MCQ for CA Final Audit - Chapter 1 Standards On Auditing

Sample Multiple Choice Questions (MCQ's) for CA Final - Paper 3 - Advanced Auditing and Professional Ethics - Chapter 1: Standards On Auditing  - For Practice relevant for May/Nov 23 Examinations

SQC-1 & SA 220

 

Q:1 PMP Ltd is an associate of PMP Inc, a company based in Kuwait. PMP Ltd is listed in India having its corporate office at Assam. The company's operations have remained stable over the years and the management is looking to expand the operations for which the management is considering different business ventures. The company's auditors issued clean audit report on the audit of the financial statements for the year ended 31 March 2019. For the financial year ended 31 March 2020, the auditors made some changes in their audit team. While the audit partner remained the same, the field incharge has been replaced, as the field incharge who was engaged in the audit of the financial statements for the year ended 31 March 2019 has left the firm.

The audit team has a new person as External Quality Control Reviewer (EQCR) who has specialized knowledge of the industry in which the company is operating. EQCR has been employed with the firm for over 2.5 years and is yet to clear his CA (Chartered Accountancy) final exams. The changes were made on the basis of the consideration that the firm has enough experience of engagement with this client. The audit team commenced the work for audit of the year ended 31 March 2020 after detailed planning and it was observed that EQCR had various comments on certain matters which were not accepted by the audit partner. Audit partner had better understanding of the client and after assessing the comments of the EQCR did not find those relevant. The audit partner without concurrence of the EQCR finalized the audit and issued the audit report. In the given situation, please advise which one of the following is correct?

Summary: EQCR should be a member of ICAI.

 

  1. The changes in the audit team were not appropriate except for the field incharge who had left the firm. EQCR should have been a member of the Institute of Chartered Accountants of India (ICAI).
  2. The audit partner did the right thing by ignoring the comments of EQCR as he is the final authority to decide on any matter and take decisions. Further EQCR was junior to the audit partner.
  3. The audit partner must discuss each and every comment of EQCR with the client and ensure that a proper disclosure in respect of those points should be made either in the financial statements or the audit report.
  4. EQCR had sufficient and appropriate experience. He should have been given the authority to objectively evaluate various matters, before the report is issued, the significant judgments the engagement team made and the conclusions they reached in formulating the report. By ignoring the comments of the EQCR, audit partner took additional professional responsibility on himself. By considering the comments of EQCR, he could have passed the responsibility to EQCR.

 

Answer: 1

 

SA 200

 

Q:1 "Professional scepticism is defined as:

Summary: Professional scepticism is defined as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence."

          

 

  1. An attitude to avoid significant mistakes which could influence the economic decisions of users taken on the basis of the financial statements.
  2. The application of relevant training, knowledge and experience in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.
  3. An analysis of management decisions in terms of failed outcomes.
  4. An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.

 

Answer: 4

 

Q:2 "Professional judgement is defined as:

Summary: Professional judgement is defined as the application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement."     

 

  1. The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.
  2. An attitude to avoid significant mistakes which could influence the economic decisions of users taken on the basis of the financial statements.
  3. Decision making about the requirements of the accounting profession.
  4. An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.

 

Answer: 1

 

Q:3 "Judgements about materiality are made in the light of surrounding circumstances, and are affected by:

Summary: Judgements about materiality are made in the light of surrounding circumstances, and are affected by both the auditor's perception of the financial information needs of users of the financial statements, the size or nature of a misstatement."               

 

  1. The auditor's perception of the financial information needs of users of the financial statements.
  2. Both the auditor's perception of the financial information needs of users of the financial statements, the size or nature of a misstatement.
  3. The size or nature of a misstatement.
  4. The company's control environment.

Answer: 2

 

SA 210

 

Q 1. "Al Private Ltd is in the business of telecom and have significant operations across India predominantly in Northern India.The statutory auditors of the company have been continuing for the last 3 years and have been issuing clean report.For the financial year ended 31 March 2021, the statutory auditors commenced their work in March 2021 as per discussions with the management and with a plan to complete the audit by first week of May 2021.The audit team concluded the work as per the agreed timelines and the financial statements and audit report were signed on 5 May 2021 along with the engagement letter for the financial year ended 31 March 2021.In the given situation, please advise which of the following would be correct.

Summary: The engagement letter should have been signed before commencing the audit work."         

 

  1. The engagement letter should have been signed before commencing the audit work.
  2. The engagement letter should have been signed at least a day before signing the audit report.
  3. The engagement letter should have been signed at least a day before signing the financial statements.
  4. The engagement letter is optional in case of a private company and hence can be signed anytime.

Answer: 1

 

SA 230

 

Q:1 "KPL Private Limited is a large software company based out of Hyderabad. The annual turnover of the company is INR 2,100 crore. The company sells software and is also involved in the implementation of those software for its clients.The major chunk of the revenue though comes from sale of software only. The company works on a completely paperless office and accordingly, most of the documents are available in soft copy.During the financial year ended 31 March 2020, the auditors during the course of their audit obtained various audit evidences some of which were in hard copy but mostly in soft copy. On conclusion of the audit, the auditors are in a dilemma whether to maintain their documentation entirely in hard copy or soft copy or can it be mixed of both.After consultations with various persons, the auditors stood that the documentation for this company, being operated in fully automated environment should be in soft copy only.

Please advise whether this understanding is correct.

Summary: As per SA 230, Audit documentation can be in a mix of both soft and hard copy."      

 

  1. This is a matter of documentation of audit evidence for a client working in fully automated environment and hence it should be in soft copy only.
  2. As per the requirements of auditing standards, this documentation can be in a mix of both soft and hard copy.
  3. Since the client is operating in a fully automated environment, it would be important to check with them because all this documentation has come from the client only.
  4. As per the requirements of auditing standards, documentation is not required in case of a client working in automated environment because everything is automated and can be accessed easily at any point of time.

 

Answer: 2

 

Q:2  "The company has requested its previous auditor to give back its audit documentation (""working papers"") and warned the previous auditor with legal notice to submit them back to the company showing the confidentiality clause:

Summary:  The auditor has a right over its working paper, and he is the owner of the workpapers and he may give at his direction make available the workpapers to the company."      

 

  1. The previous auditor is bound to return the workpapers as the company has raised the confidentiality clause over the audit firm. Thus, the SA-230 is not applicable in such scenario as the original owner itself is requesting to return the working papers.
  2. The auditor has a right over its working paper, and he is the owner of the workpapers but he cannot give the workpapers to any person even at the request of the company.
  3. The auditor has a right over its working paper, and he is the owner of the workpapers and he may give at his discretion make available the workpapers to the company.
  4. The auditor has a right over its working papers but the owner of them is the company. He should make available the workpapers to the company at its request and SQC-1 mandates the auditor to make copies made available to its clients.

 

Answer: 3

 

SA 250

 

Q 1. "M/s ABC & Associates are the statutory auditors of PQR Ltd. for the FY 2019-20. While conducting the audit, CA Aman, the engagement partner noticed the following:

>Payments of various fines and penalties

>Payments to various government employees not supported by any document

>Notices received from various regulatory authorities.

>Heavy payments to legal counsels.

CA Aman should consider the above as indicative of:" 

 

  1. Doubt on Internal Controls of PQR Ltd.
  2. Doubt of non-compliance to laws by PQR Ltd.
  3. Doubt on the accounting system of PQR Ltd.
  4. Doubt on the going concern assumption of PQR Ltd.

 

Answer: 2

 

Q:2 "QRP has subsidiary, SPS Ltd (SPS), in UK. The Company had outstanding trade receivables amounting to INR 10 crore from SPS. QRP observed that there have been some FEMA (Foreign Exchange Management Act) non-compliances on the part of QRP but the management had an action plan which they had initiated and on the basis of which management was sure that the non-compliance would be done good and there would be no penalty on the company. In case the penalty arises in future, the impact would be significant for QRP. The auditors of QRP also evaluated this matter by involving a regulatory matters expert and agreed with the management's view.Do you agree with the way auditors have handled the matter related to FEMA non-compliances? How would you deal with this matter?

Summary: Non-compliance of law that could result in significant penalty should be appropriately disclosed in Financial statements"     

 

  1. Auditors didn't handle this matter appropriately. Auditors should have informed about this matter to the RBI (Reserve Bank of India) within a period of 30 days from date this matter came to their knowledge.
  2. Auditors handled this matter appropriately. The management would need to include this matter in the notes to accounts to the financial statements.
  3. Auditors handled this matter appropriately. But they would also need to include modification in their report because the impact of penalty, if levied, can be material.
  4. Auditors could have handled this matter in a better manner by also involving a tax expert because this might result in a penalty and that may have some taxation impact for the Company.

 

Answer: 3

 

Q:3 "Company got a show cause notice from State Pollution Control Board. As per SA 250, the auditor shall perform the audit procedures to help identify instances of non-compliance with otherlaws and regulations that may have a material effect on the financial statements. As the audit team of the company became aware of information concerning an instance of noncompliance with law, what would NOT be the audit procedure to be performed?

Summary: Monitoring legal requirement and compliance with code of conduct and ensuring that operating procedures are designed to assist in the prevention of non-compliance with law and regulation and report accordingly is Management responsibility not part of audit procedures."

 

  1. Understand the nature of the act and circumstances in which it has occurred and obtain further information to evaluate the possible effect on the financial statement.
  2. Discuss the matter with management and if they do not provide sufficient information; and if the effect of noncompliance seems to be material, legal advice may be obtained.
  3. Monitoring legal requirement and compliance with code of conduct and ensuring that operating procedures are designed to assist in the prevention of non-compliance with law and regulation and report accordingly.
  4. Evaluate the implication of non-compliance in relation to other aspects of audit including risk assessment and reliability of written representation and take appropriate action.

 

Answer: 3

 

SA 260

 

Q:1 "Ms Kee, the engagement partner of Best Hospitality Limited's audit team did not perform the necessary communication with those charged with governance over some critical issues identified during the course of the audit. Moreover, when management identified that the engagement partner has not communicated to those charged with governance of the Best Hospitality Limited, they also chose not to communicate. Upon identification of this issue, the personnel charged with governance inquired with management and auditors as to why there was no communication of the critical matters to them.Upon such inquiry, Engagement Partner contended that it was the responsibility of Management to communicate first, then only the audit team should communicate. However, Management was of the view that they are not liable to communicate to those charged with governance. As an Engagement Quality Control Reviewer, what will be your opinion?

Summary: Auditor is responsible for communicating matters required by SA 260 to those charged with governance. Also, management has a responsibility to communicate matters of governance interest to those charged with governance. Communication by the auditor does not relieve management of its responsibility."   

 

  1. The auditor is responsible for communicating matters required by SA 260 to those charged with governance. Also, management has a responsibility to communicate matters of governance interest to those charged with governance. Communication by the auditor does not relieve management of its responsibility.
  2. SAs are not applicable to the management and hence the management was not responsible for communicating the same to those charged with governance. Also, as per SA 260, Auditor can only communicate when management has already informed those charged with governance about the matters. Auditors cannot communicate first without management's communication.
  3. Communication by management with those charged with governance of matters that the auditor is required to communicate does relieve the auditor of the responsibility to also communicate them if the management has already communicated. Hence, in the current case Management should have communicated as it was their responsibility.
  4. SA 260 requires the auditor to perform procedures specifically to identify any other matters to communicate with those charged with governance which includes matters already communicated by the management of non-material nature. Hence, it was the responsibility of the Auditor to communicate.

Answer: 1

 

SA 265

 

Q:1 "Factors that the auditor may consider in determining the appropriate level of detail for communication of significant deficiencies under SA 265 depends upon:

  1. Nature, size and complexity of the entity

  2. Nature of the significant deficiencies identified

  3. Estimated time required by management to resolve the deficiency

  4. Fees charged from the client" 

 

  1. I and II. 
  2. II and III.
  3. III and IV.
  4. Only II

 

Answer: 1

 

SA 300

 

Q:1 "CA Sameer, after developing the audit strategy for Menka Ltd., develops an audit plan but finds a need to revise the materiality levels set earlier and therefore, a deviation from the already set audit strategy is felt necessary. In this case, he should

Summary: Audit strategy is modified before the modification in audit plan."   

 

  1. Continue with the Audit Plan without considering the Audit Strategy.
  2. Drop the audit and withdraw from the engagement.
  3. First Modify the audit strategy and thereafter, prepare the audit plan according to the modified strategy.
  4. Devise a new audit plan and then, change the strategy as per the Revised Plan.

 

Answer: 3

 

Q:2 Gamma Private Ltd. duly appoints CA Palak as the tax auditors of their Company and the appointed Tax auditor chalks out a detailed Audit Programme to be assigned to her audit engagement team to carry out the tax audit efficiently & effectively. Which of the following situations wouldn't warrant an alteration in the Audit Programme during the course of Audit by the Tax Auditor of Gamma Private Limited during the next Financial Year?

 

  1. Significant changes in Procedures and Personnel of the Company subsequent to audit Procedures.
  2. A Substantial increase in the volume of turnover as against the anticipated results of the Company.
  3. An extraordinary increase in the amount of Book Debts as compared to that in the First Year.
  4. A New Contract received by Gamma Ltd. form a Foreign Client during the course of the audit.

Answer: 4

 

SA 320

 

Q:1 The amount of materiality initially determined needs to be revised as the audit progresses:

 

  1. If there is a delay in the audit.
  2. In the event of becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially.
  3. Only in the event of becoming aware of information during the audit that would have caused the auditor to have determined a higher amount (or amounts) initially.
  4. Only in the event of becoming aware of information during the audit that would have caused the auditor to have determined a lower amount (or amounts) initially.

Answer: 2

 

SA 402

 

Q:1 "XYZ Private Limited uses ERP software for all business processes. The application is hosted in cloud and is maintained by a third party. Statutory Auditor is not confident about the riskmanagement process in the third party organization and requests for audit access to such data centre. The request was declined and management informed that the third party is ISO certified and audit on controls at Service Organisation is regularly being conducted.

What the auditor should do?

Summary: For the auditor of user entity, if he wants to gain confidence over risk management process of service organisation, he should take Service auditor's report regarding the controls."

 

  1. Do not ask for anything since the Third Party is ISO certified.
  2. Insist on conducting audit in the Third Party.
  3. Take the ISO certificate.
  4. Take the Service Organisation control audit report to review.

Answer: 4

 

 

SA 500

 

Q:1 "You are the audit senior of Tey& Co are responsible for the audit work to be managed for the fixed assets of the company. Tey& Co has 4 properties amounting to ₹ 12.5 crore. One of the important tasks ahead for you is to confirm the ownership of these properties.Which of the following would provide the most persuasive evidence of the ownership?

Summary: Registration documents of property provide more persuasive evidence regarding ownership of property."       

 

  1. To conduct a physical inspection of all the properties located at different areas.
  2. To ask the management registration documents of these properties and inspect and verify them.
  3. To check whether all the properties are recorded properly in the fixed asset register and depreciation has been calculated correctly.
  4. Enquire with the management, if these properties are insured and review the insurance documentation.

Answer: 2

 

SA-505

 

Q:1 "BC Ltd. is the business of manpower consulting. The company has a huge cash and bank balance including fixed deposits with banks. During the course of audit of the financial statements of the company for the year ended 31 March 2021, auditors circulated independent bank balance confirmations. The auditors received all the balance (covering fixed deposits) confirmations independently. Auditors observed that the fixed deposits balances as per the independent balance confirmation did not match with the books balances in some cases. Management produced the fixed deposit certificates to the auditors wherein the balances of fixed assets matched with the balances as per the books. How should the auditor deal with this matter?

Summary: In case auditor finds an exception i.e. difference between amount as per confirmation & represented by management, auditor shall perform alternate audit procedures."

 

  1. Auditor should qualify the audit report in respect of differences in book balances of fixed deposits vis-a vis independent balance confirmations.
  2. Auditor should consider the fixed deposit certificates produced by the management and basis that any differences in book balances of fixed deposits vis-a-vis independent balance confirmations should be ignored.
  3. Auditor should consider the documentation provided by the management i.e. the fixed deposit certificates, however, independent balance confirmations is also required to be considered by the auditor which shows various difference. The auditor should obtain balance confirmations again.
  4. Auditor should consider the documentation provided by the management i.e. the fixed deposit certificates, however, independent balance confirmations is also required to be considered by the auditor which shows various difference. The auditor should look to perform alternate procedures and basis that the matter should be looked at.

Answer: 4

 

SA-520

 

Q:1 "ZOV is a private limited company engaged in the business of mining. The company's operations are fairly large and its turnover is INR 4,000 crore on an annual basis. Due to the nature of the business and the size of the company, the company has appointed a firm of Chartered Accountants as its statutory auditors who have the relevant experience of the industry in which the company has been operating.During the course of the audit of the financial statements for the year ended 31 March 2020, the audit team had various observations which resulted in many adjustments in the financial statements of the company and that was also appreciated by the CFO of the company.At the time of final reviews of the audit team, the audit partner requested working paper on final analytical procedures from the engagement team, however, the engagement team explained that they performed substantive testing procedures which also resulted in some adjustments and the same was incorporated in the final set of financial statements given to the audit partner for the review and accordingly there was no need to perform final analytical procedures. Audit partner was not convinced with this and requested the engagement team to perform this procedure. Considering that the timeline to conclude the audit was approaching, the audit partner also requested the CFO that the audit team would need some more time to perform final analytical procedures. CFO was very impressed with the engagement team and agreed for the time but he also told the audit partner that work of the team was excellent and hence the audit partner should avoid these additional procedures.You are requested to give your view in respect of this matter as per SA 520.

Summary: The conclusions drawn from the results of final analytical procedures are intended to corroborate conclusions formed during the audit of individual components or elements of the financial statements. So, final analytical procedures should be performed towards the end of audit in addition to other procedures."     

      

  1. The explanation of the audit team was correct. After doing substantive testing which also resulted in audit adjustments, there was no need to perform final analytical procedures.
  2. The suggestion of CFO should have been considered by the audit partner as the CFO was observing the work of the engagement team and hence he could assess that better than the audit partner.
  3. The requirement in view of the audit partner was valid. The conclusions drawn from the results of final analytical procedures are intended to corroborate conclusions formed during the audit of individual components or elements of the financial statements.
  4. The audit team did the right thing by not performing final analytical procedures, however, one additional procedure in that case should have been obtain the document containing the analysis performed by the client on the financial statements. This document is required to be assembled in the audit file.

Answer: 3

 

SA-530

 

Q:1 "Auditors do not normally examine all the information available to them as it would be impractical to do so and using audit sampling will produce valid conclusions. Random selection ensures that all items in the population have an equal chance of selection, e.g. by use of random number tables or random number generators. Block sampling method includes selection of a block or blocks of continuous items from within the organisation. Which of the following selection can be considered as block sampling method?

Summary: Block selection involves selection of a block(s) of contiguous i.e. consecutive items from within the population."     

 

  1. Auditor Mr. A divided the trade receivables into 2 groups as: balances above ₹ 20 lakh and balances between ₹ 10 lakh to ₹ 20 lakh and selected different percentage of items from each group.
  2. Auditor Mr. A determined the starting point as 10 for the list of receivables and selected every 10th balance for receivables thereafter as samples to perform the tests.
  3. Auditor Mr. A selected sample size as all the high-value balances from the list of trade receivables to ensure that these balances shown are correctly recorded.
  4. Auditor Mr. A uses a sample of 50 consecutive cheques to test whether cheques are signed by authorised signatories rather than picking 50 single cheques throughout the year.

Answer: 4

 

SA-540

 

Q:1 "Company has made an estimate for allowance of debtors @5%. Some financial statement items cannot be measured precisely but can only be estimated. The nature and reliability of information available to management to support the making of an accounting estimate varies widely, which thereby affects the degree of estimating uncertainty associated with accounting estimates. Please advise which among the following may have higher estimate uncertainty and higher risk as per SA 540?

Summary: Accounting estimates with relatively high estimation uncertainty, based on significant assumptions, for eg:

- Accounting estimates relating to outcome of litigation.

- FV accounting estimates for derivative financial instruments not publicly traded.

- FV accounting estimates for which a highly specialised entity-developed model is used or for which, there are assumptions or inputs that cannot be observed in marketplace. Accounting estimates in cases of Wage Revision Agreements wherein negotiations with Trade Unions is on the way or Government's sanction is awaited leading to uncertainty."  

  

  1. Judgments about the outcome of pending litigation with PX Ltd against the company.
  2. Estimates made for inventory obsolescence that are frequently made and updated.
  3. A model used to measure the accounting estimates is well known and the assumptions to the model are observable in market place.
  4. Accounting estimate made for allowance for doubtful debts where the result of the auditors review of similar accounting estimates made in the prior period financial statements do not indicate any substantial difference between the original accounting estimate and the actual outcome.

Answer: 1

 

SA-550

 

Q:1 "M/s Ram Raj & Associates have been appointed as statutory auditors of Venus Ltd. for the FY 2019-20. During the year, the company has entered into some related party transactions. CA Ram, the engagement partner has taken a management representation letter regarding the proper accounting, presentation and disclosure of such related party transactions. Is there any further responsibility of CA Ram with respect to the other procedures to be performed for related party transactions?

Summary: Auditor has the responsibility to perform the audit procedures to identify, assess and respond to the risk of material misstatement arising from the entity's failure to appropriately account for related party relationships, transactions and balances."       

 

  1. No, there is no further responsibility of CA Ram as the best audit evidence for the related party transaction is the management representation letter.
  2. No, there is no further responsibility of CA Ram as the audit firm is responsible for verifying the balances and disclosure of related party transactions. The identification of related party transactions is the responsibility of the management of Venus Ltd.
  3. Yes, the audit firm has the responsibility to perform the audit procedures to identify, assess and respond to the risk of material misstatement arising from the entity's failure to appropriately account for related party relationships, transactions and balances.
  4. Yes, the auditor has the responsibility to detect fraud and error with respect to the related party transactions.

Answer: 3

 

Q:2 As per SA 550 on Related Parties, existence of which relationship indicate the presence of control or significant influence?         

 

  1. Friend of a family member of a person who has the authority and responsibility for planning
  2. Holding debentures in the entity.
  3. The entity's holding of debentures in other entities.
  4. The entity's holding of equity in other entities.

Answer: 4

 

SA-560

 

Q:1 "SKJ Private Ltd is engaged in the business of construction. The company has also got some real estate projects few years back on which it started the work in the last 2 years. The annual turnover of the company is INR 600 crore and profits of INR 40 crore.The statutory auditors of the company got rotated by another audit firm due to mandatory audit rotation requirements as per the Companies Act 2013.The new statutory auditors of the company started audit of the financial statements for the year ended 31 March 2020 in May 2020. The audit team also requested the client to provide certain information on the opening balances to perform their audit procedures. Initially the management did not provide any information to the auditors on the opening balances thinking that this is not within the scope of their work, however, after going through the auditing standards, the management agreed and provided the required information.Later on, the audit team also started requesting information for the period from 1 April 2020 to 31 May 2020. With this requirement, CFO of the company got very upset and angry and set up a meeting with the senior members of the audit team. CFO raised a concern that the audit team has not been doing the work properly and has been asking for unnecessary information like information on opening balances and then the information for the period after 31 March 2020. The audit partner explained to the CFO that everything requested by the audit team has been as per the auditing standards, however, CFO said that in the earlier years, the previous auditors never asked for such information.You are requested to give your view in respect of this matter.

Summary: As per SA 510, auditor is required to test opening balances & as per SA 560 auditor is required to check events occurring after reporting date & till the date of auditor's report."          

 

  1. The requirement of the auditors for opening balances was valid but for the period after 31 March 2020 is completely wrong as that is out of their scope for the current year's audit. They can ask for those details during the audit of next year.
  2. The concern of the CFO was valid. He has seen the previous auditors not performing such audit procedures and hence the new audit team should also follow the same approach which was followed by previous auditors as that would lead to efficient in audit.
  3. The audit team should set up a meeting with previous auditors wherein it should be assessed why different approach was followed by the previous auditors. On the basis of that discussion with the previous auditors, next course of action should be decided.
  4. The requirement of the auditors for opening balances as well as for the period after 31 March 2020 is valid. As per the requirements of SA 510 and SA 560, audit team is required to perform these procedures.

Answer: 4

 

SA-570

 

Q:1 "Though the company MINSAN Ltd had significant growth in the past years, it has not done well over the last two financial years. As per SA 570, there are certain events or conditions that individually or collectively may cast significant doubt about the going concern assumptions. In order to assess whether MINSAN Ltd is a going concern or not, which of the following audit procedures should NOT be performed?

Summary: Audit procedures for assessing entity's ability to continue as going concern shall include analysis and discussion of company's projected cash flows and profit statements not the statements of the previous years."            

 

  1. Analysis and discuss with the management of the company to find out whether installation of new plant and machinery would enable the company to reduce cost of production.
  2. Inquire the company's legal counsel regarding existence of legal litigation and claim against the company. reasonableness of management assessments of their outcome and estimate of their financial implication.
  3. Evaluating management's future plan and strategy to increase market share of product
  4. Analysis and discuss the company's cash flow and profit of the previous years with the projected accounts.

Answer: 4

 

Q:2 Which of the following is not an indicator about material uncertainty over the entity's ability to continue as a going concern:             

 

  1. Net liability or net current liability position.
  2. Cancellation of company's production license due to change on government policies.
  3. Non-declaration of dividend to equity shareholders.
  4. Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.

Answer: 3

 

SA-610

 

Q:1 "You are the audit manager in-charge of the audit team this year and your 1st year trainee asks you the following questions listed down. He has also noted down some of the questions for you to answer to discuss the impact on the planning stage after understanding the entity and its environment: The company is required to appoint the Internal Auditor as per provisions of the Companies Act, 2013 and the company complied with the same by delegating the duties to an employee, who joined the company as 1st year Architect. The audit team is planning to use the work performed by the Internal Audit function as the reports given by him are designed in a marvellous fashion. Even the Board of Directors are astonished by the design of the Internal Audit report.The engagement partner has requested you to comment upon the usage of work of Internal auditor by the engagement team in accordance with relevant Standard on Auditing:

Summary: The auditor is required to assess the competence and professional care of the work performed by the Internal Auditor."        

    

  1. As the work done by the internal auditor is marvellous designed and presented the same can be considered to the extent the statutory auditor can use it. As the work is highly appreciated even by the Board of Directors, the same should be definitely used by Andy & Co.
  2. The work done by the Internal Auditor need to be assessed for the sufficiency and should be used to avoid the double work. The audit team of Andy & Co need to reduce the unnecessary work as the same has been performed by the other auditor.
  3. The auditor is required to assess the competence and professional care of the work performed by the Internal Auditor. Thus, the auditor Andy & Co needs to reconsider the audit strategy and cannot use the work of the Internal Auditor.
  4. The work performed by the internal auditor can be used by the External Auditor in this case if the architect is not an employee of the company but is in private practice.

Answer: 3

 

SA-620

 

Q:1 An auditor's expert may be either an auditor's internal or an external expert. Which of the following cannot be an auditor's internal expert?          

 

  1. Partner of the Auditor's Firm
  2. Temporary Staff of the Auditor's Firm
  3. Permanent Staff of Auditor's Network Firm
  4. A Prospective CA, soon to join the Auditor's Firm as a Partner.

Answer: 4

 

SA-700 Series

 

Q:1 "During the conduct of audit, it was found that the management has intentionally made material misstatements in the several items of the financial statements to deceive the users of the financial statements, to reduce the pressures of meeting market expectations and to increase the reputation of the company. What would be the implications on the auditor's report if no adjustments are made to the financial statements regarding the misstatements made by the management?

Summary: If auditor concludes there's material misstatement in financial statements which is pervasive to financial statements as whole, auditor shall issue adverse opinion with basis for adverse opinion para mentioning the reason."               

 

  1. The auditor would issue a qualified audit opinion stating that 'except for these matters the financial statements are fairly presented. The auditor should also include a 'Basis for Qualified Opinion' paragraph below the opinion paragraph.
  2. The auditor would issue an adverse audit opinion stating that 'except for these matters the financial statements are fairly presented. The auditor should also include a 'Basis for Qualified Opinion' paragraph below the opinion paragraph.
  3. The auditor would issue an adverse audit opinion stating that financial statements 'do not give a true and fair view. The auditor should also include a 'Basis for Adverse Opinion' paragraph below the opinion paragraph.
  4. The auditor would issue an adverse audit opinion stating that financial statements 'do not give a true and fair view'. The auditor should also include a 'Basis for Qualified Opinion' paragraph below the opinion paragraph.

Answer: 3

 

Q:2 "While verifying the salary expense of employees, the auditor has been asked to rely on the values as per SAP software and some hard copy reports and documents as the HRMS package (source software) has become corrupt during the year and the management is not having any data backup. How should the auditor deal with this issue?

Summary: If auditor isn't able to obtain audit evidence then he should perform alternate procedures before disclaiming the opinion."    The auditor should issue a disclaimer of opinion as records are destroyed and he is unable to obtain sufficient appropriate audit evidence. 

 

  1. The auditor should perform alternative procedures to obtain sufficient and appropriate audit evidence before disclaiming the opinion.
  2. The auditor should issue an adverse opinion stating that it is deficiency in internal controls.
  3. The auditor can rely on the SAP data and there is no need for qualification of report.
  4. The auditor should perform alternative procedures to obtain sufficient and appropriate audit evidence before disclaiming the opinion.

Answer: 2

 

 

CA Final - Paper 3 - Advanced Auditing and Professional Ethics - Chapter 2   

 

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