Q1Substantive analytical procedures - types
2 marks easy
CA D, during the course of audit of a company engaged in export business, notices that credit facilities taken by company during the year from a bank for Rs.10 crores have almost been fully utilized during the year. On going through sanction letter provided by bank to company, it is observed that rate of interest stipulated in sanction letter is 8% p.a. Financial statements of company show bank interest amounting to Rs.60.00 lacs. Which type of substantive analytical procedure is being used by CA D?
(A) Trend analysis
(B) Ratio analysis
(C) Reasonableness tests
(D) Structural modelling
Q2Auditor's reporting duty for fraud under Companies Act 2013
2 marks easy
An auditor of a company has found that accountant of a company has entered bogus purchase bills for Rs.50 lacs in its books of accounts. Which of following is most appropriate regarding auditor's duty as far as reporting is concerned under Companies Act, 2013?
(A) Report the matter to jurisdictional ROC
(B) Report the matter to Secretary, MCA
(C) Report the matter to Board of Directors of company
(D) Report the matter to jurisdictional ROC as well as GST authority
Q3Definition of misstatement - incorrect depreciation
2 marks easy
During course of audit of a company, it is noticed by auditor that Profit before tax of company is Rs. 5 lakhs. Depreciation on building reflected in Schedule of PPE forming part of financial statements has been computed for Rs.10 lacs. The correct depreciation, according to him, should be Rs.25 lacs. The above description as a whole is an example of ______?
(A) Misstatement
(B) Assertion
(C) Sampling method
(D) Audit risk
Q1.1Audit assertions for employee benefit expenses
2 marks hard
Case: Pluto Limited is engaged in manufacturing and distribution of ergonomic furniture. Such kind of customisable range home office furniture has gained lot of importance in past few years. The company was able to perform well over the years and the same is reflected in their financials. During year 2023-24, audit firm of S.J. and Associates was reappointed as their auditor. The engagement team consisted of CA Sneha (partner) and five articled assistants. One of the assistants was new to this engagement. Considering huge volume of transactions, the partner asked him to go through files of last year…
In point 1 relating to Employee benefits, which among the following assertions are discussed respectively (in same order as described in point 1)?
(i) Valuation
(ii) Occurrence
(iii) Cut-off
(iv) Completeness
Choose the correct combination from below:
(A) (i),(ii) and (iv)
(B) (ii), (iv) and (iii)
(C) (ii), (iii) and (iv)
(D) (i),(ii) and (iii)
Q1.2Recognition of dividend as liability - timing and disclosure
2 marks hard
Case: Pluto Limited is engaged in manufacturing and distribution of ergonomic furniture. Such kind of customisable range home office furniture has gained lot of importance in past few years. The company was able to perform well over the years and the same is reflected in their financials. During year 2023-24, audit firm of S.J. and Associates was reappointed as their auditor. The engagement team consisted of CA Sneha (partner) and five articled assistants. One of the assistants was new to this engagement. Considering huge volume of transactions, the partner asked him to go through files of last year…
Do you think the amount of dividend recognised as liability in the year 2022-23 as given in point 2 appropriate?
(A) Yes. As the amount of dividend related to year 2022-23, it should be recognised in the same year irrespective of the year of declaration.
(B) No. The amount should be recognised equally between two financial years.
(C) No. The amount should not be recognised as liability in year 2022-23. But it needed to be disclosed in the notes to accounts of that year.
(D) No. The amount should not be recognised as liability. Further, no disclosure was needed in the financials of that year.
Q1.3Audit assertion verified for debtors - allowance for doubtfu
2 marks hard
Case: Pluto Limited is engaged in manufacturing and distribution of ergonomic furniture. Such kind of customisable range home office furniture has gained lot of importance in past few years. The company was able to perform well over the years and the same is reflected in their financials. During year 2023-24, audit firm of S.J. and Associates was reappointed as their auditor. The engagement team consisted of CA Sneha (partner) and five articled assistants. One of the assistants was new to this engagement. Considering huge volume of transactions, the partner asked him to go through files of last year…
In relation to matter described in para 3 pertaining to debtors, which of the following assertions was verified by auditors?
(A) Valuation
(B) Rights and obligations
(C) Existence
(D) Completeness
Q1.4Assertion not proved for asset additions - invoices in direc
2 marks hard
Case: Pluto Limited is engaged in manufacturing and distribution of ergonomic furniture. Such kind of customisable range home office furniture has gained lot of importance in past few years. The company was able to perform well over the years and the same is reflected in their financials. During year 2023-24, audit firm of S.J. and Associates was reappointed as their auditor. The engagement team consisted of CA Sneha (partner) and five articled assistants. One of the assistants was new to this engagement. Considering huge volume of transactions, the partner asked him to go through files of last year…
Read Point 4 and choose which assertion is not proved in this case.
(A) Existence
(B) Rights and obligation
(C) Completeness
(D) Measurement/Valuation
Q1.5Foreign currency restatement - AS 11 and valuation assertion
2 marks hard
Case: Pluto Limited is engaged in manufacturing and distribution of ergonomic furniture. Such kind of customisable range home office furniture has gained lot of importance in past few years. The company was able to perform well over the years and the same is reflected in their financials. During year 2023-24, audit firm of S.J. and Associates was reappointed as their auditor. The engagement team consisted of CA Sneha (partner) and five articled assistants. One of the assistants was new to this engagement. Considering huge volume of transactions, the partner asked him to go through files of last year…
Choose the correct statement from below pertaining to matter described in Point 5.
(A) The company was required to restate said amount in accordance with requirements of AS 1. By verifying it, auditor had verified existence assertion.
(B) The company was required to restate said amount in accordance with requirements of AS 11. By verifying it, auditor had verified completeness assertion.
(C) There was no responsibility of company to restate said amount. It was auditor's responsibility to restate said amount in accordance with requirements of AS 11. No assertion was, therefore, verified by auditor.
(D) The company was required to restate said amount in accordance with requirements of AS 11. By verifying it, auditor had verified valuation assertion.
Q2.1Auditor's response when management refuses to allow confirma
2 marks hard
Case: Watch IT India Private Limited is a company engaged in business of manufacturing smart watches. The company had a slow start in the beginning as company's products were gaining traction with customers. However, momentum has picked up during the year. The company wants to appoint M/s Tripati & Associates, a CA firm as their auditor for year 2023-24 by replacing their existing auditors M/s Sreepath and Co. M/s Tripati & Associates are willing to accept the engagement. They communicated with previous auditors before accepting the engagement. However, M/s Sreepath and Co. have failed to respond. C…
As regards doubt of Mr. Ram described in last para of case scenario, which of the following statements is likely to be in accordance with Standards on Auditing?
(A) The auditor needs to inquire into management's reasons for the refusal and perform alternative audit procedures to obtain relevant and reliable audit evidence.
(B) The auditor needs to evaluate implications of management's refusal on auditor's assessment of risk of material misstatement and perform alternative audit procedures to obtain relevant and reliable audit evidence.
(C) The auditor should not accept such an engagement.
(D) The auditor needs to evaluate implications of management's refusal on risk of fraud and perform alternative audit procedures to obtain relevant and reliable audit evidence.
Q2.2Preconditions for an audit - management responsibilities mis
2 marks hard
Case: Watch IT India Private Limited is a company engaged in business of manufacturing smart watches. The company had a slow start in the beginning as company's products were gaining traction with customers. However, momentum has picked up during the year. The company wants to appoint M/s Tripati & Associates, a CA firm as their auditor for year 2023-24 by replacing their existing auditors M/s Sreepath and Co. M/s Tripati & Associates are willing to accept the engagement. They communicated with previous auditors before accepting the engagement. However, M/s Sreepath and Co. have failed to respond. C…
When CA Kishan, the partner, asked about preconditions for an audit, Mr. Arun could recollect only few of them. Read the passage and find out which among the following points were missed.
(i) Obtaining management responsibility on specific legal aspects governing the organisation.
(ii) Obtaining management responsibility on Standards on Auditing applicable to the organisation.
(iii) Obtaining management responsibility for the preparation of financial statements as per applicable financial reporting framework.
(iv) Obtaining management responsibility on necessary Internal controls to enable preparation of financial statements which are free from material misstatement whether due to error or fraud.
Choose the correct answer from below options.
(A) (i), (ii) and (iii)
(B) (ii), (iii) and (iv)
(C) (iii) and (iv)
(D) (i) and (iv)
Q2.3Factors requiring revision of engagement letter in recurring
2 marks hard
Case: Watch IT India Private Limited is a company engaged in business of manufacturing smart watches. The company had a slow start in the beginning as company's products were gaining traction with customers. However, momentum has picked up during the year. The company wants to appoint M/s Tripati & Associates, a CA firm as their auditor for year 2023-24 by replacing their existing auditors M/s Sreepath and Co. M/s Tripati & Associates are willing to accept the engagement. They communicated with previous auditors before accepting the engagement. However, M/s Sreepath and Co. have failed to respond. C…
From what Mr. Kumar replied about the factors requiring a revision of Engagement letter one point was incorrect. Read the passage and find that incorrect factor.
(A) A significant change in ownership
(B) A recent change in management
(C) A change in financial reporting framework adopted in preparation of Financial Statements
(D) A modest change in nature or size of the entity's business
Q2.4Professional ethics - outgoing auditor's failure to respond
2 marks hard
Case: Watch IT India Private Limited is a company engaged in business of manufacturing smart watches. The company had a slow start in the beginning as company's products were gaining traction with customers. However, momentum has picked up during the year. The company wants to appoint M/s Tripati & Associates, a CA firm as their auditor for year 2023-24 by replacing their existing auditors M/s Sreepath and Co. M/s Tripati & Associates are willing to accept the engagement. They communicated with previous auditors before accepting the engagement. However, M/s Sreepath and Co. have failed to respond. C…
M/s Sreepath & Co. have failed to respond to incoming auditors. In this regard, choose the most appropriate option:
(A) It was unethical on part of outgoing auditors for failing to respond to communication made by incoming auditors. It is violation of principle of objectivity governing professional ethics.
(B) It was ethical on part of outgoing auditors for failing to respond to communication made by incoming auditors. It does not involve violation of any of fundamental principles governing professional ethics.
(C) It was unethical on part of outgoing auditors for failing to respond to communication made by incoming auditors. It is violation of principle of Professional competence and due care governing professional ethics.
(D) It was unethical on part of outgoing auditors for failing to respond to communication made by incoming auditors. It is violation of principle of professional behaviour governing professional ethics.
Q3.1Classification of bank overdraft and sufficiency of bank con
2 marks hard
Case: In accordance with requirements of Standards on Auditing, CA Tina (a freshly qualified professional) wants to obtain sufficient appropriate audit evidence in an audit engagement pertaining to financial statements of a partnership firm for year 2022-23. The firm is trading in FMCG goods. Appointed in May, 2023, she needs evidence to obtain information for arriving at her judgment. Clearly remembering fundamentals that an auditor has to obtain sufficient appropriate audit evidence to draw reasonable conclusions on financial statements, she proceeded in accordance with audit plan prepared by her.…
As regards matter of balance in current account and related issues is concerned, which of following statements is likely to be most appropriate?
(A) Amount of Rs. 0.92 lac is required to be classified under cash & bank balances in financial statements of firm. Procedure of confirming balance directly from the bank alone is likely to constitute sufficient appropriate audit evidence.
(B) Amount of Rs. 0.92 lac is required to be classified under cash & bank balances in financial statements of firm. Procedure of confirming balance directly from the bank alone is not likely to constitute sufficient appropriate audit evidence.
(C) Amount of Rs. 0.92 lac is required to be classified under current liabilities in financial statements of firm. Procedure of confirming balance directly from the bank alone is likely to constitute sufficient appropriate audit evidence.
(D) Amount of Rs. 0.92 lac is required to be classified under current liabilities in financial statements of firm. Procedure of confirming balance directly from the bank alone is not likely to constitute sufficient appropriate audit evidence.
Q3.2Audit procedures for inventory verification - initial engage
2 marks hard
Case: In accordance with requirements of Standards on Auditing, CA Tina (a freshly qualified professional) wants to obtain sufficient appropriate audit evidence in an audit engagement pertaining to financial statements of a partnership firm for year 2022-23. The firm is trading in FMCG goods. Appointed in May, 2023, she needs evidence to obtain information for arriving at her judgment. Clearly remembering fundamentals that an auditor has to obtain sufficient appropriate audit evidence to draw reasonable conclusions on financial statements, she proceeded in accordance with audit plan prepared by her.…
Considering matter of verification of inventories, which of following statements is based on facts described in the situation and also in essence of Standards on Auditing?
(A) She should verify subsequent sale invoices of inventory items lying in stocks as at year end. Besides, she should also review stock records of year 2022-23 and subsequent period. Such evidence may constitute sufficient appropriate audit evidence.
(B) She should verify subsequent sale invoices of inventory items lying in stocks as at year end. Besides, she should also review stock records of year 2022-23 and subsequent period. She should attend physical inventory count at year end in above situation. Such evidence may constitute sufficient appropriate audit evidence.
(C) She should verify purchase invoices of inventory items lying in stocks as at year end. Stock records are not required to be verified. Such evidence is likely to constitute sufficient appropriate audit evidence.
(D) She should verify purchase invoices of inventory items lying in stocks as at year end. She should attend physical inventory count at year end in above situation. Such evidence may constitute sufficient appropriate audit evidence.
Q3.3Internal vs external audit evidence and nature of audit evid
2 marks hard
Case: In accordance with requirements of Standards on Auditing, CA Tina (a freshly qualified professional) wants to obtain sufficient appropriate audit evidence in an audit engagement pertaining to financial statements of a partnership firm for year 2022-23. The firm is trading in FMCG goods. Appointed in May, 2023, she needs evidence to obtain information for arriving at her judgment. Clearly remembering fundamentals that an auditor has to obtain sufficient appropriate audit evidence to draw reasonable conclusions on financial statements, she proceeded in accordance with audit plan prepared by her.…
Identify correct statement on the basis of description provided in case scenario:
(A) Purchase bills of FMCG goods, debit notes issued by firm on debtors for GST short charged earlier during the year and credit notes issued by firm during the year on debtors to account for extra price charged in accordance with provisions of GST law are all examples of internal evidence. Audit evidence obtained by auditor is final and conclusive.
(B) Purchase bills of FMCG goods, debit notes issued by firm on debtors for GST short charged earlier during the year and credit notes issued by firm during the year on debtors to account for extra price charged in accordance with provisions of GST law are all examples of internal evidence. Audit evidence obtained by auditor is persuasive.
(C) Only debit notes issued by firm on debtors for GST short charged earlier during the year and credit notes issued by firm during the year on debtors to account for extra price charged in accordance with provisions of GST law are examples of internal evidence. Audit evidence obtained by auditor is persuasive.
(D) Only debit notes issued by firm on debtors for GST short charged earlier during the year is an example of internal evidence. Audit evidence obtained by auditor is persuasive.