Questions 1

PD & Co., Chartered Accountants, were appointed as the statutory auditors of MR Limited
for the financial year 2023-24. MR Limited included the following clause in the appointment
letter to the auditors: "The Auditor shall be responsible for detecting the frauds that may
happen in the company during the financial year 2023-24.”
The auditor objected to inclusion of such a clause in the appointment letter. Discuss in the
light of scope of audit. (3 Marks)

Questions 2

JK Ltd. was having a 'Pager' manufacturing plant and looking at the demand it was of the
view that the company will grow continuously in future. But, with the introduction of mobile
phones in the market, the plant was shut down completely. The shareholders of the
company were of the view that auditor failed to perform their duty and have not informed to
them about the company's inability to continue its business, otherwise they might not have
suffered the loss. List down the factors giving rise to the inherent limitations due to which
auditor cannot provide a guarantee that the financial statements are free from material
misstatement due to fraud or error.

Questions 3

XYZ Ltd., a manufacturing company engaged in the production of various types of yarn, is planning to
expand its operations into a new geographical market and also add new products. Company has
prepared prospective financial information to be presented to potential investors and financial
institutions to secure funding for the expansion.
XYZ Ltd. engages a firm of auditors to conduct an assurance engagement on this prospective financial
information. During the engagement, the auditors reviewed the assumptions made by XYZ Ltd.'s
management and issued a report.
Explain the key differences between prospective financial information and historical financial
information. How does this distinction impact the level of assurance provided in an assurance
engagement on prospective financial information?

Questions 4

M Motors Ltd is a leading Indian automobile manufacturer with many offerings across commercial,
passenger and electric vehicles. The Company is pioneering India’s electric vehicle transition and
enjoys considerable advantage in one of the fastest growing automotive markets.

GR & Associates have been appointed as its statutory auditors for financial year 2022-23. J and
K are newly appointed audit assistants in the firm and are part of engagement team constituted
for purpose of audit of M Motors Ltd. However, they are confused about what such an audit tends to
achieve. They perceive audit as a guarantee against possible errors or frauds in financial
statements. Do you agree with perception of both the assistants? In this context, outline objectives
of an independent audit conducted in accordance with Standards on Auditing.

Or
RST Ltd., a retail company, has set up internal controls requiring all invoices to be stamped and
signed by an authorised person in “Goods Receiving Section” of the company stating the date and
time of receiving goods in premises to ensure that only those purchase bills are produced for payment
for which goods have been actually received.
During the audit, the auditor finds that two employees – a purchasing manager and an accounts clerk –
have worked together to bypass this control, submitting fake invoices that resulted in payments for
goods that were never received. You are required to state the objectives of an audit, as per SA 200,
when it comes to ensuring the reliability of financial statements? Also explain, why auditor can
provide only reasonable, rather than absolute, assurance that the financial statements are free
from material misstatement due to fraud or error in the context of the given situation?

Questions 5

Kriti, a CA student, has joined articles in a reputed audit firm. She considers audit engagement to be
an “assurance engagement”. Her understanding is that audit engagement is the only kind of assurance
engagement in which practitioner gives a written assurance report in appropriate form. However, her
friend Somaya, does not agree with her. She is of the view that assurance engagements are not
restricted to audit alone. Besides, Somaya also thinks that assurance engagements can also
relate to matters other than historical financial information. Whose view appears to be correct? State
with reasons.

QUESTION 6

XYZ Ltd., a manufacturing company based in India, operates multiple plants across the country and
deals in complex machinery, which requires specialized maintenance and valuation expertise. XYZ
Ltd. appointed CA Dhruv as Statutory auditor. During the audit, he observed that the management
consistently applied the same method for valuation of inventory over the past few years, but this
year, without proper disclosure, they switched to a different valuation method, which resulted in higher
reported profits. Does such a matter fall within scope of audit?

QUESTION 7
An audit is a reasonable assurance engagement, whereas review is a limited assurance engagement.
Both types of assurance engagement provide assurance to users, but they differ in the degree of
assurance offered..
In the light of this, explain the difference between reasonable assurance engagement and limited
assurance engagement, with examples. (4 marks)

QUESTION 8
The management of cool drinks limited suspect that some employees of the company may be involved in
making fraudulent payment to dummy workers at its various plants in the country. Therefore they are
considering appointment of a firm of auditors to conduct audit involving detail examination of accounts.
However one senior person among board members, Mr P object to the use of the word audit in proposed
assignment. Comment. Also, discuss how audit is different from investigation.(4 marks)

QUESTION 9
CA N, engagement partner of LPS & Associates, is planning for audit of a large company. As part
of preliminary engagement activities being performed in this regard, he wants to ensure that
compliance with independence requirements is adhered. How shall he form a conclusion that audit
firm complies with independence requirements?

QUESTION 10
B Ltd. is a company manufacturing bed-sheets and pillow covers. They have appointed M/s C & Co.,
Chartered Accountants, as their auditors. The auditor is establishing audit strategy with his team
members. As the work progressed, they came to know that the company has diversified its business
and now they are also planning to manufacture wooden furniture. The auditor, in his professional
judgement, considers this to be a significant factor in directing the engagement team’s efforts. Give
examples of factors that, in auditor’s professional judgement, are significant in directing the engagement
team’s efforts.

Or
During the audit of ABC Ltd., a medium-sized manufacturing company, the engagement partner is
responsible for directing and supervising the work of the engagement team. The team includes both
experienced members and several new trainees. Additionally, certain areas of the audit have been
identified as high-risk, such as revenue recognition and inventory valuation, due to recent changes in
ABC Ltd.'s accounting policies. What factors should the engagement team members consider when
determining the nature, timing, and extent of direction, supervision, and review of the engagement
team's work?

QUESTION 11

EFG Ltd. has appointed M/s. MN & Co., Chartered Accountants, as the statutory auditors for the year
2024-25. CA N, the engagement partner, completed his risk assessment procedure. However, he is
concerned about the management of human resources to be employed to conduct the audit. For this
purpose, he wants to establish an overall audit strategy for setting the scope, timing and direction of
the audit. Describe how the process of establishment of overall audit strategy will assist him in
managing deployment of his human resources for various audit areas. (4 Marks)

QUESTION 12

CA E is auditor of LM Ltd. Before commencing with current year's audit, he initiated planning for the
audit. Planning includes the need to consider certain matters, prior to the identification and
assessment of the risk of material misstatements. Enumerate such matters. (4 Marks)

QUESTION 13

Z Ltd. engaged ABC & Co., Chartered Accountants, to conduct its statutory audit for the F.Y. 2023-24.
The audit team developed an overall audit strategy and plan to address the risk. During the audit,
several significant changes occurred, including the discovery of a material misstatement in inventory
valuation and changes in the scope of audit procedures due to an unexpected acquisition by Z Ltd. The
audit documentation for Z Ltd. should reflect these changes but the auditor of a company failed to
document the audit strategy and the audit plan.
As a senior auditor of the firm briefly outline what should be included in the documentation of audit
strategy and audit plan and how should the audit documentation address significant changes made
during the audit engagement. (5 Marks

QUESTION 14

ATL Pvt. Ltd., a leading manufacturing company, appointed CA Atul as an auditor for the year
2023-24. Given the complexity of the company's operations and the need for a systematic approach, he
plans to design a detailed audit programme to ensure the accuracy of financial assertions. As a CA
student, if you were assisting CA Atul in constructing this audit programme, what are the points you will
keep in mind?
Or
APR & Associates, a Chartered Accountant firm, are appointed as the auditors of Time Ltd. and
Bakes Ltd. The volume and nature of business of both the companies are entirely different. CA R is
the engagement partner for Bakes Ltd. CA P is the engagement partner for Time Ltd. CA R formulates
an Audit Programme for conducting the audit of Bakes Ltd. He suggests CA P to use the same audit
programme for Time Ltd. But CA P is of the opinion that this audit programme will not be useful for
the audit of Time Ltd.
In light of the above, mention the matters that should generally be considered while preparing an
Audit Programme. Is CA P correct in emphasizing for a different Audit Programme for Time Ltd.?

QUESTION 15

M/s. PP & Co, a firm of Chartered Accountants, has been auditing the books of accounts of KALI Ltd.
for the past 3 years. The company has recently made some major changes in its business policies. While
planning to start the audit for the 4 th year i.e. for financial year 2024-25, the audit manager of the firm, as
per the routine practice, handed over the previous years' audit programme as it is to the audit team
with the instructions to adhere unfailingly to the said audit programme. Evaluate the decision of the
audit manager with reference to the use of audit programme

QUESTION 16

AP & Co., Chartered Accountants, are appointed as statutory auditor of Heavy Industries Limited, a
listed company engaged in manufacturing of electric vehicles, for the F.Y. 2023-24. As per the
recent guideline issued by the regulatory authority, every listed company is required to maintain the
digital database of all those personnel who could access the books of the company to avoid Insider
Trading. In case of non-compliance, hefty fines may be imposed on the company. CA P is the
engagement partner from auditor firm for the audit of Heavy Industries Limited. During planning, CA P
planned that he would inquire from in-house IT Head of the company about the maintenance of the
digital database to identify and assess the risk of non- compliance with regulatory guidelines. In the
light of above facts, explain :
(i) Whether CA P is required to consider about the maintenance of digital database
while framing audit strategy ? (3 Marks)
(ii) Whether the procedures planned by CA P are in line with SA-300

QUESTION 17
The assistant of CA K is assigned responsibility of drafting “audit programme” relating to purchases
appearing in financial statements of “Broad Industries”, a partnership firm. The said firm is a GST
registered tax payer and is engaged in manufacturing of packing boxes from a special type of
paper taxable under GST. Help him by drafting a sample audit programme for purchases.

Some direct questions

Q1 The engagement partner, of a firm of auditors, is explaining to his audit team, undergoing
practical training, the inter relationship between audit strategy and audit plan. Discuss the points
which the engagement partner will explain to his team in this regard.
Q2 Standards on Auditing (SAs) apply in “audit of historical financial information” whereas
Standards on Review Engagements (SREs) apply in “review of historical financial information.”
Explain in detail giving examples.
Q3 Preliminary engagement activities include certain activities to be performed by an auditor while
planning an audit. Discuss such activities briefly. How performing such activities assists an
auditor?

Q4 Standards on Auditing (SAs) apply in “audit of historical financial information” whereas

Standards on Review Engagements (SREs) apply in “review of historical financial information”.
Standards on auditing apply in “audit” of historical financial information which is a
reasonable assurance engagement whereas Standards on Review Engagements apply in
“review” of historical financial information which is a limited assurance engagement only.