CA - FINAL

ADVANCED AUDITING, ASSURANCE

AND
PROFESSIONAL ETHICS
GROUP I - PAPER 3
SERIES – 1
JANUARY 2025
Date : 24.06.2024

Vidya Sagar Institute

K-50, Bhawna Tower, Income Tax Colony, Tonk Road,
Near Durga Pura, Bus Stand, Jaipur - 302018
Mobile :- 93514-68666 Ph. :- 7821821250, 7821821251, 7821821252,
7821821253, 7821821254. web : [Link]
Page 1 of 10
 CA – FINAL
GROUP I – PAPER -3
ADVANCED AUDITING, ASSURANCE AND PROFESSIONAL ETHICS
JANUARY 2025 (Series 1)
Date : 24.06.2024
Time Allowed: 3 Hours Maximum Marks: 100
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Part “A” is compulsory
Part “B” Question No. 1 is compulsory.
Attempt any three questions from the rest.
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Part A
Case Study No. 1
CA. Biswajit is conducting audit of “Have More Limited.”He is auditor of the company
since last three years and has found nothing unusual in operations and financial
statements of the company. The company has many locations where substantial
inventories are stored and lying. During his fourth year stint, he finds that inventory
quantities have risen disproportionately as compared to past few years trends. He
has assessed existence of risk of material misstatement due to fraud.
The company has revenue of ` 750 core during the year. He has deeply verified all
aspects pertaining to revenue recognition of the company and has concluded that
there is no risk of material misstatement due to fraud related to revenue recognition.
During the course of audit, it has come to his knowledge that company is also
required to install online air pollution control monitoring systems in its plant as
mandated in state pollution control legislation and regulations. Non-installation of
such online air pollution control monitoring systems may lead to fines and even
sealing of plant.
While verifying pay roll data of the company, it has come to notice that provisions of
law preventing employment of child labour are not being adhered to and company is
employing child labour in flagrant violation of rules in this regard. The company also
exports part of its turnover and matter has gone unnoticed in compliance audits
carried out by agencies of overseas buyers.
On the basis of the abovementioned facts, you are required to answer the
following MCQs (Q1 – Q5):

1. Considering description of disproportionate rise in inventory, Which of 2

the following is not likely to be an appropriate response to outlined
assessed risk of material misstatement due to fraud?
(a) Observing inventory counts at all locations at same date by employing
necessary resources.
(b) Observing inventory counts at certain locations after prior intimation.
(c) More rigorous examination of packed items during observing inventory
count process.
(d) Observing inventory count at end of reporting period to minimize risk of
manipulation.

2. It has been concluded by auditor that there is no risk of material 2

misstatement due to fraud related to revenue recognition. Which of the
following statements is most appropriate?
(a) The auditor needs to document reasons for arriving at conclusion that
there is no risk of material misstatement due to fraud related to revenue
recognition.
(b) Identified and assessed risks of material misstatement due to fraud need
to be documented. Since no risk of material misstatement due to fraud
 pertaining to revenue recognition was identified, separate
documentation in this respect is not needed.
(c) The auditor needs only to document that no risk of material
misstatement due to fraud relating to revenue recognition was
identified.
(d) The auditor needs to give reference to discussion among engagement
team members to document that no risk of material misstatement due to
fraud relating to revenue recognition was identified.

3. Which of the following statements most appropriately describes 2

responsibilities of auditor in relation to compliance with state pollution
control legislation and regulations?
(a) Sufficient appropriate evidence needs to be obtained by auditor to verify
compliance.
(b) Physical verification of workability of such systems is required from an
auditor.
(c) Only inquiry of company management personnel and review of
correspondence with regulatory authorities are suffice to verify
compliance.
(d) Only physical verification of workability of such systems and review of
correspondence with regulatory authorities are suffice to verify
compliance.

4. The auditor has observed no-compliance of law prohibiting employment 2

of child labor. Which is the most appropriate course of action for him to
proceed in this matter?
(a) He should obtain further information to evaluate the possible effect on
financial statements.
(b) He must report the matter to concerned government department.
(c) He should obtain further information to evaluate the possible effect on
financial statements. Besides, he should evaluate implications of non-
compliance for audit risk assessment.
(d) He should express a modified opinion in audit report.

5. Which of the following statements is most appropriate about 2

documentation of-noncompliance with laws and regulations by an auditor
in context of SA 250?
(a) Instances of identified non-compliance with laws and regulations need to
be documented.
(b) Instances of suspected non-compliance with laws and regulations need to
be documented.
(c) Instances of non-compliance with laws and regulations finally determined
by Courts of law need to be documented.
(d) Instances of identified as well as suspected non-compliance with laws and
regulations need to be documented.

Case Study No. 2

CA. Raghav is in midst of finalizing audit reports of five clients. On reviewing each
file, it is noticed as under: -
[A] In case of a company engaged in business of selling of agricultural products
which are outside ambit of GST, engagement team has found that substantial
part of revenues of the company (about 80%) is generated through cash sales.
However, there is no proper system and internal control to verify accuracy of
 revenues generated through cash sales. Therefore, team has been unable to
verify such revenues generated through cash sales.
[B] TS Limited has been dragged to court by BS Limited for stealing its trade
secrets using cyber theft and filed a claim for ₹50 crore. On reviewing audit file
of TS Limited, CA Raghav finds that legal opinion of company's standing counsel
is ambiguous. There are precedent case laws both in favour and against on such
issue. The financial statements of TS Limited are silent on this litigation matter.
[C] It is noticed on review of audit file of a client that net profit before tax was 2
crore on a lumover of 100 crore. There is an export receivable from a chain of
stores outstanding in financial statements of ₹3 crore for which there is no
chance of recovery. The said chain of stores has gone bankrupt. There is also no
hope of recovering money through ECGC (Export credit Guarantee Corporation)
due to certain technical issues. Debt has not been written off by the client
despite being communicated to client.
[D] On reviewing file of a small finance bank, it was noticed that team has drafted
following para proposed to be included under Emphasis of Matter paragraph:-
"Concerns are raised regarding "Going Concern" status of the Bank However,
the Bank feels that continues to remain a "Going Concern" in view of reasons
stated in note 10. Our opinion is not modified in respect of this matter."
[E] On reviewing file of a client, it is noticed that team was not informed about
finished goods of 1 crore lying at a location taken on rent in February 2023. The
said issue was flagged at time reconciling inventories by the team. Hence, team
could not attend physical inventory counting. The altemative procedures
cannot be performed in absence of adequate records pertaining to above
location. Total inventones reflected in financial statements is 8 crores. PBT of
client is ₹10 crores.
Based upon above, answer the following questions:-
Q6 – Q10

6. As regards description regarding revenues generated through cash sales 2

of a company, which of the following statements is most appropriate in
terms of SA 705
(a) Qualified opinion will be issued and basis for qualified opinion will also
be provided.
(b) Adverse opinion will be issued and basis for adverse opinion will also be
provided.
(c) A disclaimer of opinion will be issued and basis for disclaimer of opinion
will also be provided Besides, statement in audit report will be changed
from "financial statements have been audited to "auditor was engaged to
audit financial statements."
(d) A disclaimer of opinion will be issued and basis for disclaimer of opinion
will also be provided Besides, statement in audit report will be changed
from "financial statements have been audited" b "financial statements
have not been audited."

7. Considering litigation matter of TS Limited, which of the following 2

statements is most appropriate in this regard?
(a) Unmodified opinion needs to be expressed by auditor.
(b) It amounts to non-disclosure of a material contingent liability by the
company. Adverse opinion needs to be expressed by auditor.
(c) It amounts to non-disclosure of a material contingent liability by the
company. Qualified opinion needs to be expressed by auditor.
(d) The company has not made a material provision resulting in material
misstatement. Adverse opinion needs to be expressed by auditor.
 8. Considering description of issue regarding non-recoverability of export 2
receivable of 23 crore from a chain of stores, which type of opinion is
appropriate to be issued in audit report?
(a) Disclaimer of opinion (b) Unmodified opinion
(c) Qualified opinion (d) Adverse opinion

9. As regards matter of going concern in respect of a small finance Bank, 2

which of the following statements is most appropriate?
(a) The para drafted by team is proper and in accordance with SA 570 since
auditor has decided to give unmodified opinion.
(b) The para drafted by team is proper and in accordance with SA 570 since
matter has been disclosed in notes to accounts by bank management.
(c) Instead of giving emphasis of matter paragraph, separate paragraph on
'Material Uncertainty Related to Going Concern' in report should be given
in accordance with SA 570.
(d) Separate paragraph on 'Material Uncertainty Related to Going Concem'
under the heading "Emphasis of matter" paragraph in report should be
given in accordance with SA 570.

10. Regarding issue of not informing team regarding inventory of finished 2

goods lying at a location taken on rent in February 2023, which type of
opinion is appropriate to be issued in case of this client?
(a) Modified opinion
(b) Qualified opinion
(c) Unmodified opinion
(d) Either Modified or Qualified opinion

11. Mr. Hopeful, an aspiring student of ICAI, approached Mr. Witty, a practicing 1
Chartered Accountant, for the purpose of articleship. Mr. Witty, the principal,
offered him stipend at the rate of ₹ 2,000 per month to be paid every sixth
month along with interest at the rate of 10% per annum compounded monthly
to compensate such late payment on the plea that cycle of professional receipts
from clients is six months. Mr. Hopeful agreed for such late payment in the
hope of getting extra stipend in the form of interest. Mr. Witty, however, used
to disburse salary to all of his employees on time. As per Chartered
Accountants Act, 1949, under which clause Mr. Witty is liable for misconduct.
(a) Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act,
1949.
(b) Clause (4) of Part I of the Second Schedule to the Chartered Accountants Act,
1949.
(c) Mr. Witty is paying interest thus he is not liable for misconduct.
(d) Clause (10) of Part I of the Second Schedule to the Chartered Accountants Act,
1949.

12. Entity P, is audited by a different auditor than the parent entity Q. The 1
principle auditor i.e. the auditor of entity Q, decides to use the work of auditor
of component i.e. entity P, in relation to audit of consolidated financial
statements. In doing so, he should comply with requirements of:
(a) SA 600, "Using the work of Another Auditor".
(b) SA 299, "Joint Audit of Financial statements".
(c) SA 720, "The Auditor's Responsibilities Relating to Other Information".
(d) SRS 4410, "Compilation Engagements
13. An auditor's expert may be either an auditor's internal or an external expert. 1
Which of the following can not 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.

14. Kinfin Private Limited had taken overdrafts from three banks (Bank A, Bank B 1
and Bank C) with a limit of 40 lacs each against the security of fixed deposit it
had with those banks and an unsecured overdraft from a financial institution
(Financial Institution X) of 36 lacs.
As on 30th October 2020, the management used the overdraft fully of the A & C
bank to the tune of 40 lacs each. However, the overdraft of second bank
(Bank B) was not used until 31 December, 2021. On 31st December, 2021,
Management took overdraft of B bank and very next day management paid the
overdraft of C bank as the rate of interest charged by Bank C on overdraft
facility was 15% whereas, the rate of interest charged by Bank B was 12%.
As at 31st March 2022 only overdraft of Bank A and Bank B were used fully,
overdrafts of Bank C and Financial Institution X were unused. The paid-up
capital and reserves of the company as at that date was 85 lacs and its revenue
for the financial year ended on 31st March 2022 was 8.95 crore. The
management of the company is of the opinion that CARO, 2020 is not applicable
to it because turnover and paid-up capital were within the limits prescribed.
With respect to the loans, management was of the view that the total
outstanding as at 31st March 2022 is less than the prescribed limit. The
company further contended that loan limit is to be reckoned per bank or
financial institution and not cumulatively. Comment.
(a) The CARO 2020 is applicable to the company as the turnover of the company
exceeds the prescribed limit.
(b) The CARO 2020 is not applicable to the company as the turnover of the
company does not exceeds the prescribed limit.
(c) The CARO 2020 is not applicable to the company as the borrowing of the
company does not exceeds the prescribed limit.
(d) The CARO 2020 is applicable to the company as the borrowing of the company
exceeds the prescribed limit.

15. IRC Ltd is in the business of construction and Infrastructure. The company is 1
listed in India having an annual turnover of INR 2500 crores. The company has
various projects offices/ operations in India and outside India. The functional
currency of the company and Its project offices is INR. The company has five
joint ventures and various jointly controlled operations. The company has
been audited by Luthra & Associates, a firm of Chartered Accountants, since
beginning. During the year ended 31 March 2018, new auditors were
appointed as the statutory auditors of the company for the audit of the
financial statements for the year ended 31 March 2018. New statutory auditors
have raised various points related to the consolidation procedures followed by
the company. Management did not agree to the observations of the auditors as
they have been following this since many years now and there was no
observation of previous auditors in respect of the same. Auditors have
highlighted a point that joint ventures have been consolidated by the company
in its standalone financial statements. However, management has an argument
that those are in the nature of its operations and hence to reflect the true and
fair view it would be appropriate to consolidate the same in the standalone
financial statements. Please advise as auditors how would you deal with this
matter.
(a) Since the matter is related to consolidation, which is more relevant for
consolidated financial statements, hence no reporting in respect of this matter
 would be required in the auditor's report for the year ended 31 March 2018.
(b) Auditor should look at the materiality and conservatism principle. Company
has included extra information in the financials which can be considered by the
auditors and basis that clean audit report should be given.
(c) Management should restate the financials to adjust the error related to
consolidation of joint ventures in standalone financial statements. Otherwise,
auditor may modify his opinion on current year's financial statements
considering the materiality.
(d) As per the requirements of accounting standard, joint venture if consolidated in
standalone financial statements should not be consolidated again in the
consolidated financial statements. Basis that this point should be dropped by
the auditor

16. Mr. D is a practicing Charted Accountant from Mangalore. He has been 1

practicing as a sole proprietor for past two decades. Mr. D's daughter Ms. S is a
newly qualified chartered accountant, who cleared the final exam just three
months ago. Immediately after qualifying, she also wanted to set up a sole
proprietary concern and practice on her own. After setting up the firm, she
printed her own vising card as follows:

S & Co., Chartered Accountants

Proprietrix.: Ms. S, FCA, B. Com
Office: II Nagar, Mangalore.
Phone: 9123456780

In view of above visiting card, whether Ms. S will be held guilty of professional
misconduct? If so, under which clause?
(a) No, Ms. S won't be guilty of misconduct. As per recent decision of the council, a
CA in practice can give any details in the visiting card, except for vision of the
firm.
(b) Yes, Ms. S will be guilty of professional misconduct as per Clause 7 of Part I of
First Schedule.
(c) Yes, Ms. S will be guilty of professional misconduct as per Part III of Second
Schedule.
(d) Yes, Ms. 5 will be guilty of professional misconduct as per Clause 1 of Part III of
First Schedule.

17. The management of Magoo Ltd. has developed a strong internal control in its 1
accounting system In such a way that the work of one person is reviewed by
another. Since no individual employee is allowed to handle a task alone from
the beginning to the end, the chances of early detection of frauds and errors
are high. CA. Olive has been appointed as an auditor of the company for current
Financial Year 2020-21. Before starting the audit, she wants to evaluate the
internal control system of Magoo Ltd. To facilitate the accumulation of the
information necessary for the proper review and evaluation of internal
controls, CA. Olive decided to use Internal control questionnaire to know and
assimilate the system and evaluate the same. Which of the following questions
need not be framed under internal control questionnaire relating to
purchases?
(a) Are authorized signatories for purchases limited to elected officials?
(b) Are payments approved only on original invoices?
(c) Does authorized officials thoroughly resew the documents before signing
cheques?
(d) Are monthly bank reconciliations implemented for each and every bank
accounts of the company?
18. As per SA 550 on Related Parties, existence of which relationship indicate the 1
presence of control or significant influence?
(a) Friend of a family member of a person who has the authority and responsibility
for planning.
(b) Holding debentures in the entity.
(c) The entity's holding of debentures in other entities.
(d) The entity's holding of equity in other entities.

19. Safe Health Insurance Limited is a company working in the field of health 1
insurance sector. It is now using a claim management system where incoming
claims can be immediately identified on the website itself. A farm is issued to
the customer who signs it. The details are verified by the system against data
present in a Such system has allowed faster processing of claims, error-free
data validation and increased customer satisfaction.
In respect of situation regarding working of insurance company in health
insurance sector, which of following technologies tras likely been used?.
(a) Internet of things (b) Data analytics
(c) Robotic process automation (d) Power BI

20. One of 9 principles of BRSR reporting requires companies to provide details of 1

social impact assessments (SIAs) of the projects undertaken by the company
based upon applicable laws. Which principle is most likely to include such
indicators?
(a) Principle B (b) Principle 1
(c) Principle 9 (d) Principle 3
 Part-B
Question No. 1 is compulsory.
Attempt any three questions from the rest.
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1A. Mr. Gautam & Mr. Mahaveer, partners of a Chartered Accountant Firm, one in- 5
charge of Head Office and another in-charge of Branch at a distance of 80 km. from
the municipal limits, puts up a name-board of the firm in both premises and also in
their respective residences. Comment with reference to the Chartered Accountants
Act, 1949, and Schedules thereto.

B. OM Limited is availing the services of APP Private Limited for its payroll operations. 5
Payroll cost accounts for 65% of total cost for OM Limited. APP Limited has
provided the type 2 report as specified under SA 402 for its description, design and
operating effectiveness of control. APP Private Limited has also outsourced a
material part of payroll operation M/s PMS & Associates in such a way that M/s
PMS & Associates is sub-service organization to OM Limited. The Type 2 report
which was provided by APP Private Limited was based on carve-out method as
specified under SA 402. CA Sheetal while reviewing the unmodified audit report
drafted by his assistant found that, a reference has been made to the work done by
the service auditor. CA Sheetal hence asked his assistant to remove such reference
and modify report accordingly. Comment

C. You have recently joined a listed company after qualifying CA final exams through 4
campus placement programme conducted by CMI&B at ICAI. Although the company
you have joined in is not amongst top 1000 listed companies in the country, it wants
to include “Sustainability reporting” in accordance with Global Reporting Initiative
framework (GRI) in its annual report on voluntary basis. “Sustainability reporting”
seems to be new buzzword in corporate circles and you are assigned responsibility
for collating all the information required for such reporting.
In above context, dwell upon what is your understanding of “Sustainability
reporting”? Can you list some of its expected benefits?

2A You are conducting a review of the financial statements of a company. It is gathered

upon inquiry that there is a possibility of material misstatements in financial
statements. Discuss, how you would proceed further in the matter under SRE 2400.

B. CA. Bahubali is Special Executive Magistrate. He also took over as the executive 5
chairman of Software Company on 1.4.2022. He is also a leading income tax
practitioner and consultant for derivative products. He resides in Chennai near to
the ION commodity stock exchange and does trading in commodity derivatives.
Every day, he invests nearly 36% of his time to settle the commodity transactions.
He has not taken any permission for becoming Special Executive Magistrate.
However, he has got special permission of Council of ICAI for becoming executive
chairman and for trading in commodity derivatives. Is CA. Bahubali liable for
professional misconduct? Comment with reference to the Chartered Accountants
Act, 1949, and Schedules thereto.

C. A Dim Limited is a public sector undertaking engaged in production of electricity 4

from solar power. It had commissioned a new project near Mumbai with a new
technology for a cost of 9,580 crore. The project had seen delay in commencement
and cost overrun. State the matters that a Comprehensive Audit by C&AG may cover
in reporting on the performance and efficiency of this project.
3A. Arham Bank Ltd., received an application from a pharmaceutical company for 5
takeover of their outstanding term loans secured on its assets, availed from and
outstanding with a nationalised bank. Arham Bank Ltd., requires you to make a
due diligence audit in the areas of assets of pharmaceutical company especially
with reference to valuation aspect of assets. State what may be your areas of
analysis in order to ensure that the assets are not stated at overvalued amounts.

B. CA P is auditor of a company responsible for auditing complete set of financial 5

statements. He intends to express adverse opinion on complete set of financial
statements considering conclusions drawn by him during course of audit. He is also
auditing trade receivables of company for the same period in a separate
engagement. Can he express unmodified opinion in respect of trade receivables?
If so, discuss those circumstances.

C. Z Yarns Ltd. is a manufacturing company engaged in manufacturing of It types of 4

yarns. annual turnover ist 100 Crores and net profit & 10 crores. It has two
manufacturing [Link] is facing difficulties in maintaining adequate system of
internal control. Company wants appoint Internal Auditor who would help in the
above task and also various other functions including compliance. In view of above,
you are required to explain the main responsibility of Internal Auditors.

4A. Discuss why inquiry" is Important as an audit procedure in an engagement to review 5

financial statements.

B. The audit team is preparing to conduct audit for ABC Company for the period 5
ending 31.3.2024. However, the audit team has not received its audit fees from ABC
Company for its audit concluded for ended 31.3.2023. The audit team might be
tempted to issue a favourable report so that ABC Company is able to secure a loan to
settle the fees outstanding for their 31.3.2023 audit. The audit team is not
complying the fundamental principles of auditing hence hindering the Auditor's
Independence. Explain the types of threats that may hinder Auditor's Independence
while issuing Audit Report.

C. SAM Yarns Limited - a listed Company, having its registered office at Meerut is 4
engaged in manufacturing of various types of yarns to be supplied to the textile
mills. The Company has installed pollution control equipment for processing the
pollutants so that before discharge of effluents outside factory, the level of pollution
is kept at a level below the prescribed standard. The Company managed to get
pollution clearance certificate by unfair means, while still there continues to be
breach of pollution control laws in matters of discharge of polluting effluents.
Amount of 10.25 Lacs had been incurred for arranging clearance certificate and the
amount incurred unlawfully had been booked as pollution recycling expenditure.
The matter had not reached to those in governance, and the Director-Finance who is
a Chartered Accountant came to know of these matters on review of major
expenditure incurred during the period. Comment the action/responses expected of
Director- Finance (CA Rahul) referring to any applicable requirements of Responses
for NOCLAR under code of ethics.
5A. Sukanya, a CA final student, is of the view that cyber risks are issues of IT and 5
result only in information loss to an entity. She also feels that many cyber-attacks
are not directly targeted at financial systems and do not pose risk of material
misstatements to financial statements of an entity. Is her view proper?

B. During the audit of FMP Ltd, a listed company, Engagement Partner (EP) completed 5
his reviews and also ensured compliance with independence requirements that
apply to the audit engagement. The engagement files were also reviewed by the
Engagement Quality Control Reviewer (EQCR) except the independence assessment
documentation. Engagement Partner was of the view that matters related to
independence assessment are the responsibility of the Engagement Partner and not
Engagement Quality Control Reviewer. Engagement Quality Control Reviewer
objected to this and refused to sign off the documentation. Please advise as per SA
220.

C. X Ltd had a net worth of INR 1300 Crores because of which Ind AS became 4
applicable to them. The company had various derivative contracts - options, forward
contracts, interest rate swaps et which were required to be fair valued for which
company got the fair valuation done through an external third party. The statutory
auditors of the company involved an auditor's expert to audit valuation of
derivatives. Auditor and auditor's expert were new to each other i.e. they were
working for the first time together but developed a good bonding during the course
of the audit. The auditor did not enter into any formal agreement with the auditor's
expert. Please advise.

6A. KG LTD .wants to provide prospective Financial Information to its investors 5

formation about future expectations of the company. You are engaged by KG LTD to
examine the projected Financial Information and give reportthereon. What will you
consider in assessing the presentation and disclosure of the prospective Financial
Information and the underlying assumptions?

B. Cineplex, a movie theatrounter and on the foremost theatre located in Delhi. Along 5
with the sale of tickets over the counter and online booking, the major proportion
of income the cafe, shops, pubs at lecated in the complex. Its other income
includes advertisements exhibited within/outside the premises such as hoardings,
banners, slides, short films etc. The facility for parking of vehicles is also provided
in the basement of the premises. Cineplex appointed your firm as the auditor of
the entity. Being the head of the audit team, you are, therefore, required to draw
an audit programme initially in respect of its revenue and expenditure
considering the above mentioned fact along with other relevant points relating to
such complex.

C. SEBI has made Business Responsibility and Sustainability Report (BRSR) 4

mandatory for certain listed companies. It is an evolutionary step in Environment,
Social and Governance (ESG) reporting. Discuss the nature of ESG reporting. How
can corporate contribute to Sustainable Development Goals (SDGs)?

OR
C. The Engagement Partner of the audit team of High Inventory Limited assessed that
the inventory is material with respect to the audit of the financial statement for the
current period. Upon inquiring with the management, the Engagement Partner
identified that the management will be performing an annual physical inventory
count at all the warehouses where the entity stores and maintains its inventory,
Moreover, management confirmed in it written representation that they will be
performing a 100% physical count of inventory for the current period.
As a result, the engagement Partner decided not to perform any physical count of
inventory as it will be a duplication of the work. Moreover, he decided that the
written representation from management stating "the inventory exists and is in
appropriate physical condition" will be sufficient and appropriate with respect to
audit evidence to conclude that the inventory balance in the financial statement is
free from any material misstatement appropriate or not.
In the light of SA 501, evaluate whether the decision taken by the Engagement
Partner is correct.

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