Worked Solution
✓ VerifiedThe following are the answers to the statements (any 8 may be selected):
(i) INCORRECT – An Emphasis of Matter (EoM) paragraph is not a substitute for Disclaimer of Opinion. An EoM paragraph is used to draw attention to matters appropriately presented in the financial statements and fundamental to users' understanding, while the auditor still expresses an unqualified opinion. A Disclaimer of Opinion, conversely, is issued when the auditor cannot obtain sufficient audit evidence with pervasive effects. These are distinct reporting mechanisms serving different purposes.
(ii) INCORRECT – The primary objective of an audit is NOT to detect fraud and errors. The primary objective is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error. Fraud and error detection is incidental to achieving this objective, not the primary purpose.
(iii) INCORRECT – The Statutory Auditor is not required to physically verify inventory. This responsibility lies with the management/Board of Directors under the Companies Act, 2013. The auditor verifies whether management's inventory verification procedures are adequate and obtains sufficient audit evidence regarding inventory accuracy, existence, and valuation.
(iv) INCORRECT – It is the responsibility of MANAGEMENT to ensure financial statements comply with Accounting Standards. The auditor's role is to audit the financial statements and report on such compliance. The auditor evaluates compliance; management is responsible for ensuring it.
(v) INCORRECT – An external expert engaged by the auditor IS subjected to the audit firm's quality control policies and procedures. The audit firm remains responsible for the quality of work performed by any external expert. Compliance with quality control is mandatory.
(vi) CORRECT – Extracts and copies of important legal documents, agreements, minutes of board and committee meetings, and relevant correspondence form part of the current audit file. These constitute essential audit evidence and working paper documentation necessary to support audit conclusions.
(vii) INCORRECT – The auditor shall NOT express an unqualified opinion if unable to obtain sufficient audit evidence regarding opening balances. Such a scope limitation requires a qualified opinion or disclaimer of opinion, depending on materiality and pervasiveness. Unqualified opinion demands complete audit evidence for all material assertions.
(viii) INCORRECT – The first auditor is appointed by the BOARD OF DIRECTORS, not the General Meeting. Section 139(6) of the Companies Act, 2013 specifically provides for board appointment of the first auditor. Subsequent auditors are appointed by shareholders at the General Meeting.
(ix) CORRECT – Surprise checks are indeed part of internal check/control. Unannounced verification procedures (surprise checks) are conducted without prior notice to staff. They are an effective internal control technique to prevent fraud, detect manipulation, and test control effectiveness.
(x) INCORRECT – An auditor is NOT bound to provide copies of working papers to the CEO. Working papers are the auditor's property, prepared for the auditor's own use and reference. Although the auditor may provide extracts or relevant copies at discretion, there is no obligation to share complete working papers with company management.
Write it like this
1The skeleton
- Write CORRECT or INCORRECT in ALL CAPS as your very first word — the examiner's pen hovers over that word; if it's buried or lowercase, you're already losing the easy half-mark.
- State the rule/section in one sentence immediately after — don't build up to it; drop 'Section 139(6)', 'SA 706', 'SA 705' right in line 2 so the examiner sees you know the source.
- Name WHO is responsible or what the mechanism actually does — every incorrect statement here flips a responsibility (management vs auditor) or confuses two distinct mechanisms (EoM vs Disclaimer), so your reason must name the correct party/mechanism explicitly.
- Give the contrast in one line if it's a mix-up statement — for EoM vs Disclaimer or primary vs incidental objective, a single 'whereas' sentence earns the reasoning mark without wasting time.
- Don't pad — 3-4 lines per statement is the ceiling — at 2 marks each across 8 statements you have ~3.5 minutes per answer; spending 6 lines on one kills your remaining seven.
2Examiner-rewarded phrases
3Common trap
The single biggest mark-killer here is writing a correct reason but labelling the statement wrong — especially on (v) external expert and (ix) surprise checks, where students second-guess themselves mid-answer and flip CORRECT to INCORRECT. Lock in your verdict first, write it down, then explain — never let your explanation talk you out of your opening word.