CA FINAL ADVANCED AUDITING AND PROFESSIONAL ETHICS - CHAPTER 1: AUDITIN

SR NO. QUESTION

1 The evidence available to auditor is _______ in nature, rather _______ in nature.

2 The guidance note contains ________ audit procedures in case of audit of liabilities

3 The guidance notes on audit of capital reserves gives special consideration to _________.

4 As per SQC 1, for listed entity, engagement partner should be rotated every ____ year.

As per SA 230 read with _______, working paper should be preserved for minimum period of
5
___.

6 The firms ______ should assume ultimate responsibility for the firm system of quality control

The complaints and allegation against the firm as regards to the non-compliance of
7 professional standards or allegation of non-compliance of firm‟s system of quality control
shall be dealt with ______.

All firms to have system iof Quality control that provide reasonable assurance that firms and
8
personnel comply with __________

9 What is not an element of system of Quality control

____________ firms should obtain Written representations of compliance with policies and
10
procedures on independence from all personnel in terms of requirements of code.

11 Engagement quality control review should be completed

If the auditor is unable to draw reasonable assurance, he should either withdraw from
12 engagement if permitted by law or Disclaim his opinion is given in which Standard of
Auditing?
Professional judgment means a judgment taken by the auditor out of his ______ in an audit
13
situation
14 Sufficiency is the measure of the _____ of audit evidence.
15 Appropriateness means _______ of audit evidence.

An auditor is expected to, reduce audit risk to zero and can obtain absolute assurance that the
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financial statements are free from material misstatement due to fraud and error.

An auditor is required to determine the ________ of his audit procedures according to the
17
requirements of Standards of Auditing.

18 Independence comprises

Attitude that includes a questioning mind, being alert to conditions which may
19 indicate possible misstatement due to error or fraud, and a critical assessment of audit
evidence.

SA 210 deals with the key considerations that Independent Auditor needs to keep in mind on
20
the _______ with Management or those charged with governance.
 31-03-2021 104.13 (provisional) (10.25)
The company is using conventional method for extraction of oil from spices. This requires
more human intervention and hence, cost of production is high as compared to innovative
method used by other new companies. Though the company had significant growth in the
past years, it has not done well over the last two financial years due to competition.
A new competitor viz, Natural Extracts Ltd, had come in the market during the year 2019 and
by the end of March, 2020, they captured around 75% of market share by offering the product
at a reduced price. They use new machinery which allows whole range of automated
extraction method, thus, minimizing manual steps and reducing cost of labour.
In order to reduce cost of production and thereby re-capture the market, the management of
MINSAN Ltd. has planned to erect a new plant with an automatic machine. The estimated
cost of plant & machinery is Rs. 90 lakh. The company approached SA Bank Ltd. for a term
loan of Rs. 80 lakh which would be repaid in 5 years. On 28-12-2020, the bank had
sanctioned the loan; and disbursed Rs. 40 lakh till 31st March, 2021.
MINSAN Ltd. has appointed M/s Check & Check, Chartered Accountants, as auditors of the
company at its AGM held on 18-09- 2020 for a period of 5 years. As agreed, the audit team
commenced their audit work for the year 2020-2021 in February, 2021 and completed the
21.1
work by the end of May, 2021. The audit team submitted following findings to the
engagement partner:
➢ PX Ltd., one of the material suppliers, filed a case against the company on 12-09-2020 for
a compensation of Rs. 3 crore.
➢ Company has made an estimate for allowance of debtors @5%.
➢ 70% of the value of inventory was only covered in physical verification during the year
2020-21 due to outbreak of Novel Corona Virus (COVID-19) and subsequent lockdown
thereof.
➢ Company got a show cause notice from State Pollution Control Board for the
contravention of the provisions of Hazardous and waste Management Rule.
➢ Three incidences of fraud noticed (total Rs. 1.02 crore)- fraud committed by the Purchase
manager Rs. 85 lakh, by Accounts manager Rs. 15 lakh and by a cashier Rs. 2 lakh.

As an auditor of MINSAN Ltd. for the year 2019-20, answer the following
questions based on the facts given in the above paragraph:

Based on the above facts, answer the following:

Company has made an estimate for allowance of debtors @5%. Some financial statement
items cannot be measured precisely but can only be estimated. The nature and reliability of
information available to management to support the making of an accounting estimate varies
21.2
widely, which thereby affects the degree of estimating uncertainty associated with accounting
estimates. Please advise which among the following may have higher estimate uncertainty
and higher risk as per SA 540?
 The company in the notes accompanying its financial statements disclosed the existence of
suit filed against the company with full details. Based on the audit evidence obtained, it is
necessary to draw user’s attention to the matter presented in the financial statement by way of
21.3 clear additional communication as there is an uncertainty relating to the future outcome of the
litigation. In this situation, which of the following reporting option would be correct if auditor
is satisfied with the conclusions reached by the management and this
matter is fundamental to the reader of financial statements?

Company got a show cause notice from State Pollution Control Board. As per SA 250, the
auditor shall perform the audit procedures to help identify instances of non-compliance with
21.4 other laws and regulations that may have a material effect on the financial statements. As the
audit team of the company became aware of information concerning an instance of non-
compliance with law, what would NOT be the audit procedure to be performed?

The company had availed some amount of loan for new plant and machinery during the year
under audit. Out of the total loan sanctioned an amount of ` 25 lakh was earmarked for the
21.5 purchase of the machinery-Oil Extractor; but the company has acquired an improved model
of machinery, viz, Oil extractor with Dryer instead. State which of the reporting option would
be correct.

It is not mandatory to send a new engagement letter in recurring audit, but sometimes it
22
becomes mandatory to send a new letter

23 What Are The Circumstances Requiring Revision In Terms of engagement as per SA 210

When client request the auditor to change the terms of engagement, auditor should consider
24
whether changed terms provide _________ of assurance.
It is ___________ responsibility to use acceptable financial reporting framework in
25
preparation of financial statement
The auditor shall assemble the audit documentation in an audit file within ____ days of
26
completion of audit.

27 The firm's quality control ________ should be effectively communicated to its personnel.

28 Audit Documentation is a record of

 Statement 1: The size and complexity of the entity is one of the Factors affecting form,
29 content & extent
Statement 2: The Identified RMM is not a Factors affecting form, content & extent

30 Documentation is the property of the _____

31 Process of collecting and preparing working papers is known as __________.
32 _______ documents are more reliable than mere photocopy.
33 Most of the audit evidence are in the form of __________.
_______ is the file containing the records and data that compromise the audit documentation
34
for a specific engagement.

35 Audit documentation shall be maintained for a period of 7 years from the__________

___________is Intentional Act involving use of deception to

36
obtain an unjust or illegal advantage
37 Auditor is concerned with Fraud that causes _______
38 Recording fictitious journal entries to manipulate operating results is an example for _____

39 Embezzling receipts is an example for

40 Primary responsibility for prevention & detection of fraud rests with _______

The auditor shall obtain ______ that the financial statements are free from fraud and
41
misstatement
Auditor shall enquire, what the management‟s assessment of the ______ risk and how
42
frequently management assesses the same.
SA 240 deals with the auditor‟s responsibilities towards _____ in the financial statement
43
audits.

44 Which of this is not an example of misappropriation of assets?

45 Which of this is not an example of Fraudulent Financial Reporting?

Non – compliance means act of omission by the entity, ________, which are contrary to the
46
prevailing laws and regulations

47 Following is not an indicator of non-compliance of regulatory requirement

XYZ Ltd. is violating the laws about depositing the amount of Provident fund. The statutory
auditor noticed the same and wish to inform the concern authority. Whenever, any violations
48
is being noticed, the statutory auditor must report
the same to,

The auditor has reporting requirement as per SA 250 on non-compliance in an audit of

49
financial statement to ______
The Auditor has to _________ L&R having direct effect on determination
50
of material amount and disclosures in F.S.
 The auditor was unable to conclude on the compliance made by the company of its applicable
51 laws and regulations due to unavoidable circumstances. What should be the right course of
action?

Which of the following steps management should take to comply with the regulatory
52
requirements?

53 SA 260 focuses primarily on communications from the auditor to the ____.

According to SA – 260, In case of listed entities, the auditor shall communicate with those
54 charged with governance that, the engagement team and others in the firm as appropriate and
the applicable network firms have complied with relevant ________ regarding independence.

Out of the matters communicated to those charged with governance, the matters which are
55
most significant in professional judgment of the auditor shall be included in _________.

56 What are tha Examples of Significant difficulties

The auditor is required to obtain an understanding of internal control relevant to the audit
57
when identifying and assessing the risks of ______.

The letter describing weaknesses in internal control is to be communicated in writing to

58
management and those charged with governance is known as ______.

Statement 1: Ineffective response to identified significant Risks is an Indicators of Significant

59 Deficiencies
Statement 2: Indicators of Significant Deficiencies is an Indicators of Significant Deficiencies

Communication of deficiencies Identification of deficiencies in in Internal Control shall be in

60
_________
A joint audit is an audit of F.S. of an entity by ________- auditors appointed with the
61
objective of issuing the audit report.
The work allocation document shall be signed by all the __________ & same shall be
62
communicated to TCWG
Where joint auditor are appointed they should by _______, divide the work among
63
themselves
If a joint auditor comes across matters which are significant and relevant to the other joint
64 auditors and which deserve other auditor‟s attention, he should communicate the same to all
other joint auditors ________
Normally the joint auditors are able to arrive at an agreed report. However where the joint
65 auditors are in disagreement with the regard to any matters to be covered in the report, each
one of them should ___________.

66 Which of the following can be basis of division of work among the joint auditor?

67 In which of the following case joint auditor shall not be jointly and severally liable?
 Mr. Sachin and Mr. Kunal were joint auditors of a company. On an audit point Mr. Kunal
was of the view that it will attract qualification however Mr. Sachin disagreed with his
68
opinion. How audit report should be made in such
circumstance?

Each joint auditor is entitled to assume that the other joint auditors have carried
69 out their part of the audit work and the work has actually been performed in
accordance with the SAs.

As per SA 300 the objective of the auditor is to _____ the audit so that it will be performed in
70
an effective manner

71 The _______ and the other key members of ______shall be involved in planning the audit

72 When Control Risk and Inherent Risk is High, Detection Risk is ______.
As a part of obtaining the understanding of an entity, the auditor shall evaluate whether the
73 management with the oversight of those charged with governance, has created and
maintained a culture of ______
74 Materiality is a subject of_______
In understanding the entity’s control activities, the auditor shall obtain an understanding of
75
how the entity has responded to risks arising from _____.

76 The auditor considers materiality from the point of _________.

An item or information is said to be material if misstatement of which can influence the

77
________.

78 Judgment of materiality provides a basis for

In accordance with SA – 330, the auditor shall design and perform further audit procedures
79 whose nature, timing and extent are responsive to the assessed risks of material misstatement
due to fraud at _________.
There is a ________ relationship between Detection Risk and the combined level of Inherent
80
and control risk

81 Surprise checks help the auditor to ascertain if the ______ is operating effectively

As per sa 330 , external confirmation may be used as substantive procedure. Area in which
82
external confirmation may be obtained are.

83 Substantive procedure comprise of ____________

The auditor should consider how a ______ affects the client‟s accounting and internal control
84
systems so that to plan the audit and develop an effective audit approach.

Which auditor at the request of service organization, provides assurance report on the
85
controls of service organization
 If user auditor is unable to obtain a sufficient understanding from the user entity,
86
user auditor shall obtain that understanding by obtaining ________

The aggregate of misstatements accumulated during the audit approaches _______

87
determined in accordance with SA 320
If management refuses to correct some or all the material misstatement communicated by the
auditor, the auditor shall ________ for not making the corrections and shall take that
88
understanding into account when evaluating whether financial statement as a whole are free
from material misstatement

89 What are the sources of misstatement other than fraud?

Difference between that clearly trivial amounts, classification, presentation

90 or disclosure of a reported financial statement item, and amount, classification, presentation
or disclosure that is required for the item to be in accordance of FRF.

If at the auditor‟s request, management has examined a class of transactions, account balance
or disclosure and corrected misstatements that were detected, the auditor shall perform
91
_______ to determine whether misstatements
remains.

92 Sufficieny is affected by _________

93 Appropriateness is affected by _______

__________ shall evaluate the design and implementation of relevant controls of

94
user entity that relate to the services provided by service organization.

95 Audit Evidence in form of Working papers will include:

96 As per sa 501, auditor is required to obtain SAAE as to,

THICS - CHAPTER 1: AUDITING STANDARDS, STATEMENTS AND GUIDANCE NOTES - AN OVERVIEW
Option - A Option - B Option - C
pervasive, conclusive Conclusive, pervasive limited, unlimited

recommended mandatory standard

Companies Partnership firm Sole proprietary concern

5 8 7

SA 500, 7 years SA 200, 7 years SA 230, 3 years

Article Assistant Managing partner Sleeping partner

Legal regulations By taking appropriate actions Either a or b

Professional standards, ethical
and technical standards
Human resource
Professional standards,
Professional standards, ethical
regulatory and legal
and legal standards
requirements
Monitoring Ethical requirements

Atleast Annually Atleast half yearly Atleast Quarterly

At any time After issue of

before issue of Audit report After issue of Audit report
Audit report

SA 500 SA 200 SA 705

Past experience Relation with the management Professional experience

Quantity Quality Appropriateness
Quantity Quality Appropriateness

Partially True and partially

1 0
False

Conduct Nature timing and extent Limitation

independence of independence of
Both A and B
mind appearance

independence of independence of
Professional Skepticism
mind appearance

Terms of audit engagement Requirements Road map designed


Analysis and discuss with the
management of the company to
find out whether installation of
new plant and machinery
would enable the company to
reduce cost of production.
Judgments about the outcome
of pending litigation with PX
Ltd. against the company.
Inquire the company’s legal
counsel regarding existence of
legal litigation and claim
against the company,
reasonableness of management
assessments of their outcome
and estimate of their financial
implication
Estimates made for inventory
obsolescence that are
frequently made and updated.
Evaluating management’s
future plan and strategy to
increase market share of
product.
A model used to measure the
accounting estimates is well
known and the assumptions to
the model are observable in
market place.
Include an Emphasis of Matter
paragraph in Auditors report
having a clear reference to the
matter being
emphasized and issue a
qualified opinion.
Understand the nature of the
act and circumstances in which
it has occurred and obtain
further information to evaluate
the possible effect on the
financial statement.
State the fact in CARO report
that out of term loan taken for
machinery-Oil Extractor, ` 25
lakh was not utilized for
acquiring the machinery for
which it was sanctioned.
1 0
Revised or special terms of
engagement
Higher Level
Management
60 days
Standards
Audit procedures performed
Include in the Basis for
Include in the Basis for
Adverse opinion paragraph and
Disclaimer of opinion
issue an adverse opinion
paragraph having a clear
having a clear reference to the
reference to the matter and
matter referred in the notes on
issue a disclaimer opinion.
accounts.
Monitoring legal requirement
Discuss the matter with
and compliance with code of
management and if they do not
conduct and ensuring that
provide sufficient information;
operating procedures are
and if the effect of
designed to assist in the
noncompliance seems to be
prevention of non-compliance
material, legal advice may be
with law and regulation and
obtained.
report accordingly.
Ask the management to change
terms and condition of term
loan as the company has State the fact in CARO report
acquired a different machinery. that the term loan taken has
Report under CARO, if the been applied for the purpose
management does not agree for which it was sanctioned.
with the demand.
Partially True and partially
False
Significant change in Significant change in nature or
ownership. size of the entity’s business.
Optimal Level Lower Level
Those charged with governance Auditor
90 days 180 days
Policies and procedures Requirements
Relevant audit evidence
Conclusions reached
obtained
Statement 1 is correct Statement 2 is correct Both A and B are correct

Auditor Management Those charged with governance

Audit evidence Planning an audit Documentation
Electronic Original Management
Documentary evidence Written representation Electronic form
Audit file Engagement file Working file

Date of audit report Date of financial statement. Date of working paper

Error Fraud Misstatement

Loss to shareholders Loss to company Material Misstatement
Fraudulent Financial Reporting Misappropriation of Assets Both A and B

Fraudulent Financial Reporting Misappropriation of Assets Both A and B

Management Those charged with governance Auditor

Absolute assurance Management‟s assurance Reasonable assurance

Control Detection Inherent

Error Misstatement Fraud

Embezzling receipts
Changing judgments to
estimate account
balances
Intentional
Lax accounting system
Inappropriately adjusting
Stealing physical assets
estimates.
Concealing facts that affect the
Altering records relating to
amount
significant transactions.
recorded in F.S.
Either Intentional or
Unintentional
unintentional
Purchasing at arm‟s length
Adverse media comment
price

If higher level is absent obtain

Management Both a and b
legal advice

Regulatory and enforcement

Management User of financial statement
authority
Perform limited
obtain SAAE Both A and B
procedures

he shall perform further audit
procedure
he shall consider its impact on
he shall modify the opinion as
the financial statement and on
per SA 705
his opinion first

taking legal advices in assisting instituting and operating

and monitoring compliance of appropriate system of internal both a and b
regulators control
National financial reporting
Ministry of corporate affairs Those charged with governance
authority

Ethical requirement Standards issued by ICAI Terms and conditions

Emphasis on matter Paragraph Key Audit matter Paragraph Other matter Paragraph

Significant delay in providing Unavailability of Expected Restriction imposed by

information information management

Material misstatement Detection Fraud

Internal control weakness Auditor communication letter Letter of weakness

Statement 1 is correct Statement 2 is correct Both A and B are correct

Oral writing Both A and B

one or more two or more more than three

Engagement partners joint auditors Either a or b

Terms of engagement Mutual discussion Choice

By those charged with

Orally Article clerk
governance

Express his opinion through a Express his opinion through an

Consult with the management
separate report agreed report

on the basis of identifiable

Items of asset or liabilities
divided work
Periodically
units or specified areas
disclosure requirements in compliance of audit report with
Financial statements statutory requirement
Auditors should come at a
The view of Mr. Kunal will they will issue separate audit
common point and give report
prevail because of prudence reports
accordingly

Partially True and partially

1 0
False

Co-ordinate Plan Divide

Those charged with

Management, management Auditor and management
governance, audit committee

High Low Neutral

Honest and ethical behavior Discipline Controls

professional skepticism professional judgment Professional Behaviour

Management IT Specific risk

Management response to his Overall financial information

Past experiences
Questionnaire and individual account balance

Auditor‟s decision Management decision User‟s decision

Identifying and assessing NTE of further audit

Determination of NTE of RAP
RMM. procedures.

Management Level Assertion level Finalization level

Proportionate Inverse Direct

Internal control system Deficiency control system External control system

Amount due to lenders

Salary paid to employes. Amount transfered to reserve.
including terms of repayment.

Test of control and test of Risk assessment procedures Test of details and substantive
details. and test of details analytical procedure.

Service organization Internal system Audit

Auditor of the service

Auditor of the user entity External auditor
organisation
Type A or Type B Report Type 1 or Type 2 Report Type X or Type Y Report

Fraud Risk assessment Materiality

Withdraw the assignment if

Modify the report Take legal advice
permissible

Inaccuracy in gathering or
Omission of an amount or
Incorrect accounting estimates processing data from which
disclosures
financial statement is prepared

Fraud Misstatements Error

Audit Procedures Risk assessment procedure Additional audit procedures

RMM & Quality of RMM & Quanity of

RMM
Audit evidences Audit evidences

Relevance & relatability in Relevance & reliability in Relevance in

providing support for providing support for providing support for
conclusion conclusion conclusion

Auditor of the service

External auditor User auditor
organisation

Assumptions at arriving
Sources of Information Basis of Forecasts
forecast

Completess of litigation and Presentation and disclosure if

Valuation of inventory
claims financial statement.
ES - AN OVERVIEW
Option - D Right - Option
Right - Ans
None of the above A pervasive, conclusive

None of the above A recommended

All of the above D All of the above

10 C 7

SQC 1, 7 years D SQC 1, 7 years

Employee B Managing partner

None of the above C Either a or b

Professional standards,
Professional standards,
B regulatory and legal
regulatory and legal standards
requirements
legal requirements D legal requirements

At any time A Atleast Annually

dated on the ssame date of

A before issue of Audit report
issue of Audit report

SA 700 B SA 200

Work experience C Professional experience

Sufficient A Quantity
Sufficient B Quality

Can‟t form an opinion B 0

Planning B Nature timing and extent

None of the above C Both A and B

Audit A Professional Skepticism

Precondition of audit A Terms of audit engagement

Analysis and discuss the
company’s cash flow and profit
D
of the previous years with the
projected accounts.
Analysis and discuss the
company’s cash flow and profit
of the previous years with the
projected accounts.

Accounting estimate made for

allowance for doubtful debts
where the result of the auditors
review of similar accounting
Judgments about the outcome
estimates made in the prior
A of pending litigation with PX
period financial statements do
Ltd. against the company.
not indicate any substantial
difference between the original
accounting estimate and the
actual outcome.
Include an Emphasis of Matter
Paragraph in Auditors report
having a clear reference to the
matter being
emphasized and to where
relevant disclosures that fully
describe the matter can be
found in the financial
statement.
Include an Emphasis of Matter
Paragraph in Auditors report
having a clear reference to the
matter being
D emphasized and to where
relevant disclosures that fully
describe the matter can be
found in the financial
statement.

Monitoring legal requirement

Evaluate the implication of
non-compliance in relation to
other aspects of audit including
C
risk assessment and reliability
of written representation and
take appropriate action.
and compliance with code of
conduct and ensuring that
operating procedures are
designed to assist in the
prevention of non-compliance
with law and regulation and
report accordingly.

State the fact in CARO report

that the term loan taken has not
State the fact in CARO report
been applied for the purpose
that the term loan taken has
for which it was sanctioned. C
been applied for the purpose
Also qualify the report as there
for which it was sanctioned.
are misstatements that are
material but not pervasive.

Can‟t form an opinion A 1

Revised or special terms of

All of the above A
engagement

None of the above C Lower Level

Audit committee A Management

30 days D 30 days

All of the above B Policies and procedures

All of the above D All of the above

None of the above A Statement 1 is correct

All of the above A Auditor

Policies and procedures C Documentation
Auditor‟s B Original
Oral evidence A Documentary evidence
Client‟s file A Audit file

None of above A Date of audit report

All of the above B Fraud

All of the above C Material Misstatement
None of the above A Fraudulent Financial Reporting

None of the above B Misappropriation of Assets

Both A and B D Both A and B

None of the above C Reasonable assurance

Fraud D Fraud

Risk C Fraud

Using entity assets for personal Using entity assets for personal
D
use. use.

Embezzling receipts D Embezzling receipts

Either Intentional or
And non – complying the laws C
unintentional

All of the above B Adverse media comment

Income tax C Both a and b

All of the above D All of the above

None of the above A obtain SAAE

he should ignore if these are he shall consider its impact on
not directly related to the C the financial statement and on
financial statements his opinion first

it is not their responsibility C both a and b

Previous auditor C Those charged with governance

All of the above D All of the above

All of the above B Key Audit matter Paragraph

All of the above D All of the above

Control A Material misstatement

Management deficiency letter C Letter of weakness

None of the above C Both A and B are correct

None of the above B writing

None of the above B two or more

None of the above B joint auditors

All of the above B Mutual discussion

In writing D In writing

Express his opinion through a

None of the above A
separate report

all of the above D all of the above

for matters brought to
knowledge of all by any one of
A divided work
them and on which they all
agreed
 they will issue separate audit
None of the above C
reports

Can‟t form an opinion A 1

Direct B Plan

Engagement partner, Engagement partner,

D
engagement team engagement team

No effect B Low

Risk assessment A Honest and ethical behavior

None of the above B professional judgment

Material misstatement B IT

Overall financial information

All of the above C
and individual account balance

Audit committee‟s decision C User‟s decision

All of the above D All of the above

All of the above B Assertion level

Positive B Inverse

All of the above A Internal control system

Amount due to lenders

All of above A
including terms of repayment.

Test of details and substantive

None of above C
analytical procedure.

Fraud A Service organization

Auditor of the service

Independent C
organisation
None of the above B Type 1 or Type 2 Report

Estimates C Materiality

Obtain an understanding of Obtain an understanding of

D
management‟s reasons management‟s reasons

All of the above D All of the above

All of the above B Misstatements

All of the above C Additional audit procedures

Quanity of RMM & Quality of

A
Audit evidences Audit evidences

Relatability in Relatability in
providing support for D providing support for
conclusion conclusion

Independent C User auditor

All of the above D All of the above

All of above D All of above