CA Inter Auditing Important Question - Jan 26

Question : 9

M/s YZW & Co., Chartered Accountants, have been appointed as the statutory auditors of First Health Private Limited for the financial year 2024-25. CA Y is the engagement partner for this assignment. First Health Private Limited operates in the business of hospitals and pharmaceuticals, with 60 hospitals and 200 pharmacy stores across the country. The company has a turnover of ₹ 680 crores and PAT of ₹ 32 crores in the current year.

While verifying the assertions about book debts, CA Y was informed about the availability of the client’s ledger invoices, debit notes, and credit notes as audit evidence. CA Y accepts these documents as audit evidence, considering them to be “available.”

(i) Is this decision correct, based on the meaning of the term “available”? (3 marks)

(ii) Also, explain how an auditor should select the most appropriate evidence when testing the accuracy of any assertion to form an opinion.

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Question : 10

M/s PSR & Associates are the auditors of The Satire Hotel, a chain of five-star hotels. Since the natures of their business is prone to frauds, the company has appointed internal auditors at various locations. The company has also devised a system of effective and efficient internal controls. The auditors, M/s PSR & Associates, want to use the work of the internal auditors. In order to ensure effectiveness, what kind of coordination should be there between the external auditor and the Internal audit function?

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Question : 11

CA Z. the auditor of MNO Ltd., during the course of audit, assesses a Audit Evidence risk of material misstatements regarding the litigations and claims involving the company. CA Z is not convinced with the management's explanations regarding the status of the litigations or claims. It is considered unlikely that the entity's external legal counsel win respond appropriately to a letter of general enquiry. The auditor sent a letter of specific enquiry requesting the entity's external legal counsel to communicate directly with the auditor. List out the inclusions in the letter of specific enquiry?

In certain circumstances the auditor may judge it necessary to meet with entity's external legal counsel to discuss the likely outcome of the litigations or claims. What will be auditor's reporting responsibility if the management refiises to give permission to the auditor to communicate or meet with the external legal counsel ?

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Question : 12

XY and Associates are auditors of PQR Ltd., which provides electrical components on project basis The purchases are huge and the auditor wants to make sure that all the purchases made during the period are recorded and there is no understatement or overstatement. For tills purpose the audit team have performed procedures like cut-off tests, correct treatment of goods in transit, obtaining written representations and performing analytical procedures, What are the analytical procedures required to be performed to obtain audit evidence as to overall reasonableness of purchase quantity and price ?

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Chapter 5: Audit of items of financila statements

Question : 13

While verifying cash and cash equivalents of a company, CA D engagement partner, is very particular that Bank reconciliation statement (BRS) prepared by the management in respect of bank account maintained by the company is proper to rule out misstatements in cash and cash equivalents reflected in the financial statements of the company. The company does not use net banking and prefers to issue cheques to its creditors and receives substantial payments locally through account payee cheques. Which aspects need to be taken care of and verified by CA D in respect of BRS?

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Question : 14

The auditor has a responsibility to perform audit procedures to identify, assess and respond to the risks of material misstatement arising from the entity’s failure to appropriately account for related party relationships, transactions or balances. 

During the audit, the auditor should maintain alertness for related party information while reviewing records and documents. He may inspect the records or documents that may provide information about related party relationships and transactions. Explain in detail with examples. 

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Question : 15

T Ltd. has appointed NFO & Co., Chartered Accountants, as statutory auditors. Since inventory is a material component of the financial statements, CA F plans to attend the physical inventory counting.

Provide any five matters that CA F should consider when planning their attendance at the physical inventory counting.

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Chapter 6: Audit Documentation

Question : 16

CA B, an auditor, after the completion of busy audit season, was occupied in assembling of final audit files of one of his client. First of all, he started preparing various documents of that client and then kept those documents in various folders. He was preparing documents as weft as audit file in paper form because he believed that it is mandatory. He could complete documentation as well as assembling of final audit file of that client after three months from the date of audit report. Generally, he retains audit file of the clients for 4 years from the date of audit report. Check the validity of the action of CA B.

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Question : 17

CA Tanuj, the auditor of Kiran Ltd., completed the audit work and issued the auditor's report on 18th August 2024 for the financial year ended on 31st March 2024. During the final assembly of the audit file, he discarded some supporting schedules as same were outdated and corrected cross referencing errors of working papers. No new audit conclusions were drawn, and the final audit file was assembled on 10th October 2024. 

On the basis of Standards on Auditing regarding audit documentation, comment on the action taken by CA Tanuj.

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Chapter 7: Completion and Review

Question : 18

GEM Ltd has appointed GSP & Co., Chartered Accountants as its Statutory Auditors. While conducting its audit, the audit partner requested the management to provide a written representation that it has fulfilled its responsibility for the preparation of financial statements in accordance with the applicable financial reporting framework. The Manager (Finance) is of the view that since all records and evidence have already been given, a separate written representation is not required. Explain. 

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Question : 19

During course of audit of a company, CA NP has noticed that company’s financial position is precarious. The management is unable to pay creditors in agreed timelines and bankers are also not enhancing its credit facilities as key financial ratios are adverse. He is of the view that events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern. He wants to obtain sufficient appropriate audit evidence to determine whether or not a material uncertainty exists related to events or conditions that ay cast significant doubt on the entity’s ability to continue as a going concern.

Which additional procedures need to be performed by him in this regard in accordance with SA 570? 

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Chapter 8: Audit Report

Question : 20

“When the auditor modifies the audit opinion, the auditor shall use the heading “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the Opinion section.” Briefly explain when the auditor should express:

(i) Qualified Opinion.

(ii) Adverse Opinion and

(iii) Disclaimer of Opinion.

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Question : 21

Singh & Associates, while carrying out statutory audit of Rubber Industries Limited, observed that debtors are not making payments invoice wise. As the debtors constitute sixty percent of the total assets, so auditors requested management to provide external confirmations of all the debtors outstanding for an amount exceeding ₹ 1.00 Lac. However, management resisted and no external confirmations were made available. Auditor firm has decided to disclaim an opinion on the financial statements and seek your guidance on amendments that should be made in the "Basis for Opinion" section and elements required by SA 700 (Revised) which need not to be included in the auditor's report. Guide them suitably. 

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Chapter 9: Special feature of Audit of Diffrent Type of Entities

Question : 22

As per SA 299 “Joint Audit of Financial Statements”, Joint audit basically implies pooling together the resources and expertise of more than one firm of auditors to render an expert job in a given time period which may be difficult to accomplish acting individually. Explain by stating any five advantages of joint audit.

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Question : 23

Briefly explain the provisions for qualification and appointment of Auditors under the Multi - State Co-operative Societies Act, 2002.

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Question : 24

An NGO operating in Delhi had collected large scale donations for Tsunami victims. The donations so collected were sent to different NGOs operating in Tamil Nadu for relief operations. This NGO operating in Delhi has appointed you to audit its accounts for the year in which it collected and remitted donations for Tsunami victims. Draft audit programme for audit of receipts of donations and remittance of the collected amount to diff erent NGOs. Mention six points each, peculiar to the situation, which you will like to incorporate in your audit programme for audit of said receipts and remittances of donations.

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Chapter 10: Audit of Banks 

Question : 25

Mr. A approaches a bank for financial assistance for his upcoming project. The Bank Branch Manager, after verifying the proposal, is agreeable to financing Mr. A, but asks for the security to be offered to the bank. Discuss the nature of securities required to be offered to the bank.

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Question : 26

K Ltd. is availing cash credit limit of ₹ 25 crores from LMN Bank Ltd. The drawing power of the company range between ₹ 22 crores and ₹ 25 crores during the year 2023-24. The limit availed by the company remained less than ₹ 20 crores during all the days of the financial year 2023-24. The company has not deposited any amount in the cash credit account and there are no other credits to this account during the last two quarters. How will this account be classified in the books of LMN Bank Ltd. as on 31-03-2024? Explain.

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Chapter 11: Ethics and Terms of Audit Engagements

Question : 27

CA Jatin is auditor of XYZ Pharma, his brother-in-law's Partnership Firm. His family relationship creates a conflict of interest that could unduly influence his professional judgment, making it difficult for him to provide an unbiased opinion on the firm's financial statements.

In another assignment of Tax Audit of a company, CA Jatin is also required to prepare the company's tax return. He fails to check the latest provision of the Income-tax Act which allows for a major new deduction resulting in the client overpaying income tax.  

CA Jatin is also preparing GST returns of one of his clients. The client instructs him to intentionally understate the sales figures to reduce the tax liability.  

Identify and explain the fundamental principles of professional ethics involved in above situations.  

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Question : 28

During the audit of a company, CA Atul noticed that company is facing significant skilled labour shortages resulting in hampering operations of the company. The company’s manufacturing is dependent upon skilled labour coming from villages in certain districts of Eastern UP. However, due to job opportunities available near villages now, many are not interested in leaving their native villages.

The company failed to keep its commitments due to such situation, consequently lost orders and faced decrease in its revenues. The fixed costs of the company remain at a high level. As a result, the company is facing a liquidity crunch and is not able to pay its creditors on time. The bankers of the company are also not willing to help the company to tide over liquidity crisis. The auditor has doubts over going concern status of the company. How should management of the company try to address auditor’s concerns? What audit procedures may be performed by auditors in such a situation?

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