State True or False with reasons

1. Financial Statements include P & L accounting and Balance Sheet but not
notes to accounts.

2. Auditor’s opinion is on true and fair view of financial statements.

3. Auditor needs to be independent.

4. Audited financial statements help the lenders.

5. Auditor does not need communication skills, as he is concerned only with

financial information.

6. Auditor must maintain confidentiality subject to certain exceptions.

7. Auditor does not need knowledge of accounting and CIS.

8. Auditor doesn’t require knowledge of business operations.

9. Documentation is required to be done by auditor.

10.Auditor is responsible for prevention and detection of misstatements.

11.Financial misstatements are the responsibility of management.

12.Sampling is a major inherent limitation of audit.

13.Disclosure of accounting policy, which is adopted in preparation of financial

statements, is not required.

14.As per AS – I disclosure of fundamental accounting assumptions is needed

whether these are followed or not.

15.Evidence should be sufficient and appropriate

16.Auditor should consider consistency of evidence.

17.Compliance procedure is undertaken to check transactions and balances.

18.Substantive procedures are carried out to check data produced by accounting
system.

19.Auditor may use analytical review procedure at planning stage.

20.Material items are only quantitative in nature.

21.External confirmation means representation from management.

22.Reply is required in all cases in positive confirmation request.

23.Auditor is a watch dog and not a blood hound.

24.Auditing implies systematic, critical and special examination of the records of a

business for a specific purpose.

25.The purpose of an audit is to enhance the degree of confidence of intended

users in the FS.

26.Auditing is legally obligatory for all types of business organizations.

27.Auditor is able to obtain only reasonable assurance due to inherent limitations

of audit.

28.An unqualified opinion in audit report is a guarantee as to the future viability

of the company.

29.The primary objective of an audit is to detect fraud and error in the FS

30.The basic objective of audit doesnot change with reference to nature, size or
form of the entity.

31.An auditor has nothing to do with prudence or profitability of a company.

32.An auditor is considered to lack independence if the partner of the audit firm
deals with shares and securities of the audited entity.

33.An audit is an official investigation into alleged wrongdoing.

34.Management of the organization is solely responsible for the compliance of

auditing standards while preparing FS.