Ch # 1.

Concept and need for Audit and Assurance Page 129

Chapter # 1 Concept and need for Audit and Assurance

ISA 200 and Basics of Auditing

Question # 1 Q.1(a) Autumn 2009

Briefly highlight the management’s responsibilities relating to the financial statements? (07)

Question # 2 Q.5(b) Spring 2011

List three reasons why audit evidence is considered to be persuasive rather than conclusive. (03)

Question # 3 Q.1 Spring 2013

Briefly describe the meaning of professional judgment and explain its importance in the context of an audit (04)

Question # 4 Q.1(g) Autumn 2015

Briefly explain with examples, the different levels of assurance that can be provided to an assurance client. (03)

Question # 5 Q.5(b.c) Autumn 2016

In relation to the audit report on financial statements and the contents thereof (under revised/new ISAs), discuss the
appropriateness or otherwise of the following statements:

(b) Reasonable assurance is a high level of assurance and is a guarantee that if audit is conducted in accordance with
ISAs, it will always detect a material misstatement whenever it exists. (03)

(c) The auditor obtains an understanding of controls relevant to the audit in order to design audit procedures that
are appropriate in the circumstances and also for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. (03)

Question # 6 Q.6(b) Spring 2017

Discuss the concepts of stewardship and accountability in the context of a limited company and fair presentation (true
and fair view) in relation to the financial statements.

Question # 7 Q.1 Autumn 2017

In response to an audit engagement letter sent to Roof Limited (RL), Mr. Aziz Aslam, the new chief executive of RL has
requested your firm to provide absolute assurance in the audit report.

Required: Draft an appropriate reply mentioning any four reasons why the above request cannot be complied with.
(05)

Question # 8 Q.1 Autumn 2018

A friend of yours has invested in the shares of Ascender Limited. On receiving the company’s annual report, he made
the following comments:
“The auditor has expressed an unqualified opinion. Since the auditor must have arrived at his opinion after testing
majority of the transactions, therefore the financial statements are correct in all respects. Since no control
deficiencies and fraudulent conduct had been reported by the auditor, I can safely invest further amount of money
in the company because there is no risk that I will lose my money due to fraudulent conduct of management or
misrepresentations in the financial statements.”
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Required:
Write a letter to your friend to remove his misconceptions related to the audit of financial statements including brief
explanation of your point of view. (08)

Question # 9 Q.2(a) Autumn 2019

Aslam is a junior member of your audit team. During an informal discussion with your team members, Aslam has
inquired you about the reasons of emphasizing on professional skepticism when honesty and integrity of the
management is not questionable based on prior experience. Briefly respond to the inquiry of Aslam. (03)

Question # 10 Q.3 Autumn 2019

Amjad is the chief executive and major shareholder of a newly incorporated private limited company. He has offered
your firm to be the first external auditor of the company. During a meeting, he was of the viewpoint that statutory
audit exists because it has been legally mandated and it does not add value to business. However, he believes that
audit helps in finding all major frauds within the company.

Required: Discuss how you will respond to the viewpoints of Amjad regarding the audit of financial statements. (07)

Question # 11 Q.7 Autumn 2020

You are the audit manager responsible for the audit of Beachwood Textile Limited (BTL). At the planning stage, your
audit team has assessed that there is no significant risk of material misstatement due to fraud and management
override of controls. The audit team’s assessment is based on the fact that BTL has been an audit client of the firm for
the last 10 years and no material misstatement had been reported in the previous years.

Required: Guide your audit team with regard to their assessment of risk. (08)

Question # 12 Q.9(c) Autumn 2020

Briefly explain any four elements of an assurance engagement. (04)

Companies Act 2017

Question # 1 Q.1 Spring 2010

Comment on each of the following situations with reference to the appointment of external auditors in accordance
with the requirements of the Companies Act, 2017:

a) Farrukh& Co., Chartered Accountants, has received an offer to be appointed as the external auditor of Ebrahim
Gas Company. The firm is indebted to the company as it has not paid the last two months’ bills amounting to Rs.
4,860.
b) After hundred days of incorporation, the directors of Rahman Limited (RL) decided to appoint Mr. Shahid as the
company’s statutory auditor. Mr. Shahid was employed by RL before he started his own practice.
c) The directors of Fazal Limited (FL) have decided to appoint Syed & Company, Chartered Accountants, as external
auditor of the company. One of the partner’s spouse holds 1,000 shares in the subsidiary of FL.
d) The directors of Najam (Pvt.) Limited having paid-up capital of Rs. 4.5 million have appointed Mr. Dawood to act
as the external auditor of the company. Mr. Dawood has been awarded a diploma in International Financial
Reporting Standards by the Institute of Chartered Accountants of Pakistan and has completed the mandatory
period of training from a leading firm of chartered accountants.
e) All directors of Hussain Associates (Pvt.) Limited are chartered accountants. The company has recently received
an offer for appointment as the external auditor of Masood (Pvt.) Limited which has a paid-up share capital of Rs.
1,000,000. (10)

Question # 2 Q.4 Autumn 2011

Comment on each of the following independent situations in respect of appointment of auditors, with reference to the
applicable rules and regulations:
a) Guava and Company, Chartered Accountants, have received a request for appointment as auditor of Orange Bank
Limited (OBL). Most of the partners of Guava and Company maintain their accounts with OBL and are enjoying
credit card facilities from them. The maximum outstanding balance on the credit card facility, due from any
partner is Rs. 399,000.
b) Apricot and Company, Chartered Accountants, have received an offer for appointment as auditor of Banana
Limited. Mr. Pumpkin who is a nominee director of the Government on the Board of Directors of Banana Limited
holds 25% shares in Water Melon Limited. The spouse of a partner also holds shares in Water Melon Limited.
c) Mr. Zaheer, a legal practitioner, has received an offer for appointment as external auditor of Lychee (Private)
Limited (LPL). The paid up capital of LPL is Rs. 1,500,000 of which 40% is owned by Blue Black Limited, a listed
company.
d) Walnut and Company, Chartered Accountants, have received an offer for appointment as external auditors of
Wasim (Private) Limited (WPL), in place of the previous auditors, who were removed before the completion of
their term. You may assume that WPL has completed all the legal formalities before removing the previous
auditors.
e) Mr. Sadiq has recently joined your firm as a partner. He has served on the Board of Directors of Strawberry Limited
(SL) until 30 June 2009, as a Government nominee. In the Annual General Meeting of SL held on 31 August 2011,
a shareholder has proposed the name of your firm for appointment as the external auditors for the year ending
30 June 2012. (11 marks)

Question # 3 Q.6 Spring 2012

Comment on each of the following independent situations with reference to the applicable rules and regulations.
a) Waqar is a partner in Sohail and Company, Chartered Accountants, who are the auditors of Wasim Limited for the
year 2011. Aqib who was a partner of Waqar in 2008 in his food business, has recently been appointed as a
Director of Wasim Limited. (02)
b) Aleem, Asif and Company (AAC), Chartered Accountants, has accepted an offer for appointment as auditors of Gul
Limited (GL). Kamal who is a partner in AAC, held 5000 shares in GL. Within thirty days of acceptance, he gifted
the shares to his son Kamran, who is a manager in AAC. (06)
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c) Sajid, Hameed and Company (SHC), Chartered Accountants, are the auditors of Mir Hasan Limited (MHL). Kashif
is a senior manager in SHC and is being promoted as a partner. He teaches auditing in a college. The college is
owned by a trust whose trustees include two directors of MHL. (02)
d) Saleem is a partner in Orange and Company, Chartered Accountants. He also practices as a sole proprietor and
has received an offer for appointment as auditor of ABC Financial Services Limited which is a subsidiary of DEF
Bank Limited. The balance outstanding against the credit card issued by DEF Bank Limited to a partner of Orange
and Company is Rs. 1,110,500. (02)

Question # 4 Q.8 Autumn 2012

Comment on each of the following independent situations with reference to the applicable rules and regulations.
a) Zaman is a partner in a firm of Chartered Accountants and holds 5,000 shares in Mardan Limited (ML). His firm
has received an offer for appointment as auditors of Khanewal Limited (KL). ML and KL are subsidiaries of Dera
Khan Limited (DKL). (03)
b) Bilal and Company has received an offer for appointment as auditors of IJK Limited. The total paid up capital of
the company is Rs. 990 million whereas its ordinary share capital is Rs. 130 million. Faryal, the wife of a partner
in Bilal and Company, is a director in LMN Limited which holds 50 million non-voting preference shares and 2
million ordinary shares in IJK Limited. Faryal also holds 10,000 shares in LMN Limited. The par value of both
types of shares is Rs. 10 each. (04)

Question # 5 Q.3 Spring 2013

Comment on each of the following independent situations with reference to the applicable requirements of the
Companies Act, 2017.
a) Jahangir (Private) Limited (JPL) has a paid-up capital of Rs. 2.5 million. Till recently, it was a wholly owned
subsidiary of Malik Limited (ML). Recently ML has disposed of 60% of its holding in JPL to Zubair Enterprises
(ZE), a partnership firm. All the partners in ZE are on the Board of Directors of ML. JPL intends to appoint Mr.
Ahsan as its auditor. Mr. Ahsan is an MBA and his brother is also a partner in ZE. (03)
b) A notice for appointment of Kashif and Company, Chartered Accountants (KCC) was received by Khanewal
Limited (KL), fourteen days before the AGM. The notice was served by Mr. Iqbal, who is a holder of 500,000 non-
voting preference shares. (02)
c) Mr. Khan is a partner in a firm of Chartered Accountants. He also holds 70% shares in Khan Limited, (KL).
Construction Bank Limited (CBL) has granted a loan of Rs. 10 million to KL. Mr. Khan’s firm has received an offer
for appointment as auditor of CBL. (02)

Question # 6 Q.5 Autumn 2013

Comment on each of the following independent situations in the light of the requirements of the Companies Act, 2017:
a) Khan and Company, Chartered Accountants has received an offer for appointment as auditors of Good Bank
Limited (GBL). Shahid is a partner in Khan and Company. He has obtained a personal finance of Rs. 450,000 from
GBL and also holds GBL’s credit card. The outstanding balance on his credit card is Rs. 100,000. (03)
b) Abid is a partner in AFL & Company, Chartered Accountants. AFL has accepted an offer for appointment as
auditors of Saima Limited (SL). Saima, the wife of Abid, owned 11% shares in SL. She also works as SL’s General
Manager Marketing. Saima disposed of the shares held by her to Abid’s father, within 30 days of the appointment
of AFL but continues to remain employed in SL. (03)

Question # 7 Q.2 Spring 2014

Comment on the following independent situations, with reference to the requirements of the Companies Act, 2017.
a) Mateen has recently joined Humayun and Company (HC), a firm of Chartered Accountants, as a Director with a
commitment of being promoted as a partner in due course. HC is the auditor of Strawberry Limited (SL). Mateen
was previously associated with SL as a Director. He left that job in 2011 but still holds 1,000,000 shares in SL. (03)
b) Khawar is a partner in Ghalib and Company, Chartered Accountants. He writes occasionally as a Free Lancer for
‘Investment Times’, a leading Financial Magazine. Ghalib and Company are the auditors of Financial Press Limited,
publisher of Investment Times. Khawar has received a remuneration of Rs. 20,000 for his articles published in the
magazine. (02)
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c) Hamid is a partner in a Chartered Accountant firm and holds 100,000 Term Finance Certificates in Sona Fertilizers
Limited (SFL). Hamid’s firm is considering to accept the audit of SFL. (02)

Question # 8 Q.2(a) Autumn 2014

Your firm is the auditor of ABD Limited (ABDL). After the acquisition of majority shareholding in HG Motors (Private)
Limited (HGM), ABDL has decided to replace the existing auditors of HGM in the next annual general meeting and has
approached you for appointment as HGM’s auditors for the next year.

Required:
In the light of the Companies Act, 2017 explain the procedures to be followed and formalities to be complied with for
appointment of your firm as the auditor of HGM. Also explain the rights of the existing auditors in this situation. (08)

Question # 9 Q.1(c) Spring 2015

The external auditors are normally appointed by the shareholders at the annual general meeting (AGM) of the
company. State the exceptions to this rule. (03)

Question # 10 Q.2 Spring 2015

Comment on each of the following situations with reference to the appointment of external auditors in accordance
with the requirements of the Companies Act, 2017.
a) ABC Limited and DEF Limited are associated companies on account of common directorship. Salman and
Company, Chartered Accountants (SCC) have received an offer for appointment as the auditor in ABC. Salman, a
partner in SCC is the spouse of Naveen, who is an employee in DEF. (02)

b) All the partners of Kashif Associates are Cost and Management Accountants. The firm has received an offer for
appointment as the auditor of Nihal (Private) Limited (NPL). NPL has a paid-up capital of Rs. 500,000 and 30% of
its shares are held by Siyal Limited which is a public company. (03)

Question # 11 Q.4 Spring 2016

Justify giving reasons whether the appointment of auditors in the following cases is in compliance with the
requirements of Companies Act, 2017.
a) Kashif and Company, Chartered Accountants (KC) has received an offer for appointment as the auditor of National
Electricity Limited (NEL). On the request of one of the partners of KC, NEL has allowed him to pay his last month’s
electricity bill amounting to Rs. 150,000 in monthly installments of Rs. 15,000 each. (03)

b) Zubair and Company, Chartered Accountants (ZC) has received an offer for appointment as auditor of Haroon
Limited (HL). Saima, who is the wife of a partner of ZC, is the chief executive of Jameel Limited (JL). JL is an
associated company of HL. Saima also holds 100,000 shares in JL. (03)

Question # 12 Q.7 Autumn 2016

Daud and Company, Chartered Accountants (DC), has received an offer for appointment as auditor of Jamal Limited
(JL). Wife of Daud is a Shareholder and Director in Royal Limited (RL).

Required: In accordance with the requirements of the Companies Act, 2017, state whether and under what
circumstances DC could accept the audit, under each of the following situations:

(a) JL holds 51% shareholding in RL. (03)

Question # 13 Q.10 Spring 2017

Comment on each of the following situations with reference to the appointment of external auditors in accordance
with the requirement of the Companies Act, 2017.

(a) Bilal and Company, Chartered Accountants has received an offer for appointment as auditor of Dawood Limited
(DL). Ghalib, a partner in Bilal and Company holds 100,000 Term Finance Certificates of DL. (03)
(b) Zain and Company, a firm of Chartered Accountants, has received an offer for appointment as auditor of Haris
Limited (HL). Imran, a partner in Zain and Company is also a partner in Pure Investment Associates, a partnership
firm, which owns 100,000 shares in HL. (03)

Question # 14 Q.1(a) Spring 2018

On 5 March 2018, HSB & Company, Chartered Accountants (HSB) has been offered appointment as external auditor
of Tahir Limited (TL) for the year ending 31 December 2018. TL is the subsidiary of Crypto Bank Limited (CBL), which
is audited by another firm of chartered accountants.

Hatim, a partner of HSB is using credit card of CBL and the balance outstanding against it on 28 February 2018 was
Rs. 1.1 million. Hatim plans to clear the dues by 30 July 2018, which is well before the commencement of audit. It is
expected that the audit planning activities will commence from 1 November 2018.

Required:
Comment on the above situation in the light of Companies Act, 2017. (04)

Question # 15 Q.4 Spring 2019

Under the Companies Act, 2017 identify the situations in which the Commission may appoint a person to fill the
vacancy of an auditor. (03)

Question # 16 Q.8(b) Autumn 2018

(a) Under the Companies Act, 2017, state the procedure to be followed if the board of directors decides to
recommend the reappointment of existing auditor for the next year. (02)
(b) The board of directors of Alpha Limited intends to re-appoint the existing auditor for the next year. However,
Javed, a shareholder of the company, wants to appoint a different auditor.

Required:
Briefly explain the procedure that Javed should follow. Also state the responsibilities of the board in this regard.
(06)

Question # 17 Q.8 Spring 2020

Wealthy Bank Limited (WBL) is considering to appoint external auditor for the year ending June 2020. WBL has
shortlisted the following three audit firms for appointment as external auditor and has presented certain matters
relating to each of them for your consideration:
Rao Arif & Company, Chartered Accountants
The firm has recently admitted a new partner who worked as CFO till June 2017, of Noor Engineering Limited, a
subsidiary of WBL.
Hatim Tughlaq &Company, Chartered Accountants
One of the partners in the firm has obtained a loan from WBL of Rs. 5 million. The firm has informed that the partner
would not be able to repay the loan till 2021.
Rashid Kareem & Company, Chartered Accountants
Rashid, one of the partners in the firm, has several commercial properties in Lahore. He has rented out five properties
to WBL for its branch operations.
Required: In the light of the Companies Act, 2017 discuss whether any of the above firms can be appointed as external
auditor of WBL. (06)
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Question # 18 Q.9(b) Autumn 2020

In the light of Companies Act 2017, describe the requirements for cost audit and person authorized to conduct it. (04)

Question # 19 Q.2(a) Spring 2021

Salman is the shareholder of Polkadot Limited (PL) and wants to appoint auditor other than the existing auditor as
proposed by the board.

Required:
In the light of the Companies Act, 2017 briefly explain the process that Salman should follow in the above situation.
Also discuss the requirements that PL should follow. (05)

Question # 20 Q.2(a) Autumn 2021

Haris & Company, Chartered Accountants was appointed as the auditor of Cactus (Private) Limited (CPL) for the year
ending 31 December 2021. Haris, the only audit partner of Haris & Company, passed away on 5 September 2021. No
other auditor has yet been appointed by CPL.

Required:
State the requirements of the Companies Act, 2017 for the appointment of auditor in the above situation. (03)

Question # 21 Q.8 Autumn 2022

The board of directors of Green Limited (GL) intends to re-appoint the existing auditor for the next year. However,
Haider, a shareholder of the company, wants to appoint a different auditor.

Required:
Briefly explain the procedure that Haider should follow. Also state the responsibilities of GL in this regard. (06)

Question # 22 Q.7(b) Spring 2023

Under the provisions of the Companies Act, 2017, list the persons from whom the auditor has a right to require such
information or explanations as he thinks necessary for the performance of his duties as an auditor. (04)