CA Final Audit Test-1 SA 200/210/250/299

Time: 1 Hour Marks: 30 Marks

Instruc6ons:

• Reading 6me: 5 mins

• Do underline key words while presen6ng answer
• Leave proper spacing between 2 points/paras
• Do quote SA No. with Name wherever applicable

MCQs: 10 Marks [5 Ques0ons of 2 Marks each]

1. X, Y and Z are joint auditors of a company engaged in manufacturing of chemicals. They have developed a joint
audit plan and iden0fied common areas. Besides, they have also iden0fied and allocated work by signing work
alloca0on documents among themselves. Verifica0on of trade receivables was allocated to Z. Which of the following
statements is in accordance with relevant SA in this regard?

a. X and Y should necessarily review work performed by Z to ascertain whether work has been actually performed
in accordance with Standards on Audi6ng.
b. X and Y should perform tests to ascertain whether work has been actually performed in accordance with
Standards on Audi6ng.
c. X and Y are en6tled to assume that Z has actually performed work in accordance with Standards on Audi6ng.
d. X and Y are not en6tled to assume that Z shall bring to their no6ce significant observa6ons relevant to
responsibili6es no6ced during the course of the audit.

2. Company got a show cause no0ce from State Pollu0on Control Board. As per SA 250, the auditor shall perform
the audit procedures to help iden0fy instances of non-compliance with other laws and regula0ons that may have a
material effect on the financial statements. As the audit team of the company became aware of informa0on
concerning an instance of noncompliance with law, what would NOT be the audit procedure to be performed?

a. Monitoring legal requirement and compliance with code of conduct and ensuring that opera6ng procedures
are designed to assist in the preven6on of non-compliance with law and regula6on and report accordingly.
b. Evaluate the implica6on of non-compliance in rela6on to other aspects of audit including risk assessment and
reliability of wriRen representa6on and take appropriate ac6on.
c. Discuss the maRer with management and if they do not provide sufficient informa6on; and if the effect of
non-compliance seems to be material, legal advice may be obtained.
d. Understand the nature of the act and circumstances in which it has occurred and obtain further informa6on
to evaluate the possible effect on the financial statement.

3. M/s ABC & Associates are the statutory auditors of PQR Ltd. for the FY 2023-24. While conduc0ng the audit, CA

Aman, the engagement partner no0ced the following:

ü Payments of various fines and penal0es

ü Unusual cash payments
ü Payments to various government employees not supported by any document
ü No0ces received from various regulatory authori0es.
 ü Heavy payments to legal counsels.
CA Aman should consider the above as indica0ve of:

a. Doubt on Internal Controls of PQR Ltd.

b. Doubt of non-compliance to laws by PQR Ltd.
c. Doubt on the accoun6ng system of PQR Ltd.
d. Doubt on the going concern assump6on of PQR Ltd.

4. CA. Arvind and CA. Deepak were jointly appointed as auditors of Pullcord Ltd. to ensure efficient audit and
repor0ng, Arvind and Deepak took the following steps:

i) Aber iden0fica0on and alloca0on of work among themselves, the work alloca0on document was signed by
both of them. Since in any case they were jointly responsible, they did not think it necessary to inform those
charged with governance about the alloca0on.
ii) They decided to obtain a common engagement lecer since their appointment was common.
iii) Since their area of work was different, they decided to obtain a separate management representa0on lecer so
as not to mix up the macers.

Which of the above were not correct in view of SA 299?

a. i, ii and iii
b. i and iii
c. i and ii
d. ii and iii

5. During the course of audit, it has come to his knowledge that company is also required to install online air
pollu0on control monitoring systems in its plant as mandated in state pollu0on control legisla0on and regula0ons.
Non-installa0on of such online air pollu0on control monitoring systems may lead to fines and even sealing of plant.

Which of the following statements most appropriately describes responsibili0es of auditor in rela0on to compliance
with state pollu0on control legisla0on and regula0ons?

a. Sufficient appropriate evidence needs to be obtained by auditor to verify compliance.

b. Physical verifica6on of workability of such systems is required from an auditor.
c. Only inquiry of company management personnel and review of correspondence with regulatory authori6es
are suffice to verify compliance.
d. Only physical verifica6on of workability of such systems and review of correspondence with regulatory
authori6es are suffice to verify compliance.
 Descrip0ve Ques0ons [4 Ques * 5 Marks each = 20 Marks]

1. Yupee (P) Ltd. got incorporated on 15th May 2021 and Mr. Harsh, the director of Yupee (P) Ltd. proposed to Kamal
& Co. on 24th May 2021, for being appointed as its statutory auditor. Mr. Kamal, the sole proprietor of Kamal & Co.,
aaer checking the compliance with all the statutory requirements, accepted the said offer and issued an audit
engagement leRer vide email to Yupee (P) Ltd.

Mr. Harsh found all terms of audit engagement to be proper but in the paragraph rela6ng to auditor’s responsibly in
the engagement leRer, as produced below:-

“We will conduct our audit in accordance with Standards on Audi6ng (SAs), issued by the Ins6tute of Chartered
Accountants of India (ICAI). Those Standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free from material
misstatement.”

Certain queries raised in his mind that what does reasonable assurance meant? Which Standard on Audi6ng requires
the auditor to obtain such reasonable assurance? Is it possible to give absolute assurance on such financial statements?

Assuming that you are Mr. Kamal, the newly appointed statutory auditor of Yupee (P) Ltd. Please address to the queries
of Mr. Harsh as stated above.

2. AKJ Ltd is a small-sized 30 years old company having business of manufacturing of pipes. Company has a plant based
out of Dehradun and have their corporate office in Delhi. Recently the company appointed new firm of Chartered
Accountants as their statutory auditors.

The statutory auditors want to enter into an engagement leRer with the company in respect of their services but the
management has contended that since the statutory audit is mandated by law, engagement leRer may not be required.
Auditors did not agree to this and have shared a format of engagement leRer with the management for their reference
before geing that signed. In this respect management would like to understand that as per SA 210 (audi6ng standard
referred to by the auditors), if the agreed terms of the engagement shall be recorded in an engagement leRer or other
suitable form of wriRen agreement, what should be included in terms of agreed audit engagement leRer?

3. While verifying the employee records in a company, it was found that a major por6on of the labour employed was
child labour. On ques6oning the management, the auditor was told that it was outside his scope of the financial audit
to look into the compliance with other laws. Comment in accordance with relevant Standards on Audi6ng.

4. Excellent Bank Ltd. is a Public Limited Company. The said Bank has various branches all over India. The Bank appoints
3 Joint Auditors for the financial year ending 31/03/2019. All the 3 Joint Auditors divide the work with mutual consent.
Verifica6on of Consolida6on, however, remained undivided. All branches and zones were divided amongst the 3 Joint
Auditors. During audit of zones, CA. Z, one of the Joint auditors expressed a concern about internal control in one of
the large corporate branches situated. in his zone. The irregularity was not reported in the final accounts as the other
2 Joint Auditors were not in favour of repor6ng and decision of not repor6ng the same was taken on the basis of
majority. Subsequently, fraud was detected in the said branch which was audited by CA. Z. The Bank seeks your advice
about the responsibility of the 3 Joint Auditors in the above situa6on.