ca inter suggested answers | May 24 Audit Paper
Table of Content
Question 1
(A) APR & Associates, a Chartered Accountant firm, are appointed as the auditors of Time Ltd. and Bakes Ltd. The volume and nature of business of both the companies are entirely different. CA R is the engagement partner for Bakes Ltd. CA P is the engagement partner for Time Ltd. CA R formulates an Audit Programme for conducting the audit of Bakes Ltd. He suggests CA P to use the same audit programme for Time Ltd. But CA P is of the opinion that this audit programme will not be useful for the audit of Time Ltd.
In light of the above, mention the matters that should generally be considered while preparing an Audit Programme. Is CA P correct in emaphasizing for a different Audit Programme for Time Ltd. ?
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(B) ABC & Co. are in the business of manufacturing toys. The stock 4 taking process has been done by the company as on 31.3.2024. The company has used FIFO method for valuation of its inventories. The cost of inventory as on 31.3.24 is ₹ 25,25,000/- and the net realizable value of the inventory on the same date is ₹ 25,24,000/-.
The cost of inventory includes the following :
(1) Material purchase cost - ₹ 25,05 ,000/-
(2) Allocated transport cost - ₹ 18,000/-
(3) Abnormal wastage - ₹ 2,000/-
The management seeks your advice in arriving at the value of inventory to be shown in the financial statements of the company. What should be the value of inventory in accordance with AS-2 ?
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(C) Mr. Z, at the time of appointment as an independent director in EF Ltd. a listed company, came to know that the Companies Act, 2013 has placed a greater emphasis on the effective implementation and reporting on internal controls for a listed Company He wants to know the responsibilities as castcd under Companies Act, 2013 with regards to Internal Financial Control for (1) Directors (2) Independent directors and (3) Audit committee as per section 134(5)(e), 149(8) & 177(4) (vii) respectively of the Companies Act, 2013.
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(D) 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 2
(A) CA Q is the engagement partner for the audit of a Departmental store. As a part of the risk assessment procedure, he wants to make inquiries and internal of the management and others within the entity. What kind of information can the auditor get by inquiring from the following?
(i) Internal audit personnel
(ii) In-house legal counsel
(iii) Marketing or sales personnel
(iv) Information systems personnel
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(B) 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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(C) IK. Ltd. Was having a "Pager" manufacturing plant and looking at the objective and demand it was of the view that the company will grow con hưu. scope of audit future. But, with the introduction of mobile phones in the market, the plant was shut down completely. The shareholders of the company were of the view that auditor failed to perform their duty and have not informed to diem abou) the company's inability to continue its business, otherwise they might not have suffered the loss. List down the factors giving rise to the inherent limitations due to which auditor cannot provide a guarantee that the financial statements are free from material misstatement due to fraud or error.
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(D) B Ltd. is a company manufacturing bed-sheets and pillow covers. They have appointed Mis C & Co. Chartered Accountants, as their auditors, lite auditor is establishing audit strategy with his team members. As the work progressed, they came to know that the company has diversified its business and now they are also planning to manufacture wooden furniture. The auditor, in his professional judgement, considers this to be a significunt factor in directing the engagement team's efforts. Give examples of factors that, in auditor's professional judgement, are significant in directing the engagement team's efforts.
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Question 3
(A) CA E is auditor of LM Ltd. Before commencing with current year's audit, he initiated planning for the audit. Planning includes the need to consider certain matters, prior to the identification and assessment of the risk of material misstatements. Enumerate such matters.
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(B) The management of PQ Ltd. changed during the period under audit. Mr. G an auditor, at the time of receiving written representation on the management responsibilities from the management, was in a dilemma related to the date of and period(s) covered by the written representation. Further, new management was of the view that they can give written representation from the date they took over and not for the prior period when old management were managing affairs of the company, Guide the auditor & the management in this respect.
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(C) You are appointed as the auditor of a company manufacturing paints. The company has a robust system of internal control. Most of the controls in the company are automated and they are working effectively. However, in certain situations, manual elements in internal controls are more suitable. What are the circumstances where manual elemement in internal controls may be more suitable?
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(D) 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 4
(A) M/s KLM & Co. Chartered Accountants, a partnership firm, while designing tests of controls and tests of details in MN Ltd. has to determine the items for testing that can be effective in meeting the purpose of the audit procedure. For this, they decided to select specific items from a population. State the factors that can be considered by the audit firm for selecting specific nems from a population and also state the specific thems that can be included for such testing.
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(B) Mr. L is a principaliter of OP Ltd. There are several divisions of OP Ltd. that are audited by other auditors Stare the procedures Mr. L should ordinarily perform to obtain sufficient and appropriate audit evidence that the work of other auditers is adequate for the principal auditor's purpose in the context of this assignment.
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(C) LD Ltd. has given below loans to the following borrowers during the financial year 2023-24. Mr, B an auditor wants your guidance regarding additional regulatory information required to be provided under the Companies Act, 2013:
| Borrowers | Maximum Loan granted during the year 2023-2024 (₹ in Lakh) | Outstanding Loan as at 31/03/24 (₹ In Lakh) |
| X (Promoter) | 20 | 15 |
| Y (Director) | 30 | 25 |
| Z(KMP) | 10 | 05 |
| A (Related Party) | 20 | 10 |
| Others | 80 | 65 |
| Total | 160 | 120 |
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(D) 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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Question 5
(A) PQ & Co. want to diversify its business and for that purpose they want to raise money by issuing shares to the general public. The face value of the shares is ₹ 100 but the directors of the company propose to issue the shares al a discounted rate of ₹ 95/- so as to receive more response. The statutory auditor, however, objects to the same as it is not allowed as per the Companies Act, 2013. State the provisions of Section 53 of the Companies Act, 2013 with reference to shares issued at a discount and the consequences where the company fails to comply with the provisions of this section.
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(B) HR & Associates are the auditors of a large manufacturing company. The company has recently invested huge amount in Property, Plant and Equipment (PPE) for its new unit. They have added many incidental expenses to the cost of PPE. The junior audit team members are not sure about which costs should be excluded from the cost of PPE. Give examples of costs that should not form part of costs of PPE.
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(C) A professional accountant is expected to comply with the fundamental principles of professional ethics at all times. Explain which fundamental principle governing professional ethics is violated in the following situations?
(1) A chartered accountant in practice accepted the appointment as an auditor of a firm in which his sister was a partner.
(2) A chartered accountant in practice was approached by his friend to seek some insider information about a company, which was a client of the chartered accountant. He could not refuse his friend’s request.
(3) A chartered accountant in practice failed to inform his client about the change in laws applicable to his client.
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(D) You have been appointed as the statutory auditor of a limited company. The company is registered as a Nidhi company. What are the reporting requirements of a Nidhi company under the Companies Auditor's Report Order, 2020 ?
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Question 6
(A) CA M is the engagement partner of the firm M/s Y2Z LLP. and he is auditing the financial statements of a listed entity ABC Ltd. The audit firm has determined that an engagement quality control review is required for this assignment. Discuss the responsibilities of CA M as an engagement partner for engagement quality control review as per SA-220..
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OR
(A) Sanskar Foundation is a Non- Governmental Organisation (NGO) for orphan children. They have received voluntary contribution of ₹ 50 lacs from tiae promoters, specifying that ₹ 20 lacs are towards the Corpus contribution and ₹ 30 lacs are towards Revolving fund. Explain the terms “Corpus contribution" and “Revolving fund”,
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(B) MNB bank advanced certain loans guaranteed by government. State the prudential norms for asset classification and income recognition of such loans.
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(C) Mr. D an auditor, while auditing ACE Ltd., identified certain misstatements in relation to particular class of transactions and account balances. He had communicated same to those charged with governance and also taken written representation for the same. State the audit documentation required by the auditor regarding misstatements identified during the audit.
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(D) JK Ltd. has opened a new manufacturing unit and for that they want plant & machinery. Since the capital outflow will be huge, they are considering of taking it on lease. They have approached several parties and have shortlisted one of them who is ready to give the plant on lease for 11 years, which is approximately the estimated economic life of the asset. As per the agreement, JK Ltd. will bear the insurance and maintenance expenses of the asset. Which kind of lease agreement have JK Ltd. entered into and what is the ownership status, the accounting treatment and the tax benefits of the same?
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Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
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He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
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