INTERMEDIATE (NEW) GROUP – II
PAPER – 6: AUDITING AND ASSURANCE
Time Allowed – 3 Hours Maximum Marks – 100
Division A- Multiple Choice Questions
Questions (1-20) carry 1 Mark each Total 30 Marks
Questions 21-25 carry 2 Marks each
1. The matter of difficulty, time, or cost involved is :
(a) not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative.
(b) in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative.
(c) not in itself a valid basis for the auditor to omit an audit procedure for which alternative exists.
(d) not in itself a valid basis for the auditor to omit an audit procedure.
2. _____are self-evident, and occur when auditors form relationships with the client where they end up
being too sympathetic to the client’s interests.
(a) Self-review threats
(b) Familiarity threats
(c) Intimidation threats
(d) Advocacy threats
3. SA 320 on “Materiality in Planning and Performing an Audit” requires that an auditor
(a) should not consider materiality and its relationship with audit risk while conducting an audit.
(b) should consider materiality and its relationship with audit risk while conducting an audit.
(c) should not consider materiality but should consider its relationship with audit risk while conducting
an audit.
(d) should consider materiality but need not consider its relationship with audit risk while c onducting
an audit.
4. When planning the audit,
(a) the auditor considers what would make the financial information materially misstated.
(b) the auditor need not consider what would make the financial information materially misstated.
(c) the auditor need not consider what would make the financial information materially misstated at
planning stage
(d) the auditor needs to consider what would make the financial information materially misstated while
conducting audit only
5. Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor; or evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
(b) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor; and evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
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(c) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor
(d) evidence that the audit was planned and performed in accordance with SAs and applicable legal
and regulatory requirements.
6. Which of the following is not an example of audit documentation:
(a) Audit programmes
(b) Summaries of significant matters
(c) Audit file
(d) Checklists.
7. SA 315 establishes requirements and provides guidance on identifying and assessing the risks of
material misstatement -
(a) at the financial statement levels only.
(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
8. The risks of material misstatement at the assertion level consist of two components:
(a) Inherent risk and detection risk
(b) control risk and detection risk
(c) audit risk and detection risk
(d) Inherent risk and control risk
9. Which of the following is an example of inflating cash payments?
(a) Making payments against purchase vouchers.
(b) Teeming and lading.
(c) Not accounting for cash sales fully.
(d) Making payments against inflated vouchers.
10. The type of errors, existence of which becomes apparent in the process of compilation of accounts is known
as-
(a) Self-revealing errors.
(b) Intentional errors.
(c) Concealed errors.
(d) Unconcealed errors.
11. The Guidance Note on Audit of Internal Financial Controls over Financial Reporting has been issued
by?
(a) ICAI
(b) SEBI
(c) MCA
(d) RBI
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12. The standard that requires auditors to analyse journal entries in an audit is?
(a) SA 260
(b) SA 230
(c) SA 315
(d) SA 240
13. In the case of tests of details
(a) the projected misstatement plus anomalous misstatement, if any, is the auditor’s best estimate of
misstatement in the population.
(b) the projected misstatement is the auditor’s best estimate of misstatement in the population.
(c) the anomalous misstatement is the auditor’s best estimate of misstatement in the population.
(d) the projected misstatement plus anomalous misstatement, if any, cannot be the auditor’s best
estimate of misstatement in the population.
14. Which of the following is correct :
(a) When the projected misstatement exceeds tolerable misstatement, the sample does not provide a
reasonable basis for conclusions about the population that has been tested.
(b) When the projected misstatement plus anomalous misstatement, if any, exceeds tolerable
misstatement, the sample does not provide a reasonable basis for conclusions about the population
that has been tested.
(c) When the anomalous misstatement exceeds tolerable misstatement, the sample does not provide
a reasonable basis for conclusions about the population that has been tested.
(d) When the projected misstatement plus anomalous misstatement, if any, exceeds tolerable
misstatement, the sample provides a reasonable basis for conclusions about the population that
has been tested.
15. Which of the following is correct :
(a) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical procedures”
means evaluations of financial information through analysis of financial data.
(b) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical procedures”
means evaluations of financial information through analysis of non-financial data.
(c) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical procedures”
means evaluations of financial information through analysis of plausible relationships among both
financial and non-financial data.
(d) As per the Standard on Auditing (SA) 520 “Analytical Procedure” ‘the term “analytical procedures”
means evaluations of financial information through ratio analysis.
16. Section 139(7) provides that 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
first auditor shall be appointed by the Comptroller and Auditor-General of India ___________from the
date of registration of the company.
(a) within 60 days
(b) within 30 days
(c) within 90 days
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(d) within 45 days
17. As per Section 139(8), any casual vacancy in the office of an auditor shall in the case of a company
other than a company whose accounts are subject to audit by an auditor appointed by the Comptroller
and Auditor-General of India,
(a) be filled by the Audit committee within 60 days.
(b) be filled by the Audit committee within 30 days.
(c) be filled by the Board of Directors within 60 days.
(d) be filled by the Board of Directors within 30 days.
18. As per section 140(2) the auditor who has resigned from the company shall-
(a) file within a period of 60 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
(b) file within a period of 30 days from the date of resignation, a statement in the prescribe d Form
ADT –3 (as per Rule 8 of CAAR) with the company and the Registrar
(c) 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.
(d) file within a period of 60 days from the date of resignation, a statement in the prescribed Form
ADT –3 (as per Rule 8 of CAAR) with the company.
19. Which of the following is correct :
(a) As per section 142 of the Act, the remuneration of the auditor of a company shall be fixed in its
general meeting or in such manner as may be determined therein.
(b) As per section 142 of the Act, the remuneration of the auditor of a company shall be fixed in its
general meeting.
(c) As per section 142 of the Act, the remuneration of the auditor of a company shall be fixed in its
extra ordinary general meeting.
(d) As per section 142 of the Act, the remuneration of the auditor of a company shall be fixed in its
Board meeting or in such manner as may be determined therein.
20. In case of a fraud involving less than ` 1 crore, the auditor shall
(a) report the matter to the audit committee constituted under section 177 or to the Board in other
cases within such time and in such manner as prescribed.
(b) report the matter to the audit committee constituted under section 177 within such time and in such
manner as prescribed.
(c) report the matter to the Board within such time and in such manner as prescribed.
(d) report the matter to the audit committee constituted under section 177 and also to the Board within
such time and in such manner as prescribed. (20 x 1 = 20 Marks)
Questions (21-25) carry 2 Marks each
21. Which of the following is correct in case of Banks :
(a) The policy of income recognition should be subjective.
(b) The policy of income recognition should be objective and based on record of recovery rather than
on any subjective considerations.
(c) The policy of income recognition should be objective.
(d) The policy of income recognition may be objective or subjective.
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22. Which of the following is correct :
(a) The auditor shall express a qualified opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both
material and pervasive to the financial statements.
(b) The auditor shall express a disclaimer opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both
material and pervasive to the financial statements.
(c) The auditor shall express an adverse opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both
material and pervasive to the financial statements.
(d) 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
material, but not pervasive, to the financial statements
23. Which of the following is incorrect :
(a) 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-
(b) The application to the Central Government for removal of auditor shall be made in Form ADT -2
and shall be accompanied with fees as provided for this purpose under the Companies
(Registration Offices and Fees) Rules, 2014.
(c) The application shall be made to the Central Government within 30 days of the resolution passed
by the Board.
(d) The company shall hold the general meeting within 30 days of receipt of approval of the Central
Government for passing the special resolution.
24. which of the following is incorrect :
(a) Inquiry consists of seeking information of unknown persons, both financial and non- financial, within
the entity or outside the entity.
(b) Inquiry is used extensively throughout the audit in addition to other audit procedures.
(c) Inquiries may range from formal written inquiries to informal oral inquiries. Evaluating responses
to inquiries is an integral part of the inquiry process.
(d) Responses to inquiries may provide the auditor with information not previously possessed or with
corroborative audit evidence.
25. Which of the following is incorrect :
(a) Written representations are necessary information that the auditor requires in connection with the
audit of the entity’s financial statements.
(b) Similar to responses to inquiries, written representations are audit evidence.
(c) Written representations are requested from those responsible for the preparation and presentation
of the financial statements.
(d) Written representations provide necessary audit evidence and also they provide sufficient
appropriate audit evidence on their own about any of the matters with which they deal.
(5 x 2 = 10 Marks)