Q1Audit assertions for employee benefit expenses
0 marks easy
Case: Pluto Limited is engaged in the manufacturing and distribution of furniture. During the year 2023-24, M/s Saha and Associates was reappointed as the auditor. The new engagement team has CA Saha (partner) and five article assistants. The team verified the following points with respect to employee benefit expenses: (1) The employee benefit expenses recorded in the books were actually incurred during the relevant period. (2) The expenses in respect of all personnel have been accounted for. (3) The expenses recognised during the period are pertaining to the current accounting period. It was also n…
Which among the following assertions are discussed with respect to the employee benefit expenses?
(i) Measurement
(ii) Occurrence
(iii) Cutoff
(iv) Completeness
Choose the correct combination from below:
(A) (i), (ii) and (iv)
(B) (ii), (iii) and (iv)
(C) (i), (iii) and (iv)
(D) (i), (ii) and (iii)
Q2Recognition of dividend as liability — timing and disclosure
0 marks easy
Case: Pluto Limited is engaged in the manufacturing and distribution of furniture. During the year 2023-24, M/s Saha and Associates was reappointed as the auditor. The new engagement team has CA Saha (partner) and five article assistants. The team verified the following points with respect to employee benefit expenses: (1) The employee benefit expenses recorded in the books were actually incurred during the relevant period. (2) The expenses in respect of all personnel have been accounted for. (3) The expenses recognised during the period are pertaining to the current accounting period. It was also n…
Whether disclosure of dividend under the liability head during the year 2022-23 is appropriate?
(A) Yes. It should be recognised in the same year irrespective of the year of declaration as the amount of dividend belongs to year 2022-23.
(B) No. The amount should be recognised equally between two financial years.
(C) No. The amount should not be recognised as a liability. It should be disclosed in the notes to accounts.
(D) No. The amount should neither be recognised as liability nor disclosure is required in the financial statements.
Q3SA 505 external confirmations — debtor confirmation procedur
0 marks easy
Case: Pluto Limited is engaged in the manufacturing and distribution of furniture. During the year 2023-24, M/s Saha and Associates was reappointed as the auditor. The new engagement team has CA Saha (partner) and five article assistants. The team verified the following points with respect to employee benefit expenses: (1) The employee benefit expenses recorded in the books were actually incurred during the relevant period. (2) The expenses in respect of all personnel have been accounted for. (3) The expenses recognised during the period are pertaining to the current accounting period. It was also n…
Krish pointed out that the method followed to obtain debtor confirmation in the previous year was not in accordance with SA 505. Therefore, M/s Saha & Associates should reperform the same in the correct manner. Which of the following statements is correct regarding SA 505?
(A) As per SA 505, confirmation should be directly obtained by the auditor. Further, for all significant account balances as on the Balance sheet date confirmations should necessarily be collected and for the smaller outstanding balances, random sampling could be performed.
(B) It is ok to obtain confirmation through clients as they are in constant contact with their customers. Also, many customers may not respond to auditor's external confirmation request mail. Random selection can be done for all debtors irrespective of the amount in accordance with SA 505.
(C) As per SA 505, confirmation should be directly obtained by the auditor. Whereas random selection can be done for all debtors irrespective of the amount.
(D) Either auditor or client can obtain confirmation based on time availability. However, it is necessary to obtain confirmation for all significant account balances as on the Balance sheet date and for the remaining random sampling could be performed in accordance with SA 505.
Q4Audit assertions for fixed assets — rights and obligations
0 marks easy
Case: Pluto Limited is engaged in the manufacturing and distribution of furniture. During the year 2023-24, M/s Saha and Associates was reappointed as the auditor. The new engagement team has CA Saha (partner) and five article assistants. The team verified the following points with respect to employee benefit expenses: (1) The employee benefit expenses recorded in the books were actually incurred during the relevant period. (2) The expenses in respect of all personnel have been accounted for. (3) The expenses recognised during the period are pertaining to the current accounting period. It was also n…
Which assertion has been affected in the case of fixed assets where addition of ₹50 lakhs was supported by sufficient audit evidence but some invoices were not in the name of the company?
(A) Existence
(B) Rights and obligation
(C) Completeness
(D) Measurement
Q5Classification and disclosure of cash and cash equivalents
0 marks easy
Case: Pluto Limited is engaged in the manufacturing and distribution of furniture. During the year 2023-24, M/s Saha and Associates was reappointed as the auditor. The new engagement team has CA Saha (partner) and five article assistants. The team verified the following points with respect to employee benefit expenses: (1) The employee benefit expenses recorded in the books were actually incurred during the relevant period. (2) The expenses in respect of all personnel have been accounted for. (3) The expenses recognised during the period are pertaining to the current accounting period. It was also n…
Cash and cash equivalents were not properly classified by the client. Which of the following is an incorrect disclosure of the same?
(A) Balances with banks
(B) Cheques and drafts on hand
(C) Cash on hand
(D) Earmarked balances with banks (e.g.: unpaid dividend)
Q6Threats to auditor independence — self-review threat
0 marks easy
CA Chatur provides accounting and book keeping services to Shiv Ganga Limited. He is also offered an audit of the accounts to the Shiv Ganga Limited. Which threat to independence may be involved in accepting such an engagement?
(A) Self-interest threats
(B) Self-review threats
(C) Familiarity threats
(D) Advocacy threats
Q7NPA classification under RBI norms — bank audit
0 marks easy
CA Sargun is conducting statutory audit of branch of KBC Bank. During the course of audit, it is noticed that one borrower has availed a housing loan and a car loan from the branch. Housing loan EMIs are overdue for 120 days as on date of Balance sheet. Car loan EMIs are overdue for 60 days as on date of Balance sheet. Which of the following statements is appropriate?
(A) Housing Loan should be classified as "Non-Performing Asset" in accordance with RBI norms on asset classification. However, Car loan should be classified as Standard asset.
(B) Car Loan should be classified as "Non-Performing Asset" in accordance with RBI norms on asset classification. However, Housing Loan should be classified as Standard asset.
(C) Both Housing loan as well as car loan should be classified as "Non-Performing Assets" in accordance with RBI norms on asset classification.
(D) Both Housing as well as car loans should be classified as Standard assets.
Q8C&AG supplementary audit of government companies
0 marks easy
Sagar Finance Corporation Limited is a government company. The audit of the company is conducted by statutory auditors appointed by Comptroller and Auditor General of India (C&AG). Who is empowered to conduct "supplementary audit" of Sagar Finance Corporation Ltd.?
(A) Central Government
(B) C&AG
(C) Another independent auditor appointed by C&AG
(D) Another independent auditor appointed by Ministry of Corporate Affairs
Q9Nature of assurance engagements — audit vs other assurance e
0 marks easy
Kriti, a CA student, has joined articles in a reputed audit firm. She considers audit engagement to be an "assurance engagement". Her understanding is that audit engagement is the only kind of assurance engagement in which practitioner gives a written assurance report in appropriate form. However, her friend Somaya does not agree with her. She is of the view that assurance engagements are not restricted to audit alone. Besides, Somaya also thinks that assurance engagements can also relate to matters other than historical financial information. Whose view appears to be correct? State with reasons.
Q10Independence compliance in preliminary engagement activities
0 marks easy
CA N, engagement partner of LPS & Associates, is planning for audit of a large company. As part of preliminary engagement activities being performed in this regard, he wants to ensure that compliance with independence requirements is adhered. How shall he form a conclusion that audit firm complies with independence requirements?
Q11Data analytics in auditing — CAATs tools and application are
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Companies are increasingly using data analytics for managing their operations. Auditors can also obtain good results by using data analytics. What are the tools and techniques used by auditors in applying the principles of Data Analytics and in which areas data analytics can be used by auditors?
Q12SA 501 — audit evidence for inventory held by third parties
0 marks easy
Quality Products Limited is engaged in manufacturing of bicycles. As part of manufacturing activities, it sends raw material to some business entities and procures finished components from them. As on 31st March 2024 inventories lying with such business entities are material. Being statutory auditor of Quality Products Limited, how will you obtain sufficient appropriate audit evidence regarding existence and condition of inventories lying with such business entities?
Q13Audit procedures for long-term borrowings and debentures
0 marks easy
The financial statements of XYZ Limited reflects long-term borrowings from the banks, financial institutions, leasing, and hire purchase companies. Additionally, the company has issued debentures to its 1000 members to raise funds in accordance with the provisions of the Companies Act, 2013. The money raised by issuing debentures is also reflected in long-term borrowings. As the statutory auditor of XYZ Limited, CA X wants to verify that all borrowings on the balance sheet represent valid claims by banks or other third parties. Suggest a few audit procedures in this regard.
Q14SA 230 — audit documentation of significant matters
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An important factor in determining the form, content and extent of audit documentation of significant matters is the extent of professional judgment exercised in performing the work and evaluating the results. Explain stating clearly the examples of significant matters.
Q15SA 580 — significance of date of written representations
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CA Manoj is the statutory auditor of a company. He has completed the audit and issued the audit report dated June 30, 2024. Before signing the audit report, written representations dated June 29, 2024, were obtained from the management of the company. Discuss the significance of the date of written representations. Also state whether the written representations obtained on June 29, 2024 is appropriate or not.
Q16SA 570 — going concern reporting with material uncertainty d
0 marks easy
While conducting audit of BYN Limited, CA Y notices that company has lost one of its key markets along with important customers. Additionally, several highly successful competitors have emerged, impacting business of the company. Despite the existence of material uncertainty, CA Y finds the use of going concern basis of accounting appropriate for preparation of financial statements. The company has also disclosed material uncertainty in notes to accounts adequately. How should he deal with the matter in auditor's report?
Q17CARO 2020 reporting — statutory dues and related party trans
0 marks easy
Discuss the reporting requirements as per CARO, 2020, regarding:
Q18Special audit under Multi-State Cooperative Societies Act 20
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Section 77 of Multi-State Cooperative Societies Act, 2002 states that the Central Government may at any time by order direct that a special audit of the Multi-State Co-Operative Society's accounts for such period or periods as may be specified in the order, shall be conducted. Further, it may by the same or a different order appoint either a Chartered Accountant or the Multi-State Co-Operative Society's auditor himself to conduct special audit. Under which circumstances such power can be exercised by the Central Government?
Q19Drawing power computation for Cash Credit account — bank aud
0 marks easy
Compute the Drawing Power for Cash Credit A/c of Kirpa Limited for the month of March 2024 with the following information:
Stock: ₹60,000
Debtors: ₹55,000 (Including Debtor of ₹15,000 for an invoice dated 20.10.2023)
Sundry creditors: ₹10,000
Sanctioned Limit: ₹48,000
Margin on stock is 30% and on debtors is 40%.
Note: Debtors older than 3 months are ineligible for calculation of DP.
Q20Client integrity assessment before acceptance of audit engag
0 marks easy
ABC & Associates, an audit firm, has been approached by a prospective company client that has been in business for about 10 years to conduct an audit of its financial statements. Before accepting the audit engagement, the firm wants to assess the integrity of the prospective client. With regard to the assessment of integrity, which matters should be considered by the audit firm?