MOCK TEST PAPER-1
CA INTER AUDIT
Instructions for Test
1. Reading Time: 15 Minutes
2. Time allowed: 3 Hours
3. The Question Paper is divided into two parts:
o Part A – Descriptive (70 Marks)
o Part B – MCQs (30 Marks)
4. Part A - Question No. 1 is compulsory.
5. Part A - Attempt any four questions from the remaining five questions.
6. Each question in Part A is divided into three sub-parts:
o Part (i) – 5 marks
o Part (ii) – 5 marks
o Part (iii) – 4 marks
Q1.a. XYZ Ltd. is a manufacturing company. During the audit for the year ended 31 March 20XX,
the auditor noted that certain narrative disclosures were materially misstated, some mandatory
disclosures were completely omitted despite discussion with those charged with governance,
and in respect of one area the auditor was unable to obtain sufficient appropriate audit evidence.
As the auditor of XYZ Ltd., explain how each of the above matters should be reported in the
Basis for Opinion section of the auditor‛s report, in accordance with the Standards on Auditing.
b. M/s ABC Ltd, a manufacturing company, has significant trade receivables outstanding as at
31 March 20X4. While planning the audit, the auditor decides to obtain audit evidence regarding
the existence and accuracy of trade receivables by sending confirmation requests to selected
customers. The auditor sends confirmation requests containing the balances as per ABC Ltd‛s
records and requests the customers to respond positively to Auditor. In most cases, customers
reply confirming the balances without providing any additional details.
However, the audit team raises a concern that some customers may have responded without
properly verifying the balances mentioned in the confirmation requests. To address this
concern, the engagement partner suggests an alternative type of confirmation request where
customers are asked to fill in the balance details themselves, instead of confirming the amount
stated by the auditor.
Required
(a) Identify the type of external confirmation request initially used by the auditor.
(b) Discuss the risk associated with responses received to such confirmation requests.
(c) Explain how the auditor‛s suggested alternative confirmation request helps mitigate the
identified risk and state one limitation of using this alternative.
c. When performing risk assessment procedures as required by SA 315, the auditor shall consider
whether events or conditions exist that may cast significant doubt on the entity‛s ability to continue
as a going concern. Explain.
Q2.a. During the audit of HST Ltd., CA Mukund, the auditor, observed a significant volume of unsold
electronic parts as inventory that had remained stagnant for more than two years. He noted that
the company was facing difficulty selling these items due to the changes in the market. Additionally,
some parts were damaged, and others were discontinued models. CA Mukund also ensured that the
inventory was accurately valued to ensure proper financial reporting. You are required to outline the
detailed audit procedures that are generally undertaken when auditing such inventories which at the
time of observance of physical counting were noted as being damaged or obsolete.
b. Data analytics can be used in the testing of electronic records and data residing in IT systems
using spreadsheets and specialised audit tools viz., IDEA and ACL. Explain in detail, stating all
relevant points.
c. Discuss how an engagement partner ensures that firm complies with relevant ethical requirements
including independence in relation to client ?
Q3.a. CA Babita is conducting the statutory audit of Jethalal Ltd. During the audit, she encountered
significant difficulties in obtaining certain information from the company‛s finance team. She also
noted that one of the accounting practices, although acceptable under the applicable financial
reporting framework, may not be the most appropriate considering the company‛s circumstances.
With reference to SA 260, what significant findings from the audit should an auditor communicate
to those charged with governance?
b. ASD Limited's business has grown from one state of India to various countries of the world. Since
the business has increased manifold, the management decided to appoint joint auditors for
conducting the statutory audit of the company. They appointed three CA firms for it. For which
audit work the joint auditors will be jointly & severally responsible?
c. Jay & Associates, a Chartered Accountant firm is appointed as an auditor of XYZ Ltd., a
manufacturing company with multiple branches across the region. CA Jay, Partner in firm, is
conducting the audit of financial statements of XYZ Ltd. for the financial year 2023-24. As the lead
auditor assigned to this engagement, Jay is responsible for planning the audit in accordance with SA
300. Briefly explain why it is necessary to plan the audit of XYZ Ltd.'s financial statements?
Q.4.a. XYZ Ltd. has reported substantial balances under Loans and Advances and Other Current
Assets in its financial statements. Write the audit procedures to be performed as an auditor for
valuation (assertion) of Loans and Advances and other current assets.
b. The newly appointed auditor of BTN Limited wants to obtain “sufficient appropriate audit evidence
about whether the opening balances contain misstatements that materially affect the current
period's financial statements. What audit procedures, should he perform for this purpose?
c. ABC Ltd., a company covered under CARO, 2020, is engaged in the business of infrastructure
development. During the course of audit for the year ended 31 March 20XX, the auditor came across
certain irregularities in cash payments made to contractors. Subsequently, management informed
that an internal investigation is in progress. Further, the auditor had filed a report with the Central
Government regarding a suspected fraud during the year. The company has also received certain
whistle-blower complaints alleging manipulation of expenses. As the auditor of ABC Ltd., state how
the above matters should be reported under CARO 2020 ?
Q5. a. The firm should establish policies and procedures designs to provide it with reasonable
assurance that the policies and procedures relating to the system of quality control are relevant,
adequate, operating effectively and complied with in practice. Such policies & procedures should
include an ongoing consideration & evaluation of the firm‛s system of quality control, including a
periodic inspection of a selection of completed engagements. Explain in above context documentation
to be maintained by the auditor of monitoring compliance with quality control policies and procedures.
b. No inspection under Section 79 of Multi-State Co-operative Societies Act, 2002 shall be made
unless a notice has been given to the multi-state co-operative society. Explain stating clearly when
and how such inspection can be made. Also, state the powers available with the Central Registrar in
this regard along with provisions relating to communication of the inspection report under the said
section.
c. R & Co., Chartered Accountants, have been appointed as auditors of XYZ Ltd., a company operating in multiple
business segments, including manufacturing and financial services. The company is subject to industry-specific
reporting requirements issued by the financial regulator. During audit planning, the engagement partner
emphasises the importance of identifying the characteristics of the engagement defining its scope while establishing
the audit strategy. As an auditor, explain the characteristics of engagement defining its scope ?
Q.6.a. CA Srishti, while auditing KSM Private Limited for the first time, utilised software to analyse
financial data, comparing amounts recorded in the financial statements for the current audit year
with the preceding two years. Her objective was to evaluate the risk of material misstatement.
Identify the type of audit procedure performed by CA Srishti in the given case, discuss its
relevance, and explain whether an auditor‛s opinion can solely rely on such procedures.
b. CA Shubham, the auditor of Sigma Limited, is performing tests of controls and tests of details
using audit sampling. During these procedures, he observed deviations in compliance with
management's prescribed procedures for sales transactions of small values of a product at one
location during tests of controls. Additionally, misstatements were identified in the sample related
to these small-value sales transactions during tests of details. How should he proceed to analyse the
nature and cause of the deviations and misstatements observed in the sample results?
c. Practitioner was appointed to assist management in compilation of financial statement. Can
practitioner gives assurance in such an engagement. Explain the context.
Or
A deficiency or combination of deficiencies in internal control that, in the auditor‛s professional judgment, is of
sufficient importance to merit the attention of those charged with governance. Give examples of indicators of
significant deficiencies in internal control.
Part-B
CASE SCENARIO 1
Maya & Associates, a Chartered Accountant firm is appointed as an auditor of ABC Pvt. Ltd. CA Maya, partner
of the firm, has recently bought stock in ABC Pvt. Ltd. She believes that the company's goodwill will increase
after the audit report is finalised, which could lead to a rise in stock price. As she reviews the company’s
financial statements, Maya decides to give unmodified opinion to help her investment.
Puneet, the CEO of ABC Pvt. Ltd., has requested them to modify certain disclosures in the financial statements
in a way that could mislead stakeholders. He argues that a more favourable presentation will help the company secure
additional investments. Ashi, another Partner of Firm, feels that complying with this request would compromise
ethical standards and worries about potential conflicts with the client.
Maya & Associates has also been appointed as the statutory branch auditors of Delhi branch of CIC Bank. While
carrying out the audit, the following key issues were identified:
Issue 1: PV Ltd.'s account has seen no recovery for the past 18 months. However, the bank has not applied
NPA norms or income recognition norms to this account. The management justifies this by stating that the
account is guaranteed by the Central Government and that NPA and income recognition norms are not applicable.
Government has not invoked the guarantee.
Issue 2: CWP Traders has applied for a cash credit limit from CIC Bank for supporting working capital
requirements on account of business expansion. In discussions with CWP Traders, CIC Bank has requested
different forms of security, depending on the nature of the assets offered, which includes immovable
property (warehouse), goods in stock, accounts receivable, and insurance policies. Borrower provided the security
and was sanctioned cash credit limit ofRs4.50 Crores.
Based on the above facts, answer the following MCQs:
1. CA Maya has bought stock in ABC Pvt. Ltd., and her investment could benefit from issuance
of unmodified opinion in her audit report. This indicates existence of:
(a) Self-interest Threat.
(b) Self-review Threat.
(c) Advocacy Threat.
(d) Familiarity threat.
2. Puneet, the CEO, is requesting the Ashi and Maya to modify the financial statement disclosures in
a misleading manner. Which fundamental principle of professional ethics would be violated if they
agree to do so?
(a) Integrity.
(b) Objectivity.
(c) Confidentiality.
(d) Professional Competence and Due Care.
3. Is the bank's decision not to apply NPA and income recognition norms to account of PV Ltd.
valid under regulatory guidelines?
(a) The bank is correct to the extent of not applying the NPA norms for provisioning purposes.
However, this exemption is not available in respect of income recognition norms.
(b) The bank is not correct for not applying the NPA norms for provisioning purposes. But this exemption
is available in respect of income recognition norms.
(c) The bank is correct in not applying the NPA norms and income recognition norms as both are not
applicable.
(d) The bank is not correct in not applying the NPA norms and income recognition norms as both are
applicable.
4. CWP Traders offered its warehouse as security for the loan. CIC Bank created a charge on the
warehouse. Which form of security has been created and whether bank is required to get stock
audit done of cash credit account of CWP Traders?
(a) Security created is Pledge and bank is required to get stock audit done of cash credit account
of CWP Traders.
(b) Security created is Mortgage and bank is required to get stock audit done of cash credit account
of CWP Traders.
(c) Security created is Pledge and bank is not mandatorily required to get stock audit done of cash
credit account of CWP Traders.
(d) Security created is Mortgage and bank is not mandatorily required to get stock audit done of
cash credit account of CWP Traders.
CASE SCENARIO 2
Shreyansh, a Chartered Accountancy student, is part of an engagement team conducting audit
of the Coimbatore branch of XYZ Bank under the guidance of CA Dilip, the Engagement
Partner. Shreyansh has been assigned the task of verifying provisions made for the branch's
non-performing assets (NPAs) and classification of certain loans as on March 31, 2024, of
which details are as under:
Non-Performing Assets (NPAs):
Name of Account NPA classification Outstanding Amount of Security
amount as on provision Available
March 31st, made
2024 (InRslakhs)
(InRslakhs)
AB Industries Doubtful (D1) 10.00 5.00 Fully secured
Mars Traders Substandard asset 50.00 7.50 Fully secured
RS Enterprises Doubtful (D2) 30.00 30.00 Fully secured
NPS & Sons Loss 1.00 1.00 Only personal
guarantee of
proprietor
(Net worth
₹50 lakhs)
Housing Loan and Car Loan
A borrower Mr. Shyam has availed following two loans from the branch:
• Housing Loan: EMIs are overdue for 120 days as on March 31, 2024.
• Car Loan: EMIs are overdue for 60 days as on March 31, 2024.
Agricultural Advances
The branch has provided a loan of ₹20 lakhs under the Kisan Credit Card (KCC) scheme to a
farmer for the cultivation of paddy, which has a harvest period of 3–4 months. There has been
no transaction in the account for the last 90 days. The branch has classified the loan as a
Standard Asset.
CA Dilip has clarified that the NPA classification has been verified and is in accordance with
RBI guidelines. He instructed Shreyansh to focus on evaluating the adequacy of the
provisions, considering RBI Guidelines mandate specific percentages for provisioning based on
the NPA classification and the nature of the security.
Based on the above facts, answer the following: -
1. Is the provision made for AB Industries (Doubtful—D1) appropriate?
(a) Yes, as it exceeds the required 25% provisioning for secured assets.
(b) No, as it should be 40% of the outstanding amount.
(c) No, as the required provision is ₹ 2.50 lakhs (25% of ₹ 10.00 lakhs).
(d) Yes, as provisions for Doubtful assets can exceed the minimum requirement.
2. Considering the Housing Loan and Car Loan availed by the borrower Shyam, which of
the following statements is appropriate?
(a) Both Housing Loan and Car Loan should be classified as “Non- Performing Assets”
in accordance with RBI norms on asset classification.
(b) Housing Loan should be classified as “Non-Performing Asset” in accordance with
RBI norms. However, Car Loan should be classified as Standard Asset.
(c) Car Loan should be classified as “Non-Performing Asset.” However, Housing Loan
should be classified as Standard Asset.
(d) Both Housing Loan and Car Loan should be classified as Standard Assets.
3. What is the minimum provision required for RS Enterprises (Doubtful—D2),
considering the account is fully secured?
(a) ₹30.00 lakhs
(b) ₹12.00 lakhs
(c) ₹15.00 lakhs
(d) ₹25.00 lakhs
4. As regards the description of the agricultural advance under Kisan Credit Card,
which of the following statements is most appropriate?
(a) The branch has erred in making classification as per RBI norms. It is a “Sub-
standard” asset.
(b) The classification made by the branch is proper. However, since there are no
transactions in the account for 90 days, it is an SMA (Special Mention Account).
(c) The classification made by the branch is proper.
(d) The branch has erred in making classification as per RBI norms. It is a “Doubtful”
asset.
CASE SCENARIO 3
Pluto Limited is engaged in the manufacturing and distribution of furniture. After Covid,
as the number of people working from home has gone up, this customisable range of home
office furniture has gained lot of importance. They were able to perform very well over the
years and the same has been reflected in their financial statements.
During the year 2023-24, M/s Saha and Associates was reappointed as the auditor. The new
engagement team has CA Saha (partner) and five article assistants. Given the large volume of
transactions, the partner instructed the article assistants to review the financial statements
and auditor's report from the previous year, 2022-23, to gain a thorough understanding.
While reviewing the summary page, one of the articles, Kabir noticed that a few points were
under discussion with the partner before finalising the audit.
The team verified the following points with respect to employee benefit expenses:
• The employee benefit expenses recorded in the books were actually incurred during
the relevant period.
• The expenses in respect of all personnel have been accounted for.
• The expenses recognised during the period are pertaining to the current accounting
period.
It was also noted that dividend to equity shareholders for the year 2022-23, was declared on
15.04.2023 and was recognised as liability in the year 2022-23.
Another article Krish noticed that debtors constitute a major component of the company’s
financial statements. As part of the audit procedure, the auditor requested the client to
obtain external confirmations from the parties. For this, a list of all the debtors were
obtained and a random sampling was performed by the auditor. The client directly obtained
the selected debtor confirmations from the customers on time.
Krish also observed addition in the assets amounting ₹ 50 lakhs during the year supported by
sufficient audit evidence. However, upon scrutiny, it was found that some of the invoices
were not in the name of the company. Further, Cash and cash equivalents were classified as
balances with banks, cheques and drafts on hand, cash on hand and earmarked balances
with banks (e.g. unpaid dividend).
Based on the above facts, answer the following MCQs:
MULTIPLE CHOICE QUESTIONS
1. Which among the following assertions are discussed with respect to the employee
benefit expenses?
(i) Measurement.
(ii) Occurrence.
(iii) Cut-off.
(iv) Completeness.
Choose the correct combination from below:
(a) (i), (ii) and (iv).
(b) (ii), (iii) and (iv).
(c) (i), (iii) and (iv).
(d) (i), (ii) and (iii).
2. Whether disclosure of dividend under the liability head during the year 2022-23 is
appropriate?
(a) Yes, it should be recognised in the same year irrespective of the year of
declaration as the amount of dividend belongs to the year 2022-23.
(b) No, the amount should be recognised equally between two financial years.
(c) No, the amount should not be recognised as a liability. It should be disclosed in the
notes to accounts.
(d) No, the amount should neither be recognised as liability nor disclosure is required
in the financial statements.
3. Krish pointed out that that the method followed to obtain debtor confirmation in
the previous year was not in accordance with SA 505.
Therefore, M/s Saha & Associated should reperform the same in the correct manner.
Select the most appropriate procedure among the following:
(a) As per SA 505, confirmation should be directly obtained by the auditor. Further,
for all significant account balances as on the Balance sheet date confirmations
should necessarily be collected and for the smaller outstanding balances, random
sampling could be performed.
(b) It is ok to obtain confirmation through clients as they are in constant contact with
their customers. Also, many customers may not respond to auditor‛s external
confirmation request mail. Random selection can be done for all debtors
irrespective of the amount in accordance with SA 505.
(c) As per SA 505, confirmation should be directly obtained by the auditor. Whereas
random selection can be done for all debtors irrespective of the amount.
(d) Either auditor or client can obtain confirmation based on time availability. However,
it is necessary to obtain confirmation for all significant account balances as on
the Balance sheet date and for the remaining random sampling could be performed
in accordance with SA 505.
4. Which assertion has been affected in the case of fixed assets?
(a) Existence.
(b) Rights and obligation.
(c) Completeness.
(d) Measurement.
5. Cash and cash equivalents were not properly classified by the client. Which
of the following is incorrect disclosure of the same?
(a) Balances with banks.
(b) Cheques and drafts on hand.
(c) Cash on hand.
(d) Earmarked balances with banks. (e.g.: unpaid dividend)
Direct MCQ
1. During audit of FAN Pvt. Ltd., the auditor finds that the company has defaulted on loan
repayments and is unable to pay creditors on time. The auditor is having doubts over going
concern status of the company. The management refuses to make any assessment of its going
concern status. Auditor is unable to obtain sufficient appropriate audit evidence regarding
management‛s use of the going concern basis of accounting in the preparation of the financial
statements. What implication does this have on the auditor‛s report?
(a) Issue an unmodified opinion as auditor cannot predict future events.
(b) Issue a disclaimer or qualified opinion.
(c) No impact as management is responsible for assessment.
(d) Mention it only in the “Key Audit Matters” section.
2. CA Meena is the statutory auditor of GLOW Ltd. Her husband has recently joined the
company as CFO. CA Meena has undue dependence on professional fees from the company. She
is also providing investment advisory service to GLOW Ltd. Which combination of threats to
independence exists in this situation?
(a) Only familiarity threat
(b) Self-interest, advocacy threats and self-review threats
(c) Advocacy and intimidation threats
(d) Familiarity, Self-interest, and self-review threat