CA FINAL ADVANCED AUDITING AND PROFESSION

SR NO. QUESTION
As per Section 139(6), the first auditor of a company, other than a Government company,
1
shall be appointed by the __________
the first auditor of a company, other than a Government company, shall be appointed within
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___ days from the date of registration.
In the case of failure of the Board to appoint the auditor, the ___ of the company shall within
3
__days at an general meeting appoint the auditor.

4 The First auditor shall hold office till the ________

Managing Director of PQR Ltd. himself wants to appoint Shri Ganpati, a practicing Chartered
5 Accountant, as first auditor of the company. Comment on the proposed action of the
Managing Director.

Section 139(7) provides that in the case of a Government company the first auditor shall be
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appointed by the _________
Section 139(7) provides that in the case of a Government company the first auditor shall be
7 appointed within ___ days from the date of
registration of the company.
In case the Comptroller and Auditor-General of India does not appoint such auditor within the
8 above said period, the _____ of the company shall appoint such auditor within the next __
days
In the case of failure of the Board to appoint first auditor of a government company within
9 next 30 days, it shall inform the _____ of the company who shall appoint such auditor within
____ days at an general meeting

The first auditor of Healthy Wealthy Ltd., a Government company, was appointed by the
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Board of Directors

11 Within how many days the auditor is required to intimate ROC about his appointment?

Any casual vacancy, in the case of a company other than a company whose accounts are
12 subject to audit by an auditor appointed by the Comptroller and Auditor-General of India, be
filled by ___________.
Any casual vacancy, In the case of a company whose accounts are subject to audit by an
13 auditor appointed by the Comptroller and Auditor-General of India, be filled by the
_____________.
The auditor who has resigned from the company shall file within a period of __days from the
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date of resignation, a statement in the prescribed Form ____
In case of failure of the auditor to report about his resignation he shall be liable to a penalty
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which shall not be less than ______
Mr Ram who has been appointed by the members suddenly meets a plane crash and died. The
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casual vacancy shall be filled by
17 The subsequent auditor of a Government Company is appointed by

A company ABC Ltd whose shareholding pattern is as follows; 20 percent shareholding by

18 Central Government, 20 percent by State Government, 20 percent by Government Company.
Who shall appoint the first auditor?

A company ABC Ltd whose shareholding pattern is as follows; 30 percent shareholding by

Central Government, 30 percent by State Government. The auditor of the same is appointed
19
by C&AG. Subsequently he is disqualified. The
vacancy is filled by?

“Mr. Avi”, a practicing Chartered Accountant, is holding securities of

20 “XYZ Ltd.” having face value of Rs. 990/-. Whether Mr. Avi is qualified for appointment as
an Auditor of “XYZ Ltd.”?

“Mr. PK” is a practicing Chartered Accountant and “Mr. Qurashi”, the relative of “Mr. PK”,
21 is holding securities of “ABC Ltd.” having face value of Rs. 99,000/-.
Whether “Mr. PK” is Qualified for being appointed as an auditor of “ABC Ltd.”?

“M/s Bhavin & Co.” is an Audit Firm having partners “Mr. Bala” and “Mr. Chandu”. “Mr.
A” the relative of “Mr. Chandu”, is holding securities of “AMD Ltd.” having face value of
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Rs. 1,00,100/-. Whether “M/s Bhavin & Co.” is qualified for being appointed as an auditor of
“AMD Ltd.”?

M/s Rajamohan & Co. is an audit firm having partners CA. Raja and CA. Mohan. The firm
has been offered the appointment as an auditor of Inn Ltd. for the Financial Year 2019-20.
23 Mr. Bee, the relative of CA. Raja, is holding 8,000 shares (face value of Rs. 10 each) in Inn
Ltd. having market value of Rs. 1,60,000. Whether M/s Rajamohan & Co. is disqualified to
be appointed as auditors of Inn Ltd.?

Mr Ram the auditor of the company (other than government company) submitted his
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resignation. He is required to intimate to ?

25 Mr Ram the auditor of the company submitted his resignation. He is required to intimate to ?
 The company proposes to remove Mr , Shyam the Auditor before the expiry of term. The
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procedure to be followed is?

27 What are the services not to be rendered by the auditor under section 144

CA. P is providing the services of Design and implementation of financial information

28 system to C Ltd. Later on, he was also offered to be appointed as an auditor of the company
for the current financial year. Advise.

Mr. Ajay, a Chartered Accountant has been appointed as an auditor of Bharat Ltd. in the
Annual General Meeting of the company held in September, 2022, which assignment he
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accepted. Subsequently in February, 2023, he joined Mr. Bajaj, another Chartered
Accountant, who is the Manager Finance of Bharat Ltd., as partner.

While determining the applicability of rotation of auditor’s , the amount of paid up share
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capital for private company shall be taken as?
While determining the applicability of rotation of auditor’s , the amount of paid up share
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capital for unlisted public companies shall be taken as?

While determining the applicability of rotation of auditor’s , the amount of public borrowings
32
from financial institutions, banks or public deposits for companies shall be taken as?

Mishra Ltd. is a private limited Company, having paid up share capital of

33 rupees 48 crore but having public borrowing from nationalized banks and
financial institutions of rupees 42 crore. Is rotation of Auditor applicable?

Mr. Ram, the auditor of the company has been removed by the Tribunal on the grounds of
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fraud. Which of the following implication is correct?

Rahul’s grandfather holds security of Rs 10 lakh face value in ABC Ltd. Which of the
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following statement is correct?

An individual auditor who has completed his term shall not be eligible for re-appointment as
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auditor in the same company for ____ years from the completion of his term

Mishra Ltd. is a limited Company, having paid up share capital of

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rupees 15 crore is constitution of Audit committee mandatory?

Mishra Ltd. is a Private limited Company, having paid up share capital of

38
rupees 15 crore is constitution of Audit committee mandatory?
 Mishra Ltd. is a listed Company, having paid up share capital of
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rupees 15 crore is constitution of Audit committee mandatory?

Mishra Ltd. is a public limited Companyhaving public borrowing from nationalized banks
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and financial institutions of rupees 50 crore. Is constitution of Audit committee mandatory?

Mishra Ltd. is a public limited Companyhaving public borrowing from nationalized banks
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and financial institutions of rupees 51 crore. Is constitution of Audit committee mandatory?

The application to the Central Government for removal of auditor shall be made in Form
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_____
The application for Removal of Auditor before Expiry of Term shall be made to the Central
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Government within ______ of the resolution.

The company shall hold the general meeting within ______ of receipt of approval of the
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Central Government for passing the special resolution for removal of Auditor.

45 An auditor may be appointed in maximum _____ companies.

46 The limit of twenty companies for appointment of Auditor does not include

“PQRST & Co.” is an Audit Firm having partners “Mr. P”, “Mr. Q”, “Mr. R”, “Mr. S” and
“Mr. T”, Chartered Accountants. “Mr. P”, “Mr. Q”, “Mr. R”, “Mr. S” and “Mr. T” are
47
holding appointment as an Auditor in 4, 5, 6, 10 and 15 Companies respectively. Provide the
maximum number of Audits remaining in the name of “PQRST & Co.”

“PQRST & Co.” is an Audit Firm having partners “Mr. P”, “Mr. Q”, “Mr. R”, “Mr. S” and
“Mr. T”, Chartered Accountants. “Mr. P”, “Mr. Q”, “Mr. R”, “Mr. S” and “Mr. T” are
holding appointment as an Auditor in 4, 5, 6, 10 and 15 Companies respectively. Provide the
48
maximum number of Audits remaining in the name of “PQRST & Co.”Provide the maximum
number of Audits remaining in the name of individual partner i.e. “Mr. P”, “Mr. Q”, Mr. R,
Mr. S and Mr. T respectively

The number of tax audit assignments that an auditor, as an individual or as a partner of a firm,
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can accept is ____

Rahul purchases goods of Rs 7,00,000 on credit. Subsequently he gets appointed as an auditor

50 of ABC Ltd .However, before getting appointed as auditor he pays off all his dues. Which of
the following statement is correct?

Singha Enterprise (CA Firm) has a business relationship with ABC Ltd. Singha Enterprise are
51
disqualified to be appointed as auditor of?
 "ABC and Company" are statuary auditors of ABC Ltd. Subsequently they started providing
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actuarial services to the company. Which of the following statement is correct?

53 The remuneration of auditors of government company is fixed by the

54 The auditor has the right to access the records of

55 Which of the following are to be included mandatorily in the audit report?

56 Who is empowered to conduct supplementary and test audit of Government Companies?

57 The Standards of Auditing shall be prescribed by

The Comptroller and Auditor-General of India shall within ___ days from the date of receipt
58
of the audit report have a right to supplementary audit.

59 What are the Duty of Auditor to Inquire into

60 Reporting of Fraud to CG as per Section 143(12) is required only in case of

61 Reporting of Fraud to CG as per Section 143(12) is required only when

___________ means, a step-by-step sequential record which provides evidence of the

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documented history of financial transactions to its source.

The auditor shall report the fraud to the Board or the Audit Committee, as the case may be,
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immediately but not later than __ days of his knowledge of the fraud

64 The Auditor may seek their reply or observations within __days

The report on fraud shall be sent to the _____________ in a sealed cover by Registered Post
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with Acknowledgement Due

66 The report on fraud shall be in the form of a statement as specified in Form _______.

The auditor is liable for penalty under Section 147 for contravention of the following
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sections:

Every company including all units and branches thereof, shall, in respect of each of its
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financial year is required to maintain cost records in prescribed Form __________.

Every company shall inform the cost auditor concerned of his or its appointment as such and
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file a notice of such appointment with the Central Government within ___________

Every company shall inform the cost auditor concerned of his or its appointment as such and
70 file a notice of such appointment with the Central Government through electronic mode, in
Form __________
 The cost auditor appointed as such shall continue in such capacity till the expiry of
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________________, for the financial year for which he has been appointed.

The cost auditor shall submit the cost audit report along with his or its reservations or
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qualifications or observations or suggestions, if any, in Form ____

The cost Auditor shall forward his duly signed report to the Board of Directors of the
73 company within a period of ____ days from the closure of the financial year to which the
report relates
Statement 1: The requirement for cost audit under these rules shall not be applicable to a
company which is operating from a special economic zone
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Statement 2: The requirement for cost audit under these rules shall not be applicable to a
company which is engaged in generation of electricity

M/s A whose revenue from exports, in foreign exchange, is seventy five per cent of its total
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revenue is cost Audit Mandatory?

76 Who can be cost auditor

A company shall within ____ days from the date of receipt of a copy of the cost audit report
prepared (in pursuance of a direction issued by Central Government) furnish the Central
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Government with such report along with full information and explanation on every
reservation or qualification contained therein, in Form _________

Section 131 of the Companies Act, 2013 allows board of director revise financial statement or
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a revised report in respect of any of the ______ preceding financial years

79 Section ____ of the Act has made the consolidation of financial statement mandatory

Where professional or other misconduct is proved, National Financial Reporting Authority

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have the power to make order, In case of Individuals

Where professional or other misconduct is proved, National Financial Reporting Authority

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have the power to make order, In case of firms

Every LLP is also required to submit Statement of Account and Solvency in Form 8 which
82 shall be filed within a period of ____ from the end of ______ of the financial year to which
the Statement of Account and Solvency relates
The fees for such inspection of an LLP is ___/- and fees for certified copy or extract of any
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document u/s 36 shall ____/- per page
 Gita and Associates received a notice from the company regarding general meeting to be held
to discuss the prospective merger and acquisition by the company. The engagement partner,
CA Sita decided not to attend the same by herself and to send CA Rohan (another partner
working with her in the firm, having COP and recently joined the firm) to attend the same as
her authorized representative. Also, she understood that there is no obligation as such on
them to attend such meeting though they have a right to receive such notice. Further, the
auditor came across a fraud whereby an accounts officer of Sarvodya Ltd. has made
unauthorized payments amounting to Rs. 0.80 crore using bogus cheques. The auditor
understands that as per the Companies (Audit and Auditors) Rules 2014 since fraud amount
does not exceed Rs. 1 crore, the reporting in this regard is not to be done to the Central
Government and only the company is bound to disclose such fraud in the Board’s report.
Further, during the financial year 2018-19 Sarvodya Ltd. acquired five companies out of
which two were foreign companies. Sarvodya Limited made consolidated financial
statements including the three Indian companies while the two foreign companies were not
consolidated mistakenly. The management of Sarvodya Ltd. decided to voluntarily revise its
accounts of financial year 2018-19 and subsequent year and discussed the matter with the
auditor. Also, when the statutory audit was going on, Sarvodya Ltd. started the process to
84.1
declare interim dividend for the financial year 2020-21 out of the profits of the same year.
However, the company did not transfer any profits to reserves for the financial year. This is
not correct as per the auditor. Further, the management of Sarvodya Ltd. did not intend to
transfer the amount of dividend so declared to a separate bank account as they have declared
interim dividend and according to them, such transfer is required in case of declaration of
final dividend only. During the course of audit, the auditors found that the company has not
made provision for tax even though such liability was anticipated at the time of finalizing
accounts for the FY 2020-21. When the auditor discussed the same with the management,
they were told that since the company has declared dividend out of the current year profits,
the company has not made provision for tax liability so anticipated and the same will be duly
paid at the time of return filing. During the month of August 2021 i.e. FY 2021-22, the
company had sold tyres to a two wheeler manufacturer namely Super X Ltd. valuing Rs. 10
lakh at arm’s length price. MDS bank has given guarantee to Sarvodya Ltd. for Super X Ltd.
The Branch Manager of MDS bank is Mr. Shyam, son of CA Sita. This may attract
disqualification of M/s Sita Gita and Associates as statutory auditor's for the next financial
year i.e. FY 2021-22.

With respect to the fraud committed by the accounts officer, is there any other reporting
84.2
requirement apart from the disclosure in the Board’s report?

What should CA Sita advise the management regarding the voluntary revision of financial
84.3
statements related to FY 2018-19 and subsequent year?
 With respect to the revision of financial statements of FY 2018-
84.4 19 and subsequent year, can M/s Sita Gita & Associates revise the corresponding tax audit
report also for those years if the financial statements are revised?

Is management of Sarvodya Ltd. correct in not transferring any percentage of profits to the
84.5
reserves before it declares the interim dividend out of current year profits of FY 2020-21?

Is the contention of management correct in not transferring the amount of dividend declared
84.6
to a separate bank account?

With respect to the non-provision of income tax liability by Sarvodya Ltd., what course of
84.7
action should M/s Sita Gita & Associates follow in their audit report?
 QRP Lifecare Private Limited, (the ‘Company’ or ‘QRP’), is engaged in the business of
pharmaceuticals. The Company is based in Hyderabad and has an annual turnover of INR 400
crore. One of the directors of the Company did not give declaration to the Company under
section 164(2) of the Companies Act 2013 as at 31st
March 2021. The auditors of the Company completed their audit of the financial statements
for the year ended 31st March 2021 and were awaiting this declaration. But the management
was of the view that they will not be able to receive this declaration. All other directors had
given the required declarations and the auditors had also verified that.
QRP had given an advance amounting to INR 50 crore to its subsidiary, RPS Ltd. (RPS), on
12th January 2017 for carrying out certain projects. The net worth of the subsidiary had
eroded substantially as at 31st March 2021 and looking at the future projections there was no
certainty regarding profitability of the subsidiary in the future years.
QRP has another subsidiary, SPS Ltd. (SPS), in UK. The Company had outstanding trade
receivables amounting to INR 10 crore from SPS. QRP observed that there have been some
FEMA (Foreign Exchange Management Act) non-compliances on the part of QRP but the
management had an action plan which they had initiated and on the basis of which
management was sure that the non-compliance would be done good and there would be no
85.1
penalty on the company. In case the penalty arises in future, the impact would be significant
for QRP. The auditors of QRP also evaluated this matter by involving a regulatory matters
expert and agreed with the management’s view. QRP was using a customized ERP package
upto 31st March 2020.
However, with effect from 1st April 2020, QRP moved to SAP (ERP package) considering
the increase in size of the operations of QRP.
The auditors of QRP were of the view that for the financial year ended 31st March 2021,
being the first year of SAP implementation, no work on IT controls would be required and
they were also evaluating to qualify report on IFC because on the basis of their experience on
other clients in the past they had found that the IT controls in the first year
of ERP implementation were very weak.

On the basis of the abovementioned facts, you are required to answer the following
MCQs:

1. How should the auditors of QRP deal with the matter related to
non-receipt of declaration under section 164(2) of the Companies Act?

How should the auditors of QRP deal with the matter related to
85.2
erosion of net worth of RPS? Is there any reporting implication for the same?

Do you agree with the way auditors have handled the matter related to FEMA non-
85.3
compliances? How would you deal with this matter?
 QRP has been preparing consolidated financial statements but
they do not consolidate financial statements of SPS every year. This is because the financial
85.4 year followed by SPS is January to December as against April to March followed by QRP.
The auditors have also been fine with this position of the management of QRP year on year.
Please suggest.

Do you agree with the view of the auditors of QRP regarding not testing IT controls in the
85.5 first year of SAP implementation and evaluating qualification in IFC report. What would be
your suggestion here?
 TMRT Retail Limited, (the ‘Company’ or ‘TMRT’), is engaged in the business of retail. The
Company follows financial year ending 31st March. The Company also plans to get listed in
India in the next 4-5 years.
During the financial year ended 31st March 2019, the management had noted extra-ordinary
shrinkages of inventories at one of their stores. Post examination/ analysis by the in-house
inventory shrinkage team, the management came to know about fraud of Rs. 19 lakh by the
employees of the Company comprising of Head Cashier, Cashier and Public Relations
Officer.
TMRT has a joint venture, DT Ltd., which is engaged in the business of trading of goods. DT
Ltd. appointed new tax auditors for the financial year ended 31st March 2019. DT Ltd.
follows calendar year i.e. year ending 31st December for statutory reporting after obtaining
requisite approvals. The appointment of the new tax auditors was done after 31st March 2019.
For the reporting year ended 31st March 2021, TMRT’s management plans to have BKP &
86.1 Associates as their internal auditors. BKP & Associates also happen to be the statutory
auditors of TMRT. However, the management has been advised by a consultant that it cannot
appoint statutory auditors as their internal auditors because it would lead to the issue of
independence. BKP & Associates have been auditing TMRT for the last 3 years and had
considered management override of controls as fraud risk and revenue recognition as
significant risk for TMRT. BKP & Associates are evaluating whether they should drop both
management override and revenue recognition as significant risks for the financial year
ending 31st March 2022 considering they did not find any problems/ observations in respect
of these two items in the past years and their reports have been clean for the last 2 years.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. In respect of the fraud identified by the management, what shall be the reporting
implications on the part of the auditor?

The management of DT Ltd. did not carry out physical verification of inventory for the year
86.2 ended 31st March 2019. What could be the reporting implications on the part of the tax
auditor in such a case?
 The management of TMRT needs your advise in respect of appointment of common auditor
86.3
both for statutory auditors and internal auditor for the financial year ended 31st March 2021.

Please advise BKP & Associates whether it would be appropriate to drop management
86.4 override of controls and revenue recognition as significant risks for the financial year ending
31st March 2022.

CA David was appointed as a statutory auditor of Growth Limited having its headquarter at
Mumbai. Growth Limited was involved in retail & packaging business and had branches in 6
states of India; Mumbai being its headquarter. It had a policy to appoint different auditor for
each branch in different state and a central auditor for Mumbai headquarter. For the FY ended
31st March 2021, all branch audit reports were received by CA David in a timely manner.
There was an increase in sales for all the branches, except for the branch of Kerala where
sales declined by 17% in comparison to last year. Hence CA David requested CA
Chinnaswami, auditor of Kerala branch, to share audit working papers of Growth Limited’s
Kerala Branch. During the year, Growth Limited used its securities premium of Rs. 7 crore
for writing off unabsorbed depreciation of Rs. 2.5 crore and issue of bonus shares for Rs. 4.5
crore. All the provisions of section 63 of the Companies Act, 2013 for issue of bonus share
and applicable rules in respect of issue of Bonus shares were complied with by Growth
Limited. CA David also took a written representation which was certified by the Company
Secretary employed by Growth Limited in regard to compliance of applicable provisions for
usage of securities premium and thus, CA David issued unmodified audit report. The
company created provision for doubtful debts amounting to Rs. 8 lakh and presented that
87.1 under head short term provisions under liabilities in its financial statements. CA David was
confused with presentation of such provision in accordance with Ind AS 37.
Advocate Tanay was a practicing advocate representing in the court of law. Tanay and CA
David agreed that advocate Tanay will recommend CA David in case of matters relating to
finance & other matters and CA David will recommend advocate Tanay in case of matters
relating to tax litigations. Further they also decided to share profits with each other in relation
to such assignments. With the increased quantum, CA David has to increase his office
capacity. He purchased 10 office chairs, tables and other office furniture from Growth
Limited. The same were purchased with huge 90% discount under clearance sale. The
purchase amounted to Rs. 9 lakh which was not more than statutory audit fees of CA David.
CFO of Growth Limited contented that, as a result of this purchase, there exist a business
relation between Growth Limited and CA David, hence CA David will be disqualified under
section 141(3) of the Companies Act, 2013.

Based on the above facts, answer the following:-

1. Was the opinion formed by CA David in respect of usage of securities premium correct?
 In your opinion, was the presentation of provision for doubtful
87.2
debts correct in accordance with Ind AS 37?

What is the validity of CFO’s contention for disqualification under section 141(3) and will
87.3
CA David be disqualified?

conduct the said audit assignment including conducting of limited reviews and other statutory
assignments.
Mr. Raj was conducting limited review for second quarter and during the same while
adhering to the responsibilities as conferred upon by SA 250, “Consideration of Laws and
Regulations in an Audit of Financial Statements”, he evaluated the implications of
noncompliance in relation to other aspects of the audit, including the auditor’s risk
assessment and the reliability of written representations and concluded that withdrawal from
engagement was necessary in the given circumstances, after seeking legal advice, even
though the noncompliance was not material to the financial statements but as the management
or those charged with governance refrained from taking the remedial action that he
considered appropriate in the circumstances. Such a withdrawal was not prohibited by any
law or regulation. Mr. Raj, on behalf of SRS & Co., brought to the notice of the Audit
Committee of Ulip Ltd., all his concerns with respect to the proposed resignation, along with
relevant documents.
After issuing the necessary reports, as required in the circumstances,
SRS & Co. gave its resignation letter to Ulip Ltd. at 1:00 p.m. on 20th
November, 2021 vide its official email-id, which contained the detailed reasons for such
88.1
resignation.
Such a letter was forwarded to the stipulated authority by Ulip Ltd. at 4:00 p.m. on 21st
November, 2021 vide its official email-id.
SRS & Co. filed the statement with respect to its resignation as a statutory auditor in
prescribed form with Ulip Ltd. and the Registrar on 15th January, 2021, respectively, after
receiving a notice from MCA. For the purpose of filling the casual vacancy in the office of
auditor, the Audit Committee of Ulip Ltd. gave recommendation of an audit firm for being
appointed as the statutory auditor to which the Board disagreed and it referred back the
recommendation to the committee for reconsideration citing reasons for such disagreement.
However, the Audit Committee, after considering the reasons given by the Board, decided not
to reconsider its original recommendation, so, the Board of Ulip Ltd. after recording the
reasons for its disagreement with the committee appointed Chavda & Co. as its new statutory
auditor on 15th December, 2021. Such an appointment of Chavda & Co. was also approved
by the members of Ulip Ltd. at a duly convened general meeting on 3rd February, 2022.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

In continuation of above Question no if it is assumed that the auditor was prohibited by any
88.2 law or regulation from such withdrawal from engagement, then how he would have reported
the non-compliance in the audit report?

Ulip Ltd. was required to disclose to which authority, the detailed reasons for resignation of
88.3
the auditor and by what time limit as per LODR 2015?
 What could be the penalty specified under the Company Act, 2013 that could be levied upon
SRS & Co. for failure in filing the statement with respect to its resignation, within the
88.4
prescribed time limit, with Ulip Ltd. and the Registrar, respectively, if its remuneration was
Rs. 40,000?
What was the last date available with board of Ulip Ltd. for filing the casual vacancy in the
office of the auditor and by what last date, the general meeting for approving the auditor as
88.5
appointed by the board should have been made in accordance with the provisions of the
Companies Act, 2013?
years. He was appointed as the statutory auditor of Giant Motors Ltd.,
a listed entity, which was involved in the business of manufacturing of motor cars for FY
2020-21. CA D was appointed as joint auditor along with CA T and CA P. They have divided
the responsibility for conducting audit in accordance with SA 299. As the company has huge
amount of property, plant and equipment, it was decided that all 3 auditors will verify the
records relevant to property, plant and equipment. While forming an opinion, CA D was
having a different opinion on property, plant and equipment but CA T and CA P were having
same opinion. CA D wants to qualify capitalisation of post -
acquisition costs incurred on machinery whereas CA T and CA P were
of the opinion that the treatment done by Giant Motor is correct. Both of them contended that
as they are forming a majority, CA D will have to certify common audit report which is in
accordance with the opinion of CA T and CA P. While assessing the applicability of CARO,
2020, CA D found that
issued share capital of Giant Motors Ltd. is Rs. 500 crore along with Rs. 30 crore of calls
which are being unpaid as they are receivable from retail
investors. In the month of July 2020, Giant Motors Ltd. forfeited shares of worth Rs. 10
crore. There were no reserve and surplus as it was transferred to parent entity. Also, along
89.1 with equity shares of Rs.
300 crore, there was preference share capital of Rs. 200 crore. CA T while reporting under
clause (vi) of CARO, 2020 did not report anything under clause (vi) of CARO 2020 as the
government has not
ordered Giant Motors Ltd. to conduct cost audit for its books of account. Hence CA T did not
report anything under clause (vi). Giant Motors Ltd has a total number of 11 directors. Mr.
Talent is the Executive Chairman of the company. Out of 11 directors, 5 were independent
directors.
Mrs. D was not aware that CA D was the statutory auditor of Giant
Motors Ltd. She purchased shares of Giant Motors Ltd. worth Rs.
1,50,000 (book value) on 3rd October 2021 but when she came to
know about the statutory auditor of Giant Motors Ltd., she sold her shares on 10th November
2021. One of the shareholders of Giant Motors Ltd contended that CA D is disqualified and
shall vacate his office of statutory auditor.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. Can you please guide whether CA D really needs to go with the opinion formed by CA T

What should have been CA D’s opinion on applicability of CARO, 2020 for FY 2020-21
89.2
assuming forfeited shares are not included in equity share capital?

Was the approach followed by CA T for not reporting under clause (vi) of CARO, 2020
89.3
correct?
 Was there any non-compliance on the part of Giant Motors Ltd.
89.4
in case of appointment of independent directors?

Was the contention of shareholder that CA D should vacate the office of statutory auditor
89.5
correct?

1 Manohar & Co. wanted to refer to the work of the auditor’s expert, Mr. Tanmay in the audit
report but the other joint auditors were not agreeing on the same as such reference was not
relevant to an understanding in the final audit opinion and also it was not required by any
statute.
2 Certain misstatements affected information to be included in ‘Management Discussion and
Analysis’ of Anitya Ltd.’s annual report but as they were lower than materiality set for the
financial statements as a whole and so according to the Llyods & Co., there was no
requirement to perform any audit procedures on the same but the other joint auditors were not
agreeing on the same for the reason that the information may reasonably be expected to
influence the economic decisions of the users of the financial statements
3 For a selected item, the joint auditors were not able to apply the designed audit procedures
or suitable alternate procedures and Llyods & Co. wanted to treat that item as a misstatement
in the case of test of controls as well as in the case of test of
details but the other joint auditors were not agreeing on the said treatment.
4 Manohar & Co. had determined for a particular account balance positive confirmation
request was necessary to obtain sufficient and appropriate audit evidence but as it had not
obtained such confirmation and alternate audit evidence would not have sufficed its
90.1 requirements, Manohar & Co. wanted to determine its implications on the audit opinion but
the other joint auditors were not agreeing on the same.
The differences of opinion in case of Tink & Co. and Llyods & Co. were resolved but there
remained disagreement with the one of the opinions of Manohar & Co. due to which Manohar
& Co. expressed its opinion in a separate audit report.
Manohar & Co. was initially appointed as a joint auditor in Anitya Ltd. for 5 years term with
other two auditors but it gave its resignation as an auditor to the company on 20th October,
2021, due to the reason of having differences of opinion with other joint auditors.
Manohar & Co. filed the required statement with respect to its resignation on 27th November,
2021, with Anitya Ltd. as well as the Registrar, respectively. The Board of Directors of
Anitya Ltd. appointed Namo & Co. as a joint auditor in place of Manohar & Co. which was
later approved by members in the general meeting of the company.
Namo & Co. before getting appointed, as aforesaid, had :-
(i) Communicated vide a registered post acknowledgment due to the previous joint auditor,
Manohar & Co. but the said post was received back with the remarks “Office Found Locked”.
(ii) Ascertained that the requirements of Section 139 and Section 140 of the Companies Act,
2013, with the respect to its
appointment had been duly complied with or not by Anitya Ltd.

Whether the opinion of Llyods & Co. for treating the item as a misstatement in the case of
test of controls as well in the case of test of details for which the joint auditors were not able
90.2
to apply the designed audit procedures or suitable alternate procedures, can be considered as
valid?
 Whether the insistence by Manohar & Co. for determining
90.3 implications of not obtaining response to positive confirmation request on the audit opinion
can be considered as valid?

By what date, Manohar & Co. should have filed the statement with respect to its resignation
90.4
with Anitya Ltd. as well as the Registrar and in what form?

Whether Namo & Co. would be considered to have satisfied the requirements of
90.5
communicating with the previous auditor?
 Mr. Suresh, referred the engagement letter, signed with the management initially and was
considering whether there was a requirement to send a new engagement letter, in light of
following circumstances in the Company during FY 2020-21:
 Two senior whole time directors of the Company have retired out of total five directors. 
40% stake in the Company was held by promoters, which was reduced to 5%, by selling
shares to general public.
 One more factory unit was set up in Gorakhpur, this year.
 Management has requested to cover 90% of the transactions with respect to each revenue
line item, this time, instead of 80% of the transactions, as was set out in the audit plan,
considering the materiality and other factors.
The following data is presented from the audited financial statements of Alkis Ltd., for the
financial year 2019-2020:
(I) Paid up share capital - Rs. 8 crore;
(II) Turnover - Rs. 55 crore;
(III) Outstanding Borrowings - Rs. 14 crore;
(IV) Outstanding Public Deposits - Rs. 28 crore.
Mr. Suresh while preparing a report under section 143 of the Companies Act, 2013, made a
91.1 statement with respect to the remuneration paid by the Alkis Ltd. to one of its directors, Mr.
Mahesh, was in excess of the limit laid down under section 197 and also gave such other
details as prescribed.
Mr. Suresh, for additional reporting purpose, while auditing with respect to compliance with
CARO, 2020, observed the following, relevant to Para 3(vii) of CARO, 2020:
Statutory Dues Undisputed Amount (Rs. in lakh) Date Payable Date Paid

Income Tax
Demand for A.Y. 2018-19 2 25th September, 2020 28th March, 2021
GST 1.5 3rd October, 2020 4th April, 2021
Customs Duty 0.80 20th September, 2020 10th April, 2021
Provident Fund 0.45 12th October, 2020 Not Paid till date
Also, a representation was made to GST Department for waiving a penalty of Rs. 1 lakh for
late payment of GST demand.
The board of Alkis Ltd. declared interim dividend of Rs. 20 lakh on 20th May, 2021, to its
180 shareholders, out of surplus in the profit and loss account and such dividend amount was
deposited in a separate bank with a branch of SBI. Dividend amounting to Rs. 1 lakh was not
claimed by a shareholder, Mr. Rohit, till 19th June, 2021, and so the said amount of Rs. 1
Under which section of the auditor’s report, Mr. Suresh needs to report with respect to the
91.2
excess remuneration being paid to Mr. Mahesh?

What total amount of statutory dues needs to be reported by Mr. Suresh as per Para 3 of
91.3
CARO?
How much amount of interest Alkis Ltd. would be liable to pay with respect to unpaid
91.4
dividend amount?

By what date, the amount of interim dividend should have been deposited in the scheduled
91.5 bank after being declared and also by what date, the unpaid or unclaimed dividend amount
should have been transferred to Unpaid Dividend Account?
DITING AND PROFESSIONAL ETHICS - CHAPTER 5: COMPANY AUDIT
Option - A Option - B Option - C
Comptroller and Auditor
Members Board of Directors
General

30 45 60

60, Comptroller and Auditor

30, members 90,members
General
conclusion of the first annual
5th annual general meeting Liquidation of company
general meeting

the Managing Director of PQR the Managing Director of PQR

Ltd may appoint the first the Managing Director of PQR Ltd may appoint the first
auditor of the company only if Ltd can appoint the first auditor auditor of the company only if
it is approved by the board of of the company. it is approved by the members
directors at Annual General meeting

Comptroller and Auditor

Members Board of Directors
General

30 45 60

Board of Directors, 60 Members, 60 Board of Directors, 30

Board of Directors, 60 Members, 60 Board of Directors, 30

The appointment of first

The appointment of first The appointment of first auditors made by the Board of
auditors made by the Board of auditors made by the Board of Directors of Healthy Wealthy
Directors of Healthy Wealthy Directors of Healthy Wealthy Ltd. is not valid as members
Ltd. is null and void. Ltd. is valid have a right to appoint first
auditors

15 days 30 days 45 days

Board of Directors, 60 Members, 60 Board of Directors, 30

Board of Directors within 60 Board of Directors within 30

Members within 60 days
days days

30, ADT–3 60, ADT–2 30, ADT–2

fifty thousand rupees the remuneration of the auditor A or B whichever is less.

BOD within 30 days. Members within 30 days. BOD within 60 days.

C&AG within 180 days from C&AG within 180 days from
Members in the General
commencement of financial the commencement of calendar
Meeting
year. year.

BOD C&AG Members

C&AG within 30 days. C&AG within 60 days. BOD within 30 days.

Mr. Avi. is holding security of Mr. Avi. is holding security of Mr. Avi. is holding security of
Rs. 900 in XYZ Ltd, therefore, Rs. 900 in XYZ Ltd which is Rs. 900 in XYZ Ltd which is
he is not eligible for less than Rs. 100000 therefore, less than Rs. 500000 therefore,
appointment as an auditor of he is eligible for appointment he is eligible for appointment
“XYZ Ltd”. as an auditor of “XYZ Ltd”. as an auditor of “XYZ Ltd”.

Mr. Qurashi (relative of Mr. Mr. Qurashi (relative of Mr.

Mr. Qurashi (relative of Mr.
PK), is having securities of Rs. PK), is having securities of Rs.
PK), is having securities of Rs.
99,000 face Value in ABC 99,000 face Value in ABC
99,000 face Value in ABC
Ltd., which is less than Rs. Ltd., which is less than Rs.
Ltd., which is more than Rs.
100000. Therefore, Mr. PK will 200000. Therefore, Mr. PK will
50000. Therefore, Mr. PK will
not be disqualified to be not be disqualified to be
be disqualified to be appointed
appointed as an auditor of ABC appointed as an auditor of ABC
as an auditor of ABC Ltd.
Ltd. Ltd.

M/s Bhavin & Co, will be M/s Bhavin & Co, will be M/s Bhavin & Co, will be
disqualified for appointment as disqualified for appointment as disqualified for appointment as
an auditor of AMD Ltd as the an auditor of AMD Ltd as the an auditor of AMD Ltd as the
relative of Mr. Chandu (i.e. relative of Mr. Chandu (i.e. relative of Mr. Chandu (i.e.
partner of M/s Bhavin & Co.), partner of M/s Bhavin & Co.), partner of M/s Bhavin & Co.),
is holding the securities in is holding the securities in is holding the securities in
AMD Ltd which is exceeding AMD Ltd which is exceeding AMD Ltd which is exceeding
the limit of Rs. 100000 the limit of Rs. 200000 the limit of Rs. 500000

M/s Rajamohan & Co. is not M/s Rajamohan & Co. is not M/s Rajamohan & Co. is not
disqualified for appointment as disqualified for appointment as disqualified for appointment as
an auditors of Inn Ltd. as the an auditors of Inn Ltd. as the an auditors of Inn Ltd. as the
relative of CA. Raja (i.e. relative of CA. Raja (i.e. relative of CA. Raja (i.e.
partner of M/s Rajamohan & partner of M/s Rajamohan & partner of M/s Rajamohan &
Co.) is holding the securities in Co.) is holding the securities in Co.) is holding the securities in
Inn Ltd. which is within the Inn Ltd. which is within the Inn Ltd. which is within the
limit of Rs. 100000 limit of Rs. 200000 limit of Rs. 500000

The BOD The ROC Both a and b.

The BOD The ROC Both a and b.

 Firstly BR, then application to
Firstly BR , then SR, then CG Firstly BR, then application to
CG , then SR after giving an
approval. CG, then SR.
opportunity of being heard.

accounting and book- keeping

internal audit actuarial services
services

CA. P is advised not to accept

the assignment of auditing as
CA P may at the option of the
the service he is rendering is CA P can accept the
Board may accept the
specifically notified in the list assignment
assignment
of Services not to be rendered
by him

He shall continue the office of

He shall be deemed to have
He shall continue the office of the auditor of Bharat Limited
vacated office of the auditor of
the auditor of Bharat Limited. as the disqualifications are not
Bharat Limited.
applicable to partner.

20 crores or more exceeding 20 crores 50 crores or more

10 crores or more exceeding 10 crores 50 crores or more

10 crores or more exceeding 10 crores 50 crores or more

Yes, since the paid up share Yes, since the paid up share
No, rotation of auditor will not
capital is exceeding Rs. 10 capital is exceeding Rs. 20
be applicable.
crores crores

He cannot be appointed as the

He cannot be appointed as the He cannot be appointed as the
auditor in any company for a
auditor of the same company auditor in any company for a
period specified in the Tribunal
for a period of 5 years. period of 5 years.
order.

Rahul is disqualified to be
Rahul is disqualified to be Rahul is disqualified to be
appointed as auditor in the
appointed as auditor in the appointed as auditor in the
company and its subsidiary and
company. company and its subsidiary.
associate.

seven twenty ten

Yes, since the paid up share No, since the paid up share No, since the paid up share
capital is exceeding Rs. 10 capital is exceeding Rs. 50 capital is exceeding Rs. 20
crores crores crores

Yes, since the paid up share No, since the paid up share No, since the paid up share
capital is exceeding Rs. 10 capital is exceeding Rs. 50 capital is exceeding Rs. 20
crores crores crores
 Yes, since it is a listed
Yes, since the paid up share company constitution of Audit No, since the paid up share
capital is exceeding Rs. 10 committee is mandatory capital is exceeding Rs. 20
crores irrespective of the paid up crores
share capital limit.

Yes, since the outstanding Yes, since the outstanding No, since the outstanding loans
loans or borrowings or loans or borrowings or or borrowings or debentures or
debentures or deposits is Rs. debentures or deposits is Rs. deposits is has not exceeded
50 crore . 10 crore . Rs. 50 crore .

Yes, since the outstanding Yes, since the outstanding No, since the outstanding loans
loans or borrowings or loans or borrowings or or borrowings or debentures or
debentures or deposits is Rs. debentures or deposits is Rs. deposits is has not exceeded
50 crore . 10 crore . Rs. 50 crore .

ADT-2 ADT-1 ADT-3

45 days 90 days 60 days

45 days 90 days 60 days

10 20 30
one person companies dormant companies small companies

60 50 45

16, 15, 14, 5,5 16, 15, 14, 10,10 16, 15, 14, 10,5

60 50 45

Rahul is disqualified to be Rahul is disqualified to be

Rahul is disqualified to be appointed as auditor in the appointed as auditor in the
appointed as auditor in the company , subsidiary, holding, company , subsidiary, holding,
company. associate and subsidiary of associate and subsidiary of
holding. holding and associate.

ABC Ltd , its subsidiary,

ABC Ltd , its subsidiary,
holding, associate and
ABC Ltd holding, associate and
subsidiary of holding and
subsidiary of holding.
associate.
 Disqualified to be appointed as
Disqualified to be appointed as
Disqualified to be appointed as auditor in the company,
auditor in the company,
auditor in the company. holding and subsidiary and
holding and subsidiary.
associate.
C&AG. Members. Government.

the company, its subsidiary and

the company the company and its subsidiary
its associate.

Whether the loans and

Whether all the information
Whether personal expenditure advances given are unsecured
and explanation relevant for the
is debited to revenue account. and prejudicial to the interest
audit has been obtained.
of the company.

Government C&AG Members

ICAI as recommended by CG CG as recommended by ICAI MCA

60 50 45

whether transactions of the

whether loans and advances whether personal expenses company which are represented
made by the company have have been charged to revenue merely by book entries are
been shown as deposits account prejudicial to the interests of
the company

Actual Frauds Suspected Frauds Both

The amount of fraud exceeds The amount of fraud is Rs 1 As per his professional
Rs 1 crore crore or above. judgement.

Audit log Audit Trail Audit ledger

3 2 5

45 60 90
Secretary, Ministry of Home Secretary, Ministry of
Secretary, Central Government
affairs Corporate Affairs

ADT-1 ADT-2 ADT-3

139 to 146 139, 143, 144 and 145 139, 140, 141 and 143

CRA-4 CRA-3 CRA-2

a period of 30 days of the within a period of 180 days of

Board meeting in which such the commencement of the A or B whichever is earlier
appointment is made financial year

CRA-4 CRA-3 CRA-2

180 days from the closure of till he submits the cost audit
Either of A or B
the financial year report

CRA-4 CRA-3 CRA-2

180 120 90

Statement 1 is correct Statement 2 is correct Both are correct

No, Since revenue from yes, Since revenue from yes, Since revenue from
exports, in foreign exchange, exports, in foreign exchange, is exports, in foreign exchange, is
does not exceeds seventy five seventy five per cent of its total fifty one per cent of its total
per cent of its total revenue; revenue; revenue;

Chartered Accountant Cost Accountant Company secretary

30, CRA-4 30, CRA-2 30, CRA-1

two three five

129(3) 129(1) 129(4)

imposing penalty of not less imposing penalty of not less imposing penalty of not less
than one lakh rupees, but which than two lakh rupees, but than two lakh rupees, but
may extend to ten times of the which may extend to five times which may extend to ten times
fees received. of the fees received. of the fees received.

imposing penalty of not less imposing penalty of not less imposing penalty of not less
than five lakh rupees, but than one lakh rupees, but which than two lakh rupees, but
which may extend to ten times may extend to ten times of the which may extend to five times
of the fees received. fees received. of the fees received.

60 days, 6 months 30 days, 3 months 30 days, 6 months

Rs 50, Rs. 5 Rs 50, Rs. 10 Rs 50, Rs. 3

 Ms. Sita is not correct as the
Ms. Sita is correct as the auditors have a right to receive
Ms. Sita is not correct as
auditors have a right to receive notice of every general
though the auditors have a right
notice of every general meeting; also, it is their duty to
to receive notice of every
meeting; however, they are not attend such meetings. Further
general meeting; they also have
under any obligation to she is not correct
a duty to attend such meetings.
compulsorily attend such in sending CA Rohan to attend
Further, she is correct in
meeting. the meeting as her authorized
sending Mr. Rohan to attend
Further she is correct in representative as she can attend
the meeting as her authorized
sending CA Rohan to attend the meeting by herself and not
representative.
the meeting. through authorized
representative.

M/s Sita Gita & Associates

should report the fraud to the
M/s Sita Gita & Associates M/s Sita Gita & Associates
Audit Committee within 2 days
should report the fraud to the should report the fraud to the
of the knowledge of fraud
Board of Directors and Central Audit Committee/Board of
which will in turn report such
Government within 2 days of Directors within 2 days of the
fraud to the Central
the knowledge of fraud. knowledge of fraud.
Government within 45 days of
their knowledge.

The management of Sarvodya The management of Sarvodya

Ltd. can revise the financial Ltd. can revise the financial
statements after obtaining the The management of Sarvodya statements after obtaining the
approval of the Tribunal and Ltd. cannot revise the financial approval from the Ministry of
the order passed by the statements. Corporate Affairs and such
Tribunal shall be filed with approval shall be filed with
Registrar. Registrar.
 M/s Sita Gita & Associates can
M/s Sita Gita & Associates
M/s Sita Gita & Associates revise the tax audit reports if
cannot revise the tax audit
cannot revise the tax audit the accounts are revised by the
reports as the accounts of FY
reports as there is no provision company and they should
2018-19 & 2019-20 have been
of revision of Tax audit report specify the reason for such
adopted in the Annual General
under the Income tax Act 1961. revision with a reference to the
Meeting by the company.
earlier reports.

The management of Sarvodya

The management of Sarvodya
Ltd. is correct in not
The management of Sarvodya Ltd. is correct in not
transferring any percent of
Ltd. is correct in not transferring any percent of
profits to reserves as such
transferring any percent of profits to reserves as the
transfer to reserves is required
profits to reserves as such company has declared the
in case of declaration of final
transfer to reserves is optional. dividend out of current year
dividend and not interim
profits.
dividend.

The management of Sarvodya

The management of Sarvodya
The management of Sarvodya Ltd. is not correct as such
Ltd. is correct as the company
Ltd. is correct as such amount amount is required to be
declaring interim dividend has
is required to be transferred to transferred to separate bank
an option to transfer the
separate bank account in case account in case of declaration
amount so declared in separate
of declaration of final dividend of final dividend as well as
bank account within 7 days
and not in case of interim interim dividend within 7 days
from the date of such
dividend. from the date of declaration of
declaration.
such dividend.

M/s Sita Gita & Associates

M/s Sita Gita & Associates
should give an unqualified M/s Sita Gita & Associates
should qualify the audit report
report as provision of tax should give an unqualified
as such non-provision of
liability is the sole discretion of report as the company has not
anticipated income tax liability
the management of Sarvodya made the provision of tax for a
hampers the true and fair view
Ltd. as the tax amount will be valid reason given by the
of the state of affairs of the
duly paid at the time of filing management of Sarvodya Ltd.
company.
of the income tax return.
 There is no reporting
implication due to non-receipt
of declaration under section
If the auditors have been able
164(2) of the Companies Act
Auditors may perform alternate to verify that all directors
from just one director.
procedures in respect of non- except one have given the
Accordingly, the auditors
receipt of declaration under required declarations as per the
should
section 164(2) of the Companies Act then it should
issue clean report in respect of
Companies Act. be ignored by the auditors on
this matter, however, the
the basis of materiality.
auditors should insist the
management to provide this
declaration later on.

In respect of QRP, there is no In respect of QRP, auditors of In respect of QRP, auditors of

reporting implication on the QRP would need to give an QRP would need to give
part of auditors of QRP due to emphasis of matter in their qualification in respect of non-
erosion in net worth of RPS. report considering the recovery of advances from RPS
This matter would be relevant uncertainty involved related to if the adjustment entry is not
for the auditors of RPS. profitability of RPS. recorded in the books.

Auditors didn’t handle this

matter appropriately. Auditors Auditors handled this matter
Auditors handled this matter
should have informed about appropriately. But they would
appropriately. The management
this matter to the RBI (Reserve also need to include
would need to include this
Bank of India) within a period modification in their report
matter in the notes to accounts
of 30 days from date this because the impact of penalty,
to the financial statements.
matter came to their if levied, can be material.
knowledge.
QRP needs to prepare QRP needs to prepare
consolidated financial consolidated financial QRP’s management’s view is
statements by also statements by also right because SPS is a foreign
consolidating SPS. In case this consolidating SPS. In case this company and hence no
is not done, the auditors need is not done, the auditors need consolidation may be done
to qualify their report on to give emphasis of matter in while preparing consolidated
consolidated financial their report on consolidated financial statements in India.
statements. financial statements.

The auditors have precedence

on the basis of which they have
formed a view and that is fine
The auditors have precedence as far as they don’t want to test
The auditors need to perform
on the basis of which they have IT controls. However, to
procedures before forming any
formed a view and that is qualify the IFC report on the
view. Any such precedence of
completely acceptable. basis of precedence of other
other client cannot be taken for
However, the auditors would clients only may not be
QRP without performing any
need to document this properly appropriate. Management
procedure by the auditors.
in their audit files. should
include a note in their financial
statements in respect of first
year of SAP implementation.
Auditors would need to report
Considering the materiality, the
the fraud in their CARO report.
auditors may consider
Further they also need to Auditors would need to qualify
not to report this matter
evaluate whether their report their main report as well as
anywhere. This is also because
on IFC and the main report their CARO report.
of the fact that management
should be qualified or
has identified this.
not.

It is a common practice to
Since the tax auditors and the appoint tax auditors after
The tax auditors would need to
management both did not carry reporting year end and in such
evaluate the nature of the
out physical verification of a case, the auditors should
inventory. Further the
inventory as at 31st March carry out the physical
management should give a note
2019, tax auditors should verification after their
in respect of this matter in the
report on the basis of statutory appointment and roll back
financial statements basis
audit report of the same period procedures in respect of
which no reporting implication
or last audited period, as inventory. Accordingly, no
would arise.
applicable. reporting matter arises in such
a situation.
 Management has not been
Management has been advised Management has not been
advised properly. Statutory
correctly. Statutory auditors of advised correctly. Statutory
auditors of TMRT can also
TMRT cannot become their auditors of TMRT can also
become their internal auditors
internal auditors. become their internal auditors.
as they are familiar.

Management override of Management override of

It would be appropriate to drop controls and revenue controls should continue to be
management override of recognition should continue to the significant risk for the
controls and revenue be the significant risks for the financial year ending 31st
recognition as significant risks financial year ending 31st March 2022. Revenue
for the financial year ending March 2022 if that continues to recognition may not be
31st March 2022. be significant risk at inherent considered
level. as significant risk.

Yes, as CA David has taken

No, as securities premium written representation signed
No, as securities premium
cannot be used by company for by the Company Secretary.
cannot be used for issuing
adjusting unabsorbed Hence CA David will not be
bonus shares.
depreciation. liable to check the compliance
of applicable provision.
 Yes, because Ind AS 37
doesn’t specify anything for
Yes, as Ind AS 37 specifies No, as Ind AS 37 specifies that
presentation, hence we will
that such provision should be such provision should be
have to follow practices which
presented under short term presented net of trade
require that such provision
provision. receivables.
should be presented under short
term provision only.

The contention of CFO is valid

The contention of CFO is valid The contention of CFO is
but CA David will not
and CA David will have to invalid but CA David will have
have to vacate office as the
vacate office as he has to vacate office as he has
purchases are less than audit
purchased his office furniture purchased his office furniture
fees as there exist business
at 90% discount. at 90% discount.
relation.

Yes, as the auditor had Yes, in exceptional cases, the

Yes, as such a withdrawal was obtained legal advice for the auditor may consider for such
not prohibited by any law or same and also such a withdrawal provided that such
regulation. withdrawal was not prohibited a withdrawal is not prohibited
by any law or regulation. by any law or regulation.

In the “Basis for Qualified In the Other Matter(s) In the Emphasis of Matter(s)
Opinion” paragraph. paragraph. paragraph.

Such reasons were required to

Such reasons were required to Such reasons were required to
be disclosed to NSE & SEBI
be disclosed to MCA till 1:00 be disclosed to NSE till 1:00
till 1:00 p.m. – 23rd November,
p.m. – 21st November, 2021. p.m. – 21st November, 2021.
2021.
Rs. 62,500. Rs. 50,000. Rs. 40,000.

27th November, 2021 and 27th 20th December, 2021 and 15th 20th January, 2021 and 20th
February, 2022. February, 2022. April, 2022.

CA D can go with the opinion

CA D can add a separate audit
formed by the majority
CA D will have to go with the opinion paragraph in the
auditors, but CA D had a
opinion formed by majority common audit report and the
difference of opinion should be
auditors. same should be highlighted in
highlighted in emphasis of
emphasis of matter paragraph.
matter paragraph.

CARO will be applicable as CARO will be applicable as CARO will be applicable as

paid up share capital and paid up share capital and paid up share capital and
reserves are Rs. 480 crore reserves are Rs. 480 crore reserves are Rs. 280 crore
which is more than Rs. 1 which is more than Rs. 10 which is more than Rs. 1
crore. crore. crore.

No, Clause (vi) should be

Yes, as reporting under said
Yes, reporting under this clause reported irrespective of
clause is required only if the
is only applicable to entities whether Giant Motors Limited
Giant Motors Ltd. were ordered
involved in production of has been ordered to conduct
by government to conduct cost
electricity. cost audit by the Central
audit under section 148(1).
Government or not.
 Yes, there was a non- No, there was no non-
No, there was no non-
compliance as there should compliance as independent
compliance as independent
have been more than 6 directors were 5, which is more
directors were more than 2
independent directors specified than 2/3 of the total directors in
directors specified in the
in Regulation 17 and accordance with Regulations
Companies Act, 2013.
Regulation 17A. 17 and Regulation 17A.

No, as Mrs. D has sold the No, as Mrs. D is holding shares Yes, as Mrs. D has purchased
shares within a grace period of of less than book value of Rs. shares which are more than
60 days. 2,00,000. book value of Rs. 1,00,000.

No, as such reference was not

Yes, such a reference in the
relevant to an understanding in No, as such reference was not
auditor’s opinion was relevant
the final audit opinion and also required by any law or
to the understanding of the
it was not required by any law regulation.
users of the financial statement.
or regulation.

No, as such item shall be as a

Yes, as such item shall be No, as such item shall be
misstatement only in the case
treated as a misstatement in the treated as a deviation in the
of test of controls and for test
case of test of controls and test case of test of controls and test
of details such item shall be
of details. of details.
treated as a deviation.
No, because in such a case the
Yes, because in such a case the No, because in such a case the
auditor should have enquired
auditor should have determined auditor should have obtained
the reasons for the same from
implications for the audit and and relied upon a written
the management in writing and
the auditor’s opinion in representation as per SA 580 in
included the same as a ‘Key
accordance with SA 705. this regard.
Audit Matter’ as per SA 701

Manohar & Co. should have Manohar & Co. should have Manohar & Co. should have
filed the statement in Form filed the statement in Form filed the statement in Form
ADT-3 by 19th November, ADT-4 by 19th November, ADT-2 by 19th December,
2021. 2021. 2021.

No, as the communication

No, because in such a case
through registered post
Namo & Co. should have
acknowledgment due could not
informed the Council of the
be done, Namo & [Link] Yes, as it would be deemed
ICAI with respect to the non-
have tried an alternative form that such post was delivered.
delivery of post to the previous
of communication as
auditor along with the reasons
prescribed by the Council of
for the same.
the ICAI for the same.
 Alkis Ltd. need not to form an
Alkis Ltd. need not to form an
Alkis Ltd. needs to form an Audit Committee. Further,
Audit Committee. Further,
Audit Committee. Further, provisions relating to rotation
provisions relating to internal
provisions relating to internal of auditors is not applicable to
audit is not applicable to Alkis
audit as well as rotation of Alkis Ltd. However, the
Ltd. However, the provisions
auditors are applicable to Alkis provisions with respect to
with respect to rotation of
Ltd. internal audit are applicable to
auditors are applicable to it.
it.

Report on Other Legal and

Other Matters Paragraph. Basis for Qualified Opinion.
Regulatory Requirements.

` 2.75 lakh. ` 0.80 lakh. ` 2.80 lakh.

` 575. ` 1,216. ` 1,726.

25th May, 2021 and 24th June, 25th May, 2021 and 26th June, 30th May, 2021 and 19th July,
2021, respectively. 2021, respectively. 2021, respectively.
 Option - D Right - Option
Right - Ans
Any of the above C Board of Directors

120 A 30

120, Comptroller and Auditor

B 90,members
General
conclusion of the first annual
10th annual general meeting A
general meeting

the Managing Director of PQR the Managing Director of PQR

Ltd cannot appoint the first D Ltd cannot appoint the first
auditor of the company. auditor of the company.

Comptroller and Auditor

Any of the above A
General

120 C 60

Members, 30 C Board of Directors, 30

Members, 30 B Members, 60

The appointment of first

auditors made by the Board of
None of the above A
Directors of Healthy Wealthy
Ltd. is null and void.

60 days A 15 days

Members, 30 C Board of Directors, 30

Comptroller and Auditor- Comptroller and Auditor-

D
General of India within 30 days General of India within 30 days

90, ADT–2 A 30, ADT–3

A or B whichever is higher C A or B whichever is less.

Central Government A BOD within 30 days.

 C&AG within 180 days from
Central Government. A commencement of financial
year.

Government A BOD

BOD within 60 days. A C&AG within 30 days.

Mr. Avi. is holding security of Mr. Avi. is holding security of

Rs. 900 in XYZ Ltd which is Rs. 900 in XYZ Ltd, therefore,
less than Rs. 50000 therefore, A he is not eligible for
he is eligible for appointment appointment as an auditor of
as an auditor of “XYZ Ltd”. “XYZ Ltd”.

Mr. Qurashi (relative of Mr.

PK), is having securities of Rs.
99,000 face Value in ABC
Ltd., which is less than Rs.
None of the above A
100000. Therefore, Mr. PK will
not be disqualified to be
appointed as an auditor of ABC
Ltd.

M/s Bhavin & Co, will be M/s Bhavin & Co, will be
disqualified for appointment as disqualified for appointment as
an auditor of AMD Ltd as the an auditor of AMD Ltd as the
relative of Mr. Chandu (i.e. relative of Mr. Chandu (i.e.
A
partner of M/s Bhavin & Co.), partner of M/s Bhavin & Co.),
is holding the securities in is holding the securities in
AMD Ltd which is exceeding AMD Ltd which is exceeding
the limit of Rs. 1000000 the limit of Rs. 100000

M/s Rajamohan & Co. is not M/s Rajamohan & Co. is not
disqualified for appointment as disqualified for appointment as
an auditors of Inn Ltd. as the an auditors of Inn Ltd. as the
relative of CA. Raja (i.e. relative of CA. Raja (i.e.
A
partner of M/s Rajamohan & partner of M/s Rajamohan &
Co.) is holding the securities in Co.) is holding the securities in
Inn Ltd. which is within the Inn Ltd. which is within the
limit of Rs. 1000000 limit of Rs. 100000

BOD, ROC and CG. C Both a and b.

BOD, ROC and CG. D BOD, ROC and CG.

 Firstly BR, then application to
First application to CG, then
C CG , then SR after giving an
BR, then SR.
opportunity of being heard.

All the above D All the above

CA. P is advised not to accept

the assignment of auditing as
the service he is rendering is
None of the above A
specifically notified in the list
of Services not to be rendered
by him

He shall be deemed to have

None of the above B vacated office of the auditor of
Bharat Limited.

exceeding 50 crores C 50 crores or more

exceeding 50 crores A 10 crores or more

exceeding 50 crores C 50 crores or more

Yes, since the paid up share

No, rotation of auditor will not
capital is exceeding Rs. 25 C
be applicable.
crores

He cannot be appointed as the

He may be appointed in other
B auditor in any company for a
companies
period of 5 years.

He can be appointed as the He can be appointed as the

D
auditor in all of them. auditor in all of them.

five D five

Yes, since the paid up share Yes, since the paid up share
capital is exceeding Rs. 5 A capital is exceeding Rs. 10
crores crores

No, as provision of section 177 No, as provision of section 177

is not applicable to private D is not applicable to private
companies companies
 Yes, since it is a listed
No, as provision of section 177 company constitution of Audit
is not applicable to listed B committee is mandatory
companies irrespective of the paid up
share capital limit.

No, since the outstanding loans No, since the outstanding loans
or borrowings or debentures or or borrowings or debentures or
C
deposits is has not exceeded deposits is has not exceeded
Rs. 100 crore . Rs. 50 crore .

No, since the outstanding loans Yes, since the outstanding

or borrowings or debentures or loans or borrowings or
A
deposits is has not exceeded debentures or deposits is Rs.
Rs. 100 crore . 50 crore .

ADT-4 A ADT-2

30 days D 30 days

30 days C 60 days

25 B 20
All the above D All the above

59 A 60

15, 15, 14, 10,10 C 16, 15, 14, 10,5

59 A 60

He can be appointed as the He can be appointed as the

D
auditor in all of them. auditor in all of them.

ABC Ltd , its subsidiary,

He can be appointed as the holding, associate and
C
auditor in all of them. subsidiary of holding and
associate.
 Disqualified to be appointed as
There is no prohibition in
B auditor in the company,
providing actuarial services.
holding and subsidiary.

Board of Directors C Government.

the company, its holding, its the company, its subsidiary and
C
subsidiary and associate. its associate.

Whether all the information

Whether the book entries are
A and explanation relevant for the
prejudicial.
audit has been obtained.

Board of Directors B C&AG

CAG B CG as recommended by ICAI

59 A 60

All the above D All the above

None of the above C Both

The amount of fraud exceeds The amount of fraud is Rs 1
B
Rs 2 crore crore or above.

All the above B Audit Trail

7 B 2

30 A 45
Chairman, Ministry of Secretary, Ministry of
C
Corporate Affairs Corporate Affairs

ADT-4 D ADT-4

139, 140, 141 and 145 B 139, 143, 144 and 145

CRA-1 D CRA-1

A or B whichever is later C A or B whichever is earlier

CRA-1 C CRA-2
None of the above C Either of A or B

CRA-1 B CRA-3

150 A 180

Both are Incorrect C Both are correct

yes, Since revenue from No, Since revenue from

exports, in foreign exchange, is exports, in foreign exchange,
A
fifty per cent of its total does not exceeds seventy five
revenue; per cent of its total revenue;

Any of the above persons and

B Cost Accountant
any person of Repute

30, CRA-3 A 30, CRA-4

seven B three

129(2) A 129(3)

imposing penalty of not less imposing penalty of not less

than one lakh rupees, but which than one lakh rupees, but which
D
may extend to five times of the may extend to five times of the
fees received. fees received.

imposing penalty of not less imposing penalty of not less

than five lakh rupees, but than five lakh rupees, but
A
which may extend to five times which may extend to ten times
of the fees received. of the fees received.

60 days, 3 months C 30 days, 6 months

Rs 10, Rs. 3 A Rs 50, Rs. 5

Ms. Sita is correct as the Ms. Sita is not correct as
auditors have a right to receive though the auditors have a right
notice of every general to receive notice of every
meeting; however, they are not general meeting; they also have
under any obligation to attend C a duty to attend such meetings.
such meeting. Further she is Further, she is correct in
not correct in sending Mr. sending Mr. Rohan to attend
Rohan to attend the meeting as the meeting as her authorized
her authorized representative. representative.

M/s Sita Gita & Associates M/s Sita Gita & Associates
should report the fraud to the should report the fraud to the
Audit Committee and Central B Audit Committee/Board of
Government within 2 days of Directors within 2 days of the
the knowledge of fraud. knowledge of fraud.

The management of Sarvodya

The management of Sarvodya
Ltd. can revise the financial
Ltd. cannot revise the financial
statements after obtaining the
statements of FY 2018-19 but
A approval of the Tribunal and
can revise the financial
the order passed by the
statement pertaining to FY
Tribunal shall be filed with
2019-20.
Registrar.
 M/s Sita Gita & Associates can
M/s Sita Gita & Associates can revise the tax audit reports if
revise the tax audit reports at the accounts are revised by the
their own discretion for any C company and they should
purpose and for as many times specify the reason for such
as required. revision with a reference to the
earlier reports.

The management of Sarvodya

The management of Sarvodya
Ltd. is not correct in not
Ltd. is correct in not
transferring any percent of
A transferring any percent of
profits to reserves as such
profits to reserves as such
transfer to reserves is
transfer to reserves is optional.
mandatory in all cases.

The management of Sarvodya The management of Sarvodya

Ltd. is not correct as such Ltd. is not correct as such
amount is required to be amount is required to be
transferred to separate bank transferred to separate bank
account in case of declaration D account in case of declaration
of final dividend as well as of final dividend as well as
interim dividend within 5 days interim dividend within 5 days
from the date of declaration of from the date of declaration of
such dividend. such dividend.

M/s Sita Gita & Associates M/s Sita Gita & Associates
should qualify the audit report should qualify the audit report
as such non-provision of as such non-provision of
anticipated income tax liability A anticipated income tax liability
leads to over statement of hampers the true and fair view
current liabilities and of the state of affairs of the
provisions in the balance sheet. company.
Auditors would need to report Auditors would need to report
D
this matter in their main report. this matter in their main report.

In respect of QRP, auditors of

In respect of QRP, auditors of
QRP would need the
QRP would need to give
management to include a note
qualification in respect of non-
in the financial statements of C
recovery of advances from RPS
QRP explaining about the
if the adjustment entry is not
recoverability of
recorded in the books.
advances from RPS.

Auditors could have handled

this matter in a better manner Auditors handled this matter
by also involving a tax expert appropriately. The management
because this might result in a B would need to include this
penalty and that may have matter in the notes to accounts
some taxation impact for the to the financial statements.
Company.
Auditors of QRP should have
done materiality assessment in
QRP needs to prepare
respect of non-consolidation of
consolidated financial
SPS in the consolidated
statements by also
financial statements. The
consolidating SPS. In case this
auditors should ask the A
is not done, the auditors need
management to include a note
to qualify their report on
in the consolidated financial
consolidated financial
statements and also take
statements.
management representation
letter for the same.

The auditors have precedence

on the basis of which they have
formed a view and that is fine
as far as they don’t want to test
IT controls. However, instead The auditors need to perform
of qualification, disclaimer procedures before forming any
would be appropriate in the view. Any such precedence of
B
IFC report because there is no other client cannot be taken for
work for making any QRP without performing any
conclusion by the auditors. procedure by the auditors.
Management should also
include a note in their financial
statements in respect of first
year of SAP implementation.
Auditors would need to qualify Auditors would need to report
their main report as well as the fraud in their CARO report.
their CARO report. Further Further they also need to
they would also need to report A evaluate whether their report
about this matter to the Audit on IFC and the main report
Committee as well as the should be qualified or
Central Government. not.

Since the tax auditors and the Since the tax auditors and the
management both did not carry management both did not carry
out physical verification of out physical verification of
inventory as at 31st March inventory as at 31st March
2019, tax auditors would need 2019, tax auditors would need
to qualify the tax audit report. D to qualify the tax audit report.
Tax auditor would also Tax auditor would also
evaluate how the statutory evaluate how the statutory
auditor has reported this auditor has reported this
particular matter in his particular matter in his
auditor’s report. auditor’s report.
Management has not been
advised properly. However, in
the given case, statutory
auditors of TMRT would not
Management has been advised
be able to take up internal audit
correctly. Statutory auditors of
of TMRT because they need to A
TMRT cannot become their
mention the same at the time of
internal auditors.
giving their consent letter and
eligibility certificate at the time
of appointment of statutory
auditor.

Management override of
Revenue recognition should
controls and revenue
continue to be the significant
recognition should continue to
risk for the financial year
be the significant risks for the
ending 31st March 2022. B
financial year ending 31st
Management override of
March 2022 if that continues to
controls may not be considered
be significant risk at inherent
as significant risk.
level.

Yes, as per section 52 of the

Companies Act, 2013, No, as securities premium
premium can be used for cannot be used by company for
A
adjusting unabsorbed adjusting unabsorbed
depreciation and for issuing depreciation.
bonus shares.
Yes, as it won’t make any
impact so it is at the discretion No, as Ind AS 37 specifies that
of Growth Limited whether to such provision should be
B
present it under short term presented net of trade
provision or net it off from receivables.
trade receivables.

The contention of CFO is The contention of CFO is

invalid and CA David will not invalid and CA David will not
have to vacate office as no D have to vacate office as no
business relation exists business relation exists
there. there.

Yes, as it does not matter

whether non-compliance is
material or not, management or
those charged with governance Yes, in exceptional cases, the
should not refrain from taking auditor may consider for such
the remedial C withdrawal provided that such
action which the auditor has a withdrawal is not prohibited
considered necessary, provided by any law or regulation.
that such a withdrawal is not
prohibited by any law or
regulation.

In the “Basis for Disclaimer of In the Other Matter(s)

B
Opinion” paragraph. paragraph.

Such reasons were required to

Such reasons were required to
be disclosed to the Registrar till
C be disclosed to NSE till 1:00
1:00 p.m. – 22nd November,
p.m. – 21st November, 2021.
2021.
Rs. 52,500. D Rs. 52,500.

20th December, 2021 and 15th 20th December, 2021 and 15th
D
March, 2022. March, 2022.

CA D can altogether issue a CA D can altogether issue a

separate audit report and separate audit report and
reference of other audit report reference of other audit report
issued by majority auditors D issued by majority auditors
should be made in the should be made in the
emphasis of matter emphasis of matter
paragraph. paragraph.

CARO will be applicable as CARO will be applicable as

paid up share capital and paid up share capital and
reserves are Rs. 280 crore A reserves are Rs. 480 crore
which is more than Rs. 10 which is more than Rs. 1
crore. crore.

No, Clause (vi) should be

No, should be reported only if reported irrespective of
there is any discrepancy found whether Giant Motors Limited
C
while examining the cost has been ordered to conduct
records. cost audit by the Central
Government or not.
 Yes, there was a non-
Yes, there was a non-
compliance as there should
compliance as all the directors
have been more than 6
should have been independent B
independent directors specified
directors except the Chairman
in Regulation 17 and
of the company.
Regulation 17A.

No, there was no non-

Yes, as Mrs. D hold share
compliance as independent
during the financial year and
A directors were more than 2
his husband is statutory auditor
directors specified in the
of Giant Motors Ltd.
Companies Act, 2013.

Yes, if such reference was

relevant to any ‘key audit No, as Mrs. D has sold the
matter’ as per SA 701 even A shares within a grace period of
though it was not required by 60 days.
any law or regulation.

No, as such item shall be No, as such item shall be

treated as a misstatement only treated as a misstatement only
in the case of test of details and D in the case of test of details and
for test of controls such item for test of controls such item
shall be treated as a deviation. shall be treated as a deviation.
No, because in such a case the
auditor should have determined Yes, because in such a case the
the need to include an auditor should have determined
‘Emphasis of matter’ paragraph B implications for the audit and
in the audit report as per SA the auditor’s opinion in
706 after considering the accordance with SA 705.
implications on the audit.

No, because in such a case the

Manohar & Co. should have auditor should have enquired
filed the statement in Form the reasons for the same from
A
ADT-3 by 20th November, the management in writing and
2021. included the same as a ‘Key
Audit Matter’ as per SA 701

No, however, Namo & Co. can

commence the audit of Anitya
Ltd. but should try to satisfy
Yes, as it would be deemed
the requirement of B
that such post was delivered.
communicating with the
previous auditor at least before
signing of the audit report.
 Alkis Ltd. need not to form an
Alkis Ltd. needs to form an
Audit Committee. Further,
Audit Committee. Provisions
provisions relating to rotation
relating to internal audit is
of auditors is not applicable to
applicable to Alkis Ltd. C
Alkis Ltd. However, the
However, the provisions with
provisions with respect to
respect to rotation of auditors
internal audit are applicable to
are not applicable to it.
it.

Auditor’s Responsibilities for

Report on Other Legal and
the Audit of the Financial B
Regulatory Requirements.
Statements.

` 2.30 lakh. B ` 0.80 lakh.

` 1,151. D ` 1,151.

27th May, 2021 and 26th June, 25th May, 2021 and 26th June,
B
2021, respectively. 2021, respectively.