CA Final Auditing & Assurance

CHAPTER WISE TEST 3

(Time allowed: 1.5 hours) (Marks: 40 Marks)

Multiple Choice Questions

1. M/s Viaan Viraj & associates are the statutory auditors of ABC Ltd. for the FY 2019 -20. The company
has a strong internal control team. During the course of audit, CA Viaan, the engagement partner
found that the company has factories all across the country. In order to verify the wages expenses
at all the factories, CA Viaan decided to use the Internal Audit Team of the company. He accordingly
discussed the same with Mr. Gaurank, the Chief Internal Auditor of ABC Ltd. to provide him a report
on the wages expenses across all factories. Which of the following requirements as per SA 610 are
required to be fulfilled by CA Viaan prior to using the direct assistance of the Internal Audit Team
of the company?
(a) CA Viaan should obtain written agreement from the management of ABC Ltd. that the internal
audit team will be allowed to follow the statutory auditors’ instructions.
(b) CA Viaan should obtain written agreement from Mr. Gaurank that his team will keep the matters
confidential.
(c) Both a & b
(d) CA Viaan can use the direct assistance of the Internal Audit Team after discussing the same with the
management. No prior written agreement is required (2 Marks)

2. 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?
(a) Partner of the Auditor’s Firm
(b) Temporary Staff of the Auditor’s Firm
(c) Permanent Staff of Auditor’s Network Firm
(d) A Prospective CA, soon to join the Auditor’s Firm as a Partner. (2 Marks)

3. Which among the following is not a factor for determining the necessity to use an auditor’s expert
to assist in obtaining sufficient appropriate audit evidence?
(a) The use of a management’s expert by the management in preparing the financial statements
(b) The presence of an internal audit function and verification of the subject matter by them.
(c) The nature and significance of matter including its complexity.
(d) The risk of material misstatement in the matter. (2 Marks)

4. Rohita & Co. Chartered Accountants, mainly into statutory audit and tax audit, has received an order in
writing from the Central Government, in respect of one of its clients, to carry out an investigation. Rohita
& Co. is contemplating getting the assistance of an expert with respect to certain matters.

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Can Rohita & Co. take the assistance of experts in pursuing the investigation? Choose the correct
reasoning from the below?

(a) Yes, Rohita & Co. should consider whether the assistance of other experts like engineers, lawyers,
etc. is necessary in the interest of a comprehensive and full proof examination of documents and
information.
(b) Yes, SA 620 – Using the work of experts, has a specific paragraph on using an expert’s assistance
for investigation.
(c) No, the objective of SA 620 is to use the work of expert for audit of historical financial statements
and not for investigation purposes.
(d) No, since investigation is analytical in nature and requires a thorough mind, capable of observing,
collecting and evaluating facts, the usage of an expert will hinder the independence of the
investigator. (2 Marks)

5. CA Ajay was appointed as the statutory auditor of TUV Ltd. at Delhi. TUV Ltd has a branch office at
Pune. A branch auditor, CA Suresh, was appointed to conduct the audit of the Pune branch of TUV
Ltd. CA Ajay provided CA Suresh with a questionnaire regarding the details of the branch office of
certain specific accounts and balances to be filled in by CA Suresh in which indication of material
misstatements are involved. However, CA Suresh denied to fill such questionnaire as he explained
that CA Ajay, as the principal auditor has no such right. Which is the relevant SA and which of the
following course of action is correct in this regard?
(a) SA 600 is the relevant SA; CA Ajay is correct in asking for information from CA Suresh through a
questionnaire.
(b) SA 610 is the relevant SA; CA Suresh is correct in denying filling such questionnaire as a principal
auditor can refer to branch auditor’s report or other branch records but cannot ask the branch
auditor to provide any specific information by filling a questionnaire.
(c) SA 600 is the relevant SA; CA Suresh is correct in denying filling such questionnaire as CA Ajay
instead of asking CA Suresh to send the filled up questionnaire, should himself verify the specific
branch details as indication of material misstatement is there.
(d) SA 610 is the relevant SA; CA Ajay should seek management’s permission before asking the
branch auditor for any information (2 Marks)

Descriptive Questions

1. (a) Sudharma Limited is a listed company having its operation across India. Sudharma Limited appointed Mr.
S, Mr. D and Mr. M, as its joint auditors for the year 2019-20. After making sure that all of them are
qualified to be appointed as statutory auditor, Sudharma Limited issued engagement letter to all of them.
But Mr. S was not clear on some points, so he requested Sudharma Limited to slightly change the terms
of his engagement. This change will not impact the ultimate opinion on the financial statement. The
engagement letter contains the details on objective and scope of audit, responsibilities of auditor and
identification of framework applicable. It also contains the reference to expected form and content of
report from all three joint auditors. In your opinion what was the discrepancy in the Audit engagement
letter issued by Sudharma Limited? (5 Marks)

1. (b) Mr. S & Mr. J are a senior and junior articled assistant respectively, in a renowned audit firm. Both were
assigned statutory audit of a manufacturing company. Mr. S instructed his junior to draft an audit plan
by taking reference from a similar client (a partnership firm) who was engaged in the same business. Mr.
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J was confused as to how that reference could suit in this case, since the nature and extent of planning
would vary for both clients. After few days, the audit work commenced. During the course of the audit,
certain events took place, which made Mr. J to rethink about the audit plan initially designed. He
approached Mr. S and enquired about when would an audit plan require a change. Comment about both
the situations face by Mr. J in the above situation. (5 Marks)

2. (a) Naveen Ltd. is a chair manufacturing company having its corporate office in Maharashtra. The company
is in the process of expansion and has acquired five companies during the year. Soni & Co. is the
principal auditor of the company while the audit of all the companies acquired during the year is being
conducted by Rahul K & Associates. During the course of audit, CA. Soni, the engagement partner asked
the management of Naveen Ltd. at the corporate office that in order to conduct the audit of the
consolidated financial statements, his audit firm is required to conduct audit of the financial statements
of all the components also (Companies acquired during the year). To this, the management asked CA.
Soni to consider the audit reports of the component auditor already provided to his audit team and to
communicate with the component auditor for any discussion they wish to have. CA. Soni contended
that for the purpose of audit of consolidated financial statements either his firm is required to conduct
an audit of all the component’s financial statements, or he needs the working papers of the component
auditors. Is the contention of CA. Soni correct? (5 Marks)

2. (b) OPQ Ltd is in the software consultancy business. The company had large balance of accounts receivables
in the past years which have been assessed as area of high risk. For the year ended 31 March 2019, in
respect of the valuation of accounts receivable, the statutory auditor was assigned with the checking of
accuracy of the aging of the accounts receivables and provision based on ageing, to the internal auditor
providing direct assistance to him. Comment. (5 Marks)

3. (a) Mr. Ram Kapoor, Chartered Accountant, has been appointed as the statutory auditor by XYZ Private
Limited for the audit of their financial statements for the year 2018-19. The company has mentioned in
the audit terms that they will not be able to provide internal audit reports to Mr. Ram during the course
of audit. Further, company also imposed some limitation on scope of Mr. Ram. What are the
preconditions Mr. Ram should ensure before accepting/ refusing the proposal? Also advise, whether
Mr. Ram should accept the proposed audit engagement? (5 Marks)

3. (b) A professional accountant is often required to give certificates or report for special purposes required
by various authorities and statute and he needs to take careful evaluation of such engagement.
However, issuing such special purpose certificates or reports has some inherent limitations which could
limit his review and evaluation. Enumerate some of the limitations associated with such special purpose
report or certificates. (5 Marks)