Audit and Assurance-Revision areas – CAT II

Audit Evidence-

1. What is the meaning of the term “Audit Evidence”?

2. Explain what is meant by “sufficiency” and “appropriateness” of an audit evidence. Give an

illustration.

3. Explain the factors affecting the sufficiency and appropriateness of audit evidence.

4. Give an example of “reperformance” as a source of audit evidence.

5. What are the difficulties faced by an auditor when evidences are in “electronic form”?

6. Explain what is meant by “test of control” and “test of detail” with relevant examples.

7. An auditor must not be misled by evidence. What are the risk assessment procedures available to him
to avoid such an occurrence?

8. One of the tools used by an auditor in identifying need for obtaining further evidence is use of
“substantive analytical procedures”. Explain the same.

9. List down the methods of obtaining audit evidence.

10. Distinguish with illustration internal audit evidence from external audit evidence.

11. An audit evidence is worthwhile and conclusive only if it is “reliable” and “relevance”. Explain the
meaning of these two terms.

12. When it comes to evaluating the reliability of audit evidence, what are the rules or guiding principle
an auditor need to follow?

13. Explain the meaning of – Documentary evidence, oral evidence and visual evidence in the context of
audit of financial statements of a limited company.

14. State true or false with explanation-

a. Purchase invoice is an example of internal evidence.

b. Sufficiency is the measure of the quality of audit evidence.

c. If internal control is satisfactory, then, external evidence is more reliable than internal evidence.

d. Confirmation received by the auditor directly from third parties is conclusive evidence in support of a
transaction.

e. Audit evidence obtained from external confirmation is always reliable.

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Internal Control

1. Explain the meaning of – Detective, preventive and Corrective Internal controls with relevant
illustrations.

2. What is meant by “functional controls” in the context of internal control system in a business
organization? Give an example.

3. How does an auditor evaluate the functioning and effectiveness of “internal control system” in a
business organization?

4. Distinguish “checklist” from “questionnaire” as an evaluation tool by an auditor for assessing the
functioning of internal control system.

5. How does an auditor test whether the internal control systems designed by the management of a
business enterprise are in place and working?

6. State True or False with explanation-

a. Internal control questionnaires are a good source of identifying weakness in internal control system.

b. The use of computer facilities by a small enterprise may increase the control risk.

c. There is no relation between inherent risk, control risk and detection risk.

d. Inquiry alone is sufficient to test the operating effectiveness of internal controls.

e. Satisfactory control environment in an organization completely eliminates fraud.

Audit Sampling-

1. Explain the meaning of-

a. Appropriate audit sample.

b. Complete audit sample

c. Reliable audit sample.

2. What are the advantages of statistical sampling approach as against non-statistical sampling
approach?

3. “An audit sample must be representative of the population to which it relates” – Explain.

4. Distinguish Sampling risk from Non-sampling risk.

5. What are the sources of sampling risks?

6. What are the sources of non sampling risks?

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7. What are the methods by which an auditor can decide on sample size?

8. What are the factors to be considered before deciding on adopting a specific approach to selection of
an audit sample?

9. Explain the different methods of “audit sample”.

10. How can sampling risk be measured?

11. State true or false with relevant reasons-

a. While auditing the accounts of a company, it is obligatory that the auditor must adopt sampling
technique.

b. The method which involves dividing the population into group of items is known as block sampling.

c. Stratified Sampling involves dividing the whole homogenous population to be tested into a few
separate groups called strata and taking a sample from a few of these.

d. When statistical sampling is used to select a sample, sample need not be representative because the
statistical sampling takes care of the representation.

e. Sample size is not a valid criterion to distinguish between statistical and non-statistical approaches.

Audit of financial statement items – Financial Assertions

1. Explain the meaning of the term “financial assertions”.

2. In the context of audit of financial statements of a limited company, what are the two major issues
which an auditor must always consider in drawing any sort of conclusion about the same?

3. State the assertions in respect of “income statement”.

4. State the assertions in respect of “balance sheet”.

5. Explain the duty of the auditor in respect of looking into the financial assertions of the management of
the limited company whose audit is being carried out by him.

6. Explain the obvious assertions in the following items appearing in the financial statements of ABC
Limited?

a. Communication expenses (telephone, fax, mobile) = Rs. 1,26,400 for the year ended 31 st March 2019.

b. Trade payable = Rs. 2,50,000

Audit of specific items in the Financial Statement-

1. State any three things an auditor must look into while doing the audit of share capital of a company.

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2. Explain the following-

a. Authorized share capital.

b. Issued, subscribed and paid up capital

3. What is meant by “ultra vires” activity in the context of a limited company and explain the
implications?

4. Distinguish “bonus shares” from “rights shares”.

5. Give examples for – Shares issued for consideration other than cash.

6. What is meant by issue of shares at par, at premium and at discount?

7. In the context of auditing the long term borrowing by a limited company, what are the factors an
auditor must primarily understand?

8. What is meant by “Charge” in the context of a limited company?

9. When a management represents or asserts about borrowing a stated amount and still lying unpaid at
the end of the financial year to which the statement matters, how will the auditor corroborate the
assertion?

10. Audit of cash sale is relatively easier than audit of credit sale- Do you agree?

11. What is meant by “measurement assertion” in the context of audit of sales transaction?

12. Briefly explain as to how you will test the assertions in the context of consignment sale of goods.

13. Explain the meaning of – sales on FOB basis and sales on C&F basis.

14. What are the various evidences that will enable an auditor to conclusively prove the “Completeness”
in the context of Sales transaction?

15. How will you test the “occurrence assertion” of export sale transactions?

16. Explain the meaning of the term – “Employee benefit”.

17. Distinguish Defined benefit plan and contributory benefit plan.

18. What is meant by “completeness” assertion in the context of payment of productivity linked
incentive to regular workers in the business.

19. Give examples of three levels of audit evidence to test the financial assertions in respect of a
specified employee benefit say, Payment of Gratuity.

20. What are the aspects an auditor must consider before deciding on the audit procedure to test the
“measurement and valuation” of employee benefit expenditure?

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