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PART -1

auditor of JKL
1. M/s DEF & Associates have been appointed as the statutorv
Ltd. for the first time for the financial vear 2024-25. The engagement
need of
partner, CA D, is briefing his engagement team about the
of
Engagement Standards and quality control standards in the areas
services. Out of
financial statement audits and in other types of assurance
standards are
the following which one point is not correct about why 2
needed ?

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(A) Standards ensure audit quality.

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(B) Standards equip professional accountants with professional knowledge

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& Skill. es i5
(C) Standards promote uniformity as audit of financial statements
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carried out following these Standards.
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benchmarks
(D) Standards ensure carrying out of audit against established
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at par with local practices.

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Group of
2 RDB & Co. have been appointed as statutory auditors of INA
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&
hotels. This is the first time the firm is auditing an industry in food
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members of the
beverage. The engagement partner, CA R, and other key
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an audit
engagement team have undertaken the activity of development of
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Hotel's business and

plan of NA Hotels after thorough understanding the
which of the following
its environment. As per SA 300, description of
? 2
matters is not a part of developing an audit plan
procedures at
(A) The nature, timing and extent of planned further audit
assertion level.
procedure.
(B) The nature, timing and extent of planned risk assessment
to perform the
(C) The nature, timing and extent of resources necessary
engagement.
carried out so
(D) Other planned audit procedures that are required to be
that the engagement complies with SAs.
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company wanted the auditor to certify Export
of a
3. The Board of Directors the authorities. The auditor also
submitting to
Sales during the vear for to various debtors and creditors
letters to be sent
Signed the Confirmation 2
for confirming their balances as on
31.03.2024.
for:
UDIN is required to be generated by the auditor
(A) Confirmation letters only.
(B) Export sales during the year certificate only.
Confirmation letters.
year certificate and
(C) Both Export sales during the
(D) No UDIN is required to be generated.

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Case Scenario - 1 :
office at New Delhi, is in the
GHB Ltd., a listed company, having its registered
.
es brands of Tea. BPP
business of blending, processing, packing and selling various
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the statutory auditors of the
& Co. LLP, Chartered Accountants, are appointed as
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partner for the

company for the financial year 2023-24. CA B is the engagement
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assignment.
of Himachal Pradesh.
The company has a centralised warehouse near the border
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in
CA B's attendance, on 31 March, 2024, at the physical inventory counting
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natural
respect of the said warehouse became impracticable on account of
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calamity in that area. It also became impossible for CA B to perform alternative

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audit procedures to obtain sufficient appropriate audit evidence regarding the

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existence and condition of the inventory.

The company had spent huge amount on employee benefits. Hence, CA B

instructed his assistants to test the controls that the company had set around the
employee bene fit expenses. After being satisfied with the controls maintained by
the company, he instructed his team to bifurcate the employee bene fit expenses
into salaries and wages, contribution to PF, expenses on ESOP/ ESPP and staft
welfare expenses.
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SMR1
The engagement partner CA B, while cvaluating, validating and reporting on the
design and etficiency of internal financial controls at GHB LId., also impressed
upon the directorS, independent directors and the audit committec the way in
1which the Companies Act, 2013 has placed a greater emphasis on the cffective
implementation and reporting on the internal controls ofa company.
Due to time constraints, CA B is under pressure to issue a clean report in the
limited time frame. He has insufficient time to properly perform or complete
relevant duties and issue appropriate audit report.
The Board of Directors want CA B to certify the debtors to be sent to the bank

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without checking. CA B agrees, as most of the professional income of BPP &

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Co. LLP comes from GHB Ltd. They have undue dependence on the fees from

.
GHB Ltd. hence; they are concerned about losing the engagement.
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Based on the above facts, answer the following Q. Nos. 4 to 8.
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4. Due to tight deadlines, CA B has insufficient time to properly perform or

complete the relevant duties and he has to sign off clean audit report. Which
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fundamental principle goverming professional ethics is disregarded by him ?
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(A) Professional behaviour

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(B) Professional competence and due care

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(C) Integrity L446@2

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(D) Objectivity

5. Undue dependence on the fees from GHB Ltd. creates which threat of
independence for the auditors ? 2

(A) Familiarity threat

(B) Intimidation threat
(C) Self-interest threat
(D) Advocacy threat
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(6)
SMR1

6. Since it became impracticable for CA B, on 31" March, 2024, to attend

physical inventory counting at the warehouse and also became impossible
to perform alternative audit procedures to obtain sufficient appropriate audit
evidence regarding the existence and conditions of inventory, CA B shall 2

(A) Rely on GHB Ltd.'s perpetual inventory records as audit evidence and
express unmodified opinion.
(B) Take Management Representation regarding the existence and
valuation of inventory and mention in Emphasis of Matter paragraph.
(C) Omit altogether the audit procedure of physical inventory counting
from the audit programme because of impracticability.

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(D) Modify the opinion in the auditor's report in accordance with SA 705

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as a result of the scope limitation.

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Which assertion concerning the bifurcation of employee expenses into
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various heads is being verified by CA B? 2
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(A) Measurement
(B) Occurrence
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(C) Completeness
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(D) Disclosures
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With reference to reporting on the internal financial controls system under

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8
the Companies Act, 2013, which of the following does not fall within the
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nature of responsibility of GHB Ltd. ? 2

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laid
(A) Directors' responsibility statement to state that the Directors had
down internal financial controls to be followed by the company and
that such internal financial controls are adequate and were operating
effectively.
(B) In accordance with the terms of reference specified in writing by the
Board, act of every audit committee 1o include evaluation of internal
financial controls and risk management systems.

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(7)
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(C) Board of Directors have to appoint an expert to
state that the internal
financial controls of the company are
nature of its business.
commensurate with the Slze ae
(D) In terms of code for Independent Directors,
independent directorsS to
get themselves satisfied that financial controls and
systems of risK
management are robust and defensible.

Case Scenario -2:

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M/s KRISH & Company is a firm of Chartered Accountants based in
Punjab.Ch

.
K, CA R, CA I, and CA SH are the partners of the firm. The firm is
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various audit assignments. The engagement partners, who were handling ien
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respective assignments for the financial year 2023-24, dealt with the following
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issues raised during the course of their respective audits.

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M/s KRISH &Co. is appointed as the joint auditor along with M/s. PK and
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Associates and M/s. RS and Associates for the audit of a large

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manufacturing company for the financial year 2023-24. CA K is in charge

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of this audit. They have divided their audit areas and have also identified
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the common audit areas, which will be applicable to all the joint auditors.
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While foming the opinion, CA K had a different opinion whereas, the other
two audit firms shared the same opinion. Both of them contended that as
they were forming a majority. Mis KRISH &Co. will have to agree with
their opinion.
CA R is conducting the statutory audit of PAWAN Ltd. He observed that
during the year, the company has issued shares at premium and has
transferred the amount received as premium to securities premium account
He wants to ensure that PAWAN Lid. has utilised the amount available in
the
the securities premium amount for the puposes pernitted under
Companies Act, 2013.
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Registrar of Co-operative Societies has appointed M/s KRISH & Co. as the
statutory auditor of NAND Co-Operative Society for the financial year
2023-24. CA I is looking after the audit of the said registered society.
During the year, in terms of Section 34 of the cooperative societies Act,
with the sanction of the Registrár, Society has contributed for charitable
purposes as defined in section 2 of the Charitable Endowments Act, 1890.
CA Iis ensuring whether requirements, as regards contribution made, have
been complied with.
All the engagement partners and the audit team of M/s KRISH & Co. have
deliberations and discussions every week through google meet to review the

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progress of their respective assignments. During last such meet, CA SH, the

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managing partner, briefed to the team about the form, content, and extent of
audit documentation in terms of SA 230, while citing examples of records

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to be excluded as well as to be included as a part of audit documentation.
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Based on the above facts, answer the following ). Nos. 9 to 12.

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9. Which of the following need not be included by the audit team as a part of
audit documentation during handling of their respective assignments ?
2
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(A) Draft audit engagement letter.

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(B) Significant and specific contracts and agreements.

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(C) Summaries of significant matters.

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(D) Checklists.

course of
10. In case of difference of opinion between the joint auditors, what
action can M/s. KRISH & Co. take while issuing the audit report ?
2

the majority
(A) They will have to agree with the opinion formed by
auditors, but they can mention their view in the Emphasis of Matter
Paragraph.
(B) They will have to agrec with the opinion formed by the majority ot
auditors.
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(C) They can SMRI
add a separate audit opinion paragraph in the common audit
report,
(D) They can issue
separate
the joint auditors shall audit report and the audit reports issued by
make a reference to each other's audit
report.
The securities premium account of PAWAN Ltd. cannot be applied for
which of the following
purposes ?
(A) In writing off the expenses of, or the

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commission paid or discount
allowed any issue of equity shares of the
on

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(B) In writing off the debit balance in
company.
.
the Profit & Loss account.
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(C) For the purchase of its own
shares or other securities under section b3.
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(D) In paying up unissued equity shares of the

company to be issued to the
members the company as fully paid bonus shares.
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12. CA I, who is in charge of audit of

NAND Co-Operative Society, wants to
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ensure that the society has contributed for charitable

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purposes within the

limits prescribed. How much is the society allowed to
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contribute for
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charitable purposes ? 2
(A) contribute an amount at the appropriate rate as per class of the society,
(B) contribute an amount not exceeding 10% of the net profits
remaining
after the compulsory transfer to the reserve fund.
(C) contribute an amount not exceeding 20% of the net profits remainino
after the compulsory transfer to the reserve fund,
(D) contribute annually at prescribed percentage of the profits as approyed
by the General body of the society.

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SMR1

Case Scenarlo - 3:

Mega Power Ltd. is a manufacturer of solar lanterns, which are used in remote
villages where there is no reliable supply of electricity. However, due to power
projects undertaken by the government, the demand for their solar lanterns has
significantly declined over the past few years.
The company was in need of ? 2 crores for working capital and other expenses
but was not able to fund this amount. Consequently, their suppliers were paid

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Inuch later than usual and hence some of them withdrew the credit terms,

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meaning the company had to pay cash on delivery. This created a severe cash

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crunch and the auditor feels that other than the cash crunch, there are several
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other financial indicators that cast a significant doubt on the company's ability to
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continue as a going concern.

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The management of the company, however, assures the auditor that this is
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temporary and the situation will change soon as they'are planning to diversify
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their business. They are ready to provide written representation for the same. The
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auditor feels that a material uncertainty still exists. The auditor wants the
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management to make adequate disclosure about this in the financial statements.

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The auditor wants to include a separate section about this in his audit report. He

is also contemplating about the kind of audit report that should be issued.
The auditor has concerns about ethical values and diligence of management. He
is concerned about the reliability of the representations made by the management
and the audit evidence in general. The auditor is of the opinion that the writen
represerntations from management are not reliable.

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Basedonthe above
NMMI
facts, anwwer the
Pipancial events or conditlons that
follring ) ia 14 14

abilityto continue as a golngconcern dres nut inluds 2

(A) Inability to pay creditors on due dates.
Inability to comply with the terms of lvan
( Shortage of important supplies. aJeeIiert.
(D) Substantial operating losses.

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. Which kind of audit report will the auditor

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issue, if the use of going con cern
basis of accounting IS appropriate, but a material

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2deguate disclosure of the material uncertainty is made in the
financial
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statements by the management ? 2
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(A) Disclaimer of opinion

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(B) Adverse opinion

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(C) Unmodified opinion

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(D) Qualified opinion

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13. If the auditor is of the opinion that the written representations are not
reliable, what kind of audit opinion should be issued by him ? 2

(A) Adverse opinion

(B) Disclaimer of opinion
(C) Unmodified opinion and mention the facts in Other Matters
Paragraph
(D) Unmodified opinion and mention the facts in Emphasis of Matter
Paragraph

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SMR2
PART - 1I

endino
1. (a) CA Rashmi is the auditor of ABC Ltd. for the financial year 4
31/03/2024. The audit report for the year was signed by her on
19/04/2024.
On 25/4/2024, the company received a communication from the
Central Government that an incentive amount of ? 5 crores pertaining
to financial ycar 2023-24 was approved. It was paid to the company
before the end of April 2024. The financial statements of the company
were not yet issued to the shareholders.

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The Board of Directors wished to include the incentive amount in the

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financial statements and requested the auditor to issue a fresh audit
report for the year ended 31/03/2024.
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Analyze the issue involved and give an overview of the auditor's
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responsibility in such a situation.
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(b) Auditors cannot normally examine all the information available to 4

them as it would be impracticable to do so and using audit sampling
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will produce valid conclusions. Samples should be selected in such a

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manner that it is representative of the population from which the

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sample is being selected.

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Which sample selection method is used in the follow ing two cases ?
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Identify and explain them briefly.

(i) Auditor divided the trade receivables in three groups: balances
above 20 lakhs, balances between 10 lakhs to 20 lakhs and
balances below 10 lakhs. He selected different percentages of
items from cach group.
(ii) Auditor uses the sample of 50 consecutive cheques to test
whether the cheques are signed by authorized signatories, rather
than picking 50 single cheques throughout the year.
SMR2

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SMR2
3
(c) PD & Co. Chartercd Accountants, were appointed as the statutory
auditors of MR Limitcd 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.

financial 3
(d) Ms. PQ Limited has a turnover of 807 crores during the
Services Tax
year 2023-24. It has outstanding dues towards Goods and
(GST) of 10 lakhs since June 2023. When enquired by the auditor,
they have filed an

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the company's nanagement informed him that
Authorities,
objection letter for the said demand with the GST

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Department. State the
however, no response is received from the GST

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reporting responsibility of the auditor under paragraph
2020]
of the Companies Auditor's Report Order, 2020 [CARO,
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wanted to ensure that the 4

2 (a) CA B, was the auditor of Star Limited. He
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accounts and also wanted to

company had correctly reconciled its bank
control system was
understand whether and how far the internal
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test of control was CA B

operating in the company. What kind of
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that can be applied while

performing ? What are the other procedures
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undertaking test of controls ?

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overdrafi facility from a nationalized 4

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(b) Alfa Limited has availed bank

company received balance confirmation certificate for bank
bank. The from the bank.
overdraft balance as on 31.03.2024
Amount ()
Particulars
Bank Certificate 25,66,200/
Bank overdraft balance as per
26.45.300/
Bank overdraft balance as per Ledger
from Bank taken by Alfa
How will you vouch/verify borrowings
Limited ?
P.T.O.
SMR2

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 3

(b) (a) (d) (C)

documentation ?
correct
inventory was
31.03.2024.
inventory was
auditors M/s. (ii) company. iswanted engagement
(i) Identify CA between audit The disclosure certain
any Schedule
trying
prepared. entrusted are Amit engagement 3
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? to team, ratiosratios
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JC & understand analyze is of Il
During w the partner these that
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person there controls undergoing as of
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supervise
the a exists
as explainand the ratios.
responsible
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audit
accumulated
it. s in in
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assistant process CA
t u the of explain and be
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file. following audit disclosed
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of for which
Ltd. to firm (4)
Is has segregation for ncomponents Ltd.
verify his plan. Act,
may the verification,
kept and partner
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assistant the of statutory different and audit, Mention
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 (5)
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SMR2

r d . i g . 8 h e t lunt ,f? 25 crores irom 1MN Bank Ltd. 3

*sv. pwer of th onpany rangcd betwcen 22 crores and
7 s duing 1he yeor 2023-24. The linit availed by the company
tatud lss than 20 crore, during all the days of the financial year
22-24 Iit ornpany ba not deposited any amount in the cash credit
last
a 8d thTC are no other credits to this acCount during the
LMN
*2)29rter.. iow will this account be classificd in the books of
iark Ld. as tn 31-3-2024 ? 1ixplain.
size of
e) ?'y ate the ,talutury auditor of NP Lid. I.0oking at the huge
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statistical
iTfll3r lanactjons, you dirccted your tcam members to use
sat1nplig. One of the team members, Mr. ), wants to select samples

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asd uporn his perSonal experience & knowledge as he is not aware of

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tatistical sarnpling. You are required to cxplain to Mr. Q why the use
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of satiical arnpling method is more scientific and appropriate.
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Fi Ltd. has appointed M/s. MN & Co., Chartered Accountants, as

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(a)
the tatutory auditors for the year 2024-25. CA N, the engagement
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he is
pariner, conpleted his risk assessment procedure. However,
ICeTncd about the management of human resources to be employed
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overall
t) conduct the audit. For this purpOse, he wants to establish an
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audit stratcgy for setting the scope, timing and direction of the audit.
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Decribe how the process of cstablishment of overall audit strategy

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will assist him in managing deployment of his humarn resources for

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varsous audit arcas.

(b) JB L.imited has invested huge sums of money on establishnent of new 1

Property, Plant and Equipment during the year under audit. They have
incurred an amount of ? 5,70,000/- on dismantling of an old plant,
which had become obsoletc, so that anew plant can be set up at the
cXIsting Jocalion. The Auditor is in the process of verifying the cost
iIcurrcd towards addition to Property, Plant and Equipment. What
should be the accounting treatment ol the amount spent on dismantling
of old plant in 1he financial stalements ? Which clennents of cost
should bc CoSIdercd for vahuing Propcrly, Plant and Equpnient?
SMR2 P.T.0.
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 6

(a) (a) (d)

(ii) In
transactions.procedure
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(i"Controls aswas firms hefor CA abovethe ?theProvision Expenses
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