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CMA Intermediate · Corporate Accounting and Auditing · Nature, Scope, Objectives and Significance of Auditing

The scope of an audit of a company's financial statements is determined mainly by which of the following?

The scope of an audit is set by statutory requirements, the applicable auditing standards and the engagement terms, not by management's preferences. If management imposes a limitation on the work, the auditor must consider its effect on the opinion, possibly qualifying it or disclaiming it.

  1. AThe wishes of the managing director regarding the areas to be examined
  2. BThe size of the company's reserves, regardless of the law
  3. CThe requirements of the law and the auditing standards, along with the terms of the engagement, and not the wishes of management to limit the workCorrect
  4. DOnly the number of transactions that the auditor is able to examine in one week

Explanation

The scope of a statutory audit is governed by the Companies Act, 2013, the Standards on Auditing and the engagement terms. Management cannot restrict it to avoid areas, and a limitation imposed on the auditor may affect the opinion. The other options use irrelevant factors.

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