STANDARD’S ON AUDITING PRACTICE QUESTIONS FOR NOV-17

(1) M/s Sureshchandra & Co. has been appointed as an auditor of SC Ltd. for the financial year
2014-15. CA. Suresh, one of the partners of M/s Sureshchandra & Co., completed entire routine
audit work by 29th May, 2015. Unfortunately, on the very next morning, while roving towards
office of SC Ltd. to sign final audit report, he met with a road accident and died. CA. Chandra,
another partner of M/s Sureshchandra & Co., therefore, signed the accounts of SC Ltd., without
reviewing the work performed by CA. Suresh. State with reasons whether CA. Chandra is right
in expressing an opinion on financial statements the audit of which is performed by another
auditor.

(2) Discuss the Auditor’s responsibility to provide access to his audit working papers to
Regulators and third parties.

(3) Mr. A, a practising Chartered Accountant, has been appointed as an auditor of True Pvt. Ltd.
What factors would influence the amount of working papers required to be maintained for the
purpose of his audit?

(4) While auditing accounts of a public limited company for the year ended 31st March 2015, an
auditor found out an error in the valuation of inventory, which affects the financial statement
materially. Comment as per standards on auditing.

(5) M/s Honest Limited has entered into a transaction on 5th March, 2015, near year-end,
whereby it has agreed to pay 5 lakhs per month to Mr. Y as annual retainer-ship fee for
"engineering consultation". No amount was actually paid, but 60 lakhs is provided in books of
account as on March 31, 2015.
Your inquiry elicits a response that need-based consultation was obtained round the year, but
there is no documentary or other evidence of receipt of the service. As the auditor of M/s
Honest Limited, what would be your approach?

CATESTSERIES.COM
(6) In the course of audit of A Ltd. you suspect the management has indulged in fraudulent
financial reporting.

(7) Explain briefly duties and responsibilities of an auditor in case of material misstatement
resulting from Management Fraud.

(8) You notice a misstatement resulting from fraud or suspected fraud during the audit and
conclude that it is not possible to continue the performance of audit. As a Statutory Auditor,
how would you deal?

(9) The Managing Director of the Company has committed a “Teeming and Lading” Fraud. The
amount involved has been however subsequently after the year end deposited in the company.
As a Statutory Auditor, how would you deal?

(10) While conducting statutory Audit of ABC Ltd., you come across IOUs amounting to 2
crores as against a cash balance shown in books of Rs 2.10 crores. You also observe that despite
similar high balances throughout the year, small amounts of Rs 50,000 are withdrawn from the
bank to meet day-to-day expenses.

(11) You are appointed as an auditor of Global Ltd. Explain the risk factors relating to
misstatements arising from misappropriation of assets.

(12) Fraud can be committed by management overriding controls using such techniques as
engaging in complex transactions that are structured to misrepresent the financial position or
financial performance of the entity. In view of the above-mentioned circumstances of
management fraud, explain briefly duties and responsibilities of an auditor in case of material
misstatement resulting from such Management Fraud.

CATESTSERIES.COM
(13) While verifying the employee records in a company, it was found that a major portion of
the labour employed was child labour. On questioning the management, the auditor was told
that it was outside his scope of the financial audit to look into the compliance with other laws.

(14) State the reporting responsibility of an auditor in the context of non-compliance of Law
and Regulation in an audit of Financial Statement.

(15) What are the roles and responsibilities of the statutory auditors in relation to compliance
with the laws and regulations by the entity?

(16) R & M Co. wants to be alert on the possibility of non-compliance with Laws and
Regulations during the course of audit of SRS Ltd. R & M Co. seeks your guidance for identifying
the indications of non compliance with Laws and Regulations.

(17) Big and Small Ltd. received a show cause notice from central excise department intending
to levy a demand of Rs. 25 lakhs in December 2015. The company replied to the above notice in
January 2016 contending that it is not liable for the levy. No further action was initiated by the
central excise department upto the finalization of the audit for the year ended on 31st March,
2016. As the auditor of the company, what is your role in this?

(18) PQR Ltd. has not deposited Provident Fund contribution of Rs. 10 lakhs with the authorities
till the year-end.

(19) During the course of audit of CT Ltd. for the financial year 2015-16, it has noticed that Rs.
2.00 lakhs of employee contribution and Rs. 9.50 lakhs of employer contribution towards
employee state insurance contribution have been accounted in the books of accounts in
respective heads. Whereas, it was found that Rs. 4.00 lakhs only has been deposited with ESIC
department during the year ended 31st March, 2016. The Finance Manager informed the
auditor that due to financial crunch they have not deposited the amount due, but will deposit

CATESTSERIES.COM
the amount overdue along with interest as and when financial position improves. Comment as
a statutory auditor.

(20) The auditors should communicate audit matters of governance interest arising from the
audit of financial statements with those charged with the governance of an entity”. Briefly state
the matters to be included in such Communication.

(21) Write a short note on Responsibility of Joint Auditors.

(22) P Limited is a listed company and its business activities are divided into three regions. The
company appointed PY & Co., KL & Co. and MK & Co., Chartered Accountants to conduct a Joint
Audit and report on the financial statements for the Financial Year 2015-16.
Explain the relationship among the joint auditors for the audit of the financial statements for
the year 2015-16.

(23) Briefly discuss the following statements in view of SA 300 “Planning an Audit of Financial
Statements”:

(a) For an initial audit, the auditor may need to expand the planning activities.
(b) Audit planning is not a discrete phase but a continuous phase.

(24) While commencing the statutory audit of B Company Limited, the auditor undertook the
risk assessment and found that the detection risk relating to certain class of transactions
cannot be reduced to acceptance level.

(25) While commencing the statutory audit of ABC Company Limited, what should be the
considerations of the auditor to assess Risk of Material Misstatement and his response to such
risks?

(26) IT systems also pose specific risks to an entity's internal control? What are those risks?

CATESTSERIES.COM
(27) What are the points to be considered while evaluating the “Knowledge of the Business” in
the conduct of an audit?

(28) While commencing the statutory audit of ABC Company Limited, what should be the
considerations of the auditor to assess Risk of Material Misstatement and his response to such
risks?

(29) Mr. X was appointed as the auditor of M/s Easygo Ltd. and intends to apply the concept of
materiality for the financial statements as a whole. Please guide him as to the factors that may
affect the identification of an appropriate benchmark for this purpose.

(30) As an auditor of RST Ltd. Mr. P applied the concept of materiality for the financial
statements as a whole. On the basis of obtaining additional information of significant
contractual arrangements that draw attention to a particular aspect of a company's business,
he wants to re-evaluate the materiality concept. Please, guide him.

(31) in the course of audit of Z Ltd, its auditor wants to rely on audit evidence obtained in
previous audit in respect of effectiveness of internal controls instead of retesting the same
during the current audit. As an advisor to the auditor kindly caution him about the factors
that may warrant a re-test of controls.

(32) While carrying out the statutory audit of a large entity, what are the substantive
procedures to performed to assess the risk of material misstatement?

(33) A Company gets its accounting data processed by a third party to achieve cost reduction.
As a Statutory Auditor of such a company, what are the additional precautions/checks that you
would consider for conduct of the audit?

CATESTSERIES.COM
(34) When a sub-service organization performs services for a service organization, there are
two alternative methods of presenting the description of controls. The service organization
determines which method will be used. As a user auditor what information would you obtain
about controls at a sub-service organization?

(35) In the course of audit of Raja and Rank Ltd., the audit manager of Sharma & Co. observed
that Raja and Rank Ltd. has outsourced certain activities to an outsourcing agency.

(36) In audit plan for T Ltd, as the audit partner you want to highlight the sources of
misstatements, arising from other than fraud, to your audit team and caution them. Identify
the sources of misstatements.

(37) Discuss the impact of uncorrected misstatements identified during the audit and the
auditor's response to the same.

(38) The auditor of SS Ltd. accepted the gratuity liability valuation based on the certificate
issued by a qualified actuary. However, the auditor noticed that the retirement age adopted is
65 years as against the existing retirement age of 60 years. The company is considering a
proposal to increase the retirement age. Comment.

(39) Y Ltd. engaged an actuary to ascertain its employee cost, gratuity and leave encashment
liabilities. As the auditor of Y Ltd., you would like to use the report of the actuary as an audit
evidence. How do you evaluate the work of the actuary?

(40) Obtaining audit evidence in performing compliance and substantive procedures.

(41) M/s LNK’s group gratuity scheme’s valuation by actuary shows wide variation compared to
the previous year’s figures. As a Statutory Auditor, how would you deal in this situation?

CATESTSERIES.COM
(42) Director of T Ltd. draws an advance of US$ 200 per day in connection with the foreign trip
undertaken on behalf of the company. On his return he files a declaration stating that entire
advance was expended without any supporting or evidence. T Ltd. books the entire expenses
on the basis of such declaration. As the auditor of T Ltd. how do you deal with this?

(43) You are the auditor of Easy Communications Ltd. for the year 2014–15. The inventory as at
the end of the year i.e. 31.3.15 was Rs 2.25 crores. Due to unavoideable circumstances, you
could not be present at the time of annual physical verification. Under the above circumstances
how would you ensure that the physical verification conducted by the management was in
order?

(44) LMN Ltd. supplies navy uniforms across the country. The company has 4 warehouses at
different locations throughout the India and 5 warehouses at the borders. The major stocks are
generally supplied from the borders. LMN Ltd. appointed M/s OPQ & Co. to conduct its audit
for the financial year 2014-15. Mr. O, partner of M/s OPQ & Co., attended all the physical
inventory counting conducted throughout the India but could not attend the same at borders
due to some unavoidable reason.

You are required to advise M/s OPQ & Co.,

1. How sufficient appropriate audit evidence regarding the existence and condition of
inventory may be obtained?

2. How an auditor is supposed to deal when attendance at physical inventory counting is

CATESTSERIES.COM
(45) “If inventory is material to the financial statements, the auditor shall obtain sufficient
appropriate audit evidence regarding the existence of inventory by attending the physical
inventory counting unless impracticable”. Discuss.

(46) The auditor of H Ltd. wanted to obtain confirmation from its trade payables. But the
management made a request to the auditor not to seek confirmation from certain trade
payables citing disputes. Can the auditor of H Ltd. accede to this request?

(47) During the course of audit of Star Limited the auditor received some of the confirmation of
the balances of trade payables outstanding in the balance sheet through external confirmation
by negative confirmation request. In the list of trade payables, there are number of trade
payables of small balances except one, old outstanding of Rs 15 Lacs, of whom, no confirmation
on the credit balance received. Comment with respect to Standard of Auditing.

(48) The accountant of C Ltd. has requested you, not to send balance confirmations to a
particular group of trade receivables since the said balances are under dispute and the matter
is pending in the Court. As a Statutory Auditor, how would you deal?

(49) Moon Limited replaced its statutory auditor for the Financial year 2014-15. During the
course of audit, the new auditor found a credit item of Rs 5 lakhs. On enquiry, the company
explained him that it is, a very old credit balance. The trade payable had neither approached for
the payment nor he is traceable. Under the circumstances no confirmation of the credit
balance is available.

(50) Mr. Z who is appointed as auditor of Elite Co. Ltd. wants to use confirmation request as
audit evidence during the course of audit. What are the factors to be considered by Mr. Z when
designing a confirmation request? Also state the effects of using positive external confirmation
request by Mr. Z.

CATESTSERIES.COM
(51) CA. Ashutosh has been appointed as an auditor of Awesome Health Ltd. for the financial
year 2014-15 which was audited by CA. Amrawati in 2013-14. As the Auditor of Awesome
Health Ltd., state the steps that CA. Ashutosh would take to ensure that the Closing Balances of
the financial year 2013-14 have been brought to account in 2014-15 as Opening Balances and
the Opening Balances do not contain any misstatements.

(52) You have been appointed as the auditor of Good Health Ltd. for 2014-15 which was
audited by CA Trustworthy in 2013-14. As the Auditor of the company state the steps you
would take to ensure that the Closing Balances of 2013-14 have been brought to account in
2014-15 as Opening Balances and the Opening Balances do not contain misstatements.

(53) What are ‘Initial Audit Engagements’?

(54) In an initial audit engagement the auditor will have to satisfy about the sufficiency and
appropriateness of ‘Opening Balances' to ensure that they free from misstatements, which may
materially affect the current financial statements. Lay down the audit procedure, you will
follow, when financial statements are audited for the first time. If, after performing the
procedure, you are not satisfied about the correctness of 'Opening Balances', what approach
you will adopt in drafting your audit report?

(55) While auditing Z Ltd., you observe certain material financial statement assertions have
been based on estimates made by the management. As the auditor how do you minimize the
risk of material misstatements?

(56) Yummy Ltd., dealing in manufacturing and trading of milk butter, has a benchmark in its
product for so many years. Tasty Ltd., a rival company to Yummy Ltd., has introduced its new
product, peanut butter. Due to being health conscious, the consumers have shifted from milk
butter to peanut butter within few months. This has result into massive loss during the year to
Yummy Ltd. due to non-selling of perishable milk products. The company has also started

CATESTSERIES.COM
having negative net worth. It's production head, finance head and marketing head have also
left the company. The company has no sound action plan to mitigate these situations. Kindly
guide the auditor of Yummy Ltd., how he should deal with the situation.

(57) Explain what is meant by “Written Representations” and indicate to what extent an
auditor can place reliance on such representations.

(58) State briefly the basic elements of Management Representation Letter.

(59) In the course of audit of ABC Ltd. its management refuses to provide written
representations. As an auditor what is your duty?

(60) CA. Amboj, a practicing chartered accountant has been appointed as an internal auditor of
Textile Ltd. He conducted the physical verification of the inventory at the year-end and handed
over the report of such verification to CA. Kishor, the statutory auditor of the Company, for his
view and reporting. Can CA. Kishor rely on such report?

(61) CA. Amboj, a practicing chartered accountant has been appointed as an internal auditor of
Textile Ltd. He conducted the physical verification of the inventory at the year-end and handed
over the report of such verification to CA. Kishor, the statutory auditor of the Company, for his
view and reporting. Can CA. Kishor rely on such report?

(62) Enumerate the ‘Basic Elements of Audit Report’ as enshrined in SA 700.

(63) Discuss the various aspects to be considered by the Statutory Auditor before qualifying his
report.

CATESTSERIES.COM
(64) Under the applicable Standards on Auditing, in what circumstances does the report of the
statutory auditor required modifications? What are the types of modifications possible to the
said report?

(65) Write a short note on Emphasis of matter paragraph in Audit Reports. Answer

(66) Auditor's responsibilities regarding comparative

(67) While compiling the accounts of Hope Ltd., you observed that a few accounting standards
have not been followed and there have been omission of some information which was required
to be followed in the current situation. How would you deal with this?

(68) R & Co. is the statutory auditor of S Ltd. For the financial year ended on 31st March 2015, S
Ltd has disclosed in the notes (Note No. X) "The state pollution control board had ordered the
closure of the company's only manufacturing plant on the ground that it is environmentally
damaging, which is company had challenged in a law suit . Pending the outcome of the law suit
the financial statements are prepared on a going concern basis”. Further the financial
statements prepared by the management of S Ltd include financial statements of certain
branches which are audited by other auditors. What are the reporting responsibilities of R &
Co.?

(69) S Ltd. issued Bonds to the tune of Rs 100 lacs and provided security to the tune of Rs 80
lacs for the same.
It insists that it will disclose the Bonds as "Secured" in the Balance Sheet of the Company.
Comment.

(70) Write a short note on Intangible Asset vs. Intangible Item.

CATESTSERIES.COM