Worked Solution
✓ VerifiedSTATEMENT (i): CORRECT
SA 220 (Quality Control for an Audit of Financial Statements) explicitly provides in paragraph 7 that the engagement partner shall be responsible for the overall quality of each audit engagement assigned to him/her. The partner ensures compliance with relevant ethical requirements and professional standards on that engagement.
STATEMENT (ii): CORRECT
Teeming and lading is a well-recognized cash receipts fraud technique where one customer's payment is diverted and credited to another customer's account, with the shortage later covered by a third customer's payment. It is a method of misappropriating and suppressing cash receipts through manipulation of accounting records.
STATEMENT (iii): CORRECT
SA 300 (Planning an Audit of Financial Statements) requires that the auditor shall update and revise the overall audit strategy and audit plan as necessary during the audit. This is essential as new information emerges or circumstances change that would require modification of the planned audit approach.
STATEMENT (iv): INCORRECT
Substantive analytical procedures are HIGHLY applicable (not less applicable) to large volumes of routine, repetitive, and predictable transactions. Analytical procedures are particularly effective for such transactions because deviations from expected patterns become more apparent, enabling the auditor to identify unusual or anomalous items efficiently.
STATEMENT (v): INCORRECT
Application controls include both manual and automated controls that operate at the business process level, not manual controls only. Automated controls such as system validations, automated reconciliations, and programmed checks are equally important components of application controls as manual controls.
STATEMENT (vi): INCORRECT
Misstatements in financial statements can arise from both fraud and error, not fraud only. Fraud represents intentional misstatements by management or employees, while errors are unintentional mistakes. SA 240 clearly addresses that auditor responsibilities extend to detecting misstatements from either fraudulent or erroneous causes.
STATEMENT (vii): INCORRECT
The assessment of risks is not capable of precise measurement. Risk assessment is inherently a matter of professional judgment and opinion based on various qualitative and quantitative factors. Different auditors may reasonably assess risks differently, demonstrating that risk evaluation is not a precise mathematical exercise.
STATEMENT (viii): CORRECT
The RBI (Reserve Bank of India), the central banking authority, has specified through regulatory directives the matters that bank auditors must address in the long form audit report. These prescribed matters are mandatory under banking regulations and represent central government policy on bank audit requirements.
STATEMENT (ix): INCORRECT
This statement describes conditions for a qualified opinion, not an adverse opinion. Per SA 705: Modification to the opinion is qualified when misstatements are material but NOT pervasive (conditions stated in (a) and (b)). An adverse opinion is expressed only when the auditor concludes misstatements are material AND pervasive. The distinction between pervasiveness is critical—the statement conflates qualified and adverse opinion conditions.
STATEMENT (x): INCORRECT
This definition describes an Emphasis of Matter paragraph, not an Other Matter paragraph. Per SA 706: Emphasis of Matter refers to matters appropriately presented or disclosed in the financial statements that are fundamental to users' understanding. In contrast, Other Matter paragraphs relate to relevant matters not presented or disclosed in the financial statements. The statements reverse these definitions.
Write it like this
1The skeleton
- Write the verdict in bold capitals first — 'CORRECT' or 'INCORRECT' — examiners scan 10 statements fast and your verdict needs to land before they even read your reason, otherwise they assume you're unsure.
- Name the SA/paragraph number immediately after your verdict — for every statement tied to a standard (SA 220 para 7, SA 705, SA 706, SA 240), drop it in sentence one; it signals you know the source, not just the concept.
- For INCORRECT answers, always state the positive correction — don't just say 'this is wrong'; write 'it should be material AND pervasive' or 'both manual AND automated'; the correction line is where your 1-mark reason lives.
- Keep each answer to 3-4 lines maximum — 10 statements × 2 marks = 20 marks, so you get roughly 3-4 lines per statement; if you write a paragraph on one, you're bleeding time from the others.
- Mirror ICAI's exact contrasting language for the reversal traps — for (ix) use 'material but not pervasive' vs 'material and pervasive'; for (x) use 'presented or disclosed' vs 'not presented or disclosed'; these are the exact words that pick up the second mark.
2Examiner-rewarded phrases
3Common trap
Heads up — statements (ix) and (x) are the mark-killers here: most students flip adverse opinion with qualified opinion AND flip Emphasis of Matter with Other Matter paragraph in the same paper, losing 4 marks in under 2 minutes. Lock this in before the exam: adverse = pervasive, qualified = not pervasive; EOM = IS in the financials, Other Matter = NOT in the financials.