Skip to content

CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

While auditing Bharat Polymers Ltd., CA Rohit finds that a significant part of audit evidence on sales comes from documents prepared by management, and that senior management can override controls to post journal entries. A junior asks which feature of an audit this most directly illustrates as an inherent limitation. Which is the best answer?

The situation illustrates inherent limitations: audit evidence is persuasive rather than conclusive, and management override of controls or collusion can defeat procedures. Audits are conducted on a test basis, not 100% checking, and independence is an ethical requirement rather than a limitation of the audit itself.

  1. AThe risk of management override and persuasive rather than conclusive nature of audit evidenceCorrect
  2. BThe auditor's lack of independence from the entity
  3. CThe requirement that audit be done only on a 100% test basis
  4. DThe need to issue a report within the financial year

Explanation

Inherent limitations in SA 200 include the nature of financial reporting, the nature of audit procedures (evidence is persuasive rather than conclusive) and the possibility of management override or collusion. Audits are done on test basis, not 100% checking, so the third option is wrong. Independence is a requirement of the audit, not a limitation.

Did you get it right without looking?

One question tells you little. A timed set on Nature, Objective and Scope of Audit shows your real accuracy, how long you take and where you lose marks.

Practise Nature, Objective and Scope of AuditFree diagnostic mock

More Nature, Objective and Scope of Audit questions