CA INTER NEW COURSE

AUDTING AND ETHICS

Test-1 Chapters-1,2,6

Total Marks 50

Part-A

1. Which of the following is the responsibility of the auditor:

a) Preparation and presentation of the financial statements in accordance with applicable
financial reporting
b) Design, implementation and maintenance of internal controls
c) Express an opinion on the Financial Statements
d) To obtain limited assurance.

2. Determining a percentage to be applied to a chosen benchmark (in relation to materiality)

involves the exercise of ________
a) Independence
b) Professional judgement
c) Professional skepticism
d) Professional behaviour.

3. The following inherent limitations in an audit affect the auditor’s ability to detect material
misstatements except:
a) Test and sampling.
b) Audit process permeated by Judgment.
c) Poor corporate governance.
d) Audit evidence.

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4. When planning the audit.
a) The auditor considers what would make the financial information materially misstated.
b) The auditor need not consider what would make the financial information materially
misstated.
c) The auditor need not consider what would make the financial information materially
misstated at planning stage.
d) The auditor needs to consider what would make the financial information materially
misstated while conducting audit only.

5. A well designed and drafted audit plan and audit strategy which takes care of all the
uncertainties and conditions need not be changed during the course of audit. (Correct
/Incorrect)

Case Study-
Me and You Private Limited has been newly incorporated. The plant of the company has
recently started production with the help of funds provided by a bank for purchase and
installation of machinery. Further, the company is also utilizing working capital credit facilities
from the same bank for meeting its day to day working capital requirements like for purchase
of raw materials, labour payment etc. However, just within six months of its operations, the
management feels that working capital funds are inadequate and situation is creating liquidity
issues in the company.
The management of the company has approached its bankers and requested for enhancement
in working capital credit facilities. The bank manager is insisting upon financial statements of
the company for half year along with report providing assurance in this respect duly signed by
Chartered Accountant as audit is far away. It also requires projected financial statements for
coming years along with a report from CA providing assurance regarding these projections to
consider request of management.

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The management approaches CA P, who has qualified recently and started practising. Reports
providing assurance for half yearly results and projected financial statements are sought from
CA P. The Management provides necessary information and records to him in this regard.
Assume, in above case, the company only provides trial balance, financial statements in
draft/preliminary form along with accompanying records for the relevant half year to CA P and
requests him to provide duly signed financial statements with a report for mutually agreed
professional fees.

6. Auditor is fact checking about promoters and key managerial persons. She is also
considering competence of staff to perform engagement. What is she trying to do?
(a) She is establishing audit strategy.
(b) She is conducting preliminary engagement activities.
(c) She is designing audit plan.
(d) She is checking her compliance of ethical requirements.

7.Consideration of number and location of branches, requirements of financial reporting

following- framework and expected time of completion are relevant factors primarily for
which of the
(a) Developing audit plan
(b) Establishing overall audit strategy
(c) Designing audit programme
(d) Designing risk assessment procedures

8. Taking into account description of planned inquiry and visit, which of the following
statements is TRUE?
(a) Planned inquiry and visit fall in area of audit strategy.
(b) Planned inquiry and visit are planned risk assessment procedures and fall in field of
audit plan.
(c) The said description is not related to audit planning-

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 (d) Planned inquiry and visit fall in scope of audit programme.

9. What is detailed set of instructions given to assistants in engagement team known as?
(a) Audit guidelines
(b) Audit plan
(c) Audit Programme
(d) Audit Procedures

10. The issue of generation of scrap has been overlooked in detailed set of instructions given
to engagement team. What should be proper course of action by CA Simran Kaur?
(a) She should ignore this information as audit has already begun.
(b) She should modify earlier set of instructions.
(c) She should leave the matter to wisdom of engagement team.
(d) She should put the ball in court of management as she was not provided with complete
information earlier.
(10 x 1 = 10 marks)

Part-B

Q-1 What are the Elements of an Assurance Engagement.

(4 marks)

Q-2 Zeeba Products is a partnership firm engaged in trading of designer dresses. The firm has
appointed JJ & Co, Chartered accountants to audit their accounts for a year. The auditors were
satisfied with control systems of firm, carried out required procedures and necessary
verifications. In particular, they carried out sample checking of purchases, traced purchase bills
to GST portal and also made confirmations from suppliers. They were satisfied with audit
evidence obtained by them as part of audit exercise. An audit report was submitted to the firm

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giving an opinion that financial statements reflected true and fair view of state of affairs of the
firm.

However, later on, it was discovered that purchase manager responsible for procuring dresses
from one location was also booking fake purchases of small values by colluding with unethical
dealers. Payments to these dealers were also made in connivance with accountant through
banking channel. The partners of firm blame auditors for futile audit exercise. Are partners of
firm correct in their view point? Imagine any probable reason for such a situation.

(4 marks)

Q-3 Explain the BENEFITS OF AUDIT-WHY AUDIT IS NEEDED?

(4 marks)

Q-4 XYZ Ltd is a listed company manufacturing various items for home use. It is making an
annual turnover of 200 crore rupees and having 5 factories in Southern India. Your firm has
been appointed to audit to audit its accounts throughout the year and submits monthly
reporting. Senior partner asks you to develop the audit programme. State the special points to
be kept in mind while developing the audit programme.

(4 marks)

Q-5 The auditor shall document the overall audit strategy, the audit plan and any significant
changes made during the audit engagement to the overall audit strategy or the audit plan, and
the reasons for such changes. Explain.

(5 marks)

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Q-6 Evidence is the very basis for formulation of opinion and an audit programme is designed
to provide for that by prescribing procedures and techniques. Analyse and explain with the help
of example of evidence in respect of sales.

(4 marks)

Q-7 Mr. PM, a practising Chartered Accountant, has been appointed as an auditor of Truth Pvt.
Ltd. What factors would influence the amount of working papers required to be maintained for
the purpose of his audit?

(5 Marks)

Q-8 “Audit documentation summary may facilitate effective and efficient reviews and
inspections of the audit documentation, particularly for large and complex audits”. Explain.

(5 Marks)

Q-9 The auditor shall prepare audit documentation that is sufficient to enable an experienced
auditor to understand significant matters arising during the audit. Explain the above statement
and also give examples of significant matters.

(5 Marks)

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