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CA – INTERMEDIATE (Nov. 2019)

GROUP II – PAPER 6
AUDITING AND ASSURANCE
(Series – 2)
Batch : All Date :
Time Allowed: - 3 Hours Maximum Marks: 100

Division "B"
Question No. 1 is compulsory.
Attempt any four questions from the rest
Total 70 Marks

1A. State with reasons in brief whether the following statements are True or False. 7x2=14
(Any Seven)
i. The auditor should express qualified or adverse opinion if financial statements have
not been prepared on going concern basis and adequate disclosure is also not made
thereof in the financial statements

ii. Store and spare parts should be shown under Fixed Assets in the Balance Sheet as per
Schedule III to the Companies Act, 2013.

iii. Substantive procedure may be defined as an audit procedure designed to evaluate the
operating effectiveness of controls in preventing, or detecting and correcting material
misstatements at the assertion level.

iv. While conducting audit of Government companies the auditors are paid their
professional fees as prescribed by the Government.

v. If the auditor of the company has reason to believe that an offence involving fraud is
being or has been committed against the company by officers or employees of the
company, he shall immediately report the matter to the Audit Committee.

vi. If LLP (Limited Liability Partnership Firm) is appointed as an auditor of a company,

every partner of a firm shall be authorized to act as an auditor.

vii. The auditor is not expected to, and cannot, reduce audit risk to zero and cannot

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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.

viii. The risk of not detecting a material misstatement resulting from fraud is higher than
the risk of not detecting one resulting from error.

2A. Explain in detail the duties of Comptroller and Auditor General of India. 4

B. Under what circumstances the retiring Auditors cannot be reappointed? 4

C. “A satisfactory control environment is not an absolute deterrent to fraud although it 3

may help reduce the risk of fraud.” Explain.

D. ‘After the statutory audit has been completed a fraud has been detected at the office 3
of the auditee.’ What is your defence as an auditor?

3A The engagement team of FRN & Co.- Auditors of Bank of Baroda held discussions to 4
gain better understanding of the bank and its environment, including internal control,
and also to assess the potential for material misstatements of the financial statements.
The discussion between the members of the engagement team and the audit
engagement partner are being done on the susceptibility of the bank’s financial
statements to material misstatements. These discussions are ordinarily done at the
planning stage of an audit.
Analyse and Advise the matters to be discussed in the engagement team discussion.

B The quantity of audit evidence needed is affected by the auditor’s assessment of the 4
risks of misstatement. Auditor’s judgment as to sufficiency may be affected by few
factors. Explain.

C Verification of liabilities is as important as that of assets, considering if any liability is 3

omitted (or understated) or overstated, the Balance Sheet would not show a true and
fair view of the state of affairs of the entity. Explain stating also criteria for a liability to
be classified as current liability.

D When does an auditor issue unqualified opinion and what does it include? 3

4A XYZ Ltd is engaged in trading of electronic goods and having huge accounts 4
receivables. For analysing the whole accounts receivables, auditor wanted to use
sampling technique. In considering the characteristics of the population from
which the sample will be drawn, the auditor determines that stratification or value-
weighted selection technique is appropriate. SA 530 provides guidance to the auditor
on the use of stratification and value-weighted sampling techniques. Advise the
auditor in accordance with SA 530

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B You are appointed as an auditor of PQRS Pvt. Ltd. PQRS Pvt. Ltd. reports the following 4
position as on 31st March, 2017:

Paid up capital 90lacs

Revaluation reserve 10lacs
Capital reserve 11lacs
P&TA/c [Dr. Balance] 2lacs

The Management of the Company contends that CARO2016 is not applicable to it.
Comment.

C “The auditor should plan his work to enable him to conduct an effective audit in an 3
efficient and timely manner. Plans should be based on knowledge of the client’s
business” Discuss stating clearly the broad points you would be covering in framing
plan to conduct audit in an efficient and effective manner. Discuss.
D The auditor CA Z appointed under section 139 was removed from his office before the 3
expiry of his term by an ordinary resolution of the company. Comment explaining
clearly the procedure of removal of auditor before expiry of term.

5A RAG is proprietorship firm engaged in the manufacturing of textile and handloom 4

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 2017-18,
proprietor of the firm is worried about the financial position of the company and is
under the impression that since he is out of India, therefore firm might run into losses.
He approaches a CA about advantages of getting his accounts audited throughout the
year so that he may not suffer due to accounting weaknesses. Advise regarding
advantages of getting accounts audited. Discuss.

B State the matters to be considered for acquiring knowledge of the business of the 4
client by the auditor.

C The scope of auditor’s inquiry under clause (x) of paragraph 3 of Companies (Auditor’s 3
Report) Order, 2016 is restricted to frauds ‘noticed or reported’ during the year.
Explain.

D Define Constitution of Audit committee. 3

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6A PQR Company Ltd. removed their first auditor by passing a resolution in the meeting 4
of the Board of Directors for his removal without obtaining prior approval from the
Central Government. Comment.

B The reliability of data is influenced by its source and nature and is dependent on the 4
circumstances under which it is obtained. Accordingly, explain the factors that are
relevant when determining whether data is reliable for purposes of designing
substantive analytical procedures.

OR

In an audit of financial statements, an auditor is required to understand the entity and

its business, including IT as per SA 315. Understanding the entity and its automated
environment involves understanding how IT department is organized, IT activities,
the IT dependencies, relevant risks and controls.
Advise some of the points that an auditor should consider to obtain an understanding
of the company’s automated environment

C As statutory auditor of company list out audit procedure required to be undertaken

for the following:
4
(i) Employee benefit expenses
(ii) Legal and professional. 2

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