AUDIT LAST DAY REVISION QUESTIONS
• DOX Limited, a service provider company engaged in providing courier services pan-India as
well as internationally, has appointed an internal auditor, Mr. G, in accordance with
requirements of the Companies Act, 2013 during financial year 2023-24. The company’s
annual turnover during year 2022-23 and 2023-24 has been about ` 300 crores during each of
above years. Business of the company has been profitable. Mr. G heads internal audit
department of the company assessing governance activities, assisting in improving risk
management activities and reviewing controls. Discuss reporting responsibility of statutory
auditor of the company under the Companies Act, 2013 specifically in relation to internal
audit and related matters for the year 2023-24.
• Up and High Private Limited has started its export business during the year 2023-24. The
company was catering to domestic market only in past years. CA H, statutory auditor of the
company, is of the view that the company has understated its revenue by ` 50.00 lacs in the
year 2023-24 by not complying with requirements of AS 9 relating to revenue recognition. (i)
(ii) Discuss responsibilities of statutory auditor to communicate with management in the
above situation in accordance with SA 450. Also explain the usefulness of such
communication. If management refuses to correct misstatement as communicated by the
statutory auditor, how should he proceed?
• Prudent Enterprises Private Limited has incurred and fully spent for the first time Corporate
Social Responsibility (CSR) expenditure amounting to ` 14.50 lacs in pursuance to provisions
of section 135 of the Companies Act, 2013. The expenditure was spent for women
empowerment programmes through an implementing agency (not a related party). As per law
provisions, it was required to spend ` 14.00 lacs during the year. Discuss how such
information is required to be disclosed in accordance with requirements of Schedule III to the
Companies Act, 2013 in financial statements of the company.
• Suniti, a CA student, is part of an engagement team conducting audit of a company TIM
Private Limited. According to audit programme, she is responsible for verifying purchases
and PPE items appearing in books of accounts from records/bills of company. Besides, she
has also been entrusted responsibility to obtain written representation from management
regarding carrying out of physical verification of inventories during the year. During course
of her work, she finds that: (i) (ii) One purchase bill amounting to ` 5.00 lacs pertaining to
TIM Industries has been entered in books of TIM Private Limited. The management has
refused to provide a written representation relating to physical verification of inventories
during the year. She has brought it to knowledge of engagement partner who has decided to
use lack of such a representation as audit evidence. Discuss whether each of above constitutes
audit evidence. State reasoning for your answer.
• The auditor should decide whether relevant information is properly disclosed in the financial
statements. Explain with reference to scope of audit.
• WTE Private Limited is engaged in business of manufacturing a product liable to GST @ 5%.
The input raw materials for manufacturing this product are liable to GST @ 12% and 18%. As
a result, at the end of financial year, ITC on inputs amounting to ` 60 lacs is accumulated in
Electronic Credit ledger and refundable to company under provisions of GST law. How would
above amount of ` 60 lacs be reflected and classified in balance sheet of company? State few
audit procedures to be performed by you for verification of abovesaid balance
• CA Z is appointed as statutory auditor of BETA Private Limited for the year 2023-24. There
exists an internal audit function in the company headed by its Chief Internal Auditor, CA K.
Valuation of trade receivables of company is assessed as area of higher risk by statutory
auditor. He wants to take direct assistance of Chief Internal Auditor in respect of above
matter. Discuss along with reasons whether it would be proper for statutory auditor to: -
(i) assign checking of accuracy of aging of trade receivables to Chief Internal Auditor?
(ii) assign evaluation of adequacy of provision based on aging of trade receivables to Chief
Internal Auditor?
• Sanjeev, an articled clerk in an audit firm, is part of an engagement team conducting audit of a
company for year 2023-24. It is a small company having a turnover of about `25 crores.
During the course of audit, he notices that senior team member has taken following approach
for selecting items for testing reflected in financial statements to obtain audit evidence: -
(i)He has selected to test items debited under the head “Machinery repair & maintenance” as
expenditure relating to it during year 23-24 has increased considerably as compared to last
year.
(ii) Out of purchases, he has selected to test purchases from related parties amounting to ` 5
crores.
(iii) He has also selected to test all individual items of expenditure exceeding `5 lakhs.
(iv) Besides, he has also selected amount of `0.50 lakhs debited under head “legal expenses”
to know purpose of payment made to external legal counsel. Sanjeev understands that senior
team member is using “audit sampling” for selecting items for testing.
Do you agree with him? Which risk is involved in above approach? Discuss with reasons.
• CA J is working as internal auditor in JKL Limited, a non-listed company. The responsibilities
of internal auditor include reviewing financial information and performing detailed tests on
transactions and balances. He is also responsible for compliance with laws, regulations and
external requirements. During the year 2022-23, services of an employee of company were
terminated. The said employee had filed a suit against the company in respect of certain
compensation dues amounting to ` 10 lakhs which were not paid to him. Based upon advice of
legal counsel, the company had made a provision of ` 10 lacs in financial statements for year
2022 23. However, somewhere in June 2023, there is an out of court settlement between
company and employee for ` 6 lakhs. The statutory audit of company is under progress and
audit report has not yet been finalized. How internal auditor should have proceeded in
situation?
• Internal Control Questionnaire is a comprehensive series of questions concerning internal
control. A company is engaged in business of manufacturing of chemicals. It has two plant
locations in city “A” and one plant location in city “B” involving huge value of assets.
Building at three locations is owned by the company. The company earns handsome profits
and does not want to suffer losses due to business interruptions. It has a dedicated department
for looking after insurance matters. As an auditor, prepare an internal control questionnaire
concerning this department for obtaining staff responses.
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• CA. Ravi Patnaik is conducting audit of a company for which reporting requirements under
CARO, 2020 are applicable. He finds that cash credit facilities amounting to ` 4 crores were
released to the company by branch of a bank for meeting its working capital requirements. He
finds that out of above funds, ` 1 crore have been used by company for installing effluent
treatment plant to meet State pollution control Board requirements. Is there any reporting
obligation upon him under CARO,2020?
• Auditors cannot normally examine all the information available to them as it would be
impracticable to do so and using audit sampling will produce valid conclusions. Samples
should be selected in such a manner that it is representative of the population from which the
sample is being selected. Which sample selection method is used in the following two cases?
Identify and explain them briefly.
(i) Auditor divided the trade receivables in three groups: balances above ` 20 lakhs, balances
between ` 10 lakhs to ` 20 lakhs and balances below ` 10 lakhs. He selected different
percentages of items from each group.
(ii) Auditor uses the sample of 50 consecutive cheques to test whether the cheques are signed
by authorized signatories, rather than picking 50 single cheques throughout the year.
• CA B, was the auditor of Star Limited. He wanted to ensure that the company had correctly
reconciled its bank accounts and also wanted to understand whether and how far the internal
control system was operating in the company. What kind of test of control was CA B
performing? What are the other procedures that can be applied while undertaking test of
controls?
• The engagement partner, of a firm of auditors, is explaining to his audit team, undergoing
practical training, the inter relationship between audit strategy and audit plan. Discuss the
points which the engagement partner will explain to his team in this regard.
• M/s. PK & Company, Chartered Accountants, are the statutory auditors of JC Limited. CA
Tarun, partner of M/s. PK & Company, was entrusted to supervise and verify the inventory
items as on 31.03.2024. During the process of verification, a large chunk of draft inventory
sheets were accumulated and then a final inventory sheet was prepared. The audit assistant
has kept all these drafts and the final inventory sheet in the audit file. Is the approach of the
audit assistant correct? Which papers/ documents may not be included in the audit
documentation?
• Z and Associates are the auditors of Realton Ltd., an export oriented unit, which specializes in
manufacturing oil extraction plants. Since many complex processes are involved, they are
digitizing their operations. They are restructuring their business models which are driven by
technology. Since most of the operations of the company are automated, Z and Associates are
planning to do Digital Audit. Explain the use of digital technology in the conduct of an audit.
• CA Tina, while inspecting financial statements of a company, notices that gross profit ratio of
company has increased from 14% in year 2022-23 to 24% in year 2023-24. Considering the
above, she has assessed the risk of material misstatement to be high with respect to assertions
relating to revenue and various direct expenses. CA Tina wants to know few possible reasons
which could have led to abnormal jump in gross profit ratio. During the discussion among
engagement team members, her junior Ms. Tisha, expressed her view that detection risk in
this engagement should be kept at high level.
(i)List out a few possible reasons which could have led to abnormal jump in gross profit ratio.
(ii)Do you agree with viewpoint of Tisha? Provide reasons for your answer.
• Stay fit Private Limited is a start-up that has been in business for about two years. It runs an
application which provides valuable information pertaining to nutrition and helps its clients to
access customized healthy food. The company’s revenues are expected to grow in the coming
period. Although company has reflected net losses in its financial statements for the last two
years, it has managed to meet its financial commitments. The financial statements for last two
years were prepared on going concern basis of accounting. The management of company
wants to follow the same basis of accounting for the current year. Is the view of management
appropriate? How does the “going concern” affect the preparation of financial statements?
• SQC 1 requires assumption of leadership responsibilities for quality within firm. Are such
leadership responsibilities required for audit engagements only? Who assumes such
leadership responsibilities within firm? How it is important for audit quality?
• CA H has been offered audit of financial statements of a society engaged in promoting social
causes, such as setting up of drug de-addiction centres for misguided youth and rehabilitating
such young people by helping them find avenues of gainful employment. However, CA H
failed to send audit engagement letter to the society’s governing body and proceeded to
conduct the audit. In the absence of this letter, the governing body is of the view that purpose
of such an audit is to provide absolute assurance against probable errors and frauds in the
financial statements. Does it constitute violation of fundamental principles governing
professional ethics? State reasons for the same.
• While conducting the audit of Zeena Limited, CA E is trying to obtain understanding of
different components of internal controls of the company. Such an understanding is necessary
and is required to be documented in accordance with Standards on Auditing. In this context,
how he shall obtain understanding of the risk assessment process of the company and how is
this understanding important for the auditor?
The above working paper lists certain factors which are considered by the auditor while
establishing audit strategy. Explain how these considerations highlighted in above working
paper could have helped the auditor?
