk factor related to opportunities. (IMP)
10. Misstatements in the financial statements can arise from fraud only.
11. Misappropriation of Assets involves the theft of an entity’s assets and is often
perpetrated by employees in relatively large and material amounts.
12. 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.
Answers
1. Incorrect: Fraud may involve sophisticated and carefully organised schemes designed
to conceal it. Therefore, audit procedures used to gather audit evidence may be
ineffective for detecting an intentional misstatement that involves, for example, collusion
to falsify documentation which may cause the auditor to believe that audit evidence is
valid when it is not. The auditor is neither trained as nor expected to be an expert in the
authentication of documents.
2. Incorrect: Teeming and Lading is one of the techniques of suppressing cash receipts
and not of inflating cash payments. Money received from one customer is
misappropriated and the account is adjusted with the subsequent receipt from another
customer and so on.
3. Correct: Fraud is the word used to mean intentional error. This is done deliberately
which implies that there is intent to deceive, to mislead or at least to conceal the truth. It
follows that other things being equal they are more serious than unintentional errors
because of the implication of dishonestly which accompanies them.
4. Incorrect: As per section 143(12) of the Companies Act, 2013, if an auditor of a
company, in the course of the performance of his duties as auditor, has reason to
believe that an offence involving fraud is being or has been committed against the
company by officers or employees of the company, he shall immediately report the
matter to the Central Government (in case amount of fraud is Rs. 1 crore or above) or
Audit Committee or Board in other cases (in case the amount of fraud involved is less
than 1 crore) within such time and in such manner as may be prescribed.
Thus, fraud involving amount of 20 lakh rupees should be reported to Audit Committee.
5. Correct: As per SA 240 “The Auditor’s Responsibilities Relating to Fraud in an Audit of
Financial Statements’. It is important that management, with the oversight of those
charged with governance place a strong emphasis on fraud prevention, which may
reduce opportunities for fraud to take place, and fraud deterrence, which could
persuade individuals not to commit fraud because of the likelihood of detention and
punishment. This involves a commitment to create a culture of honesty and ethical
behavior which can be reinforced by an active oversight by those charged with
governance.

6. Incorrect: As per SA 240, ”The Auditor’s Responsibilities Relating to fraud in an Audit

of Financial Statements’, fraudulent financial reporting may involve manipulation,
falsification or alteration of accounting records or supporting documents from which
financial statements are prepared, misrepresentation in or intentional omission from,
financial statements of events, transaction or other significant information or intentional
misapplication of accounting principles relating to amounts, classification, manner of
presentation or disclosure.
7. Correct: It is a strong example of circumstances that indicate the possibility of fraud.
This happiness only because of the Management’s intolerance towards the auditor’s
Professional skepticism
8. Incorrect: In comparing management fraud with employee fraud, the auditor’s risk of
failing to discover the fraud is greater for management fraud because of management’s
ability to override existing internal controls
9. Incorrect: Excessive interest by management in maintaining or increasing the entity’s
inventory price or earnings trend is an example of Fraud Risk Factor related to
Rationalization.
10. Incorrect: Misstatements in the financial statements can arise from either fraud or
error. The distinguishing factor between fraud and error is whether the underlying action
that results in the misstatement of the financial statements is intentional or
unintentional.
11. Incorrect: Misappropriation of Assets involves the theft of an entity’s assets and is
often perpetrated by employees in relatively small and immaterial amounts.
12. Incorrect: An auditor conducting an audit in accordance with SAs is responsible for
obtaining reasonable assurance that the financial statements taken as a whole are free
from material misstatement, whether caused by fraud or error. As described in SA200,
“Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing,” 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.
CH 6 – AUDIT IN AUTOMATED ENVIRONMENT

1. All automated environments are complex.
2. In an audit of financial statements, the auditor should plan response to all IT risks.
3. General IT controls support the functioning of Application controls.
4. Inquiry is often the most efficient audit testing method, but least effective. (IMP)
5. Specialised audit tools like IDEA, ACL are required to perform data analytics.
6. A combination of processes, tools and techniques that are used to tap vast amounts of
electronic data to obtain meaningful information is known as meaningful data. (IMP)
7. During the assessment of Internal Controls, if the auditor can test Compensating
controls, he should obtain evidence of other mitigating factors. (IMP)
8. An automated environment basically refers to a business environment where the
processes, operations, accounting except the decisions are carried out by using
computer systems.
9. The Company auditor need not report on the efficacy of Internal Financial controls in his
Audit Report in the case of a One Person Company.
10. Generally, applying inquiry in combination with reperformance as audit testing method
gives the most effective and efficient audit evidence (IMP)

11. With reference to General IT control, the objective of Data Center and Network
Operations is to ensure that systems are developed, configured and implemented to
meet financial reporting objectives. (IMP)
Answers
1. Incorrect: The complexity of an automated environment depends on various factors
including the nature of business, level of automation, volume of transactions, use of
ERP and so on. There could be environment where dependence on IT and automation
is relatively less or minimal and hence, considered less complex or even non-complex.
2. Incorrect: The auditor should plan response to those IT risks that are relevant to
financial reporting and not “all” IT risks.
3. Correct: General IT controls support the functioning of automated application controls
and IT dependent controls.
4. Correct: Inquiry is the most efficient but least effective. Moreover, testing through
inquiry alone is not sufficient. Inquiry should be corroborated by applying any one or a
combination of observation, inspection or reperformance.
5. Incorrect: Even though specialised audit tools are very useful, such tools are not
always required or necessary to carry out data analytics. More commonly available
spreadsheet applications like MS-Excel can also be effectively used for carrying out
data analytics.
6. Incorrect: A combination of processes, tools and techniques that are used to tap vast
amounts of electronic data to obtain meaningful information is known as Data Analytics.
7. Incorrect: If the auditor can test Compensating controls, he should obtain additional
evidence that may be required. Obtaining evidence of other mitigating factors is
required when he can’t test compensating controls during his assessment of the
Internal Controls.
8. Incorrect: An automated environment basically refers to a business environment where
the processes, operations, accounting and even decisions are carried out by using
computer systems
9. Correct: A One Person Company and Small Company are exempted from this
requirement as per proviso to Section 143(3)(i).
10. Incorrect: Generally, applying inquiry in combination with inspection gives the most
effective and efficient audit evidence
11. Incorrect: Objective of Data Center and Network Operations is to ensure that
production systems are processed to meet financial reporting objectives.
Objective of Application system acquisition, development, and maintenance is to
ensure that systems are developed, configured and implemented to meet financial
reporting objectives.
CH 7 – AUDIT SAMPLING
1. The method which involves dividing the population into groups of items is knows as
block sampling. (IMP)
2. Universe refers to the entire set of data from which a sample is selected and about
which the auditor wishes to draw conclusions. (IMP)
3. Non Statistical sampling is an approach to sampling that has the random selection of
the sample items; and the use of probability theory to evaluate sample results, including
measurement of sampling risk characteristics.
4. Sample need not be representative

5. The objective of stratification is to increase the variability of items within each stratum
and therefore allow sample size to be reduced without increasing sampling risk. (IMP)
6. When statistical sampling is used to select a sample, sample need not be
representative because the statistical sampling takes care of the representation.
7. Stratified Sampling is used for homogeneous population.
8. Non statistical sampling is considered to be more scientific than the statistical sampling.
9. In case of Statistical sampling, auditor’s bias in choosing sample is involved.
10. In stratified sampling, the conclusion drawn on each stratum can be directly projected to
the whole population. (IMP)
11. Low acceptable sampling risk requires larger sample size. (IMP)
12. Statistical sampling has narrower application where a population to be tested consists
of a large number of similar items. (IMP)
13. The non-statistical sampling is criticized on the grounds that it is neither objective nor
scientific.
Answers
1. Incorrect: The method which involves dividing the population into groups of items is
known as cluster sampling whereas block sampling involves the selection of a defined
block of consecutive items.
2. Incorrect: Population refers to the entire set of data from which a sample is selected
and about which the auditor wishes to draw conclusions.
3. Incorrect: Statistical sampling is an approach to sampling that has the random
selection of the sample items; and the use of probability theory to evaluate sample
results, including measurement of sampling risk characteristics.
4. Incorrect: Whatever may be the approach non-statistical or statistical sampling, the
sample must be representative. This means that it must be closely similar to the whole
population although not necessarily exactly the same. The sample must be large
enough to provide statistically meaningful results.
5. Incorrect: The objective of stratification is to reduce the variability of items within each
stratum and therefore allow sample size to be reduced without increasing sampling risk.
6. Incorrect: Whatever may be the approach non-statistical or statistical sampling, the
sample must be representative. This means that it must be closely similar to the whole
population although not necessarily exactly the same. The sample must be large
enough to provide statistically meaningful results.
7. Incorrect: Stratified sampling is used when the population is diversified i.e.
heterogeneous. The population is divided into sub population having similar
characteristics. Sample are then chosen from these sub populations which are called
as Stratum. Therefore, stratified sampling is not useful in case of homogeneous
population.
8. Incorrect: Statistical sampling uses scientific method of choosing samples from a given
population. The use of probability theory is involved in statistical sampling so that every
sampling unit has an equal chance of getting selected. In the non-statistical sampling,
auditors’ judgment and past experience is used to choose samples without any
scientific method.
9. Incorrect: Statistical sampling uses scientific method choosing samples from a given
population. The use of probability theory is involved in statistical sampling so that every
sampling unit has an equal chance of getting selected. In the non-statistical sampling,
auditor’s judgment and past experience is used to choose samples without and

scientific method. Hence, personal bias is involved in Non-statistical sampling and not
Statistical.
10. Incorrect: In case of stratified sampling, the conclusions are drawn on the stratum. The
combination of all the conclusions on stratum together will be used to determine the
possible effect of misstatement or deviation. Hence the samples are used to derive
conclusion only on the respective stratum from where they are drawn and not the whole
population.
11. Correct: Sampling risk arises from possibility that the auditor’s conclusion based upon
sample may be different from conclusion that would have been reached if same audit
procedures were applied on the entire population. If acceptable sampling risk is low,
large sample size is needed.
12. Incorrect: Statistical sampling has reasonably wide application where a population to
be tested consists of a large number of similar items and more in the case of
transactions involving compliance testing, trade receivables’ confirmation, payroll
checking, vouching of invoices and petty cash vouchers.
13. Correct: The non-statistical sampling is criticized on the grounds that it is neither
objective nor scientific. The expected degree of objectivity cannot be assured in non-
statistical sampling because the risk of personal bias in selection of sample items
cannot be eliminated. The closeness of the qualities projected by the sample results
with that of the whole population cannot be measured because the sample has not
been selected in accordance with the mathematically based statistical techniques.
CH 8 – ANALYTICAL PROCEDURES
1. 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 only.
2. Auditor can depend on routine checks to disclose all the mistakes or manipulation that
may exist in accounts.
3. Only purpose of analytical procedures is to obtain relevant and reliable audit evidence
when using substantive analytical procedures. (IMP)
4. Analytical Procedures are required in the planning phase only.
5. Substantive analytical procedures are generally less applicable to large volumes of
transactions that tend to be predictable over time (IMP)
6. Ratio analysis is useful in analyzing revenue and expense account only.
7. Reasonableness test rely only on the events of the prior period like other analytical
procedures. (IMP)
8. The statutory auditor of the company can apply analytical procedures to the standalone
financial statements of a company only and not to the consolidated financial
statements.
9. In the planning stage, analytical procedures would not in any way assist the auditor.
10. If an entity has a known number of employees at fixed rates of pay throughout the
period, there would be more need to perform tests of details on the payroll. (IMP)
Answers
1. Incorrect: 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 both financial and non-financial data.

2. Incorrect: Routine checks cannot be depended upon to disclose all the mistakes or
manipulation that may exist in accounts, certain other procedures also have to be
applied like trend and ratio analysis in addition to reasonable tests.
3. Incorrect: Analytical procedures use comparisons and relationships to assess whether
account balances or other data appear reasonable. Analytical procedures are used for
the following purposes:
(i) To obtain relevant and reliable audit evidence when using substantive analytical
procedures; and
(ii) To design and perform analytical procedures near the end of the audit that assist
the auditor when forming an overall conclusion as to whether the financial
statements are consistent with the auditor’s understanding of the entity.
4. Incorrect: Analytical Procedures are required in the planning phase and it is often done
during the testing phase. In addition, these are also required during the completion
phase.
5. Incorrect: Substantive analytical procedures are generally more applicable to large
volumes of transactions that tend to be predictable over time.
6. Incorrect: Ratio analysis is useful for analysing asset and liability accounts as well as
revenue and expense accounts
7. Incorrect: Unlike trend analysis, Reasonableness test does not rely on events of prior
periods, but upon non-financial data for the audit period under consideration.
8. Incorrect: Analytical procedures may be applied to consolidated financial statements,
components and individual elements of information.
9. Incorrect: In the planning stage, analytical procedures assist the auditor in
understanding the client’s business and in identifying areas of potential risk by
indicating aspects of and developments in the entity’s business of which he was
previously unaware. This information will assist the auditor in determining the nature,
timing and extent of his other audit procedures. Analytical procedures in planning the
audit use both financial data and non-financial information, such as number of
employees, square feet of selling space, volume of goods produced and similar
information.
10. Incorrect: If an entity has a known number of employees at fixed rates of pay
throughout the period, it may be possible for the auditor to use this data to estimate the
total payroll costs for the period with a high degree of accuracy, thereby providing audit
evidence for a significant item in the financial statements and reducing the need to
perform tests of details on the payroll.
CH 9 – AUDIT OF ITEMS OF FINANCIAL STATEMENTS

1. One of the key principles of accrual basis of accounting requires that an asset’s cost is
proportionally expensed based on the period over which the asset is expected to be
used. (IMP)
2. The preparation of financial statements does not involve judgment by management in
applying the requirements of the entity’s applicable financial reporting framework to the
facts and circumstances of the entity.
3. Employee benefits expenses represent the sum an entity pays to its employees for their
labour/ efforts only. (IMP)
4. Dividends are recognised in the statement of profit and loss only when the entity’s right
to receive payment of the dividend is established.
Or

Dividends are recognized in the statement of profit and loss only when the amount of
dividend can be measured reliably. (IMP)
5. “Sweat Equity Shares” means equity shares issued by the company to employees or
directors at a premium or for consideration other than cash for providing know-how or
making available right in the nature of intellectual property rights or value additions, by
whatever name called.
6. Capital reserves represent profits that are available for distribution to shareholders held
for the time being or any one or more purpose.
7. A capital reserve, generally, can be utilised for writing down fictitious assets or losses or
(subject to provisions in the Articles) for issuing bonus shares if it is realised.
8. If Company X’s balance sheet shows building with carrying amount of Rs. 100 lakh, the
auditor shall assume only one point that the management has only asserted that the
building recognized in the balance sheet exists as at the period-end. (IMP)
9. The securities premium account may only be applied by the Company towards the
issue of unissued shares of the company to the members of the company as fully paid
bonus shares. (IMP)
10. Material and wages are considered to be revenue expenditure when incurred for
construction of building.
11. Tangible assets are depreciated when the asset is actually put to active use.
12. Increase in authorised capital of the company requires special resolution to be passed
at the general meeting.
13. Capital redemption reserve can be used for distribution of dividends.
14. Dividends are recommended by the Board, and declared by the Shareholders.
15. In verifying Trade Receivables balance, Direct Confirmation Procedure is one of the
important audit activity.
16. An intangible asset is an identifiable monetary asset. (IMP)
17. Computer software which is the integral part of the related hardware should be treated
as fixed asset/tangible asset.
18. If the purpose of an audit procedure is to test for understatement in the existence or
valuation of accounts payable then testing the recorded accounts payable may be
relevant audit procedure. (IMP)
Answers
1. Correct: One of the key principles of accrual basis of accounting requires that an
asset’s cost is proportionally expensed based on the period over which the asset is
expected to be used. Both depreciation and amortization are methods that are used to
prorate the cost of a specific type of asset over its useful life. Depreciation represents
systematic allocation of the depreciable value of an item of PPE over its useful life while
amortisation represents systematic allocation of the depreciable amount of an
intangible asset over its useful life.
2. Incorrect: The preparation of financial statements involves judgment by management
in applying the requirements of the entity’s applicable financial reporting framework to
the facts and circumstances of the entity. In addition, many financial statement items
involve subjective decisions or assessments or a degree of uncertainty, and there may
be a range of acceptable interpretations or judgments that may be made.
3. Incorrect: Employee benefits expenses, commonly called payroll expenses, represent
the aggregate sum an entity pays to its employees for their labour/ efforts, as well as
associated expenses such as perquisites/ benefits, post- employment benefits like

gratuity, superannuation, leave encashment, provident fund contribution etc. as well as

towards their hiring, their welfare and training.
4. Incorrect: Dividends are recognised in the statement of profit and loss only when:
(i) the entity’s right to receive payment of the dividend is established;
(ii) it is probable that the economic benefits associated with the dividend will flow to the
entity; and
(iii) the amount of the dividend can be measured reliably.
5. Incorrect: “Sweat Equity Shares” means equity shares issued by the company to
employees or directors at a discount or for consideration other than cash for providing
know-how or making available right in the nature of intellectual property rights or value
additions, by whatever name called.
6. Incorrect: Revenue reserves represent profits that are available for distribution to
shareholders.
7. Correct: A capital reserve, generally, can be utilised for writing down fictitious assets or
losses or (subject to provisions in the Articles) for issuing bonus shares if it is realised.
But the amount of share premium or capital redemption reserve account can be utilised
only for the purpose specified in Sections 52 and 55 respectively of the Companies Act,
2013.
8. Incorrect: If Company X’s balance sheet shows building with carrying amount of Rs.
100 lakh, the auditor shall assume that the management has claimed/ asserted that:
• The building recognized in the balance sheet exists as at the period- end (existence
assertion);
• Company X owns and controls such building (Rights and obligations assertion);
• The building has been valued accurately in accordance with the measurement
principles (Valuation assertion);
• All buildings owned and controlled by Company X are included within the carrying
amount of Rs. 100 lakh (Completeness assertion).
9. Incorrect: The securities premium account may be applied by the Company:
(a) towards the issue of unissued shares of the company to the members of the
company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the Company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any
issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable
preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
10. Incorrect: Material and Wages incurred on construction of building qualify to be capital
expenditure as per AS 10 “Plant, Property and Equitment”. Therefore, these have to be
added to the cost of the asset i.e building and shall not be expensed off to Statement of
Profit and Loss.
11. Incorrect: Depreciation is a fall in value of asset due to obsolescence, usage and
effluxion of time, Therefore, depreciation is charged when the asset is ready for use .
Active use of asset is not a mandatory criteria for charge of depreciation.
12. Incorrect: Increase in Authorised capital requires alteration of capital clause of
memorandum of Association. Therefore, ordinary resolution is passed for increase in
authorised capital of the company as per the Companies Act, 2013.

13. Incorrect: Capital Redemption reserve is not a free reserve. It is a restrictive reserve
and can be used only for purposes given in the Act. Since it is not a free reserve, it
cannot be utilised for payment of dividends. CRR can be used only for the purpose of
issuing fully paid up bonus shares.
14. Correct: The dividends are recommended by the Board of Directors by passing a
resolution at the board meeting. The Shareholders declare the dividends at the AGM by
passing an ordinary resolution. Declaration of dividend is an item of ordinary business.
However, the shareholders can decrease the amount of dividends recommended by the
board but cannot increase it.
15. Correct: While auditing trade receivable balance, direct confirmations as per SA 505, is
considered to be the most important audit activity. Direct confirmation can be sought
from the debtors directly confirming their balance due. The replies to the confirmation
can be then matched with the records maintained by the client. Any discrepancies so
revealed, can be investigated and checked in detail for possibility of any risk of material
misstatement. Auditor selects few debtors’ balances and ask the client to prepare the
confirmations properly addressed to the debtors. Auditor maintains strict control over
this process.
16. Incorrect: An intangible asset is an identifiable non-monetary asset, without physical
substance, held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes.
17. Correct: As per AS-26 on Intangible Assets, computer software for a computer
controlled machine tool that cannot operate without that specific software is an integral
part of the related hardware and it is treated as a fixed asset. Therefore, computer
software which is the integral part of the related hardware should be treated as fixed
asset/tangible asset.
18. Incorrect: If the purpose of an audit procedure is to test for overstatement in the
existence or valuation of accounts payable, testing the recorded accounts payable may
be a relevant audit procedure.
On the other hand, when testing for understatement in the existence or valuation of
accounts payable, testing the recorded accounts payable would not be relevant, but
testing such information as subsequent disbursements, unpaid invoices, suppliers’
statements, and unmatched receiving reports may be relevant.
CH 10 – COMPANY AUDIT
1. The first auditor of a Government company was appointed by the Board in its meeting
after 10 days from the date of registration.
2. Director's relative can act as an auditor of the company.
3. If an LLP (Limited Liability Partnership Firm) is appointed as an auditor of a company,
every partner of a firm shall be authorized to act as an auditor. (IMP)
4. AB & Co. is an audit firm having partners Mr. A and Mr. B. Mr. C, the relative of Mr. B is
holding securities having face value of Rs. 2,00,000 in XYZ Ltd. AB & Co. is qualified
for being appointed as an auditor of XYZ Ltd.
5. The auditor of a Ltd. Company wanted to refer to the minute books during audit but
board of directors refused to show the minute books to the auditors.
6. Manner of rotation of auditor will not be applicable to company A, which is having paid
up share capital of Rs. 15 crores and having public borrowing from nationalized bank of
Rs. 50 crore because it is a Private Limited Company. (IMP)
7. The auditor should study the Memorandum and Articles of Association to see the
validity of his appointment. (IMP)

8. Managing director of A Ltd. himself appointed the first auditor of the company.
9. A Chartered Accountant holding securities of S Ltd. having face value of Rs. 950 is
qualified for appointment as an auditor of S Ltd.
10. Mr. N, a member of the Institute of Company Secretary of India, is qualified to be
appointed as auditor of XYZ Limited.
11. The Board of Director of ABC Ltd., a listed company at Bombay Stock Exchange, is
required to fill the casual vacancy of an auditor only after taking into account the
recommendations of the audit committee. (IMP)
12. B Ltd. a Government Company, the Comptroller and Auditor-General of India shall, in
respect of a financial year, appoint an auditor duly qualified to be appointed as an
auditor of companies under this Act, within a period of 180 days from the end of the
financial year, who shall hold office till the end of the next Financial year. (IMP)
13. CA K has resigned as an auditor after 2 months of his appointment in NML Ltd. He
needs to file ADT-3 with the Registrar within 60 days from the date of resignation. (IMP)
14. Audit committee is to be constituted by every public company to ensure better
standards of corporate governance. (IMP)
15. XYZ Ltd is engaged in manufacture of textiles specified under prescribed rules having
total revenue of Rs.100 crore (including export turnover of Rs.88 crores in foreign
exchange) in immediately preceding financial year. The said company is required to get
cost audit conducted for immediately preceding financial year. (IMP)
16. The auditor has to report under section 143 of companies act, 2013 whether company
has adequate internal controls in place and overall effectiveness of such internal
controls. (IMP)
17. Discovery of an offence of a fraud of Rs.100 lakh by auditor against the company
committed by its officers is to be reported to Serious Fraud Investigation office (SFIO).
18. The concept of “joint audit” has legal foothold under the Companies Act, 2013. (IMP)
19. As per Section 139(6), the first auditor of a company, including a Government
company, shall be appointed by the Board of Directors within 60 days from the date of
registration of the company.
20. According to Section 140(1), the auditor appointed under section 139 may be removed
from his office before the expiry of his term only by a general resolution of the company.
21. PQR & Co., Chartered Accountants, resigned from the audit of a Government Company
and filed the resignation with the company and the registrar within 30 days. Comment,
whether PQR & Co. has complied with the provisions of the Companies Act, 2013.
22. Rule 3 of the Companies (Cost Records and Audit) Rule, 2014 provides the classes of
companies, engaged in the production of goods or providing services, having an overall
turnover of Rs. 25 crore or more during the immediately preceding financial year,
required to include cost records in their books of account. (IMP)
23. The auditor's reporting on internal financial control will be applicable with respect to
interim financial statements. (IMP)
Answers
1. Incorrect: According to section 139(7) of the Companies Act, 2013, in the case of a
Government company, the first auditor shall be appointed by the Comptroller and
Auditor- General of India within 60 days from the date of registration of the company. If
CAG fails to make the appointment within 60 days, the Board shall appoint in next 30
days.

2. Incorrect: As per section 141(3) of the Companies Act, 2013, a person shall not be
eligible for appointment as an auditor of a company whose relative is a Director or is in
the employment of the Company as a director or key Managerial Personnel.
3. Incorrect: As per section 141(2) of the Companies Act, 2013, where a firm including a
limited liability partnership (LLP) is appointed as an auditor of a company, only the
partners who are Chartered Accountants shall be authorised to act and sign on behalf
of the firm.
4. Incorrect: As per the provisions of the Companies Act, 2013, a person is disqualified to
be appointed as an auditor of a company if his relative is holding any security of or
interest in the company of face value exceeding Rs. 1 lakh.
Therefore, AB & Co. shall be disqualified for being appointed as an auditor of XYZ Ltd.
as Mr. C, the relative of Mr. B who is a partner in AB & Co., is holding securities in XYZ
Ltd. having face value of Rs. 2 lakh.
5. Incorrect: The provisions of Companies Act, 2013 grant rights to the auditor to access
books of account and vouchers of the company. He is also entitled to require
information and explanations from the company. Therefore, he has a statutory right to
inspect the minute book.
6. Incorrect: According to section 139 of the Companies Act, 2013, the provisions related
to rotation of auditor are applicable to all private limited companies having paid up
share capital of Rs. 50 crore or more; and all companies having paid up share capital of
below threshold limit mentioned above, but having public borrowings from financial
institutions, banks or public deposits of Rs. 50 crore or more.
Although company A is a private limited company yet it is having public borrowings from
nationalized bank of Rs. 50 crores, therefore it would be governed by provisions of
rotation of auditor.
7. Incorrect: The auditor should study the Memorandum of Association to check the
objective of the company to be carried on, amount of authorized share capital etc. and
Articles of Association to check the internal rules, regulations and ensuring the validity
of transactions relating to accounts of the company.
To see the validity of appointment, the auditor should ensure the compliance of the
provisions of section 139, 140 and 141 of the Companies Act, 2013.
In addition, the auditor should study the appointment letter & the prescribed Form
submitted to the Registrar of the Companies to see the validity of his appointment.
8. Incorrect: As per section 139(6) of the Companies Act, 2013, the first auditor of a
company, other than a government company, shall be appointed by the Board of
directors within 30 days from the date of registration of the company.
Therefore, the appointment of first auditor made by the managing director of A Ltd. is in
violation of the provisions of the Companies Act, 2013.
9. Incorrect: As per the provisions of the Companies Act, 2013, a person is disqualified to
be appointed as an auditor of a company if he is holding any security of or interest in
the company.
As the chartered accountant is holding securities of S Ltd. having face value of Rs. 950,
he is not eligible for appointment as an auditor of S Ltd.
10. Incorrect: As per section 141 of the Companies Act, 2013, a person shall be eligible for
appointment as an auditor of a company only if he is a chartered accountant.
Thus, Mr. N is disqualified to be appointed as an auditor of XYZ Limited.
11. Correct: Where a company is required to constitute an Audit Committee under section
177, all appointments, including the filling of a casual vacancy of an auditor under this

section shall be made after taking into account the recommendations of such
committee.
12. Incorrect: As per section 139(5), in the case of a Government company or any other
company owned or controlled, directly or indirectly, by the Central Government, or by
any State Government or Governments, or partly by the Central Government and partly
by one or more State Governments, the Comptroller and Auditor-General of India shall,
in respect of a financial year, appoint an auditor duly qualified to be appointed as an
auditor of companies under this Act, within a period of 180 days from the
commencement of the financial year, who shall hold office till the conclusion of the
annual general meeting.
13. Incorrect: As per section140(2) of the Companies Act, 2013, the auditor who has
resigned from the company shall file within a period of 30 days from the date of
resignation, a statement in the prescribed Form ADT–3(as per Rule 8 of CAAR) with
the company and the Registrar.
14. Incorrect: Under Section 177 of Companies Act, 2013 read together with Rule 4 of
Companies (Appointment and qualification of Directors) Rules, 2014 prescribe that
audit committee is to be constituted by every listed public company and following
classes of public companies only:
(i) the Public Companies having paid up share capital of ten crore rupees or more; or
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and
deposits, exceeding fifty crore rupees:
Hence, the statement that all public companies are required to constitute audit
committee is incorrect.
15. Incorrect: The provisions of cost audit are not applicable in case of companies having
revenue from exports in foreign exchange being more than 75% of its total revenue. As
the company is having export turnover of Rs.88 crore in total revenues of Rs.100 core,
the provisions of cost audit are not applicable to the said company.
16. Incorrect: Under provisions of Section 143 of the companies Act, 2013, auditor has to
report whether the company has adequate internal financial controls with reference to
financial statements in place and operating effectiveness of such controls. The auditor
has to report on adequacy and effectiveness of internal financial controls only and not
internal controls.
17. Incorrect: Fraud of Rs.100.00 lakhs or above (i.e. Rs.1.00 crore or above) has to be
reported to Central government (precisely to Secretary, Ministry of Corporate affairs) in
Form ADT-4.
18. Correct: Under provisions of section 139(3), the members of a company may resolve
to provide that audit shall be conducted by more than one auditor. Hence, the concept
of “joint audit” has legal foothold also under Companies Act, 2013.
19. Incorrect: As per Section 139(6), the first auditor of a company, other than a
Government company, shall be appointed by the Board of Directors within 30 days from
the date of registration of the company.
20. Incorrect: According to Section 140(1), the auditor appointed under section 139 may
be removed from his office before the expiry of his term only by a special resolution of
the company, after obtaining the previous approval of the Central Government in that
behalf as per Rule 7 of CAAR, 2014.
21. Incorrect: As per section 140(2) the auditor who has resigned from the company shall
file within a period of 30 days from the date of resignation, a statement in the prescribed
Form with the company and the Registrar, and in case of the companies referred to in

section 139(5) i.e. Government company, the auditor shall also file such statement with
the Comptroller and Auditor-General of India, indicating the reasons and other facts as
may be relevant with regard to his resignation. In this case, the PQR & Co., was also
required to file prescribed Form with C & AG of India but it did not file the same.
Therefore, it did not comply with the provisions of the Companies Act, 2013.
22. Incorrect: Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 provides the
classes of companies, engaged in the production of goods or providing services, having
an overall turnover from all its products and services of ` 35 crore or more during the
immediately preceding financial year, required to include cost records in their books of
account.
23. Incorrect: Clause (i) of Sub-section 3 of Section 143 of the Act requires the auditors’
report to state whether the company has adequate internal financial controls system in
place and the operating effectiveness of such controls.
It may be noted that auditor’s reporting on internal financial controls is a requirement
specified in the Act and, therefore, will apply only in case of reporting on financial
statements prepared under the Act and reported under Section 143.
Accordingly, reporting on internal financial controls will not be applicable with respect to
interim financial statements, such as quarterly or half-yearly financial statements,
unless such reporting is required under any other law or regulation.
CH 11 – AUDIT REPORT
1. An Audit report is 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.
2. The auditor shall express a qualified opinion when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework. (IMP)
3. There is no need of addressee in the Auditor’s report.
4. The auditor shall modify the opinion in the auditor’s report only when the auditor
concludes that, based on the audit evidence obtained, the financial statements as a
whole are not free from material misstatement.
5. The auditor shall express a disclaimer of 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. (IMP)
6. Communicating key audit matter in the auditor’s report constitutes a substitute for
disclosure in the financial statements.
7. When the auditor has to express an adverse opinion, he need not communicate with
those charged with governance as this may have an impact on payment of his audit
fees. (IMP)
8. 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.
9. An auditor should issue disclaimer of opinion when there is difference of opinion
between him and the management on a particular point. (IMP)
10. Where the firm is appointed as an auditor of the entity the audit report is signed only in
the name of audit firm. (IMP)
11. Joint auditor is always bound by the views of majority of the joint auditors regarding
matters to be covered in report.

12. The Location of the description of the auditor's responsibilities for the audit of the
financial statements is always within the body of the auditor's report. (IMP)
Answers
1. Incorrect: The purpose of an audit is to enhance the degree of confidence of intended
users of the financial statements. The aforesaid purpose is achieved by the expression
of an independent reporting by the auditor as to whether the financial statements exhibit
a true and fair view of the affairs of the entity.
Thus, an Audit report is 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.
2. Incorrect: The auditor shall express an unmodified opinion when the auditor concludes
that the financial statements are prepared, in all material respects, in accordance with
the applicable financial reporting framework.
3. Incorrect: The auditor’s report shall be addressed, as appropriate, based on the
circumstances of the engagement. Law, regulation or the terms of the engagement may
specify to whom the auditor’s report is to be addressed. The auditor’s report is normally
addressed to those for whom the report is prepared, often either to the shareholders or
to those charged with governance of the entity whose financial statements are being
audited.
4. Incorrect: The auditor shall modify the opinion in the auditor’s report when:
(a) The auditor concludes that, based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude
that the financial statements as a whole are free from material misstatement.
5. Incorrect: The auditor shall express an adverse 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.
6. Incorrect: Communicating key audit matters in the auditor’s report is in the context of
the auditor having formed an opinion on the financial statements as a whole.
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.
7. Incorrect: When the auditor expects to modify the opinion in the auditor’s report, the
auditor shall communicate with those charged with governance the circumstances that
led to the expected modification and the wording of the modification.
8. Incorrect: 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).
9. Incorrect: The auditor shall disclaim an opinion when the auditor is unable to obtain
sufficient appropriate audit evidence on which to base the opinion, and the auditor
concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive.
In case of difference of opinion, either the auditor will issue qualified report or adverse
report and not disclaimer of opinion.
10. Incorrect: Where the firm is appointed as the auditor, the report is signed in the
personal name of the auditor and in the name of the audit firm. The partner/proprietor

signing the audit report also needs to mention the membership number assigned by the
Institute of Chartered Accountants of India along-with registration number for the firm.
11. Incorrect: Where the joint auditors are in disagreement with regard to the opinion or
any matters to be covered by the audit report, they shall express their opinion in a
separate audit report. In such circumstances, the audit report(s) issued by the joint
auditor(s) shall make a reference to each other’s audit report(s). Therefore, joint auditor
is not bound by the views of the majority of the joint auditors regarding the matters to be
covered in the audit report.
12. Incorrect: The description of the auditor’s responsibilities for the audit of the financial
statement shall be always shown as below:
• Within the body of the auditor’s report; or
• Within an appendix to the auditor’s report, in which case the auditor’s report shall
include a reference to the location of the appendix; or
• By a specific reference within the auditor’s report to the location of such a
description on a website of an appropriate authority, where law, regulation or
national auditing standards expressly permit the auditor to do so
CH 12 – AUDIT OF BANKS
1. RBI has been entrusted with the responsibility of regulating the activities of commercial
banks only.
2. In the computerised environment, the auditor need not be familiar with latest applicable
RBI guidelines that have bearing on the classification/ provisions and income
recognition.
3. The auditor can assume that the system generated information is correct and relied
upon without evidence that demonstrates that the system driven information is based
on validation of the required parameters for the time being in force & applicable. (IMP)
4. Collateral security refers to the security offered by the borrower for bank finance or the
one against which credit has been extended by the bank. (IMP)
5. Registered mortgage is effected by a mere delivery of title deeds or other documents of
title with intent to create security thereof
6. Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid within
90 days of becoming due. (IMP)
7. An account should be treated as 'out of order' if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power.
8. Banks recognize income on Non-Performing Assets on accrual basis.
9. Auditor of a Nationalised bank is to be appointed at the annual general meeting of the
shareholders. (IMP)
10. An account should be treated as ‘out of order’ if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power. In cases where the
outstanding balance in the principal operating account is less than the sanctioned
limit/drawing power, but there are no credits continuously for 180 days as on the date of
Balance Sheet or credits are not enough to cover the interest debited during the same
period, these accounts should be treated as ‘out of order’. (IMP)
11. The policy of income recognition, in case of a Bank, should be subjective. (IMP)
12. The assignment is the creation of an equitable charge which is created in favor of the
lending bank by execution of hypothecation agreement in respect of the moveable
securities belonging to the borrower.

13. Classification as NPA should be based on the availability of security and asset
classification would be facility wise and not borrower wise. (IMP)
Answers
1. Incorrect: RBI has been entrusted with the responsibility of regulating the activities of
commercial and other banks.
2. Incorrect: In the Computerised environment, it is imperative that the auditor is familiar
with, and is satisfied that, all the norms/parameters as per the latest applicable RBI
guidelines are incorporated and built into the system that generates information/data
having a bearing on the classification/ provisions and income recognition.
3. Incorrect: The auditor should not go by the assumption that the system generated
information is correct and can be relied upon without evidence that demonstrates that
the system driven information is based on validation of the required parameters for the
time being in force and applicable.
4. Incorrect: Primary security refers to the security offered by the borrower for bank
finance or the one against which credit has been extended by the bank. This security is
the principal security for an advance.
5. Incorrect: Equitable mortgage, on the other hand, is effected by a mere delivery of title
deeds or other documents of title with intent to create security thereof.
6. Incorrect: Any amount due to the bank under any credit facility is ‘overdue’ if it is not
paid on the due date fixed by the bank.
7. Correct: An account should be treated as 'out of order' if the outstanding balance
remains continuously in excess of the sanctioned limit/drawing power.
8. Incorrect: Income from non-performing assets (NPA) is not recognised on accrual
basis due to its uncertainty but is booked as income only when it is actually received.
9. Incorrect: Auditor of a nationalized bank is to be appointed by the bank concerned
acting through its Boards of Directors and approval of the Reserve bank is required
before the appointment is made.
10. Incorrect: An account should be treated as ‘out of order’ if the outstanding balance
remains continuously in excess of the sanctioned limit/drawing power. In cases where
the outstanding balance in the principal operating account is less than the sanctioned
limit/drawing power, but there are no credits continuously for 90 days as on the date of
Balance Sheet or credits are not enough to cover the interest debited during the same
period, these accounts should be treated as ‘out of order’.
11. Incorrect: The policy of income recognition should be objective and based on record of
recovery rather than on any subjective considerations. Income from non-performing
assets (NPA) is not recognized on accrual basis but is booked as income only when it
is actually received.
12. Incorrect: The hypothecation is the creation of an equitable charge (i.e., a charge
created not by an express enactment but by equity and reason), which is created in
favor of the lending bank by execution of hypothecation agreement in respect of the
moveable securities belonging to the borrower.
Assignment represents a transfer of an existing or future debt, right or property
belonging to a person in favor of another person.
13. Incorrect: Classification as NPA should be based on the record of recovery. Availability
of security or net worth of borrower/guarantor is not to be taken into account for
purpose of treating an advance as NPA or otherwise.
Asset classification would be borrower-wise and not facility-wise. All facilities including
investments in securities would be termed as NPA.

CH 13 – AUDIT OF DIFFERENT TYPES OF ENTITIES

1. Government audit does not serve as a mechanism or process for public accounting of
government funds.
2. Article 150 of the Constitution provides that the accounts of the Union and of the States
shall be kept in such form as the Finance Minister may on the advice of the C&AG
prescribe. (IMP)
3. According to ‘propriety audit’, the auditors try to bring out cases of improper, avoidable,
or infructuous expenditure even though the expenditure has been incurred in conformity
with the existing rules and regulations.
4. Expenditure incurred by the municipalities and corporations can be broadly classified
under the following heads: (a) general administration and revenue collection, (b) public
health, (c) public safety, (d) education, (e) public works, and (f) others
5. The external control of municipal expenditure is exercised by the Central Government
through the appointment of auditors to examine municipal accounts.
6. NGOs may be defined as non-profit making organisations which raise funds from
members, donors or contributors apart from receiving donation of time, energy and
skills for achieving their social objectives. (IMP)
7. The accounts of every LLP shall be audited in accordance with rule 24 of LLP Rules
2009. (IMP)
8. The auditor of an LLP may be appointed by the Designated Partners or other Partners
whosoever is available at the time of appointment.
9. The Comptroller and Auditor General does not have any authority to audit the accounts
of stores and inventory kept in any office or department of the Union or of a State.
10. An Operating Lease is a kind of Financing arrangement.
11. An auditor should ensure that proper valuation of occupancy-in-progress at the balance
sheet date is made and included in the accounts in the case of audit of a Hotel.
12. The Constitution of India contains no specific provisions regarding the appointment,
salary and duties and powers of the C&AG. Moreover, the constitution does not
guarantee the independence of the C&AG of India. (IMP)
13. The first auditor or auditors of a Multi-State co-operative society shall be appointed by
the board within one month of the date of registration of such society (IMP)
Answers
1. Incorrect: Government audit serves as a mechanism or process for public accounting
of government funds. It also provides public accounting of the operational,
management, programme and policy aspects of public administration as well as
accountability of the officials administering them.
2. Incorrect: Article 150 of the Constitution provides that the accounts of the Union and of
the States shall be kept in such form as the President may on the advice of the C&AG
prescribe.
3. Correct: According to ‘propriety audit’, the auditors try to bring out cases of improper,
avoidable, or infructuous expenditure even though the expenditure has been incurred in
conformity with the existing rules and regulations.
4. Correct: Expenditure incurred by the municipalities and corporations can be broadly
classified under the following heads: (a) general administration and revenue collection,
(b) public health, (c) public safety, (d) education, (e) public works, and (f) others, etc.
5. Incorrect: The external control of municipal expenditure is exercised by the state
governments through the appointment of auditors to examine municipal accounts.

6. Correct: NGOs can be defined as non-profit making organisations which raise funds
from members, donors or contributors apart from receiving donation of time, energy and
skills for achieving their social objectives like imparting education, providing medical
facilities, economic assistance to poor, managing disasters and emergent situations.
7. Incorrect: Rule 24 of LLP Rules 2009 provides that any LLP, whose turnover does not
exceed, in any financial year, forty lakh rupees, or whose contribution does not exceed
twenty five lakh rupees, is not required to get its accounts audited. However, if the
partners of such limited liability partnership decide to get the accounts of such LLP
audited, the accounts shall be audited only in accordance with such rules.
8. Incorrect: The auditor is to be appointed by the designated partners of the LLP.
However, the Partners may appoint the auditors only if the Designated Partners have
failed to appoint them.
9. Incorrect: The Comptroller and Auditor General shall have authority to audit and report
on the accounts of stores and inventory kept in any office or department of the Union or
of a State.
10. Incorrect: A Finance Lease is a Financing arrangement. An Operating lease, on the
other hand, is a simple arrangement where, in return for rent, the lessor allows the
lessee to use the asset for a certain period.
11. Correct: The auditor should ensure that proper valuation of occupancy-in-progress at
the balance sheet date is made and included in the accounts for proper recording of
closing and opening entries and maintenance of accounts on Accrual basis as per the
Matching concept.
12. Incorrect: The Constitution of India contains specific provisions regarding the
appointment, salary and duties and powers of the C&AG. The constitution guarantees
the independence of the C&AG of India by prescribing that he shall be appointed by the
President of India and shall not be removed from office except on the ground of proven
mis-behaviour or incapacity.
13. Correct: Section 70 of the Multi-State Co-operative Societies Act, 2002 provides that
the first auditor or auditors of a Multi-State co-operative society shall be appointed by
the board within one month of the date of registration of such society and the auditor or
auditors so appointed shall hold office until the conclusion of the first annual general
meeting. If the board fails to exercise its powers under this sub-section, the Multi-State
co-operative society in the general meeting may appoint the first auditor or auditors.

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CH 1 5 .

2 – CORR EC T OR INC ORR ECT

CH 1 – NATURE, OBJECTIVE & SCOPE OF AUDIT

15.2.1 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.2 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.3 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

CH 2 – AUDIT STRATEGY, AUDIT PLANNING & AUDIT PROGRAMME

15.2.4 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

CH 3 – AUDIT DOCUMENTATION & AUDIT EVIDENCE

15.2.5 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.6 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

CH 4 – RISK ASSESSMENT & INTERNAL CONTROL

15.2.7 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

misstatements in other balances or classes, assuming that there were no related

15.2.8 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

4. Incorrect: Inherent risk is the susceptibility of an account balance or class of

15.2.9 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

determine if a substantive analytical procedure can be used to obtain audit evidence.

CH 5 – FRAUD & RESPONSIBILITIES OF AUDITOR IN THIS REGARD

15.2.10 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.11 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

6. Incorrect: As per SA 240, ”The Auditor’s Responsibilities Relating to fraud in an Audit

CH 6 – AUDIT IN AUTOMATED ENVIRONMENT

15.2.12 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.13 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.14 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.15 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

CH 9 – AUDIT OF ITEMS OF FINANCIAL STATEMENTS

15.2.16 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.17 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

gratuity, superannuation, leave encashment, provident fund contribution etc. as well as

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15.2.19 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.20 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.21 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.22 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.23 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.24 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.25 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.26 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

CH 13 – AUDIT OF DIFFERENT TYPES OF ENTITIES

15.2.27 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

15.2.28 www.myrahedu.com / www.yeshasacademy.com Compiled by CA Niket Thacker

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