PAPER – 6: AUDITING AND ASSURANCE
QUESTIONS
Q 1 State with reasons (in short) whether the following statements are True or False.
a. There is no difference between the terms “external audit” and “statutory audit”.
b. It is auditor’s responsibility to maintain adequate accounting system incorporating various
internal controls.
c. Fraud is more difficult to detect than error.
d. An unqualified opinion in audit report is a guarantee as to the future viability of the
company.
e. The auditor of a company has a right to carry out surprise checks of transactions beyond the
end of the accounting year for which he is reporting.
f. Since client pays for the audit, the audit working papers belong to the client.
g. Potential for individuals to gain unauthorized access to data or to alter data without visible
evidence is not there in CIS systems.
h. If auditor relies on the work of an expert and expresses an unqualified opinion, he should
refer to the work of the expert in his report.
i. A Government company cannot contribute amounts to a political party or to any person for
political purpose.
j. Evidence obtained by the auditor through judgmental sampling cannot be considered
sufficient appropriate audit evidence.
k. It is auditor’s responsibility to maintain an adequate accounting system incorporating various internal controls.
l. The risk of not detecting error is more than the risk of not detecting fraud.
m. Basically, an auditor reports on the truth or otherwise of the financial statements; prevention
and detection of frauds and errors are secondary to this.
n. Fraud means misappropriation of goods or cash and artificial manipulation of accounts.
o. In case of audit of partnership or sole proprietorship, the auditor’s duties are defined purely
by the contract between him and the client.
p. The auditor may, in planning the audit work, intentionally see the cut-off level for verifying
individual transactions at a lower level than in intended to be used to evaluate the results of
the audit.
q. If the directors are of the opinion that any fixed asset does not have a realizable value at least
equal to its book value, the fact should be stated in the accounts.
r. Interest accrued but not due on “Investments” is required to be shown under appropriate subheads
under the head “Investments”.
s. An auditor holds office till the due date of the next annual general meeting as determined by
Sections 166 and 210 of the Companies Act,
t. In extreme cases, such as situations involving multiple uncertainties that are significant to
the financial statements, the auditor should express a disclaimer of opinion.
u. A company may maintain its books of accounts according to either mercantile system of
accounting or cash system of accounting but not mixed system.
v. An employee of the company cannot be appointed as auditor of its branch under section 228.
Answer:
a. False: “External audit” is a wider term than “statutory audit”. It will cover independent audits –
whether voluntary audits/statutory audits.
b. False: As SA 200, it is management’s responsibility and not auditor’s responsibility.
c. True: Fraud is more difficult to detect than error. This is because fraud generally involves sophisticated and carefully organized schemes to conceal it such as forgery, deliberate failure to record transactions, intentional misrepresentations to the auditor.
d. False: Auditor’s opinion (even an unqualified one) is not an assurance as to the future viability of the company as given in SA 200A.
e. True: The auditor is appointed at the Annual General Meeting to hold office until the next Annual General Meeting. He is not appointed for a particular accounting year. Consequently, he has the right of examination of the accounts and records of the company at any time during the period covered by his appointment, in so far as it is necessary for the purposes of his report. He may, therefore, carry out surprise checks of transactions beyond the end of the accounting year for which he is reporting.
f. False: Working papers are the property of the auditor. The client does not have a right to access the working papers of the auditor. The auditor may, at his discretion, make portions of or extracts from his working papers available to the client.
g. False: Potential for individuals to gain unauthorised access to data or to alter data without visible evidence may be greater in CIS than in manual systems.
h. False: When expressing an unqualified opinion, the auditor should not refer to the work of an expert in his report. If, as a result of the work of an expert, the auditor decides to express other than an unqualified opinion, it may in some circumstances benefit the reader of his report if the auditor refers to or describes the work of the expert. Where, in doing so, the auditor considers it appropriate to disclose the identity of the expert, he should obtain prior consent of the expert for such disclosure if such consent has not already been obtained.
i. True: Section 293A of the Companies Act, 1956 prohibits Government company from contributing amounts to a political party or to any person for a political purpose.
j. False: The rates of depreciation prescribed by Schedule XIV to the Companies Act, 1956 are the minimum rates to be charged. AS 6 notified under section 211(3C) of the Companies Act, 1956 also states that rates lower than statutory rates cannot be charged unless permitted by the statute itself.
k. False: As per SA 200, it is management’s responsibility and not auditor’s responsibility.
l. False: Fraud is more difficult to detect than error. This is because fraud generally involves sophisticated and carefully organized schemes to conceal it such as Forgery, Deliberate failure to record transaction, International misrepresentations to the auditor.
m. False: The main objects of any audit are: (a) To certify the correctness of the financial position as shown in the balance sheet and the accompanying revenue statements, (b) detection of errors, (c) detection of fraud. [STPAM’s case, (2008) 170 Taxman 371 (Bom.); Frankston and Hastings Corporation v. Cohen (1960) 102 CLR 607].
n. True:From the auditor’s point of view, fraud means misappropriation of goods or cash and artificial manipulation of accounts. (SA 240)
o. True: No basic legal requirement for audit. So, auditor’s duties and rights are a matter of contract.
p. True: This may be done to cover a large number of items and thereby reduce the likelihood of undiscovered frauds, errors. It would provide the auditor with the margin of safety when evaluating the effect of misstatements discovered during the audit.
q. False: This requirement of Part I Schedule VI to the Companies Act, 1956 applies to Current Assets, Loans and Advances and not to Fixed Assets.
r. False: Interest accrued on “Investments” (whether due or not) should be shown under the head “current Assets, Loans and Advances” under the sub-head “Current Assets” as the very first item “Interest accrued on investments”.
s. False: He (auditor) holds office until the conclusion of the next AGM Section 224(1).
t. False: As per SA 700, the auditor should consider expressing a disclaimer of opinion (and if he believes it is necessary in circumstances, he should express a disclaimer of opinion).
u. False: A company may maintain its books of account according to the double entry system of accounting [Section 209(3)].
v. True: An employee of the company cannot be appointed as auditor of its branch under Section 228.
For more question related to audit plz refer to www.students.canet.in > Audit
CAclubindia
