Practice Test - 01 CA Intermediate Udesh January 2025 Group 2 18/08/2024

Auditing and Ethics

Select the Correct Option (Each 1 Mark)
Part-A
Case Study 1 (Question No. 1-5) 2. Which of the following statements is MOST
Directions (1-5) Read the following passage and APRROPRIATE in given case situation?
answer the given questions. (1) CA P can assist management in preparation of
Me and You Private Limited has been newly financial statements of the company.
incorporated. The plant of the company has recently However, issue of a report in such a case is
started production with the help of funds provided outside the scope of work
by a bank for purchase and installation of (2) CA P can assist management in preparation of
machinery. Further, the company is also utilizing financial statements of the company and he
working capital credit facilities from the same bank can issue an audit report.
for meeting its day to day working capital
(3) CA P can assist management in preparation of
requirements like for purchase of raw materials,
financial statements of the company and he
labour payment etc. However, just within six
can issue a compilation report in this respect.
months of its operations, the management feels that
working capital funds are inadequate and situation (4) The responsibility of preparation of financial
is creating liquidity issues in the company. The statement is of company’s management. CA P
management of the company has approached its cannot assist management in preparation of
bankers and requested for enhancement in working financial statements of the company.
capital credit facilities. The bank manager is However, he can issue a review report.
insisting upon financial statements of the company
for half year along with report providing assurance 3. In the above said scenario for issuance of signed
in this respect duly signed by Chartered Accountant financial statements for half year by CA P, as
as audit is far away. It also requires projected discussed in last para of Case Study, identify the
financial statements for coming years along with a MOST APPROPRIATE statement:-
report from CA providing assurance regarding (1) Standard on Quality control (SQC 1) is not
these projections to consider request of applicable as CA P cannot issue audit report.
management. The management approaches CA P,
(2) Standard on Quality Control (SQC 1) is not
who has qualified recently and started practising.
applicable as CA P cannot issue review report.
Reports providing assurance for half yearly results
(3) Standard on Quality Control (SQC 1) is
and projected financial statements are sought from
CA P. The Management provides necessary applicable in such type of engagement.
information and records to him in this regard. (4) Standard on Quality Control (SQC 1) is not
Assume, in above case, the company only provides applicable as CA P is barred from issuing any
trial balance, financial statements in draft/ report in such type of engagement.
preliminary form along with accompanying records
for the relevant half year to CA P and requests him 4. The banker of company has also requested for
to provide duly signed financial statements with a projected financial statements for coming years
report for mutually agreed professional fees. along with a report from CA regarding these
projections to consider request of management.
1. The management of company has engaged CA P to Which of the following standards issued by ICAI
issue a duly signed report for half year. Which of are relevant for CA P in such a situation, if any?
the following standards, if any, issued by ICAI are (1) Standards on Review Engagements
relevant for CA P?
(2) There are no standards for issuing such type of
(1) Standards on Review Engagements
reports.
(2) Standards on Auditing
(3) Standards on Related Services
(3) Standards on Related Services
(4) There are no standards for issuing report in (4) Standards on Assurance Engagements
such situation
5. Suppose CA P also accepts work of issuing 9. In what situation does the auditor have reason to
projected financial statements with a report to be accept records and documents as genuine without
signed by him. The management has projected further investigation?
turnover of ₹ 100 core for the next year, ₹ 150 crore (1) When past experience indicates honesty and
& ₹ 200 crore for following years respectively as
integrity
compared to present turnover of ₹ 25 crore in
current half year. Identify the MOST (2) When a single document supports a material
APPROPRIATE statement in this situation: financial statement amount
(1) CA P has to satisfy himself regarding (3) When fraud risk factors are prevalent
arithmetical accuracy of projected data. (4) When there is doubt about the reliability of
(2) CA P has to satisfy himself regarding information
reasonableness of assumptions underlying
projected turnover and its consistency with 10. What are the preconditions for an audit, as defined
actuals.
by SA 210?
(3) CA P has to satisfy himself regarding
arithmetical accuracy of data along with its (1) The use of any financial reporting framework
proper presentation to banker. (2) Agreement of management to all auditor
(4) CA P has to satisfy himself regarding requests
reasonableness of assumptions underlying (3) The use of an acceptable financial reporting
projected turnover, its consistency with framework and agreement of management to
actuals, disclosure and presentation. the audit premise
(4) The delegation of all responsibilities to those
General MCQs
charged with governance
6. Identify the most appropriate statement in context
of SQC 1.
(1) Assembly of engagement files should be 11. Which of the following is not an advantage of
completed in not more than 60 days after date audit?
of auditor’s report in case of audit (1) It provides high quality financial information
engagements. (2) It acts as a moral check on employees
(2) Engagement files should be completed before (3) It enhances risk of management bias
date of auditor’s report in case of audit (4) It helps in safeguarding interests of
engagements.
shareholders
(3) Engagement files should be completed in not
more than 60 days after completion of an
engagement. 12. What is the scope of SA 220 in terms of the
(4) Engagement files should be completed on date engagements it covers?
on which audit report is signed in case of audit (1) It covers all engagements, including audits,
engagements. reviews, and other assurance services.
(2) It applies exclusively to audit engagements
7. Which type of threat involves auditors forming
(3) It addresses reviews and other assurance
relationships with clients where they become too
services but not audits.
sympathetic to the client's interests?
(1) Advocacy threats (4) It only covers engagements related to financial
(2) Familiarity threats statements but excludes other assurance
(3) Self-review threats services.
(4) Intimidation threats
13. What is the purpose of having persons assigned
8. What does professional skepticism entail for an operational responsibilities for the firm's quality
auditor?
control system possess sufficient experience,
(1) Trusting all information provided by the client
ability, and authority, as per SQC 1?
(2) Accepting audit evidence without questioning
its reliability (1) To reduce their workload and responsibilities
(3) Having a questioning mind and critical (2) To limit their decision-making authority
assessment of audit evidence (3) To ensure the effectiveness of the quality
(4) Relying solely on past experience with the control system
client (4) To streamline communication within the firm
14. How often should the firm obtain written 18. No business or institution can effectively carry on
confirmation of compliance with its independence its activities without the help of proper _________:
policies and procedures from relevant personnel? (1) Audit
(1) Monthly (2) Record and accounts
(2) Quarterly (3) neither (1) nor (2)
(3) Annually (4) both (1) and (2)
(4) Biannually
19. Which of following is not one of objectives of
15. Gurpreet was of the view that audited financial auditor in accordance with SA 200?
statements are not a guarantee against probable (1) To obtain a reasonable assurance whether
wrong doings in financial matters of companies. financial statements as a whole are free from
What kind of assurance does audit of financial material misstatement
statements provide? (2) To report on the financial statements
(1) It provides reasonable assurance meaning a (3) To communicate in accordance with auditor's
moderate level of assurance findings as required by Standards on Auditing.
(2) It provides reasonable assurance meaning a (4) To obtain an absolute assurance that financial
low level of assurance statements are free from any fraudulent
(3) It provides reasonable assurance meaning a transaction
high level of assurance
(4) It provides reasonable assurance meaning an 20. Owing to the _________ limitations of an audit,
absolute level of assurance there is __________ risk that some material
misstatements of the financial statements will not
16. Which of following is false about meaning/nature be detected, even though the audit is properly
of auditing? planned and performed in accordance with the SAs.
(1) Its basic nature lies in providing assurance to (1) Inherent, unavoidable
users of financial statements. (2) Inherit, complete
(2) It is interdisciplinary in nature. (3) Management, unavoidable
(3) It is independent examination of financial (4) Regulatory, control
statements of listed entities alone.
(4) Its nature helps in providing comfort that
financial statements are not misleading.

17. _________ along with other disciplines such as

accounting and law, equips you with all the
knowledge that is required to enter into auditing as
a profession.
(1) Auditing
(2) Taxation
(3) Finance
(4) Law
 Part-B

1. ABC & Associates, an audit firm, has been approached by a prospective company client that has been in business
for about 10 years to conduct an audit of its financial statements. Before accepting the audit engagement, the firm
wants to access the integrity of prospective client. With regard to the assessment of integrity, which matters should
be considered by the audit firm? (4 Marks)

2. The Chartered Accountant has a responsibility to remain independent by taking into account the context in which
they practice, the threats to independence and the safeguards available to eliminate the threats. Explain the guiding
principles in the above context. (4 Marks)

3. Briefly outline how principles-based approach differs from rules-based approach to ethics. (4 Marks)

4. An effective system of quality control includes a monitoring process designed to provide the firm with reasonable
assurance that its policies and procedures relating to the system of quality control are relevant, adequate, and
operating effectively. Explain. (3 Marks)

5. An audit is distinct from investigation. However, it is quite possible that sometimes investigation results from the
prima facie findings of the auditor. Discuss (4 Marks)

6. CA N is the auditor of SR Ltd. The auditor expressed his opinion on the financial statements without ascertaining
as to whether the financial statements as a whole were free from material misstatements or not. In your opinion,
whether CA N has complied with objectives of audit considering the applicability of relevant SA? (4 Marks)

7. What should auditor consider before agreeing to change the audit engagement to the engagement providing lower
level of assurance? (3 Marks)

8. Mr. G, one of the team members of audit team of Different and Capable Limited was of the view that role of
computers and data processing in auditing is increasing with each passing day. Explain how computers and data
processing helps in conducting audit of a company. (3 Marks)

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