Q1Engagement standards and scope of audit procedures
10 marks hard
Case: Nova Engineering Ltd., a company engaged in manufacturing specialized industrial machinery. During the audit, the company was planning to change its revenue recognition policy. The partner and team were instructed to develop a detailed audit plan addressing matters including the implementation of a new revenue system. During risk assessment, specific risks of misstatement were noted. The engagement partner explained that the first risk relates to financial statements as a whole, whereas the second relates to specific assertions for particular classes of transactions and account balances.
In the above case scenario of Nova Engineering Ltd., it has been stated that the assignment of revenue recognition should be in accordance with the Standards in India which are applicable. Based on the engagement partner's statement, which of the following engagements would most probably fall within the scope of such Standards in the present context?
(A) Examination of financial projections prepared by Nova Engineering Ltd. for a proposed new system.
(B) Certification of future cost estimates for a proposed expansion project.
(C) Review of internal control procedures implemented for the new revenue system.
(D) Audit of financial statements of Nova Engineering Ltd. for the year ended 31 March 2025.
Q1Subsequent events, accounting treatment post year-end
8 marks hard
Case: 1. A major debtor owing ₹8 crores as on 31st March 2025 was declared insolvent on 19th April 2025. No specific provision had been made against this debtor as at year-end.
2. A new equipment costing ₹20 lakhs (along with a provision of ₹3 crores) was settled out of court on 19th May 2025 for ₹1.50 crores.
3. On 20th May 2025, the company issued fresh equity shares through a qualified institutional placement.
4. On 25th May 2025, the company approved a plan to merge with another listed entity, subject to regulatory approvals.
5. On 3rd June 2025, the company's finished goods inventory worth ₹6 c…
(c) Conclude whether the management's treatment is appropriate
Q1Auditing Standards - SA 210, Preconditions for an Audit Enga
5 marks medium
Case: Meet Electronics Ltd., a manufacturing company, is planning to appoint statutory auditors for the year 2024-25. The Board has approached CA S for accepting the audit engagement. During the preliminary discussions, the management expressed misdeeds in formally acknowledging its responsibilities regarding preparation of financial statements and related internal controls.
With reference to the requirements of SA 210 – Agreeing the Terms of Audit Engagement, explain the matters CA S should determine before accepting the engagement and state in what circumstances auditor may need to withdraw the acceptance.
Q1aInherent risk assessment and audit planning
5 marks medium
Case: Xyz Limited pharmaceutical company with new product development, revenue-sharing agreements, new accounting standard adoption, reorganization, and internal control implementation
Xyz Limited, a company producing various pharmaceutical products. During the financial year 2024-25, the company: (i) Introduced a new product developed using patented biotechnology; (ii) Entered into complex revenue-sharing agreements with foreign distributors; (iii) Adopted a newly issued Accounting Standard dealing with revenue recognition involving multiple performance obligations; (iv) Reorganized the management structure; (v) Management's due diligence due to regulatory restrictions and technological obsolescence. The management has implemented internal controls over segregated accounting and financial reporting. The audit team is in the process of identifying and assessing risks of material misstatement. Explain the concept of inherent risk and discuss how it is relevant to the above case.
Q1aAuditing procedures, Occurrence assertion, Purchase transact
5 marks medium
The auditor is required to verify whether recorded purchases represent goods actually received/services availed during the period (Occurrence assertion) and ensure that purchases are neither overstated nor understated. Explain what procedures the auditor should perform to achieve the audit objectives stated above.
Q1bScope of audit versus management engagement
8 marks hard
Case: Multiple parties (management, shareholders, investors) requesting auditor to perform tasks beyond audit scope
With reference to the following situation: (1) They asked the auditor to confirm whether the sophisticated imported machinery installed in the newly acquired factory was in perfect condition and to estimate its remaining useful life. (2) Some shareholders also requested the auditor to confirm the genuineness of certain supplier invoices and contracts, alleging that some documents might be forged. (3) A group of investors further demanded that the auditor conduct a detailed investigation into an alleged fraud by a senior employee, including the financial impact of such fraud. Explain the matters which fell outside the scope of audit. Also distinguish between audit and management engagement.
Q1bAuditing expenses, Bank audit, Analytical procedures
5 marks hard
Case: ABC Bank Ltd., a scheduled commercial bank having 300 branches across India. During the audit for the year ended 31st December, the auditor observed the following: At ABC Bank branches not fully utilizing the IT infrastructure installed in the previous year, whereas total income has increased only by 1%; Significant increase in Staff Welfare Expenses, IT Maintenance Charges and Rent; Certain branch managers have discretionary powers to incur expenses up to specified limits; The audit team has migrated to a centralized expense processing; Internal audit reports indicate delays in submission of …
As the statutory auditor, explain the audit procedures you would perform in respect of Auditing Expenses of the Bank.
Q1cAudit procedures and evaluation of audit evidence (confirmat
0 marks easy
Case: XYZ Limited manufacturing company - auditor circularization responses analysis
XYZ Limited is engaged in manufacturing activities. As at 31st March 2025, the statutory auditor detected: (i) 15 customers responded directly to the auditor indicating agreement with the information requested; (ii) 3 responses were received directly to the auditor indicating disagreement with the information provided in the request. These parties were supposed to confirm the balances in the request. (iii) 5 customers did not respond despite follow-up requests; (iv) 2 customers responded stating that the balances as per their records were lower than those mentioned in the confirmation request. In the light of the relevant Standard on Auditing, explain how the auditor should evaluate the above responses and state whether further audit procedures are necessary.
Q1cAudit programme review, SA 530 Audit sampling, Audit procedu
5 marks hard
Case: A firm of Chartered Accountants have been the statutory auditors of Bright Industries Ltd., a company engaged in wholesale trading of electronic goods, for the last 6 years. During the financial year 2024-25, the company significantly changed its business model by: introducing online sales through its own e-commerce portal; appointing regional distributors in major metro warehouses and trading; implementing a new ERP system from October 2024; and revising its credit policy by extending credit from 30 days to 90 days. However, the audit team continued to follow the same audit programme that had…
Based on the above scenario where the audit team continued to follow the same audit programme designed three years ago without formal periodic review, and material misstatements were subsequently detected in revenue recognition and inventory records, explain the relationship between audit programme review and what are the implications of not conducting periodic review of the audit programme.
Q1hAudit sampling, SA 530, Sample design, Stratification
5 marks hard
Case: Mohan Appliances Limited is a listed company engaged in manufacturing electrical equipment. Audit commenced for the year ended 30th June 2025. The auditor progresses to sign the audit report on 30th June 2025. During the period between 31st March 2025 and 30th June 2025, the following events occurred.
Mohan Appliances Limited: a listed company engaged in manufacturing electrical equipment. Discuss: (i) The learned use of assurance; (ii) Stratification of the population.
Q2Understanding entity and environment; audit planning
10 marks hard
Based on the situation described in the case scenario, the primary reason for the audit team obtaining adequate knowledge of the client's business model and procurement process before developing the audit plan is:
(A) Enable the auditor to design appropriate audit procedures relevant to the entity's operation and risks.
(B) Determine whether the new revenue system complies with accounting standards.
(C) Replace the need for performing risk assessment procedures later in the audit.
(D) Ensure that the audit team uses the minimum possible audit resources.
Q2Special audit, statutory authority, regulatory oversight
5 marks medium
Case: A professional society engaged in healthcare work in India has experienced the following issues over 4 years:
1. Major structural changes were introduced without proper authority.
2. Procurement contracts were awarded without competitive bidding.
3. The annual audit report highlighted diversion of funds spent by management.
4. The debt-equity ratio increased abnormally due to heavy borrowings.
5. There were persistent cash flow mismatches and short-term loans being used to bridge long-term capital projects.
6. Trade associations complained that the Society's pricing practices were distorting t…
Examine the appropriateness of special audit invocation under statutory provisions
Q2Auditing - Risk Assessment, Material Misstatement, Managemen
4 marks medium
Case: Auditor of Sunshine Ltd. is of the view that due to greater management intervention to specify accounting treatment, the risk of material misstatement is greater for non-routine transactions.
Is the view of the auditor correct regarding the greater risk of material misstatement due to management intervention in specifying accounting treatment for non-routine transactions? Specify the other matters that are to be noted in the role of material misstatement.
Q2aInventory audit and purchase verification
0 marks easy
Case: Bullwell Limited manufacturing company with bulk purchase patterns requiring audit investigation
Bullwell Limited, a manufacturing company engaged in production of industrial components, has reported total purchases of ₹7.48 crores for the year ended 31st March 2025. During the audit, the statutory auditor noted that purchases were spread over the entire year but with greater concentration of bulk orders during certain periods.
Q3Risk assessment and classification of risks of misstatement
10 marks hard
In the case scenario, the audit team identified that: (1) The new revenue recognition system could affect several items in the financial statements simultaneously, and (2) Several transactions involved specific risks of misstatement related to revenue transactions and balances. Based on the engagement partner's explanation in the case scenario, which of the following correctly classifies these risks?
(A) Both risks relate to the financial statement level only.
(B) Risks relate to specific classes of transactions and account balances.
Q3Ethical requirements and independence under SA 220
8 marks hard
A partner of the firm has been offered a position on the advisory board of a group company of Dada Infra Projects Ltd. Mr. A believes that certain situations may create threats to independence. But since other partners of the firm are reluctant to consider withdrawal.
Q3Auditing Standards - Audit Documentation, SA 230
4 marks medium
Case: Bee Ltd. is a listed manufacturing company. The statutory auditor, CA P, conducted the audit of the financial statements for the year ended 31st March 2025. During the audit of CA P and the audit team performed various audit procedures including revenue recognition, inventory valuation and verification of fixed assets. However, while reviewing the audit files, it was observed that the working papers prepared by the audit team were incomplete and lacked clear documentation explaining the basis for certain conclusions reached by the auditor.
In context of the above, explain the objective of the auditor in preparing audit documentation and describe the nature of audit documentation as per the relevant Standards on Auditing.
Q4Audit of educational institutions, analytical procedures
0 marks easy
Case: During a special examination held by Saraswati University for the period 31 March 2025, the auditor examined various income streams and also assessed expenses of the university. During the audit, the auditor compared the current year figures with the previous year figures. He noticed that the hostel rent, whereas the Students' Fee Register reflected fee demands raised only for 500 students. Further information revealed the composition of records was only partly 'August' totaled ₹ 15,000 per seat approximately per seat and 5% which was incorrectly a hostel with 200 rooms. During the year, the a…
Based on the given facts, which of the following best explains the implication of the difference between the Gross Registrar (500 students) and the Students' Fee Register (590 students)?
(A) The Fee Register
(B) Hostel income of the university may be understated.
(C) The difference indicates advance fees collected from students.
(D) The difference represents fines for late payment of fees.
Q4aAudit planning, audit strategy, overall audit approach
5 marks medium
Case: An engagement partner in an audit of ABC Ltd., a company engaged in the manufacture of electronic components. The company operates through multiple manufacturing units and warehouses located across different states. During the fieldwork, the auditor noticed that inventory verification procedures may prove higher audit risk and technical complexity. During the audit for the financial year ending on 31st March 2025, the engagement partner came to know of the matters pertaining to the audit procedures to be deployed, the timing of audit procedures at various locations and the manner in which the …
Explain the concept of overall audit strategy. Also, state how the process of establishing the overall audit strategy would assist the auditor. Further, explain the concept of audit plan, the matters relevant to the planning and conduct of the audit.
Q4bAudit independence, engagement team matters, conflicts of in
5 marks medium
Case: GRIT & Co., Chartered Accountants, are the statutory auditors of Deo Infra Projects Ltd., a listed company engaged in large infrastructure contracts. During the audit for the year ended 31st March 2025, the Engagement Partner, Mr. A came to know that members of the engagement team hold stock in the said company. The firm has recently provided consulting services relating to internal financial controls implementation to the same client.
[Question not fully visible - appears to relate to engagement team independence matters and potential conflicts]
Q5Audit of educational institutions, analytical procedures
0 marks easy
Case: During a special examination held by Saraswati University for the period 31 March 2025, the auditor examined various income streams and also assessed expenses of the university. During the audit, the auditor compared the current year figures with the previous year figures. He noticed that the hostel rent, whereas the Students' Fee Register reflected fee demands raised only for 500 students. Further information revealed the composition of records was only partly 'August' totaled ₹ 15,000 per seat approximately per seat and 5% which was incorrectly a hostel with 200 rooms. During the year, the a…
An audit of Saraswati University, the auditor estimated hostel income based on 200 rooms, an 85% occupancy rate, and a monthly fee of ₹ 4,600. The recorded hostel income was to be materially higher than the auditor's estimate. What would be the most appropriate course of action by the auditor?
(A) Accept the income since it is reflected in the books and not supported by receipts.
(B) Adjust the estimate to match the recorded income if minor differences exist.
(C) Conclude that the income is overstated solely based on the analytical comparison.
(D) Evaluate the recorded income based on supporting records, occupancy data, and audit evidence.
Q5Audit of payroll and employee benefits
8 marks very hard
Case: For the year ended 31 March 2025, the auditor noted: Payroll is processed through an automated payroll software based on attendance records. Employee benefit expenses have increased significantly compared to the previous year. There were additional new requirements and resignations during the year.
TSR & Associates, Chartered Accountants, are the statutory auditors of Gama Manufacturing Limited, a company engaged in manufacturing industrial equipment. The company has 650 employees working across factory and corporate office locations.
Q6Audit of educational institutions, analytical procedures
0 marks easy
Case: During a special examination held by Saraswati University for the period 31 March 2025, the auditor examined various income streams and also assessed expenses of the university. During the audit, the auditor compared the current year figures with the previous year figures. He noticed that the hostel rent, whereas the Students' Fee Register reflected fee demands raised only for 500 students. Further information revealed the composition of records was only partly 'August' totaled ₹ 15,000 per seat approximately per seat and 5% which was incorrectly a hostel with 200 rooms. During the year, the a…
Which of the following best describes the analytical procedure applied by the auditor to investigate variations in hostel rent income?
(A) Trend analysis comparing hostel income with the previous year.
(B) Ratio analysis to determine expected figures.
(C) Verification of hostel fee receipts with the Cash Book.
(D) Evaluation of all claims collections.
Q6Audit of provisions and contingent liabilities
12 marks very hard
Case: ABC Ltd: warranty provision ₹ 2.30 crores, litigation provision ₹ 1.50 crores. ARG Infrastructure Ltd: large capital projects with environmental restoration, employee benefits, and legal dispute provisions. CA R has been appointed as statutory auditor for year ended 31 March 2025.
ABC Ltd is engaged in manufacturing consumer appliances. During the year ended 31 March 2025, the company has recognized: Provision for warranty amounting to ₹ 2.30 crores in respect of products sold in past future months based on past future trends and actuarial valuation. Provision of ₹ 1.50 crores towards an ongoing consumer litigation filed before the National Consumer Disputes Redressal Commission. ARG Infrastructure Ltd is engaged in construction of large capital projects with provisions for environmental restoration liabilities, employee benefits, and ongoing legal disputes.
Q6(c)-ORAudit documentation - objective and nature - SA 230
4 marks medium
Bee Ltd. is a listed manufacturing company. The statutory auditor, CA P, conducted the audit of the financial statements for the year ended 31st March 2025. During the course of audit, CA P and his audit team performed various audit procedures relating to revenue recognition, inventory valuation and verification of fixed assets. However, while reviewing the audit files, it was observed that the working papers prepared by the audit team were incomplete and lacked clear documentation explaining the basis for certain conclusions reached by the auditor. A junior member of the audit team questioned CA P regarding the purpose and objective of maintaining proper audit documentation and how such documentation supports the auditor's report and compliance with auditing standards. In context of the above, explain the objective of the auditor in preparing audit documentation and describe the nature of audit documentation as per the relevant Standards on Auditing.
Q7Audit of educational institutions, analytical procedures
0 marks easy
Case: During a special examination held by Saraswati University for the period 31 March 2025, the auditor examined various income streams and also assessed expenses of the university. During the audit, the auditor compared the current year figures with the previous year figures. He noticed that the hostel rent, whereas the Students' Fee Register reflected fee demands raised only for 500 students. Further information revealed the composition of records was only partly 'August' totaled ₹ 15,000 per seat approximately per seat and 5% which was incorrectly a hostel with 200 rooms. During the year, the a…
With reference to the given facts, which aspect of examining expenses is primarily affected when ₹ 75,000 spent on purchase of an air conditioner is recorded under 'Repairs and Maintenance'?
(A) Whether the expenditure performed in the current period under audit.
(B) Whether the expenditure was supported by valid documents.
(C) Whether the expense was incurred and capitalized appropriately.
(D) Whether the expenditure related to the university's activities.
Q8CC account, drawing power, inventory valuation, audit proced
1 marks easy
Case: Drawing Power (DP) after analyzing margin on eligible current assets such as stock and receivables. While reviewing the borrower's records, the auditor observed the stock value appearing in the CC account and noted this against the stock reported in the audited financial statements as ₹ 2.00 crores. The auditor noted significant differences in the stock position in respect of inventory lying at a third-party warehouse. The branch manager had computed the drawing power at ₹ 5.20 crores based on the stock statement. Later, the material was discussed with the borrower's management, they clarified…
Considering the facts given in the case regarding the relationship between the outstanding balance in the CC account and the drawing power determined by the bank. What would the auditor most probably include the status of the account as on the reporting date?
(A) The account is regular since the borrower has submitted stock statements earlier during the year.
(B) The account cannot be evaluated until audited financial statements are finalized.
(C) The account should rest only on the audited financial statements while evaluating the security position.
(D) The account should rely only on the audited financial statements while evaluating the security position.
Q9CC security evaluation, drawing power reliability
1 marks easy
While evaluating the security position of the CC account as on the reporting date, the auditor noted that the drawing power had been computed using stock information that were already close to the level determined on the basis of primary security. Considering these facts together, which of the following conclusions would be appropriate?
(A) The drawing position may not be reliable since it is being evaluated on the basis of outdated information regarding primary security.
(B) The account cash position may not be reliable since the account has not been exceeded.
(C) The account should rest only on the audited financial statements while evaluating the security position.
(D) Restrict verification of stock transactions relating to inventory.
Q10Inventory audit procedures, third-party warehouse verificati
1 marks easy
During the audit, the auditor noted that a portion of the inventory considered while computing the drawing power differed from what was expected to be lying at a third-party warehouse and also observed differences between the stock reported to the bank and the stock appearing in the audited financial statements. Considering these facts together, which of the following audit procedures would most effectively address the risk arising in this situation?
(A) Rely on the stock statements submitted by the borrower to the bank.
(B) Obtain management representation regarding the existence of inventory held outside the entity's premises.
(C) Obtain confirmation from the third-party warehouse operator regarding the inventory held on behalf of the borrower.
(D) Restrict verification of stock purchase invoices relating to inventory.
Q12Professional Ethics
0 marks easy
Considering the situation described in the case, which of the following ethical principles should primarily guide the auditor's response?
(a) Integrity and Objectivity.
(b) Confidentiality.
(c) Professional Behaviour.
(d) Professional Competence and Due Care.
Q15IT Systems and Audit Procedures
0 marks hard
A Ltd. is engaged in manufacturing operations and has a legacy IT system used for (WIP) inventory of year end. During the audit, the auditor evaluated the competence, qualifications, experience, engagement letter should also include discussion on segregation of duties, allocation of cost elements, allocation of overhead, and treatment of abnormal wastage.