1 ANKIT OBEROI COMMERCE CLASSES

SCHEDULE OF TESTS-AUDIT (CA-INTER)

TEST CHAPTER DATE
Test No. 1 Company Audit-1 11-04-2020
Test No. 2 Company Audit-2 15-04-2020
Test No. 3 Audit of F/S (1&2)-1 20-04-2020
Test No. 4 Audit of F/S (1&2)-2 23-04-2020
Test No. 5 Special Audit 26-04-2020
Test No. 6 Govt. Audit & Audit of Co-operative 29-04-2020
Societies
Test No. 7 Bank Audit 02-05-2020
Test No. 8 Auditor’s Report 05-05-2020
Test No. 9 CARO, 2016 08-05-2020
Test No. 10 Intro to Audit & Basic concepts in 11-05-2020
Audit
Test No. 11 Preparation for an Audit & Internal 14-05-2020
Control
Test No. 14 Standards on Auditing-1 17-05-2020
Test No. 15 Standards on Auditing-2 20-05-2020
Test No. 16 Standards on Auditing-3 23-05-2020
Test No. 17 Standards on Auditing-4 26-05-2020
Test No. 18 Grand Test-1 03-06-2020
Test No. 19 Grand Test-2 08-06-2020
Test No. 20 Grand Test-3 13-06-2020
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AUDITING & ASSURANCE-CA INTER

TEST NO.1
TOPIC:-COMPANY AUDIT (Sec 139-142)

TIME:-30 minutes MAX. MARKS:-25 Marks

Q-1 Mr. Virat, Auditor of ABC Ltd, Mrs. Anushka , wife of Virat, purchased shares of Face value of Rs.
50000/- in subsidiary of XY Ltd, i.e. SB Ltd., Mr. A is of the opinion that he is not disqualified as relative can
hold securities upto Rs. 1,00,000. Comment. 3 Marks

Q-2 Sachin & Associates, a firm of Chartered Accountants, has three partners Sachin, Sehwag and Ganguly. The firm
is already having audit of 60 companies, which includes 2 branch audits of a company. The firm is offered 5 company
audits, out of which one is a private company whose share capital is Rs. 125 crore, second one is foreign company,
third one is One person company, fourth is dormant company us/s 455 and the fifth one is a public company. Decide
and advise whether Sachin & Associates will exceed the ceiling prescribed under Section 141(3) (g) by accepting the
above audit assignments? 4 Marks

Q-3 Rohit Ltd. is a subsidiary of Dhawan Ltd., whose 23% shares have been held by Central Government,
23% by Uttar Pradesh Government and 5% by Madhya Pradesh Government. Nickson Ltd. appointed Mr. P
as statutory auditor for the year in the Board Meeting. Would your answer be the same if Auditor has been
appointed in the General Meeting? 4 Marks

Q-4 M/s Shaw & Associates is an audit firm having 2 partners namely Mr. Shaw and Mr. Pandya. Mr. Shaw is also a
partner of another audit firm named M/s Bumrah & Associates. M/s Shaw & Associates was appointed as the auditors
in the company Golden Smith Ltd. for two consecutive periods i.e. from year 2014 to year 2024.
Now, Golden Smith Ltd. wants to appoint Ms Bumrah & Associates as its audit firm. Comment whether it can do s
3 marks

Q-5 As an auditor, comment on “Mr. Shami was appointed auditor of Kartik Ltd. by Board to fill the casual
vacancy that arose due to death of the auditor originally appointed in AGM. Subsequently, Mr. Shami also
resigned on health grounds during the tenure of appointment. The Board filled this vacancy by appointing
you through duly passed Board resolution”. Would your answer be the same if Auditor has been appointed
in the General Meeting? 4 Marks

Q-6 State the following Statement is Correct or Incorrect: 1 Mark each

(a) AGM is not held in time, auditor automatically vacates his office.
(b) Rishabh, the first auditor of XYZ Ltd. resigned as auditors of the Co. Board of Directors appointed
Mr. Saha as statutory auditors in their place. This appointment is valid.

Q-7 Multiple Choice Questions 1 Mark each

1) On receipt of special notice for a resolution at an annual general meeting appointing as auditor a person other
than a retiring auditor, or providing expressly that a retiring auditor shall not be re-appointed, the company
shall
a)forthwith send a copy thereof to the retiring auditor.
b)Send a copy within 15 days to the retiring Auditor
c)Send a copy within 30 days to the retiring Auditor

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d)Send a copy within 45 days to the retiring Auditor

2) The auditor who has resigned shall file within 30 days from the date of resignation, a statement in the
……………………with the company and the Registrar.
a)ADT-1
b)ADT-2
c)ADT-3
d)ADT-4

3) If an Auditor fails to file his resignation, he shall be punishable with fine which shall not be less than
………………………………………………………………… but which may extend to five lakh rupees.
a)“fifty thousand rupees or the remuneration of the auditor, whichever is less”
b)“fifty thousand rupees or the remuneration of the auditor, whichever is more”
c)“fifty thousand rupees or twice the remuneration of the auditor, whichever is less”
d)“fifty thousand rupees or thrice the remuneration of the auditor, whichever is less”

4) XYZ Ltd. which is a listed company appoints M/s Raghav & Associates as an audit firm in its AGM
dated 29th September, 2014. M/s Raghav & Associates will hold office from the conclusion of this
meeting upto conclusion of the AGM to be held in the year
a) 2017
b) 2018
c) 2019
d) 2020

5) A Person is not disqualified to be appointed as Auditor if his relative holds securities of the Company having
………………………………… in excess of Rs. ………………………
a) Face value, 1 lac
b) Market value, 1 lac
c) Face value, 1 thousand
d) Market value, 1 thousand

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Hint Answers to Audit Test-1 (Inter)

Descriptive Answers
1. Mr. Virat is disqualified as his wife has acquired share in the Subsidiary
Company and exemption will be granted if relative acquires share in the
Company.

2. Firm can accept all the audits as Audit of foreign company, dormant
company, OPC and branch is not counted in the limit of 20

3. In the both the cases appointment will be void as Auditor will be appointed
by C&AG. (Pls rectify Nickson Ltd as Rohit ltd in the question)

4. Bumrah & Associates is disqualified to be appointed as Auditor of Golden

Smith Ltd as the firm is operating within the same network of Shaw &
Associates as they have common Partner I.e. Mr Shaw

5. Filling of casual vacancy is void as it also requires ordinary resolution

along with Board Resolution

Correct or Incorrect
1. Incorrect
2. Incorrect

MCQs
1. (a)
2. (c)
3. (a)
4. (c)
5. (a)
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AUDITING & ASSURANCE-CA INTER

TEST NO.2
TOPIC:-COMPANY AUDIT (Sec 143-148)

TIME:-30 minutes MAX. MARKS:-25 Marks

Q-1 Mr. Aamir, a Director of M/s ABC Private Ltd., is also a Director of another company viz., M/s XYZ
Private Ltd., which has not paid the interest on deposits from the last 13 months. Mr. Aamir is of the
opinion that he is not disqualified u/s 164(2) of the Companies Act, 2013, and auditor should not mention
disqualification remark in his audit report. 4 Marks

Q-2 ABC Fertilisers Ltd. is having an Annual Turnover of Rs. 40 crores in the Previous Financial Year i.e.
2019-20. Its borrowings are 25 crores and existing investment in Plant & Machinery is 1.5 crores. State
whether ABC Fertilisers Limited is required to prepare Cost Records under Companies Act, 2013.
3 Marks

Q-3 Mr. X, an Auditor of XYZ Limited is holding Shares in IT Limited amounting Rs. 27 crores. The Total
Share Capital of IT Limited is 100 crores and is intends to design a Financial Information System for XYZ
Limited. State that whether it can do so under the provisions of Companies Act, 2013. 4 Marks

Q-4 Mr. Budha, Statutory Auditors of Secret Ltd. was not permitted by the Board of Directors to attend
general meeting of the company on the ground that his right to attend general meetings is restricted only to
those meetings at which the accounts audited by him are to be presented and discussed. 3 marks

Q-5 Explain responsibilities of Auditor to report Fraud u/s 143(12) of Companies Act, 2013 4 Marks

Q-6 State the following Statement is Correct or Incorrect: 1 Mark each

(a) The CAG shall within 60 days from receipt of report have a right to conduct a supplementary audit
(b) The auditor’s report shall also state whether the company has Consistent and adequate internal non-
financial controls System in place and the operating effectiveness of such controls

Q-7 Multiple Choice Questions 1 Mark each

1. On Appointment of Cost Auditor, Company shall intimate CG in form
a)CRA-1
b)CRA-2
c)CRA-3
d)CRA-4

2. If an auditor contravenes any of the provisions of section 139, 143, 144, 145, the auditor shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to
a)Five lakh rupees
b)Four times the amount of remuneration
c)A or B, whichever is higher
d)A or B, whichever is Lower

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3. The branch auditor shall prepare a report on the accounts of the branch examined by him and send it to
the
a)Secretary of the Company
b)auditor of the company
c)registered Office of the Company
d)Managing Director of the Company

4. The Auditor’s report shall state the observations or comments on Financial transactions having
…………………….. on the Functioning of the company;
a)Positive
b)Adverse
c)Affirmative
d)All of the above

5. The auditor’s report shall also include their views and comments on whether the company has disclosed
the impact, if any, of …………………………………… on its financial position in its financial statement
a)Pending Litigations
b)All Litigations
c)Material Litigations
d)All of the above

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.2
TOPIC:-COMPANY AUDIT (Sec 143-148)

NOTE:-EXCEPT ANS. 1, REST ARE HINTS, NOT THE SUGGESTED ANSWERS

Ans.1 The Provisions laid down in Section 143(3) of Companies Act, 2013 provides that the Auditor shall
disclose in the auditor’s report that whether any Director is disqualified under section 164(2). Further,
Section 164(2) states that No person shall be eligible to be re-appointed as a director of that company or
appointed in other company for a period of five years from the date on which the former company:-
a) has not filed financial statements or annual returns for any continuous period of three financial years; or
b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on
the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem
continues for one year or more.

The Situation given in the question provides that M/s XYZ Private Ltd., which has not paid the interest on
deposits from the last 13 months of which Mr. Aamir is a director, Mr. Aamir is also a Director of M/s ABC
Private Ltd.

After applying the above mentioned provisions on the situation given in the question, we can conclude
that Mr. Aamir is disqualified to be appointed as director of M/S ABC Private Limited u/s 164(2). Therefore,
the Auditor of the Company shall mention the same in the auditor’s report prepared by him.

Ans.2 ABC Fertilisers Ltd. is not required to prepare cost records as it is a small enterprise under MSMED
Act, 2006 (as its investment in P&M is less than five crore rupees) which is exempted under Rule 3 from
preparation of cost records.

Ans.3 Mr. X, directly or indirectly (i.e. IT Limited, a company in which Auditor is having significant influence)
cannot render designing of Financial Information System as it is a prohibited service under Section 144 of
Companies Act, 2013. Therefore, IT Ltd, is disqualified for the same and if it renders it, then Mr. X shall
vacate the office as such Auditor.

Ans.4 Mr. Budha, Statutory Auditors can attend each and every General meeting of Company i.e. AGM as
well as EGM. Therefore, the restrictions imposed by Board is not appropriate.

Ans.5 State the responsibilities of Auditor to report Fraud as mentioned u/s 143(12) of Companies Act, 2013

Ans.6 State the following Statement is Correct or Incorrect:

(a) Correct
(b) Incorrect

Ans.7 Multiple Choice Questions

1. (b)
2 (d)

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3 (b)
4. (b)
5. (a)

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AUDITING & ASSURANCE-CA INTER

TEST NO.3
TOPIC:-AUDIT OF FINANCIAL STATEMENTS (1&2)-1

TIME:-45 minutes MAX. MARKS:-30 Marks

Q-1 Pride India Ltd is a manufacturer of various FMCG (fast moving consumable goods) range of products.
The company is having several cases of litigation pending in courts. The auditor wanted to identify
litigation and claims resulting to risk of material misstatements. State the procedure. 3 Marks

Q-2 Paramount Exports Ltd is a manufacturer exporter having its own production capacity and also gets
the job work done through various job workers. The auditor of Paramount Exports Ltd. Considers that
inventory held with job workers is material to the financial statements. Suggest the audit procedures in the
given case. 3 Marks

Q-3 As an auditor, How will you perform direct confirmation procedures with the debtors? 3 marks

Q-4 State the difference between 3 Marks each

a) Reserve and Provisions
b) Capital and Revenue Expenditure

Q-5 State the assertions 3 Marks each

a)

Particulars `
Plant and Machinery (at cost) 20,00,000
Less: Depreciation till the end of previous year 6,50,000
Depreciation for the year 2,00,000 11,50,000

b) Advertisement Expenses:- Rs.2,50,000/-

Q-6 State in brief the Audit procedures required to verify 2 Marks each
a) Copyrights.
b) Work in Progress w.r.t. Inventory

Q-7 Name any four expenditure which generally are of revenue nature but regarded as expenditure of
capital nature. 2 Marks

Q-8 Multiple Choice Questions 1 Mark each

1. ……………………………… Reserves means the profit that are available for distribution to shareholders in the
form of dividend
a) Capital
b) Sinking Fund
c) Revenue

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d) All of these

2. ………………………….. means that part of capital which is offered by the Company for subscription
a) Authorised
b) Issued
c) Subscribed
d) Paid-up

3. The General Principles of Inventory valuation as laid in AS-2 applies except in case of
a) WIP, in case of construction contracts
b) Shares, debentures and other financial instrument held as inventory
c) Producer’s inventories of livestock
d) All of these

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.3
TOPIC:-AUDIT OF FINANCIAL STATEMENTS

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETED EXCEPT 4 & 6 AS YOU CAN THEIR ANSWERS FROM
YOUR BOOK EASLIY

Ans.1 If the auditor assesses a risk of material misstatement regarding litigation or claims that have been
identified, or when audit procedures performed indicate that other material litigation or claims may exist,
the auditor shall, in addition to the procedures required by other SAs, seek direct communication with the
entity’s external legal counsel. Futher, The auditor shall do so through a letter of inquiry requesting the
entity’s external legal counsel to communicate directly with the auditor. But, If law, regulation or the
respective legal professional body prohibits the entity’s external legal counsel from communicating directly
with the auditor, the auditor shall perform alternative audit procedures.

The Situation given in the question provides that Pride India Ltd is a manufacturer of various FMCG (fast
moving consumable goods) having several cases of litigation pending in courts.

After applying the above mentioned provisions on the situation given in the question, we can conclude
that Auditor of Pride India Limited shall seek direct communication with the entity’s external legal counsel
through letter of Inquiry

Ans.2 When inventory under the custody and control of a third party is material to the financial statements,
the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of that
inventory by performing one or both of the following:
a) Request confirmation from the third party as to the quantities and condition of inventory held on behalf
of the entity.
b) Perform inspection or other audit procedures appropriate in the circumstances.

The Situation given in the question provides that Paramount Exports Ltd is a manufacturer exporter having
its own production capacity and also gets the job work done through various job worker

After applying the above mentioned provisions on the situation given in the question, we can conclude
that Auditor of Paramount Exports Limited shall request conformation from third party or Perform
inspection by himself or both.

Ans.3 To obtain confirmation from debtors, Auditor shall perform the following procedure:
a) Auditor shall select the debtor from whim he wants to obtain confirmation
b) Auditor shall design the mode of request i.e. it can be negative or positive. Positive request means
Reply is demanded in every case whether he agree or not balance shown. But, in negative request,
reply is demanded only if he disagrees with balance shown.
c) Auditor shall send the confirmation request
d) In case of non-reply from third part, Auditor shall send reminders to the third party.
e) Compare reply of third party with the information stated the request.

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f) In case of exception, discuss with Management w.r.t. same

Ans.4 pls check your book, you will get the answers

Ans.5
a) The assertions are as follows:
(i) the firm owns the plant and machinery;
(ii) the historical cost of plant and machinery is ` 2 lacs;
(iii) the plant and machinery physically exists;
(iv) the asset is being utilised in the business of the company productively;
(v) total charge of depreciation on this asset is ` 83,000 to date on which ` 13,000 relates to the year in
respect of which the accounts are drawn up; and
(vi) the amount of depreciation has been calculated on recognised basis and the calculation is correct.

B) The assertions are as follows:

(i) That Company has recorded all the Advertisement expenses incurred by it (Completeness)
(ii) All Advertisement expenses that have been recorded actually occurred and are related to the client
(Occurrence)
(iii) All the Advertisement expenses have been properly classified (Classification)
(iv) That the Advertisement expenses have been recorded in the correct accounting periods

Ans.6 pls check your book, you will get the answers

Ans. 7 Expenditures which generally are of revenue nature but regarded as expenditure of capital nature are
as follows:
a) Freight on Machinery or equipment
b) Wages on Installation of Machinery
c) Legal fees on registration of Immovable property
d) Borrowing Cost as provided in Ind AS-37

Ans.8 Multiple Choice Questions

1. (c)
2 (b)
3 (d)

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AUDITING & ASSURANCE-CA INTER

TEST NO.4
TOPIC:-AUDIT OF FINANCIAL STATEMENTS (1&2)-2

TIME:-40 minutes MAX. MARKS:-30 Marks

Q-1 The Auditor of ABC Limited while performing testing of additions wanted to verify that all PPE
purchase invoices are in the name of the client. For additions to Land, Building, in particular, the auditor
desires to have concrete evidence about ownership. The Auditor is worried that whether the entity have
valid ownership rights over PPE claim to be held by the entity and disclosed in the Financial Statements.
Advise the Auditor. 4 Marks

Q-2 Explain the audit procedure to verify these expenses (3 Marks each)
a) Rent and Fuel Expenses
b) Rent Paid
c) Employee Benefit Expense

Q-3 Explain the audit procedure to verify (3 Marks each)

a) Interest Income from Fixed Deposits
b) Gain/loss on sale of Investment in Mutual Fund
c) Dividend received

Q-3 ABC Limited has issued shares for cash at a premium of Rs. 450, that in amount in excess of the nominal
value of the shares which is Rs. 10 for cash. Section 52 of Companies Act, 2013 provides that amount received
on premium shall be transferred to Securities Premium Account. State the means in which the amount in
the account can be applied. 4 Marks

Q-5 Mention any five attributes to be considered by the Auditor while verifying for depreciation and
amortisation expenses 4 Marks

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.4
TOPIC:-AUDIT OF FINANCIAL STATEMENTS

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETED EXCEPT 2 & 3 AS YOU CAN THEIR ANSWERS FROM
YOUR BOOK EASILY

Ans.1 In addition to the procedures undertaken for verifying completeness of additions to PPE during the
period under audit, the auditor while performing testing of additions should also verify that all PPE purchase
invoices are in the name of the entity that entitles legal title of ownership to the respective entity. For all
additions to land, building in particular, the auditor should obtain copies of conveyance deed/ sale deed to
establish whether the entity is mentioned to be the legal and valid owner.

The auditor should insist and verify the original title deeds for all immoveable properties held as at the
balance sheet date. In case the entity has given such immoveable property as security for any borrowings
and the original title deeds are not available with the entity, the auditor should request the entity’s
management for obtaining a confirmation from the respective lenders that they are holding the original title
deeds of immoveable property as security. In addition, the auditor should also verify the register of charges,
available with the entity to assess the PPE that has been given as security to any third parties

Ans.2 Refer Study Material or Class Noting

Ans.2 Refer Study Material or Class Noting

Ans.4 Referring to the provisions contained in section 53 of Companies Act, 2013, Notwithstanding
anything contained in sub-section (1), the securities premium account may be applied by the company:-
▪ towards the issue of unissued shares of the company to the members of the company as fully paid
bonus shares;
▪ in writing off the preliminary expenses of the company;
▪ in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or
debentures of the company;
▪ in providing for the premium payable on the redemption of any redeemable preference shares or
of any debentures of the company; or
▪ for the purchase of its own shares or other securities under section 68.

Ans. 5 Auditor needs to consider the following attributes while verifying for depreciation and amortisation
expenses:
a) Obtain the understanding of entity’s accounting policy related to depreciation and amortisation.
b) Ensure the Company policy for charging depreciation and amortisation is as per the relevant
provisions of Companies Act, applicable accounting standards.
c) Whether the depreciation has been calculated after making adjustment of residual value from the
cost of the assets.
d) Whether depreciation and amortisation charges are valid.
e) Whether depreciation and amortisation charges are accurately calculated and recorded.
f) Whether all depreciation and amortisation charges are recorded in the appropriate period.

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g) Ensure the parts (components) of each item of property, plant and equipment that are to be
depreciated separately has been properly identified.
h) Whether the most appropriate depreciation method for each separately depreciable component
has been used.

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AUDITING & ASSURANCE-CA INTER

TEST NO.5
TOPIC:-SPECIAL AUDIT (EXCEPT AUDIT OF CO-OPERATIVE & GOVT. ACCOUNTS)

TIME:-30 minutes MAX. MARKS:-20 Marks

Q-1 What are the special steps involved in Audit of an Educational Institution? 4 Marks

Q-2 You have been appointed as an Auditor of NGO, briefly state the points on which you would
concentrate while planning the audit of such an organisation. 4 marks

Q-3 The General transactions of a Hospital includes patient treatment, collection of receipts, donations,
capital expenditures. You are required to state special points of consideration while auditing such
transactions at a Hospital. 4 Marks

Q-4 Discuss the matters which should be specially considered in the audit of accounts of a partnership.
4 Marks

Q-5 Discuss the matters which should be specially considered in the audit of hire-purchase transaction.
4 Marks

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.5
TOPIC:-SPECIAL AUDIT

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE

Ans.1 the special steps involved in Audit of an Educational Institution are as follows:-
a) Study the provisions of applicable statute as per the legal status of the institute.
b) Examine the trust deed or regulation
c) Study the minutes of meetings of governing body / trustee to gain knowledge of any important decision
which may affect the accounts for e.g., purchase of computer etc.
d) Check the admission fee to confirm whether amount has been credited to a separate account. Refundable
money is shown as liabilities.
e) Verify the fee received by comparing fee collection register and copy of receipts issued to students, For
cheque received, examine passbook and for cash received, check entries in cashbook.
f) Ensure that in case of late payment of fee, fine has been properly imposed, collected & accounted for.
g) In case of rental income, Examine agreement with tenants to know rates of rent & their due dates etc
h) Examine agreement with tenants to know rates of rent & their due dates etc
i) Interest and dividend received should be checked with reference to entries in bank pass book
j) Verify grant from government or any local authority with reference to sanction letter.
k) Check the calculation w.r.t. gross remuneration payable & deductions there from
l) Vouch payment made to teachers & other personnel with reference to bank pass book
m) Verify ownership & existence of fixed assets by examining records & conducting physical
verification respectively.
n) Verify whether depreciation has been properly calculated w.r.t each class of fixed assets .

Ans. 2 the points on which an Auditor would concentrate while planning the audit of a Non-Governmental
organisation.
a) Knowledge of the NGO’s work, its mission and vision, areas of operations and environment in
which it operate.
b) Updating knowledge of relevant statutes especially with regard to recent amendments,
circulars, judicial decisions viz. Foreign Contribution ( Regulation) Act 1976, Societies
Registration Act, 1860, Income Tax Act 1961 etc. and the Rules related to the statutes.
c) Reviewing the legal form of the Organisation and its Memorandum of Association, Articles of
Association, Rules and Regulations.
d) Examination of minutes of the Board/Managing Committee/Governing Body/ Management and
Committees thereof to ascertain the impact of any decisions on the financial records.
e) Study the accounting system, procedures, internal controls and internal checks existing for the
NGO and verify their applicability.
f) Setting of materiality levels for audit purposes.
g) The nature and timing of reports or other communications.
h) The involvement of experts and their reports.
i) Review the previous year’s Audit Report.

Ans. 3 special points of consideration while auditing patient treatment, collection of receipts, donations,
capital expenditures at a Hospital are as follows
From Patients
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▪ Check copies of bills issued to the patients with reference to register of patients to ensure that all patients
have been billed properly.
▪ Check calculation of few bills.
▪ Examine whether bills are raised properly bifurcating into rent charges, services charges & payments
regarding medicine.
▪ Check internal control & authorisation for bills raised at concessional rates.
▪ Check cash collected shown in cash book with duplicate copies of receipts issued to the patients.

From grants
▪ Check copies of correspondence with the government or local bodies to ensure the purpose of grant.
▪ Ensure whether grant or donations received for specific purpose have been properly applied.
▪ Obtain WR regarding use of grants.
▪ Examine accounting for grants with special attention to classification into capital & revenue.

Income from Investment

▪ Examine investment register.
▪ Vouch interest, dividend etc. to ensure whether same has been properly accounted for.
▪ Check collection of various incomes received on investment with reference to entry in cash book/pass
book

With respect to purchases & various expenses

▪ Ensure authorisation of various payments specially capital expenditure.
▪ Compare various items of expenditure with those of previous year (ARP).
▪ Special attention should be given to purchase of high value medicines & injections. Also check whether
there is strict control over their purchases and issues.

Ans. 4 matters which should be specially considered in the audit of accounts of a partnership are as follows
Confirming that the letter of appointment, signed by a partner, duly authorised, clearly states the
nature and scope of audit.
Studying the minute book.
Verifying that the business in which the partnership is engaged is authorised by the partnership
agreement.
Examining whether books of account appear to be reasonable.
Verifying generally that the interest of no partner has suffered prejudicially by an actively engaged
partner.
Confirming that a provision for the firm's tax payable by the partnership has been made in the accounts
at proper value
Verifying that the profits and losses have been divided among the partners in their agreed profit sharing
ratio.

Ans. 5 While checking the hire- purchase transaction, the auditor may examine the following:
(i) Hire purchase agreement is in writing and is signed by all parties.
(ii) Hire purchase agreement specifies clearly-
(a) The hire-purchase price of the goods to which the agreement relates;
(b) The cash price of the goods, that is to say, the price at which the goods may be
purchased by the hirer for cash;
(c) The date on which the agreement shall be deemed to have commenced;

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(d) The number of instalments by which the hire- purchase price is to be paid, the
amount of each of those instalments, and the date, or the mode of determining the date,
upon which it is payable, and the person to whom and the place where it is payable; and
(e) The goods to which the agreement relates, in a manner sufficient to identify them.
(iii) Ensure that instalment payments are being received regularly as per the agreement.

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AUDITING & ASSURANCE-CA INTER

TEST NO.6
TOPIC:- AUDIT OF CO-OPERATIVE & GOVT. ACCOUNTS

TIME:-40 minutes MAX. MARKS:-20 Marks

Q-1 Explain the duties of Comptroller & Auditor General of India 4 Marks

Q-2 Write a Short note on (3 Marks each)

a) Propriety Audit
b) Audit as per rules and Orders
c) Test Audit

Q-3 Explain where a Co-operative Society can make investments from money out of reserve funds
4 marks

Q-4 in Which situations, an Auditor of Co-operative Society will make special reporting to Registrar of Co-
operative Society? 5 Marks

Q-5 Who can make an application for inquiry by Central Registrar? 3 Marks

Q-6 What are the contents of Audit report prepared by the Auditor of Co-operative Society? 5 Marks

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.6
TOPIC:-AUDIT OF GOVERNMENT ACCOUNTS & CO-OPERATIVE SOCIETY

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETED EXCEPT 2 AS YOU CAN THEIR ANSWERS FROM
YOUR BOOK EASILY

Ans.1

Compile and submit accounts:-He shall compile the accounts of the Union / State / Union Territory and
submit those accounts to the President / Governor / Administrator respectively

To audit receipts and expenditure:-He shall audit all receipts and expenditure of any body, which has
been substantially financed from the Consolidated Fund of India/State/Union Territory.

Note: A body or authority shall be treated as substantially financed if the amount of grant or loan in one
year is greater than;
• Rs. 25 lakhs, and
• 75% of the total expenditure of that body or authority

To audit grants and loans:-He shall audit specific purpose loan or grant given to any body other than
a foreign state or international organization, out of true Consolidated Fund of India/ State/Union
Territory.

To audit receipts of union or states:-He shall audit all receipts payable in to the Consolidated Fund of
India/ State/Union Territory.

To audit accounts of stores and stock:-He shall audit the accounts of stores and stock kept in any
or office department of the union or state.

To audit accounts of Government Companies and Corporations:-CAG shall exercise powers and observe
duties as per the provisions of the Companies Act, 1956 in relation to the Government Companies or
Corporations.

To audit and report:-CAG shall audit and report:

• All expenditure from Consolidated Fund of India/ State/ Union Territory.
• All transactions of Union State relating to the ‘Contingency’ Funds and Public accounts.
• All Trading, Manufacturing, Profit and Loss account and Balance Sheet and other subsidiary accounts
kept in any department of Union / State.

Ans.2 Refer Study Material or Class Noting

Ans.3 According to section 32 of the Central Act, a society may invest its funds in any one or more of the
following:
(a) In the Central or State Co-operative Bank.
(b) In any of the securities specified in section 20 of the Indian Trusts Act, 1882.
(c) In the shares, securities, bonds or debentures of any other society with limited liability.
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(d) In any co-operative bank, other than a Central or State co-operative bank, as approved by the
Registrar on specified terms and conditions.
(e) In any other moneys permitted by the Central or State Government.

Ans.4 During the course of audit, if the auditor notices that there are some serious irregularities in the
working of the society he may report these special matters to the Registrar, drawing his specifi c attention
to the points. The Registrar on receipt of such a special report may take necessary action against the
society. In the following cases, for instance, a special report may become necessary:
(i) Personal profiteering by members of managing committee in transactions of the society, which are
ultimately detrimental to the interest of the society.
(ii) Detection of fraud relating to expenses, purchases, property and stores of the society.
(iii) Specific examples of mis-management. Decisions of management against co-operative principles.
(iv) In the case of urban co-operative banks, disproportionate advances to vested interest groups, such as
relatives of management, and deliberate negligence about the recovery thereof. Cases of reckless
advancing, where the management is negligent about taking adequate security and proper safeguards for
judging the credit worthiness of the party.

Ans. 5 The Central Registrar may, on a request from a federal co-operative to which a Multi-State Co-
operative society is affiliated or a creditor or not less than one-third of the members of the board or not
less than one-fifth of the total number of members of a Multi-state co-operative society, hold an inquiry or
direct some person authorized by him by order in writing in his behalf to hold an inquiry into the
constitutions, working and financial condition of a Multi-State Co-operative society

Ans.6 The form of the audit report to be submitted by the auditor, as prescribed in various states, contains
a number of matters which the auditor has to state or comment upon
In addition to the above, the auditor will have to attach schedules to the report regarding the following
information:
(1) All transactions which appear to be contrary to the provisions of the Act, the rules and bye-laws of the
society.
(2) All sums, which ought to have been, but have not been brought into account by the society.
(3) Any material, or property belonging to society which appears to the auditor to be bad or doubtful of
recovery.
(4) Any material irregularity or impropriety in expenditure or in the realisation or monies due to society.
(5) Any other matters specified by the Registrar in this behalf.
In the case of Nil report in any of the above matters, the auditor will have to give a Nil report.

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AUDITING & ASSURANCE-CA INTER

TEST NO.7
TOPIC:- AUDIT OF BANKS

TIME:-40 minutes MAX. MARKS:-30 Marks

Q-1 Explain modes of creation of Security. 5 Marks

Q-2 As an Auditor, how will you verify the internal control over advances made by the Bank 5 Marks

Q-3 What are the nature of Engagement Team discussions and benefits of the discussion 6 marks

Q-4 Explain Audit Approach with respect to Income of a Banking Company. 5 Marks

Q-5 When Agricultural Advances will be treated as Non-Performing Asset? 4 Marks

Q-6 Multiple Choice Questions (1 mark each)

1. If value of Security reduces to less than 10% of Outstanding Loan, then Asset will be treated as
a) Loss Asset
b) Doubtful asset
c) Standard Asset
d) All of the above

2. The Auditor of a Bank shall comply with the following requirements while framing the Auditor’s Report:
a) SA 700, 705, 706
b) Section 143(3)
c) Long Form Audit Report
d) All of the above

3. If an Accounting Professional whether in the course of internal or external audit of Bank finds anything
susceptible to be Fraud or Fraudulent Activity or act of excess of power or smells any foul play in any
transaction, he should refer the matter to the
a) National Company Law Tribunal
b) Central Government
c) Reserve Bank of India
d) Registrar of Companies

4. In case of Nationalized Banks, Auditor will be appointed by the Board of Directors in consultation with
a) National Company Law Tribunal
b) Reserve Bank of India
c) Comptroller and Auditor General of India
d) Ministry of Finance

5. The Laws which are applicable on a Banking Company are as follows:

a) State Bank of India (Subsidiary Banks) Act, 1959
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b) Prevention of Money Laundering Act, 2002

c) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
d) All of the above

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.7
TOPIC:-BANK AUDIT

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE

Ans.1 The modes of creation of security are as follows:-

▪ Mortgage:-Usually on an Immovable Property. Its types are as follows:-
▪ Registered Mortgage:-Mortgage Deed is prepared between Lender and Borrower.
▪ Equitable Mortgage:-Mere delivery of title deeds to create Security

▪ Pledge:-
▪ It is a kind of Bailment
▪ Movable goods are kept as Security
▪ Ownership remains with the pawnor while pawnee will have interest on it

▪ Hypothecation:-
▪ Here, proper agreement is created between both the parties.
▪ Physical possession of the security is with the borrower.
▪ Currently, Bank has neither the ownership nor the possession of the Security.
▪ In case of default, Bank can seize the Security

▪ Assignment:-It means transfer of rights by borrower to Bank. Only Actionable Claims such as Books
debts and Insurance Policies are transferred.

▪ Set-Off:-
▪ In this case, Borrower will have two accounts i.e. Deposit account and Loan account.
▪ Bank can adjust the amount of loan from Balance credited in deposit account.

Ans.2 Auditor shall consider following points while verifying the internal control over advances made by the
Bank:-
❖ The Bank should make an advance after satisfying with the credit worthiness of the Borrower.
❖ All the necessary documents have been prepared
❖ Ensure that the bank has complied with the Sanctioned limit.
❖ Drawing Power should be updated every month.
❖ All Accounts have been kept within drawing powers
❖ All the Accounts which exceed the Sanctioning limit or drawing power should be brought in notice.
❖ The operation of each Advance Account shall be reviewed atleast once in a year.
❖ Sufficient margin should be kept against securities so as to cover for any decline in value of Security.

Ans.3
Nature of Engagement Team discussions are as follows
▪ Error that may occur
▪ Errors that have been occurred in Past Years

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▪ Method by which can be conducted by Bank personnel

▪ Audit response to identified risk
▪ Need to maintain Professional Skepticism

Benefits of Discussions
▪ An opportunity for experienced team members to share their viewpoints
▪ An understanding among team members to exchange information about Banking risks.

Ans.4 Audit Approach with respect to Income of a Banking Company are as follows:-
a) the auditor is primarily concerned with obtaining reasonable assurance that there is no unrecorded
income, and that income is recorded in proper amounts and is allocated to the proper period.
b) RBI has advised that in respect of any income which exceeds one percent of the total income of the bank
if the income is reckoned on a gross basis or one percent of the net profit before taxes if the income is
reckoned net of costs, should be considered on accrual as per AS-9.
c) If any item of income is not considered to be material as per the above norms, it may be recognised when
received and the auditors need not qualify the statements in that situation.
d) Interest on advances against Term Deposits, National Savings Certificates (NSCs), Indira Vikas Patras
(IVPs), Kisan Vikas Patras (KVPs) and Life policies may be taken to income account on the due date,
provided adequate margin is available in the accounts.
e) In the case of bills for collection, the auditor should also examine the procedure for crediting the party
on whose behalf the bill has been collected.
f) Test check the Fees and commissions earned by the banks made for commission on Bills for collection;
Letters of credit; Bank Guarantees.

Ans. 5 Agricultural Advances will be treated as Non-Performing Asset in the following cases:
Agricultural Advances (for long duration crops):-will be treated as NPA if instalment/interest remains
overdue for one crop season.
Agricultural Advances (for Short duration crops):-will be treated as NPA if instalment/interest remains
overdue for two crop seasons.

Ans.6
(a)
(d)
(c)
(b)
(d)

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AUDITING & ASSURANCE-CA INTER

TEST NO.8
TOPIC:- AUDITOR’S REPORT

TIME:-30 minutes MAX. MARKS:-25 Marks

Q-1 Mr. X, Auditor of ABC Pharmaceuticals Limited comes to know during the course of Audit that
Company is employing Child labour in its factory. State whether this fact should be disclosed in the
Auditor’s Report. If yes, State the procedure. 4 Marks

Q-2 While determining Key Audit Matters, which factors Auditor shall take into account? 5 Marks

Q-3 Write a short note on: (4 Marks each)

I. Disclaimer of opinion
II. Opinion Paragraph

Q-4 If auditor has requested the management to remove the limitation on scope & management has
refused to do the same. As an auditor, how would you deal with this situation? 3 marks

Q-5 Multiple Choice Questions (1 mark each)

1. The auditor shall form an opinion on whether the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework.In order to form that opinion, the
auditor shall conclude as to whether the auditor has obtained ……………………………………………………. about
whether the financial statements as a whole are free from material misstatement, whether due to fraud or
error
a) Absolute Assurance
b) Appropriate Assurance
c) Reasonable assurance
d) None of the above

2. ………………………………. a term used, in the context of misstatements, to describe the effects on the financial
statements of misstatements or the possible effects on the financial statements of misstatements, if any,
that are undetected due to an inability to obtain sufficient appropriate audit evidence.
a) Qualification
b) Pervasive
c) Modification
d) Compliance

3. When the auditor includes an Other Matter paragraph in the auditor’s report, the auditor shall include
the paragraph within …………………………………………….. with the heading “Other Matter,” or other appropriate
heading. (Ref: Para. A15–A17)
a) the same section of the auditor’s report
b) a separate section of the auditor’s report
c) Either a or b

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d) Neither a nor b

4. The auditor shall describe each key audit matter in the auditor’s report unless:
(a) Law or regulation precludes public disclosure about the matter; or
(b) In extremely rare circumstances, the auditor determines that the matter should not be communicated in
the auditor’s report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
(c) Both a and b
(d) Neither a nor b

5. Where the firm is appointed as the auditor, the report is signed in the
a) personal name of the auditor
b) in the name of the audit firm.
c) Either a or b
d) Both a and b

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.8
TOPIC:-AUDITOR’S REPORT

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE EXCEPT ANS.NO.3

Ans.1 As per Standard on Auditing 706, If the auditor considers it necessary to draw users’ attention to a
matter presented or disclosed in the financial statements that, in the auditor’s judgment, is of such
importance that it is fundamental to users’ understanding of the financial statements, the auditor shall
include an Emphasis of Matter paragraph in the auditor’s report. For this, Include the paragraph within a
separate section of the auditor’s report with an appropriate heading that includes the term “Emphasis of
Matter.

The Situation mentioned in the question states that ABC Pharmaceuticals Limited employing Child labour in
its factory where Mr. X is the Auditor.

On the basis of the above mentioned provisions of SA 706, we can conclude that Auditor shall disclose the
fact of employing Child labour, in his Auditor’s report within a separate section of the auditor’s report with
an appropriate heading that includes the term “Emphasis of Matter.

Ans.2 SA 701 on “Key Audit Matters’ states that the auditor shall determine, from the matters communicated
with those charged with governance, those matters that required significant auditor attention in performing
the audit. In making this determination, the auditor shall take into account the following:
(a) Areas of higher assessed risk of material misstatement, or significant risks identified in accordance with
SA 315
(b) Significant auditor judgments relating to areas in the financial statements that involved significant
management judgment, including accounting estimates that have been identified as having high estimation
uncertainty

Ans.3 Refer SA 705.

Ans.4
According to SA 705, where it has been stated that If, after accepting the engagement, the auditor becomes
aware that management has imposed a limitation on the scope of the audit that the auditor considers likely
to result in the need to express a qualified opinion or to disclaim an opinion on the financial statements, the
auditor shall request that management remove the limitation.

If management refuses to remove the limitation referred to in paragraph 11 of this SA, the auditor shall
communicate the matter to those charged with governance, and determine whether it is possible to perform
alternative procedures to obtain sufficient appropriate audit evidence.

If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine the
implications as follows:

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Ans.5
(C)
(B)
(B)
(C)
(A)

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AUDITING & ASSURANCE-CA INTER

TEST NO.9
TOPIC:-CARO, 2016

TIME:-40 minutes MAX. MARKS:-25 Marks

Q-1 Accurate Arcs (Pvt.) Ltd. Has paid up capital of Rs. 70 lacs, free reserves of Rs 30 lacs and Revaluation
reserve of Rs. 25 lacs. Further, Company have secured loans of nationalized banks having sanctioned limit
of Rs 1.50 crores and outstanding balance of Rs 95 lacs. The turnover of the company is 10.10 crores for
the year ended 31.3.2019. A customer returns goods worth 40 lacs on 02.04.2019, out of sales made
during the year ended 31.03.2019. The management is of the opinion that CARO is not applicable to the
company. 5 Marks

Q-2 Bikano Ltd. has raised 500 crores through public issue for setting up a plant of Namkeen and Sev in
Nagpur and stated the same object in the Memorandum as well as Prospectus. After setting up the plant,
Company was having remaining funds of 60 crores and now Board is desirous of investing those 60 crores
in setting up the plant of mineral water which was not mentioned neither in the prospectus nor the
Memorandum. State, whether Auditor is required to disclose the same in the Auditor’s Report. 4 Marks

Q-3 Write a short note on: (3 Marks each)

I. Auditor’s duty w.r.t. Fixed Assets as stated in CARO, 2016
II. Auditor’s duty w.r.t. Deposits as stated in CARO, 2016

Q-4 Dhawan Limited has fully paid-up capital and reserves of Rs. 50 lacs. During the year, Company has
borrowed 70 lacs each from a Bank and a Financial Institution. It has a turnover of 900 lacs. Auditor of
Dhawan Limited is of the opinion that CARO, 2016 is not applicable on the company 3 marks

Q-5 Sachin Limited has distributed 15% of Net profits as Managerial Remuneration to its directors which is
more than the limit prescribed in Section 197 of Companies Act, 2013. Section 197 further states that it
requires passing of Special Resolution but company fails to pass the resolution. State, what are the duties
of Auditor in this regard as provided in CARO, 2016. 3 Marks

Q-6 Multiple Choice Questions (1 mark each)

1. As per sub-para twelve of paragraph 3 of CARO, 2016, Auditor should checkwhether the Nidhi Company
has complied with the Net Owned Funds to Deposits in the ratio of ……………………………. to meet out the
liability
a) 1:25
b) 1:30
c) 1:20
d) 1:15

2. As per Sub-para 14 of paragraph 3 of CARO, 2016, Auditor should check whether the company has made
any preferential allotment or private placement of shares or fully or partly convertible debentures during
the year under review and if so, as to whether the requirement of section 42 of the Companies Act, 2013
have been complied with and the amount raised have been used for the purposes for which the funds

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were raised. If not, provide the details in respect of the ………………………. involved and
……………………………………………
a) Period, Nature of Compliance
b) Amount, Nature of Non-Compliance
c) Period, Nature of Non-Compliance
d) Amount, Nature of Compliance

3. As per Sub-para …………………. of paragraph 3 of CARO, 2016, Auditor should check whether the company
is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and if so, whether the
registration has been obtained
a) Thirteen
b) Fourteen
c) Fifteen
d) sixteen

4. As per Sub-para 7 of paragraph 3 of CARO, 2016, Outstanding statutory dues as at last day of financial
year concerned for a period of more than __________ months from the day they became payable, shall be
indicated by the auditor.
a) 1
b) 2
c) 3
d) 6

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.9
TOPIC:-CARO, 2016

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE EXCEPT ANS.NO. 1, 3, & 4

Ans.1 As the Share Capital and R&S is more than 1 crores (70+30+25=125 lacs), CARO, 2016 is applicable on
the private company.

Ans.2 As Per paragraph 3(ix) of Companies Auditor’s Report Order, 2016, Auditor will ascertain that whether
moneys raised by way of initial public offer or further public offer (including debt instruments) and term
loans were applied for the purposes for which those are raised. If not, the details together with delays or
default and subsequent rectification, if any, as may be applicable, be reported by the Auditor in the
Auditor’s Report.

The Situation mentioned in the question states that Bikano Ltd. has raised 500 crores through public issue
for setting up a plant of Namkeen and Sev. But, Company was having remaining funds of 60 crores and now
Board is desirous of investing those 60 crores in setting up the plant of mineral water which was not
mentioned neither in the prospectus.

On the basis of the above mentioned provisions of CARO, 2016, we can conclude that Auditor shall disclose
the fact that Bikano Limited applied the money raised from public offer towards other than the specified
object.

Ans.3
a) Refer Paragraph 3(i) of CARO, 2016
b) Refer Paragraph 3(v) of CARO, 2016

Ans.4 As the Loans and Borrowings is more than 1 crores (70 lacs from Bank & 70 lacs from F/I), CARO,
2016 is applicable on the private company.

Ans.5 As Per paragraph 3(ix) of Companies Auditor’s Report Order, 2016, Auditor will ascertain that
Whether managerial remuneration has been paid or provided in accordance with the requisite approvals
mandated by the provisions of section 197 read with Schedule V to the Companies Act? If not, he shall state
the amount involved and steps taken by the company for securing refund of the same, in the Auditor’s
Report.

The Situation mentioned in the question states that Sachin Limited has distributed 15% of Net profits as
Managerial Remuneration to its directors which is more than the limit prescribed in Section 197 of
Companies Act, 2013 and company fails to pass special resolution required.

On the basis of the above mentioned provisions of CARO, 2016, we can conclude that Auditor shall disclose
the fact that Sachin Limited had distributed the managerial remuneration in excess of the limits and
without requisite approvals. Further, he will also state whether Sachin Ltd. has performed adequate steps
to recover the same or not.
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Ans.6
(C)
(B)
(D)
(D)

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AUDITING & ASSURANCE-CA INTER

TEST NO.10
TOPIC:-INTRODUCTION TO AUDIT & BASIC CONCEPTS INVOLVED IN AUDIT

TIME:-40 minutes MAX. MARKS:-25 Marks

Q-1 SWM is proprietorship firm engaged in the manufacturing the different kind of yarns. It sells its
finished products both in the domestic as well as in the international markets. The company is market total
turnover of Rs. 30 crores. It has also availed cash credit limit of Rs. 3 crores from Dena bank. In the year
2018-19. Proprietor of the firm is warried about the financial position of the company and is under the
impressive that since he is out of India, therefore firm might not run well. He approaches an internal
auditor about to what would be covered in audit. Advise regarding principal aspects (any six) to be covered
in getting accounts audited. 6 Marks

Q-2 RAG is proprietorship firm engaged in the manufacturing of textile and handloom products. It sells its
finished products both in the domestic as well as in the international market. The company is making total
turnover of Rs. 30 crores. It has also availed cash credit limit of Rs. 5 crores from Canara Bank. In the year
2018-19, proprietor of the firm is worried about of financial position of company and is under the
impression that since he is out of India, therefore firm might run into losses. He approaches a CA about
advantage of getting his accounts audited throughout the year so that he may not suffer due to accounting
weakness. Advise regarding advantage of getting accounts audited. 4 Marks

Q-3 The auditor is not expected to, cannot, reduce audit risk to zero and cannot therefore obtain absolute
assurance that the financial statements are free from material misstatement due to fraud or error. This is
because there are inherent limitations of an audit. Explain. 4 Marks

Q-4 What do you mean by sufficient appropriate audit evidence? State various factors that help the
auditor to ascertain as to what is sufficient appropriate audit evidence. 4 Marks

Q-5 Q-2 Discuss the concept of “true and fair” view. 3 Marks

Q-6 State situations where external confirmation procedures may provide relevant audit evidence in
responding to assessed risks of material misstatement. 4 Marks

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.10
TOPIC:-INTRODUCTION TO AUDIT & BASIC CONCEPTS

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE

Ans.1 Principal aspects to be covered in getting accounts audited are as follows:-

(i) An examination of the system of accounting and internal control to ascertain whether it is appropriate for
the business and helps in properly recording all transactions
(ii) Checking of the arithmetical accuracy of the books of account by the verification of postings, balances,
etc.
(iii) Ascertaining that a proper distinction has been made between items of capital and of revenue nature
and that the amounts of various items of income and expenditure adjusted in the accounts corresponding
to the accounting period.
(iv) Comparison of the balance sheet and profit and loss account or other statements with the underlying
record in order to see that they are in accordance therewith.
(v) Verification of the title, existence and value of the assets appearing in the balance sheet.
(vi) Verification of the liabilities stated in the balance sheet.

Ans.2 The advantages of getting accounts audited are as follows:-

For Management.
▪ Ensure reliability
▪ Ensure performance.
▪ Judge reasons for any deficiency.

Employees.
▪ Moral check
▪ Reasonableness of payment.

Lenders.
▪ Reliance on audited F/S
▪ Judge credit worthiness.

For Government.
▪ Taxation.

For owner.
▪ Real picture of P&L
▪ Can expect dividends.

Prospective Investor.
▪ Can decide whether to invest or not.

Ans.3 The inherent limitations of an audit are as follows:-

Nature of evidence: Audit opinion is governed by the nature of evidence obtained.
▪ Audit evidence obtained by an auditor is generally persuasive rather than conclusive in nature.

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▪ Much of the evidence available to the auditor can enable him to draw only reasonable conclusions
therefore.

Internal Control: Audit process is generally dependent on the existence of effective internal controls.
However, the internal control system also suffers from certain inherent limitations.

Test Checking: While conducting the audit, it is not possible for the auditor to conduct detailed testing.
This is because
▪ It is not cost effective and
▪ It would not guarantee that all types of fraud would be discovered.

Therefore, to frame his opinion, the auditor resorts to test checking. This creates likelihood that some
material misstatements resulting from any fraud or error may not be detected.

Hence the auditor cannot guarantee that once he has signed the report on the accounts, no misstatement
exists.

Judgement:-Absolute certainty is not attainable in auditing because of the need to exercise judgment.
▪ The auditor’s work involves exercise of judgment e.g. in deciding the extent of audit procedures.
▪ The auditor is also required to examine the reasonableness of the judgment exercised by the
management
• in selecting appropriate accounting policies and
• in preparing the financial statements.

Ans.4 Factors to determine sufficiency and appropriateness.

▪ Degree of risk of Mis-Statement
▪ Result of audit procedures i.e. fraud and error detected by auditor.
▪ Experience gained during previous audit.
▪ Trend shown by accounting ratios.
▪ Materiality of item.
▪ Type of information available.

Ans.5 The concept of True and Fair is a fundamental concept of Auditing. What constitutes "True and Fair"
has not been defined in legislation. In the absence of a precise statutory definition, one has to understand
the concept of True and Fair with the help of the usage of the concept in various provisions of the Companies
Act, 2013.
The concept of True and Fair view is a matter of an auditor's judgement and to ensure it he has to see that:
▪ The assets are neither undervalued nor overvalued
▪ No material assets is omitted
▪ Charge, if any, on assets is disclosed;
▪ Material liabilities should not be omitted;
▪ The profit and Loss Account and the Balance Sheet discloses all the matters required to be disclosed by
Sch. III of the Companies Act, 2013.
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▪ Accounting Policies have been followed consistently

▪ Unusual and exceptional or non-recurring items have been disclosed separately
▪ There should not be any material misstatements in the financial statements.

Ans.6 stuations where external confirmation procedures may provide relevant audit evidence in
responding to assessed risks of material misstatement include:
(i) Bank balances and other information relevant to banking relationships.
(ii) Accounts receivable balances and terms.
(iii) Inventories held by third parties at bonded warehouses for processing or on consignment.
(iv) Property title deeds held by lawyers or financiers for safe custody or as security.
(v) Investments held for safekeeping by third parties, or purchased from stockbrokers but not delivered at
the balance sheet date.
(vi) Amounts due to lenders, including relevant terms of repayment and restrictive covenants.
(vii) Accounts payable balances and terms.

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AUDITING & ASSURANCE-CA INTER

TEST NO.11
TOPIC:-AUDIT PROGRAMME & PLANNING

TIME:-40 minutes MAX. MARKS:-30 Marks

Q-1 Planning is not a discrete phase of an audit , but rather a continual and iterative process that often
begins shortly after (or in connection with) the completion of the previous audit and continues until the
completion of the current audit engagement. Discuss stating clearly the board point you would be covering
and framing plan to conduct audit in an efficient and effective manner. 4 Marks

Q-2 The utility of the audit programme can be retained and enhanced only by keeping the programme and
also the client’s operations and internal control under periodic review so that inadequacies or
redundancies of the programme may be removed. Explain. 4 Marks

Q-3 GR & Co., a firm of chartered accountants has been called upon to audit the accounts of Dee Vee
Philips Ltd. The auditors are told that company is not performing well due to weak accounting and
administration system in place. Mr. Preet handling the assignment noticed that there are gaps in internal
check system of the company. You are required to explain the special steps involved in framing a system of
internal check. 4 Marks

Q-4 Internal control system can provide only reasonable but not absolute assurance that its objective
relative to prevention and detection of error/ fraud, safeguarding of assets etc., are achieved. Briefly
explain the inherent limitations that system suffers. 4 Marks

Q-5 The auditor of XYZ Ltd. Engaged in FMCG (Fast moving consumable goods) obtain an understanding of
the control environment. As part of obtaining this understanding, the auditor evaluates whether:
(i) Management has created and maintained a culture of honesty and ethical behavior; and
(ii) The strengths in the control environment element collectively provide an appropriate foundation for the
other components of internal control.
Advise what is included in control environment. Also explain the element of control environment.
4 Marks

Q-6 State the following statement is correct or incorrect (2 Marks each)

1. Working papers are property of client, as it contains clients information.

2. Extracts and copies of important legal documents, agreements and minutes relevant to the audit is part
of current audit file.

3. “examination in depth” implies that the auditor vouches almost all transactions in a manner that the
chances of not checking any transactions are left at minimum.

4. A flow chart is a graphic presentation of each point of the company’s system of internal control.

5. Surprise checks are parts of internal check.

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.11
TOPIC:-AUDIT PLANNING & INTERNAL CONTROL

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE EXCEPT ANSWER NO. 5

Ans.1 There should be periodic review of the audit programme to assess whether the same continues to be
adequate for obtaining requisite knowledge and evidence about the transactions. Unless this is done, any
change in the business policy of the client may not be adequately known, and consequently, audit work may
be carried on, on the basis of an obsolete programme and, for this negligence, the whole audit may be held
as negligently conducted and the auditor may have to face legal consequences.

So long as the programme is not officially changed by the principal, every assistant deputed on the job should
unfailingly carry out the detailed work according to the instructions governing the work.

Ans.2 the special steps involved in framing a system of internal check are as follows
▪ There must be distribution of power among employees
▪ No independent control in the hands of one employee, so that his work can be checked by another
▪ There must be proper procedure so that work of one employee can be checked by another.
▪ There must be proper system of Job rotation.
▪ Pushing for leave to employees , so that his work can be checked by another employee.

Ans.3 The inherent limitations of an internal control are as follows:-

Role of Human Judgement:-The realities that human judgment in decision-making can be faulty and
that breakdowns in internal control can occur because of human error.
For example, there may be an error in the design of, or in the change to, a control.
Cost effectiveness:-Cost of implementation of control may be more than Benefits. Thus, Mgmt usually
doesn’t implement best controls.
Human error:-Human error which may occur while carrying internal control system.
Abuse of Authority:-The person responsible for exercising control can himself over ride it.
Manipulation by Management:-Manipulation by Top level Mgmt may not be detected by control
system.
Unusual transaction:-Any unusual transaction cannot be controlled because control procedures are
generally made for usual transactions.
Change in conditions:-Establish control procedure may become inadequate in a fast changing
environment.

Ans.4 the element of control environment are as follows:-

Proper organization Structure:-A good internal control system should involve segregation of duties in
such a manner that error or fraud cannot take place.

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Scheme of Authorisation and procedures: The scheme of authorization should ensure that
▪ Every transaction is duly authorized by the competent official and
▪ Every transaction is properly accounted in the books and
▪ Supervisory procedures laid down based on the responsibilities of each official.

Internal Check:-Accounting procedures should be designed in such a manner that no single person is
authorized to carry out all the operations involved in a transaction. The system will institute prompt and
independent verification of an individual’s work by prescribing crosschecks and cross- reconciliation’s as
a part of the operating procedure.

Suitable personnel:-Competent and honest persons should be employed in the organization, so that
the system operates effectively. The qualifications, experience and also the personal characteristics of
the personnel involved are important in establishing and maintaining a system of internal control.

Internal Audit system:-The management may establish an internal audit department and delegate
some of its supervisory functions like review of internal control.

Ans.5
a) Incorrect
b) Incorrect
c) Incorrect
d) correct
e) Incorrect

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AUDITING & ASSURANCE-CA INTER

TEST NO.12
TOPIC:-SA 200, 210, 220, 230 & 240

TIME:-40 minutes MAX. MARKS:-30 Marks

Q-1 As per SA220, the engagement partner shall take responsibility for all over qualities on each audit
engagement to which that partner is assigned. While taking responsibility for the overall quality on each
audit engagement, analysed and explain the engagement team. Also define engagement partner.
4 Marks

Q-2 The client had provided Rs 10 lacs as provision for doubtful debts the auditor challenge this, because
as per his estimates it should have been Rs 60 lacs. After many discussion, both parties agreed that a prov.
Of Rs 40 lacs was appropriate. The w/p do not have any record of hoe the provision was determine. The
auditor says that once he was satisfied about the adequacy of prov. He is not required to keep any of his
file. Comment whether the auditor is correct. 4 Marks

Q-3 Director (Finance) of KK Ltd. Informed their newly appointed statutory auditor that they have sound
internal control system implemented by renowned professional firm and he is satisfied with its
effectiveness and functioning and therefore, the statutory auditor should concentrate on verifying only the
routine books and financial statements. 4 Marks

Q-4 Misappropriation of assets involves the theft of any entity’s assets an is often perpetrated by
employees in relatively small and immaterial amounts. However, it can also involve management who are
usually more able to disguise or conceal misappropriations in ways that are difficult to detect.
Misappropriation of assets can be accomplished in a variety of ways. Analyse and Explain. 4 Marks

Q-5 Audit documentation provides evidence of the auditor’s basis for a conclusion about the achievement
of the overall objectives of the auditor and evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory requirements. Explain stating clearly purpose of
audit documentation. 4 Marks

Q-6 Mr. X an auditor decides not to sent a ne engagement letter to ABC ltd every year. Whether he is right
in his approach? State the circumstances where sending the new engagement letter would be
appropriate. 4 Marks

Q-7 State the following statement is correct or incorrect (2 Marks each)

1. The work perform by each assistant needs to be review by personal of at least equal competence.

2. If there are multiple frauds and auditor has decided to resign, he should communicate reasons only to
TCWG.

3. Ethical requirements shall only be complied by the Engagement Partner.

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.12
TOPIC:-SA 200, 210, 220, 230 & 240

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE EXCEPT 2, 3 & 7

Ans.1 As per SA 220 on Quality Control for an Audit of Financial Statements

a) Engagement Partner means the partner or other person in the firm who is a member of ICAI and is in full
time practice and is responsible for the engagement and its performance, and for the report that is issued
on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal
or regulatory body.

b) Engagement Team means all personnel performing an engagement, including any experts contracted by
the firm in connection with that engagement.

Ans.2 As per SA-230, Auditor shall have proper documentation of Auditor’s Judgement and discussion with
Management and TCWG. Therefore, the discussion with Management and Auditor’s Judgement with
respect to receivables shall be documented.

Ans.3 SA 200 provides that the auditor should gain an understanding of the Accounting system & related
Internal Controls for determining the nature, timing & extent of Audit procedures. Therefore, it is the right
as well as duty of the statutory Auditor to verify the Internal control and hence, the opinion of Director of
KK Ltd. is not appropriate.

Ans.4 SA 240 states that Misappropriation of assets involves the’ theft of an entity’s assets and is on an
perpetrated by employees in relatively small and immaterial amount misappropriation of assets is often
accompanies by false or misleading records documents in order to conceal the fact that the assets are
missing or have been pledged without proper authorization.

Misappropriation of assets can be accomplished in a variety of ways including:

a) Embezzling receipts.
b) Stealing physical assets or intellectual property.
c) Causing an entity to pay for goods and services not received.
d) Using an entity’s assets for personal use.

Ans.5 Audit documentation serves a number of additional purposes, including the following:
a) Assisting the engagement team to plan and perform the audit.
b) Assisting members of the engagement team responsible for supervision to direct and supervise the audit
work, and to discharge their review responsibilities.
c) Enabling the engagement team to be accountable for its work.
d) Retaining a record of matters of continuing significance to future audits.
e) Enabling the conduct of quality control reviews and inspections.
f) Enabling the conduct of external inspections in accordance with specific legal, regulatory or other
requirements.

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Ans.6 SA 210 on ‘Agreeing the terms of Audit Engagements’ provides that the Auditor shall agree the terms
of the Audit Engagement with the management or those charged with governance, as may be appropriate.
The agreed terms of the Audit Engagement shall be recorded in an Audit Engagement letter which shall
be provided by the Auditor to the Management. In recurring Audit Assignments, Auditor need not to send
new engagement letter every year to the Management. However, in the following situations, Auditor
shall send a new engagement letter:
a) When there is Change in Operative activities of Client
b) When there is Change in Management Structure of Client
c) When there is Change in Ownership of Client’s Enterprise
d) When there is Change in Law applicable on Client
e) When there is Change in terms of engagement

Ans.7
a) Incorrect
b) Incorrect
c) Incorrect

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AUDITING & ASSURANCE-CA INTER

TEST NO.13
TOPIC:-SA 250, 299, 300 & 315

TIME:-40 minutes MAX. MARKS:-30 Marks

Q-1 Big & small work appointed as J/A of ABC ltd. What will be their professional responsibility
I. In a case in which the concept of materiality was omitted by Mr. big in the audit work allotted to him
& yet such omission when unnoticed in the joint report.
II. In a case where there is no division of work among them & yet the omission overlooked by both the
auditors.
III. In a case in which both the auditors differ with each other on an issue affecting mat. Of the a/c & yet
clean report is given.
In a case where a company has cleverly conceal certain transactions that escaped the notice of both the
auditor. 5 Marks

Q-2 Discuss what is included in risk assessment procedures to obtain evidence about the design and
implementation of relevant controls. 4 Marks

Q-3 ABC & Co. and DEF & Co. Chartered Accountant firms were appointed as joint auditors of Good Health
Care Ltd. For 2014-15. An investigation was conducted under Companies Act 2013 during Nov. 2015 and
observed gross understatement of Revenue. The revenue aspects were looked after by DEF & Co, but there
was no documentation for the division of work between the joint auditors. 4 Marks

Q-4 With reference to SA 250 give some example or matters indicating to the auditor about non-
compliance of laws and regulations by management. 4 Marks

Q-5 Comment on the following in relation to SAs: Auditor shall establish an overall strategy that sets the
scope, timing and direction of the audit, and that guides the development of the audit plan”. 4 Marks

Q-6 What are the specific risks related to internal control in an IT environment? 4 Marks

Q-7 State the following statement is correct or incorrect (2 Marks each)

1. Joint auditors should check the work of each other, before relying the work of each other.

2. Audit plan should be fixed.

3. Auditor should perform detailed procedures in case of non-compliance of law which has effect on
Financial Statements.

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.13
TOPIC:-SA 250, 299, 300, 315

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE EXCEPT 1

Ans.1 As per SA 220 on Quality Control for an Audit of Financial Statements

a) Mr. Big will be liable as that work was allocated to him only.
b) Both the joint auditors are liable as work was not divided amongst them.
c) If opinion of both the auditors differ, then they need not to match their opinion. They can provide
separate opinions.

Ans.2 As per SA-315, Risk Assessment Procedures shall include:

(a) Inquiries of management and of others within the entity who in the auditor’s judgment may have
information that is likely to assist in identifying risks of material misstatement due to fraud or error.
(b) Analytical procedures.
(c) Observation and inspection
(d) Discussion within Engagement Team

Ans.3 SA 299 provides that where joint auditors are appointed, they should, by mutual discussion, divide the
audit work among themselves. The division of work would usually be in terms of audit of identifiable units
or specified areas. Certain areas of work, owing to their importance or owing to the nature of the work
involved, would often not be divided and would be covered by all the joint auditors. The division of work
among the joint auditors as well as the areas of work to be covered by all of them should be adequately
documented and preferably communicated to the entity. If Division of work is not documented, then all the
joint auditors are equally liable.

On the basis of the above mentioned discussion, we can conclude that ABC & Co. and DEF & Co are liable
on that investigation as work which was divided was not documented by them.

Ans.4 SA 250 states that When the auditor becomes aware of the existence of, or information about, the
following matters, it may be an indication of non-compliance with laws and regulations:
a) Unusual payments towards legal fees.
b) Matters related to transactions with companies registered in tax havens
c) Being payment of fines or penalties.
d) Reading Minutes of Board Meeting
e) Inquiring with Management and TCWG
f) Licensing and Regulatory Authority Investigation
g) Litigations and claims
h) Adverse media comment

Ans.5 The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the
audit, and that guides the development of the audit plan.
In establishing the overall audit strategy, the auditor shall:
a) Identify the characteristics of the engagement that define its scope.
b) Ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature of

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the communications required.

c) Consider the factors that, in the auditor’s professional judgment, are significant in directing the
engagement team’s efforts.
d) Ascertain the nature, timing and extent of resources necessary to perform the engagement.

Ans.6 SA 315 on ‘Identifying and assessing the risk of material Misstatement through understanding the
entity and its environment’ provides that specific risks related to internal control in an IT environment are
as follows
a) Inaccurate processing of data, processing inaccurate data, or both.
b) Unauthorized access to data.
c) Direct data changes (backend changes).
d) Excessive access / Privileged access (super users).
e) Lack of adequate segregation of duties.
f) Unauthorized changes to systems or programs.
g) Failure to make necessary changes to systems or programs.
h) Loss of data

Ans.7
a) Incorrect
b) Incorrect
c) Incorrect

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AUDITING & ASSURANCE-CA INTER

TEST NO.14
TOPIC:-SA 320, 500, 501, 505, 510 & 520

TIME:-40 minutes MAX. MARKS:-30 Marks

Q-1 Auditor of M/S Tender India (p) Ltd. Were change for the accounting year 2019-20. the closing inventory
of the company as on 31.3.2019 amounting to Rs. 100 lacs continued as it is and become closing inventory
as on 31. 3. 2020. the auditors of the company propose to exclude from from their audit programme the
audit of closing inventory of Rs. 100 lacs on the understanding that it pertains to the preceding year which
was audited by another auditor. 4 Marks

Q-2 Explain the auditor’s procedures w.r.t determination of existence and condition of inventory under the
following:
(a) Inventory count conducted at a date other than balance sheet.
(b) To attend the inventory is impracticable 4 Marks

Q-3 The auditor of H Ltd. Wanted to obtained confirmation from its creditors. But management made a
requested to the auditor not to seek confirmation from certain creditors citing disputes. Can the auditor of
H Ltd. Accede to this request?

Q-3 Even when information to be used an audit evidence is obtained from source external to the entity
circumstances may exist that could effect its reliability”. Also state clearly generalisations about the
reliability of audit evidence. 4 Marks

Q-4 With reference to SA 250 give some example or matters indicating to the auditor about non-
compliance of laws and regulations by management. 4 Marks

Q-5 Mr. X was appointed as the auditor of M/S Easy Go Ltd. And intends to apply the concept of materiality
for the financial statements as a whole. Please guide him as to the factors that may affect the identification
of an appropriate benchmark for this purpose. 4 Marks

Q-6 What are the factors that determine the extent of reliance that the auditor places on results of
analytical procedures? Explain with reference to SA 520 on Analytical procedures. 4 Marks

Q-7 State the following statement is correct or incorrect (1 Mark each)

1. Confirmation received by the auditor directly from third parties are conclusive evidence in support of a
transaction.

2. Re-performance means checking the arithmetical calculation.

3. Materiality is an absolute term.

4. There is an inverse relationship between materiality & audit risk.

5. Positive request is more reliable than negative request.

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ANSWERS
AUDITING & ASSURANCE-CA INTER
TEST NO.14
TOPIC:-SA 320, 500, 501, 505, 501 & 520

NOTE:-ALL ANSWERS ARE SUGGESTED & COMPLETE

Ans.1 As per SA 510 on “Initial Audit Engagement” In conducting an initial audit engagement, the objective
of the auditor with respect to opening balances is to obtain sufficient and appropriate audit evidence about
whether opening balances contain misstatements that materially affect the current period’s financial
statements. The auditor shall obtain sufficient appropriate audit evidence about whether the opening
balances contain misstatements that materially affect the current period’s financial statements by
determining whether the prior period’s closing balances have been correctly brought forward to the
current period.

The situation provided in the question states that the closing inventory of the company as on 31.3.2019
amounting to Rs. 100 lacs continued as it is and become closing inventory as on 31. 3. 2020. the auditors of
the company propose to exclude from from their audit programme the audit of closing inventory of Rs. 100
lacs on the understanding that it pertains to the preceding year which was audited by another auditor.

On the basis of the above-mentioned discussion, we can conclude that Auditor shall verify that the balance
of the previous year closing stock is properly carried forward to the current period. Therefore, this act of
auditor is not justified as per the standard.

Ans.2 As per SA-501, Physical verification of inventories is the responsibility of the management of the
entity. When inventory is material to the financial statements the auditor should obtain sufficient
appropriate audit evidence regarding its existence and condition by attendance at physical inventory
counting unless impracticable due to factors such as the nature and location of the inventory.

a) If unable to attend the physical inventory count on the date planned due to unforeseen circumstances,
the auditor should take or observe some physical counts on an alternative date and where necessary,
perform alternative audit procedures to access whether the changes in inventory between the date of
physical count and the period end date are correctly recorded.

b) Where attendance at the physical inventory counting is impracticable, the auditor should consider
whether alternative procedures provide sufficient appropriate audit evidence of existence and condition
of inventory to conclude that the auditor need not make reference to a scope limitation.

Ans.3 SA 299 provides that If management refuses to allow the auditor to send an external confirmation
request, the auditor shall inquire as to management’s reasons for the refusal, and seek audit evidence
as to their validity and reasonableness and Perform alternative audit procedures designed to obtain
relevant and reliable audit evidence.
If the auditor concludes that management’s refusal to allow the auditor to send a confirmation request is
unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit
procedures, the auditor shall communicate with those charged with governance. The auditor also shall
determine the implications for the audit and the auditor’s opinion.

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On the basis of the above-mentioned discussion, we can conclude that the auditor of H Ltd. wanted to
obtained confirmation from its creditors. But management made a requested to the auditor not to seek
confirmation from certain creditors citing disputes.

On the basis of the above-mentioned discussion, we can conclude that the reason behind refusal of
management is justified. Therefore, the auditor shall perform alternative procedures to obtain the necessary
evidence.

Ans.4 SA 500 states that the reliability of information to be used as audit evidence is influenced by its
source and its nature, and the circumstances under which it is obtained, including the controls over its
preparation and maintenance where relevant. The generals points regarding reliability of audit evidence
are as follows:
a) The reliability of audit evidence is increased when it is obtained from independent sources outside the
entity.
b) The reliability of audit evidence that is generated internally is increased when the related controls,
including those over its preparation and maintenance, imposed by the entity are effective.
c) Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly
or by inference.
d) Audit evidence in documentary form, whether paper, electronic, or other medium, is more reliable than
evidence obtained orally.
e) Audit evidence provided by original documents is more reliable than audit evidence provided by
photocopies or facsimiles, or documents that have been filmed, digitised or otherwise transformed into
electronic form, the reliability of which may depend on the controls over their preparation and
maintenance.

Ans.5 SA 320 states that determining materiality involves the exercise of professional judgment. A
percentage is often applied to a chosen benchmark as a starting point in determining materiality for the
financial statements as a whole.
Factors that may affect the identification of an appropriate benchmark include the following:
a) The elements of the financial statements.
b) Whether there are items on which the attention of the users of the particular entity’s financial
statements tends to be focused.
c) The nature of the entity, where the entity is at in its life cycle, and the industry and economic
environment in which the entity operates;
d) The entity’s ownership structure and the way it is financed.

Ans.6 SA 520 states that The reliability of data is influenced by its source and nature and is dependent on
the circumstances under which it is obtained. Accordingly, the following are relevant when determining
whether data is reliable for purposes of designing substantive analytical procedures:
(a) Source of the information available. For example, information may be more reliable when it is obtained
from independent sources outside the entity 6;
(b) Comparability of the information available. For example, broad industry data may need to be
supplemented to be comparable to that of an entity that produces and sells specialised products;
(c) Nature and relevance of the information available. For example, whether budgets have been established
as results to be expected rather than as goals to be achieved;

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(d) Controls over the preparation of the information that are designed to ensure its completeness, accuracy
and validity. For example, controls over the preparation, review and maintenance of budgets

Ans.7
a) Incorrect
b) Incorrect
c) Incorrect
d) Correct
e) correct

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AUDITING & ASSURANCE-CA INTER

TEST NO.15
TOPIC:-SA 530, 550, 560, 570, 580, 610

TIME:-30 minutes MAX. MARKS:-20 Marks

Q-1 As an auditor how would you react to the following situations/comments: TT Ltd. Has suffered recurring
losses due to steep fall in production and has negative net worth. It’s production head, an expert, have also
left the company. Reply of the management is inadequate to these developments and there is no sound
action plan to mitigate these situations. 4 Marks

Q-2 The auditor P of PAR and Co. Firm of chartered accountant is conducting audit of AB Industries Ltd. The
auditor requested management to provide Banker’s certificate in support of fixed deposits whereas
management provides only written representation on the matter.
Analyse how would you deal is an auditor 4 Marks

Q-3 Discuss the following: with reference to SA 550

identification related party transaction outside the entity’s normal course of business.
4 Marks

Q-4 A limited company has filed a suit against debtor from whom Rs 25 lakhs are receivable. A judgment is
received from court in favour of the company after the date balance sheet. Discuss auditor’s duty in this
regard. 4 Marks

Q-5 What are the methods of Sampling? State its advantages and disadvantages. 4 Marks

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