Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Justify with reason, whether following statement is true or false.
a) Generally, purpose of misstatement in a financial statement of a medium sized sole proprietorship business in Nepal is to benefit proprietor himself.
b) Audit plan is substitute for audit program.

a) True: Typical medium sized business in Nepal, tend to mispresents their financial statements to benefit their proprietor way of lowering or reducing tax liability understanding income or over standing the expenses. Typical medium sized business-man tends to lower payment of tax or do not want to pay any tax. Sometime such business man may mistake his financial statements to justify his loan application to a bank and financial institutions. In other situations, such financial statements may be misstated to mislead the various stakeholders or users of such financial statements so that benefits are derived proprietor of such business.

b) The statement is false: Audit plan is initial step of audit. Whereas, audit program is setting up of procedures that are needed to implement the audit plan. Overall audit plan is for expected scope and conduct of audit. On the other hand, audit program shows nature, time and extend of audit procedures.
In planning an audit, auditor should consider factor such as complexity of the audit, the environment in which the client operates, his previous experience with the client and knowledge of client‟s business. The audit program serves as a set of instructions to the assistants involved in the audit and a means to control the proper execution of the work. Therefore, audit program supplements the audit plat for execution and it does not stand out as substitute.

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