Audit Reg-Class Test-4

Time: 1.5 Hrs MM: 50 Marks

Instructions:
• All Questions are compulsory
• Reading time 8 mins
• After completing the test mail to auditregulartest@gmail.com with Subject Line: May/Nov-23
• Along with the test attach your screenshot of mail containing batch enrolment confirmation

Part 1: Descriptive Questions [40 Marks]

1. During the audit of Tata Steel Ltd, a listed company, Engagement Partner (EP) completed his reviews and
also ensured compliance with independence requirements that apply to the audit engagement. The
engagement files were also reviewed by the Engagement Quality Control Reviewer (EQCR) except the
independence assessment documentation.

Engagement Partner was of the view that matters related to independence assessment are the responsibility
of the Engagement Partner and not Engagement Quality Control Reviewer.
Engagement Quality Control Reviewer objected to this and refused to sign off the documentation. Please
advise as per SA 220. [5M]

2. On 25th March, 2022, the directors of Dhony Ltd. instructed their accountant to enter purchases
amounting Rs. 1.06 crores from a company incorporated dated 21st March, 2022. However, no amount was
actually paid and Rs. 1.06 crore was provided in the books of account as purchases for the year ending on
31st March, 2022.

On inspection, no documentary or other evidence of such purchases was found. As the auditor of Dhony
Ltd., what would be your approach regarding reporting of such bogus purchases? [5M]

3. CA Abhinanadan is an auditor of KM Private Limited. During the course of audit, CA Abhinanadan becomes
aware of information concerning an instance of noncompliance or suspected non-compliance with laws and
regulations. Being a senior partner of CA. Abhinanadan, guide him regarding audit procedures to be followed
when non-compliance is identified or suspected. [5M]

4. You are engaged by M/s. Real Ltd. as an internal auditor for the financial year 2020-2021. While applying
risk assessment procedures of inquiring from management and various analytical procedures, you have
identified some risks which in your opinion may lead to material misstatement at the financial level and
assertion level.
Which factors as an auditor will you consider while exercising judgement as to whether such risks are
significant risks or not? [5M]

5. Cineplex, a movie theatre complex, is the foremost theatre located in Delhi. Along with the sale of tickets
over the counter and online booking, the major proportion of income is from the cafe, shops, pubs etc.
located in the complex. Its other income includes advertisements exhibited within/outside the premises
such as hoardings, banners, slides, short films etc. The facility for parking of vehicles is also provided in the
basement of the premises. Cineplex appointed your firm as the auditor of the entity. Being the head of the
audit team, you are, therefore, required to draw an audit programme initially in respect of its revenue and
expenditure considering the above mentioned facts along with other relevant points relating to a complex.
[5M]
6. Mr. S & Mr. J are a senior and junior articled assistant respectively, in a renowned audit firm. Both were
assigned statutory audit of a manufacturing company. Mr. S instructed his junior to draft an audit plan by
taking reference from a similar client (a partnership firm) who was engaged in the same business. Mr. J was
confused as to how that reference could suit in this case, since the nature and extent of planning would vary
for both clients. After few days, the audit work commenced. During the course of the audit, certain events
took place, which made Mr. J to rethink about the audit plan initially designed. He approached Mr. S and
enquired about when would an audit plan require a change.
Comment about both the situations face by Mr. J in the above situation. [5M]

7. BADHAM Ltd is engaged in the business of manufacturing of carpets. The company is planning to expand
and diversify its operations. The management has increased the focus on internal controls to ensure better
governance. The management discussed with the statutory auditors to ensure the steps required to be taken
so that the statutory audit is risk based and focused on areas of greatest risk to the achievement of the
company’s objectives.
(a) Name the key steps and phases involved in Risk Based Audit. [1.5M]
(b) Also, discuss the steps to be taken for the risk assessment phase of the audit. [3.5M]

8. 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? [5M]
 Part B: MCQs [10 Marks (5Q*2M each)]

1. Kshitij Private Ltd is a company based out of Kochi having operations primarily in Europe. Because of the
nature of the operations of the company, it is required to prepare its financial statements as per
International Standards for reporting to the local regulatory authorities over there. Since the business is
based in Europe, the audit team is also required to visit the locations wherever the company has offices and
is accordingly, required to perform certain audit procedures over there. During the audit of this company
for the financial year ended 31 March, 2020, the auditors, who had planned their work appropriately and
had a large team for conducting the audit, were facing lot of challenges at various stages. They were also
required to revisit their materiality level during the course of the work. However, at the time of final reviews
when this was discussed with the Audit Partner (Audit Incharge), he was not convinced with the approach
of the audit team wherein they reassessed their plans continuously resulting in waste of time. In this
situation, please advise which one of the following would be correct.

(a) Audit Partner being the senior most team member is right and same thing should be considered by audit
team by documenting it in the audit file.
(b) Audit Partner’s view is not correct as the audit team did the right thing.
(c) Audit Partner was correct, however, during the course of an audit which required visits at various
locations it was mandatory.
(d) Audit Partner’s view is not correct because the materiality was revised by the audit team which is a big
thing and same should have been considered by the audit partner.

2. The Board of Directors of XYZ Ltd, one of the top 2000 listed entities meets 4 times a year. What should
be the quorum of the Board of Directors from 1st April 2020-
(a) 1/3rd of its total strength or 3 directors, whichever is higher, including at least 1 independent director.
(b) 1/3rd of its total strength or 4 directors, whichever is higher, including at least 1 independent director.
(c) 1/3rd of its total strength or 3 directors, whichever is higher, including at least 2 independent director.
(d) 1/3rd of its total strength or 3 directors, whichever is higher, including at least 1 non-executive director.

3. XYZ Ltd. is a Public Limited Company engaged in the manufacturing of TMT Bars. M/s. UV & Associates
are the statutory auditors of XYZ Ltd. for the FY 2019-20. The company is listed on National Stock Exchange.
CA Udhav, the engagement partner is considering the requirements with respect to Regulation 27 and
Schedule II (LODR) for corporate governance compliance of XYZ Ltd. Which of the following is correct in this
regard?

(a) XYZ Ltd. shall submit a quarterly compliance report on corporate governance in the format as specified
by its Board from time to time to NSE within 21 days from the close of quarter. The report shall be signed
either by the Compliance Officer or the Chief Executive Officer of XYZ Ltd.
(b) XYZ Ltd. shall submit a monthly compliance report on corporate governance in the format as specified
by its Board from time to time to NSE within 21 days from the end of the month. The report shall be signed
either by the General Manager of the accounts department of XYZ Ltd.
(c) XYZ Ltd. shall submit a quarterly compliance report on corporate governance in the format as specified
by its Board from time to time to NSE within 30 days from the close of quarter. The report shall be signed
either by the Compliance Officer or the Chief Executive Officer of XYZ Ltd.
(d) XYZ Ltd. shall submit the annual compliance report on corporate governance in the format as specified
by its Board from time to time to NSE within 30 days from the year end. The report shall be signed either by
the General Manager of the Accounts Department of the Company.

4. If the prior period financial statements were not audited, the auditor shall state the same in .

(a) Key audit matter section

(b) Emphasis of matter paragraph
(c) Going concern paragraph
(d) Other matter paragraph

5. Mr. Chitragupta Bakutra, a Chartered Accountant is a sole proprietor of Bakutra & Co. which has been
appointed as a statutory auditor of Kraftic Ltd. from FY 2020-21, for a term of 5 years. Mr. Chitragupta is a
director simplicitor of Kalavitur Ltd. which acquired 55% shares of Kraftic Ltd., for the first time, on 25th
May, 2020. Mr. Chitragupta’s term as a director of Kalavitur Ltd. got expired on 31st March, 2021 and he
was not re-appointed. Kalavitur Ltd. made a proposal to Mr. Chitragupta for appointing Bakutra & Co. as its
statutory auditor from FY 2020-21, for a term of 5 years, which was accepted by Mr. Chitragupta. Is there
any violation of the Code of Ethics by Mr. Chitragupta Bakutra?

(a) Yes, as he cannot be continued to be director of a company, the subsidiary of which he is an auditor and
also he cannot accept appointment of auditor of a Kalavitur Ltd. Without finishing of the cooling period for
the same.
(b) There is no bar in being a director simplicitor of a company, the subsidiary of which the person is an
auditor. However, by accepting appointment as an auditor of Kalavitur Ltd. Without finishing of the cooling
period for the same, he has violated the Code of Ethics.
(c) Yes, as he cannot be continued to be director of a company, the subsidiary of which he is an auditor.
However, there is no bar in becoming an auditor of a company of which a person has been its director.
(d) There is no bar in being a director simplicitor of a company, the subsidiary of which the person is an
auditor and also there is no requirement of following the cooling period by a director simplicitor who on
expiry of its term, wants to become auditor of such company.

All the best J