Audit and Auditors Reports – CS Foundation Fundamentals of Accounting and Auditing Notes

→ Auditor and Related Provisions
Who is an auditor

→ An auditor is a professional who is responsible for evaluating some aspect of a project, business, or individual.
Auditors are used to ensure that organizations are maintaining accurate and honest financial records and statements.

→ Along with evaluating a project or aspect of a company, this person is often expected to make recommendations regarding the correction of negative conditions that currently impact the organization.

→ Essentially, this person may function as an employee or an independent professional. When working for an organization, he or she is usually referred to as an internal auditor. External auditor is not an employee of the organization thus he is able to give an unbiased opinion and report the true picture of the organization.

→ Appointment of Auditors
Section 139 of the companies Act 2013 contains provisions regarding the appointment of auditors
1. Appointment of First Auditors: Section 139(6) of the Companies Act, 2013 provides that the first auditor or auditors are to be appointed by the Board of directors within 30 days from the date of the registration of the company These auditors will work until the conclusion of the First Annual general meeting. Company is not required to inform Registrar of Companies regarding the appointment of first auditors. In case directors are not able to appoint directors within one month of incorporation, the company may appoint its first auditors in general meeting.

2. Subsequent Appointment by the Shareholders: Appointment of auditor shall be made by members at First AGM and every subsequent AGM. Company shall intimate the auditor about appointment as per Section 139(1) of = the Companies Act 2013 . Such auditors must be intimated within 7 days of appointment and company shall obtain written consent and certificate (in accordance with the conditions prescribed in section 141) from auditor. Then, company is required to file a notice with the registrar about the appointment within 15 Days of the meeting. The auditor will also certify that he satisfies the criteria provided in section 141.

3. Appointment of subsequent auditor in Government company: Appointment of auditor shall be made by CAG. within 180 days from the commencement of financial year. The Auditor shall hold office for a till the conclusion of AGM.

4. Conditions for appointment of Subsequent Auditor in case of Listed Companies:
If an individual is appointed as an auditor for 1 term i.e. for 5 consecutive years then that individual will not be eligible for reappointment for next 5 years from the expiry of his term as an auditor of company. Whereas, if an audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years then that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term as an auditor of company.

5. Appointment in case of Casual vacancy: Casual vacancy arises due to death, insanity, disqualification or insolvency of the auditor. Board of directors has the power to fill the vacancy. Auditor so appointed hold office till the conclusion of next general meeting. If casual vacancy is arising by resignation then vacancy shall be filled by the Company in its general meeting within 3 months from the date of recommendation of the Board.

→ Qualification of auditor -Section 141 (1) and Section 141(2) of Companies Act, 2013 contains provision as regards to qualifications of auditors. A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949). This applies to all the companies whether public or private, section 25 company, government company.

Disqualification of auditor – Section 141(3), of the companies act, 2013 defines disqualification of the auditor
→ As per Act none of the following persons shall be qualified for appointment as auditor of a company:
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees ;
(e) a person holding any security of that company after a period of one year from the date of commencement of the Companies (Amendment) Act, 2000.

→ A person shall also not be qualified for appointment as auditor of a company if he is, by virtue of sub-section (3), disqualified for appointment as auditor of any other body corporate which is that company’s subsidiary or holding company or a subsidiary of that company’s holding company, or would be so disqualified if the body corporate were a company.

→ If an auditor becomes subject, after his appointment, to any of the disqualifications specified in sub-sections (3) and (4), he shall be deemed to have vacated his office as such.

→ Further in case of insolvency and unsound mind a person is disqualified to be a member of ICAI

→ If a partner is disqualified then the firm will automatically be disqualified

→ Rights of auditors: According to section 143 (1) of the Companies Act, 2013, a company auditor has the following rights

  • Right of Access to Books of Accounts: Auditor has a right of access at all times to the company’s books, accounts and vouchers (in whatever form they are held) whether kept at the head office of the company or elsewhere.
  • Right to obtain Information and Explanation:Auditor may require any of the following persons to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor. Persons include any officer or employee of the company and any director of the company.
  • Right to visit Branches: Where the Branch Accounts are not audited by a duly qualified auditor, the auditor has a right of access at all time to the books, accounts and vouchers of the company and thus, may visit the branch, if he deems it necessary.
  • Right to Signature on Audit Report- Under section 229, only the person appointed as auditor of the company, or where a firm is so appointed, only a partner in the firm practicing in India, may sign the auditor’s report
  • Right to receive Notice and other Communications relating to General Meeting and attend them: A company’s auditor is entitled to receive all notices of, and other communications relating to, any general meeting. He has right to attend any general meeting of the company, and to be heard at any general meeting which he attends on any part of the business of the meeting which concerns him as auditor.
  • Right to receive remuneration – auditor has rights to receive remuneration for the audit work performed by him.

→ Duties of auditor: Besides having rights an auditor has some duties to ensure the work discharged by him is of credibility and true and fair.
Section 143(1) under the Companies Act 2013 specifies some duties to auditors these are

  • As per section 143(2) the auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of this Act.
  • The audit report should be prepared in accordance with section 143,
  • Where any of the matters required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefor
  • If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government
  • Every auditor shall comply with the auditing standards.

→ Auditors report
An auditor’s report provides an opinion of the validity and reliability of a company or organization’s financial statements. The goal of an auditor’s report is ultimately to document reasonable assurance that a company’s financial statements are free from material error.

→ Under section 143(3)of the Companies Act, 2013, the duties of the auditor which relate to his report are that the auditor shall report to the shareholders on the accounts examined by him. The report so submitted shall contain the following:
(a) Whether, in his opinion, the Profit and Loss Account referred to in his report exhibits a true and fair view of the profit or loss.
(b) Whether, in his opinion, the Balance Sheet referred to in his report is properly drawn up so as to exhibit a true and fair view of the state of affairs of the business as shown by the books of accounts.
(c) Whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit.
(d) Whether, in his opinion, proper books of accounts as required by law have been kept by the company
(e) whether Profit and Loss Account and Balance Sheet comply with the accounting standards
(f) auditors have given adverse remarks if any either in bold or italics type
(g) whether any director is disqualified from being appointed as director under section 164(2)
(h) Whether the company’s Balance Sheet and Profit and Loss Account dealt with by the report are in agreement with the books of accounts and returns.

→ As per Section 143(4) of the Companies Act, 2013,where any of the matters referred to above is answered in the negative or with a qualification, the auditor’s report shall state the reason for the answer.
The audit report is the end product of every audit.

→ Essentials of auditor report: An audit of a company’s financial statements should result in a report where the accountant or auditor is free to share their opinion about the validity and reliability of a company’s financial statements. In this report, the auditor should give a true picture of the company and their financial statements. The auditor should also state their connection with the financial statements, and whether they are externally or internally connected to the company. In their report, the auditor can also share any reservations or additional information. Reservations could arise if the auditor disagrees something within the financial statements.
An auditors report has following parts:
1. Report title- In a company many reports are being issued, thus to segregate auditors report from other reports auditors report should mention on top that it is auditors report.

2. Audit report addressee: Audit report is generally addressed to shareholders or Board of directors of Company. The report should be properly addressed either as per law or as per his engagement letter

3. Identification: Report should mention the financial statement that have been audited. It should also mention the data and period for which financial statements have been prepared. It should mention the name of the entity for which the audit has been performed

4. Reference to auditing standards: Report should state the standards that have been followed in auditing.

5. Opinion: The auditor should ensure that financial statements is reliable and satisfies the test of materiality. As per auditor’s opinion, these statements gives a true and fair view. Opinion states the auditor’s conclusions based on the results of the audit exam.

6. Signature: Report should be signed in auditor name or firm name or both as appropriate as per Sec. 145 of the CA 2013.

7. Auditors Address: The report should give the address of the auditor so that the person reading the report knows the name of city of auditor.

8. Date of report: The auditors report shall not be a date earlier to the date on which accounts were approved by the management, moreover the date should not be date earlier to the date on which auditor received all the audit evidence

→ Auditors Opinion: The audit report should include a section headed “Audit Opinion” or “Qualified Audit Opinion”, as appropriate. This section should clearly express the auditor’s opinion as to whether the financial report is presented fairly in accordance with:
(a) Accounting Standards and other mandatory professional reporting requirements in India; and
(b) when appropriate, relevant statutory and other requirements

→ Types of Opinion
The opinion expressed in the audit report should be either:
(a) unqualified opinion
(b) qualified opinion
(c) an adverse opinion
(d) Disclaimer of opinion

(a) Unqualified Opinion: An unqualified opinion should be expressed when the auditor is satisfied in all material respects that the financial report is presented fairly in accordance with:
(a) Accounting Standards and
(b) relevant statutory and other requirements,
so as to present a view which is consistent with the auditor’s understanding of the entity’s financial position, the results of its operations and its cash flows. It is also known as “clean Report”.

(b) Qualified Opinion: A qualified opinion must be issued when the auditor knows the financial statements are significant but not that significant that they may be given adverse opinion. The opinion must state the nature of the qualification. If the qualifications are measurable then auditor should quantify it and if not possible then he should state that quantification is not possible.
Always reasons to the qualification should be mentioned by the auditor. The words “subject to” are specified to show quantification.

(c) Adverse opinion: An adverse opinion should be expressed when the effects of a disagreement with management or a conflict between applicable financial reporting frameworks is of such a magnitude or is so pervasive or fundamental that the financial report taken as a whole is, in the auditor’s opinion, misleading or of little use to the addressee of the audit report. When auditor gives adverse opinion then he should mention the reason for it.

(d) Disclaimer of opinion: An inability to form an opinion should be expressed when a scope limitation exists and sufficient appropriate audit evidence to resolve the uncertainty resulting from the limitation cannot reasonably be obtained and the possible effects of the adjustments that might have been required to resolve the uncertainty are of such a magnitude or so pervasive or fundamental that the auditor is unable to express an opinion on the financial report taken as a whole. Reasons for disclaimer of opinion should be stated.

Audit and Auditors Reports MCQ Questions – CS Foundation Fundamentals of Accounting and Auditing

Question 1.
Excluding ___ all are the characteristic features of external auditor
a. Periodic audits on a rotating basis
b. External to organization
c. No connection to organization
d. Both b & c
Answer:
a. Periodic audits on a rotating basis

Question 2.
First auditors are appointed
a. Within 30 days
b. In first general meeting in some cases
c. Both a & b
d. None of the above
Answer:
c. Both a & b

Question 3.
First auditors are appointed by
a. Board of directors
b. Shareholders
c. Government
d. None of the above
Answer:
a. Board of directors

Question 4.
In general auditors are appointed for
a. Financial year
b. 3 years
c. Complete year
d. As per the contract with the directors
Answer:
a. Financial year

Question 5.
A vacant position that arises because of the resignation of the director can only be filed in
a. Annual general meeting
b. Board meeting
c. Board meeting but expired at the general meeting
d. Both a & b
Answer:
c. Board meeting but expired at the general meeting

Question 6.
Casual vacancy occurs only when
a. Direction dies
b. Declared incompetent
c. Resigns
d. All of the above
Answer:
d. All of the above

Question 7.
In how much time should the notice be given to central government regarding the request for the appointment of director?
a. Within of director
b. Within 30 days
c. Within 15 days
d. Within 20 days
Answer:
a. Within of director

Question 8.
For section 25 companies now Section 8 company as per Companies Act, 2013 the auditor is appointed under section
a. 225 companies Act
b. 226 of companies Act
c. 226 of chartered accountant act
d. 225 of chartered accountant act
Answer:
b. 226 of companies Act

Question 9.
Which of the following is TRUE?
a. The audit profession is unregulated
b. The audit profession is regulated by its own professional body
c. Outside bodies sometimes become involved in the regulation of audit profession
d. The audit profession is regulated only by the government
Answer:
b. The audit profession is regulated by its own professional body

Question 10.
An auditor cannot obtain audit evidence by
a. Physical inspection
b. observation of procedures
c. computation and checking of client’s records
d. computation and checking of client’s competitor’s records
Answer:
d. computation and checking of client’s competitor’s records

Question 11.
As per Companies (Amendment) Act, 2000 ___________ person will not be appointed as auditor
a. Person of unsound mind
b. Person who is indebted of amount more than Rs. 1,000
c. Employee of the company
d. Person holding security of the company
Answer:
d. Person holding security of the company

Question 12.
In a firm of 3 auditors, one of the partner of the firm was disqualified but the other 2 auditors were qualified. In such case whether the firm be disqualified
a. Yes
b. No
c. Partially yes
d. Partially no
Answer:
a. Yes

Question 13.
Auditors can receive notice of any
a. General meeting
b. Board meeting
c. Committee meeting
d. All of the above
Answer:
a. General meeting

Question 14.
Which is NOT the function of auditor?
a. To check all the books that are relevant to auditing.
b. To check the articles of association
c. To sign the audit report
d. To receive remuneration
Answer:
b. To check the articles of association

Question 15.
It is the duty of the auditor
a. Loans and advances have shown as demerits
b. Loans and advances have been shown as revenues
c. Personal expenses have been charged to revenue
d. Both a & b
Answer:
d. Both a & b

Question 16.
As per auditor report ___________ turns out to be the integral part of auditors report
a. Adverse comments
b. Any disqualification of director
c. Collecting all the information required
d. All of the above
Answer:
d. All of the above

Question 17.
Audit reports are made for
a. Employees
b. Shareholders
c. Government
d. All of the above
Answer:
b. Shareholders

Question 18.
A auditors firm’s personnel partner periodically studies the auditors firm’s personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the auditor’s firm’s adherence to prescribed standards of
a. Quality control.
b. Due professional care.
c. Supervision and review.
d. Field work.
Answer:
a. Quality control.

Question 19.
The first standard of field work, which states that the work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that
a. Early appointment of the auditor is advantageous to tile auditor and the client
b. Acceptance of an audit engagement after tt1e close of the client’s fiscal year is generally not permissible.
c. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion.
d. Performance of substantial parts of the . examination for necessary at interim dates.
Answer:
a. Early appointment of the auditor is advantageous to tile auditor and the client

Question 20.
It is not uncommon in auditor report to
a. Have title
b. Indicate the accounting principle used
c. Signature of auditor
d. All of the above
Answer:
c. Signature of auditor

Question 21.
Pick the one that is not required in the auditor report
a. Data
b. Place
c. Signature
d. None of the above
Answer:
d. None of the above

Question 22.
If there are no adverse comments in the auditor report it is
a. Adverse opinion
b. Clear report
c. Qualified opinion
d. Disclaimer of opinion
Answer:
b. Clear report

Question 23.
There are significant but not so significant adverse comments. Such a report is
a. Adverse opinion
b. Qualified opinion
c. Disclaimer of opinion
d. None of the above
Answer:
b. Qualified opinion

Question 24.
Insufficiency of finding proper evidence leads to type of auditor report
a. Adverse opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Unqualified opinion
Answer:
c. Disclaimer of opinion

Question 25.
Where a Company suffers loss as a result of an auditor’s negligence and the directors do not take any action, any member of the company may take action against the auditor by
a. direct institution of a case in court against the auditor
b. convening a meeting of members within 30 days
c. giving 60 days notice to the company of his intention to institute an action in court
d. giving 30 days notice to the company of his intention to institute an action in court
Answer:
d. giving 30 days notice to the company of his intention to institute an action in court

Question 26.
The auditor reviews the organization’s chart primarily for the purpose of
a. Understanding of the workflow
b. Investigating the various communication channels
c. Understanding the responsibility and authority of individuals
d. Understanding of the entity and its environment
e. Ensuring that the audit is conducted both methodically and Systematically
Answer:
c. Understanding the responsibility and authority of individuals

Question 27.
When approached to perform an audit first auditor should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor auditor may be able to provide the successor with information that will assist the successor in determining whether
a. the engagement should be accepted.
b. in the predecessor’s opinion internal control of the company has been satisfactory.
c. The predecessor’s work should be used.
d. The company follows the policy of rating its auditors.
Answer:
b. in the predecessor’s opinion internal control of the company has been satisfactory.

Question 28.
When a company’s financial statements have been audited, an audit report will be prepared. If this is unqualified the auditors will report that the financial statements:
a. Are certified correct.
b. Contain no material errors.
c. Comply with the Companies Act.
d. Present a true and fair view and comply with the Companies Act
Answer:
d. Present a true and fair view and comply with the Companies Act

Question 29.
A limitation on the scope of an auditor’s examination sufficient to preclude an unqualified opinion will usually result when management:
a. Presents financial statements that are prepared in accordance with the cash receipts and disbursements basis of accounting.
b. States that the financial statements are not intended to be presented in conformity with generally accepted accounting principles.
c. Does not make the minutes of the Board of Directors meetings available to the auditor.
d. Asks the auditor to report on the balance sheet and not on the other basic financial statements.
Answer:
c. Does not make the minutes-of the Board of Directors meetings available to the auditor.

Question 30.
One of the auditing firm’s basic objectives is to provide professional services that conform to professional standards. Reasonable assurance of achieving this basic objective is provided through:
a. A system of quality control
b. A system of peer review
c. Continuing professional education
d. Compliance with generally accepted reporting standards
Answer:
a. A system of quality control

Question 31.
In reporting on compliance with laws and regulations during a financial statement audit in accordance with Government Auditing Standards, an auditor should include in the auditor’s report:
a. A statement of assurance that all controls over fraud and illegal acts were tested
b. Material instances of fraud and illegal acts that were discovered
c. The materiality criteria used by the auditor in considering whether instances of noncompliance were significant
d. An opinion on whether compliance with laws and regulations affected the entity’s goals and objectives
Answer:
b. Material instances of fraud and illegal acts that were discovered

Question 32.
An auditor is liable for the following
a. Third Party liabilities
b. Fraud perpetrated in highly sophisticated circumstances
c. None of these
d. Both a & b
Answer:
b. Fraud perpetrated in highly sophisticated circumstances

Question 33.
During audit of the financial statements, the auditors are concerned with the verification and determination of which one of the following items?
a. Statements accuracy and feasibility
b. Date accuracy and reliability
c. Policies value and reliability
d. Cycle policies and reliability
Answer:
b. Date accuracy and reliability

Question 34.
Which one of the following authorities shall fix the remuneration of the auditors, if auditors are appointed by the Companies Ordinance?
a. Directors
b. Shareholders
c. Company registrar
d. None of the above
Answer:
a. Directors

Question 35.
A retailing entity uses the Internet to execute and record its purchase transactions. The entity’s auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would:
a. Compare a sample of paid vendors’ invoices to the receiving records at year-end.
b. Plan for a large measure of tolerable misstatement in substantive tests.
c. Perform tests several times during the year, rather than only at year-end.
d. Increase the sample of transactions to be selected for cutoff tests.
Answer:
c. Perform tests several times during the year, rather than only at year-end.

Question 36.
The _____________ is also expected to provide the resources needed and select staff members to accompany the auditors.
a. auditor
b. client
c. internal auditor
d. auditee
Answer:
d. auditee

Question 37.
The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the
a. Partner assigned to the engagement.
b. Auditor in charge of field work.
c. Management of the company.
d. Securities & Exchange Commission.
Answer:
c. Management of the company.

Question 38.
The audit final report should include, at a minimum, the following: (choose the one NOT required)
1. Type of audit conducted
2. Characteristics of audit
3. Identification of involved parties: auditor, auditee, and third party
4. Audit team members
5. Critical nonconformities and other observations.
6. Audit standards and reference documents used
7. Determination of proper corrective action(s)
8. Duration of audit
a. 1
b. 2
c. 4
d. 8
Answer:
b. 2

Question 39.
An auditor should consider which of the following when evaluating the ability of a company to continue as a going concern?
a. Audit fees
b. Future assurance services.
c. Management’s plans for disposal of assets.
d. A lawsuit for which judgment is not anticipated for 18 months.
Answer:
c. Management’s plans for disposal of assets.

Question 40.
Which of the following paragraphs of an auditor’s report does an auditor communicate the nature of the engagement and the specific financial statements covered by the audit?
a. Scope paragraph.
b. Opinion paragraph.
c. Introductory paragraph.
d. Explanatory paragraph.
Answer:
c. Introductory paragraph.

Question 41.
Who can not be appointed as auditor?
a. Director
b. Manager
c. Secretary
d. None of the above
Answer:
d. None of the above

Question 42.
Everything is false for external auditors except
a. They are not allowed to undertake consultancy work’ for companies they audit
b. They are responsible for ensuring that there haven’t been any frauds in companies that they audit.
c. Both a&b
d. They can never become employees of the company
Answer:
d. They can never become employees of the company

Question 43.
Which of the following professional services is not provided by a firm of Chartered Accountants?
a. Auditing the financial statements of a company
b. Financial advice
c. Investigations
d. Quality control on the shop floor.
Answer:
d. Quality control on the shop floor.

Question 44.
When a company receives the notice of the resignation of the Auditor, the company shall within 14 days send a copy of the notice to
a. all shareholders and all persons entitled to be sent copies of the financial statements
b. all shareholders and creditors
c. Corporate Affairs Commission and all minority shareholders
d. Corporate Affairs Commission and every person who is entitled to be sent copies of the financial statements.
Answer:
d. Corporate Affairs Commission and every person who is entitled to be sent copies of the financial statements.

Question 45.
Which of the following external influences will not affect the directors in the preparation of the financial statements?
a. Legislation
b. Regulatory requirements
c. The political environment
d. Accounting requirements
Answer:
c. The political environment

Question 46.
Which one of the following is NOT a condition for the auditor to disclose unlawful acts of the client uncovered by him?
a. The client refuses authority to disclose
b. The client authorizes him to disclose
c. The court compels him to disclose
d. Disclosure is in the interest of the auditor especially to defend himself in a litigation
Answer:
a. The client refuses authority to disclose

Question 47.
Which of the following statements is false?
a. The External Auditor is appointed by the shareholders at the Annual General Meeting
b. The Internal Auditor is appointed by the shareholders after the approval of the management
c. The Internal Auditor is appointed by the management
d. The Directors can appoint External Auditor to fill a casual vacancy
Answer:
b. The Internal Auditor is appointed by the shareholders after the approval of the management

Question 48.
Issue of bonus shares can be made out of
a. undistributed profit only
b. cash and bank balances only
c. Share premium account, undistributed profits or capital redemption reserve fund
d. consolidated fund, undistributed profits or share premium account
Answer:
c. Share premium account, undistributed profits or capital redemption reserve fund

Question 49.
Which resolution does a company need to pass to remove an auditor before the expiration of his term of office?
a. Special Resolution
b. General Resolution
c. Majority Resolution
d. Ordinary Resolution
Answer:
d. Ordinary Resolution

Question 50.
A company that has the liability of its members limited by the Memorandum of Association to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up is termed.
a. Limited Liability Company
b. Public Limited Liability Company
c. General Limited Liability Company
d. Company Limited by Guarantee
Answer:
d. Company Limited by Guarantee

Question 51.
An independent auditor might consider the procedures performed by the internal auditors because
a. They are employees whose work must be reviewed during substantive testing
b. They are employees whose work might be relied upon
c. Their work impacts upon the cost/benefit trade off in evaluating inherent limitations
d. Their degree of independence may be inferred by the nature of their work
Answer:
b. They are employees whose work might be relied upon

Question 52.
To emphasize auditor independence from management, many corporations follow the practice of
a. Appointing a partner of the auditing firm conducting the examination to the corporation’s audit committee
b. Establishing a policy of discouraging social contact between employees of the corporation and their dependent auditors
c. Requesting that a representative of the independent auditor be on hand at the annual stockholders meeting
d. Having the independent auditor report to an audit committee of outside members of the board of directors
Answer:
d. Having the independent auditor report to an audit committee of outside members of the board of directors

Question 53.
The working papers which auditor prepares for financial statements audit are:-
a. evidence for audit conclusions
b. owned by the client
c. owned by the auditor
d. retained in auditor’s office until a change in auditors
Answer:
c. owned by the auditor

Question 54.
If the auditor discovers weaknesses in the Internal Control System of a company he is required to communicate the condition to the
a. Senior management and the Board of Directors
b. Executive Directors
c. Board of Directors
d. Audit Committee
Answer:
d. Audit Committee

Question 55.
Which of the following is the least concern to an auditor regarding the client’s internal control system?
a. Efficiency and effectiveness of operations
b. Controls related to the reliability of financial reporting
c. Controls over classes of transactions
d. Auditors are equally concern with each of the given issues
Answer:
a. Efficiency and effectiveness of operations

Question 56.
The most reliable form of evidence among the following is
a. Minutes of meetings
b. Directors” representation
c. Bank letters
d. Staff payroll
Answer:
d. Staff payroll

Question 57.
The situations below reflect circumstances leading to qualification of audit reports under disagreements EXCEPT
a. Failure to comply with the Statements of Accounting Standard
b. Disagreement as to facts or figures
c. Absence of proper accounting records
d. Company follows an inappropriate Statement of Accounting Standard
e. Disagreement as to facts and figures
Answer:
c. Absence of proper accounting records

Question 58.
Auditing standards differ from auditing procedures in that procedures relate to
a. Measure of performance.
b. Audit principles.
c. Acts to be performed.
d. Audit judgments.
Answer:
c. Acts to be performed.

Question 59.
Audit report is addressed to
a. Shareholders
b. Board of directors
c. Government
d. Both a & b
Answer:
d. Both a & b

Question 60.
The independent auditor of 1900 differs from the auditor of today as in the 1900 auditor was more concerned with the
a. Validity of the income statement.
b. Determination of fair presentation of financial statements-.
c. Improvement of accounting systems.
d. Detection of irregularities.
Answer:
d. Detection of irregularities.

Question 61.
The first general standard of generally accepted auditing standards which states, in part, that the examination is to be performed by a person or persons having adequate technical training, requires that an auditor have
a. Education and experience in the field of auditing.
b. Ability in the planning and supervision of the audit work.
c. Proficiency in business and financial matters.
d. Knowledge in the areas of financial accounting.
Answer:
a. Education and experience in the field of auditing.

Question 62.
An independent audit aids in the communication or economic data because the audit
a. Assures the reader of financial statements that any fraudulent activity has been corrected.
b. Confirms the accuracy of management’s financial, representations.
c. ends credibility to the financial statements.
d. Guarantees that financial data are fairly presented
Answer:
c. ends credibility to the financial statements.

Question 63.
Which of the following best describes the reason why an independent auditor reports on financial statements?
a. A management fraud may exist and is more likely to be detected by independent auditors.
b. Different interests may exist between the company preparing the statements arid the persons using the statements
c. A misstatement of account balances may exist and [s generally corrected as the result of the independent auditor’s work.
d. Poorly designed internal control may exist.
Answer:
b. Different interests may exist between the company preparing the statements arid the persons using the statements

Question 64.
A auditor, while performing an audit, strives to achieve independence in appearance in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of field work.
c. Become independent in fact.
d. Maintain public confidence in the profession.
Answer:
d. Maintain public confidence in the profession.

Question 65.
The “generally accepted auditing standards” are standards which
a. Are sufficiently established so that independent auditors generally agree on their existence.
b. Are generally accepted based upon a pronouncement of the Financial Accounting Standards Board.
c. Are generally accepted in response to the changing needs of the business community.
d. Are generally accepted as a consequence ‘of approval of the AICPA membership.
Answer:
d. Are generally accepted as a consequence ‘of approval of the AICPA membership.

Question 66.
Due professional care in auditing requires
a. A critical review of the work done at every level of supervision.
b. The examination of all corroborating evidence available.
c. The exercise of error free judgment.
d. A study and review of the l/C’s that include tests of controls
Answer:
a. A critical review of the work done at every level of supervision.

Question 67.
Which of the following best describes the reason why an independent auditor reports on financial statements?
a. A management fraud may exist and is more likely to be detected by independent auditors.
b. Different interests may exist between the company preparing the statements and the persons using the statements.
c. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.
d. Poorly designed internal control may exist.
Answer:
b. Different interests may exist between the company preparing the statements and the persons using the statements.

Question 68.
Independent auditing can best be described as
a. A branch of accounting.
b. A discipline that attests to the results of accounting and other functional operations and data.
c. A professional activity that measures and communicates financial and business data.
d. A regulatory function that prevents the issuance of improper financial information.
Answer:
b. A discipline that attests to the results of accounting and other functional operations and data.

Question 69.
Operational auditing is primarily oriented towards
a. Future improvements to accomplish the goals of management.
b. The accuracy of data reflected in management’s financial records.
c. The verification that a company’s financial statements are fairly presented.
d. Past protection provided by existing internal control.
Answer:
a. Future improvements to accomplish the goals of management.

Question 70.
The exercise of due professional care requires that an auditor
a. Use error-free judgment.
b. Consider the internal control structure, including tests of controls.
c. Critically review the work done at every level of supervision.
d. Examine all corroborating evidence available.
Answer:
c. Critically review the work done at every level of supervision.

Question 71.
In pursuing its quality control objectives with respect to acceptance of a client, an auditing firm is not likely to
a. Make inquiries of the proposed client’s legal counsel.
b. Review financial statements of the proposed client.
c. Make inquiries of previous auditors.
d. Review the personnel practices of the proposed client.
Answer:
d. Review the personnel practices of the proposed client.

Question 72.
Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable an auditing firm to provide personnel within the firm with
a. Technical training that assures proficiency as an auditor.
b. Professional education that is required in order to perform with due professional care.
c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d. Knowledge required in order to perform a peer review.
Answer:
c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.

Question 73.
In pursuing auditing firms’ quality control objectives, an auditing firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the auditing firm’s clients. Which quality control objective would this be most likely to satisfy?
a. Acceptance of client.
b. Supervision.
c. Independence.
d. Monitoring.
Answer:
c. Independence.

Question 74.
Pick the statement, which is not true regarding the appointment of an auditor
a. The appointment of an auditor in a private company’s first financial year must be made by the members by passing an ordinary resolution.
b. A private company must appoint an auditor, unless the directors have decided that no auditor will be required in future
c. A small company does not need to appoint an auditor and Government has asked not to appoint an auditor to escape from unnecessary burden.
d. Generally, a public company must appoint an auditor but they may not if the directors feel that no appointment is required.
Answer:
a. The appointment of an auditor in a private company’s first financial year must be made by the members by passing an ordinary resolution.

Question 75.
An auditor who conducts a negligent audit can only be contractually liable to the company, and not to third parties. True or False?
a. True
b. False
c. partially true
d. None of the above
Answer:
b. False

Question 76.
Who appoints the auditors of a company
a. Shareholders
b. Central Government
c. Board of directors
d. Registrar of companies
Answer:
a. Shareholders

Hint:
Section 139 of the companies Act 2013 contains provisions regarding the appointment of auditors. Accordingly auditors are appointed by shareholders.

Question 77.
Board meeting is the meeting of
a. Shareholders
b. Government
c. Creditors and debtors
d. Directors of the company
Answer:
d. Directors of the company

Hint:
Board Meeting refers to the meeting of Board of Directors of the Company

Question 78.
A statutory auditor reports to
a. Debenture holders
b. Central Government
c. Board of directors
d. Share holders
Answer:
d. Share holders

Hint:
Under section 143(3)of the Companies Act, 2013, the duties of the auditor which relate to his report are that the auditor shall report to the shareholders on the accounts examined by him.

Question 79.
When an auditor does not have any reservation/objection regarding the information under audit, which type of audit report is issued to him?
a. Qualified report
b. Clean report
c. Adverse audit report
d. Disclaimer of opinion
Answer:
b. Clean report

Hint:
Unqualified Opinion: An unqualified opinion should be expressed when the auditor is satisfied in all material respects that the financial report is presented fairly in accordance with:
(a) Accounting Standards and
(b) relevant statutory and other requirements,
so as to present a view which is consistent with the auditor’s understanding of the entity’s financial position, the results of its operations and its cash flows. It is also known as “clean Report”.

Question 80.
The first auditor of a company is appointed
g. Within one month of completion of capital subscription of the company
b. Within one month of promotion of the company
c. Within one month of’ the commencement of the business of the company
d. Within one month of incorporation of the company.
Answer:
d. Within one month of incorporation of the company.

Hint:
Appointment of First Auditors: Section 139(6) of the Companies Act, 2013 provides that the first auditor or auditors are to be appointed by the Board of directors within 30 days from the date of the registration of the company.

Question 81.
The duties of a company auditor are defined under/in
a. Memorandum of association
b. Articles of association
c. Companies Act, 2013
d. Agreement between company and the auditor
Answer:
c. Companies Act, 2013

Hint:
As per section 143 of CA 2013 auditor has following duties

  • The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of this Act.
  • The audit report should be prepared in accordance with section 143
  • Where any of the matters required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefor
  • If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government
  • Every auditor shall comply with the auditing standards.

Question 82.
Under which meeting is an auditor usually appointed?
a. Board meeting
b. Shareholders meeting or general meeting
c. Debenture holders meeting
d. Class meeting
Answer:
b. Shareholders meeting or general meeting

Hint:
Appointment of auditor shall be made by members at First AGM and every subsequent AGM. Company shall intimate the auditor about appointment as per Section 139(1) of the Companies Act 2013 .Thus the auditor of any company can be appointed by the shareholders in general meeting.

Question 83.
Casual vacancy arising due to resignation of an auditor may be filled by-
a. Board of director
b. Shareholder’s in general meeting
c. Audit committee
d. Debenture holders
Answer:
a. Board of director

Hint:
Appointment in case of Casual vacancy: According to section 139 (8)Casual vacancy arises due to death, insanity, disqualification or insolvency of the auditor. Board of directors has the power to fill the vacancy. Auditor so appointed hold office till the conclusion of next general meeting.

Question 84.
Due to lack of audit evidences, auditor issues a
a. Qualified opinion
b. Unqualified opinion
c. Adverse opinion
d. Disclaimer of opinion
Answer:
d. Disclaimer of opinion

Hint:
Disclaimer of opinion: An inability to form an opinion should be expressed when a scope limitation exists and sufficient appropriate audit evidence to resolve the uncertainty resulting from the limitation cannot reasonably be obtained and the possible effects of the adjustments that might have been required to resolve the uncertainty are of such a magnitude or so pervasive or fundamental that the auditor is unable to express an opinion on the financial report taken as a whole.

Question 85.
In which section of the CA, 2013, the provisions relating to an Auditor’s Report are covered?
a. Section 143(1)
b. Section 143(2)
c. Section 143(3)
d. Section 143(4)
Answer:
b. Section 143(2)

Hint:
As per section 143(2) the auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of this Act

Question 86.
The board of directors shall appoint first auditor of a company:
a. within one month of completion of capital subscription by the company
b. within one month of the promotion of the company
c. Within one month of the commencement of the business of the company
d. Within one month of incorporation of the company.
Answer:
d. Within one month of incorporation of the company.

Hint:
Appointment of First Auditors: Section 139(6) of the Companies Act, 2013 provides that the first auditor or auditors are to be appointed by the Board of directors within 30 days from the date of the registration of the company These auditors will work until the conclusion of the First Annual general meeting.

Question 87.
The client changed method of depreciation from straight line to written down value method. This has been disclosed as a note to the financial statements. It has an immaterial effect on the current financial statements. It is expected, however, that the change will have a significant effect on future periods. Which of the following option should the auditor express?
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion.
Answer:
b. Qualified opinion

Hint:
Qualified Opinion: A qualified opinion must be issued when the auditor knows the financial statements are significant but not that significant that they may be given adverse opinion. The opinion must state the nature of the qualification. If the qualifications are measurable then auditor should quantify it and if not possible then he should state that quantification is not possible.

Always reasons to the qualification should be mentioned by the auditor. The words “subject to” are specified to show quantification.

Question 88.
If a casual vacancy in the office of auditor arises by his resignation it should only be filled by the company in a:
a. Board meeting
b. General meeting
c. Annual general meeting
d. Statutory meeting.
Answer:
b. General meeting

Hint:
Disclaimer of opinion: An inability to form an opinion should be expressed when a scope limitation exists and sufficient appropriate audit evidence, to resolve the uncertainty resulting from the limitation cannot reasonably be obtained and the possible effects of the adjustments that might have been required to resolve the uncertainty are of such a magnitude or so pervasive or fundamental that the auditor is unable to express an opinion on the financial report taken as a whole.

Question 89.
‘Disclaimer of Opinion’ means
a. The auditor gives clean report
b. The auditor gives qualified report
c. The auditor gives adverse report
d. The auditor is unable to expresses his opinion.
Answer:
d. The auditor is unable to expresses his opinion.

Hint:
Disclaimer of opinion: An inability to form an opinion should be expressed when a scope limitation exists and sufficient appropriate audit evidence, to resolve the uncertainty resulting from the limitation cannot reasonably be obtained and the possible effects of the adjustments that might have been required to resolve the uncertainty are of such a magnitude or so pervasive or fundamental that the auditor is unable to express an opinion on the financial report taken as a whole.

Question 90.
Statutory audit report of a company is addressed to
a. Board of Directors
b. Ministry of Corporate Affairs
c. Employees of the company
d. Members of the company.
Answer:
d. Members of the company.

Hint:
Statutory audit report is addressed to the members of the company and is considered at the AGM.

Question 91.
Which of the following are the rights of a Statutory Auditor?
X. To receive remuneration
Y. To attend Board of Director’s meeting
Z. To attend the general meeting W. To visit the branch office Correct option is –
a. x and Y
b. X, Y and Z
c. X, Z and W
d. X, Y, Z and W
Answer:
c. X, Z and W

Hint:
According to section 143(1) of the Companies Act, 2013, a company auditor has the following rights

  • Right of Access to Books of Accounts ‘
  • Right to obtain Information and Explanation
  • Right to visit Branches
  • Right to Signature on Audit Report
  • Right to receive Notice and other Communications relating to General Meeting and attend them
  • Right to receive remuneration

Question 92.
The form and basic contents of statutory audit report are
a. Provided in the Companies Act, 2013
b. Provided in the Chartered Accountants Act, 1949
c. Provided in the Code of Civil Procedure, 1908
d. Not provided anywhere.
Answer:
a. Provided in the Companies Act, 2013

Hint:
Under Section 143(1) of the Companies Act, 2013, it is the duty of the auditor to make a report to the members of the company on the accounts examined by him.
Section 143(2) states that auditor’s report must state the negative points noticed’ by him along with the reasons for the same.
Thus, form and basic contents of statutory audit report are provided in the Companies Act, 2013.

Question 93.
Duties of auditor are given in
a. 144
b. 146
c. 143
d. 139.
Answer:
c. 143

Hint:
Section 143(1) under the Companies Act 2013 specifies some duties to auditors.

Question 94.
The first auditor holds the office till
a. Auditor dies
b. Auditor retires
c. Holding of 1 St AGM
d. Conclusion of 1st AGM.
Answer:
c. Holding of 1 St AGM

Hint:
Appointment of First Auditors: Section 139(6) of the Companies Act, 2013 provides that the first auditor or auditors are to be appointed by the Board of directors within 30 days from the date of the registration of the company These auditors will work until the conclusion of the First Annual general meeting.

Question 95.
Which of the following is not mentioned in Audit Report?
a. Whether HR practices are going right or wrong.
b. Whether any Director is disqualified from appointment.
c. Whether Balance Sheet gives true fair view.
d. Whether he has obtained all the information and explanation required by him for the purpose of audit.
Answer:
a. Whether HR practices are going right or wrong.

Hint:
The report so submitted shall contain the following:
(a) Whether, in his opinion, the Profit and Loss Account referred to in his report exhibits a true and fair view of the profit or loss.
(b) Whether, in his opinion, the Balance Sheet referred to in his report is properly drawn up so as to exhibit a true and fair view of the state of affairs of the business as shown by the books of accounts.
(c) Whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit.
(d) Whether, in his opinion, proper books of accounts as required by law have been kept by the company
(e) whether Profit and Loss Account and Balance Sheet comply with the accounting standards
(f) auditors have given adverse remarks if any either in bold or italics type
(g) whether any director is disqualified from being appointed as director under section 164(2)
(h) Whether the company’s Balance Sheet and Profit and Loss Account dealt with by the report are in agreement with the books of accounts and returns.

Question 96.
When does casual vacancy arises in the office of the auditor?
a. Arises due to resignation
b. Arises due to death
c. Arises due to disqualification
d. All of the above.
Answer:
d. All of the above.

Hint:
Casual vacancy arises due to death, insanity, disqualification or insolvency of the auditor.

Question 97.
A person who is indebted to the company for which amount cannot be appointed to set as an auditor of a company
a. As may be prescribed
b. 1,000
c. 3,000
d. 5,000.
Answer:
a. As may be prescribed

Hint:
Section 141(3), of the companies act, 2013 defines disqualification of the auditor. As per this section a person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees is disqualified to be appointed as auditor.

Question 98.
If shareholders cannot appoint the auditors in General Meeting, then who will appoint the auditors?
a. Central Government
b. Directors
c. Both (a) and (b)
d. None of the above.
Answer:
a. Central Government

Hint:
If shareholders cannot appoint the auditors in General Meeting, then the Central Government may appoint a person to fill the vacancy under Section 139. The company is required to give within one week notice, to the Central Government that the power has become exercisable.

Question 99.
XYZ, a C.A. firm is an auditor of Lawan Pvt Ltd. X included Y as a partner in the firm. Then who will be the auditor?
a. X
b. Y
c. Both X and Y
d. None of the above.
Answer:
c. Both X and Y

Hint:
Section 141(1) and Section 141(2) of Companies Act, 2013 contains provision as regards to qualifications of auditors. A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949.

In this XYZ is a chartered accountancy firm which implies that all the partners are chartered accountants.
Thus if Y has been appointed as partner of XYZ then he is also CA. Thus all partners of XYZ firm can be I appointed as auditors. So, Both X & Y will be the auditors.

Question 100.
If an individual partner of a C.A. firm is disqualified to be an auditor, then which of the following is correct?
a. Whole firm will be disqualified
b. Whole firm will not be disqualified
c. Only that C.A. will be disqualified
d. None of the above.
Answer:
a. Whole firm will be disqualified

Hint:
If an individual partner of a C.A. firm is disqualified to be an auditor, then whole firm will be disqualified under Section 141.

Question 101.
Appointment of an auditor is done under which section of Companies Act,2013?
a. 139
b. 142
c. 137
d. 140.
Answer:
a. 139

Hint:
Section 139 of the companies Act 2013 contains provisions regarding the appointment of auditors

Question 102.
Under which Section of Companies Act, 2013, qualifications and disqualifications of an auditor are mentioned?
a. 140
b. 143
c. 141
d. 145.
Answer:
c. 141

Hint:
Section 141(1) and Section 141(2) of Companies Act, 2013 contains provision as regards to qualifications of auditors. Section 141(3), of the companies act, 2013 defines disqualification of the auditor

Question 103.
Power of Central Government to appoint are auditor is given in which section of Companies Act, 2013?
a. 226
b. 139
c. 276
d. 225.
Answer:
b. 139

Hint:
Power of Central Government to appoint an auditor is given Under Section 139 of Companies Act, 2013.

Question 104.
A clean audit report is:
a. A qualified audit report
b. A modified audit report
c. An unqualified audit report
d. A audit report that has an adverse opinion.
Answer:
c. An unqualified audit report

Hint:
Unqualified Opinion: An unqualified opinion should be expressed when the auditor is satisfied in all material respects that the financial report is presented fairly in accordance with:
(a) Accounting Standards and
(b) relevant statutory and other requirements,
so as to present a view which is consistent with the auditor’s understanding of the entity’s financial position, the results of its operations and its cash flows. It is also known as “clean Report”.

Question 105.
The retiring auditor can:
(i) Make written representations
(ii) Get his representation circulated
(iii) 8e given an opportunity of being heard. The options are:
a. I, II and III
b. I and III
c. I and II
d. II and III
Answer:
a. I, II and III

Hint:
The retiring auditor can:

  • make written representations.
  • get his representation circulated.
  • be given an opportunity of being heard.

Question 106.
As per Companies Act, 2013, which of the following sections deal with qualifications of the audit?
a. Section 226(3) and 226 (4)
b. Section 141
c. Section 224(1) and 224 (2)
d. Section 224 (3) and 224.
Answer:
b. Section 141

Hint:
Section 141(1) and Section 141(2) of Companies Act, 2013 contains provision as regards to qualifications of auditors.

Question 107.
Under which Section of Companies Act, 2013, the auditor has a duty to sign audit report.
a. Section 227 (4A)
b. Section 227 (3)
c. Section 227 (2)
d. Section 145
Answer:
d. Section 145

Hint:
Signature: Report should be signed in auditor name or firm name or both as appropriate as per Sec. 145 of the CA 2013.

Question 108.
The auditor has a right to:
a. To direct the officers of the company
b. Retain the books of accounts
c. Attend all the board meetings
d. Access the books of Accounts and vouchers of the company.
Answer:
d. Access the books of Accounts and vouchers of the company.

Hint:
According to section 143 (1) of the Companies Act, 2013, a company auditor has the following rights

  • Right to access to books, accounts and vouchers
  • Right to obtain information and explanation
  • Right to sign audit report
  • Right to receive notice and attend General Meeting
  • Right to receive remuneration
  • Right to visit Branches

Question 109.
Which of the following may be appointed as the first auditor of the company?
(i) A Chartered Accountant in practice
(ii) A firm of Chartered Accountants in practice
(iii) A limited liability partnership of Chartered Accountants in practice. The options are:
a. I, II and III
b. I and III
c. II and III
d. I and II.
Answer:
a. I, II and III

Hint:
A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949). This applies to all the companies whether public or private, section 25 company, government company.
LLP’s can be appointed as auditors of company but only chartered accountant partners are authorized to act and sign on behalf of firm.

Question 110.
In which section of Companies Act, 2013, the provisions relating to an auditor’s remuneration is covered?
a. Section 140
b. Section 141
c. Section 142
d. Section 139.
Answer:
c. Section 142

Hint:
Remuneration of Auditors [142(1)]:- Remuneration shall be decided by members at a general meeting except for the remuneration of first auditor which shall be decided by board.

Question 111.
Who will be responsible for errors in report if external auditor relies on the work of internal auditor?
a. External auditor
b. Internal auditor
c. Management
d. Shareholder.
Answer:
a. External auditor

Hint:
An auditor’s report provides an opinion of the validity and reliability of a company or organization’s financial statements. The goal of an auditor’s report is ultimately to document reasonable assurance that a company’s financial statements are free from material error.

Linder section 143(3)of the Companies Act, 2013, the duties of the auditor which relate to his report are that the auditor shall report to the shareholders on the accounts examined by him.

Thus external auditor has a duty to present fair and true position of the company. He is the person who is reviewing the work of internal auditor. If there is a lapse in his duty then he will be responsible.

CS Foundation Fundamentals of Accounting and Auditing Notes