CA Inter Audit & Ethics — Revision Test Paper (RTP) — September 2025

Case Scenario: Mohan & Associates were offered the statutory audit of Simi Pvt. Ltd. for the financial year 2024–25. In line with professional requirements, the firm communicated with the outgoing auditor, Veer & Co., to inquire whether there were any professional or other reasons that would preclude them from accepting the appointment. However, no response was received from Veer & Co. for the same. During the audit, Mr. A, a partner of Mohan & Associates, relied solely on a management representation letter to support the accounting treatment of certain tax matters that were under appeal and no additional audit procedures were performed to verify the appropriateness of management's treatment of these matters in the financial statements, which may raise concerns regarding the sufficiency and appropriateness of audit evidence obtained. As Simi Pvt. Ltd. had recently appointed a new accountant who lacked adequate knowledge of the accounting standards applicable to the company, the management requested Mr. A to assist with accounting and bookkeeping services. However, Mr. A declined the request, recognising that providing such services could impair his independence as an auditor. Meanwhile, Mr. Raj, an investor in Simi Pvt. Ltd., placed full reliance on the audited financial statements, believing they indicated a strong financial position. He assumed that the audit guaranteed the safety of his investment, without any risk of loss. While finalising the audit documentation, Mr. A prepared the working papers in physical form, under the belief that paper documentation was mandatory. Based on the above facts, answer the following MCQ: The previous auditors, Veer & Co. did not reply to the communication of Mohan & Associates. Which fundamental principle of professional ethics is not followed by them?

Case Scenario: Mohan & Associates were offered the statutory audit of Simi Pvt. Ltd. for the financial year 2024–25. In line with professional requirements, the firm communicated with the outgoing auditor, Veer & Co., to inquire whether there were any professional or other reasons that would preclude them from accepting the appointment. However, no response was received from Veer & Co. for the same. During the audit, Mr. A, a partner of Mohan & Associates, relied solely on a management representation letter to support the accounting treatment of certain tax matters that were under appeal and no additional audit procedures were performed to verify the appropriateness of management's treatment of these matters in the financial statements, which may raise concerns regarding the sufficiency and appropriateness of audit evidence obtained. As Simi Pvt. Ltd. had recently appointed a new accountant who lacked adequate knowledge of the accounting standards applicable to the company, the management requested Mr. A to assist with accounting and bookkeeping services. However, Mr. A declined the request, recognising that providing such services could impair his independence as an auditor. Meanwhile, Mr. Raj, an investor in Simi Pvt. Ltd., placed full reliance on the audited financial statements, believing they indicated a strong financial position. He assumed that the audit guaranteed the safety of his investment, without any risk of loss. While finalising the audit documentation, Mr. A prepared the working papers in physical form, under the belief that paper documentation was mandatory. Based on the above facts, answer the following MCQ: The auditor did not carry out any other audit procedures to justify management's treatment of the said tax matters under appeal in the financial statements. What is lacking on part of auditor in such a situation?

Case Scenario: Mohan & Associates were offered the statutory audit of Simi Pvt. Ltd. for the financial year 2024–25. In line with professional requirements, the firm communicated with the outgoing auditor, Veer & Co., to inquire whether there were any professional or other reasons that would preclude them from accepting the appointment. However, no response was received from Veer & Co. for the same. During the audit, Mr. A, a partner of Mohan & Associates, relied solely on a management representation letter to support the accounting treatment of certain tax matters that were under appeal and no additional audit procedures were performed to verify the appropriateness of management's treatment of these matters in the financial statements, which may raise concerns regarding the sufficiency and appropriateness of audit evidence obtained. As Simi Pvt. Ltd. had recently appointed a new accountant who lacked adequate knowledge of the accounting standards applicable to the company, the management requested Mr. A to assist with accounting and bookkeeping services. However, Mr. A declined the request, recognising that providing such services could impair his independence as an auditor. Meanwhile, Mr. Raj, an investor in Simi Pvt. Ltd., placed full reliance on the audited financial statements, believing they indicated a strong financial position. He assumed that the audit guaranteed the safety of his investment, without any risk of loss. While finalising the audit documentation, Mr. A prepared the working papers in physical form, under the belief that paper documentation was mandatory. Based on the above facts, answer the following MCQ: Mr. A was requested to provide accounting & bookkeeping services to Simi Pvt. Ltd. Identify the type of threat to Independence that may be involved in acceptance of such an engagement.

Case Scenario: Mohan & Associates were offered the statutory audit of Simi Pvt. Ltd. for the financial year 2024–25. In line with professional requirements, the firm communicated with the outgoing auditor, Veer & Co., to inquire whether there were any professional or other reasons that would preclude them from accepting the appointment. However, no response was received from Veer & Co. for the same. During the audit, Mr. A, a partner of Mohan & Associates, relied solely on a management representation letter to support the accounting treatment of certain tax matters that were under appeal and no additional audit procedures were performed to verify the appropriateness of management's treatment of these matters in the financial statements, which may raise concerns regarding the sufficiency and appropriateness of audit evidence obtained. As Simi Pvt. Ltd. had recently appointed a new accountant who lacked adequate knowledge of the accounting standards applicable to the company, the management requested Mr. A to assist with accounting and bookkeeping services. However, Mr. A declined the request, recognising that providing such services could impair his independence as an auditor. Meanwhile, Mr. Raj, an investor in Simi Pvt. Ltd., placed full reliance on the audited financial statements, believing they indicated a strong financial position. He assumed that the audit guaranteed the safety of his investment, without any risk of loss. While finalising the audit documentation, Mr. A prepared the working papers in physical form, under the belief that paper documentation was mandatory. Based on the above facts, answer the following MCQ: Mr. Raj is confident that investment made by him is completely secure and there is no risk of any loss. Select the correct statement in this regards:

Case Scenario: Mohan & Associates were offered the statutory audit of Simi Pvt. Ltd. for the financial year 2024–25. In line with professional requirements, the firm communicated with the outgoing auditor, Veer & Co., to inquire whether there were any professional or other reasons that would preclude them from accepting the appointment. However, no response was received from Veer & Co. for the same. During the audit, Mr. A, a partner of Mohan & Associates, relied solely on a management representation letter to support the accounting treatment of certain tax matters that were under appeal and no additional audit procedures were performed to verify the appropriateness of management's treatment of these matters in the financial statements, which may raise concerns regarding the sufficiency and appropriateness of audit evidence obtained. As Simi Pvt. Ltd. had recently appointed a new accountant who lacked adequate knowledge of the accounting standards applicable to the company, the management requested Mr. A to assist with accounting and bookkeeping services. However, Mr. A declined the request, recognising that providing such services could impair his independence as an auditor. Meanwhile, Mr. Raj, an investor in Simi Pvt. Ltd., placed full reliance on the audited financial statements, believing they indicated a strong financial position. He assumed that the audit guaranteed the safety of his investment, without any risk of loss. While finalising the audit documentation, Mr. A prepared the working papers in physical form, under the belief that paper documentation was mandatory. Based on the above facts, answer the following MCQ: Mr. A was preparing the documents and audit file in physical (paper) form, believing that it is compulsory to do so. Is Mr. A's understanding, correct? Identify the correct statement regarding the form of an audit file.

While auditing Happy Pvt. Ltd., CA M reviews a large number of invoices collected by the audit team. However, noticing that only a few have third-party confirmations, CA M reminds the team that simply having more documents doesn't ensure strong audit evidence and explained that reliability or quality matters too. What CA M is trying to explain in the given situation?

As per SA 560, when, after the date of the auditor's report but before the date the financial statements are issued, a fact becomes known to the auditor that, had it been known at the date of the auditor's report, may have caused the auditor to amend the auditor's report, the auditor shall:

Supriya has taken a loan from a bank by pledging her NSC (National Savings Certificate), which is eligible for surrender. The loan account currently shows no signs of repayment delay, and the bank confirms that an adequate margin is available in the accounts. However, the loan has technically become overdue. How should the bank classify this loan account?

Mini & Associates, Chartered Accountants, were appointed as the auditor of CIN Ltd., a construction company. During the audit, CA Mini, a Partner of the firm noticed the following: • The company has several ongoing projects, but only selected project revenues have been reported. • Several expense vouchers are either missing or are handwritten and lack proper authorisation. • The company has changed its depreciation method from the straight-line method to the written-down value method without adequate disclosure in the financial statements. These matters were brought to the attention of management. However, management argued that these issues fall outside the auditor's scope of responsibility. Whether contention of the management is correct?

CA Rishu is appointed as an auditor of a manufacturing company with a complex supply chain, multiple inventory locations, and recently introduced financial reporting requirements. Some article assistants and an expert assigned for inventory verification are forming part of audit team of CA Rishu. To ensure that audit risk is reduced to an acceptably low level, CA Rishu is focused on developing an effective and efficient audit plan. Explain the benefits of adequate audit planning in the audit of financial statements.

During the audit of Apex Ltd., the auditor plans to place reliance on the internal controls related to the revenue recognition process, which appear well-designed based on the preliminary assessment. However, due to materiality of revenue and the inherent risk of overstatement, the auditor concludes that more persuasive audit evidence is needed to evaluate the effectiveness of these controls. Discuss the matters the auditor may consider in determining the extent of test of controls.

Bold Ltd. supplies navy uniforms across the country. The company has 5 warehouses at different locations throughout the India and 4 warehouses at the borders. The major stocks are generally supplied from the borders. Bold Ltd. appointed M/s KPM & Co. to conduct its audit for the financial year 2024-25. Mr. P, partner of M/s KPM & Co., attended all the physical inventory counting conducted throughout the India but could not attend the same at borders due to some unavoidable reason. (a) How sufficient appropriate audit evidence regarding the existence and condition of inventory may be obtained?

Bold Ltd. supplies navy uniforms across the country. The company has 5 warehouses at different locations throughout the India and 4 warehouses at the borders. The major stocks are generally supplied from the borders. Bold Ltd. appointed M/s KPM & Co. to conduct its audit for the financial year 2024-25. Mr. P, partner of M/s KPM & Co., attended all the physical inventory counting conducted throughout the India but could not attend the same at borders due to some unavoidable reason. (b) How is an auditor supposed to deal when attendance at physical inventory counting is impracticable?

CA Rimi is appointed as an auditor of ASI Pvt. Ltd. During the audit, she decided to use various audit procedures to gather sufficient and appropriate audit evidence such as: i. While verifying the fixed asset, she examined factory equipment and verified the presence of each item. ii. To verify the company's accounts receivable, she directly sends balance confirmations to some of the customers. iii. CA Rimi examined purchase invoices, contracts, and authorisation records to assess the validity of payments and the approval process. iv. She independently performs the bank reconciliation that was originally carried out by the accounts department. v. She also checked the accuracy of depreciation calculations made by the client. Identify and explain the type of abovementioned audit procedure performed by CA Rimi in accordance with relevant SA.

Identify and explain the assertions that the auditor will check by performing the following audit procedures: (i) Employee benefit expenses recognised during the period relates to the current accounting period only. (ii) Employee benefit expenses in respect of all personnel have been fully accounted for. (iii) Any inventory held by the entity on behalf of another entity has not been recognised as part of inventory of the entity. (iv) Recorded sales represent goods which were ordered by valid customers and were despatched and invoiced in the period.

CA Shilpi, the engagement partner at MN Associates, is assigned the audit of following two companies: • Zed Ltd., a small family-run business with straightforward operations, minimal internal controls, and low transaction volume. • Ted Ltd., a large multinational corporation with complex operations, multiple subsidiaries, high transaction volumes. During the audit planning stage, CA Shilpi highlights that the form, content, and extent of audit documentation must be customised for each client based on specific factors. Discuss those factors on which form, content, and extent of audit documentation depends.

During the audit of Cryst Ltd. for the financial year ended 31st March 2025, the auditor, CA Z was in the process of finalising the audit report dated 30th May 2025. The engagement partner emphasised that CA Z shall perform audit procedure designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report, that requires adjustment of, or disclosure in, the financial statements have been identified. What audit procedures, in accordance with SA 560, should the auditor CA. Z perform based on risk assessment to identify events occurring between the date of the financial statements and the date of the auditor's report that require adjustment or disclosure?

Auditors do not always issue an unmodified opinion on financial statements. In cases where there are material misstatements or limitations in obtaining sufficient audit evidence, a modified opinion may be necessary. Discuss the types of modified audit opinions an auditor can issue? Explain how these opinions differ based on the concepts of materiality and pervasiveness of the issue.

You are appointed as an auditor of M/s Shine & Co., a partnership firm. During your review, you observed that: • The audit appointment was informal and not documented properly. • The firm started a new business activity which is not covered in the partnership deed. • Major financial decisions were made without proper records. As an auditor, briefly explain the matters that should be specially considered by you while auditing the accounts of the partnership firm, M/s Shine & Co.

M/s JKL & Associates, Chartered Accountants, are the statutory auditors of M/s IBS Bank Limited for the financial year 2024-25. During the audit, they observed the following items included under interest income in the financial statements of the bank: • An amount of ₹ 5 lakh relating to a short-term crop loan, where the instalment was overdue for one crop season. • An amount of ₹ 7 lakh relating to an advance guaranteed equally by the Government of India and the Government of Tamil Nadu, where the instalment has been overdue for more than six months. From the above facts and details, what should be the correct treatment of the above interest income in the bank's financial statements? State the amount that can be recognised as interest income with appropriate reasoning. Also, determine the amount to be classified as Non-Performing Asset (NPA), with reference to applicable RBI norms.

CA Rohit is conducting the audit of Taste Ltd., a food production company, for the last two years. Before commencing the audit for the year, he observed that the company has undergone a major shift in its product line by expanding into pharmaceuticals. Besides this, the company is now subject to new regulatory reporting requirements. These developments were not present at the time of accepting the initial audit engagement. CA Rohit is of the view that there is no need to issue a new audit engagement letter. Examine whether the viewpoint of CA Rohit is appropriate in accordance with the relevant Standards on Auditing.