0% found this document useful (0 votes)

89 views

Final List of CA Inter Audit Sept24

Uploaded by

tejakillada143

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

0% found this document useful (0 votes)

89 views

Final List of CA Inter Audit Sept24

Uploaded by

tejakillada143

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

You are on page 1/ 277

AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 1 of 277

CA INTER AUDIT IMPORTANT QUESTIONS SEPT24

INDEX

SNO. TOPIC PAGE NO. OF SA’s MARKS

QUESTIONS
1 CHP1; Nature, 102- 200 5-8
Objective and 108 8
Scope of Audit
2 CHAPTER 11; 109- 200,210,220, 5-8
ETHICS AND 121 16 SQC-1
TERMS OF AUDIT
ENGAGEMENTS
3 CHAPTER 6; 122- 230, 5-8
AUDIT 128 10 SQC-1
DOCUMENTATION
4 CHP 2; AUDIT 129- 300,315 5-8
STRATEGY, 145 27
AUDIT PLANNING
AND AUDIT
PROGRAMME

5 CHP 10; BANK 146- AUDIT OF BANK 5-8

AUDIT 161 23
6 CHP 8; AUDIT 162- 700 SERIES 8-12
REPORT 182 30 299
CARO 2020
7 CHAPTER 4; 183 500,501,505,510,520,530,550,610 8-16
AUDIT EVIDENCE Includes in set
of chp 4,7,3
8 CHP7; To 560,570,450,580,260,265 8-16
COMPLETION 88
AND REVIEW

9 CHP3; RISK 243 Includes in set 315,320,330 8-16

ASSESSMENT of chp 4,7,3 AUTOMATED ENVIRONMENT
AND INTERNAL
CONTROL
10 CHP 5; AUDIT OF 244- 25 FS ITEMS CHAPTER 12-18
ITEMS OF FS 260
11 CHP 9; SPECIAL 261- 21 DIFFERENT ENTITIES FEATURES 12-18
FEAUTURES OF 277
AUDIT OF
DIFFERENT
TYPES OF
ENTITIES

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 2 of 277

Copyright © 2024, AJAY GUPTA. All rights reserved.

No part of this book may be reproduced, distributed, or transmitted in any form or by any means,
including photocopying, recording, or other electronic or mechanical methods, without the prior
written permission of the publisher, except in the case of brief quotations embodied in critical
reviews and certain other non-commercial uses permitted by copyright law. For permission
requests, write to the publisher, addressed “Attention: Permissions Coordinator,” at the address
below.

Unauthorized use, distribution, or reproduction of this content may result in legal action. Violators
found guilty of publishing or sharing this content without permission may be subject to a fine of up
to ₹1,00,000.

For permission requests, write to the publisher, addressed “Attention: Permissions Coordinator,” at
the address below.

AJAY GUPTA [CA,CS,BCOM,MCOM,LLB]

DELHI,110061

CONTACT NUMBER;
http://wa.me/919667109525

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 3 of 277

How to Use This Important Question Booklet for Exam Preparation

1. Print This Booklet: To maximize its utility, we recommend printing out this booklet.
2. Easy Navigation: The first page contains an index with page numbers for each chapter,
allowing you to easily locate the sections you need.
3. Structured Layout: Each page is divided into two sections:
- Questions Overview: This section provides a summary of all the questions.
- Important Topics Overview: This section highlights key topics. This makes it easy for you to
quickly revise the most important material the day before your exam.
4. Color-Coded Content: We have used two fonts for clarity:
- Violet Colour: Indicates the questions.
- Black Colour: Indicates the answers.
5. Focus on the Essentials: This booklet contains all the important questions you need. You do
not need to refer to RTPs (Revision Test Papers), MTPs (Mock Test Papers), or past year
questions—just focus on this booklet.
6. Follow the Instructions: For optimal use, follow the guidelines provided in this booklet.
Doing so will ensure that you make the most out of your study sessions.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 4 of 277

IMPORTANT QUESTIONS OVERVIEW

CHP1; Nature, Objective and Scope of Audit + SA 200

Question 1; The person conducting audit should take care to ensure that financial
statements would not mislead anybody. Explain stating clearly the meaning of audit?

Question 3; An audit is distinct from investigation. However, it is quite possible that

sometimes investigation results from the prima facie findings of the auditor.

Question 5; The auditor is not expected to, and cannot, reduce audit risk to zero and
cannot therefore obtain absolute assurance that the financial statements are free
from material misstatement due to fraud or error. This is because there are inherent
limitations of an audit. Explain. OR [[ Question; The auditor has to form an opinion on
the financial statements within a reasonable period of time and at a reasonable cost.
Explain the above statement with reference to "Timeliness of Financial Reporting and
the Balance between Benefit and Cost". ]]

Question 7; Assurance engagements are not restricted to audit of financial

statements alone. Discuss

Question 8; An assurance engagement involves a three party relationship. Discuss

meaning of three parties in such an engagement.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 5 of 277

CHAPTER 11; ETHICS AND TERMS OF AUDIT ENGAGEMENTS + SA 210,220,

SQC-1

Question 9; Principle based approach vs Rule Based Approach

Question 10; Explain the fundamental principles of professional ethics relevant to the
auditor when conducting an audit of financial statements in accordance with Code of
Ethics issued by ICAI. OR
The Code establishes the fundamental principles of professional ethics relevant to the
auditor when conducting an audit of financial statements. Explain.

Question 11; Professional integrity and independence are considered essential

characteristics of all the professions.
There are two interlinked perspectives of independence of auditors, one, independence
of mind; and two, independence in appearance. Explain.

Question 12; The Code of Ethics for Professional Accountants, prepared by the
International Federation of Accountants (IFAC) identifies five types of threats.
Explain.

Question 13; Discuss few guiding principles which are behind safeguards to eliminate
threats to auditor’s independence.

Question 14; Professional skepticism refers to an attitude that includes a questioning

Question 15; Discuss preconditions for an audit as per SA 210. Explain how would an
auditor proceed to establish the presence of pre-conditions for an audit.

Question 16; On recurring audits, the auditor shall assess whether circumstances
require the terms of the audit engagement to be revised and whether there is a need
to remind the entity of the existing terms of the audit engagement. The auditor may
decide not to send a new audit engagement letter or other written agreement each
period. Explain the factors an auditor considers to be appropriate to revise the terms
of the audit engagement or to remind the entity of existing terms.

Question 17; An auditor who before the completion of the engagement is requested to
change the engagement to one which provides a lower level of assurance should
consider the appropriateness of doing so. Discuss.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 6 of 277

Question 18; CA P is appointed as an auditor of XYZ Limited for the F.Y. 2021 -22. The
management of XYZ Limited has requested the auditor to change the terms of original
engagement as the company has diversified its business and few new products have
been introduced by the company. Can CA P agree to the request made by the
management? Under which circumstances can the client make a request to the auditor
for a change in the terms of engagement? OR
An auditor who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should consider the
appropriateness of doing so. Explain the circumstances which may contribute towards a
request from the client for the auditor to change the engagement.

Question 19; As per SA 220, the engagement partner shall take responsibility for the
overall quality on each audit engagement to which that partner is assigned. While taking
responsibility for the overall quality on each audit engagement, analyse and explain the
emphasis of the actions of the engagement partner and appropriate messages to the
other members of the engagement team . Also define engagement partner.

Question 20; As per SA 220, “Quality Control for an Audit of Financial Statements”
the auditor should obtain information considered necessary in the circumstances
before accepting an engagement with a new client. Explain stating clearly the
information that would assist the auditor in accepting and continuing of relationship
with the client.

Question 21; How does SQC 1 ensure that independence in engagements is not
breached by an audit firm?

Question 22; The firm should establish policies and procedures designed to provide it
with reasonable assurance that the policies and procedures relating to the system of
quality control are relevant, adequate, operating effectively and complied with in
practice. Explain the purpose of monitoring compliance with quality control policies and
procedures.

Question 23; Through its policies and procedures, the firm seeks to establish
consistency in the quality of engagement performance. This is often accomplished
through written or electronic manuals, software tools or other forms of standardized
documentation, and industry or subject matter-specific guidance materials. Explain the
matters to be addressed in this context.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 7 of 277

Question 24; The firm should establish policies and procedures designed to provide it
with reasonable assurance that it has sufficient personnel with the capabilities,
competence, and commitment to ethical principles. Explain stating clearly personnel
issues addressed by such policies and procedures.

CHAPTER 6; AUDIT DOCUMENTATION + SA 210,220, SQC-1

Question 25; CAM is the engagement partner of S Ltd. He has instructed his audit
team to maintain proper audit documentation. The audit team members are not sure
about the purpose for which the documentation should be made. Explain the various
purposes of audit documentation with reference to SA 230.

Question 26; The form, content and extent of audit documentation depend on factors
such as the size and complexity of the entity, the nature of the audit procedures to be
performed etc. Explain in detail.

Question 27; The auditor shall assemble the audit documentation in an audit file and
complete the administrative process of assembling the final audit file on a timely basis.
Explain in detail. OR TRS & Associates, Chartered Accountants, having completed the
audit of Genuine Leathers Ltd has started the assembling of final audit file. TRS &
Associates has established policies and procedures for the timely completion of the
assembly of audit files. Explain the various aspects related to final audit file discussed
in SA 230 giving specific reference to SQC 1, wherever required.

Question 28; Judging the significance of a matter requires an objective analysis of the
facts and circumstances. Documentation of the professional judgments made, where
significant, serves to explain the auditor’s conclusions and to reinforce the quality of
the judgment. Explain with the help of examples.

Question 29; "Completion Memorandum" is helpful as part of the audit documentation.

Explain.

Question 30; The working papers of the branch auditor are also the property of the
Principal Auditor and the Management of the Company, so they have right to access
them. State the relevant SA and comment.

Question 31; While documenting the nature, timing and extent of audit procedures
performed in case of audit of PQR Ltd, explain the important matters its auditor
should record.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 8 of 277

Question 32; CA R comes to know some very critical information with regards to the
business cycle of an entity for which he has issued the audit report, which become
known to him as an auditor after the date of the auditor’s report but which existed at
that date and which, if known at that date, might have caused the financial statements
to be amended or the auditor to modify the opinion in the auditor’s report. He wants to
perform additional audit procedures to satisfy himself. As an auditor what he shall
document, on the matters arising after the date of audit report?

Question 33; Give some examples of circumstances in which it is appropriate to

prepare audit documentation relating to the use of professional judgment where the
matters and judgments are significant.

Question 34; Audit documentation provides evidence that the audit complies with SAs.
However, it is neither necessary nor practicable for the auditor to document every
matter considered. Further, it is unnecessary for the auditor to document separately
compliance with matters for which compliance is demonstrated by documents included
within the audit file. Explain giving examples.

CHP 2; AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME + SA

300 + SA 315

Question 35; Planning is not a discrete phase of an audit, but rather a continual and
iterative process that often begins shortly after the completion of the previous audit
and continues until the completion of the current audit engagement. Planning includes
the need to consider certain matters prior to the auditor’s identification and
assessment of the risks of material misstatement. Explain clearly stating those
matters also.

Question 36; "An adequate planning benefits the audit of financial statements."
Discuss.

Question 37; CA Vikas Jain discussed with his audit team about advantages and
disadvantages of audit programme. He explained to his team that – “work may become
mechanical” as disadvantage of the audit programme. Discuss explaining the
disadvantages of an audit programme.

Question 38; The auditor shall document the overall audit strategy, the audit plan, and
any significant changes made during the audit engagement to the overall audit strategy
or the audit plan, and the reasons for such changes. Explain.

Question 39; As a result of unexpected events, changes in conditions, or the audit

evidence obtained from the results of audit procedures, the auditor may need to
modify the overall audit strategy and audit plan. Explain
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 9 of 277

Question 40; “The auditor should plan his work to enable him to conduct an effective
audit in an efficient and timely manner. Plans should be based on knowledge of the
client’s business” Discuss stating clearly the broad points you would be covering in
framing plan to conduct audit in an efficient and effective manner.

Question 41; The auditor shall plan the nature, timing and extent of direction and
supervision of engagement team members and the review of their work. Explain the
factors due to which above varies.

Question 42; “In establishing the overall audit strategy, the auditor shall, among other
considerations, ascertain the nature, timing and extent of resources necessary to
perform the engagement” Explain those considerations in detail.

Question 43; In most of the assertions much of the evidence be drawn and each one
should be considered and weighed to ascertain its weight to prove or disprove the
assertion. An auditor picks up evidence from a variety of fields. Analyse and explain
with the help of examples.

Question 44; In establishing overall audit strategy, the auditor shall ascertain the
reporting objectives of the engagement to plan the timing of the audit and the nature
of the communications required. Elucidate those cases by which auditor can ascertain
the reporting objectives of the engagement.

Question 45; Overall audit strategy sets the scope, timing and direction of the audit,
and guides the development of the more detailed audit plan. The process of
establishing the overall.

Question 46; Evolving one audit programme applicable to all business under all
circumstances is not practicable. Explain clearly stating in detail the meaning of audit
programmer.

Question 47; Briefly discuss the special points that should be kept in mind as an
auditor for developing an audit program.

Question 48; The utility of the audit programme can be retained and enhanced only by
keeping the programme as also the client’s operations and internal control under
periodic review so that inadequacies or redundancies of the programmer may be
removed. Explain.

Question 49; The audit plan includes the nature, timing and extent of audit procedures
to be performed by engagement team members. Explain.?

Question 50; In establishing the overall audit strategy, the auditor shall identify the
characteristics of the engagement that define its scope. Explain with example?

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 10 of 277

Question 51; Explain what do you mean by documentation of audit plan. Discuss the
purpose served by it and also elaborate the tools used by the auditor to reflect the
particular engagement circumstances.

Question 52; Your firm has been appointed as an auditor to audit the accounts of an
auto parts manufacturer, ABC LTD. Elucidate the matters to be considered by an
auditor in developing his overall plan for the expected scope and conduct of audit.

Question 53; Discuss the points to be considered by auditor for the purpose of
constructing an audit program me.

Question 54; Without adequate knowledge of client’s business, a proper audit is not
possible. It is one of the important principles in developing an overall audit plan. Explain
in context with relevant SA, knowledge to be obtained by the auditor in establishing
overall plan. Also explain how such an understanding would be helpful to the auditor.

Question 55; Without adequate knowledge of client’s business, a proper audit is not
possible. The auditor shall obtain an understanding of the entity’s objectives and
strategies, and those related business risks that may result in risks of material
misstatement. Explain giving examples.

Question 56; CA L is in the process of finalizing his Risk Assessment Procedures of

Question 57; Knowledge of the Client’s business is one of the important principles in
developing an overall audit plan. In fact, without adequate knowledge of client’s
business, a proper audit is not possible. As per SA-315, “Identifying and Assessing the
Risk of Material Misstatement through Understanding the Entity and Its Environment”,
the auditor shall obtain an understanding of the relevant industry, regulatory and other
external factors including the applicable financial reporting framework. Substantiate
with the help of examples.

Question 58; Analytical procedures performed as risk assessment procedures may

Question 59; Evidence is the very basis for formulation of opinion and an audit
programme is designed to provide for that by prescribing procedures and Analyse and
explain with the help of example of evidence in respect of Sales.

Question 60; Plans should be further developed and revised as necessary during the
course of the audit. Explain.
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 11 of 277

Question 61; Much of the information obtained by the auditor’s inquiries is obtained
from management and those responsible for financial reporting. However, the auditor
may also obtain information, or a different perspective in identifying risks of material
misstatement, through inquiries of others within the entity and other employees with
different levels of authority. Explain with the help of examples.

CHP 10; BANK AUDIT

Question 62; The engagement team of FRN & Co.- Auditors of Bank of Baroda held
discussions to gain better understanding of the bank and its environment, including
internal control, and also to assess the potential for material misstatements of the
financial statements. The discussion between the members of the engagement team
and the audit engagement partner are being done on the susceptibility of the bank’s
financial statements to material misstatements. These discussions are ordinarily done
at the planning stage of an audit. Analyse and Advise the matters to be discussed in the
engagement team discussion.

Question 63; In the case of a nationalised bank, the auditor is required to make a
report to the Central Government. The report of auditors of State Bank of India is
also to be made to the Central Government and is almost identical to the auditor’s
report in the case of a nationalised bank. Explain what would the auditor state in his
report.

Question 64; Your firm of Chartered Accountants has been appointed as the Auditor
of two branches of OBC which are located in the Industrial area. Considering that the
location of the branches of bank in industrial area, these would be “advances oriented
branches and audit of advances would require the major attention of the auditors.
Advise how would you proceed to obtain evidence in respect of audit of advances.

Question 65; Your firm of Chartered Accountants has been appointed as auditor of a
Nationalised bank. Explain how will you proceed to carry out audit of provisions and
contingencies.

Question 66; Mr. A approaches a bank for financial assistance for his upcoming
project. The Bank Branch Manager, after verifying the proposal, is agreeable to
financing Mr. A, but asks for the security to be offered to the bank. Discuss the
nature of securities required to be offered to the bank.

Question 67; The discussion between members of the engagement team members and
the audit engagement partner should be done on the susceptibility of the bank's
financial statements to material misstatements. Briefly discuss the points ordinarily
included in discussion of the engagement team.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 12 of 277

Question 68; Explain "Advances under Consortium" in the context of Prudential Norms
on Income Recognition, Asset Classification and Provisioning pertaining to Advances.

Question 69; Explain the audit approach you would follow to check the Operating
Expenses of a Bank.

Question 70; Mr Rishikesh, the Bank Manager develops controls to assist in managing
key business and financial risks. Discuss the various requirements for an effective risk
management system in a bank.

Question 71; When is an agricultural advance considered as non performing as per the
RBI guidelines?

Question 72; Explain hypothecation and assignment as the modes of creation of

security with respect to advance granted by a bank.

Question 73; The auditor should examine the efficacy of various internal controls over
advances to determine the nature, timing and extent of his substantive procedures.
Explain this statement.

Question 74; In view of the significant uncertainty regarding ultimate collection of

Question 75; Depending on the nature of the item concerned, creation of security may
take the form of a mortgage, pledge, hypothecation, assignment, set-off or lien. Explain
with specific reference to Audit of Banks.

Question 76; Your firm of auditors, SRG & Co., has been appointed as Statutory
Central Auditors of Reliable Bank. Explain the reporting requirements of the Statutory
Central Auditors (SCAs) in addition to their main audit report.

Question 77; The engagement team discussion ordinarily includes a discussion of the
matters such as - Errors that may be more likely to occur; Errors which have been
identified in prior years; Method by which fraud might be perpetrated by bank
personnel or others within particular account balances and/or disclosures; etc. In the
above context, explain the advantages of such a discussion.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 13 of 277

Question 78; While verifying interest income of a mid-corporate branch of an urban

Question 79; You are appointed as an auditor of Banking Co., and hold discussions with
engagement team. List out matters which you would discuss at the planning stage of an
audit to gain better understanding of the bank and its environment.

Question 80; N Ltd. has been sanctioned a Cash Credit Facility by XYZ Bank Ltd. for
INR 1 crore and drawing power as per the stock statements furnished for the last
quarter is INR 80 Lakh. Outstanding balance in the account is INR 7 lakhs. Interest
charged to the account is INR 3.5 Lakh and total credit into the account for the
quarter is INR 2.5 Lakh. As an auditor how will you report this account in your report.

Question 81; After becoming Chartered Accountant, you have got your first
assignment as an auditor of a bank branch dealing in various types of advances. What
are the areas which you will be looking for obtaining sufficient appropriate evidence
(for advances) besides studying and evaluating internal controls?

Question 82; "Ramjilal & Co. had been allotted the branch audit of a nationalized bank
for the year ended 31st March, 2018. In the audit planning, the partner of Ramjilal &
Co., observed that the allotted branches are predominantly based in rural areas and
major portion of the advances were for agricultural purpose." Now he needs your
assistance on the following points so as to incorporate them in the audit plan:
(i) for determination of NPA norms for agricultural advances
(ii) for accounts where there is erosion in the value of security/frauds committed by
the borrowers.

Question 83; The engagement team discussion ordinarily includes a discussion of the
matters such as - Errors that may be more likely to occur; Errors which have been
identified in prior years; Method by which fraud might be perpetrated by bank
personnel or others within particular account balances and/or disclosures; etc. In the
above context, explain the advantages of such a discussion.

Question 84; In carrying out an audit of interest expense, the auditor is primarily
concerned with assessing the overall reasonableness of the amount of interest expense.
Analyse and explain stating the audit approach and procedure in regard to interest
expense.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 14 of 277

CHP 8; AUDIT REPORT+ SA 700 + SA 299 + CO.s ACT,2013 128,143

Question 85; In order to form the audit opinion as required by SA 700, the auditor
shall conclude as to whether the auditor has obtained reasonable assurance about
whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error. Explain the conclusions that the auditor shall take into
account. Also explain the objective of auditor as per SA 700.

Question 86; The Auditor is fully satisfied with the audit of an entity in respect of its
systems and procedures and wants to issue a report without any hesitation. What type
of opinion can be given and give reasoning.

Question 87; G & Associates are the Statutory Auditors of R Ltd., a company engaged
in the business of manufacturing of blankets. The auditor has completed the audit and
is in the process of forming an opinion on the financial statements for the F.Y. 2022-
2023. CA L, the engagement partner, wants to conclude that whether the financial
statements as a whole are free from material misstatements, whether due to fraud or
error. What factors he should consider to reach that conclusion?

Question 88; The description of management’s responsibilities in the auditor’s report

includes reference to management’s responsibilities as it helps to explain to users the
premise on which an audit is conducted. Explain

Question 89; The auditor evaluated, in respect of T Ltd., whether the financial
statements are prepared in accordance with the requirements of the applicable
financial reporting framework. Auditor’s evaluation included consideration of the
qualitative aspects of the entity’s accounting practices, including indicators of possible
bias in management’s judgments. Advise the qualitative aspects of the entity’s
accounting practices.

Question 90; The first section of the auditor’s report shall include the auditor’s
opinion, and shall have the heading “Opinion.” The Opinion section of the auditor’s
report shall also Identify the entity whose financial statements have been audited.
Apart from the above, explain the other relevant points to be included in opinion
section.

Question 91; The requirements of SA 700 are aimed at addressing an appropriate

balance between the need for consistency and comparability in auditor reporting
globally.

Question 92; When the auditor disclaims an opinion on the financial statements due to
an inability to obtain sufficient appropriate audit evidence, the auditor shall amend the
description of the auditor’s responsibilities required by SA 700.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 15 of 277

Question 93; An auditor is required to make specific evaluations while forming an

opinion in an audit report." State those evaluations.

Question 94; In considering the qualitative aspects of the entity’s accounting

Question 95; What an auditor should state in the "Basis for opinion" section of
auditor's report? When the auditor modifies the opinion on the financial statements,
explain the amendments he should make in this section?

Question 96; While conducting audit of VED Ltd., you as an auditor are not only
prevented in completing certain audit procedures but also are not able to obtain audit
evidence even by performing alternative procedures. How you will deal with this
situation?

Question 97; What an auditor should state in "Basis for opinion" section of auditor's
report and when the auditor modifies the opinion on the financial statements, what
amendments he should make in this section?

Question 98; Delightful Ltd. is a company engaged in the production of smiley balls.
During the FY 2020 - 21 the company transferred its accounts to computerised system
(SAP) from manual system of accounts. Since the employees of the company were not
well versed with the SAP system, there were many errors in the accounting during the
transition period. As such the statutory auditors of the company were not able to
extract correct data and reports from the system. Such data was not available
manually also. Further, the employees and the management of the company were not
supportive in providing the requisite information to the audit team. The auditor
believes that the possible effects on the financial statements of undetected
misstatements could be both material and pervasive. Explain the kind of audit report
that the statutory auditor of the company should issue in this case.

Question 99; State clearly the objective of the Auditor as per SA 706. Also define
emphasis of matter paragraph and other matter paragraph.

Question 100; If the financial statements of the prior period were audited by a
predecessor auditor, in addition to expressing an opinion on the current period’s
financial statements, what is required to be stated by the auditor in an Other Matter
paragraph.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 16 of 277

Question 101; What is meant by Emphasis of Matter Paragraph? Give some examples
of circumstances where the auditor may consider it necessary to include an Emphasis
of Matter paragraph.

Question 102; Define Emphasis of Matter paragraph. When the auditor shall include
an Emphasis of Matter paragraph in the auditor’s report? Also explain how the auditor
would include an Emphasis of Matter in the auditor’s report?

Question 103; How would an auditor determine Key Audit Matters as per SA - 701,
"Communicating Key Audit Matters in the Independent Auditor's Report”?

Question 104; Communicating key audit matters in the auditor's report is in the
context of the auditor having formed an opinion on the financial statements as a whole.
Communicating key audit matters in the auditor's report is not considered as a
substitute or alternative for a number of important items. What are those items?

Question 105; Explain clearly the purpose of communicating key audit matters.

Question 106; The nature of the comparative information that is presented in an

entity’s financial statements depends on the requirements of the applicable financial
reporting framework. There are two different broad approaches to the auditor’s
reporting responsibilities in respect of such comparative information: corresponding
figures and comparative financial statements. Explain clearly stating the essential audit
reporting differences between the approaches. Also define comparative information
and audit procedures regarding comparative information.

Question 107; Before the commencement of the audit, the joint auditors should
discuss and develop a joint audit plan. In developing the joint audit plan, the joint
auditors should identify division of audit areas and common audit areas. Explain stating
the other relevant considerations in this regard.

Question 108; Elucidate the circumstances when a modification to the Auditor's

opinion is required. Also state the factors for making the decision regarding which type
of modified opinion is appropriate.

Question 109; When corresponding figures are presented, the auditor’s opinion shall
not refer to the corresponding figures except in some circumstances. Explain those
circumstances.

Question 110; Discuss the reporting requirements under CARO 2020, with respect to
the moneys raised by the company by way of initial public offer or further public offer
and where the company has made any preferential allotment or private placement of
shares.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 17 of 277

Question 111; The head accountant of a company entered fake invoices of credit
purchases in the books of account aggregate of rs.50 lakh and cleared all the payments
to such bogus creditor. How will you deal as an auditor?

Question 112; Explain the Reporting requirements the auditor should ensure under
CARO 2020 related to PPE and Intangible assets.

Question 113; Discuss the reporting requirements as per CARO, 2020, regarding:
(i) disputed and undisputed statutory dues and
(ii) internal audit system of the company

Question 114; M Ltd. has given certain loans to related parties and also has accepted
certain deposits. As an auditor, how will you include the above items in paragraph 3 of
CARO, 2016 (CARO 2020)?

OTHER PARTS OF CARO 2020; THE IMP PARTS

FRAUDS BY THE COMPANY BY ITS OFFICERS OR EMPLOYESS +
VERIFICATIONS OF INVENTORY AND WORKING CAPITAL LIMTIS

CHAPTER 4; AUDIT EVIDENCE

+
CHP7; COMPLETION AND REVIEW]
+
CHP3; RISK ASSESSMENT AND INTERNAL CONTROL
+
SA 260,265,320,450,500,501,505.510.520.530.550,560,570,580,610
+
AUDIT in an AUTOMATED ENVIRONMENT
+
INTERNAL CONTROL
+
NOTE; LIMITED VERSION OF QUESTIONS

Question 115; State the significant difficulties encountered during audit with
reference to SA-260 (communication with those charged with governance).

Question 116; List out some matters that the auditor may consider in determining
whether a deficiency or combination of deficiencies in internal control constitutes a
“significant deficiency”

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 18 of 277

Question 117; Is materiality required to be documented by the auditor? What factors

have to be considered this regard?

Question 118; Determining materiality involves the exercise of professional judgment.

A percentage is often applied to a chosen benchmark as a starting point in determining
materiality for the financial statements as a whole. Discuss stating the factors that
may affect the identification of an appropriate benchmark.

Question 119; The auditor’s determination of materiality is a matter of professional

Question 120; What is meant by sufficiency of Audit Evidence? Explain the factors
affecting the auditor’s judgement as to the sufficiency of audit evidence.

Question 121; Discuss documentation requirements for an auditor regarding

misstatements identified during audit under SA 450.

Question 122; Explain the meaning, objectives and scope of internal audit functions as
per SA 610. Also discuss who can be appointed as Internal Auditor?

Question 123; Discuss some of circumstances when work of the internal auditor cannot
be used by external auditor

Question 124; In the course of audit of SMP Limited for the financial year ended 31st
March, 2020 you have observed as an auditor that the company has provided a sum of
RS. 20 Lakhs in the books of account as Gratuity payable to employees based on
certificate obtained from an actuary. Give your comments with reference to the
Standard on Auditing.

Question 125; The reliability of information to be used as audit evidence, and

therefore of the audit evidence itself, is influenced by its source, its nature and the
circumstances under which it is obtained. Explain and elucidate the guiding principles
which are useful in assessing the reliability of audit evidence.

Question 126; CA Amar is the statutory auditor of XYZ Ltd. for the FY 2021-22.
During the course of audit, CA Amar found that a litigation is going against the
company for which the company has hired an external legal team (management expert).
CA Amar wanted to use the information as audit evidence which is prepared using the
work of the management expert. What should CA Amar consider before using the work
of such management expert?

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 19 of 277

Question 127; There are practical and legal limitations on the auditor’s ability to
obtain audit evidence. Explain with the help of examples.

Question 128; Auditing is a logical process. An auditor is called upon to assess the
actualities of the situation, review the statements of account and give an expert
opinion about the truth and fairness of such accounts. This he cannot do unless he has
examined the financial statements objectively. He needs evidence to obtain information
for arriving at his judgment. Discuss explaining clearly the meaning of audit evidence in
detail.

Question 129; When information to be used as audit evidence has been prepared using
the work of a management’s expert and having regard to the significance of expert’s
work for the auditor’s purposes, explain the considerations auditor would consider for
the purposes of his audit.

Question 130; Audit evidence includes both information contained in the accounting
records underlying the financial statements and other information. Discuss.

Question 131; While conducting the audit of Pummy Limited, the statutory auditors
collected written representations from the Management. The audit was finalized in
addition to other audit procedures but, without making any inquiries, as the statutory
auditors were short of time. In the light of this information, state the importance of
inquiry as one of the methods of collecting Audit Evidence.

Question 132; An auditor is called upon to assess the actualities of the situation,
review the statements of account and give an expert opinion about the truth and
fairness of such accounts. This he cannot do unless he has examined the financial
statements objectively. Explain.

Question 133; T Ltd has used the services of an expert for the purpose of physical
verification of its inventory which is appearing in the financial statements of the
company at RS. 75 Crores. Discuss the broad parameters auditor would take into
consideration while deciding about using the work performed by the Management’s
Expert in physical verification of company’s inventory.

Question 134; Discuss the following: The sample size can be determined by the
application of a statistically -based formula or through the exercise of professional
judgment. When circumstances are similar, the effect on sample size of factors will be
similar regardless of whether a statistical or non-statistical approach is chosen. Explain
Stating the examples of factors that the auditor may consider when determining the
sample size for tests of controls.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 20 of 277

Question 135; XYZ Ltd is engaged in trading of electronic goods and having huge
accounts receivables. For analysing the whole accounts receivables, auditor wanted to
use sampling technique. In considering the characteristics of the population from which
the sample will be drawn, the auditor determines that stratification or value-weighted
selection technique is appropriate. SA 530 provides guidance to the auditor on the use
of stratification and value-weighted sampling techniques. Advise the auditor in
accordance with SA 530.

Question 136; CA X is not sure about the kind of Sampling method to be used for
audit of a company. Advise him about the choice of methods (name of methods only) of
Sampling to be used in various circumstances. Also explain briefly the advantages of
the Sampling to be used by him in auditing.

Question 137; ABC Ltd is a Large Company with huge purchase and sales transactions.
Which sampling approach is recommended in such a company? Explain giving features of
such sampling approach along with example

Question 138; There is a growing realisation that the traditional approach to audit is
economically wasteful because all efforts are directed to check all transactions without
exception. Explain.

Question 139; The extent of the checking to be undertaken is primarily a matter of

Question 140; In most of the circumstances, the evidence available is not conclusive
and the auditor always takes a calculated risk in giving his opinion. Even by undertaking
hundred percent checking of the transactions, the auditor does not derive absolute
satisfaction. This state of uneasiness led pragmatic auditors to adopt the statistical
theory of sampling to derive the necessary satisfaction about the state of affairs by
checking only a part of the total population of entries. Explain in detail.

Question 141; When designing an audit sample, the auditor shall consider the purpose
of the audit procedure and the characteristics of the population from which the sample
will be drawn. Explain in detail.

Question 142; The auditor shall evaluate the results of the sample and whether the
use of audit sampling has provided a reasonable basis for conclusions about the
population that has been tested. Explain.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 21 of 277

Question 143; This method is considered appropriate provided the population to be

sampled consists of reasonably similar units and fall within a reasonable range i.e. it is
suitable for a homogeneous population having a similar range. Explain about that
method.

Question 144; Chintamani Ltd appoints Chintan & Mani as statutory auditors for the
financial year 2022- 2023. Chintan & Mani seem to have different opinion on audit
approach to be adopted for audit of Chintamani Ltd. Mani is of the opinion that 100%
checking is not required and they can rely on Audit Sampling techniques in order to
provide them a reasonable basis on which they can draw conclusions about the entire
population. Chintan is concerned whether the use of audit sampling has provided a
reasonable basis for conclusions about the population that has been tested. You are
required to guide Chintan about his role if audit sampling has not provided a reasonable
basis for conclusions about the population that has been tested in accordance with SA
530.

Question 145; Krishna Cycles Ltd is engaged in manufacturing of different type of

Question 146; While conducting audit of Vee Ltd, CA Aman, auditor of the company,
found that some goods are lying with third party for a long period. Advise Aman how
will he verify them.

Question 147; TRM Ltd. is a company engaged in manufacture of beauty products. It

Question 148; GPS & Co, Chartered Accountants, conducting the audit of Pratibha
Ltd., a listed company for the year ended 31.03.2022 is concerned with the
presentation and disclosure of segment information included in Company's Annual
Report. GPS & Co wanted to ensure that methods adopted by management for
determining segment information have resulted in disclosure in accordance with the
applicable financial reporting framework. Guide GPS & Co with 'Examples of Matters'
that may be relevant when obtaining an understanding of the methods used by the
management with reference to the relevant Standards on Auditing.
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 22 of 277

Question 149; External confirmation procedures frequently are relevant when

Question 150; External confirmation procedures frequently are relevant when

addressing assertions associated with account balances and their elements, but need
not be restricted to these items. Analyze and Explain.

Question 151; Auditors of M/s Tender India (P) Ltd. were changed for the accounting
year 2016-17. The closing inventory of the company as on 31.3.2016 amounting to Rs.
100 lacs continued as it is and became closing inventory as on 31.3.2017. The auditors of
the company propose to exclude from their audit programme the audit of closing
inventory of Rs. 100 lacs on the understanding that it pertains to the preceding year
which was audited by another auditor.

Question 152; There are specific accounting and disclosure requirements for related
party relationships, transactions and balances to enable users of the financial
statements to understand their nature and effects on the financial statements.
Explain in detail stating clearly the auditor’s responsibility in the above context.

Question 153; The auditor has a responsibility to perform audit procedures to

identify, assess and respond to the risks of material misstatement arising from the
entity’s failure to appropriately account for related party relationships, transactions or
balances. During the audit, the auditor should maintain alertness for related party
information while reviewing records and documents. He may inspect the records or
documents that may provide information about related party relationships and
transactions. Explain in detail with examples.

Question 154; Substantive analytical procedures are generally more applicable to large
volumes of transactions that tend to be predictable over time. Explain.

Question 155; Mention the Analytical Review procedures that may be useful as a means
of obtaining audit evidence regarding various assertions relating to Trade receivables,
loans and advances.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 23 of 277

Question 156; If analytical procedures performed in accordance with SA 520 identify

Question 157; Routine checks cannot be depended upon to disclose all the mistakes or
manipulation that may exist in accounts, certain other procedures also have to be
applied like trend and ratio analysis. Analyse and Explain stating clearly the meaning of
analytical procedures.

Question 158; Give examples of Analytical Procedures having consideration of

comparisons of the entity’s financial information

Question 159; When designing and performing substantive analytical procedures,

either alone or in combination with tests of details, as substantive procedures in
accordance with SA 330, the auditor shall determine the suitability of particular
substantive analytical procedures for given assertions, taking account of the assessed
risks of material misstatement and tests of details, if any, for these assertions.
Explain the other relevant points in this context.

Question 160; The decision about which audit procedures to perform, including
whether to use substantive analytical procedures, is based on the auditor’s judgment.

Question 161; For the purposes of the SAs, the term “analytical procedures” means
evaluations of financial information through analysis of plausible relationships among
both financial and non-financial data. Explain giving examples of both.

Question 162; Analysis by computation of ratios includes the study of relationships

between financial statement amounts. State Commonly used ratios.

Question 163; Discuss the matters relevant to the auditor’s evaluation of whether the
expectation can be developed sufficiently precisely to identify a misstatement that,
when aggregated with other misstatements, may cause the financial statements to be
materially misstated.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 24 of 277

Question 164; Explain the aspects to be considered by an auditor when designing and
performing substantive analytical procedures, either alone or in combination with test
of details, as substantive procedures in accordance with SA 330.

Question 165; When designing and performing substantive analytical procedures,

either alone or in combination with tests of details as substantive procedures in
accordance with SA 330, the auditor shall determine the suitability of particular
substantive analytical procedures for given assertions, taking account of the assessed
risks of material misstatement and tests of details, if any, for these assertions.
Discuss.

Question 166; The auditor has no obligation to perform any audit procedures
regarding the financial statements after the date of the auditor’s report. However,
when, after the date of the auditor’s report but before the date the financial
statements are issued, a fact becomes known to the auditor that, had it been known to
the auditor at the date of the auditor’s report, may have caused the auditor to amend
the auditor’s report. Explain the auditor’s obligation in the above situation.

Question 167; SA 560, “Subsequent Events” deals with the auditor’s responsibilities
relating to subsequent events in an audit of financial statements. Financial statements
may be affected by certain events that occur after the date of the financial
statements. Many financial reporting frameworks specifically refer to such events.
Explain those events and also define subsequent events.

Question 168; “The auditors should consider the effect of subsequent events on the
financial statement and on auditor’s report”– Comment according to SA 560.

Question 169; When the use of the going concern basis of accounting is appropriate,
assets and liabilities are recorded on the basis that the entity will be able to realize its
assets and discharge its liabilities in the normal course of business. Explain stating also
the objective of the auditor regarding going concern.

Question 170; When performing risk assessment procedures as required by SA 315,

the auditor shall consider whether events or conditions exist that may cast significant
doubt on the entity’s ability to continue as a going concern. In so doing, the auditor has
determined that management of XYZ Ltd has already performed a preliminary
assessment of the entity’s ability to continue as a going concern. Explain how would
auditor of XYZ Ltd proceed in the above case. Also explain how would the auditor
proceed if such an assessment has not yet been performed by the management.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 25 of 277

Question 171; Under the going concern basis of accounting, the financial statements
are prepared on the assumption that the entity is a going concern and will continue its
operations for the foreseeable future. Explain. Also discuss the objectives of an
auditor regarding Going concern as per relevant standard on auditing.

Question 172; As described in SA 200, the potential effects of inherent limitations on

Question 173; Give examples of financial events or conditions that, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going
concern.

Question 174; Akash & Associates are the statutory auditors of Deluxe Ltd. for the
FY 2020 -21. During the course of audit, CA Akash, the engagement partner requested
the management of the company to provide written representation with respect to
valuation of a transaction. The management, however does not provide the same to CA
Akash. What course of action should CA Akash follow in such situation?

Question 175; Audit evidence is all the information used by the auditor in arriving at
the conclusions on which the audit opinion is based. Written representations are
necessary information that the auditor requires in connection with the audit of the
entity’s financial statements. Accordingly, similar to responses to inquiries, written
representations are audit evidence. Explain stating clearly objectives of the auditor
regarding written representation.

Question 176; The auditor P of PAR and Co., a firm of Chartered Accountants is
conducting audit of AB Industries Ltd. The auditor requests management to provide
Banker’s certificate in support of Fixed deposits whereas management provides only
written representation on the matter. Analyse how would you deal as an auditor.

Question 177; Written representations are to be provided by the management to the

auditor when requested. Explain

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 26 of 277

Question 178; Ratio analysis is useful for analyzing asset and liability accounts as well
as revenue and expense accounts. An individual balance sheet account is difficult to
predict on its own, but its relationship to another account is often more predictable
(e.g., the trade receivables balance related to sales). Explain stating the techniques
available as substantive analytical procedures.

Question 179; In the planning stage, analytical procedures assist the auditor in
understanding the client’s business and in identifying areas of potential risk. Explain.

Question 180; The reliability of data is influenced by its source and nature and is
dependent on the circumstances under which it is obtained. Accordingly, explain the
factors that are relevant when determining whether data is reliable for purposes of
designing substantive analytical procedures.

Question 181; With respect to SA 520 "Analytical procedures", explain the following
factors to be considered by the auditor for substantive audit procedures.
(i) Account type (ii) Predictability (iii) Nature of Assertion.

Question 182; CA Amar wants to verify the payments made by XYZ Ltd. on account of
building rent during the FY 2020-21. The rent amounts to Rs.50,000/- per month for
the year. The monthly rent payments are consistent with the rent agreement. However,
the other companies in the similar industry are paying rent of Rs. 10,000/- per month
for a similar location. How will applying the analytical procedures impact the
verification process of such rental payments by XYZ Ltd.?

Question 181; CA B is appointed as an auditor of M/s. Divine Pharmacy, a wholesale

medicine supplier. While auditing for the financial year 2020-21, CA B wants to use
test checking technique. Advise CA B, what kind of precautions should be taken by him
in this regard.

Question 182; Explain the factors that should be considered for deciding upon the
extent of checking on a sampling plan.

Question 183; Explain the following terms with reference to Audit Sampling:
(i) Stratification
(ii) Tolerable misstatement
(iii) Tolerable rate of deviation

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 27 of 277

Question 184; Having obtained an understanding of the IT systems and the automated
environment of a company, the auditor should consider the risks that arise from the
use of IT systems. Explain.

Question 185; Analyse how risks in the IT system if not mitigated could have an
impact on the audit.

Question 186; A company functions in an automated environment. Discuss in what areas

data analytics can be useful for auditor of the company.

Question 187; The auditor shall obtain an understanding of major activities that the
entity uses to monitor internal control over financial reporting. Discuss "Monitoring of
control'' as a component of Internal control.

Question 188; “A satisfactory control environment is not an absolute deterrent to

fraud although it may help reduce the risk of fraud.” Explain.

Question 189; So far as the auditor is concerned, the examination and evaluation of
the internal control system is an indispensable part of the overall audit programmer.
The auditor needs reasonable assurance that the accounting system is adequate and
that all the accounting information which should be recorded has in fact been
recorded. Internal control normally contributes to such assurance. Explain stating
clearly the benefits of evaluation of internal control to the auditor.

Question 190; Factors relevant to the auditor’s judgment about whether a control,
individually or in combination with others, is relevant to the audit may include such
matters as materiality, size of the entity etc. Explain the other relevant considerations
in the above context.

Question 191; The auditor shall obtain an understanding of the information system,
including the related business processes, relevant to financial reporting, including the
classes of transactions in the entity’s operations that are significant to the financial
statements, controls surrounding journal entries etc. Explain the other considerations
in this regard.

Question 192; The auditor shall obtain an understanding of control activities relevant
to the audit, which the auditor considers necessary to assess the risks of material
misstatement. Explain in detail stating clearly the meaning of control activities and also
discuss control activities that are relevant to the audit.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 28 of 277

Question 193; Advise what is included in control environment. Also explain the
elements of control environment.

Question 194; Briefly discuss the limitations of Internal Control.

Question 195; Internal control over safeguarding of assets against unauthorised

acquisition, use, or disposition may include controls relating to both financial reporting
and operations objectives. Explain stating clearly the objectives of Internal Control.

Question 196; It has been suggested that actual operation of the internal control
should be tested by the application of procedural tests and examination in depth.
Explain with the help of example in respect of the procedure for sales

Question 197; Risk of material misstatement refers to the risk that the financial
statements are materially misstated prior to audit. Discuss the levels at which this risk
exists.

Question 198; The division of internal control into five components provides a useful
framework for auditors to consider how different aspects of an entity's internal
control may affect the audit. Mention those components of internal control

Question 199; Auditor GR and Associates have been appointed to conduct audit of PNG
Ltd, a manufacturing company engaged in manufacturing of various food items. While
planning an audit, the auditors do not think that it would be necessary to understand
internal controls. Advise the auditor in this regard explaining clearly the benefits of
understanding the internal control.

Question 200; Auditor or Sunshine Ltd. is of the view that due to greater management
intervention to specify accounting treatment, the risk of material misstatement is
greater for non-routine transactions. Is the view of the auditor correct? Specify the
other matters due to which the risk of material misstatement is greater for significant
non-routine transactions.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 29 of 277

CHP 5; AUDIT OF ITEMS OF FS

+
NOTE; LIMITED VERSION OF QUESTIONS

Question 201; Discuss the audit procedures generally required to be undertaken by

the auditor while auditing Goods sent out on Sale or Return Basis.

Question 202; How will you vouch/verify the following:

(a) Goods sent on consignment.
(b) Foreign travel expenses.
(c) Receipt of capital subsidy.
(d) Provision for income tax.

Question 203; The auditor A of ABC & Co.- firm of auditors is conducting the audit of
XYZ Ltd and while performing testing of additions wanted to verify that all PPE
(Property Plant and Equipment) purchase invoices are in the name of the entity he is
auditing. For all additions to land, building in particular, the auditor desires to have
concrete evidence about ownership. The auditor is worried about whether the entity
has valid legal ownership rights over the PPE claimed to be held by the entity and
recorded in the financial statements. Advise the auditor.

Question 204; How would you vouch/verify the following:

(a) Advertisement Expenses.
(b) Sale of Scrap.

Question 205; As statutory auditor of the company, list out audit procedures required
to be undertaken for the following:
(i) Interest income from fixed deposits
(ii) Dividend income.
(iii) Gain/(loss) on sale of investment in Mutual funds.
Also indicate disclosure requirements of above as per Companies Act, 2013.

Question 206; Name the assertions for the following audit procedures:
(i) Year end inventory verification.
(ii) Depreciation has been properly charged on all assets.
(iii) The title deeds of the lands disclosed in the Balance Sheet are held in the name of
the company.
(iv) All liabilities are properly recorded in the financial statements.
(v) Related party transactions are shown properly.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 30 of 277

Question 207; Explain clearly the examples of matters relevant in planning attendance
at physical inventory counting.

Question 208; "While the auditor may choose to analyse the monthly trends for
expenses like rent, power and fuel but for other expenses, an auditor generally prefers
to verify other attributes." Mention those attributes.

Question 209; The auditor may choose to analyse the monthly trend for Power & Fuel
expense. Explain how this analysis will be performed by the auditor.

Question 210; While reviewing Employee benefits expenses of a company, how you as
an auditor you will evaluate its hiring, appraisal and retirement process?

Question 211; Explain with examples the audit procedure to establish the existence of
intangible fixed assets as at the period- end.

Question 212; Write the audit procedures to be performed as an auditor for valuation
(assertion) of following: (i) Loans and Advances and other current assets. (ii) Finished
goods and goods for resale.

Question 213; A significant and important audit activity is to contact banks/ financial
institution s directly and ask them to confirm the amounts held in current accounts,
deposit accounts, EEFC account, cash credit accounts, etc. as at the end of the
reporting period under audit. Explain the audit procedure in this context.

Question 214; Depreciation and amortization expense generally constitute an entity's

Question 215; Newton Ltd. has made loans and advances on the basis of following
securities to various borrowers. As an auditor what type of documents can be verified
to ensure that the company holds a legally enforceable security?
(i) Shares and Debentures
(ii) Life Insurance Policy
(iii) Hypothecation of goods.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 31 of 277

Question 216; While conducting audit of Vee Ltd, CA Aman, auditor of the company,
found that some goods are lying with third party for a long period. Advise Aman how
will he verify them.

Question 217; Explain how you will verify the items given while conducting an audit of
an entity:
(a) Recovery of Bad debts written off
(b) Receipt of Insurance claims
(c) Payment of Taxes

Question 218; XYZ Ltd made huge additions to Intangible assets during the period 01-
04-2021 to 31-03-2022 i.e period under audit. You have been appointed as an auditor
and you want to verify the additions made to intangible assets during the period.
Suggest the audit procedure to verify the additions to intangible assets.

Question 219; Study mate Limited is a company engaged in the manufacture of

stationery items. The company sells its goods on credit. The debtors as on 31.03.2022,
amounted to ₹ 10 crores. What is the disclosure requirement for the company with
respect to the ageing schedule of the trade receivables in terms of Schedule III (Part
I) to the Companies Act, 2013?

Question 220; Discuss the audit procedure to be considered by an auditor while

performing analytical procedure to obtain audit evidence as to overall reasonableness
of purchase quantity and price

Question 221; BNP Ltd has reduced its Share Capital to a greater extent in the year
for which you are conducting the audit. State how will you proceed for verifying the
reduction of Capital.

Question 222; You are an auditor of PQR Ltd. which has spent Rs. 10 lakhs on Research
activities of the product during period under audit. Board of Directors want to
recognize it as an internally generated intangible asset. Advise and discuss the
conditions necessary to be fulfilled to recognize the intangible assets in the financial
statements.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 32 of 277

Question 223; The value of intangible assets may diminish due to efflux of time, use
and/or obsolescence. The diminution of the value represents cost to the entity for
earning revenue during a given period. Discuss the audit procedures to be applied by
the auditor to ensure that Intangible assets have been valued appropriately and as per
generally accepted accounting policies and practices.

Question 224; CA "X" while conducting an audit of Joyful Ltd. found a considerable
increase in sales as compared to the previous year, he doubts that few fictitious sales
have been recorded by the company to overstate its revenues. Discuss any four audit
procedures to be undertaken by the auditor to ensure revenue from sales of goods and
services performed during the period is not overstated?

Question 225; Explain how you would verify rent expense incurred by a Company.

CHP 9; SPECIAL FEATURES OF AUDIT OF DIFFERENT TYPES OF ENTITIES

+
NOTE; LIMITED VERSION OF QUESTIONS

Question 226; While planning the audit of an NGO, the auditor may focus on
Knowledge of the NGO’s work, its mission and vision, Updating knowledge of relevant
statutes especially with regard to recent amendments, circulars etc. Explain the other
relevant points the auditor needs to focus while planning the audit of NGO.

Question 227; An NGO operating in Delhi had collected large scale donations for
Tsunami victims. The donations so collected were sent to different NGOs operating in
Tamil Nadu for relief operations. This NGO operating in Delhi has appointed you to
audit its accounts for the year in which it collected and remitted donations for Tsunami
victims. Draft audit programme for audit of receipts of donations and remittance of
the collected amount to different NGOs. Mention six points each, peculiar to the
situation, which you will like to incorporate in your audit programme for audit of said
receipts and remittances of donations.

Question 228; Central Govt. holds 55% of the paid up share Capital in Kisan Credit Co-
operative Society, which is incurring huge losses. Advise when the Central Government
can direct Special Audit under Section 77 of the Multi State Co-operative Society Act.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 33 of 277

Question 229; As an auditor, explain the areas of consideration while auditing the
element of ROOM SALES during the audit of a 5-Star Hotel.

Question 230; Government audit has not only adopted the basic essentials of auditing
as known and practised in the profession to suit the requirements of governmental
transactions but has also added new concepts, techniques and procedures to the audit
profession. Explain stating clearly the definition of Government auditing as discussed in
U.N. Handbook on Govt Auditing and Developing Countries and also state Objectives of
Govt audit.

Question 231; Discuss the matters which should be specially considered in the
audit of accounts of a partnership

Question 232; Differences between operating and finance lease

Question 233; The C&AG Act gives powers to the C&AG in connection with the
performance of his duties. Explain.

Question 234; Audit against rules and orders aims to ensure that the expenditure
conforms to the relevant provisions of the Constitution and of the laws and rules made
thereunder. These rules, regulations and orders against which regularity audit is
conducted fall under various categories.

Question 235; The audit of receipts of government is not as old as audit of

expenditure but with the rapid growth of public enterprises audit of receipts tax or
non-tax has come to stay. Discuss audit of receipts with respect to Government Audit.

Question 236; (I) List out the types of Revenue Grants received by local bodies from
the State.
(II) PQR Ltd., a government company, constructed a building in conformity with rules
and regulations for installing a telephone exchange but not used for the same purpose
resulting in the infructuous expenditure. Considering the above case, explain the type
of expenditure audit to be performed to curb the situation.

Question 237; As an Auditor of NGO, how do you check/verify at least four receipts
of income during the year?

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 34 of 277

Question 238; Explain and also state the role of auditor with respect to the following
in case of a hotel: Pilfering is one of the greatest problems in any hotel and the
importance of internal control cannot be undermined.

Question 239; Discuss, in what circumstances, Central Registrar can hold an inquiry
into working and financial condition of a multi-state cooperative society

Question 240; Sporting Club of India is a private club engaged in promotion of sports
in the country. As an auditor of this leading club, discuss any two points to ensure that
expenditure incurred by club during the year is properly authorised.

Question 241; Tomo Construction Engineering LLP approached CA K to understand

various returns to be maintained and filed by them. Guide/Discuss the various returns
to be maintained and filed by them.

Question 242; In case of Government entities, audit of accounts of stores and

inventories has been developed as a part of expenditure audit. Discuss about the duties
and responsibilities entrusted to C&AG.

Question 243; State the points which merit consideration in the audit of a CLUB w.r.t
its members.

Question 244; You have been appointed as an auditor of a health care service provider.
Briefly discuss the special points that should be kept in mind as an auditor for
developing an audit program me.

Questions 245; An audit of Expenditure is one of the major components of

Government Audit. In the context of ‘Government Expenditure Audit’, write in brief,
what do you understand by:
(i) Audit against Rules and Orders
(ii) Audit of Sanctions
(iii) Audit against Provision of Funds
(iv) Propriety Audit
(v) Performance Audit.

Question 246; State six important advantages of audit of accounts of a Partnership

firm.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 35 of 277

ALL TOPICS OVERVIEW

CHAPTER 1; NATURE, OBJECTIVE AND SCOPE OF AUDIT + SA 200

1. Meaning and nature of audit

2. How can auditor ensure that FS would not mislead anybody.
3. Nature of audit interdisciplinary relationship with other diverse subjects.
4. Objective of an Audit
5. Scope of Audit and What is not included in Scope of Audit?
6. Inherent Limitations of Audit. [Auditing vs Investigation]
7. Benefits of Audit. Why is audit needed?
8. Qualities of an Auditor.
9. Auditing vs Investigation
10. Assurance Engagement elements & types.
11. Audit vs Review
12. Reasonable vs Limited Assurance engagement
13. Short note on SRE’s, SAE’s, SRS and SQC with examples.

CHAPTER 11; ETHICS AND TERMS OF AUDIT ENGAGEMENTS + SA 210,220, SQC-1

14. Principle based approach vs Rule Based Approach.

15. Fundamental Principles of Professional Ethics.
16. Independence of Mind and in appearance.
17. Threats and Safeguards to Independence with updated examples.
18. Concept of Professional Skepticism. (SA 200)
19. Preconditions for an Audit (SA 210)
20. What happens if preconditions are not present?
21. Contents of Engagement Letter. (SA 210)
22. Requirement of Revised Eng. Letter in case of Recurring Audit (SA 210)
23. What should auditor consider before agreeing to change the audit engagement to
engagement providing “Lower level of assurance”
24. Objective of Auditor as per SA 220.
25. Elements of a system of Quality Control or Responsibilities of Engagement Partner regarding
certain matters. (SA 220)
26. Information required during Acceptance & Continuance Analysis (SA 220)
27. Ethical Requirements as per SQC 1.
28. What matters firm should consider with regard to the integrity of a client.
29. Relevant HR issues that should be considered during Quality Control (SQC 1)

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 36 of 277

CHAPTER 6; AUDIT DOCUMENTATION + SA 230

30. Purpose of Documentation

31. Form, Content and Extent of Audit Documentation
32. Factors affecting Form, Content and Extent.
33. Assembly of Final Audit File (Examples and SQC Retention Period)
34. Completion Memorandum or Summary.
35. Ownership of Audit Documentation

CHP 2; AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME + SA 300

36. Planning is not a discrete phase of an audit, but rather a continual and iterative process.
37. Benefits of planning in the Audit of a Financial Statements
38. Preliminary Engagement Activities
39. Establishment of an Overall Audit Strategy and its benefits.
40. Ascertain the reporting objectives of the engagement to plan the timing of audit and nature
of communications required.
41. Factors that are required in directing the engagements team’s efforts.
42. Relationship between OAS & Audit Plan
43. Constructing an Audit Programme (Important points to be kept in mind)
44. Advantages and Disadvantages of an Audit Programme
45. Assistants should be encouraged to keep an open mind and Periodic Review of Audit
Programme.

CHP 10; BANK AUDIT

46. Types of Bank Audit Reports to be issued

47. Important Functions of RBI
48. Appointment of Auditor
49. Engagement team discussion and its advantages
50. Reporting to RBI in case of Banking frauds
51. Overall Steps involved in conducting the audit of a Bank.
52. Understanding the risk management process (Similar to Components of IC’s)
53. For advances auditor should take into account certain reports for Adverse Comments.
54. Mode of creation of Security j) Meaning of “Out of Order” account.
55. Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to
Advances.
56. Computation of drawing power. m) Audit of advances and evaluation of internal controls
over advances.
57. Audit approach and procedures for Provisions and Contingencies.
58. Audit approach to examine Interest expenses.
59. Audit of revenue items

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 37 of 277

CHP 8; AUDIT REPORT+ SA 700 + SA 299 + CO.s ACT,2013 128,143

60. To form Opinion – Auditor to obtain reasonable assurance.

61. Specific Evaluations by the Auditor
62. Fair presentation framework and compliance framework
63. Types of Audit Opinion
64. Basic Elements of an Audit Report (Revised SA 700)
65. Specific question on Content Inside - • Opinion Section • Basis for Opinion Section •
Responsibilities for fs • Auditor’s Responsibilities (Few Points)
66. Circumstances when modification to opinion is required (SA 705)
67. Types of Modified Opinion (SA 705) (Proper definition)
68. Which type of Opinion is appropriate under what circumstances.
69. Definition of Pervasive
70. Consequence of inability to obtain SAAE due to mgt imposed limitation after auditor has
accepted engagement.
71. Short note on OM with examples
72. Determining Key Audit Matters
73. Definition and purpose of KAM
74. Communicating KAM – not a substitute for disclosure in the FS.
75. Audit procedures and Reporting regarding Comparative Information
76. CARO 2020 Applicability question
77. Case Study on CARO 2O20 Clause no. 1,2,3,5,7,8,9,11,13,14,16,17,18,19,20 & 21
78. Concept of UDIN t) 143 (1), (3), (11) & (12)

CHP 4; AUDIT EVIDENCE+ SA 500, 501, 505, 510, 520, 530, 550 & 610

SA 500 (Audit Evidence)

79. Types of Audit Evidence

80. Concept of Other Information with examples.
81. Factors affecting auditor’s judgement as to sufficiency of audit evidence
82. Reliability of Audit Evidence increases when…
83. Concept of Management Expert (Actuary example)
84. Audit procedures to obtain audit evidences.
85. Concept of Test of Controls and Substantive Procedures that is Further audit procedures.
86. Short note on Audit trail.

SA 501 (Audit Evidence for Selected Items)

For Inventory
87. Attendance at Physical Inventory Counting
88. Matters relevant in planning attendance
89. Physical inventory counting conducted other than at the date of FS
90. Attendance at physical inventory counting is Impracticable
91. When inventory is under the custody and control of a third party.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 38 of 277

For Claims & Litigations

92. Audit procedure to identify claims and litigations.
93. If Auditor assess a ROMM regarding claims or litigations. (Communicating with Entity’s legal
counsel)

For Segment Information

94. Understanding the methods used by management.

SA 505 (External Confirmation)

95. EC Procedure,
96. Factors to be considered while designing EC Request,
97. Management’s refusal to allow the auditor to send a confirmation request.
98. Meaning of Positive Confirmation
99. Concept of Negative Confirmation and when it is suitable.

SA 510 (Initial Audit Engagement)

100. Auditors’ objective as per this SA.
101. Audit procedures adopted by auditor to obtain audit evidence regarding opening balances.
102. Audit Conclusions and Reporting regarding Opening Balances and Consistency of
Accounting Policies.
103. Modification to the opinion in the Predecessor auditors report.

SA 520 Analytical Procedures

104. Concept of Analytical Procedure and few examples
105. Timing of Analytical Procedure
106. Factors to be considered for Substantive Audit Procedures
107. Techniques available as Substantive Analytical Procedure
108. Steps in Analytical Review Procedure (Analytical procedures used as substantive tests)
109. The Reliability of Data
110. Investigating results of analytical procedures.

SA 530 Sampling
111. Characteristics of Population
112. Statistical Sampling and its advantages
113. Short note on Non - Statistical Sampling approach
114. Concept of Stratification and Value-Weighted selection
115. Sample selection Methods (Special Focus on Random Sampling and Interval based
Sampling)
116. Projecting misstatements
117. Factors should be considered for deciding upon the extent of checking on sampling plan.
118. Examples of Factors affecting sample size for Test of Controls and Test of details (Can be
asked in Correct/Incorrect or MCQ’s)

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 39 of 277

119. Other important definitions such as Sampling Risk, Non-Sampling Risk and Anomaly

SA 550 (Related Party)

120. Definition of Related Party
121. Understanding the entity’s related party relationships & transactions
122. Meaning of Control and Significant influence with reference to Related Party.
123. How can auditor verify the existence of a related party relationships & transactions.

SA 610 (Using the work of Internal Auditor)

124. The objectives and scope of Internal Audit Function
125. Scope of SA 610
126. Using the work of Internal Audit Function
127. Short note on Direct Assistance to be used as per SA 610
128. Evaluating the Internal Audit Function.
129. Detailed understanding of Internal Financial Controls (Section 134, 143(3)(i))
130. Difference between IFC and Internal Controls over Financial Reporting

Chapter 7 (Refer SA 260, 265, 450, 560, 570 and 580

SA 260 (Communication to Mgt and TCWG)
131. Objective of the Auditor as per SA.
132. Matters to be communicated by the Auditor.
133. Communication of Auditor’s independence to Listed Entities.

SA 265 (Communicating deficiencies to TCWG & Mgt.)

134. Examples of matters that auditor may consider while determining whether a deficiency is a
significant deficiency or not.
135. Examples of indicators of significant deficiencies in Internal Controls.
136. Communication of Significant Deficiency to TCWG

SA 450 (Evaluating of Misstatements identified during the audit)

137. Objectives of the Auditor
138. Evaluating the effect of Uncorrected Misstatements
139. Communication and Correction of Misstatements.

SA 560 (Subsequent Events)

140. Objective of the Auditor as per SA.
141. Audit Procedure relating to events occurring Between Date of FS & Date of Auditor’s
Report,
142. Auditor’s responsibility regarding “Facts which become known to the auditor after the Date
of Auditor’s Report but before the date the FS’s are issued”.
143. Auditor’s responsibility regarding “Facts which become known to the auditor after the FS’s
have been issued.”

SA 570 (Going Concern)

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 40 of 277

144. Objective of the Auditor as per SA.

145. Risk Assessment procedures and related activities.
146. Responsibility of Auditor
147. Examples of Events or Conditions that may cast significant doubt on the Entity’s ability to
continue as a Going Concern,
148. Additional procedures when events and conditions are identified.
149. Implication for the Auditor’s Report.

SA 580 (Written Representations)

150. Objectives of Auditor regarding WR,
151. Doubt as to the reliability of WR,
152. Requested WR not provided.
153. Written Representations about managements responsibilities for eg – Preparation of FS, To
provide information to the auditor and such other responsibilities as required by specific SA’s

Chapter 3
Unit 1; Risk Assessment and IC’s (Refer SA 315, 320 & 330)

154. Definition of Performance Materiality

155. Materiality and Audit Risk
156. Benchmarks in Materiality – Examples and Factors affecting the Identification of Benchmark
157. Revision in Materiality level as audit progresses and its Documentation.
158. Objective of SA 330.
159. Using audit evidences obtained in previous audits.
160. Concept of Audit Risk including IR, CR & DR
161. What is not included in Audit Risk
162. Components of ROMM
163. Detection risk comprises – Sampling and Non-Sampling Risks. Explain
164. Risk Assessment Procedure (What is included in RAP)
165. Examples of Inquiries and Analytical Procedures while performing RAP as per SA 315
166. Understanding of the Entity and its Environment (What points should be understood). Also
focus on examples of specific points mentioned
167. Limitations of Internal Control
168. Components of Internal Control (COSO Framework)
169. Elements of Control Environment.
170. Examples of Control activities relevant for audit.
171. Benefits of Evaluation of Internal Control to the Auditor
172. Risks that require special audit consideration.
173. Specific tools to review Internal Control System for auditor (ICQ and Flow chart is more
Important)
174. Testing of Controls or Compliance Procedure
175. Nature and extent of test of controls (SA 330)

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 41 of 277

Unit 2 (Automated Environment)

176. Key features of an automated environment
177. Risks which should be considered in IT, these may arise due to use of IT Systems.
178. Understanding and documenting the automated environment.
179. Impact of IT related risks on substantive audit, controls and reporting.
180. Types of Controls in an Automated Environment f) Testing Methods in an Automated
Environment.
181. Concept of IFC’s and its regulatory requirements given in a box (Special Focus on 143(3)(i))
182. Use of Data Analytics in performing the Audit
183. Assessing and Reporting Audit Findings.

Chapter 5 AUDIT OF ITEMS OF FS

184. Assertions for Income Statement and Balance Sheet

185. Audit of Trade Payables, Inventory, Borrowings, Tangible/Intangible Assets, Sales, Employee
Benefit Expenses, Depreciation & Amortization etc.
186. Special Focus on Specific Disclosure Requirements included as Important Notes in our
Module such as, Benami property, Ratios etc. (SQ’s have already been provided)
187. Specific Questions as follows:
• Application of Securities premium account
• Shares issued at Discount (Section 53)
• Concept of management expert while auditing Provisions & Contingent Liabilities
• Direct confirmation procedure for Receivables & Payables
• Physical Verification of Inventories (Existence)
• Valuation of RM, WIP and FGs
• Provision and Contingent Liabilities
• Examination of Other Income, Undisclosed Income & Other Expenses

Chapter 9 SPECIAL FEAUTURES OF AUDIT OF DIFFERENT TYPES OF ENTITIES

Unit 9A (Audit of Different types of Entities)

188. Types of Revenue grants for a Local Body.
189. Audit Programme for Local Bodies.
190. Audit of a Partnership Firm & LLP (Refer specific questions given during regular and
FastTrack lectures)
191. Audit of Educational Institution
192. Audit of Club and Hotel
193. Difference between Operating and Financial Lease

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 42 of 277

Unit 9B (Govt Audit)

194. Meaning of Govt audit and its objectives.
195. Steps involved in Govt. expenditure audit.
196. Short note on Audit against Rules and Orders (Regularity Audit), Propriety and Performance
audit
197. Powers and Duties of C&AG
198. Section 143 (5, 6 & 7)
199. Audit of Commercial Accounts and Receipts

Unit 9C (Cooperative Societies)

200. Restriction on shareholding for a Cooperative Society
201. Restrictions on Investment of Funds for a Cooperative Society
202. Special features of Cooperative society audit
203. Special Report to Registrar
204. Qualification and Appointment of Auditor for MSCOS
205. Power of CG to direct special audit of Cooperative Society
206. Inspection and Inquiry by Central Registrar for MSCOS

Unit 9D (Audit of Trusts and Societies)

207. Auditor’s responsibility related to FS’s of trusts.
208. Auditors’ consideration for audit of trusts
209. Auditors’ consideration for audit of societies

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 43 of 277

Chapter 1; Nature, Objective and Scope of Audit

[SA 200]

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 44 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 45 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 46 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 47 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 48 of 277

CHAPTER 11; ETHICS AND TERMS OF AUDIT ENGAGEMENTS

[SA 210,220 & SQC-1]

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 49 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 50 of 277

CHP 6; AUDIT DOCUMENTATION

[SA 230]

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 51 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 52 of 277

CHP 2; AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 53 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 54 of 277

CHP 10; BANK AUDIT

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 55 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 56 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 57 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 58 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 59 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 60 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 61 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 62 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 63 of 277

CHP 8; AUDIT REPORT

[SA 700]

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 64 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 65 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 66 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 67 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 68 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 69 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 70 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 71 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 72 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 73 of 277

CHAPTER 4

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 74 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 75 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 76 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 77 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 78 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 79 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 80 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 81 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 82 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 83 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 84 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 85 of 277

CHAPTER 7

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 86 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 87 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 88 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 89 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 90 of 277

CHAPTER 3

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 91 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 92 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 93 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 94 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 95 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 96 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 97 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 98 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 99 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 100 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 101 of 277

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 102 of 277

IMPORTANT QUESTION LIST CHP1

Question 1; The person conducting audit should take care to ensure that financial
statements would not mislead anybody. Explain stating clearly the meaning of audit
Answer 1; An audit is independent examination of financial information of any entity,
whether profit oriented or not, and irrespective of its size or legal form, when such an
examination is conducted with a view to expressing an opinion thereon.”
Analysis of the Definition
1. Audit is Independent examination of Financial information.
2. of any entity – that entity may be profit oriented or not and irrespective of its size
or legal form. For example – Profit oriented – Audit of Listed company engaged in
business. On the other hand, Audit of NGO – not profit oriented.
3. The objective of the audit is to express an opinion on the financial statements.

The person conducting this task should take care to ensure that financial
statements would not mislead anybody. This he can do honestly by satisfying
himself that:
(i) the accounts have been drawn up with reference to entries in the books of account;
(ii) the entries in the books of account are adequately supported by sufficient and
appropriate evidence;
(iii) none of the entries in the books of account has been omitted in the process of
compilation and nothing which is not in the books of account has found place in the
statements;
(iv) the information conveyed by the statements is clear and unambiguous;
(v) the financial statement amounts are properly classified, described and disclosed in
conformity with accounting standards; and the statement of accounts present a true
and fair picture of the operational results and of the assets and liabilities.
(vi) the statement of accounts present a true and fair picture of the operational
results and of the assets and liabilities.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 103 of 277

Question 2; CA N is the auditor of SR Ltd. The auditor expressed his opinion on the
financial statements without ascertaining as to whether the financial statements as a
whole were free from material misstatements or not. In your opinion, whether CA N
has complied with objectives of audit considering the applicability of relevant SA ? [
OOIA : RA+FS+FF+MM & R+FS+SA+Ar+F ]
Answer 2; Overall Objectives of the Independent Auditor: As per SA-200 “Overall
Objectives of the Independent Auditor”, in conducting an audit of financial
statements, the overall objectives of the auditor are:
(i) To obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, thereby enabling
the auditor to express an opinion on whether the financial statements are prepared, in
all material respects, in accordance with an applicable financial reporting framework;
and
(ii) To report on the financial statements, and communicate as required by the SAs, in
accordance with the auditor’s findings.

In the given case of SR Ltd, CA N expressed his opinion on the financial statements
of SR Ltd without obtaining reasonable assurance about whether the financial
statements as a whole are free from material misstatement or not. Therefore, it can
be concluded that CA N did not comply with the objective of audit as stated in SA 200.

Question 3; An audit is distinct from investigation. However, it is quite possible that

sometimes investigation results from the prima facie findings of the auditor.
Answer 3; Audit is distinct from investigation.

Investigation is a critical examination of the accounts with a special purpose. For

example, if fraud is suspected and it is specifically called upon to check the accounts
whether fraud really exists, it takes character of investigation.

The objective of audit, on the other hand as we have already discussed, is to obtain
reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, thereby enabling the auditor to
express an opinion.

Scope of investigation is specific and narrow WHILE audit is general and broad

Therefore, audit is never started with a pre-conceived notion about state of affairs;
about wrong-doing; about some wrong having been committed. The auditor seeks to
report what he finds in normal course of examination of accounts.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 104 of 277

However, it is quite possible that sometimes investigation results from the prima facie
findings of the auditor. It may happen that auditor has given some findings of serious
concern. Such findings may prompt for calling an investigation.

Question 4; There are practical and legal limitations on the auditor’s ability to obtain
audit evidence/ can’t provide absolute assurances/ detect material misstatements.
Explain giving examples. {nature audit procuders}
Answer 4; There are practical and legal limitations on the auditor’s ability to obtain
audit evidence. For example:
1. There is the possibility that management or others may not provide, intentionally
or unintentionally, the complete information that is relevant to the preparation and
presentation of the financial statements or that has been requested by the auditor.

2. Fraud may involve sophisticated and carefully organized schemes designed to

conceal it. Therefore, audit procedures used to gather audit evidence may be
ineffective for detecting an intentional misstatement that involves, for example,
collusion to falsify documentation which may cause the auditor to believe that audit
evidence is valid when it is not. The auditor is neither trained as nor expected to be an
expert in the authentication of documents.

3. An audit is not an official investigation into alleged wrongdoing. Accordingly, the

auditor is not given specific legal powers, such as the power of search, which may be
necessary for such an investigation.

We have to clearly understand that audit is distinct from investigation.

Investigation is a critical examination of the accounts with a special purpose. For
example, if fraud is suspected and it is specifically called upon to check the accounts
whether fraud really exists, it takes character of investigation.

Therefore, audit is never started with a pre-conceived notion about state of affairs;
about wrongdoing; about some wrong having been committed. The auditor seeks to
report what he finds in normal course of examination of accounts. However, it is quite
possible that sometimes investigation results from the prima facie findings of the
auditor. It may happen that auditor has given some findings of serious concern. Such

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 105 of 277

findings may prompt for calling an investigation.

Other Such assertions or subject matters include

- Fraud, particularly fraud involving senior management or collusion.
- The existence and completeness of related party relationships and transactions.
- The occurrence of non-compliance with laws and regulations.
- Future events or conditions that may cause an entity to cease to continue as a going
concern.

Question 5; The auditor is not expected to, and cannot, reduce audit risk to zero and
cannot therefore obtain absolute assurance that the financial statements are free
from material misstatement due to fraud or error. This is because there are inherent
limitations of an audit. Explain.
Answer 5; The auditor is not expected to, and cannot, reduce audit risk to zero and
cannot therefore obtain absolute assurance that the financial statements are free
from material misstatement due to fraud or error. This is because there are inherent
limitations of an audit. The inherent limitations of an audit arise from:

(i) The Nature of Financial Reporting: The preparation of financial statements

involves judgment by management in applying the requirements of the entity’s
applicable financial reporting framework to the facts and circumstances of the entity.
In addition, many financial statement items involve subjective decisions or assessments
or a degree of uncertainty, and there may be a range of acceptable interpretations or
judgments that may be made.

(ii) The Nature of Audit Procedures: There are practical and legal limitations on the
auditor’s ability to obtain audit evidence. For example:
A. There is the possibility that management or others may not provide, intentionally or
unintentionally, the complete information that is relevant to the preparation and
presentation of the financial statements or that has been requested by the auditor.
B. Fraud may involve sophisticated and carefully organized schemes designed to conceal
it. Therefore, audit procedures used to gather audit evidence may be ineffective for
detecting an intentional misstatement that involves, for example, collusion to falsify
documentation which may cause the auditor to believe that audit evidence is valid when
it is not. The auditor is neither trained as nor expected to be an expert in the
authentication of documents.
C. An audit is not an official investigation into alleged wrongdoing. Accordingly, the
auditor is not given specific legal powers, such as the power of search, which may be
necessary for such an investigation.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 106 of 277

(iii) Timeliness of Financial Reporting and the Balance between Benefit and Cost:
The matter of difficulty, time, or cost involved is not in itself a valid basis for the
auditor to omit an audit procedure for which there is no alternative.
Appropriate planning assists in making sufficient time and resources available for the
conduct of the audit. Notwithstanding this, the relevance of information, and thereby
its value, tends to diminish over time, and there is a balance to be struck between the
reliability of information and its cost.

(iv) Other Matters that Affect the Limitations of an Audit:

In the case of certain subject matters, limitations on the auditor’s ability to detect
material misstatements are particularly significant. Such assertions or subject matters
include:
- Fraud, particularly fraud involving senior management or collusion.
- The existence and completeness of related party relationships and transactions.
- The occurrence of non-compliance with laws and regulations.
- Future events or conditions that may cause an entity to cease to continue as a going
concern.

OTHER QUESTIONS FRAME POINT (iii) Timeliness of Financial Reporting and the Balance
between Benefit and Cost
Question; The auditor has to form an opinion on the financial statements within a
reasonable period of time and at a reasonable cost. Explain the above statement with
reference to "Timeliness of Financial Reporting and the Balance between Benefit and
Cost".
Answer; Timeliness of Financial Reporting and the Balance between Benefit and
Cost:
The matter of difficulty, time, or cost involved is not in itself a valid basis for the
auditor to omit an audit procedure for which there is no alternative or to be satisfied
with audit evidence that is less than persuasive.
Appropriate planning assists in making sufficient time and resources available for the
conduct of the audit. Notwithstanding this, the relevance of information, and thereby
its value, tends to diminish over time, and there is a balance to be struck between the
reliability of information and its cost.

There is an expectation by users of financial statements that the auditor will form an
opinion on the financial statements within a reasonable period of time and at a
reasonable cost, recognizing that it is impracticable to address all information that may
exist or to pursue every matter exhaustively on the assumption that information is in
error or fraudulent until proved otherwise.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 107 of 277

Question 6; The chief utility of audit lies in reliable financial statements on the basis
of which the state of affairs may be easy to understand. Apart from this obvious
utility, there are other advantages of audit. Some or all of these are of considerable
value even to those enterprises and organizations where audit is not compulsory.
Explain.
Answer 6; The chief utility of audit lies in reliable financial statements on the basis of
which the state of affairs may be easy to understand. Apart from this obvious utility,
there are other advantages of audit. Some or all of these are of considerable value
even to those enterprises and organisations where audit is not compulsory, these
advantages are given below:
(a) It safeguards the financial interest of persons who are not associated with the
management of the entity, whether they are partners or shareholders, bankers, FI’s,
public at large etc.
(b) It acts as a moral check on the employees from committing defalcations or
embezzlement.
(c) Audited statements of account are helpful in settling liability for taxes, negotiating
loans and for determining the purchase consideration for a business.
(d) These are also useful for settling trade disputes for higher wages or bonus as well
as claims in respect of damage suffered by property, by fire or some other calamity.
(e) An audit can also help in the detection of wastages and losses to show the different
ways by which these might be checked, especially those that occur due to the absence
or inadequacy of internal checks or internal control measures.
(f) Audit ascertains whether the necessary books of account and allied records have
been properly kept and helps the client in making good deficiencies or inadequacies in
this respect.
(g) As an appraisal function, audit reviews the existence and operations of various
controls in the organisations and reports weaknesses, inadequacies, etc., in them.
(h) Audited accounts are of great help in the settlement of accounts at the time of
admission or death of partner.
(i) Government may require audited and certified statement before it gives assistance
or issues a license for a particular trade.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 108 of 277

Question 7; Assurance engagements are not restricted to audit of financial

statements alone. Discuss
Answer. There are various types of assurance Engagements:-

Reasonable assurance engagement:

It provides high level of assurance. It draws reasonable conclusions on the basis of
sufficient appropriate evidence.
Example of Reasonable assurance engagement is audit engagement.

Limited assurance engagement:

provides lower level of assurance than reasonable assurance engagement. It performs
fewer procedures as compared to reasonable assurance engagement Example of limited
assurance engagement is review engagement.

Moderate assurance engagement:

Besides reasonable assurance engagements and limited assurance engagements, there is
another kind of assurance which is related to matters other than historical financial
information. Such an assurance may relate to prospective financial information and not
to historical financial information. It may relate to providing assurance on internal
controls in an entity. "Prospective financial information" means financial information
based on assumptions about events that may occur in the future and possible actions by
an entity. It can be in the form of a forecast or projection or combination of both.

Question 8; An assurance engagement involves a three party relationship. Discuss

meaning of three parties in such an engagement.
Ans. A three party relationship involving a practitioner, a responsible party, and
intended users An assurance engagement involves abovesaid three parties.

A practitioner is a person who provides the assurance. The term practitioner is

broader than auditor. Audit is related to historical information whereas practitioner
may provide assurance not necessarily related to historical financial information.

A responsible party is the party responsible for preparation of subject matter.

Intended users are the persons for whom an assurance report is prepared. These
persons may use the report in making decisions.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 109 of 277

IMPORTANT QUESTION LIST CHP11

Question 1; Principle based approach vs Rule Based Approach

Answer 1;

Points Principle Based Rules Based

Compliances Accountants shall comply Accountants shall
as per spirit of ethics strictly follow the
clearly defined rules.
Flexibility It is more flexible It is a rigid approach and
will not be suitable for
every practical situation.
Scope It provides a broader It provides narrow
outlook outlook and it can
overlook spirit of ethics
which compulsory rule
Use of judgement Accountant shall act as No use of judgement
per their professional
judgement, based on
their professional
knowledge, skill,
expertise

Question 2; Explain the fundamental principles of professional ethics relevant to the

auditor when conducting an audit of financial statements in accordance with Code of
Ethics issued by ICAI. OR
The Code establishes the fundamental principles of professional ethics relevant to the
auditor when conducting an audit of financial statements. Explain.
Answer 2; Ethical Requirements Relating to an Audit of Financial Statements: The
auditor shall comply with relevant ethical requirements, including those pertaining to
independence, relating to financial statement audit engagements. Relevant ethical
requirements ordinarily comprise the Code of Ethics for Professional Accountants
(IESBA Code) related to an audit of financial statements.

The Code establishes the following as the fundamental principles of professional

ethics relevant to the auditor when conducting an audit of financial statements:

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 110 of 277

(a) Integrity; Integrity requires auditor to be straight forward and honest in all
professional and business relationships. It implies fair dealing and truthfulness. It
effectively means that he shall not be associated with reports, returns,
communications or other information which he believes contains a materially false or
misleading statement; contains statements or information provided recklessly or omits
required information where such omission could be misleading.

(b) Objectivity; The principle of objectivity requires an auditor not to compromise

professional judgment because of bias, conflict of interest or undue influence of
others.

(c) Professional competence and due care; It requires that auditor attains and
maintains professional knowledge and skill at the level required to render competent
professional service based on current technical and professional standards and
legislation and also to act diligently and in accordance with technical and professional
standards. Diligence includes responsibility to act carefully, thoroughly and on a timely
basis in accordance with requirements of an assignment.

(d) Confidentiality; Confidentiality principle requires an auditor to respect the

confidentiality of information acquired as a result of professional or business
relationships.

(e) Professional behavior; It requires an auditor to comply with relevant laws and
regulations and avoid any conduct that he knows or should know might discredit the
profession.

Question 3; Professional integrity and independence are considered essential

characteristics of all the professions.
There are two interlinked perspectives of independence of auditors, one, independence
of mind; and two, independence in appearance. Explain.
Answer 3; Professional integrity and independence are considered essential
characteristics of all the professions but are more so in the case of accountancy
profession. Independence implies that the judgement of a person is not subordinate to
the wishes or direction of another person who might have engaged him.

It is not possible to define “independence” precisely. Rules of professional conduct

dealing with independence are framed primarily with a certain objective. The rules
themselves cannot create or ensure the existence of independence. Independence is a
condition of mind as well as personal character. It should not be confused with the

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 111 of 277

superficial and visible standards of independence which are sometimes imposed by law.

There are two interlinked perspectives of independence of auditors, one, independence

of mind; and two, independence in appearance. The Code of Ethics for Professional
Accountants issued by International Federation of Accountants (IFAC) defines the
term ‘Independence’ as follows:
Independence is:
(i) Independence of mind – the state of mind that permits the provision of an opinion
without being affected by influences allowing an individual to act with integrity, and
exercise objectivity and professional skepticism; and
(ii) Independence in appearance – the avoidance of facts and circumstances that are
so significant that a third party would reasonably conclude an auditor’s integrity,
objectivity or professional skepticism had been compromised.

Question 4; The Code of Ethics for Professional Accountants, prepared by the

International Federation of Accountants (IFAC) identifies five types of threats.
Explain.
Answer 4; The auditor should be straightforward, honest and sincere in his
approach to his professional work.
He must be fair and must not allow prejudice or bias to override his objectivity. He
should maintain an impartial attitude and both be and appear to be free of any interest
which might be regarded as being incompatible with integrity and objectivity. Many
different circumstances, or combination of circumstances, may be relevant and
accordingly it is impossible to define every situation that creates threats to
independence and specify the appropriate mitigating action that should be taken. In
addition, the nature of assurance engagements may differ and consequently different
threats may exist requiring the application of different safeguards.

Threats to Independence
The Code of Ethics for Professional Accountants, prepared by the International
Federation of Accountants (IFAC) identifies five types of threats. These are:

A. Self-interest threats, which occur when an auditing firm, its partner or associate
could benefit from a financial interest in an audit client. Examples include
(i) direct financial interest or materially significant indirect financial interest in a
client,
(ii) loan or guarantee to or from the concerned client,
(iii) undue dependence on a client’s fees and, hence, concerns about losing the
engagement,

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 112 of 277

(iv) close business relationship with an audit client,

(v) potential employment with the client, and
(vi) contingent fees for the audit engagement.

B. Self-review threats, which occur when during a review of any judgement or

conclusion reached in a previous audit or non-audit engagement (Non audit services
include any professional services provided to an entity by an auditor, other than audit
or review of the financial statements. These include management services, internal
audit, investment advisory service, design and implementation of information
technology systems etc.), or when a member of the audit team was previously a director
or senior employee of the client.
Instances where such threats come into play are
(i) when an auditor having recently been a director or senior officer of the company,
and
(ii) when auditors perform services that are themselves subject matters of audit.

C. Advocacy threats, which occur when the auditor promotes, or is perceived to

promote, a client’s opinion to a point where people may believe that objectivity is
getting compromised, e.g. when an auditor deals with shares or securities of the
audited company, or becomes the client’s advocate in litigation and third party disputes.

D. Familiarity threats are self-evident, and occur when auditors form relationships
with the client where they end up being too sympathetic to the client’s interests.
This can occur in many ways:
(i) close relative of the audit team working in a senior position in the client company,
(ii) former partner of the audit firm being a director or senior employee of the client,
(iii) long association between specific auditors and their specific client counterparts,
and
(iv) acceptance of significant gifts or hospitality from the client company, its directors
or employees.

E Intimidation threats, which occur when auditors are deterred from acting
objectively with an adequate degree of professional skepticism. Basically, these could
happen because of threat of replacement over disagreements with the application of
accounting principles, or pressure to disproportionately reduce work in response to
reduced audit fees.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 113 of 277

Question 5; Discuss few guiding principles which are behind safeguards to eliminate
threats to auditor’s independence.
Answer 5; The Chartered Accountant has a responsibility to remain independent by
taking into account the context in which they practice, the threats to independence
and the safeguards available to eliminate the threats.
The following are the guiding principles in this regard:-
1. For the public to have confidence in the quality of audit, it is essential that auditors
should always be and appears to be independent of the entities that they are auditing.
2. In the case of audit, the key fundamental principles are integrity, objectivity and
professional skepticism, which necessarily require the auditor to be independent.
3. Before taking on any work, an auditor must conscientiously consider whether it
involves threats to his independence.
4. When such threats exist, the auditor should either desist from the task or put in
place safeguards that eliminate them.
5. If the auditor is unable to fully implement credible and adequate safeguards, then
he must not accept the work.

Question 6; Professional skepticism refers to an attitude that includes a questioning

mind, being alert to conditions which may indicate possible misstatement due to error
or fraud, and a critical assessment of audit evidence. The auditor shall plan and
perform an audit with professional skepticism recognising that circumstances may exist
that cause the financial statements to be materially misstated. Explain giving examples.
Answer 6; The auditor shall plan and perform an audit with professional skepticism
recognising that circumstances may exist that cause the financial statements to be
materially misstated. Professional skepticism includes being alert to, for example:
 Audit evidence that contradicts other audit evidence obtained.
 Information that brings into question the reliability of documents and responses to
inquiries to be used as audit evidence.
 Conditions that may indicate possible fraud.
 Circumstances that suggest the need for audit procedures in addition to those
required by the SAs.
 Maintaining professional skepticism throughout the audit is necessary if the auditor
is to reduce the risks of:
 Overlooking unusual circumstances.
 Over generalising when drawing conclusions from audit observations.
 Using inappropriate assumptions in determining the nature, timing, and extent of the
audit procedures and evaluating the results thereof.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 114 of 277

Professional skepticism is necessary to the critical assessment of audit evidence. It

also includes consideration of the sufficiency and appropriateness of audit evidence
obtained in the light of the circumstances, for example in the case where fraud risk
factors exist and a single document, of a nature that is susceptible to fraud, is the sole
supporting evidence for a material financial statement amount. The auditor may accept
records and documents as genuine unless the auditor has reason to believe the
contrary. Nevertheless, the auditor is required to consider t he reliability of
information to be used as audit evidence. In cases of doubt about the reliability of
information or indications of possible fraud, the SAs require that the auditor
investigate further and determine what modifications or additions to audit procedures
are necessary to resolve the matter.

The auditor cannot be expected to disregard past experience of the honesty and
integrity of the entity’s management and those charged with governance. Nevertheless,
a belief that management and those charged with governance are honest and have
integrity does not relieve the auditor of the need to maintain professional skepticism.

Question 7; Discuss preconditions for an audit as per SA 210. Explain how would an
auditor proceed to establish the presence of pre-conditions for an audit.
Answer 7; As per SA 210 “Agreeing the Terms of Audit Engagements”,
preconditions for an audit may be defined as the use by management of an acceptable
financial reporting framework in the preparation of the financial statements and the
agreement of management and, where appropriate, those charged with governance to
the premise on which an audit is conducted.

In order to establish whether the preconditions for an audit are present, the
auditor shall:
(a) Determine whether the financial reporting framework is acceptable; and
(b) Obtain the agreement of management that it acknowledges and understands its
responsibility:
(i) For the preparation of the financial statements in accordance with the applicable
financial reporting framework;
(ii) For the internal control as management considers necessary; and
(iii)To provide the auditor with:
• Access to all information such as records, documentation and other matters;
• Additional information that the auditor may request from management for the
purpose of the audit; and
• Unrestricted access to persons within the entity from whom the auditor determines
it necessary to obtain audit evidence.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 115 of 277

OTHER POINT
IF THE PRECONDITIONS FOR AN AUDIT ARE NOT PRESENT, the auditor shall discuss the matter with
management.
Unless required by law or regulation to do so, the auditor shall not accept the proposed audit
engagement: -
(a) If the auditor has determined that the financial reporting framework to be applied in the
preparation of the financial statements is unacceptable or
(b) If the agreement of management is not obtained on matters relating to understanding of
responsibility of management on preparation of financial statements, internal controls for
preparation of financial statements, providing access to all information to auditor and unrestricted
access to persons within the entity.

Question 8; On recurring audits, the auditor shall assess whether circumstances

require the terms of the audit engagement to be revised and whether there is a need
to remind the entity of the existing terms of the audit engagement. The auditor may
decide not to send a new audit engagement letter or other written agreement each
period. Explain the factors an auditor considers to be appropriate to revise the terms
of the audit engagement or to remind the entity of existing terms.
Answer 8; On recurring audits, the auditor shall assess whether circumstances require
the terms of the audit engagement to be revised and whether there is a need to remind
the entity of the existing terms of the audit engagement.
The auditor may decide not to send a new audit engagement letter or other written
agreement each period. However, the following factors may make it appropriate to
revise the terms of the audit engagement or to remind the entity of existing terms:

✓ Any indication that the entity misunderstands the objective and scope of the
audit.
✓ Any revised or special terms of the audit engagement.
✓ A recent change of senior management.
✓ A significant change in ownership.
✓ A significant change in nature or size of the entity’s business.
✓ A change in legal or regulatory requirements.
✓ A change in the financial reporting framework adopted in the preparation of the
financial statements.
✓ A change in other reporting requirements.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 116 of 277

Question 9; An auditor who before the completion of the engagement is requested to

change the engagement to one which provides a lower level of assurance should
consider the appropriateness of doing so. Discuss.
Answer 9; Acceptance of a Change in Engagement: An auditor who, before the
completion of the engagement, is requested to change the engagement to one which
provides a lower level of assurance, should consider the appropriateness of doing so. A
request from the client for the auditor to change the engagement may result from a
change in circumstances affecting the need for the service, a misunderstanding as to
the nature of an audit or related service originally requested or a restriction on the
scope of the engagement, whether imposed by management or caused by circumstances.
The auditor would consider carefully the reason given for the request, particularly the
implications of a restriction on the scope of the engagement, especially any legal or
contractual implications. If the auditor concludes that there is reasonable justification
to change the engagement and if the audit work performed complied with the SAs
applicable to the changed engagement, the report issued would be appropriate for the
revised terms of engagement. In order to avoid confusion, the report would not include
reference to-
(i) the original engagement; or
(ii) any procedures that may have been performed in the original engagement, except
where the engagement is changed to an engagement to undertake agreed-upon
procedures and thus reference to the procedures performed is a normal part of the
report. The auditor should not agree to a change of engagement where there is no
reasonable justification for doing so.

If the terms of the audit engagement are changed, the auditor and management shall
agree on and record the new terms of the engagement in an engagement letter or other
suitable form of written agreement. If the auditor is unable to agree to a change of
the terms of the audit engagement and is not permitted by management to continue the
original audit engagement, the auditor shall-
(i) Withdraw from the audit engagement where possible under applicable law or
regulation; and
(ii) Determine whether there is any obligation, either contractual or otherwise, to
report the circumstances to other parties, such as those charged with governance,
owners or regulators.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 117 of 277

Question 10; CA P is appointed as an auditor of XYZ Limited for the F.Y. 2021 -22. The
management of XYZ Limited has requested the auditor to change the terms of original
engagement as the company has diversified its business and few new products have
been introduced by the company. Can CA P agree to the request made by the
management? Under which circumstances can the client make a request to the auditor
for a change in the terms of engagement? OR
An auditor who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should consider the
appropriateness of doing so. Explain the circumstances which may contribute towards a
request from the client for the auditor to change the engagement.
Answer 10; Acceptance of a Change in Engagement:
The auditor may decide not to send a new audit engagement letter or other written
agreement each period. However, a significant change in nature or size of the entity’s
business is one of the factors which may make it appropriate to revise the terms of the
audit engagement.

In the given situation, XYZ Limited has diversified its business and few new products
have also been introduced by the Company which is indicative of significant change in
nature or size of the entity’s business. In view of above, CA. P can agree to the request
made by the management to change the terms of the audit engagement. Therefore,
request of Management to change the terms of audit engagement is appropriate.

A request from the client for the auditor to change the engagement may result
from
A. a change in circumstances affecting the need for the service,
B. a misunderstanding as to the nature of an audit or related service originally
requested.
C. a restriction on the scope of the engagement, whether imposed by management or
caused by circumstances.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 118 of 277

Question 11; As per SA 220, the engagement partner shall take responsibility for the
overall quality on each audit engagement to which that partner is assigned. While taking
responsibility for the overall quality on each audit engagement, analyse and explain the
emphasis of the actions of the engagement partner and appropriate messages to the
other members of the engagement team . Also define engagement partner.
Answer 11; As per SA 220 “Quality Control for an Audit of Financial Statements”, the
engagement partner shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned. The actions of the engagement partner
and appropriate messages to the other members of the engagement team, in taking
responsibility for the overall quality on each audit engagement, emphasise:
(a) The importance to audit quality of:
(i) Performing work that complies with professional standards and regulatory and legal
requirements;
(ii) Complying with the firm’s quality control policies and procedures as applicable;
(iii) Issuing auditor’s reports that are appropriate in the circumstances; and
(iv) The engagement team’s ability to raise concerns without fear of reprisals; and

(b) The fact that quality is essential in performing audit engagements.

Engagement partner defined ; Engagement partner refers to the partner or other

person in the firm who is responsible for the audit engagement and its performance,
and for the auditor’s report that is issued on behalf of the firm, and who, where
required, has the appropriate authority from a professional, legal or regulatory body.

Question 12; As per SA 220, “Quality Control for an Audit of Financial Statements”
the auditor should obtain information considered necessary in the circumstances
before accepting an engagement with a new client. Explain stating clearly the
information that would assist the auditor in accepting and continuing of relationship
with the client.
Answer 12; Information which assist the Auditor in accepting and continuing of
relationship with Client: As per SA 220, “Quality Control for an Audit of Financial
Statements” the auditor should obtain information considered necessary in the
circumstances before accepting an engagement with a new client, when deciding
whether to continue an existing engagement and when considering acceptance of a new
engagement with an existing client.
The following information would assist the auditor in accepting and continuing of
relationship with the client:
(i) The integrity of the principal owners, key management and those charged with
governance of the entity;
(ii) Whether the engagement team is competent to perform the audit engagement and

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 119 of 277

has the necessary capabilities, including time and resources;

(iii) Whether the firm and the engagement team can comply with relevant ethical
requirements; and
(iv) Significant matters that have arisen during the current or previous audit
engagement, and their implications for continuing the relationship.

[ IF QUES ASK FROM::- SQC 1; ONLY FIRST 3 POINTS BUT SA 220; ALL 4
POINTS ]

Question 13; How does SQC 1 ensure that independence in engagements is not
breached by an audit firm?
Answer 13; ELEMENTS OF A SYSTEM OF QUALITY CONTROL: The firm’s system
of quality control should include policies and procedures addressing each of the
following elements:
(a) Leadership responsibilities for quality within the firm.
(b) Ethical requirements.
(c) Acceptance and continuance of client relationships and specific engagements.
(d) Human resources.
(e) Engagement performance.
(f) Monitoring.

Question 14; The firm should establish policies and procedures designed to provide it
with reasonable assurance that the policies and procedures relating to the system of
quality control are relevant, adequate, operating effectively and complied with in
practice. Explain the purpose of monitoring compliance with quality control policies and
procedures.
Answer 14; The firm should establish policies and procedures designed to provide it
with reasonable assurance that the policies and procedures relating to the system of
quality control are relevant, adequate, operating effectively and complied with in
practice. Such policies and procedures should include an ongoing consideration and
evaluation of the firm’s system of quality control, including a periodic inspection of a
selection of completed engagements.

The purpose of monitoring compliance with quality control policies and procedures is to
provide an evaluation of:
(A) Adherence to professional standards and regulatory and legal requirements;

(B) Whether the quality control system has been appropriately designed and
effectively implemented; and

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 120 of 277

(C) Whether the firm’s quality control policies and procedures have been appropriately
applied, so that reports that are issued by the firm or engagement partners are
appropriate in the circumstances.

Follow-up by appropriate firm personnel so that necessary modifications are promptly

made to the quality control policies and procedures.

Question 15; Through its policies and procedures, the firm seeks to establish
consistency in the quality of engagement performance. This is often accomplished
through written or electronic manuals, software tools or other forms of standardized
documentation, and industry or subject matter-specific guidance materials. Explain the
matters to be addressed in this context.
Answer 15; The firm should establish policies and procedures designed to provide it
with reasonable assurance that engagements are performed in accordance with
professional standards and regulatory and legal requirements, and that the firm or the
engagement partner issues reports that are appropriate in the circumstances.

Through its policies and procedures, the firm seeks to establish consistency in the
quality of engagement performance. This is often accomplished through written or
electronic manuals, software tools or other forms of standardized documentation, and
industry or subject matter-specific guidance materials.

Matters addressed include the following:

 How engagement teams are briefed on the engagement to obtain an understanding of
the objectives of their work.
 Processes for complying with applicable engagement standards.
 Processes of engagement supervision, staff training and coaching.
 Methods of reviewing the work performed, the significant judgments made and the
form of report being issued.
 Appropriate documentation of the work performed and of the timing and extent of
the review.
 Processes to keep all policies and procedures current.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 121 of 277

Question 16; The firm should establish policies and procedures designed to provide it
with reasonable assurance that it has sufficient personnel with the capabilities,
competence, and commitment to ethical principles. Explain stating clearly personnel
issues addressed by such policies and procedures.
Answer 16; The firm should establish policies and procedures designed to provide it
with reasonable assurance that it has sufficient personnel with the capabilities,
competence, and commitment to ethical principles necessary to perform its
engagements in accordance with professional standards and regulatory and legal
requirements, and to enable the firm or engagement partners to issue reports that are
appropriate in the circumstances.
Such policies and procedures address the following personnel issues:
(a) Recruitment.
(b) Performance evaluation.
(c) Capabilities.
(d) Competence.
(e) Career development.
(f) Promotion;
(g) Compensation; and
(h) Estimation of personnel needs.

Addressing these issues enables the firm to ascertain the number and characteristics
of the individuals required for the firm’s engagements. The firm’s recruitment
processes include procedures that help the firm select individuals of integrity as well
as the capacity to develop the capabilities and competence necessary to perform the
firm’s work.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 122 of 277

IMPORTANT QUESTION LIST CHP6

Question 1; CAM is the engagement partner of S Ltd. He has instructed his audit team
to maintain proper audit documentation. The audit team members are not sure about
the purpose for which the documentation should be made. Explain the various purposes
of audit documentation with reference to SA 230.
Answer 1; Audit documentation: SA 230 on “Audit Documentation”, audit
documentation refers to the record of audit procedures performed, relevant audit
evidence obtained, and conclusions the auditor reached. (terms such as “working
papers” or “work papers” are also sometimes used.)
Nature of Audit Documentation
Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; and
(b) evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.

Purpose of Audit Documentation

The following are the purpose of Audit documentation:
1. Assisting the engagement team to plan and perform the audit.
2. Assisting members of the engagement team to direct and supervise the audit work,
and to discharge their review responsibilities.
3. Enabling the engagement team to be accountable for its work.
4. Retaining a record of matters of continuing significance to future audits.
5. Enabling the conduct of quality control reviews and inspections.
6. Enabling the conduct of external inspections in accordance with applicable legal,
regulatory or other requirements.

From the above, it can be concluded that Audit documentation serves a number of
purposes and hence it would be incorrect to say that audit documentation would not
serve any purpose at any stage of audit.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 123 of 277

Question 2; The form, content and extent of audit documentation depend on factors
such as the size and complexity of the entity, the nature of the audit procedures to be
performed etc. Explain in detail.
Answer 2; Form, Content and Extent of Audit Documentation:
Working papers should record the audit plan, nature, timing and extent of auditing
procedures performed, and the conclusions drawn from the evidence obtained.

The form, content and extent of working papers depend on factors such as:
 The size and complexity of the entity.
 The nature of the audit procedures to be performed.
 The identified risks of material misstatement.
 The significance of the audit evidence obtained.
 The nature and extent of exceptions identified.
 The need to document a conclusion or the basis for a conclusion not readily
determinable from the documentation of the work performed or audit evidence
obtained.
 The audit methodology and tools used.

Question 3; The auditor shall assemble the audit documentation in an audit file and
complete the administrative process of assembling the final audit file on a timely basis.
Explain in detail. OR TRS & Associates, Chartered Accountants, having completed the
audit of Genuine Leathers Ltd has started the assembling of final audit file. TRS &
Associates has established policies and procedures for the timely completion of the
assembly of audit files. Explain the various aspects related to final audit file discussed
in SA 230 giving specific reference to SQC 1, wherever required.
Answer 3; The auditor shall assemble the audit documentation in an audit file and
complete the administrative process of assembling the final audit file on a timely basis
after the date of the auditor’s report.

 SQC 1 “Quality Control for Firms that perform Audits and Review of Historical
Financial Information, and other Assurance and related services”, requires firms to
establish policies and procedures for the timely completion of the assembly of audit
files.

 An appropriate time limit within which to complete the assembly of the final audit
file is ordinarily not more than 60 days after the date of the auditor’s report. The
completion of the assembly of the final audit file after the date of the auditor’s report
is an administrative process that does not involve the performance of new audit
procedures or the drawing of new conclusions.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 124 of 277

 Changes may, however, be made to the audit documentation during the final assembly
process, if they are administrative in nature.

Examples of such changes include:

• Deleting or discarding superseded documentation.
• Sorting, collating and cross-referencing working papers.
• Signing off on completion checklists relating to the file assembly process.
• Documenting audit evidence that the auditor has obtained, discussed and agreed with
the relevant members of the engagement team before the date of the auditor’s report.

 After the assembly of the final audit file has been completed, the auditor shall not
delete or discard audit documentation of any nature before the end of its retention
period.

 SQC 1 requires firms to establish policies and procedures for the retention of
engagement documentation. The retention period for audit engagements ordinarily is
no shorter than seven years from the date of the auditor’s report, or, if later, the date
of the group auditor’s report.

Question 4; Judging the significance of a matter requires an objective analysis of the

facts and circumstances. Documentation of the professional judgments made, where
significant, serves to explain the auditor’s conclusions and to reinforce the quality of
the judgment. Explain with the help of examples.
Answer 4; Documentation of Significant Matters and Related Significant Professional
Judgments Judging the significance of a matter requires an objective analysis of the
facts and circumstances.
Examples of significant matters include:
A] Matters that give rise to significant risks.

B] Results of audit procedures indicating

(a) that the financial statements could be materially misstated, or
(b) a need to revise the auditor’s previous assessment of the risks of material
misstatement and the auditor’s responses to those risks.

C] Circumstances that cause the auditor significant difficulty in applying necessary

audit procedures.

D] Findings that could result in a modification to the audit opinion or the inclusion of an
Emphasis of Matter Paragraph in the auditor’s report.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 125 of 277

An important factor in determining the form, content and extent of audit

documentation of significant matters is the extent of professional judgment exercised
in performing the work and evaluating the results.

Documentation of the professional judgments made, where significant, serves to

explain the auditor’s conclusions and to reinforce the quality of the judgment. Such
matters are of particular interest to those responsible for reviewing audit
documentation, including those carrying out subsequent audits, when reviewing matters
of continuing significance (for example, when performing a retrospective review of
accounting estimates).

Some examples of circumstances in which it is appropriate to prepare audit

documentation relating to the use of professional judgment include, where the matters
and judgments are significant:

• The rationale for the auditor’s conclusion when a requirement provides that the
auditor ‘shall consider’ certain information or factors, and that consideration is
significant in the context of the particular engagement.
• The basis for the auditor’s conclusion on the reasonableness of areas of subjective
judgments (for example, the reasonableness of significant accounting estimates).
• The basis for the auditor’s conclusions about the authenticity of a document when
further investigation (such as making appropriate use of an expert or of confirmation
procedures) is undertaken in response to conditions identified during the audit that
caused the auditor to believe that the document may not be authentic.

Question 5; "Completion Memorandum" is helpful as part of the audit documentation.

Explain.
Answer 5; Completion Memorandum or Audit Documentation Summary.
The auditor may consider it helpful to prepare and retain as part of the audit
documentation a summary (sometimes known as a completion memorandum) that
describes-
(i) the significant matters identified during the audit.
(ii) how they were addressed.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 126 of 277

Such a summary may facilitate effective and efficient review and inspection of the
audit documentation, particularly for large and complex audits. Further, the
preparation of such a summary may assist auditor’s consideration of the significant
matters. It may also help the auditor to consider whether there is any individual
relevant SA objective that the auditor cannot achieve that would prevent the auditor
from achieving the overall objectives of the auditor.

Question 6; The working papers of the branch auditor are also the property of the
Principal Auditor and the Management of the Company, so they have right to access
them. State the relevant SA and comment.
Answer 6; Ownership of Working Papers: As per SA 230 “Audit Documentation”,
working papers are the property of the auditor. He may at his discretion, make
available portions or extracts from his working paper to his client. The auditor should
adopt reasonable procedures for custody and confidentiality of his working papers. An
auditor is not required to provide the management/ clients or other auditors’ access to
his working papers. Main auditor of the company does not have right of access to the
working papers of the branch auditor.

In the case of a company, the main auditor has to consider the report of the branch
auditor and has a right to seek clarification and to visit the branch but cannot ask for
the copy of working paper and therefore, the branch auditor is under no compulsion to
give photocopies of his working paper to the principal auditor. From above, it is clear
that working papers of the branch auditor are his property only and neither the
Principal auditor not management has right to access that. Therefore, statement given
in the question is incorrect.

Question 7; While documenting the nature, timing and extent of audit procedures
performed in case of audit of PQR Ltd, explain the important matters its auditor
should record.
Answer 7; In documenting the nature, timing and extent of audit procedures
performed, the auditor of PQR Ltd shall record:
(i) The identifying characteristics of the specific items or matters tested.
(ii) Who performed the audit work and the date such work was completed; and
(iii) Who reviewed the audit work performed and the date and extent of such review?

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 127 of 277

Question 8; CA R comes to know some very critical information with regards to the
business cycle of an entity for which he has issued the audit report, which become
known to him as an auditor after the date of the auditor’s report but which existed at
that date and which, if known at that date, might have caused the financial statements
to be amended or the auditor to modify the opinion in the auditor’s report. He wants to
perform additional audit procedures to satisfy himself. As an auditor what he shall
document, on the matters arising after the date of audit report?
Answer 8; As per SA 230, “Audit Documentation”, if, in exceptional circumstances,
the auditor performs new or additional audit procedures or draws new conclusions after
the date of the auditor’s report, the auditor shall document:
(i) The circumstances encountered;
(ii) The new or additional audit procedures performed, audit evidence obtained, and
conclusions reached, and their effect on the auditor’s report; and
(iii) When and by whom the resulting changes to audit documentation were made and
reviewed.

Question 9; Give some examples of circumstances in which it is appropriate to prepare

audit documentation relating to the use of professional judgment where the matters
and judgments are significant.
Answer 9; Some examples of circumstances in which it is appropriate to prepare audit
documentation relating to the use of professional judgment include, where the matters
and judgments are significant:

• The basis for the auditor’s conclusion on the reasonableness of areas of subjective
judgments (for example, the reasonableness of significant accounting estimates).

• The basis for the auditor’s conclusions about the authenticity of a document when
further investigation (such as making appropriate use of an expert or of confirmation
procedures) is undertaken in response to conditions identified during the audit that
caused the auditor to believe that the document may not be authentic.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 128 of 277

Question 10; Audit documentation provides evidence that the audit complies with SAs.
However, it is neither necessary nor practicable for the auditor to document every
matter considered. Further, it is unnecessary for the auditor to document separately
compliance with matters for which compliance is demonstrated by documents included
within the audit file. Explain giving examples.
Answer 10; Audit documentation provides evidence that the audit complies with SAs.
However, it is neither necessary nor practicable for the auditor to document every
matter considered, or professional judgment made, in an audit. Further, it is
unnecessary for the auditor to document separately (as in a checklist, for example)
compliance with matters for which compliance is demonstrated by documents included
within the audit file.
For example:
 The existence of an adequately documented audit plan demonstrates that the auditor
has planned the audit.

 The existence of a signed engagement letter in the audit file demonstrates that the
auditor has agreed the terms of the audit engagement with management, or where
appropriate, those charged with governance.

 An auditor’s report containing an appropriately qualified opinion demonstrates that

the auditor has complied with the requirement to express a qualified opinion under the
circumstances specified in the SAs.

 In relation to requirements that apply generally throughout the audit, there may be a
number of ways in which compliance with them may be demonstrated within the audit
file:

• For example, there may be no single way in which the auditor’s professional
skepticism is documented. But the audit documentation may nevertheless provide
evidence of the auditor’s exercise of professional skepticism in accordance with SAs.
Such evidence may include specific procedures performed to corroborate management’s
responses to the auditor’s inquiries.

• Similarly, that the engagement partner has taken responsibility for the direction,
supervision and performance of the audit in compliance with the SAs may be evidenced
in a number of ways within the audit documentation. This may include documentation of
the engagement partner’s timely involvement in aspects of the audit, such as
participation in the team discussion required by SA 315.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 129 of 277

IMPORTANT QUESTION LIST CHP2

Question 1; Planning is not a discrete phase of an audit, but rather a continual and
iterative process that often begins shortly after the completion of the previous audit
and continues until the completion of the current audit engagement. Planning includes
the need to consider certain matters prior to the auditor’s identification and
assessment of the risks of material misstatement. Explain clearly stating those
matters also.
Answer 1; In the context of recurring audits, as per SA-300, “Planning an Audit
of Financial Statements”, Planning is not a discrete phase of an audit, but rather a
continual and iterative process that often begins shortly after (or in connection with)
the completion of the previous audit and continues until the completion of the current
audit engagement. Planning, however, includes consideration of the timing of certain
activities and audit procedures that need to be completed prior to the performance of
further audit procedures.

For example, planning includes the need to consider, prior to the auditor’s identification
and assessment of the risks of material misstatement, such matters as:
a. The analytical procedures to be applied as risk assessment procedures.
b. Obtaining a general understanding of the legal and regulatory framework applicable
to the entity and how the entity is complying with that framework.
c. The determination of materiality.
d. The involvement of experts.
e. The performance of other risk assessment procedures.

Question 2; "An adequate planning benefits the audit of financial statements." Discuss.
Answer 2; Benefits of Planning in the audit of financial statements: Planning an audit
involves establishing the overall audit strategy for the engagement and developing an
audit plan. Adequate planning benefits the audit of financial statements in several ways,
including the following:
a. Helping the auditor to devote appropriate attention to important areas of the audit.
b. Helping the auditor identify and resolve potential problems on a timely basis.
c. Helping the auditor properly organize and manage the audit engagement so that it is
performed in an effective and efficient manner.
d. Assisting in the selection of engagement team members with appropriate levels of
capabilities and competence to respond to anticipated risks, and the proper assignment
of work to them.
e. Facilitating the direction and supervision of engagement team members and the
review of their work.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 130 of 277

f. Assisting, where applicable, in coordination of work done by auditors of components

and experts.

Question 3; CA Vikas Jain discussed with his audit team about advantages and
disadvantages of audit programme. He explained to his team that – “work may become
mechanical” as disadvantage of the audit programme. Discuss explaining the
disadvantages of an audit programme.
Answer 3; Some disadvantages are there in the use of audit programme. The
disadvantages are:
(i) The work may become mechanical and particular parts of the programme may be
carried out without any understanding of the object of such parts in the whole audit
scheme.
(ii) The programme often tends to become rigid and inflexible following set grooves;
the business may change in its operation of conduct, but the old programme may still be
carried on. Changes in staff or internal control may render precaution necessary at
points different from those originally decided upon.
(iii) Inefficient assistants may take shelter behind the programme i.e. defend
deficiencies in their work on the ground that no instruction in the matter is contained
therein.
(iv) A hard and fast audit programme may kill the initiative of efficient and
enterprising assistants.

Question 4; The auditor shall document the overall audit strategy, the audit plan, and
any significant changes made during the audit engagement to the overall audit strategy
or the audit plan, and the reasons for such changes. Explain.
Answer 4; The auditor shall document:
(a) the overall audit strategy;
(b) the audit plan; and
(c) any significant changes made during the audit engagement to the overall audit
strategy or the audit plan, and the reasons for such changes.

The documentation of the overall audit strategy is a record of the key decisions
considered necessary to properly plan the audit and to communicate significant matters
to the engagement team.

For example, the auditor may summarize the overall audit strategy in the form of a
memorandum that contains key decisions regarding the overall scope, timing and
conduct of the audit.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 131 of 277

The documentation of the audit plan is a record of the planned nature, timing and
extent of risk assessment procedures and further audit procedures at the assertion
level in response to the assessed risks. It also serves as a record of the proper
planning of the audit procedures t hat can be reviewed and approved prior to their
performance. The auditor may use standard audit programs and/or audit completion
checklists, tailored as needed to reflect the particular engagement circumstances.

A record of the significant changes to the overall audit strategy and the audit plan, and
resulting changes to the planned nature, timing and extent of audit procedures,
explains why the significant changes were made, and the overall strategy and audit plan
finally adopted for the audit. It also reflects the appropriate response to the
significant changes occurring during the audit.

For instance
The following things should form part of auditor’s documentation:
• A summary of discussions with the entity’s key decision makers
• Documentation of audit committee pre-approval of services, where required
• Audit documentation access letters
• Other communications or agreements with management or those charged with
governance regarding the scope, or changes in scope, of our services • auditor’s report
on the entity’s financial statements.
• Other reports as specified in the engagement agreement (e.g., debt covenant
compliance letter)

Question 5; As a result of unexpected events, changes in conditions, or the audit

evidence obtained from the results of audit procedures, the auditor may need to
modify the overall audit strategy and audit plan. Explain
Answer 5; The auditor shall update and change the overall audit strategy and the
audit plan as necessary during the course of the audit. As a result of unexpected
events, changes in conditions, or the audit evidence obtained from the results of audit
procedures, the auditor may need to modify the overall audit strategy and audit plan
and thereby the resulting planned nature, timing and extent of further audit
procedures, based on the revised consideration of assessed risks. This may be the case
when information comes to the auditor’s attention that differs significantly from the
information available when the auditor planned the audit procedures.
For example, audit evidence obtained through the performance of substantive
procedures may contradict the audit evidence obtained through tests of controls.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 132 of 277

Question 6; “The auditor should plan his work to enable him to conduct an effective
audit in an efficient and timely manner. Plans should be based on knowledge of the
client’s business” Discuss stating clearly the broad points you would be covering in
framing plan to conduct audit in an efficient and effective manner.
Answer 6; “The auditor should plan his work to enable him to conduct an effective
audit in an efficient and timely manner. Plans should be based on knowledge of the
client’s business”.
Plans should be made to cover, among other things:
(a) acquiring knowledge of the client’s accounting systems, policies and internal control
procedures;
(b) establishing the expected degree of reliance to be placed on internal control;
(c) determining and programming the nature, timing, and extent of the audit procedures
to be performed; and
(d) coordinating the work to be performed.

Plans should be further developed and revised as necessary during the course of the
audit.

SA-300, “Planning an Audit of Financial Statements” further expounds this

principle. According to it, planning is not a discrete phase of an audit, but rather
a continual and iterative process that often begins shortly after (or in connection
with) the completion of the previous audit and continues until the completion of the
current audit engagement. The auditor shall establish an overall audit strategy that
sets the scope, timing and direction of the audit, and that guides the development of
the audit plan.

Question 7; The auditor shall plan the nature, timing and extent of direction and
supervision of engagement team members and the review of their work. Explain the
factors due to which above varies.
Answer 7; The auditor shall plan the nature, timing and extent of direction and
supervision of engagement team members and the review of their work. The nature,
timing and extent of the direction and supervision of engagement team members and
review of their work vary depending on many factors, including:
a. The size and complexity of the entity.
b. The area of the audit.
c. The assessed risks of material misstatement
d. The capabilities and competence of the individual team members performing the
audit work.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 133 of 277

Question 8; “In establishing the overall audit strategy, the auditor shall, among other
considerations, ascertain the nature, timing and extent of resources necessary to
perform the engagement” Explain those considerations in detail.
Answer 8; In establishing the overall audit strategy, the auditor shall:
(a) Identify the characteristics of the engagement that define its scope;
(b) Ascertain the reporting objectives of the engagement to plan the timing of the
audit and the nature of the communications required;
(c) Consider the factors that, in the auditor’s professional judgment, are significant in
directing the engagement team’s efforts;
(d) Consider the results of preliminary engagement activities and, where applicable,
whether knowledge gained on other engagements performed by the engagement
partner for the entity is relevant; and
(e) Ascertain the nature, timing and extent of resources necessary to perform the
engagement.

Question 9; In most of the assertions much of the evidence be drawn and each one
should be considered and weighed to ascertain its weight to prove or disprove the
assertion. An auditor picks up evidence from a variety of fields. Analyse and explain
with the help of examples.
Answer 9; In most of the assertions much of the evidence be drawn and each one
should be considered and weighed to ascertain its weight to prove or disprove the
assertion. In this process, an auditor would be in a position to identify the evidence
that brings the highest satisfaction to him about the appropriateness or otherwise of
the assertion.

An auditor picks up evidence from a variety of fields and it is generally of the

following broad types:
(a) Documentary examination,
(b) Physical examination,
(c) Statements and explanation of management, officials and employees,
(d) Statements and explanations of third parties,
(e) Arithmetical calculations by the auditor,
(f) State of internal controls and internal checks,
(g) Inter-relationship of the various accounting data,
(h) Subsidiary and memorandum records,
(i) Minutes,
(j) Subsequent action by the client and by others.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 134 of 277

Example
i. For cash in hand, the best evidence is ‘count’
ii. For investment pledged with a bank, the banker’s certificate.
iii. For verifying assertions about book debts, the client’s ledger invoices, debit notes,
credit notes, monthly accounts statement sent to the customers are all evidence: some
of these are corroborative, other being complementary. In addition, balance
confirmation procedure is often resorted to, to obtain greater satisfaction about the
reliability of the assertion.

The auditor, however, has to place appropriate weight on each piece of evidence and
accordingly should prescribe the priority of verification. It is true that in al l cases one
procedure may not bring the highest satisfaction and it may be dangerous for the
auditor to ignore any evidence that is available. By the word “available” we do not mean
that the evidence available with the client is the only available evidence. The auditor
should know what normally should be available in the context of the transaction having
regard to the circumstances and usage.

Question 10; In establishing overall audit strategy, the auditor shall ascertain the
reporting objectives of the engagement to plan the timing of the audit and the nature
of the communications required. Elucidate those cases by which auditor can ascertain
the reporting objectives of the engagement.
Answer 10; In establishing the overall audit strategy, auditor shall ascertain the
reporting objectives of the engagement to plan the timing of the audit and the nature
of the communications required. The cases by which auditor can ascertain the reporting
objectives of the engagement are:
(i) The entity’s timetable for reporting, such as at interim and final stages.
(ii) The organization of meetings with management and those charged with governance
to discuss the nature, timing and extent of the audit work.
(iii) The discussion with management and those charged with governance regarding the
expected type and timing of reports to be issued and other communications, both
written and oral, including the auditor’s report, management letters and communications
to those charged with governance.
(iv) The discussion with management regarding the expected communications on the
status of audit work throughout the engagement.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 135 of 277

Question 11; Overall audit strategy sets the scope, timing and direction of the audit,
and guides the development of the more detailed audit plan. The process of
establishing the overall.
Answer 11; The auditor shall establish an overall audit strategy that sets the scope,
timing and direction of the audit, and that guides the development of the audit plan.
The process of establishing the overall audit strategy assists the auditor to
determine, subject to the completion of the auditor’s risk assessment procedures, such
matters as:
1. The resources to deploy for specific audit areas, such as the use of appropriately
experienced team members for high risk areas or the involvement of experts on
complex matters;
2. The amount of resources to allocate to specific audit areas, such as the number of
team members assigned to observe the inventory count at material locations, the
extent of review of other auditors’ work in the case of group audits, or the audit
budget in hours to allocate to high risk areas;
3. When these resources are to be deployed, such as whether at an interim audit stage
or at key cutoff dates; and
4. How such resources are managed, directed and supervised, such as when team
briefing and debriefing meetings are expected to be held, how engagement partner and
manager reviews are expected to take place (for example, on-site or off-site), and
whether to complete engagement quality control reviews.

In establishing the overall audit strategy, the auditor shall

• Ascertain the nature, timing and extent of resources necessary to perform the
engagement.

Example
▪ The selection of engagement team and the assignment of audit work to the team
members, including the assignment of appropriately experienced team members to
areas where there may be higher risks of material misstatement.

▪ Engagement budgeting, including considering the appropriate amount of time to set

aside for areas where there may be higher risks of material misstatement.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 136 of 277

Question 12; Evolving one audit programme applicable to all business under all
circumstances is not practicable. Explain clearly stating in detail the meaning of audit
programmer.
Answer 12; Businesses vary in nature, size and composition; work which is suitable to
one business may not be suitable to others; efficiency and operation of internal
controls and the exact nature of the service to be rendered by the auditor are the
other factors that vary from assignment to assignment. On account of such variations,
evolving one audit programmer applicable to all business under all circumstances is not
practicable. However, it becomes a necessity to specify in detail in the audit
programmer the nature of work to be done so that no time will be wasted on matters
not pertinent to the engagement and any special matter or any specific situation can be
taken care of.

It is desirable that in respect of each audit and more particularly for bigger audits an
audit programmer should be drawn up. Audit programmer is a list of examination and
verification steps to be applied and set out in such away that the inter-relationship of
one step to another is clearly shown and designed, keeping in view the assertions
discernible in the statements of account produced for audit or on the basis of an
appraisal of the accounting records of the client.

Definition: An audit programme consists of a series of verification procedures to be

applied to the financial statements and accounts of a given company for the purpose of
obtaining sufficient evidence to enable the auditor to express an informed opinion on
such statements.

In other words, an audit programmer is a detailed plan of applying the audit procedures
in the given circumstances with instructions for the appropriate techniques to be
adopted for accomplishing the audit objectives.

Question 13; Briefly discuss the special points that should be kept in mind as an
auditor for developing an audit program.
Answer 13; Developing the Audit Programme:
A. Written Audit Programme: The auditor should prepare a written audit program me
setting forth the procedures that are needed to implement the audit plan.

B. Audit Objective and Instruction to Assistants: The program me may also contain
the audit objectives for each area and should have sufficient details to serve as a set
of instructions to the assistants involved in the audit and as a means to control the
proper execution of the work.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 137 of 277

C. Reliance on Internal Controls: In preparing the audit program me, the auditor,
having an understanding of the accounting system and related internal controls, may
wish to rely on certain internal controls in determining the nature, timing and extent of
required auditing procedures. The auditor may conclude that relying on certain internal
controls is an effective and efficient way to conduct his audit. However, the auditor
may decide not to rely on internal controls when there are other more efficient ways of
obtaining sufficient appropriate audit evidence. The auditor should also consider the
timing of the procedures, the coordination of any assistance expected from the client,
the availability of assistants, and the involvement of other auditors or experts.

D. Timings of Performance of Audit Procedures: The auditor normally has flexibility

in deciding when to perform audit procedures. However, in some cases, the auditor may
have no discretion as to timing, for example, when observing the taking of inventories
by client personnel or verifying the securities and cash balances at the year-end.

E. Audit Planning: The audit planning ideally commences at the conclusion of the
previous year’s audit, and along with the related program me, it should be reconsidered
for modification as the audit progresses. Such consideration is based on the auditor’s
review of the internal control, his preliminary evaluation thereof, and the results of his
compliance and substantive procedures.

Question 14; The utility of the audit programme can be retained and enhanced only by
keeping the programme as also the client’s operations and internal control under
periodic review so that inadequacies or redundancies of the programmer may be
removed. Explain.
Answer 14; Periodic Review of the Audit Programme
There should be periodic review of the audit program me to assess whether the same
continues to be adequate for obtaining requisite knowledge and evidence about the
transactions. Unless this is done, any change in the business policy of the client may not
be adequately known, and consequently, audit work may be carried on, on the basis of an
obsolete program me and, for this negligence, the whole audit may be held as
negligently conducted and the auditor may have to face legal consequences.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 138 of 277

Question 15; The audit plan includes the nature, timing and extent of audit procedures
to be performed by engagement team members. Explain.?
Answer 15; The auditor shall develop an audit plan that shall include a description
of
(a) The nature, timing and extent of planned risk assessment procedures, as
determined under SA 315 “Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and Its Environment”.
(b) The nature, timing and extent of planned further audit procedures at the assertion
level, as determined under SA 330 “The Auditor’s Responses to Assessed Risks”.
(c) Other planned audit procedures that are required to be carried out so that the
engagement complies with SAs. The audit plan is more detailed than the overall audit
strategy that includes the nature, timing and extent of audit procedures to be
performed by engagement team members. Planning for these audit procedures takes
place over the course of the audit as the audit plan for the engagement develops.

Example;
Planning of the auditor’s risk assessment procedures occurs early in the audit process.
However, planning the nature, timing and extent of specific further audit procedures
depends on the outcome of those risk assessment procedures. In addition, the auditor
may begin the execution of further audit procedures for some classes of transactions,
account balances and disclosures before planning all remaining further audit
procedures.

Question 16; In establishing the overall audit strategy, the auditor shall identify the
characteristics of the engagement that define its scope. Explain with example?
Answer 16; In establishing the overall audit strategy, the auditor shall Identify the
characteristics of the engagement that define its scope.
For Example:
• The expected audit coverage, including the number and locations of components to be
included.
• The nature of the business segments to be audited, including the need for specialized
knowledge.
• The expected use of audit evidence obtained in previous audits, for example, audit
evidence related to risk assessment procedures and tests of controls.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 139 of 277

Question 17; Explain what do you mean by documentation of audit plan. Discuss the
purpose served by it and also elaborate the tools used by the auditor to reflect the
particular engagement circumstances.
Answer 17; The documentation of the audit plan is a record of the planned nature,
timing and extent of risk assessment procedures and further audit procedures at the
assertion level in response to the assessed risks. It also serves as a record of the
proper planning of the audit procedures that can be reviewed and approved prior to
their performance.
The auditor may use standard audit programs and/or audit completion checklists,
tailored as needed to reflect the particular engagement circumstances.

Question 18; Your firm has been appointed as an auditor to audit the accounts of an
auto parts manufacturer, ABC LTD. Elucidate the matters to be considered by an
auditor in developing his overall plan for the expected scope and conduct of audit.
Answer 18; Development of an Overall Plan: The auditor should consider the
following matters in developing his overall plan for the expected scope and conduct of
the audit-
a) The terms of his engagement and any statutory responsibilities.
b) The nature and timing of reports or other communication.
c) The applicable legal or statutory requirements.
d) The accounting policies adopted by the client and changes in those policies.
e) The effect of new accounting or auditing pronouncements on the audit.
f) The identification of significant audit areas.
g) The setting of materiality levels for audit purposes.
h) Conditions requiring special attention, such as the possibility of material error or
fraud or the involvement of parties in whom directors or persons who are substantial
owners of the entity are interested and with whom transactions are likely.
i) The degree of reliance he expects to be able to place on accounting system and
internal control.
j) Possible rotation of emphasis on specific audit areas.
k) The nature and extent of audit evidence to be obtained.
l) The work of internal auditors and the extent of their involvement, if any, in the audit.
m) The involvement of other auditors in the audit of subsidiaries or branches of the
client.
n) The involvement of experts.
o) The allocation of work to be undertaken between joint auditors and the procedures
for its control and review. Establishing and coordinating staffing requirements.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 140 of 277

Question 19; Discuss the points to be considered by auditor for the purpose of
constructing an audit program me.
Answer 19; For the purpose of audit programme construction, CA X should keep in
mind the following points:
(a) Stay within the scope and limitation of the assignment.
(b) Prepare a written audit programme setting forth the procedures that are needed to
implement the audit plan.
(c) Determine the evidence reasonably available and identify the best evidence for
deriving the necessary satisfaction.
(d) Apply only those steps and procedures which are useful in accomplishing the
verification purpose in the specific situation.
(e) Include the audit objectives for each area and sufficient details which serve as a
set of instructions for the assistants involved in audit and help in controlling the proper
execution of the work.
(f) Consider all possibilities of error.
(g) Co-ordinate the procedures to be applied to related items.

Question 20; Without adequate knowledge of client’s business, a proper audit is not
possible. It is one of the important principles in developing an overall audit plan. Explain
in context with relevant SA, knowledge to be obtained by the auditor in establishing
overall plan. Also explain how such an understanding would be helpful to the auditor.
Answer 20; Without adequate knowledge of client’s business, a proper audit is not
possible. It is one of the important principles in developing an overall audit plan. As per
SA-315, “Identifying and Assessing the Risk of Material Misstatement through
Understanding the Entity and Its Environment”, the auditor shall obtain an
understanding of the following:
(a) Relevant industry, regulatory and other external factors including the applicable
financial reporting framework.

(b) The nature of the entity, including:

(i) its operations;
(ii) its ownership and governance structures;
(iii) the types of investments that the entity is making and plans to make, including
investments in special-purpose entities; and
(iv) the way that the entity is structured and how it is financed; to enable the auditor
to understand the classes of transactions, account balances, and disclosures to be
expected in the financial statements.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 141 of 277

(c) The entity’s selection and application of accounting policies, including the reasons
for changes thereto. The auditor shall evaluate whether the entity’s accounting policies
are appropriate for its business and consistent with the applicable financial reporting
framework and accounting policies used in the relevant industry.

(d) The entity’s objectives and strategies, and those related business risks that may
result in risks of material misstatement.

(e) The measurement and review of the entity’s financial performance.

In addition to the importance of knowledge of the client’s business in establishing the

overall audit plan, such knowledge helps the auditor to identify areas of special audit
consideration, to evaluate the reasonableness both of accounting estimates and
management representations and to make judgements regarding the appropriateness of
accounting policies and disclosures.

Question 21; Without adequate knowledge of client’s business, a proper audit is not
possible. The auditor shall obtain an understanding of the entity’s objectives and
strategies, and those related business risks that may result in risks of material
misstatement. Explain giving examples.
Answer 21; Knowledge of the client’s business is one of the important principles in
developing an overall audit plan. In fact without adequate knowledge of client’s
business, a proper audit is not possible. As per SA-315, “Identifying and Assessing
the Risk of Material Misstatement through Understanding the Entity and Its
Environment”, the auditor shall obtain an understanding of the entity’s objectives and
strategies, and those related business risks that may result in risks of material
misstatement.

Example
A. If one of management’s objectives is to grow the business, management may develop
a strategy of steady but regular growth through specific marketing campaigns and
development of new markets. Alternatively, management may develop a more
aggressive, complex strategy of acquiring competitors. Each of these strategies gives
rise to differing business risks and potentially differing risks of material
misstatement.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 142 of 277

B. Examples of potential business risks include:

(i) Failure to keep up to date with new products, technologies or services.
(ii) Excessive reliance on a key supplier, product or individual, such as the owner.
(iii) Lack of personnel with expertise to react to changes in the industry.
(iv) Insufficient or excessive production capacity caused by inaccurate estimation of
demand. Loss of financing due to the entity’s inability to meet financial covenants.

Question 22; CA L is in the process of finalizing his Risk Assessment Procedures of

Effluent Limited which include observation and inspection that may support inquiries of
management and others. Discuss few examples of audit procedures which include
observation or inspection of the entity's operations.
Answer 22; Observation and inspection may support inquiries of management and
others, and may also provide information about the entity and its environment.
Examples of audit procedures which include observation or inspection of the
entity’s operations are:
(A) Documents (such as business plans and strategies), records, and internal control
manuals.
(B) Reports prepared by management (such as quarterly management reports and
interim financial statements) and those charged with governance (such as minutes of
board of director’s meetings)
(C) The entity’s premises and plant facilities

Question 23; Knowledge of the Client’s business is one of the important principles in
developing an overall audit plan. In fact, without adequate knowledge of client’s
business, a proper audit is not possible. As per SA-315, “Identifying and Assessing the
Risk of Material Misstatement through Understanding the Entity and Its Environment”,
the auditor shall obtain an understanding of the relevant industry, regulatory and other
external factors including the applicable financial reporting framework. Substantiate
with the help of examples.
Answer 23; As per SA-315, “Identifying and Assessing the Risk of Material
Misstatement through Understanding the Entity and Its Environment”, the auditor
shall obtain an understanding of the relevant industry, regulatory and other external
factors including the applicable financial reporting framework.
For Example
• The competitive environment, including demand, capacity, product and price
competition as well as cyclical or seasonal activity.
• Supplier and customer relationships, such as types of suppliers and customers (e.g.,
related parties, unified buying groups) and the related contracts with those entities.
• Technological developments, such as those related to the entity’s products
• Energy supply and cost.
• The effect of regulation on entity operations.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 143 of 277

Question 24; Analytical procedures performed as risk assessment procedures may

identify aspects of the entity of which the auditor was unaware and may assist in
assessing the risks of material misstatement in order to provide a basis for designing
and implementing responses to the assessed risks. Explain in detail.
Answer 24; Analytical procedures performed as risk assessment procedures may
identify aspects of the entity of which the auditor was unaware and may assist in
assessing the risks of material misstatement in order to provide a basis for designing
and implementing responses to the assessed risks. Analytical procedures performed as
risk assessment procedures may include both financial and non-financial information,
for example, the relationship between sales and square footage of selling space or
volume of goods sold.

Analytical procedures may help identify the existence of unusual transactions or

events, and amounts, ratios, and trends that might indicate matters that have audit
implications. Unusual or unexpected relationships that are identified may assist the
auditor in identifying risks of material misstatement, especially risks of material
misstatement due to fraud.

However, when such analytical procedures use data aggregated at a high level (which
may be the situation with analytical procedures performed as risk assessment
procedures), the results of those analytical procedures only provide a broad initial
indication about whether a material misstatement may exist. Accordingly, in such cases,
consideration of other information that has been gathered when identifying the risks
of material misstatement together with the results of such analytical procedures may
assist the auditor in understanding and evaluating the results of the analytical
procedures.

Question 25; Evidence is the very basis for formulation of opinion and an audit
programme is designed to provide for that by prescribing procedures and Analyse and
explain with the help of example of evidence in respect of Sales.
Answer 25; Evidence is the very basis for formulation of opinion and an audit program
me is designed to provide for that by prescribing procedures and techniques. What is
best evidence for testing the accuracy of any assertion is a matter of expert
knowledge and experience. This is the primary task before the auditor when he draws
up the audit program me. Transactions are varied in nature and impact; procedures to
be prescribed depend on prior knowledge of what evidence is reasonably available in
respect of each transaction.

Example Sales are evidenced by:

(i) invoices raised by the client;
(ii) price list;

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 144 of 277

(iii) forwarding notes to client;

(iv) inventory-issue records;
(v) sales managers’ advice to the inventory section;
(vi) acknowledgements of the receipt of goods by the customers; and collection of
money against sales by the client. explain with the help of example of evidence in
respect of Sales.

Question 26; Plans should be further developed and revised as necessary during the
course of the audit. Explain.
Answer 26; Plans should be further developed and revised as necessary during the
course of the audit.
SA-300, “Planning an Audit of Financial Statements” further expounds
this principle.
According to it, planning is not a discrete phase of an audit, but rather a continual and
iterative process that often begins shortly after (or in connection with) the completion
of the previous audit and continues until the completion of the current audit
engagement. The auditor shall establish an overall audit strategy that sets the scope,
timing and direction of the audit, and that guides the development of the audit plan.

Question 27; Much of the information obtained by the auditor’s inquiries is obtained
from management and those responsible for financial reporting. However, the auditor
may also obtain information, or a different perspective in identifying risks of material
misstatement, through inquiries of others within the entity and other employees with
different levels of authority. Explain with the help of examples.
Answer 27; Inquiries of Management and Others Within the Entity:
Much of the information obtained by the auditor’s inquiries is obtained from
management and those responsible for financial reporting. However, the auditor may
also obtain information, or a different perspective in identifying risks of material
misstatement, through inquiries of others within the entity and other employees with
different levels of authority.

Examples
 Inquiries directed towards those charged with governance may help the auditor
understand the environment in which the financial statements are prepared.
 Inquiries directed toward internal audit personnel may provide information about
internal audit procedures performed during the year relating to the design and
effectiveness of the entity’s internal control and whether management has
satisfactorily responded to findings from those procedures.
 Inquiries of employees involved in initiating, processing or recording complex or
unusual transactions may help the auditor to evaluate the appropriateness of the
selection and application of certain accounting policies.
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 145 of 277

 Inquiries directed toward in-house legal counsel may provide information about such
matters as litigation, compliance with laws and regulations, knowledge of fraud or
suspected fraud affecting the entity, warranties, post- sales obligations, arrangements
(such as joint ventures) with business partners and the meaning of contract terms.
 Inquiries directed towards marketing or sales personnel may provide information
about changes in the entity’s marketing strategies, sales trends, or contractual
arrangements with its customers.
 Inquiries directed to the risk management function (or those performing such roles)
may provide information about operational and regulatory risks that may affect
financial reporting.
 Inquiries directed to information systems personnel may provide information about
system changes, system or control failures, or other information system- related risks.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 146 of 277

IMPORTANT QUESTION LIST CHP10

Question 1; The engagement team of FRN & Co.- Auditors of Bank of Baroda held
discussions to gain better understanding of the bank and its environment, including
internal control, and also to assess the potential for material misstatements of the
financial statements. The discussion between the members of the engagement team
and the audit engagement partner are being done on the susceptibility of the bank’s
financial statements to material misstatements. These discussions are ordinarily done
at the planning stage of an audit. Analyse and Advise the matters to be discussed in the
engagement team discussion.
Answer 1; The engagement team should hold discussions to gain better understanding
of the bank and its environment, including internal control, and also to assess the
potential for material misstatements of the financial statements. All these discussions
should be appropriately documented for future reference. The discussion provides:
• An opportunity for more experienced engagement team members, including the audit
engagement partner, to share their insights based on their knowledge of the bank and
its environment.
• An opportunity for engagement team members to exchange information about the
bank’s business risks.
• An understanding amongst the engagement team members about effect of the results
of the risk assessment procedures on other aspects of the audit, including decisions
about the nature, timing, and extent of further audit procedures.

The discussion between the members of the engagement team and the audit
engagement partner should be done on the susceptibility of the bank’s financial
statements to material misstatements. These discussions are ordinarily done at the
planning stage of an audit.

The engagement team discussion ordinarily includes a discussion of the following

matters:
- Errors that may be more likely to occur;
- Errors which have been identified in prior years;
- Method by which fraud might be perpetrated by bank personnel or others within
particular account balances and/or disclosures; - Audit responses to Engagement Risk,
Pervasive Risks, and Specific Risks;
- Need to maintain professional skepticism throughout the audit engagement;
- Need to alert for information or other conditions that indicates that a material
misstatement may have occurred (e.g., the bank’s application of accounting policies in
the given facts and circumstances).

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 147 of 277

Question 2; In the case of a nationalised bank, the auditor is required to make a

report to the Central Government. The report of auditors of State Bank of India is
also to be made to the Central Government and is almost identical to the auditor’s
report in the case of a nationalised bank. Explain what would the auditor state in his
report.
Answer 2; In the case of a nationalised bank, the auditor is required to make a report
to the Central Government in which he has to state the following:
(a) whether, in his opinion, the balance sheet is a full and fair balance sheet containing
all the necessary particulars and is properly drawn up so as to exhibit a true and fair
view of the affairs of the bank, and in case he had called for any explanation or
information, whether it has been given and whether it is satisfactory;
(b) whether or not the transactions of the bank, which have come to his notice, have
been within the powers of that bank;
(c) whether or not the returns received from the offices and branches of the bank
have been found adequate for the purpose of his audit;
(d) whether the profit and loss account shows a true balance of profit or loss for the
period covered by such account; and
(e) any other matter which he considers should be brought to the notice of the Central
Government.

The report of auditors of State Bank of India is also to be made to the Central
Government and is almost identical to the auditor’s report in the case of a nationalized
bank.

Question 3; Your firm of Chartered Accountants has been appointed as the Auditor of
two branches of OBC which are located in the Industrial area. Considering that the
location of the branches of bank in industrial area, these would be “advances oriented
branches and audit of advances would require the major attention of the auditors.
Advise how would you proceed to obtain evidence in respect of audit of advances.
Answer 3; (a) Audit of Advances: Advances generally constitute the major part of
the assets of the bank. There are large number of borrowers to whom variety of
advances are granted. The audit of advances requires the major attention from the
auditors. In carrying out audit of advances, the auditor is primarily concerned with
obtaining evidence about the following:
a. Amounts included in balance sheet in respect of advances are outstanding at the
date of the balance sheet.
b. Advances represent amount due to the bank.
c. Amounts due to the bank are appropriately supported by Loan documents and other
documents as applicable to the nature of advances.
d. There are no unrecorded advances.
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 148 of 277

e. The stated basis of valuation of advances is appropriate and properly applied, and
that the recoverability of advances is recognised in their valuation.
f. The advances are disclosed, classified and described in accordance with recognised
accounting policies and practices and relevant statutory and regulatory requirements.
g. Appropriate provisions towards advances have been made as per the RBI norms,
Accounting Standards and generally accepted accounting practices.

(b) The auditor can obtain sufficient appropriate audit evidence about advances by
study and evaluation of internal controls relating to advances, and by:
 examining the validity of the recorded amounts;
 examining loan documentation;
 reviewing the operation of the accounts;
 examining the existence, enforceability and valuation of the security;
 checking compliance with RBI norms including appropriate classification and
provisioning; and
 carrying out appropriate analytical procedures.

In carrying out his substantive procedures, the auditor should examine all large
advances while other advances may be examined on a sampling basis. The accounts
identified to be problem accounts however need to be examined in detail unless the
amount involved is insignificant.

Advances which are sanctioned during the year or which are adversely commented by
RBI inspection team, concurrent auditors, bank’s internal inspection, etc. should
generally be included in the auditor’s review.

Question 4; Your firm of Chartered Accountants has been appointed as auditor of a

Nationalised bank. Explain how will you proceed to carry out audit of provisions and
contingencies.
Answer 4; For audit of Provisions and contingencies, the auditor should ensure that
the compliances for various regulatory requirements for provisioning as contained in
the various circulars have been fulfilled.
The auditor should obtain an understanding as to how the bank computes provision on
standard assets and non-performing assets. It will primarily include checking the basis
of classification of loans and receivables into standard, sub-standard, doubtful, loss
and non- performing assets.
The auditor may verify the loan classification on a sample basis.
The auditor should obtain the detailed break up of standard loans, non-performing
loans and agree the outstanding balances with the general ledger.
The auditor should obtain the tax provision computation from the bank’s management

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 149 of 277

and verify the nature of items debited and credited to profit and loss account to
ascertain that the same are appropriately considered in the tax provision computation.
The other provisions for expenses should be examined vis-a-vis the circumstances
warranting the provisioning and the adequacy of the same by discussing and obtaining
the explanations from the bank’s management.

Question 5; Mr. A approaches a bank for financial assistance for his upcoming project.
The Bank Branch Manager, after verifying the proposal, is agreeable to financing Mr. A,
but asks for the security to be offered to the bank. Discuss the nature of securities
required to be offered to the bank.
Answer 5; Banks ask Security or Collateral while lending to assure that the Borrower
will return the money to bank in prescribed time else the Banks have legal authority to
sell the collateral to recover its money.
Nature of Security
A. Primary security refers to the security offered by the borrower for bank finance
or the one against which credit has been extended by the bank. This security is the
principal security for an advance.
B. Collateral security is an additional security. Security can be in any form i.e. tangible
or intangible asset, movable or immovable asset.

Examples of most common types of securities accepted by banks are the following:
• Personal Security of Guarantor
• Goods/Stocks/Debtors/Trade Receivables
• Gold Ornaments and Bullion
• Immovable Property
• Plantations (For Agricultural Advances)
• Third Party Guarantees
• Banker’s General Lien
• Life Insurance Policies
• Stock Exchange Securities and Other Instruments

Question 6; The discussion between members of the engagement team members and
the audit engagement partner should be done on the susceptibility of the bank's
financial statements to material misstatements. Briefly discuss the points ordinarily
included in discussion of the engagement team.
Answer 6; The engagement team discussion ordinarily includes a discussion of the
following matters:
(i) Errors that may be more likely to occur;
(ii) Errors which have been identified in prior years;

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 150 of 277

(iii) Method by which fraud might be perpetrated by bank personnel or others within
particular account balances and / or disclosure;
(iv) Audit responses to engagement risk, pervasive risks and specific risks;
(v) Need to maintain professional skepticism throughout the audit engagement,
(vi) Need to alert for information or other conditions that indicates that a material
misstatement may have occurred (e.g. the bank’s application of accounting policies in
the given facts and circumstances).

Question 7; Explain "Advances under Consortium" in the context of Prudential Norms

on Income Recognition, Asset Classification and Provisioning pertaining to Advances.
Answer 7; Advances under Consortium: Consortium advances should be based on the
record of recovery of the respective individual member banks and other aspects having
a bearing on the recoverability of the advances. Where the remittances by the
borrower under consortium lending arrangements are pooled with one bank and/or
where the bank receiving remittances is not parting with the share of other member
banks, the account should be treated as not serviced in the books of the other member
banks and therefore, an NPA.

The banks participating in the consortium, therefore, need to arrange to get their
share of recovery transferred from the lead bank or to get an express consent from
the lead bank for the transfer of their share of recovery, to ensure proper asset
classification in their respective books.

Question 8; Explain the audit approach you would follow to check the Operating
Expenses of a Bank.
Answer 8; Auditing the Operating Expenses of a Bank:
(i) Internal Controls: The auditor should study and evaluate the system of internal
control relating to expenses, including authorization procedures in order to determine
the nature, timing and extent of his other audit procedures.
(ii) Divergent Trends: The auditor should examine whether there are any divergent
trends in respect of major items of expenses.
(iii) Substantive analytical Procedures: The auditor should perform substantive
analytical procedures in respect of these expenses. eg. assess the reasonableness of
expenses by working out their ratio to total operating expenses and comparing it with
the corresponding figures for previous years.
(iv) Vouching & Verification: The auditor should also verify expenses with reference
to supporting documents and check the calculations wherever required.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 151 of 277

Question 9; Mr Rishikesh, the Bank Manager develops controls to assist in managing

key business and financial risks. Discuss the various requirements for an effective risk
management system in a bank.
Answer 9; Understanding the Risk Management Process: Management develops controls
and uses performance indicators to aid in managing key business and financial risks. An
effective risk management system in a bank generally requires the following:
(i) Oversight and involvement in the control process by those charged with
governance: Those charged with governance (Board of Directors/Managing Director)
should approve written risk management policies. The policies should be consistent with
the bank’s business objectives and strategies, capital strength, management expertise,
regulatory requirements and the types and amounts of risk it regards as acceptable.
(ii) Identification, measurement and monitoring of risks: Risks that could
significantly impact the achievement of bank’s goals should be identified, measured and
monitored against pre-approved limits and criteria.
(iii) Control activities: A bank should have appropriate controls to mitigate its risks
including effective segregation of duties (particularly between front and back offices),
accurate measurement and reporting of positions, verification and approval of
transactions, reconciliation of positions and results, setting up limits, reporting and
approval of exceptions, physical security and contingency planning.
(iv) Monitoring activities: Risk management models, methodologies and assumptions
used to measure and mitigate risk should be regularly assessed and updated. This
function may be conducted by the independent risk management unit.
(v) Reliable information systems: Banks require reliable information systems that
provide adequate financial, operational and compliance information on a timely and
consistent basis. Those charged with governance and management require risk
management information that is easily understood and that enables them to assess the
changing nature of the bank’s risk profile.

Question 10; When is an agricultural advance considered as non performing as per the
RBI guidelines?
Answer 10; As per the guidelines, Agricultural Advances are of two types:
(i) Agricultural Advances for “long duration” crops; and
(ii) Agricultural Advances for “short duration” crops.

The “long duration” crops would be crops with crop season longer than one year and
crops, which are not “long duration” crops would be treated as “short duration” crops.

The crop season for each crop, which means the period up to harvesting of the crops
raised, would be as determined by the State Level Bankers’ Committee in each State.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 152 of 277

The following NPA norms would apply to agricultural advances (including Crop Term
Loans):
• A loan granted for short duration crops will be treated as NPA, if the instalment of
principal or interest thereon remains overdue for two crop seasons; and
• A loan granted for long duration crops will be treated as NPA, if the instalment of
principal or interest thereon remains overdue for one crop season.

Question 11; Explain hypothecation and assignment as the modes of creation of

security with respect to advance granted by a bank.
Answer 11; Hypothecation:
The hypothecation is the creation of an equitable charge (i.e., a charge created not by
an express enactment but by equity and reason), which is created in favor of the
lending bank by execution of hypothecation agreement in respect of the moveable
securities belonging to the borrower.

Neither ownership nor possession is transferred to the bank. However, the borrower
holds the physical possession of the goods as an agent/trustee of the bank. The
borrower periodically submits statements regarding quantity and value of hypothecated
assets (stocks, debtors, etc.) to the lending banker on the basis of which the drawing
power of the borrower is fixed.

Assignment:
Assignment represents a transfer of an existing or future debt, right or property
belonging to a person in favor of another person. Only actionable claims (i.e., claim to
any debt other than a debt secured by a mortgage of immovable property or by
hypothecation or pledge of moveable property) such as book debts and life insurance
policies are accepted by banks as security by way of assignment. An assignment gives
the assignee absolute right over the moneys/debts assigned to him.

Question 12; The auditor should examine the efficacy of various internal controls over
advances to determine the nature, timing and extent of his substantive procedures.
Explain this statement.
Answer 12; Evaluation of Internal Controls over Advances: The auditor should
examine the efficacy of various internal controls over advances to determine the
nature, timing and extent of his substantive procedures. In general, the internal
controls over advances should include, inter alia, the following:
• The bank should make an advance only after satisfying itself as to the credit
worthiness of the borrower and after obtaining sanction from the appropriate
authorities of the bank.
• All the necessary documents (e.g., agreements, demand promissory notes, letters of

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 153 of 277

hypothecation, etc.) should be executed by the parties before advances are made.
• The compliance with the terms of sanction and end use of funds should be ensured.
• Sufficient margin as specified in the sanction letter should be kept against securities
taken so as to cover for any decline in the value thereof. The availability of sufficient
margin needs to be ensured at regular intervals.
• If the securities taken are in the nature of shares, debentures, etc., the ownership
of the same should be transferred in the name of the bank and the effective control of
such securities be retained as a part of documentation.
• All securities requiring registration should be registered in the name of the bank or
otherwise accompanied by documents sufficient to give title to the bank.
• In the case of goods in the possession of the bank, contents of the packages should
be test checked at the time of receipt. The godowns should be frequently inspected by
responsible officers of the branch concerned, in addition to the inspectors of the bank.
• Drawing Power Register should be updated every month to record the value of
securities hypothecated. These entries should be checked by an officer.
• The accounts should be kept within both the drawing power and the sanctioned limit.
• All the accounts which exceed the sanctioned limit or drawing power or are otherwise
irregular should be brought to the notice of the controlling authority regularly.
• The operation of each advance account should be reviewed at least once a year and at
more frequent intervals in the case of large advances.

Question 13; In view of the significant uncertainty regarding ultimate collection of

income arising in respect of nonperforming assets, the guidelines require that banks
should not recognize income on non-performing assets until it is actually realized. When
a credit facility is classified as non-performing for the first time, interest accrued and
credited to the income account in the corresponding previous year which has not been
realized should be reversed or provided for. This will apply to Government guaranteed
accounts also. Analyse and Explain.
Answer 13; Reversal of Income
If any advance, including bills purchased and discounted, becomes NPA as at the close
of any year, the entire interest accrued and credited to income account in the past
periods, should be reversed or provided for if the same is not realized. This will apply
to Government guaranteed accounts also. In respect of NPAs, fees, commission and
similar income that have accrued should cease to accrue in the current period and
should be reversed or provided for with respect to past periods, if uncollected.
Further, in case of banks which have wrongly recognized income in the past should
reverse the interest if it was recognized as income during the current year or make a
provision for an equivalent amount if it was recognized as income in the previous
year(s).

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 154 of 277

Furthermore, the auditor should enquire if there are any large debits in the Interest
Income account that have not been explained. It should be enquired whether there are
any communications from borrowers pointing out differences in interest charge and
whether appropriate action has been taken in this regard.

Question 14; Depending on the nature of the item concerned, creation of security may
take the form of a mortgage, pledge, hypothecation, assignment, set-off or lien. Explain
with specific reference to Audit of Banks.
Answer 14; Depending on the nature of the item concerned, creation of security may
take the form of a mortgage, pledge, hypothecation, assignment, set-off or lien.

(i) Mortgage: Mortgage are of several kinds but the most important are the
Registered Mortgage and the Equitable Mortgage.
• Registered Mortgage can be affected by a registered instrument called the
‘Mortgage Deed’ signed by the mortgagor. It registers the property to the mortgagee
as a security.
• Equitable mortgage, on the other hand, is effected by a mere delivery of title deeds
or other documents of title with intent to create security thereof.

(ii) Pledge: A pledge thus involves bailment or delivery of goods by the borrower to the
lending bank with the intention of creating a charge thereon as security for the
advance. The legal ownership of the goods remains with the pledger while the lending
banker gets certain defined interests in the goods. The pledge of goods constitutes a
specific (or fixed) charge.

(iii) Hypothecation: The hypothecation is the creation of an equitable charge (i.e., a

charge created not by an express enactment but by equity and reason), which is
created in favour of the lending bank by execution of hypothecation agreement in
respect of the moveable securities belonging to the borrower.

Neither ownership nor possession is transferred to the bank. However, the borrower
holds the physical possession of the goods as an agent/trustee of the bank.

The borrower periodically submits statements regarding quantity and value of

hypothecated assets (stocks, debtors, etc.) to the lending banker on the basis of which
the drawing power of the borrower is fixed.

(iv) Assignment: Assignment represents a transfer of an existing or future debt, right

or property belonging to a person in favor of another person. Only actionable claims
(i.e., claim to any debt other than a debt secured by a mortgage of immovable property

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 155 of 277

or by hypothecation or pledge of moveable property) such as book debts and life

insurance policies are accepted by banks as security by way of assignment. An
assignment gives the assignee absolute right over the moneys/debts assigned to him.

(v) Set-off: Set-off is a statutory right of a creditor to adjust, wholly or partly, the
debit balance in the debtor’s account against any credit balance lying in another
account of the debtor. The right of setoff enables a bank to combine two accounts (a
deposit account and a loan account) of the same person provided both the accounts are
in the same name and same right (i.e., the capacity of the account holder in both the
accounts should be the same).

For the purpose of set-off, all the branches of a bank are treated as one single entity.
The right of set-off can be exercised in respect of time-barred debts also.

(vi) Lien: Lien is creation of a legal charge with consent of the owner, which gives
lender a legal right to seize and dispose / liquidate the asset under lien.

Question 15; Your firm of auditors, SRG & Co., has been appointed as Statutory
Central Auditors of Reliable Bank. Explain the reporting requirements of the Statutory
Central Auditors (SCAs) in addition to their main audit report.
Answer 15; Presently, the Statutory Central Auditors (SCAs) have to furnish the
following reports in addition to their main audit report:
i. Report on adequacy and operating effectiveness of Internal Controls over Financial
Reporting in case of banks which are registered as companies under the Companies Act
in terms of Section 143(3)(I) of the Companies Act, 2013 which is normally to be given
as an Annexure to the main audit report as per the Guidance Note on Audit of Internal
Financial Controls over Financial Reporting issued by the ICAI.

ii. Long Form Audit Report. (LFAR)

iii. Report on compliance with SLR requirements.

iv. Report on whether the treasury operations of the bank have been conducted in
accordance with the instructions issued by the RBI from time to time.

v. Report on whether the income recognition, asset classification and provisioning have
been made as per the guidelines issued by the RBI from time to time.

vi. Report on whether any serious irregularity was noticed in the working of the bank
which requires immediate attention.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 156 of 277

vii. Report on status of the compliance by the bank with regard to the implementation
of recommendations of the Ghosh Committee relating to frauds and malpractices and
of the recommendations of Jelani Committee on internal control and inspection/credit
system.

viii. Report on instances of adverse credit-deposit ratio in the rural areas.

Question 16; The engagement team discussion ordinarily includes a discussion of the
matters such as - Errors that may be more likely to occur; Errors which have been
identified in prior years; Method by which fraud might be perpetrated by bank
personnel or others within particular account balances and/or disclosures; etc. In the
above context, explain the advantages of such a discussion.
Answer 16; Advantages of such a discussion:
a) Specific emphasis should be provided to the susceptibility of the bank’s financial
statements to material misstatement due to fraud, that enables the engagement team
to consider an appropriate response to fraud risks, including those related to
engagement risk, pervasive risks, and specific risks.

b) It further enables the audit engagement partner to delegate the work to the
experienced engagement team members, and to determine the procedures to be
followed when fraud is identified.

c) Further, audit engagement partner may review the need to involve specialists to
address the issues relating to fraud.

Question 17; While verifying interest income of a mid-corporate branch of an urban

centre having advances consisting of only cash credit limits for large borrowers, it was
noticed that advances of ₹ 300 crores were outstanding as on balance sheet date
carrying average interest rate @8% p.a. One articled clerk in audit team makes quick
back of the envelope calculations of interest income of ₹ 24 crores on advances.
However, schedule of profit & loss a/c shows interest income on advances for ₹ 10
crores. Discuss any two probable reasons for such variation.
Answer 17; The probable reasons for difference in interest calculation could be due to
following:
(i) Cash credit accounts, by their very nature, are running accounts and their
utilization depends upon needs of business. Further, interest on cash credit account is
charged on the extent of funds utilized by the borrower. It could be possible that all
cash credit limits were not fully utilized during the year which resulted in lower
interest income.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 157 of 277

(ii) Some large accounts may have been sanctioned during later part of the year
resulting in lower interest income on advances for whole year.

Question 18; You are appointed as an auditor of Banking Co., and hold discussions with
engagement team. List out matters which you would discuss at the planning stage of an
audit to gain better understanding of the bank and its environment.
Answer 18; The engagement team discussion ordinarily includes a discussion of the
following matters:
(i) Errors that may be more likely to occur;
(ii) Errors which have been identified in prior years;
(iii) Method by which fraud might be perpetrated by bank personnel or others within
particular account balances and/or disclosures;
(iv) Audit responses to Engagement Risk, Pervasive Risks, and Specific Risks;
(v) Need to maintain professional skepticism throughout the audit engagement;
(vi) Need to alert for information or other conditions that indicates that a material
misstatement may have occurred (e.g., the bank’s application of accounting policies in
the given facts and circumstances).

Question 19; N Ltd. has been sanctioned a Cash Credit Facility by XYZ Bank Ltd. for
INR 1 crore and drawing power as per the stock statements furnished for the last
quarter is INR 80 Lakh. Outstanding balance in the account is INR 7 lakhs. Interest
charged to the account is INR 3.5 Lakh and total credit into the account for the
quarter is INR 2.5 Lakh. As an auditor how will you report this account in your report.
Answer 19; Out of Order: An account should be treated as ‘out of order’ if:
a) the outstanding balance remains continuously in excess of the sanctioned
limit/drawing power or
b) In cases where the outstanding balance in the principal operating account is less
than the sanctioned limit/drawing power, but there are no credits continuously for 90
days as on the date of Balance Sheet; or
c) Credits are there but are not enough to cover the interest debited during the same
period, these accounts should be treated as ‘out of order’.

Applying the above to the given case of N Ltd, its Drawing power is ₹ 80 Lakhs,
although outstanding balance in the account is ₹ 75 Lakhs, but still the account would
be reported as out of order because credits in the account are not sufficient to cover
the interest debited during the same period.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 158 of 277

Question 20; After becoming Chartered Accountant, you have got your first
assignment as an auditor of a bank branch dealing in various types of advances. What
are the areas which you will be looking for obtaining sufficient appropriate evidence
(for advances) besides studying and evaluating internal controls?
Answer 20; Audit Procedure in Audit of Advances in case of Bank Audit:
The auditor can obtain sufficient appropriate audit evidence about advances by study
and evaluation of internal controls relating to advances, and by:
(i) examining the validity of the recorded amounts;
(ii) examining loan documentation.
(iii) reviewing the operation of the accounts;
(iv) examining the existence, enforceability and valuation of the security;
(v) checking compliance with RBI norms including appropriate classification and
provisioning; and
(vi) carrying out appropriate analytical procedures.

Question 21; "Ramjilal & Co. had been allotted the branch audit of a nationalized bank
for the year ended 31st March, 2018. In the audit planning, the partner of Ramjilal &
Co., observed that the allotted branches are predominantly based in rural areas and
major portion of the advances were for agricultural purpose." Now he needs your
assistance on the following points so as to incorporate them in the audit plan:
(i) for determination of NPA norms for agricultural advances
(ii) for accounts where there is erosion in the value of security/frauds committed by
the borrowers.
Answer 21;
i. NPA norms for Agricultural Advances: As per the guidelines, Agricultural Advances
are of two types, (1) Agricultural Advances for “long duration” crops and (2)
Agricultural Advances for “short duration” crops

The “long duration” crops would be crops with crop season longer than one year and
crops, which are not “long duration” crops would be treated as “short duration” crops.

The crop season for each crop, which means the period up to harvesting of the crops
raised, would be as determined by the State Level Bankers’ Committee in each State.

The following NPA norms would apply to agricultural advances (including Crop Term
Loans):
- A loan granted for short duration crops will be treated as NPA, if the instalment of
principal or interest thereon remains overdue for two crop seasons and,
- A loan granted for long duration crops will be treated as NPA, if the instalment of
principal or interest thereon remains overdue for one crop season.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 159 of 277

ii. Accounts where there is erosion in the value of security / frauds committed by
borrowers Not prudent to follow stages of asset classification. It should be
straightaway classified as doubtful or loss asset as appropriate.

(a) Erosion in the value of security can be reckoned as significant when the realisable
value of the security is less than 50 per cent of the value assessed by the bank or
accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be
straightaway classified under doubtful category and provisioning should be made as
applicable to doubtful assets.

(b) If the realisable value of the security, as assessed by the bank/ approved valuers/
RBI is less than 10 per cent of the outstanding in the borrowal accounts, the existence
of security should be ignored and the asset should be straightaway classified as loss
asset. It may be either written off or fully provided for by the bank.

Question 22; The engagement team discussion ordinarily includes a discussion of the
matters such as - Errors that may be more likely to occur; Errors which have been
identified in prior years; Method by which fraud might be perpetrated by bank
personnel or others within particular account balances and/or disclosures; etc. In the
above context, explain the advantages of such a discussion.
Answer 22; Advantages of such a discussion:

➢ Specific emphasis should be provided to the susceptibility of the bank’s financial

statements to material misstatement due to fraud, that enables the engagement
team to consider an appropriate response to fraud risks, including those related
to engagement risk, pervasive risks, and specific risks.
➢ It further enables the audit engagement partner to delegate the work to the
experienced engagement team members, and to determine the procedures to be
followed when fraud is identified.
➢ Further, audit engagement partner may review the need to involve specialists to
address the issues relating to fraud.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 160 of 277

Question 23; In carrying out an audit of interest expense, the auditor is primarily
concerned with assessing the overall reasonableness of the amount of interest expense.
Analyse and explain stating the audit approach and procedure in regard to interest
expense
Answer 23; In carrying out an audit of interest expense, the auditor is primarily
concerned with assessing the overall reasonableness of the amount of interest expense
by analyzing ratios of interest paid on different types of deposits and borrowings to
the average quantum of the respective liabilities during the year. In modern day
banking, the entries for interest expenses are automatically generated through a batch
process in the CBS system.

• The auditor should obtain from the bank an analysis of various types of deposits
outstanding at the end of each quarter. From such information, the auditor may work
out a weighted average interest rate. The auditor may then compare this rate with the
actual average rate of interest paid on the relevant deposits as per the annual accounts
and enquire into the difference, if material.

• The auditor should also compare the average rate of interest paid on the relevant
deposits with the corresponding figures for the previous years and analyse any material
differences. The auditor should obtain general ledger break-up for the interest
expense incurred on deposits (savings and term deposits) and borrowing each
month/quarter. The auditor should analyse month on month (or quarter on quarter) cost
analysis and document the reasons for the variances as per the benchmark stated. He
should examine whether the interest expense considered in the cost analysis agrees
with the general ledger. The auditor should understand the process of computation of
the average balance and re-compute the same on sample basis.

• The auditor should, on a test check basis, verify the calculation of interest and
ensure that:
(a) Interest has been provided on all deposits up to the date of the balance sheet;
(b) Interest rates are in accordance with the bank’s internal regulations, the RBI
directives and agreements with the respective deposit holder;
(c) Interest on savings accounts are in accordance with the rules framed by the
bank/RBI in this behalf.
(d) Interest on inter–branch balances has been provided at the rates prescribed by the
head office/RBI.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 161 of 277

The auditor should ascertain whether there are any changes in interest rate on saving
accounts and term deposits during the period. The auditor should obtain the interest
rate card for various types of deposits and analyze the interest cost for the period
accordingly. The auditor should examine the completeness that interest has been
accrued on the entire borrowing portfolio and the same should agree with the general
ledgers. The auditor should re-compute the interest accrual i.e., by referring to the
parameters like frequency of payment of interest amount, rate of interest, period
elapsed till the date of balance sheet, etc. from the term sheet, deal ticket,
agreements, etc. and ensure that the recomputed amount is tallying with the amount as
per books of accounts without any significant difference.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 162 of 277

IMPORTANT QUESTION LIST CHP8

Question 1; In order to form the audit opinion as required by SA 700, the auditor
shall conclude as to whether the auditor has obtained reasonable assurance about
whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error. Explain the conclusions that the auditor shall take into
account. Also explain the objective of auditor as per SA 700.
Answer 1; The objectives of the auditor as per SA 700 (Revised), “Forming An
Opinion And Reporting On Financial Statements” are:
(a) To form an opinion on the financial statements based on an evaluation of the
conclusions drawn from the audit evidence obtained; and
(b) To express clearly that opinion through a written report.

The auditor shall form an opinion on whether the financial statements are prepared, in
all material respects, in accordance with the applicable financial reporting framework.

To form opinion - Auditor to obtain Reasonable assurance

In order to form that opinion, the auditor shall conclude as to whether the auditor has
obtained reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error.

That conclusion shall take into account:

(a) whether sufficient appropriate audit evidence has been obtained;
(b) whether uncorrected misstatements are material, individually or in aggregate;
(c) The evaluations

Question 2; The Auditor is fully satisfied with the audit of an entity in respect of its
systems and procedures and wants to issue a report without any hesitation. What type
of opinion can be given and give reasoning.
Answer 2; Unqualified Opinion:

A. An unqualified opinion should be expressed when the auditor concludes that the
financial statements give a true and fair view in accordance with the financial reporting
framework used for the preparation and presentation of the financial statements.

B. An unqualified opinion indicates, implicitly, that any changes in the accounting

principles or in the method of their application, and the effects thereof, have been
properly determined and disclosed in the financial statements.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 163 of 277

C. An unqualified opinion also indicates that:

(i) the financial statements have been prepared using the generally accepted accounting
principles, which have been consistently applied;
(ii) the financial statements comply with relevant statutory requirements and
regulations; and
(iii) there is adequate disclosure of all material matters relevant to the proper
presentation of the financial information, subject to statutory requirements, where
applicable.

Question 3; G & Associates are the Statutory Auditors of R Ltd., a company engaged in
the business of manufacturing of blankets. The auditor has completed the audit and is
in the process of forming an opinion on the financial statements for the F.Y. 2022-
2023. CA L, the engagement partner, wants to conclude that whether the financial
statements as a whole are free from material misstatements, whether due to fraud or
error. What factors he should consider to reach that conclusion?
Answer 3; Factors to be considered to form an opinion: The auditor shall form an
opinion on whether the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework.

(a) The auditor’s conclusion, in accordance with SA 330, whether sufficient appropriate
audit evidence has been obtained

(b) The auditor’s conclusion, in accordance with SA 450, whether uncorrected

misstatements are material, individually or in aggregate.

(c) The evaluations required

(i) The auditor shall evaluate whether the financial statements are prepared in
accordance with the requirements of the applicable financial repor4ng framework.
(ii) This evalua4on shall include considera4on of the qualita4ve aspects of the en4ty’s
accoun4ng prac4ces, including indicators of possible bias in management’s judgments.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 164 of 277

Question 4; The description of management’s responsibilities in the auditor’s report

includes reference to management’s responsibilities as it helps to explain to users the
premise on which an audit is conducted. Explain
Answer 4; Responsibilities for the Financial Statements: The auditor’s report shall
include a section with a heading “Responsibilities of Management for the Financial
Statements.”

SA 200 explains the premise, relating to the responsibilities of management and, where
appropriate, those charged with governance, on which an audit in accordance with SAs
is conducted. Management and, where appropriate, those charged with governance
accept responsibility for the preparation of the financial statements. Management also
accepts responsibility for such internal control as it determines is necessary to enable
the preparation of financial statements that are free from material misstatement,
whether due to fraud or error. The description of management’s responsibilities in the
auditor’s report includes reference to both responsibilities as it helps to explain to
users the premise on which an audit is conducted.

This section of the auditor’s report shall describe management’s responsibility for:

(a) Preparing the financial statements in accordance with the applicable financial
reporting framework, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error;[because of the possible effects
of fraud on other aspects of the audit, materiality does not apply to management’s
acknowledgement regarding its responsibility for the design, implementation, and
maintenance of internal control (or for establishing and maintaining effective internal
control over financial reporting) to prevent and detect fraud.] and

(b) Assessing the entity’s ability to continue as a going concern and whether the use
of the going concern basis of accounting is appropriate as well as disclosing, if
applicable, matters relating to going concern. The explanation of management’s
responsibility for this assessment shall include a description of when the use of the
going concern basis of accounting is appropriate.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 165 of 277

Question 5; The auditor evaluated, in respect of T Ltd., whether the financial

statements are prepared in accordance with the requirements of the applicable
financial reporting framework. Auditor’s evaluation included consideration of the
qualitative aspects of the entity’s accounting practices, including indicators of possible
bias in management’s judgments. Advise the qualitative aspects of the entity’s
accounting practices.
Answer 5; The auditor shall evaluate whether the financial statements are prepared in
accordance with the requirements of the applicable financial reporting framework.

This evaluation shall include consideration of the qualitative aspects of the entity’s
accounting practices, including indicators of possible bias in management’s judgments.

Qualitative Aspects of the Entity’s Accounting Practices

A. Management makes a number of judgments about the amounts and disclosures in the
financial statements.

B. SA 260 (Revised) contains a discussion of the qualitative aspects of accounting

practices.

C. In considering the qualitative aspects of the entity’s accounting practices, the

auditor may become aware of possible bias in management’s judgments. The auditor may
conclude that lack of neutrality together with uncorrected misstatements causes the
financial statements to be materially misstated. Indicators of a lack of neutrality
include the following:

(i) The selective correction of misstatements brought to management’s attention

during the audit
Example
• Correcting misstatements with the effect of increasing reported earnings, but not
correcting misstatements that have the effect of decreasing reported earnings.
• The combination of several deficiencies affecting the same significant account or
disclosure (or the same internal control component) could amount to a significant
deficiency (or material weakness if required to be communicated in the jurisdiction).
This evaluation requires judgment and involvement of audit executives.

(ii) Possible management bias in the making of accounting estimates.

D. SA 540 addresses possible management bias in making accounting estimates.

Indicators of possible management bias do not constitute misstatements for purposes

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 166 of 277

of drawing conclusions on the reasonableness of individual accounting estimates. They

may, however, affect the auditor’s evaluation of whether the financial statements as a
whole are free from material misstatement.

Question 6; The first section of the auditor’s report shall include the auditor’s opinion,
and shall have the heading “Opinion.” The Opinion section of the auditor’s report shall
also Identify the entity whose financial statements have been audited. Apart from the
above, explain the other relevant points to be included in opinion section.
Answer 6; The first section of the auditor’s report shall include the auditor’s opinion,
and shall have the heading “Opinion.”
The Opinion section of the auditor’s report shall also:
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting policies; and
(e) Specify the date of, or period covered by, each financial statement comprising the
financial statements.

Question 7; The requirements of SA 700 are aimed at addressing an appropriate

balance between the need for consistency and comparability in auditor reporting
globally.
Answer 7; The requirements of SA 700 are aimed at addressing an appropriate
balance between the need for consistency and comparability in auditor reporting
globally and the need to increase the value of auditor reporting by making the
information provided in the auditor’s report more relevant to users. This SA promotes
consistency in the auditor’s report but recognizes the need for flexibility to
accommodate particular circumstances of individual jurisdictions. Consistency in the
auditor’s report, when the audit has been conducted in accordance with SAs, promotes
credibility in the global marketplace by making more readily identifiable those audits
that have been conducted in accordance with globally recognized standards. It also
helps to promote the user’s understanding and to identify unusual circumstances when
they occur.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 167 of 277

Question 8; When the auditor disclaims an opinion on the financial statements due to
an inability to obtain sufficient appropriate audit evidence, the auditor shall amend the
description of the auditor’s responsibilities required by SA 700.
Answer 8; When the auditor disclaims an opinion on the financial statements due to an
inability to obtain sufficient appropriate audit evidence, the auditor shall amend the
description of the auditor’s responsibilities required by SA 700 (Revised) to include
only the following:
(a) A statement that the auditor’s responsibility is to conduct an audit of the entity’s
financial statements in accordance with Standards on Auditing and to issue an auditor’s
report;
(b) A statement that, however, because of the matter(s) described in the Basis for
Disclaimer of Opinion section, the auditor was not able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on the financial statements; and
(c) The statement about auditor independence and other ethical responsibilities
required by SA 700 (Revised).

Question 9;An auditor is required to make specific evaluations while forming an opinion
in an audit report." State those evaluations.
Answer 9; The auditor shall evaluate whether the financial statements are prepared in
accordance with the requirements of the applicable financial reporting framework.

This evaluation shall include consideration of the qualitative aspects of the entity’s
accounting practices, including indicators of possible bias in management’s judgements.

In particular, the auditor shall evaluate whether:

(a) The financial statements adequately disclose the significant accounting policies
selected and applied;
(b) The accounting policies selected and applied are consistent with the applicable
financial reporting framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The information presented in the financial statements is relevant, reliable,
comparable, and understandable;
(e) The financial statements provide adequate disclosures to enable the intended users
to understand the effect of material transactions and events on the information
conveyed in the financial statements; and
(f) The terminology used in the financial statements, including the title of each
financial statement, is appropriate.

Further, when the financial statements are prepared in accordance with a fair
presentation framework, the evaluation mentioned above shall also include an evaluation

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 168 of 277

by the auditor as to whether the financial statements achieve fair presentation which
shall include consideration of:

(i) The overall presentation, structure and content of the financial statements; and
(ii) Whether the financial statements, including the related notes, represent the
underlying transactions and events in a manner that achieves fair presentation. The
auditor shall evaluate whether the financial statements adequately refer to or describe
the applicable financial reporting framework.

Question 10; In considering the qualitative aspects of the entity’s accounting

practices, the auditor may become aware of possible bias in management’s judgements.
The auditor may conclude that lack of neutrality together with uncorrected
misstatements causes the financial statements to be materially misstated. Explain and
analyse the indicators of lack of neutrality with examples, wherever required.
Answer 10; In considering the qualitative aspects of the entity’s accounting practices,
the auditor may become aware of possible bias in management’s judgements. The
auditor may conclude that lack of neutrality together with uncorrected misstatements
causes the financial statements to be materially misstated. Indicators of a lack of
neutrality include the following:
(i) The selective correction of misstatements brought to management’s attention
during the audit.

Example
• Correcting misstatements with the effect of increasing reported earnings, but not
correcting misstatements that have the effect of decreasing reported earnings.
• The combination of several deficiencies affecting the same significant account or
disclosure (or the same internal control component) could amount to a significant
deficiency (or material weakness if required to be communicated in the jurisdiction).
This evaluation requires judgement and involvement of audit executives.

(ii) Possible management bias in the making of accounting estimates.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 169 of 277

Question 11; What an auditor should state in the "Basis for opinion" section of
auditor's report? When the auditor modifies the opinion on the financial statements,
explain the amendments he should make in this section?
Answer 11; An auditor should state in “Basis for Opinion” section of Auditor’s Report
as under:

Basis for Opinion:

The auditor’s report shall include a section, directly following the Opinion section, with
the heading “Basis for Opinion”, that:

(i) States that the audit was conducted in accordance with Standards on Auditing;

(ii) Refers to the section of the auditor’s report that describes the auditor’s
responsibilities under the SAs;

(iii) Includes a statement that the auditor is independent of the entity in accordance
with the relevant ethical requirements relating to the audit and has fulfilled the
auditor’s other ethical responsibilities in accordance with these requirements.

(iv) States whether the auditor believes that the audit evidence the auditor has
obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.

Amendments an Auditor should make:

When the auditor modifies the opinion on the financial statements, the auditor shall, in
addition to the specific elements required by SA 700 (Revised):

(ii) Within this section, include a description of the matter giving rise to the
modification.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 170 of 277

Question 12; While conducting audit of VED Ltd., you as an auditor are not only
prevented in completing certain audit procedures but also are not able to obtain audit
evidence even by performing alternative procedures. How you will deal with this
situation?
Answer 12; As per SA 705, “Modifications to the Opinion in the Independent
Auditor’s Report”, if, after accepting the engagement, the auditor becomes aware that
management has imposed a limitation on the scope of the audit that the auditor
considers likely to result in the need to express a qualified opinion or to disclaim an
opinion on the financial statements, the auditor sh all request that management remove
the limitation.

If management refuses to remove the limitation, the auditor shall communicate the
matter to those charged with governance, unless all of those charged with governance
are involved in managing the entity and determine whether it is possible to perform
alternative procedures to obtain sufficient appropriate audit evidence.

If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor
shall determine the implications as follows:

(A) If the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive, the auditor shall
qualify the opinion; or

(B) If the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive so that a
qualification of the opinion would be inadequate to communicate the gravity of the
situation, the auditor shall:

(i) Withdraw from the audit, where practicable and possible under applicable law or
regulation; or

(ii) If withdrawal from the audit before issuing the auditor’s report is not practicable
or possible, disclaim an opinion on the financial statements.

If the auditor withdraws, before withdrawing, the auditor shall communicate to those
charged with governance any matters regarding misstatements identified during the
audit that would have given rise to a modification of the opinion.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 171 of 277

Question 13; What an auditor should state in "Basis for opinion" section of auditor's
report and when the auditor modifies the opinion on the financial statements, what
amendments he should make in this section?
Answer 13; An auditor should state in “Basis for Opinion” section of Auditor’s Report
as under: Basis for Opinion:
The auditor’s report shall include a section, directly following the Opinion section, with
the heading “Basis for Opinion”, that:
(i) States that the audit was conducted in accordance with Standards on Auditing;
(ii) Refers to the section of the auditor’s report that describes the auditor’s
responsibilities under the SAs;
(iii) Includes a statement that the auditor is independent of the entity in accordance
with the relevant ethical requirements relating to the audit and has fulfilled the
auditor’s other ethical responsibilities in accordance with these requirements.
(iv) States whether the auditor believes that the audit evidence the auditor has
obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.

Amendments an Auditor should make:

When the auditor modifies the opinion on the financial statements, the auditor
shall, in addition to the specific elements required by SA 700 (Revised):

(i) Amend the heading “Basis for Opinion” required by para of SA 700 (Revised) to
“Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of
Opinion,” as appropriate; and
(ii) Within this section, include a description of the matter giving rise to the
modification.

Question 14; Delightful Ltd. is a company engaged in the production of smiley balls.
During the FY 2020 - 21 the company transferred its accounts to computerised system
(SAP) from manual system of accounts. Since the employees of the company were not
well versed with the SAP system, there were many errors in the accounting during the
transition period. As such the statutory auditors of the company were not able to
extract correct data and reports from the system. Such data was not available
manually also. Further, the employees and the management of the company were not
supportive in providing the requisite information to the audit team. The auditor
believes that the possible effects on the financial statements of undetected
misstatements could be both material and pervasive. Explain the kind of audit report
that the statutory auditor of the company should issue in this case.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 172 of 277

Answer 14; The auditor shall disclaim an opinion when the auditor is unable to obtain
sufficient appropriate audit evidence on which to base the opinion, and the auditor
concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive. The auditor shall disclaim
an opinion when, in extremely rare circumstances involving multiple uncertainties, the
auditor concludes that, notwithstanding having obtained sufficient appropriate audit
evidence regarding each of the individual uncertainties, it is not possible to form an
opinion on the financial statements due to the potential interaction of the uncertainties
and their possible cumulative effect on the financial statements. In the present case
Delightful Ltd, the statutory auditor of the company is unable to extract correct data
and reports from the SAP system for conduct of audit. Also, such data and reports are
not available manually. Moreover, the auditor believes that the possible effects on the
financial statements of undetected misstatements could be both material and
pervasive. As such, the statutory auditor of Delightful Ltd. should give a disclaimer of
opinion.

Question 15; State clearly the objective of the Auditor as per SA 706. Also define
emphasis of matter paragraph and other matter paragraph.
Answer 15; As per SA 706 (Revised) on “Emphasis of Matter Paragraphs and
Other Matter Paragraphs In The Independent Auditor’s Report”, the objective of the
auditor, having formed an opinion on the financial statements, is to draw users’
attention, when in the auditor’s judgment it is necessary to do so, by way of clear
additional communication in the auditor’s report, to:
(a) A matter, although appropriately presented or disclosed in the financial statements,
that is of such importance that it is fundamental to users’ understanding of the
financial statements; or
(b) As appropriate, any other matter that is relevant to users’ understanding of the
audit, the auditor’s responsibilities or the auditor’s report.

Emphasis of Matter paragraph – A paragraph included in the auditor’s report that

refers to a matter appropriately presented or disclosed in the financial statements
that, in the auditor’s judgment, is of such importance that it is fundamental to users’
understanding of the financial statements.

Other Matter paragraph – A paragraph included in the auditor’s report that refers to
a matter other than those presented or disclosed in the financial statements that, in
the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s
responsibilities or the auditor’s report.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 173 of 277

Question 16; If the financial statements of the prior period were audited by a
predecessor auditor, in addition to expressing an opinion on the current period’s
financial statements, what is required to be stated by the auditor in an Other Matter
paragraph.
Answer 16; If the financial statements of the prior period were audited by a
predecessor auditor, in addition to expressing an opinion on the current period’s
financial statements, the auditor shall state in an Other Matter paragraph:
(i) That the financial statements of the prior period were audited by a predecessor
auditor;
(ii) The type of opinion expressed by the predecessor auditor and, if the opinion was
modified, the reasons therefor; and
(iii) The date of that report, unless the predecessor auditor’s report on the prior
period’s financial statements is revised with the financial statements.

Question 17; What is meant by Emphasis of Matter Paragraph? Give some examples of
circumstances where the auditor may consider it necessary to include an Emphasis of
Matter paragraph.
Answer 17; Examples of circumstances to include Emphasis of Matter Paragraph:
As per SA 706 (Revised) on “Emphasis of Matter Paragraphs and Other Matter
Paragraphs In The Independent Auditor’s Report”, the examples of circumstances
where the auditor may consider it necessary to include an Emphasis of Matter
paragraph are;
(a) An uncertainty relating to the future outcome of an exceptional litigation or
regulatory action.
(b) A significant subsequent event that occurs between the date of the financial
statements and the date of the auditor’s report.
(c) Early application (where permitted) of a new accounting standard that has a
material effect on the financial statements.
(d) A major catastrophe that has had, or continues to have, a significant effect on the
entity's financial position.

Question 18; Define Emphasis of Matter paragraph. When the auditor shall include an
Emphasis of Matter paragraph in the auditor’s report? Also explain how the auditor
would include an Emphasis of Matter in the auditor’s report?
Answer 18; Emphasis of Matter paragraph – A paragraph included in the auditor’s
report that refers to a matter appropriately presented or disclosed in the financial
statements that, in the auditor’s judgment, is of such importance that it is fundamental
to users’ understanding of the financial statements.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 174 of 277

Emphasis of Matter Paragraphs in the Auditor’s Report If the auditor considers it

necessary to draw users’ attention to a matter presented or disclosed in the financial
statements that, in the auditor’s judgment, is of such importance that it is fundamental
to users’ understanding of the financial statements, the auditor shall include an
Emphasis of Matter paragraph in the auditor’s report provided:
(a) The auditor would not be required to modify the opinion in accordance with SA 705
(Revised) as a result of the matter; and
(b) When SA 701 applies, the matter has not been determined to be a key audit matter
to be communicated in the auditor’s report.

Separate section for Emphasis of Matter paragraph When the auditor includes an
Emphasis of Matter paragraph in the auditor’s report, the auditor shall:
(a) Include the paragraph within a separate section of the auditor’s report with an
appropriate heading that includes the term “Emphasis of Matter”;
(b) Include in the paragraph a clear reference to the matter being emphasized and to
where relevant disclosures that fully describe the matter can be found in the financial
statements. The paragraph shall refer only to information presented or disclosed in the
financial statements; and
(c) Indicate that the auditor’s opinion is not modified in respect of the matter
emphasized.

Question 19; How would an auditor determine Key Audit Matters as per SA - 701,
"Communicating Key Audit Matters in the Independent Auditor's Report”?
Answer 19; Determining Key Audit Matters: As per SA 701, “Communicating Key
Audit Matters in the Independent Auditor’s Report”, the auditor shall determine,
from the matters communicated with those charged with governance, those matters
that required significant auditor attention in performing the audit. In making this
determination, the auditor shall take into account the following:
(i) Areas of higher assessed risk of material misstatement, or significant risks
identified in accordance with SA 315, Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and Its Environment.
(ii) Significant auditor judgments relating to areas in the financial statements that
involved significant management judgment, including accounting estimates that have
been identified as having high estimation uncertainty.
(iii) The effect on the audit of significant events or transactions that occurred during
the period. The auditor shall determine which of the matters determined in accordance
with above were of most significance in the audit of the financial statements of the
current period and therefore are the key audit matters.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 175 of 277

Question 20; Communicating key audit matters in the auditor's report is in the context
of the auditor having formed an opinion on the financial statements as a whole.
Communicating key audit matters in the auditor's report is not considered as a
substitute or alternative for a number of important items. What are those items?
Answer 20; As per SA 701, “Communicating Key Audit Matters in the Auditor’s
Report”, communicating key audit matters in the auditor’s report is in the context of
the auditor having formed an opinion on the financial statements as a whole.
Communicating key audit matters in the auditor’s report is not:
(i) The accounting estimates made by management are reasonable that the applicable
financial reporting framework requires management to make, or that are otherwise
necessary to achieve fair presentation;
(ii) A substitute for the auditor expressing a modified opinion when required by the
circumstances of a specific audit engagement in accordance with SA 705,
“Modifications to the Opinion in the Independent Auditor’s Report”;
(iii) A substitute for reporting in accordance with SA 570 when a material uncertainty
exists relating to events or conditions that may cast significant doubt on an entity’s
ability to continue as a going concern; or
(iv) A separate opinion on individual matters.

Question 21; Explain clearly the purpose of communicating key audit matters.
Answer 21; Purpose of communicating key audit matters
As per SA 701, “Communicating Key Audit Matters in the Auditor’s Report”, the
purpose of communicating key audit matters is to enhance the communicative value of
the auditor’s report by providing greater transparency about the audit that was
performed. Communicating key audit matters provides additional information to
intended users of the financial statements to assist them in understanding those
matters that, in the auditor’s professional judgment, were of most significance in the
audit of the financial statements of the current period. Communicating key audit
matters may also assist intended user’s in understanding the entity and areas of
significant management judgment in the audited financial statements.

Question 22; The nature of the comparative information that is presented in an

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 176 of 277

Answer 22; The nature of the comparative information that is presented in an

entity’s financial statements depends on the requirements of the applicable financial
reporting framework. There are two different broad approaches to the auditor’s
reporting responsibilities in respect of such comparative information: corresponding
figures and comparative financial statements. The approach to be adopted is often
specified by law or regulation but may also be specified in the terms of engagement.

The essential audit reporting differences between the approaches are:

(a) For corresponding figures, the auditor’s opinion on the financial statements refers
to the current period only; whereas
(b) For comparative financial statements, the auditor’s opinion refers to each period
for which financial statements are presented. Definition of Comparative information –
The amounts and disclosures included in the financial statements in respect of one or
more prior periods in accordance with the applicable financial reporting framework.

Audit Procedures regarding comparative information

The auditor shall determine whether the financial statements include the comparative
information required by the applicable financial reporting framework and whether such
information is appropriately classified. For this purpose, the auditor shall evaluate
whether:
(a) The comparative information agrees with the amounts and other disclosures
presented in the prior period; and
(b) The accounting policies reflected in the comparative information are consistent
with those applied in the current period or, if there have been changes in accounting
policies, whether those changes have been properly accounted for and adequately
presented and disclosed.

Question 23; Before the commencement of the audit, the joint auditors should discuss
and develop a joint audit plan. In developing the joint audit plan, the joint auditors
should identify division of audit areas and common audit areas. Explain stating the
other relevant considerations in this regard.
Answer 23; Before the commencement of the audit, the joint auditors should discuss
and develop a joint audit plan. In developing the joint audit plan, the joint auditors
should:
(a) identify division of audit areas and common audit areas;
(b) ascertain the reporting objectives of the engagement;
(c) consider and communicate among all joint auditors the factors that are significant
(d) in directing the engagement team’s efforts;
(e) consider the results of preliminary engagement activities, or similar engagements

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 177 of 277

performed earlier. (f) ascertain the nature, timing and extent of resources necessary
to accomplish the engagement.

Question 24; Elucidate the circumstances when a modification to the Auditor's opinion
is required. Also state the factors for making the decision regarding which type of
modified opinion is appropriate.
Answer 24; Circumstances When a Modification to the Auditor’s Opinion Is Required
The auditor shall modify the opinion in the auditor’s report in the following
circumstances:
a. The auditor concludes that, based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement; or
b. The auditor is unable to obtain sufficient appropriate audit evidence to conclude
that the financial statements as a whole are free from material misstatement.

The decision regarding which type of modified opinion is appropriate depends upon:
(i) The nature of the matter giving rise to the modification, that is, whether the
financial statements are materially misstated or, in the case of an inability to obtain
sufficient appropriate audit evidence, may be materially misstated; and
(ii) The auditor’s judgement about the pervasiveness of the effects or possible effects
of the matter on the financial statements.

Question 25; When corresponding figures are presented, the auditor’s opinion shall not
refer to the corresponding figures except in some circumstances. Explain those
circumstances.
Answer 25; When corresponding figures are presented, the auditor’s opinion shall
not refer to the corresponding figures except in the following circumstances.

A. If the auditor’s report on the prior period, as previously issued, included a

qualified opinion, a disclaimer of opinion, or an adverse opinion and the matter which
gave rise to the modification is unresolved, the auditor shall modify the auditor’s
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 178 of 277

opinion on the current period’s financial statements. In the Basis for Modification
paragraph in the auditor’s report, the auditor shall either:

(a) Refer to both the current period’s figures and the corresponding figures in the
description of the matter giving rise to the modification when the effects or possible
effects of the matter on the current period’s figures are material; or

(b) In other cases, explain that the audit opinion has been modified because of the
effects or possible effects of the unresolved matter on the comparability of the
current period’s figures and the corresponding figures.

B. If the auditor obtains audit evidence that a material misstatement exists in the
prior period financial statements on which an unmodified opinion has been previously
issued, the auditor shall verify whether the misstatement has been dealt with as
required under the applicable financial reporting framework and, if that is not the case,
the auditor shall express a qualified opinion or an adverse opinion in the auditor’s
report on the current period financial statements, modified.

C. Prior Period Financial Statements Not Audited- If the prior period financial
statements were not audited, the auditor shall state in an Other Matter paragraph in
the auditor’s report that the corresponding figures are unaudited. Such a statement
does not, however, relieve the auditor of the requirement to obtain sufficient
appropriate audit evidence that the opening balances do not contain misstatements that
materially affect the current period’s financial statements, modified.

Question 26; Discuss the reporting requirements under CARO 2020, with respect to
the moneys raised by the company by way of initial public offer or further public offer
and where the company has made any preferential allotment or private placement of
shares.
Answer 26; The following are the disclosure requirements as per CARO 2020, with
respect to the moneys raised by the company by way of initial public offer or
further public offer and where the company has made any preferential allotment or
private placement of shares.

(a) whether moneys raised by way of initial public offer or further public offer
(including debt instruments) during the year were applied for the purposes for which
those are raised, if not, the details together with delays or default and subsequent
rectification, if any, as may be applicable, be reported;

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 179 of 277

(b) whether the company has made any preferential allotment or private placement
of shares or convertible debentures (fully, partially or optionally convertible) during
the year and if so, whether the requirements of section 42 and section 62 of the
Companies Act, 2013 have been complied with and the funds raised have been used for
the purposes for which the funds were raised, if not, provide details in respect of
amount involved and nature of noncompliance;

Question 27; The head accountant of a company entered fake invoices of credit
purchases in the books of account aggregate of rs.50 lakh and cleared all the payments
to such bogus creditor. How will you deal as an auditor?
Answer 27; Here, the auditor of the company is required to report the fraudulent
activity to the Board or Audit Committee (as the case may be) within 2 days of his
knowledge of fraud. Further, the company is also required to disclose the same in
Board’s Report. It may be noted that the auditor need not to report the central
government as the amount of fraud involved is less than rs.1 crore, however, reporting
under CARO, 2016 (CARO 2020) is required.

Question 28; Explain the Reporting requirements the auditor should ensure under
CARO 2020 related to PPE and Intangible assets.
Answer 28; Reporting for PPE and Intangible assets - Clause (i) of Para 3 of
CARO ,2020, requires the auditor to include a statement in the auditor’s report on the
following matters, namely-
(i) (a)
(A) whether the company is maintaining proper records showing full particulars,
including quantitative details and situation of Property, Plant and Equipment;
(B) whether the company is maintaining proper records showing full particulars of
intangible assets;

(b) whether these Property, Plant and Equipment have been physically verified by the
management at reasonable intervals; whether any material discrepancies were noticed
on such verification and if so, whether the same have been properly dealt with in the
books of account;

(c) whether the title deeds of all the immovable properties (other than properties
where the company is the lessee and the lease agreements are duly executed in favour
of the lessee) disclosed in the financial statements are held in the name of the
company, if not, provide the details thereof in the format below :-

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 180 of 277

(d) whether the company has revalued its Property, Plant and Equipment (including
Right of Use assets) or intangible assets or both during the year and, if so, whether
the revaluation is based on the valuation by a Registered Valuer; specify the amount of
change, if change is 10% or more in the aggregate of the net carrying value of each
class of Property, Plant and Equipment or intangible assets;

(e) whether any proceedings have been initiated or are pending against the company for
holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45
of 1988) and rules made thereunder, if so, whether the company has appropriately
disclosed the details in its financial statements.

Question 29; Discuss the reporting requirements as per CARO, 2020, regarding:
(i) disputed and undisputed statutory dues and
(ii) internal audit system of the company
Answer 29; Matters to be included as per CARO, 2020:
Undisputed and Disputed Statutory dues Clause (vii)

(a) whether the company is regular in depositing undisputed statutory dues including
Goods and Services Tax, provident fund, employees' state insurance, income tax, sales-
tax, service tax, duty of customs, duty of excise, value added tax, cess and any other
statutory dues to the appropriate authorities and if not, the extent of the arrears of
outstanding statutory dues as on the last day of the financial year concerned for a
period of more than six months from the date they became payable, shall be indicated;

(b) where statutory dues referred to in sub-clause (a) have not been deposited on
account of any dispute, then the amounts involved and the forum where dispute is
pending shall be mentioned (a mere representation to the concerned Department shall
not be treated as a dispute).

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 181 of 277

Internal audit system Clause (xiv)

(a) whether the company has an internal audit system commensurate with the size and
nature of its business;
(b) whether the reports of the Internal Auditors for the period under audit were
considered by the statutory auditor.

Question 30; M Ltd. has given certain loans to related parties and also has accepted
certain deposits. As an auditor, how will you include the above items in paragraph 3 of
CARO, 2016 (CARO 2020)?
Answer 30; Clause (iii) of paragraph 3 of CARO, 2016 (CARO 2020) states
Whether the company has granted any loans, secured or unsecured to companies, firms,
Limited Liability Partnerships or other parties covered in the register maintained under
section 189 of the Companies Act, 2013. If so,

(i) As follows
A) Aggregate amount during the year, outstanding at the balance sheet date with
respect to such loans and advances to subsidiaries, joint ventures and associates. B)
Aggregate amount during the year, outstanding at the balance sheet date with respect
to such loans and advances to parties other than subsidiaries, joint ventures and
associates.

(ii) Whether the terms and conditions of the grant of such loans are not prejudicial to
the company’s interest;

(iii) Whether the schedule of repayment of principal and payment of interest has been
stipulated and whether the repayments or receipts are regular;

(iv) if the amount is overdue, state the total amount overdue for more than ninety days,
and whether reasonable steps have been taken by the company for recovery of the
principal and interest;

(v) Specify the amount of any Renew or Extension or Fresh Loan granted to settle the
overdues of existing loans given to same parties.

(vi) Reporting of any loan granted which are repayable on demand or without specifying
any terms or period of payment.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 182 of 277

Further, Clause (v) of paragraph 3 of CARO, 2016 (CARO 2020) states in case
the company has accepted deposits,
(i) whether the directives issued by the Reserve Bank of India and the provisions of
sections 73 to 76 or any: ether relevant provisions of the Companies Act, 2013 and the
rules framed there under, where applicable, have been complied with? If not, the
nature of such contraventions be stated;
(ii) If an order has been passed by Company Law Board or National Company Law
Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same
has been complied with or not?

In the given situation, M Ltd. has given certain loans to related parties and also has
accepted certain deposits. Thus, the auditor is required to report the same as per
clause (iii) and (v) of Paragraph 3 of CARO, 2016 (CARO 2020).

OTHER PARTS OF CARO 2020; THE IMP PARTS

FRAUDS BY THE COMPANY BY ITS OFFICERS OR EMPLOYESS +
VERIFICATIONS OF INVENTORY AND WORKING CAPITAL LIMTIS

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 183 of 277

CHAPTER 4; AUDIT EVIDENCE

[500,501,505,510,520,530,550,610]
+
CHP7; COMPLETION AND REVIEW
[560,570,450,580,260,265]
+
CHP3; RISK ASSESSMENT AND INTERNAL CONTROL
[320,330]

SA 260;

SIGNIFICANT MATTERS/SIGNIFICANT DIFFICULTY/SIGNIFICANT

FINDINGS/COMMUNICATION IN CASE OF LISTED COMPANIES

Question 1; State the significant difficulties encountered during audit with reference
to SA-260 (communication with those charged with governance).
Answer 1; Significant Difficulties Encountered During the Audit:
As per SA 260 “Communication with Those Charged with Governance”, significant
difficulties encountered during the audit may include such matters as:
 Significant delays in management providing required information.
 An unnecessarily brief time within which to complete the audit.
 Extensive unexpected effort required to obtain sufficient appropriate audit
evidence.
 The unavailability of expected information.
 Restrictions imposed on the auditor by management.
 Management’s unwillingness to make or extend its assessment of the entity’s ability
to continue as a going concern when requested.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 184 of 277

SA 265;

Question 2; List out some matters that the auditor may consider in determining
whether a deficiency or combination of deficiencies in internal control constitutes a
“significant deficiency”
Answer 2; Examples of matters that the auditor may consider in determining whether
a deficiency or combination of deficiencies in internal control constitutes a significant
deficiency
• The likelihood of the deficiencies leading to material misstatements in the financial
statements in the future.
• The susceptibility to loss or fraud of the related asset or liability.
• The subjectivity and complexity of determining estimated amounts, such as fair value
accounting estimates.
• The financial statement amounts exposed to the deficiencies.
• The volume of activity that has occurred or could occur in the account balance or
class of transactions exposed to the deficiency or deficiencies.

• The importance of the controls to the financial reporting process, for example:
▪ General monitoring controls (such as oversight of management).
▪ Controls over the prevention and detection of fraud.
▪ Controls over the selection and application of significant accounting policies.
▪ Controls over significant transactions with related parties.
▪ Controls over significant transactions outside the entity’s normal course of business.
▪ Controls over the period-end financial reporting process (such as controls over non-
recurring journal entries).
• The cause and frequency of the exceptions detected as a result of the deficiencies in
the controls.
• The interaction of the deficiency with other deficiencies in internal control.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 185 of 277

SA 320; LIMITED VERSION OF QUESTIONS

Question 3; Is materiality required to be documented by the auditor? What factors

have to be considered this regard?
Answer 3; The audit documentation shall include the following amounts and the factors
considered in their determination:
(a) Materiality for the financial statements as a whole
(b) If applicable, the materiality level or levels for particular classes of transactions,
account balances or disclosures
(c) Performance materiality and
(d) Any revision of (a)-(c) as the audit progressed

Question 4; Determining materiality involves the exercise of professional judgment. A

percentage is often applied to a chosen benchmark as a starting point in determining
materiality for the financial statements as a whole. Discuss stating the factors that
may affect the identification of an appropriate benchmark.
Answer 4; Determining materiality involves the exercise of professional judgment. A
percentage is often applied to a chosen benchmark as a starting point in determining
materiality for the financial statements as a whole. Factors that may affect the
identification of an appropriate benchmark include the following:

• The elements of the financial statements

Example - assets, liabilities, equity, revenue, expenses;

• Whether there are items on which the attention of the users of the particular
entity’s financial statements tends to be focused
Example - for the purpose of evaluating financial performance users may tend to focus
on profit, revenue or net assets.

• The nature of the entity, where the entity is at in its life cycle, and the industry and
economic environment in which the entity operates; The entity’s ownership structure
and the way it is financed and
Example- if an entity is financed solely by debt rather than equity, users may put more
emphasis on assets, and claims on them, than on the entity’s earnings);

• The relative volatility of the benchmark.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 186 of 277

Question 5; The auditor’s determination of materiality is a matter of professional

judgment, and is affected by the auditor’s perception of the financial information
needs of users of the financial statements. In this context, explain the auditor’s
assumptions about users of the financial statements.
Answer 5; The auditor’s determination of materiality is a matter of professional
judgment, and is affected by the auditor’s perception of the financial information
needs of users of the financial statements. In this context, it is reasonable for the
auditor to assume that users:
(i) Have a reasonable knowledge of business and economic activities and accounting and
a willingness to study the information in the financial statements with reasonable
diligence;
(ii) Understand that financial statements are prepared, presented and audited to levels
of materiality;
(iii) Recognize the uncertainties inherent in the measurement of amounts based on the
use of estimates, judgment and the consideration of future events; and
(iv) Make reasonable economic decisions on the basis of the information in the financial
statements.

Question 6; What is meant by sufficiency of Audit Evidence? Explain the factors

affecting the auditor’s judgement as to the sufficiency of audit evidence.
Answer 6; Sufficiency is the measure of the quantity of audit evidence. The quantity
of audit evidence needed is affected by the auditor’s assessment of the risks of
misstatement (the higher the assessed risks, the more audit evidence is likely to be
required) and also by the quality of such audit evidence (the higher the quality, the less
may be required). Obtaining more audit evidence, however, may not compensate for its
poor quality.

Following are the factors affecting the auditor’s judgement as to the sufficiency
of audit evidence:

(i) Materiality: It may be defined as the significance of classes of transactions,

account balances and presentation and disclosures to the users of the financial
statements. Less evidence would be required in case assertions are less material to
users of the financial statements. But on the other hand, if assertions are more
material to the users of the financial statements, more evidence would be required.

(ii) Risk of material misstatement: It may be defined as the risk that the financial
statements are materially misstated prior to audit. This consists of two components
described as follows at the assertion level:

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 187 of 277

a. Inherent risk—The susceptibility of an assertion to a misstatement that could be

material before consideration of any related controls.
b. Control risk—The risk that a misstatement that could occur in an assertion that
could be material will not be prevented or detected and corrected on a timely basis by
the entity’s internal control.

Less evidence would be required in case assertions that have a lower risk of material
misstatement. But on the other hand, if assertions have a higher risk of material
misstatement, more evidence would be required.

It refers to the number of items included in the population. Less evidence would be
required in case of smaller, more homogeneous population but on the other hand in case
of larger, more heterogeneous populations, more evidence would be required.

SA 450;

Question 7; Discuss documentation requirements for an auditor regarding

misstatements identified during audit under SA 450.
Answer 7; The audit documentation shall include: -
(a) The amount below which misstatements would be regarded as clearly trivial;
(b) All misstatements accumulated during the audit and whether they have been
corrected; and
(c) The auditor’s conclusion as to whether uncorrected misstatements are material,
individually or in aggregate, and the basis for that conclusion.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 188 of 277

SA 610;

Question 8; Explain the meaning, objectives and scope of internal audit functions as
per SA 610. Also discuss who can be appointed as Internal Auditor?
Answer 8; Who can be appointed as Internal Auditor? As per section 138, the
internal auditor shall either be a chartered accountant or a cost accountant (whether
engaged in practice or not), or such other professional as may be decided by the Board
to conduct internal audit of the functions and activities of the companies. The internal
auditor may or may not be an employee of the company.

Internal audit function: A function of an entity that performs assurance and

consulting activities designed to evaluate and improve the effectiveness of the entity’ s
governance, risk management and internal control processes.

The objectives and scope of internal audit functions: As per SA-610, “Using the
Work of an Internal Auditor”, the objectives of internal audit functions vary widely and
depend on the size and structure of the entity and the requirements of management
and, where applicable, those charged with governance.

The objectives and scope of internal audit functions typically include assurance and
consulting activities designed to evaluate and improve the effectiveness of the entity’ s
governance processes, risk management and internal control such as the following:

A. Activities Relating to Governance: The internal audit function may assess the
governance process in its accomplishment of objectives on ethics and values,
performance management and accountability, communicating risk and control
information to appropriate areas of the organization and effectiveness of
communication among those charged with governance, external and internal auditors,
and management.

B. Activities Relating to Risk Management: The internal audit function may assist the
entity by identifying and evaluating significant exposures to risk and contributing to
the improvement of risk management and internal control (including effectiveness of
the financial reporting process). The internal audit function may perform procedures to
assist the entity in the detection of fraud.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 189 of 277

C. Activities Relating to Internal Control

(i) Evaluation of internal control. The internal audit function may be assigned specific
responsibility for reviewing controls, evaluating their operation and recommending
improvements thereto. In doing so, the internal audit function provides assurance on
the control. For example, the internal audit function might plan and perform tests or
other procedures to provide assurance to management and those charged with
governance regarding the design, implementation and operating effectiveness of
internal control, including those controls that are relevant to the audit.
(ii) Examination of financial and operating information. The internal audit function
may be assigned to review the means used to identify, recognize, measure, classify and
report financial and operating information, and to make specific inquiry into individual
items, including detailed testing of transactions, balances and procedures.
(iii) Review of operating activities. The internal audit function may be assigned to
review the economy, efficiency and effectiveness of operating activities, including
nonfinancial activities of an entity.
(iv) Review of compliance with laws and regulations. The internal audit function may
be assigned to review compliance with laws, regulations and other external
requirements, and with management policies and directives and other internal
requirements.

Question 9; Discuss some of circumstances when work of the internal auditor cannot
be used by external auditor
Answer 9; The external auditor shall not use the work of the internal audit
function if the external auditor determines that:
(a) The function’s organizational status and relevant policies and procedures do not
adequately support the objectivity of internal auditors;
(b) The function lacks sufficient competence; or
(c ) The function does not apply a systematic and disciplined approach, including quality
control.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 190 of 277

500,501,505,510,520,530,550,560,570,580

Question 10; In the course of audit of SMP Limited for the financial year ended 31st
March, 2020 you have observed as an auditor that the company has provided a sum of
RS. 20 Lakhs in the books of account as Gratuity payable to employees based on
certificate obtained from an actuary. Give your comments with reference to the
Standard on Auditing.
Answer 10; Certificate from a Management's Expert: In the given case, SMP Limited
has provided a sum of 20 lakh in the books of accounts as gratuity payable on the basis
of certificate obtained from an actuary. The liability towards gratuity payable to the
employees at the time of cessation of service should be ascertained and provided for in
the accounts when the employees are in service, it is an ascertained present liability
accruing over the period of service but payable upon cessation of service. The auditor
should check the quantification of the gratuity liability. He should ascertain whether
the same had been actuarially determined. The auditor should treat the actuary as
managements’ expert and conduct procedures relevant to checking the opinion of an
expert in accordance with SA 500.

As per SA 500, “Audit Evidence”, when information to be used as audit evidence has
been prepared using the work of a management’s expert, the auditor shall, to the
extent necessary, having regard to the significance of that expert’s work for the
auditor’s purposes:
A. Evaluate the competence, capabilities and objectivity of that expert;
B. Obtain an understanding of the work of that expert; and
C. Evaluate the appropriateness of that expert’s work as audit evidence for the
relevant assertion.

Question 11; The reliability of information to be used as audit evidence, and therefore
of the audit evidence itself, is influenced by its source, its nature and the
circumstances under which it is obtained. Explain and elucidate the guiding principles
which are useful in assessing the reliability of audit evidence.
Answer 11; Reliability of Audit Evidence: As per SA 500 on “Audit Evidence”, the
reliability of information to be used as audit evidence, and therefore of the audit
evidence itself, is influenced by its source and its nature, and the circumstances under
which it is obtained, including the controls over its preparation and maintenance where
relevant. Therefore, generalisations about the reliability of various kinds of audit
evidence are subject to important exceptions.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 191 of 277

While recognising that exceptions may exist, the following guiding principles about the
reliability of audit evidence may be useful:

(i) The reliability of audit evidence is increased when it is obtained from independent
sources outside the entity.

(ii) The reliability of audit evidence that is generated internally is increased when the
related controls, including those over its preparation and maintenance, imposed by the
entity are effective.

(iii) Audit evidence obtained directly by the auditor (for example, observation of the
application of a control) is more reliable than audit evidence obtained indirectly or by
inference (for example, inquiry about the application of a control).

(iv) Audit evidence in documentary form, whether paper, electronic, or other medium, is
more reliable than evidence obtained orally (for example, a contemporaneously written
record of a meeting is more reliable than a subsequent oral representation of the
matters discussed).

(v) Audit evidence provided by original documents is more reliable than audit evidence
provided by photocopies or facsimiles, or documents that have been filmed, digitized or
otherwise transformed into electronic form, the reliability of which may depend on the
controls over their preparation and maintenance.

Question 12; CA Amar is the statutory auditor of XYZ Ltd. for the FY 2021-22.
During the course of audit, CA Amar found that a litigation is going against the
company for which the company has hired an external legal team (management expert).
CA Amar wanted to use the information as audit evidence which is prepared using the
work of the management expert. What should CA Amar consider before using the work
of such management expert?
Answer 12; When information to be used as audit evidence has been prepared using
the work of a management’s expert, the auditor shall, to the extent necessary, having
regard to the significance of that expert’s work for the auditor’s purposes:
A. Evaluate the competence, capabilities and objectivity of that expert;
B. Obtain an understanding of the work of that expert; and
C. Evaluate the appropriateness of that expert’s work as audit evidence for the
relevant assertion.
D. CA Amar should consider the above before using the work of the management’s
expert.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 192 of 277

Question 13; There are practical and legal limitations on the auditor’s ability to obtain
audit evidence. Explain with the help of examples.
Answer 4; The Nature of Audit Procedures: The auditor carries out his work by
obtaining audit evidence through performance of audit procedures. There are practical
and legal limitations on the auditor’s ability to obtain audit evidence.
For example:
A. There is possibility that management or others may not provide, intentionally or
unintentionally, the complete information that is relevant to the preparation and
presentation of the financial statements or that has been requested by the auditor.

B. Fraud may involve sophisticated and carefully organised schemes designed to conceal
it. Therefore, audit procedures used to gather audit evidence may be ineffective for
detecting an intentional misstatement that involves, for example, collusion to falsify
documentation which may cause the auditor to believe that audit evidence is valid when
it is not. The auditor is neither trained as nor expected to be an expert in the
authentication of documents.

C. An audit is not an official investigation into alleged wrongdoing. Accordingly, the

auditor is not given specific legal powers, such as the power of search, which may be
necessary for such an investigation.

Question 14; Auditing is a logical process. An auditor is called upon to assess the
actualities of the situation, review the statements of account and give an expert
opinion about the truth and fairness of such accounts. This he cannot do unless he has
examined the financial statements objectively. He needs evidence to obtain information
for arriving at his judgment. Discuss explaining clearly the meaning of audit evidence in
detail.
Answer 14; Auditing is a logical process. An auditor is called upon to assess the
actualities of the situation, review the statements of account and give an expert
opinion about the truth and fairness of such accounts. This he cannot do unless he has
examined the financial statements objectively.

Objective examination connotes critical examination and scrutiny of the accounting

statements of the undertaking with a view to assessing how far the statements present
the actual state of affairs in the correct context and whether they give a true and fair
view about the financial results and state of affairs. An opinion founded on a rather
reckless and negligent examination and evaluation may expose the auditor to legal
action with consequential loss of professional standing and prestige.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 193 of 277

He needs evidence to obtain information for arriving at his judgment.

Audit evidence may be defined as the information used by the auditor in arriving at the
conclusions on which the auditor’s opinion is based. Audit evidence includes both
information contained in the accounting records underlying the financial statements
and other information.

Explaining this further, audit evidence includes:-

(A) Information contained in the accounting records: Accounting records include the
records of initial accounting entries and supporting records, such as checks and
records of electronic fund transfers; invoices; contracts; the general and subsidiary
ledgers, journal entries and other adjustments to the financial statements that are not
reflected in journal entries; and records such as work sheets and spreadsheets
supporting cost allocations, computations, reconciliations and disclosures.

(B) Other information that authenticates the accounting records and also supports
the auditor’s rationale behind the true and fair presentation of the financial
statements: Other information which the auditor may use as audit evidence includes,
for example minutes of the meetings, written confirmations from trade receivables and
trade payables, manuals containing details of internal control etc. A combination of
tests of accounting records and other information is generally used by the auditor to
support his opinion on the financial statements.

Question 15; When information to be used as audit evidence has been prepared using
the work of a management’s expert and having regard to the significance of expert’s
work for the auditor’s purposes, explain the considerations auditor would consider for
the purposes of his audit.
Answer 15; When information to be used as audit evidence has been prepared using
the work of a management’s expert, the auditor shall, to the extent necessary, having
regard to the significance of that expert’s work for the auditor’s purposes:
(i) Evaluate the competence, capabilities and objectivity of that expert;
(ii) Obtain an understanding of the work of that expert; and
(iii) Evaluate the appropriateness of that expert’s work as audit evidence for the
relevant assertion.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 194 of 277

Question 16; Audit evidence includes both information contained in the accounting
records underlying the financial statements and other information. Discuss.
Answer 16; Audit evidence may be defined as the information used by the auditor in
arriving at the conclusions on which the auditor’s opinion is based. Audit evidence
includes both information contained in the accounting records underlying the financial
statements and other information.

Explaining this further, audit evidence includes:

(B) Other information that authenticates the accounting records and also supports the
auditor’s rationale behind the true and fair presentation of the financial statements:
Other information which the auditor may use as audit evidence includes, for example
minutes of the meetings, written confirmations from trade receivables and trade
payables, manuals containing details of internal control etc. A combination of tests of
accounting records and other information is generally used by the auditor to support
his opinion on the financial statements.

Question 17; While conducting the audit of Pummy Limited, the statutory auditors
collected written representations from the Management. The audit was finalized in
addition to other audit procedures but, without making any inquiries, as the statutory
auditors were short of time. In the light of this information, state the importance of
inquiry as one of the methods of collecting Audit Evidence.
Answer 17; Inquiry: As per SA 500 Audit Evidence:
(i) Inquiry consists of seeking information of knowledgeable persons, financial and non-
financial, within the entity or outside the entity. Inquiry is used extensively throughout
the audit in addition to other audit procedures. Inquiries may range from formal
written inquiries to informal oral inquiries. Evaluating responses to inquiries is an
integral part of the inquiry process.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 195 of 277

(ii) Responses to inquiries may provide the auditor with information not previously
possessed or with corroborative audit evidence. Alternatively, responses might provide
information that differs significantly from other information that the auditor has
obtained, for example, information regarding the possibility of management override of
controls. In some cases, responses to inquiries provide a basis for the auditor to modify
or perform additional audit procedures.

(iii) Although corroboration of evidence obtained through inquiry is often of particular

importance, in the case of inquiries about management intent, the information available
to support management’s intent may be limited. In these cases, understanding
management’s past history of carrying out its stated intentions, management’s stated
reasons for choosing a particular course of action, and management’s ability to pursue a
specific course of action may provide relevant information to corroborate the evidence
obtained through inquiry.

(iv) In respect of some matters, the auditor may consider it necessary to obtain
written representations from management and, where appropriate, those charged with
governance to confirm responses to oral inquiries.

Question 18; An auditor is called upon to assess the actualities of the situation, review
the statements of account and give an expert opinion about the truth and fairness of
such accounts. This he cannot do unless he has examined the financial statements
objectively. Explain.
Answer 18; Auditing is a logical process. An auditor is called upon to assess the
actualities of the situation, review the statements of account and give an expert
opinion about the truth and fairness of such accounts. This he cannot do unless he has
examined the financial statements objectively.

Objective examination connotes critical examination and scrutiny of the accounting

He needs evidence to obtain information for arriving at his judgement.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 196 of 277

SA 500 – “Audit Evidence”, explains what constitutes audit evidence in an audit of

financial statements, and deals with the auditor’s responsibility to design and perform
audit procedures to obtain sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the auditor’s opinion.

Question 19; T Ltd has used the services of an expert for the purpose of physical
verification of its inventory which is appearing in the financial statements of the
company at RS. 75 Crores. Discuss the broad parameters auditor would take into
consideration while deciding about using the work performed by the Management’s
Expert in physical verification of company’s inventory.
Answer 19; When information to be used as audit evidence has been prepared using
the work of a management’s expert, the auditor shall, to the extent necessary, having
regard to the significance of that expert’s work for the auditor’s purposes:
• Evaluate the competence, capabilities and objectivity of that expert;
• Obtain an understanding of the work of that expert; and
• Evaluate the appropriateness of that expert’s work as audit evidence for the relevant
assertion.

Question 20; Discuss the following: The sample size can be determined by the
application of a statistically -based formula or through the exercise of professional
judgment. When circumstances are similar, the effect on sample size of factors will be
similar regardless of whether a statistical or non-statistical approach is chosen. Explain
Stating the examples of factors that the auditor may consider when determining the
sample size for tests of controls.
Answer 20; The level of sampling risk that the auditor is willing to accept affects the
sample size required. The lower the risk the auditor is willing to accept, the greater
the sample size will need to be.

The sample size can be determined by the application of a statistically-based formula

or through the exercise of professional judgment. When circumstances are similar, the
effect on sample size of factors will be similar regardless of whether a statistical or
non-statistical approach is chosen.
Examples of Factors Influencing Sample Size for Tests of Controls:
The following are factors that the auditor may consider when determining the sample
size for tests of controls. These factors, which need to be considered together,
assume the auditor does not modify the nature or timing of tests of controls or
otherwise modify the approach to substantive procedures in response to assessed
risks.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 197 of 277

 When there is an increase in the extent to which the auditor’s risk assessment takes
into account relevant controls. The more assurance the auditor intends to obtain from
the operating effectiveness of controls, the lower the auditor’s assessment of the risk
of material misstatement will be, and the larger the sample size will need to be. When
the auditor’s assessment of the risk of material misstatement at the assertion level
includes an expectation of the operating effectiveness of controls, the auditor is
required to perform tests of controls. Other things being equal, the greater the
reliance the auditor places on the operating effectiveness of controls in the risk
assessment, the greater is the extent of the auditor’s tests of controls (and
therefore, the sample size is increased). Thus, sample size will increase.

 If there is an increase in the tolerable rate of deviation. Then sample size will
decrease, as lower the tolerable rate of deviation, larger the sample size needs to be.

 When there is an increase in the expected rate of deviation of the population to be

tested then sample size will increase, as higher the expected rate of deviation, larger
the sample size needs to be so that the auditor is in a position to make a reasonable
estimate of the actual rate of deviation. Factors relevant to the auditor’s consideration
of the expected rate of deviation include the auditor’s understanding of the business
(in particular, risk assessment procedures undertaken to obtain an understanding of
internal control), changes in personnel or in internal control, the results of audit
procedures applied in prior periods and the results of other audit procedures. High
expected control deviation rates ordinarily warrant little, if any, reduction of the
assessed risk of material misstatement.

 An increase in the auditor’s desired level of assurance that the tolerable rate of
deviation is not exceeded by the actual rate of deviation in the population will increase
the sample size. Thus, the greater the level of assurance that the auditor desires that
the results of the sample are in fact indicative of the actual incidence of deviation in
the population, the larger the sample size needs to be.

 In case of large populations, the actual size of the population has little, if any, effect
on sample size. For small populations however, audit sampling may not be as efficient as
alternative means of obtaining sufficient appropriate audit evidence. Therefore, there
will be negligible effect on sample size due to increase in the number of sampling units
in the population.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 198 of 277

Question 21; XYZ Ltd is engaged in trading of electronic goods and having huge
accounts receivables. For analysing the whole accounts receivables, auditor wanted to
use sampling technique. In considering the characteristics of the population from which
the sample will be drawn, the auditor determines that stratification or value-weighted
selection technique is appropriate. SA 530 provides guidance to the auditor on the use
of stratification and value-weighted sampling techniques. Advise the auditor in
accordance with SA 530.
Answer 21; Stratification and Value-Weighted Selection: In considering the
characteristics of the population from which the sample will be drawn, the auditor may
determine that stratification or value-weighted selection technique is appropriate. SA
530 provides guidance to the auditor on the use of stratification and valueweighted
sampling techniques.

Stratification: Audit efficiency may be improved if the auditor stratifies a population

by dividing it into discrete sub-populations which have an identifying characteristic.
The objective of stratification is to reduce the variability of items within each stratum
and therefore allow sample size to be reduced without increasing sampling risk.

When performing tests of details, the population is often stratified by monetary value.
This allows greater audit effort to be directed to the larger value items, as these
items may contain the greatest potential misstatement in terms of overstatement.
Similarly, a population may be stratified according to a particular characteristic that
indicates a higher risk of misstatement, for example, when testing the allowance for
doubtful accounts in the valuation of accounts receivable, balances may be stratified by
age.

The results of audit procedures applied to a sample of items within a stratum can only
be projected to the items that make up that stratum. To draw a conclusion on the
entire population, the auditor will need to consider the risk of material misstatement in
relation to whatever other strata make up the entire population.

For example, 20% of the items in a population may make up 90% of the value of an
account balance. The auditor may decide to examine a sample of these items. The
auditor evaluates the results of this sample and reaches a conclusion on the 90% of
value separately from the remaining 10% (on which a further sample or other means of
gathering audit evidence will be used, or which may be considered immaterial). If a
class of transactions or account balance has been divided into strata, the misstatement
is projected for each stratum separately. Projected misstatements for each stratum
are then combined when considering the possible effect of misstatements on the total
class of transactions or account balance.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 199 of 277

Value-Weighted Selection: When performing tests of details it may be efficient to

identify the sampling unit as the individual monetary units that make up the population.
Having selected specific monetary units from within the population, for example, the
accounts receivable balance, the auditor may then examine the particular items,
for example, individual balances, that contain those monetary units. One benefit of
this approach to defining the sampling unit is that audit effort is directed to the larger
value items because they have a greater chance of selection, and can result in smaller
sample sizes.

This approach may be used in conjunction with the systematic method of sample
selection and is most efficient when selecting items using random selection.

Question 22; CA X is not sure about the kind of Sampling method to be used for audit
of a company. Advise him about the choice of methods (name of methods only) of
Sampling to be used in various circumstances. Also explain briefly the advantages of
the Sampling to be used by him in auditing.
Answer 22; Sample Selection:
CA. X should obtain the knowledge before using the sampling methods. The principal
methods are as follows:
(A) Random selection.
(B) Systematic selection.
(C) Monetary Unit sampling.
(D) Haphazard selection.
(E) Block selection.

Advantages of Statistical Sampling in Auditing:

(i) The amount of testing (sample size) does not increase in proportion to the increase
in the size of the area (universe) tested.
(ii) The sample selection is more objective and thereby more defensible.
(iii) The method provides a means of estimating the minimum sample size associated
with a specified risk and precision.
(iv) It provides a means for deriving a "calculated risk" and corresponding precision
(sampling error) i.e. the probable difference in result due to the use of a sample in lieu
of examining all the records in the group (universe), using the same audit procedures.
(v) It may provide a better description of a large mass of data than a complete
examination of all the data, since non-sampling errors such as processing and clerical
mistakes are not as large.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 200 of 277

Question 23; ABC Ltd is a Large Company with huge purchase and sales transactions.
Which sampling approach is recommended in such a company? Explain giving features of
such sampling approach along with example.
Answer 23; In larger organisations, with huge transactions, statistical sampling is
always recommended as it is unbiased, and the samples selected are not prejudged.

Features/Characteristics of Statistical Sampling:

(A) Audit testing done through this approach is more scientific than testing based
entirely on the auditor’s own judgment because it involves use of mathematical laws of
probability in determining the appropriate sample size in varying circumstances.
(B) Statistical sampling has reasonably wide application where a population to be tested
consists of a large number of similar items and more in the case of transactions
involving compliance testing, trade receivables’ confirmation, payroll checking, vouching
of invoices and petty cash vouchers.
(C) There Is no personal bias of the auditor in case of statistical sampling. Since it is
scientific, the results of sample can be evaluated and projected on the whole population
in a more reliable manner.

For Example: An auditor while verifying the Purchases during the year realised that
the purchase transactions in that year are more than 45000 in number, then in such
case, statistical sampling will be highly recommended in the audit program. Random
Sampling (discussed ahead in this topic) is the method you decide to choose sample in
such a situation.

Question 24; There is a growing realisation that the traditional approach to audit is
economically wasteful because all efforts are directed to check all transactions without
exception. Explain.
Answer 24; No conscious effort in human society is divested of economic
considerations and auditing is no exception. There is a growing realisation that the
traditional approach to audit is economically wasteful because all efforts are directed
to check all transactions without exception. This invariably leads to more emphasis on
routine checking, which often is not necessary in view of the time and the cost involved.
With the shift in favour of formal internal controls in the management of affairs of
organisations, the possibilities of routine errors and frauds have greatly diminished and
auditors often find extensive routine checking as nothing more than a ritual because it
seldom reveals anything material. Now the approach to audit and the extent of
checking are undergoing a progressive change in favour of more attention towards the
questions of principles and controls with a curtailment of non-consequential routine
checking. By routine checking we traditionally think of extensive checking and vouching
of all entries.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 201 of 277

Question 25; The extent of the checking to be undertaken is primarily a matter of

judgment of the auditor. It is in the interest of the auditor that if he decides to form
his opinion on the basis of a part checking, he should adopt standards and techniques
which are widely followed Explain
Answer 25; The extent of the checking to be undertaken is primarily a matter of
judgment of the auditor, there is nothing statutorily stated anywhere which specifies
what work is to be done, how it is to be done and to what extent. It is also not
obligatory that the auditor must adopt the sampling technique. What he is to do is to
express his opinion and become bound by that.

To ensure good and reasonable standard of work, he should adopt standards and
techniques that can lead him to an informed professional opinion. On a consideration of
this fact, it can be said that it is in the interest of the auditor that if he decides to
form his opinion on the basis of a part checking, he should adopt standards and
techniques which are widely followed and which have a recognized basis. Since
statistical theory of sampling is based on a scientific law, it can be relied upon to a
greater extent than any arbitrary technique which lacks in basis and acceptability.

Question 26; In most of the circumstances, the evidence available is not conclusive and
the auditor always takes a calculated risk in giving his opinion. Even by undertaking
hundred percent checking of the transactions, the auditor does not derive absolute
satisfaction. This state of uneasiness led pragmatic auditors to adopt the statistical
theory of sampling to derive the necessary satisfaction about the state of affairs by
checking only a part of the total population of entries. Explain in detail.
Answer 26; In most of the circumstances, the evidence available is not conclusive and
the auditor always takes a calculated risk in giving his opinion. Even by undertaking
hundred percent checking of the transactions, the auditor does not derive absolute
satisfaction. This state of uneasiness led pragmatic auditors to adopt the statistical
theory of sampling to derive the necessary satisfaction about the state of affairs by
checking only a part of the total population of entries.

Auditors realized that they can derive good satisfaction by undertaking a much lesser
checking by adoption of this technique in the auditing process. It is a mathematical
truth that the sample, if picked purely on a random basis would reveal the features and
characteristics of the population.

By adopting the sampling technique, the auditor only checks a part of the whole mass of
transactions. The satisfaction he used to derive earlier, by checking all the
transactions, can be derived by a sample checking provided he can put reliance on the

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 202 of 277

internal controls and checks within the client’s organization because they provide the
reliability of the records. Sampling is used as a part of Test of controls. Auditor will
check few internal controls and their operating effectiveness. Based on the conclusion
derived, he can then design the sample size for test of details (i.e. checking of
transactions and balances).

If the internal control is satisfactory in its design and implementation, a much smaller
sample can give the auditor the necessary reliability of the result he obtains.

On the other hand, if in certain areas controls are slack or not properly implemented,
the auditor may have to take a much larger sample for getting satisfactory result.

Another truth about the sampling technique should be noted. It can never bring
complete reliability; it cannot give precisely accurate results. It is a process of
estimation. It may have some error. What error is tolerable for a particular matter
under examination is a matter of the individual’s judgment in that particular case.

Question 27; When designing an audit sample, the auditor shall consider the purpose of
the audit procedure and the characteristics of the population from which the sample
will be drawn. Explain in detail.
Answer 27; Audit sampling enables the auditor to obtain and evaluate audit evidence
about some characteristic of the items selected in order to form or assist in forming a
conclusion concerning the population from which the sample is drawn. Audit sampling
can be applied using either non-statistical or statistical sampling approaches.

When designing an audit sample, the auditor’s consideration includes the specific
purpose to be achieved and the combination of audit procedures that is likely to best
achieve that purpose. Consideration of the nature of the audit evidence sought and
possible deviation or misstatement conditions or other characteristics relating to that
audit evidence will assist the auditor in defining what constitutes a deviation or
misstatement and what population to use for sampling. In fulfilling the requirement of
relevant portion (paragraph 8) of SA 500, when performing audit sampling, the auditor
performs audit procedures to obtain evidence that the population from which the audit
sample is drawn is complete.

The auditor’s consideration of the purpose of the audit procedure includes a clear
understanding of what constitutes a deviation or misstatement so that all, and only,
those conditions that are relevant to the purpose of the audit procedure are included
in the evaluation of deviations or projection of misstatements. For example, in a test of

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 203 of 277

details relating to the existence of accounts receivable, such as confirmation, payments

made by the customer before the confirmation date but received shortly after that
date by the client, are not considered a misstatement. Also, a disposing between
customer accounts does not affect the total accounts receivable balance. Therefore, it
may not be appropriate to consider this a misstatement in evaluating the sample results
of this particular audit procedure, even though it may have an important effect on
other areas of the audit, such as the assessment of the risk of fraud or the adequacy
of the allowance for doubtful accounts.

In considering the characteristics of a population, for tests of controls, the auditor

makes an assessment of the expected rate of deviation based on the auditor’s
understanding of the relevant controls or on the examination of a small number of
items from the population. This assessment is made in order to design an audit sample
and to determine sample size. For example, if the expected rate of deviation is
unacceptably high, the auditor will normally decide not to perform tests of controls.
Similarly, for tests of details, the auditor makes an assessment of the expected
misstatement in the population. If the expected misstatement is high, 100%
examination or use of a large sample size may be appropriate when performing tests of
details.

In considering the characteristics of the population from which the sample will be
drawn, the auditor may determine that stratification or value-weighted selection is
appropriate.

The decision whether to use a statistical or non-statistical sampling approach is a

matter for the auditor’s judgment; however, sample size is not a valid criterion to
distinguish between statistical and non-statistical approaches.

Question 28; The auditor shall evaluate the results of the sample and whether the use
of audit sampling has provided a reasonable basis for conclusions about the population
that has been tested. Explain.
Answer 28; The auditor shall evaluate
(a) The results of the sample; and
(b) Whether the use of audit sampling has provided a reasonable basis for conclusions
about the population that has been tested.

For tests of controls, an unexpectedly high sample deviation rate may lead to an
increase in the assessed risk of material misstatement, unless further audit evidence
substantiating the initial assessment is obtained. For tests of details, an unexpectedly

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 204 of 277

high misstatement amount in a sample may cause the auditor to believe that a class of
transactions or account balance is materially misstated, in the absence of further audit
evidence that no material misstatement exists.

In the case of tests of details, the projected misstatement plus anomalous

misstatement, if any, is the auditor’s best estimate of misstatement in the population.
When the projected misstatement plus anomalous misstatement, if any, exceeds
tolerable misstatement, the sample does not provide a reasonable basis for conclusions
about the population that has been tested. The closer the projected misstatement plus
anomalous misstatement is to tolerable misstatement, the more likely that actual
misstatement in the population may exceed tolerable misstatement. Also, if the
projected misstatement is greater than the auditor’s expectations of misstatement
used to determine the sample size, the auditor may conclude that there is an
unacceptable sampling risk that the actual misstatement in the population exceeds the
tolerable misstatement. Considering the results of other audit procedures helps the
auditor to assess the risk that actual misstatement in the population exceeds tolerable
misstatement, and the risk may be reduced if additional audit evidence is obtained.

In case the auditor concludes that audit sampling has not provided a reasonable basis
for conclusions about the population that has been tested, the auditor may request
management to investigate misstatements that have been identified and the potential
for further misstatements and to make any necessary adjustments; or tailor the
nature, timing and extent of those further audit procedures to best achieve the
required assurance. For example, in the case of tests of controls, the auditor might
extend the sample size, test an alternative control or modify related substantive
procedures.

Question 29; This method is considered appropriate provided the population to be

sampled consists of reasonably similar units and fall within a reasonable range i.e. it is
suitable for a homogeneous population having a similar range. Explain about that
method.
Answer 29; Simple Random Sampling:
Under this method each unit of the whole population e.g. purchase or sales invoice has
an equal chance of being selected. It is considered that random number tables are
simple and easy to use and also provide assurance that the auditors’ bias does not
affect the selection. Each item in a population is selected by use of random number
table either with a help of computer or picking up a number in a random way (may be
randomly from a drum). Today random numbers are also generated using various
applications on the cell phones like the random number generator.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 205 of 277

This method is considered appropriate provided the population to be sampled consists

of reasonably similar units and fall within a reasonable range i.e. it is suitable for a
homogeneous population having a similar range.

Question 30; Chintamani Ltd appoints Chintan & Mani as statutory auditors for the
financial year 2022- 2023. Chintan & Mani seem to have different opinion on audit
approach to be adopted for audit of Chintamani Ltd. Mani is of the opinion that 100%
checking is not required and they can rely on Audit Sampling techniques in order to
provide them a reasonable basis on which they can draw conclusions about the entire
population. Chintan is concerned whether the use of audit sampling has provided a
reasonable basis for conclusions about the population that has been tested. You are
required to guide Chintan about his role if audit sampling has not provided a reasonable
basis for conclusions about the population that has been tested in accordance with SA
530.
Answer 30; As per SA 530, “Audit Sampling”, the auditor shall evaluate:
(a) The results of the sample; and
(b) Whether the use of audit sampling has provided a reasonable basis for conclusions
about the population that has been tested.

If the auditor concludes that audit sampling has not provided a reasonable basis for
conclusions about the population that has been tested, the auditor may:
(A) Request management to investigate misstatements that have been identified and
the potential for further misstatements and to make any necessary adjustments; or
(B) Tailor the nature, timing and extent of those further audit procedures to best
achieve the required assurance. For example, in the case of tests of controls, the
auditor might extend the sample size, test an alternative control or modify related
substantive procedures.

Question 31; Krishna Cycles Ltd is engaged in manufacturing of different type of

Bicycles. Ongoing through its financial statements for the past years, it is observed
that inventory is material to the financial statements. You as an auditor of the company
wanted to obtain sufficient appropriate audit evidence regarding the existence and
condition of the inventory as appearing in the financial statements. Discuss, how would
you proceed as an auditor.
Answer 31; When inventory is material to the financial statements, the auditor shall
obtain sufficient appropriate audit evidence regarding the existence and condition of
inventory by:

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 206 of 277

(a) Attendance at physical inventory counting, unless impracticable, to:

(i) Evaluate management’s instructions and procedures for recording and controlling
the results of the entity’s physical inventory counting;
(ii) Observe the performance of management’s count procedures;
(iii) Inspect the inventory; and
(iv) Perform test counts; and

(b) Performing audit procedures over the entity’s final inventory records to determine
whether they accurately reflect actual inventory count results.

Question 32; While conducting audit of Vee Ltd, CA Aman, auditor of the company,
found that some goods are lying with third party for a long period. Advise Aman how
will he verify them.
Answer 32; Goods Lying with Third Party: The auditor should check that the
materiality of the item under this caption included in inventories.
(i) He should obtain confirmation of the amount of goods lying with them. The
confirmation may be directly obtained by auditor or be produced by client depending
upon the situation.
(ii) He should inquire into the necessity of sub-contractor retaining the inventory. He
should ensure the process that they do are related to the business requirement and
there is no ground for suspicion on this score.
(iii) The goods lying with them for the very long period would merit auditors’ special
attention for making provision.
(iv) The records, voucher/slips for the regulating the movement of inventory into and
out of entity for sub-contracting work be reviewed by vouching for few transaction for
ensuring existence and working of internal control system for them.
(v) The excise gate pass, entry in such records, information in returns, be also cross-
verified.
(vi) The valuation of inventories should be correctly made for including material cost on
appropriate inventory valuation formulae and also for inclusion of proportionate
processing charges for the work in process with the contractors.
(vii) The provision should be created for work done, billed for processing and also for
incidence of any applicable levy like service tax payable.
(viii) Evaluate condition of goods and see whether adequate provision has been made.
(ix) Check whether subsequently the goods lying with third party were sold or received
back after the expiry of stipulated time period.
(x) Ensure that the goods have been included in the closing inventory though lying with
third party.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 207 of 277

Question 33; TRM Ltd. is a company engaged in manufacture of beauty products. It

has hair care segment, skin care segment and kids’ beauty products. The auditor wants
to obtain sufficient appropriate audit evidence regarding the presentation and
disclosure of segment information in accordance with the applicable financial reporting
framework. Suggest the audit procedures in the given case.
Answer 33; The auditor shall obtain sufficient appropriate audit evidence regarding
the presentation and disclosure of segment information in accordance with the
applicable financial reporting framework by:
(A) Obtaining an understanding of the methods used by management in determining
segment information. Further,
(i) Evaluating whether such methods are likely to result in disclosure in accordance
with the applicable financial reporting framework; and
(ii) Where appropriate, testing the application of such methods; and

(B) Performing analytical procedures or other audit procedures appropriate in the

circumstances.

Question 34; GPS & Co, Chartered Accountants, conducting the audit of Pratibha Ltd.,
a listed company for the year ended 31.03.2022 is concerned with the presentation and
disclosure of segment information included in Company's Annual Report. GPS & Co
wanted to ensure that methods adopted by management for determining segment
information have resulted in disclosure in accordance with the applicable financial
reporting framework. Guide GPS & Co with 'Examples of Matters' that may be relevant
when obtaining an understanding of the methods used by the management with
reference to the relevant Standards on Auditing.
Answer 34; The auditors, GPS & Co wanted to ensure and obtain sufficient
appropriate audit evidence regarding the presentation and disclosure of segment
information in accordance with the applicable financial reporting framework by
obtaining an understanding of the methods used by management in determining segment
information. SA 501 guides in this regard. As per SA 501- “Audit Evidence— Specific
Considerations for Selected Items”, example of matters that may be relevant when
obtaining an understanding of the methods used by management in determining segment
information and whether such methods are likely to result in disclosure in accordance
with the applicable financial reporting framework include:
(i) Sales, transfers and charges between segments, and elimination of inter - segment
amounts.
(ii) Comparisons with budgets and other expected results, for example, operating
profits as a percentage of sales.
(iii) The allocation of assets and costs among segments.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 208 of 277

(iv) Consistency with prior periods, and the adequacy of the disclosures with respect to
inconsistencies.

Question 35; External confirmation procedures frequently are relevant when

addressing assertions associated with account balances and their elements but need
not be restricted to these items. Apart from confirmations for bank balances and
accounts receivables, what are the other situations where external confirmation
procedures may provide relevant audit evidence in responding to assessed risks of
material misstatement?
Answer 35; Other examples of situations where external confirmations may be
used include the following:
a. Inventories held by third parties at bonded warehouses for processing or on
consignment.
b. Property title deeds held by lawyers or financiers for safe custody or as security.
c. Investments held for safekeeping by third parties, or purchases from stockbrokers
but not delivered at the balance sheet date
d. Amounts due to lenders, including relevant terms of repayment and restrictive
covenants.
e. Accounts payable balances and terms  Long outstanding share application money.

Question 36; External confirmation procedures frequently are relevant when

addressing assertions associated with account balances and their elements, but need
not be restricted to these items. Analyze and Explain.
Answer 36; External confirmation procedures frequently are relevant when addressing
assertions associated with account balances and their elements, but need not be
restricted to these items. For example, the auditor may request external confirmation
of the terms of agreements, contracts, or transactions between an entity and other
parties. External confirmation procedures also may be performed to obtain audit
evidence about the absence of certain conditions. For example, a request may
specifically seek confirmation that no “side agreement” exists that may be relevant to
an entity’s revenue cut-off assertion.

Other situations where external confirmation procedures may provide relevant audit
evidence in responding to assessed risks of material misstatement include:
• Bank balances and other information relevant to banking relationships.
• Accounts receivable balances and terms.
• Inventories held by third parties at bonded warehouses for processing or on
consignment.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 209 of 277

• Property title deeds held by lawyers or financiers for safe custody or as security.
• Investments held for safekeeping by third parties, or purchased from stockbrokers
but not delivered at the balance sheet date.
• Amounts due to lenders, including relevant terms of repayment and restrictive
covenants.
• Accounts payable balances and terms.

Question 37; Auditors of M/s Tender India (P) Ltd. were changed for the accounting
year 2016-17. The closing inventory of the company as on 31.3.2016 amounting to Rs.
100 lacs continued as it is and became closing inventory as on 31.3.2017. The auditors of
the company propose to exclude from their audit programme the audit of closing
inventory of Rs. 100 lacs on the understanding that it pertains to the preceding year
which was audited by another auditor.
Answer 37; Verification of Inventory: As per SA 510 “Initial Audit Engagements –
Opening Balances”, in conducting an initial audit engagement, the objective of the
auditor with respect to opening balances is to obtain sufficient appropriate audit
evidence about whether-
(i) Opening balances contain misstatements that materially affect the current period’s
financial statements; and
(ii) Appropriate accounting policies reflected in the opening balances have been
consistently applied in the current period’s financial statements, or changes thereto
are properly accounted for and adequately presented and disclosed in accordance with
the applicable financial reporting framework.

When the financial statements for the preceding period were audited by predecessor
auditor, the current auditor may be able to obtain sufficient appropriate audit evidence
regarding opening balances by perusing the copies of the audited financial statements
including the other relevant documents relating to the prior period financial statements
such as supporting schedules to the audited financial statements. Ordinarily, the
current auditor can place reliance on the closing balances contained in the financial
statements for the preceding period, except when during the performance of audit
procedures for the current period the possibility of misstatements in opening balances
is indicated.

General principles governing verification of assets require that the auditor should
confirm that assets have been correctly valued as on the Balance Sheet date. The
contention of the management that the inventory has not undergone any change cannot
be accepted, it forms part of normal duties of auditor to ensure that the figures on
which he is expressing opinion are correct and properly valued. Moreover, it is also

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 210 of 277

quite likely that the inventory lying as it is might have deteriorated and the same need
to be examined. The auditor is advised not to exclude the audit of closing inventory
from his audit programme.

Question 38; There are specific accounting and disclosure requirements for related
party relationships, transactions and balances to enable users of the financial
statements to understand their nature and effects on the financial statements.
Explain in detail stating clearly the auditor’s responsibility in the above context.
Answer 38; There are specific accounting and disclosure requirements for related
party relationships, transactions and balances to enable users of the financial
statements to understand their nature and effects on the financial statements.

The auditor has a responsibility to perform audit procedures to identify, assess and
respond to the risks of material misstatement arising from the entity’s failure to
appropriately account for related party relationships, transactions or balances.

The auditor needs to obtain an understanding of the entity’s related party relationships
and transactions sufficient to be able to conclude whether the financial statements,
insofar as they are affected by those relationships and transactions:
(a) Achieve a true and fair presentation; or
(b) Are not misleading (for compliance frameworks).

In addition, an understanding of the entity’s related party relationships and

transactions is relevant to the auditor’s evaluation of whether fraud risk factors are
present as required by SA 240. This is because fraud may be more easily committed
through related parties.

Owing to the inherent limitations of an audit, there is an unavoidable risk that some
material misstatements of the financial statements may not be detected, even though
the audit is properly planned and performed in accordance with the SAs. In the
context of related parties, the potential effects of inherent limitations on the
auditor’s ability to detect material misstatements are greater for such reasons as the
following:

A. Management may be unaware of the existence of all related party relationships.

B. Related party relationships may present a greater opportunity for collusion,
concealment or manipulation by management.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 211 of 277

C. Planning and performing the audit with professional skepticism as required by SA

200 is therefore particularly important in this context, given the potential for
undisclosed related party relationships and transactions. The requirements in this SA
are designed to assist the auditor in identifying and assessing the risks of material
misstatement associated with related party relationships and transactions, and in
designing audit procedures to respond to the assessed risks.

Question 39; The auditor has a responsibility to perform audit procedures to identify,
assess and respond to the risks of material misstatement arising from the entity’s
failure to appropriately account for related party relationships, transactions or
balances. During the audit, the auditor should maintain alertness for related party
information while reviewing records and documents. He may inspect the records or
documents that may provide information about related party relationships and
transactions. Explain in detail with examples.
Answer 39; During the audit, the auditor should maintain alertness for related party
information while reviewing records and documents. He may inspect the following
records or documents that may provide information about related party relationships
and transactions, for example:

➢ Entity income tax returns.

➢ Information supplied by the entity to regulatory authorities.
➢ Shareholder registers to identify the entity’s principal shareholders.
➢ Statements of conflicts of interest from management and those charged with
governance.
➢ Records of the entity’s investments and those of its pension plans.
➢ Contracts and agreements with key management or those charged with
governance.
➢ Significant contracts and agreements not in the entity’s ordinary course of
business.
➢ Specific invoices and correspondence from the entity’s professional advisors.
➢ Life insurance policies acquired by the entity.
➢ Significant contracts re-negotiated by the entity during the period.
➢ Internal auditors’ reports.
➢ Documents associated with the entity’s filings with a securities regulator e.g.,
prospectuses

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 212 of 277

Question 40; Substantive analytical procedures are generally more applicable to large
volumes of transactions that tend to be predictable over time. Explain.
Answer 40; Substantive Analytical Procedure: Substantive analytical procedures are
generally more applicable to large volumes of transactions that tend to be predictable
over time. The application of planned analytical procedures is based on the expectation
that relationships among data exist and continue in the absence of known conditions to
the contrary. However, the suitability of a particular analytical procedure will depend
upon the auditor’s assessment of how effective it will be in detecting a misstatement
that, individually or when aggregated with other misstatements, may cause the financial
statements to be materially misstated. In some cases, even an unsophisticated predictive
model may be effective as an analytical procedure. For example, where an entity has a
known number of employees at fixed rates of pay throughout the period, it may be
possible for the auditor to use this data to estimate the total payroll costs for the period
with a high degree of accuracy, thereby providing audit evidence for a significant item
in the financial statements and reducing the need to perform tests of details on the
payroll. The use of widely recognised trade ratios (such as profit margins for different
types of retail entities) can often be used effectively in substantive analytical
procedures to provide evidence to support the reasonableness of recorded amounts.

Question 41; Mention the Analytical Review procedures that may be useful as a means
of obtaining audit evidence regarding various assertions relating to Trade receivables,
loans and advances.
Answer 41; Analytical Review Procedures: The following analytical review procedures
may often be helpful as a means of obtaining audit evidence regarding the various
assertions relating to trade receivables, loans and advances
(A) comparison of closing balances of trade receivables, loans and advances with the
corresponding figures for the previous year;
(B) comparison of the relationship between current year trade receivable balances and
the current year sales with the corresponding budgeted figures, if available;
(C) comparison of actual closing balances of trade receivables, loans and advances with
the corresponding budgeted figures, if available;
(D) comparison of current year’s ageing schedule with the corresponding figures for
the previous year;
(E) comparison of significant ratios relating to trade receivables, loans and advances
with similar ratios for other firms in the same industry, if available;
(F) comparison of significant ratios relating to trade receivables, loans and advances
with the industry norms, if available.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 213 of 277

Question 42; If analytical procedures performed in accordance with SA 520 identify

fluctuations or relationships that are inconsistent with other relevant information or
that differ from expected values by a significant amount, how would the auditor
investigate such differences. OR The statutory auditor of ABC Ltd., CA Raj identifies
certain inconsistencies while applying analytical procedures to the financial and non-
financial data of ABC Ltd. With reference to SA 520 on "Analytical Procedures", how
CA Raj shall investigate such differences?
Answer 42; If analytical procedures performed in accordance with SA 520 identify
fluctuations or relationships that are inconsistent with other relevant information or
that differ from expected values by a significant amount, the auditor shall investigate
such differences by:

(i) Inquiring of management and obtaining appropriate audit evidence relevant to

management’s responses: Audit evidence relevant to management’s responses may be
obtained by evaluating those responses taking into account the auditor’s understanding
of the entity and its environment, and with other audit evidence obtained during the
course of the audit.

(ii) Performing other audit procedures as necessary in the circumstances: The need
to perform other audit procedures may arise when, for example, management is unable
to provide an explanation, or the explanation, together with the audit evidence obtained
relevant to management’s response, is not considered adequate.

Conclusion: In the present case CA Raj identifies certain inconsistencies while applying
analytical procedure to financial or nonfinancial data of ABC Ltd. CA Raj should inquire
the management of ABC Ltd, and obtain sufficient and appropriate audit evidences
relevant to the management response. Further CA Raj should also perform other audit
procedures, if required in the circumstances of the case to obtain further sufficient
and appropriate evidence.

(iii) with the audit evidence obtained relevant to management’s response, is not
considered adequate.
Conclusion: In the present case CA Raj identifies certain inconsistencies while applying
analytical procedure to financial or nonfinancial data of ABC Ltd. CA Raj should inquire
the management of ABC Ltd, and obtain sufficient and appropriate audit evidences
relevant to the management response. Further CA Raj should also perform other audit
procedures, if required in the circumstances of the case to obtain further sufficient
and appropriate evidence.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 214 of 277

Question 43; Routine checks cannot be depended upon to disclose all the mistakes or
manipulation that may exist in accounts, certain other procedures also have to be
applied like trend and ratio analysis. Analyse and Explain stating clearly the meaning of
analytical procedures.
Answer 43; Since routine checks cannot be depended upon to disclose all the mistakes
or manipulation that may exist in accounts, certain other procedures also have to be
applied like trend and ratio analysis in addition to reasonable tests. These collectively
are known as overall tests. With the passage of tests, analytical procedures have
acquired lot of significance as substantive audit procedure. SA-520 on Analytical
Procedures discusses the application of analytical procedures during an audit.

Meaning of Analytical Procedures. As per the Standard on Auditing (SA) 520

“Analytical Procedures”, the term “analytical procedures” means evaluations of
financial information through analysis of plausible relationships among both financial
and non-financial data. Analytical procedures also encompass such investigation as is
necessary of identified fluctuations or relationships that are inconsistent with other
relevant information or that differ from expected values by a significant amount.

Question 44; Give examples of Analytical Procedures having consideration of

comparisons of the entity’s financial information
Answer 44; Examples of Analytical Procedures having consideration of comparisons of
the entity’s financial information with are:
i. Comparable information for prior periods.
ii. Antic pated results of the entity, such as budgets or forecasts, or expectations of
the auditor, such as an estimation of depreciation. iii. Similar industry information, such
as a comparison of the entity’s ratio of sales to accounts receivable with industry
averages or with other entities of comparable size in the same industry.

Question 45; When designing and performing substantive analytical procedures, either
alone or in combination with tests of details, as substantive procedures in accordance
with SA 330, the auditor shall determine the suitability of particular substantive
analytical procedures for given assertions, taking account of the assessed risks of
material misstatement and tests of details, if any, for these assertions. Explain the
other relevant points in this context.
Answer 45; When designing and performing substantive analytical procedures, either
alone or in combination with tests of details, as substantive procedures in accordance
with SA 330, the auditor shall:

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 215 of 277

(i) Determine the suitability of particular substantive analytical procedures for given
assertions, taking account of the assessed risks of material misstatement and tests of
details, if any, for these assertions;

(ii) Evaluate the reliability of data from which the auditor’s expectation of recorded
amounts or ratios is developed, taking account of source, comparability, and nature and
relevance of information available, and controls over preparation;

(iv) Determine the amount of any difference of recorded amounts from expected
values that is acceptable without further investigation.

Question 46; The decision about which audit procedures to perform, including whether
to use substantive analytical procedures, is based on the auditor’s judgment.
Answer 46; The auditor’s substantive procedures at the assertion level may be tests
of details, substantive analytical procedures, or a combination of both. The decision
about which audit procedures to perform, including whether to use substantive
analytical procedures, is based on the auditor’s judgment about the expected
effectiveness and efficiency of the available audit procedures to reduce audit risk at
the assertion level to an acceptably low level.

The auditor may inquire of management as to the availability and reliability of

information needed to apply substantive analytical procedures, and the results of any
such analytical procedures performed by the entity. It may be effective to use
analytical data prepared by management, provided the auditor is satisfied that such
data is properly prepared.

Question 47; For the purposes of the SAs, the term “analytical procedures” means
evaluations of financial information through analysis of plausible relationships among
both financial and non-financial data. Explain giving examples of both.
Answer 47; Analytical procedures include the consideration of comparisons of the
entity’s financial information with, for example:
i. Comparable information for prior periods.
ii. Anticipated results of the entity, such as budgets or forecasts, or expectations of
the auditor, such as an estimation of depreciation. iii. Similar industry information, such
as a comparison of the entity’s ratio of sales to accounts receivable with industry

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 216 of 277

averages or with other entity is of comparable size in the same industry.

Analytical procedures also include consideration of relationships, for example:

i. Among elements of financial information that would be expected to conform to a
predictable pattern based on the entity’s experience, such as gross margin
percentages.
ii. Between financial information and relevant non-financial information, such as payroll
costs to number of employees.

Question 48; Analysis by computation of ratios includes the study of relationships

between financial statement amounts. State Commonly used ratios.
Answer 48; Analysis by computation of ratios includes the study of relationships
between financial statement amounts. Commonly used ratios include:
 Elements of income or loss as a percentage of sales
 Gross profit turnover
 Accounts receivable turnover
 Inventory turnover
 Profitability, leverage, and liquidity

Question 49; Discuss the matters relevant to the auditor’s evaluation of whether the
expectation can be developed sufficiently precisely to identify a misstatement that,
when aggregated with other misstatements, may cause the financial statements to be
materially misstated.
Answer 49; Matters relevant to the auditor’s evaluation of whether the expectation
can be developed sufficiently precisely to identify a misstatement that, when
aggregated with other misstatements, may cause the financial statements to be
materially misstated, include: (i) The accuracy with which the expected results of
substantive analytical procedures can be predicted.
For example, the auditor may expect greater consistency in comparing gross profit
margins from one period to another than in comparing discretionary expenses, such as
research or advertising.

(ii) The degree to which information can be disaggregated.

For example, substantive analytical procedures may be more effective when applied to
financial information on individual sections of an operation or to financial statements of
components of a diversified entity, than when applied to the financial statements of
the entity as a whole.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 217 of 277

(iii) The availability of the information, both financial and non-financial.

For example, the auditor may consider whether financial information, such as budgets
or forecasts, and non-financial information, such as the number of units produced or
sold, is available to design substantive analytical procedures. If the information is
available, the auditor may also consider the reliability of the information.

Question 50; Explain the aspects to be considered by an auditor when designing and
performing substantive analytical procedures, either alone or in combination with test
of details, as substantive procedures in accordance with SA 330.
Answer 50; Analytical procedures used as substantive tests:
When designing and performing substantive analytical procedures, either alone or in
combination with test of details as, substantive procedures in accordance with SA 330,
the auditor shall:

(i) Determine the suitability of particular substantive analytical procedures for given
assertions, taking account of the assessed risks of material misstatement and test of
details, if any, for these assertions.

(ii) Evaluate the reliability of data from which the auditor's expectation of recorded
amounts or ratios is developed, taking account of source, comparability, and nature and
relevance of information available, and controls over preparation.

(iii) Develop an expectation of recorded amounts or ratios and evaluate whether the
expectation is sufficiently precise to identify a misstatement that, individually or when
aggregated with other misstatements, may cause the financial statements to be
materially misstated. Determine the amount of any difference of recorded amounts
from expected values that is acceptable without further investigation

Question 51; When designing and performing substantive analytical procedures, either
alone or in combination with tests of details as substantive procedures in accordance
with SA 330, the auditor shall determine the suitability of particular substantive
analytical procedures for given assertions, taking account of the assessed risks of
material misstatement and tests of details, if any, for these assertions. Discuss.
Answer 51; Substantive analytical procedures are generally more applicable to large
volumes of transactions that tend to be predictable over time.
 The application of planned analytical procedures is based on the expectation that
relationships among data exist and continue in the absence of known conditions to the
contrary.
 However, the suitability of a particular analytical procedure will depend upon the
auditor’s assessment of how effective it will be in detecting a misstatement that,

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 218 of 277

individually or when aggregated with other misstatements, may cause the financial
statements to be materially misstated.
 In some cases, even an unsophisticated predictive model may be effective as an
analytical procedure.

Different types of analytical procedures provide different levels of assurance.

Analytical procedures involving, for example, the prediction of total rental income on a
building divided into apartments, taking the rental rates, the number of apartments and
vacancy rates into consideration, can provide persuasive evidence and may eliminate the
need for further verification by means of tests of details, provided the elements are
appropriately verified. In contrast, calculation and comparison of gross margin
percentages as a means of confirming a revenue figure may provide less persuasive
evidence, but may provide useful corroboration if used in combination with other audit
procedures.

The determination of the suitability of particular substantive analytical procedure is

influenced by the nature of the assertion and the auditor’s assessment of the risk of
material misstatement. For example, if controls over sales order processing are weak,
the auditor may place more reliance on tests of details rather than on substantive
analytical procedures for assertions related to receivables.

Particular substantive analytical procedures may also be considered suitable when tests
of details are performed on the same assertion. For example, when obtaining audit
evidence regarding the valuation assertion for accounts receivable balances, the
auditor may apply analytical procedures to an aging of customers’ accounts in addition
to performing tests of details on subsequent cash receipts to determine the
collectability of the receivables.

Question 52; The auditor has no obligation to perform any audit procedures regarding
the financial statements after the date of the auditor’s report. However, when, after
the date of the auditor’s report but before the date the financial statements are
issued, a fact becomes known to the auditor that, had it been known to the auditor at
the date of the auditor’s report, may have caused the auditor to amend the auditor’s
report. Explain the auditor’s obligation in the above situation.
Answer 52; The auditor has no obligation to perform any audit procedures regarding
the financial statements after the date of the auditor’s report. However, when, after
the date of the auditor’s report but before the date the financial statements are
issued, a fact becomes known to the auditor that, had it been known to the auditor at
the date of the auditor’s report, may have caused the auditor to amend the auditor’s
report, the auditor shall:

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 219 of 277

(a) Discuss the matter with management and, where appropriate, those charged with
governance.
(b) Determine whether the financial statements need amendment and If so,
(c) Inquire how management intends to address the matter in the financial statements.

Question 53; SA 560, “Subsequent Events” deals with the auditor’s responsibilities
relating to subsequent events in an audit of financial statements. Financial statements
may be affected by certain events that occur after the date of the financial
statements. Many financial reporting frameworks specifically refer to such events.
Explain those events and also define subsequent events.
Answer 53; SA 560, “Subsequent Events” deals with the auditor’s responsibilities
relating to subsequent events in an audit of financial statements. Financial statements
may be affected by certain events that occur after the date of the financial
statements. Many financial reporting frameworks specifically refer to such events.
Such financial reporting frameworks ordinarily identify two types of events:
(a) Those that provide evidence of condi.ons that existed at the date of the financial
statements; and
(b) Those that provide evidence of conditions that arose a1er the date of the financial
statements.

SA 700 explains that the date of the auditor’s report informs the reader that the
auditor has considered the effect of events and transactions of which the auditor
becomes aware and that occurred up to that date. Subsequent events refer to events
occurring between the date of the financial statements and the date of the auditor’s
report, and facts that become known to the auditor after the date of the auditor’s
report.

Question 54; “The auditors should consider the effect of subsequent events on the
financial statement and on auditor’s report”– Comment according to SA 560.
Answer 54; Effect of Subsequent Events: SA 560 “Subsequent Events”, establishes
standards on the auditor’s responsibility regarding subsequent events.

According to it, ‘subsequent events’ refer to those events which occur between the
date of financial statements and the date of the auditor’s report, and facts that
become known to the auditor after the date of the auditor’s report. It lays down the
standard that the auditor should consider the effect of subsequent events on the
financial statements and on the auditor’s report.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 220 of 277

The auditor should obtain sufficient appropriate evidence that all events upto the date
of the auditor’s report requiring adjustment or disclosure have been identified and to
identify such events, the auditor should-
(i) obtain an understanding of any procedures management has established to ensure
that subsequent events are identified.
(ii) inquire of management and, where appropriate, those charged with governance as to
whether any subsequent events have occurred which might affect the financial
statements.

Examples of inquiries of management on specific matters are;

✓ Whether new commitments, borrowings or guarantees have been entered into.

✓ Whether sales or acquisitions of assets have occurred or are planned.
✓ Whether there have been increases in capital or issuance of debt instruments,
such as the issue of new shares or debentures, or an agreement to merge or
liquidate has been made or is planned.
✓ Whether there have been any developments regarding contingencies.
✓ Whether there have been any developments regarding risk areas and
contingencies.
✓ Whether any unusual accounting adjustments have been made or are
contemplated.
✓ Whether any events have occurred or are likely to occur which will bring into
question the appropriateness of accounting policies used in the financial
statements as would be the case, for example, if such events call into question
the validity of the going concern assumption.
✓ Whether any events have occurred that are relevant to the measurement of
estimates or provisions made in the financial statements.
✓ Whether any events have occurred that are relevant to the recoverability of
assets.

(iii) Read minutes, if any, of the meetings, of the entity’s owners, management and
those charged with governance, that have been held after the date of the financial
statements and inquiring about matters discussed at any such meetings for which
minutes are not yet available.
(iv) Read the entity’s latest subsequent interim financial statements, if any.
(v) Read the entity’s latest available budgets, cash flow forecasts and other related
management reports for periods after the date of the financial statements.
(vi) Inquire, or extend previous oral or written inquiries, of the entity’s legal counsel
concerning litigation and claims.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 221 of 277

(vii) Consider whether written representations covering particular subsequent events

may be necessary to support other audit evidence and thereby obtain sufficient
appropriate audit evidence.

Question 55; When the use of the going concern basis of accounting is appropriate,
assets and liabilities are recorded on the basis that the entity will be able to realize its
assets and discharge its liabilities in the normal course of business. Explain stating also
the objective of the auditor regarding going concern.
Answer 55; Under the going concern basis of accounting, the financial statements are
prepared on the assumption that the entity is a going concern and will continue its
operations for the foreseeable future. When the use of the going concern basis of
accounting is appropriate, assets and liabilities are recorded on the basis that the
entity will be able to realize its assets and discharge its liabilities in the normal course
of business.
Objectives of the auditor regarding going concern The objectives of the auditor
are:
(a) To obtain written representations from management and, where appropriate, those
charged with governance that they believe that they have fulfilled their responsibility
for the preparation of the financial statements and for the completeness of the
information provided to the auditor;
(b) To support other audit evidence relevant to the financial statements or specific
assertions in the financial statements by means of written representations, if
determined necessary by the auditor or required by other SAs; and
(c) To respond appropriately to written representations provided by management and,
where appropriate, those charged with governance, or if management or, where
appropriate, those charged with governance do not provide the written representations
requested by the auditor.

Question 56; When performing risk assessment procedures as required by SA 315, the
auditor shall consider whether events or conditions exist that may cast significant
doubt on the entity’s ability to continue as a going concern. In so doing, the auditor has
determined that management of XYZ Ltd has already performed a preliminary
assessment of the entity’s ability to continue as a going concern. Explain how would
auditor of XYZ Ltd proceed in the above case.
Also explain how would the auditor proceed if such an assessment has not yet been
performed by the management.
Answer 56; When performing risk assessment procedures as required by SA 315,
the auditor shall consider whether events or conditions exist that may cast significant
doubt on the entity’s ability to continue as a going concern. In so doing, the auditor

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 222 of 277

shall determine whether management has already performed a preliminary assessment

of the entity’s ability to continue as a going concern, and:

(i) If such an assessment has been performed, the auditor shall discuss the assessment
with management and determine whether management has identified events or
conditions that, individually or collectively, may cast significant doubt on the entity’s
ability to continue as a going concern and, if so, management’s plans to address them; or

(ii) If such an assessment has not yet been performed, the auditor shall discuss with
management the basis for the intended use of the going concern basis of accounting,
and inquire of management whether events or conditions exist that, individually or
collectively, may cast significant doubt on the entity’s ability to continue as a going
concern.

Question 57; Under the going concern basis of accounting, the financial statements
are prepared on the assumption that the entity is a going concern and will continue its
operations for the foreseeable future. Explain. Also discuss the objectives of an
auditor regarding Going concern as per relevant standard on auditing.
Answer 57; Under the going concern basis of accounting, the financial statements are
prepared on the assumption that the entity is a going concern and will continue its
operations for the foreseeable future.

General purpose financial statements are prepared using the going concern basis of
accounting, unless management either
(i) intends to liquidate the entity or to cease operations,
(ii) or has no realistic alternative but to do so.

When the use of the going concern basis of accounting is appropriate, assets and
liabilities are recorded on the basis that the entity will be able to realize its assets and
discharge its liabilities in the normal course of business.

The objectives of the auditor regarding Going Concern are:

(A) To obtain sufficient appropriate audit evidence regarding, and conclude on, the
appropriateness of management’s use of the going concern basis of accounting in the
preparation of the financial statements;
(B) To conclude, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the entity’s
ability to continue as a going concern; and
(C) To report in accordance with this SA.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 223 of 277

Question 58; As described in SA 200, the potential effects of inherent limitations on

the auditor’s ability to detect material misstatements are greater for future events or
conditions that may cause an entity to cease to continue as a going concern. Explain
stating the auditor’s responsibilities with regard to going concern.
Answer 58; The auditor’s responsibilities are:
(A) to obtain sufficient appropriate audit evidence regarding, and conclude on, the
appropriateness of management’s use of the going concern basis of accounting in the
preparation of the financial statements, and
(B) to conclude, based on the audit evidence obtained, whether a material uncertainty
exists about the entity’s ability to continue as a going concern.

However, as described in SA 200, the potential effects of inherent limitations on the

auditor’s ability to detect material misstatements are greater for future events or
conditions that may cause an entity to cease to continue as a going concern. The auditor
cannot predict such future events or conditions. Accordingly, the absence of any
reference to a material uncertainty about the entity’s ability to continue as a going
concern in an auditor’s report cannot be viewed as a guarantee as to the entity’s ability
to continue as a going concern.

Question 59; Give examples of financial events or conditions that, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going
concern.
Answer 59; The following are examples of Financial events or conditions that,
individually or collectively, may cast significant doubt on the entity’s ability to continue
as a going concern:

✓ Net liability or net current liability position.

✓ Fixed-term borrowings approaching maturity without realistic prospects of
renewal or repayment; or excessive reliance on short-term borrowings to finance
long-term assets.
✓ Indications of withdrawal of financial support by creditors.
✓ Negative operating cash flows indicated by historical or prospective financial
statements.
✓ Adverse key financial ratios.

Question 60; Akash & Associates are the statutory auditors of Deluxe Ltd. for the FY
2020 -21. During the course of audit, CA Akash, the engagement partner requested the
management of the company to provide written representation with respect to
valuation of a transaction. The management, however does not provide the same to CA
Akash. What course of action should CA Akash follow in such situation?
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 224 of 277

Answer 60; If management of Deluxe Ltd. does not provide one or more of the
requested written representations, CA Akash should: (a) Discuss the matter with
management;
(b) Re-evaluate the integrity of management and evaluate the effect that this may
have on the reliability of representations (oral or written) and audit evidence in
general; and
(c) Take appropriate actions, including determining the possible effect on the opinion in
the auditor’s report in accordance with SA 705.

Question 61; Audit evidence is all the information used by the auditor in arriving at
the conclusions on which the audit opinion is based. Written representations are
necessary information that the auditor requires in connection with the audit of the
entity’s financial statements. Accordingly, similar to responses to inquiries, written
representations are audit evidence. Explain stating clearly objectives of the auditor
regarding written representation.
Answer 61; Audit evidence is all the information used by the auditor in arriving at the
conclusions on which the audit opinion is based. Written representations are necessary
information that the auditor requires in connection with the audit of the entity’s
financial statements. Accordingly, similar to responses to inquiries, written
representations are audit evidence.

Written representations are requested from those responsible for the preparation and
presentation of the financial statements.

Although written representations provide necessary audit evidence, they do not provide
sufficient appropriate audit evidence on their own about any of the matters with which
they deal. Furthermore, the fact that management has provided reliable written
representations does not affect the nature or extent of other audit evidence that the
auditor obtains about the fulfillment of management’s responsibilities, or about specific
assertions.

The objectives of the auditor regarding written representation The objectives of

the auditor are:
(a) To obtain written representations-To obtain written representations from
management. Also that management believes that it has fulfilled its responsibility for
the preparation of the financial statements and for the completeness of the
information provided to the auditor;
(b) To support other evidence -To support other audit evidence relevant to the
financial statements or specific assertions in the financial statements by means of

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 225 of 277

written representations; and

(c) To respond appropriately-To respond appropriately to written representations
provided by management or if management does not provide the written
representations requested by the auditor.

Question 62; The auditor P of PAR and Co., a firm of Chartered Accountants is
conducting audit of AB Industries Ltd. The auditor requests management to provide
Banker’s certificate in support of Fixed deposits whereas management provides only
written representation on the matter. Analyse how would you deal as an auditor.
Answer 62; Although written representations provide necessary audit evidence, they
do not provide sufficient appropriate audit evidence on their own about any of the
matters with which they deal. Furthermore, the fact that management has provided
reliable written representations does not affect the nature or extent of other audit
evidence that the auditor obtains about the fulfillment of management’s
responsibilities, or about specific assertions.

Applying the above to the given problem, the auditor would further request the
management to provide him with the Banker’s certificate in support of fixed deposits
held by the company.

Question 63; Written representations are to be provided by the management to the

auditor when requested. Explain
Answer 63; Management from Whom Written Representations Requested: SA-580,
“Written Representations”, the auditor shall request written representations from
management with appropriate responsibilities for the financial statements and
knowledge of the matters concerned.

Written representations are requested from those responsible for the preparation and
presentation of the financial statements. Those individuals may vary depending on the
governance structure of the entity, and relevant law or regulation; however,
management (rather than those charged with governance) is often the responsible
party. Written representations may therefore be requested from the entity’s chief
executive officer and chief financial officer, or other equivalent persons in entities
that do not use such titles. In some circumstances, however, other parties, such as
those charged with governance, are also responsible for the preparation and
presentation of the financial statements.

If management does not provide one or more of the requested written

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 226 of 277

representations, the auditor shall-

(i) discuss the matter with management;
(ii) re-evaluate the integrity of management and evaluate the effect that this may have
on the reliability of representations (oral or written) and audit evidence in general; and
(iii) take appropriate actions, including determining the possible effect on the opinion in
the auditor’s report. The auditor shall disclaim an opinion on the financial statements if
management does not provide the written representations.

Question 64; Ratio analysis is useful for analyzing asset and liability accounts as well
as revenue and expense accounts. An individual balance sheet account is difficult to
predict on its own, but its relationship to another account is often more predictable
(e.g., the trade receivables balance related to sales). Explain stating the techniques
available as substantive analytical procedures.
Answer 64; While applying the Substantive Analytical Procedures the statutory
auditor of a company may use the following techniques to obtain sufficient and
appropriate audit evidence.

Trend analysis – Trend analysis is a commonly used technique. It is the comparison of

current data with the prior period balance or with a trend in two or more prior period
balances. We evaluate whether the current balance of an account moves in line with the
trend established with previous balances for that account, or based on an
understanding of factors that may cause the account to change.

Ratio analysis – Ratio analysis is useful for analysing asset and liability accounts as well
as revenue and expense accounts. An individual balance sheet account is difficult to
predict on its own, but its relationship to another account is often more predictable
(e.g., the trade receivables balance related to sales). Ratios can also be compared over
time or to the ratios of separate entities within the group, or with the ratios of other
companies in the same industry.

Reasonableness tests – Unlike trend analysis, this analytical procedure does not rely on
events of prior periods, but upon non-financial data for the audit period under
consideration (e.g., occupancy rates to estimate rental income or interest rates to
estimate interest income or expense). These tests are generally more applicable to
income statement accounts and certain accrual or prepayment accounts. In other words
these tests are made by reviewing the relationship of certain account balances to other
balances for reasonableness of amounts.

Examples include:

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 227 of 277

• Interest expense against interest bearing obligations.

• Raw Material Consumption to Production (quantity)
• Wastage & Scrap % against production & raw material consumption (quantity)
• Work-in-Progress based on issued of materials & Sales (quantity)
• Sales discounts and commissions against sales volume
• Rental revenues based on occupancy of premises.

Structural modelling – A modelling tool constructs a statistical model from financial

and/or nonfinancial data of prior accounting periods to predict current account
balances (e.g., linear regression). The statutory auditor may use any of the above
mentioned techniques while applying substantive analytical procedures depensing upon
the availability of data and requirements of the case.

Question 65; In the planning stage, analytical procedures assist the auditor in
understanding the client’s business and in identifying areas of potential risk. Explain.
Answer 65; Analytical Procedures are required in the planning phase and it is often
done during the testing phase. In addition these are also required during the
completion phase.

Analytical Procedures in Planning the Audit

In the planning stage, analytical procedures assist the auditor in understanding the
client’s business and in identifying areas of potential risk by indicating aspects of and
developments in the entity’s business of which he was previously unaware. This
information will assist the auditor in determining the nature, timing and extent of his
other audit procedures. Analytical procedures in planning the audit use both financial
data and non-financial information, such as number of employees, square feet of selling
space, volume of goods produced and similar information.

For example, analytical procedures may help the auditor during the planning stage to
determine the nature, timing and extent of audit procedures that will be used to obtain
audit evidence for specific account balances or classes of transactions.

Question 66; The reliability of data is influenced by its source and nature and is
dependent on the circumstances under which it is obtained. Accordingly, explain the
factors that are relevant when determining whether data is reliable for purposes of
designing substantive analytical procedures.
Answer 66; The reliability of data is influenced by its source and nature and is
dependent on the circumstances under which it is obtained. Accordingly, the following
are relevant when determining whether data is reliable for purposes of designing

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 228 of 277

substantive analytical procedures:

(i) Source of the information available. For example, information may be more reliable
when it is obtained from independent sources outside the entity;
(ii) Comparability of the information available. For example, broad industry data may
need to be supplemented to be comparable to that of an entity that produces and sells
specialized products;
(iii) Nature and relevance of the information available. For example, whether budgets
have been established as results to be expected rather than as goals to be achieved;
and
(iv) Controls over the preparation of the information that are designed to ensure
its completeness, accuracy and validity. For example, controls over the preparation,
review and maintenance of budgets.

The auditor may consider testing the operating effectiveness of controls, if any, over
the entity’s preparation of information used by the auditor in performing substantive
analytical procedures in response to assessed risks. When such controls are effective,
the auditor generally has greater confidence in the reliability of the information and,
therefore, in the results of analytical procedures. The operating effectiveness of
controls over non-financial information may often be tested in conjunction with other
tests of controls.

For example, in establishing controls over the processing of sales invoices, an entity
may include controls over the recording of unit sales. In these circumstances, the
auditor may test the operating effectiveness of controls over the recording of unit
sales in conjunction with tests of the operating effectiveness of controls over the
processing of sales invoices. Alternatively, the auditor may consider whether the
information was subjected to audit testing. SA 500 (Revised) establishes requirements
and provides guidance in determining the audit procedures to be performed on the
information to be used for substantive analytical procedures.

Question 67; With respect to SA 520 "Analytical procedures", explain the following
factors to be considered by the auditor for substantive audit procedures. (i) Account
type (ii) Predictability (iii) Nature of Assertion.
Answer 67; The auditor should consider the following factors for Substantive Audit
Procedures:

Account Type – Substantive analytical procedures are more useful for certain types of
accounts than for others. Income statement accounts tend to be more predictable
because they reflect accumulated transactions over a period, whereas balance sheet
accounts represent the net effect of transactions at a point in time or are subject to

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 229 of 277

greater management judgment.

Predictability – Substantive analytical procedures are more appropriate when an

account balance or relationships between items of data are predictable (e.g., between
sales and cost of sales or between trade receivables and cash receipts). A predictable
relationship is one that may reasonably be expected to exist and continue over time.

Nature of Assertion – Substantive analytical procedures may be more effective in

providing evidence for some assertions (e.g., completeness or valuation) than for others
(e.g., rights and obligations). Predictive analytical procedures using data analytics can
be used to address completeness, valuation/ measurement and occurrence.

Question 68; CA Amar wants to verify the payments made by XYZ Ltd. on account of
building rent during the FY 2020-21. The rent amounts to Rs.50,000/- per month for
the year. The monthly rent payments are consistent with the rent agreement. However,
the other companies in the similar industry are paying rent of Rs. 10,000/- per month
for a similar location. How will applying the analytical procedures impact the
verification process of such rental payments by XYZ Ltd.?
Answer 68; If CA Amar checks in detail the monthly rent payments, he may find that
such payments are consistent with the rent agreement i.e. XYZ Ltd. paid Rs. 50,000/-
per month as rent and the same is getting reflected in the rent agreement. Here, CA
Amar may not be able to find out the inconsistency in the rent payment with respect to
rent payment prevalent in the similar industry for rent of the similar location. If CA
Amar applies analytical procedure i.e. compares the rent payment by XYZ Ltd. with the
similar payments made by companies in similar industry and similar area, he will notice
an inconsistency in such rent payments as the other companies are paying a very less
monthly rent in similar industry for similar area.

However, if CA Amar does not make such comparison and only checks the monthly
payments and rent agreement of XYZ Ltd., he would not have found such inconsistency
and as such the misstatement may remain undetected.

Question 69; CA B is appointed as an auditor of M/s. Divine Pharmacy, a wholesale

medicine supplier. While auditing for the financial year 2020-21, CA B wants to use
test checking technique. Advise CA B, what kind of precautions should be taken by him
in this regard.
Answer 69; While auditing the accounts of Divine Pharmacy, CA B wanted to use Test
Checking technique. The following Precautions should to be taken by CA B while applying
test check techniques:

➢ Thorough study of accounting system should be done before adopting sampling

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 230 of 277

➢ Proper study of internal control systems.

➢ Areas which are not suitable for sampling should be carefully considered. eg:
compliance with statutory provisions, transactions of unusual nature etc.
➢ Proper planning for Sampling methods to be used and explaining the staff,
➢ Transactions and balances have to be properly classified (stratified)
➢ Sample size should be appropriately determined.
➢ Sample should be chosen in unbiased way,
➢ Errors located in the sample should be analyzed properly.

Question 70; Explain the factors that should be considered for deciding upon the
extent of checking on a sampling plan.
Answer 70; The factors that should be considered for deciding upon the extent of
checking on a sampling plan are following:
(i) Size of the organization under audit.
(ii) State of the internal control.
(iii) Adequacy and reliability of books and records.
(iv) Tolerable error range.
(v) Degree of the desired confidence.

Question 71; Explain the following terms with reference to Audit Sampling:
(i) Stratification
(ii) Tolerable misstatement
(iii) Tolerable rate of deviation
Answer 71; Stratification – The process of dividing a population into sub-populations,
each of which is a group of sampling units which have similar characteristics (often
monetary value).
(i) Tolerable misstatement – A monetary amount set by the auditor in respect of
which the auditor seeks to obtain an appropriate level of assurance that the monetary
amount set by the auditor is not exceeded by the actual misstatement in the
population.
(ii) Tolerable rate of deviation – A rate of deviation from prescribed internal control
procedures set by the auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that the rate of deviation set by the auditor is not
exceeded by the actual rate of deviation in the population.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 231 of 277

OTHERS TO REMBER VERY IMP

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 232 of 277

AUDIT in an AUTOMATED ENVIRONMENT

Question 72; Having obtained an understanding of the IT systems and the automated
environment of a company, the auditor should consider the risks that arise from the
use of IT systems. Explain.
Answer 72; Having obtained an understanding of the IT systems and the automated
environment of a company, the auditor should now understand the risks that arise from
the use of IT systems. Given below are some such risks that should be considered:
• Inaccurate processing of data, processing inaccurate data, or both.
• Unauthorized access to data.
• Direct data changes (backend changes).
• Excessive access / Privileged access (super users).
• Lack of adequate segregation of duties.
• Unauthorized changes to systems or programs.
• Failure to make necessary changes to systems or programs.
• Loss of data.

Question 73; Analyse how risks in the IT system if not mitigated could have an impact
on the audit.
Answer 73; When risks in IT systems are not mitigated the audit impact could be as
follows:
Impact on substantive checking
Inability to address above discussed risks may lead to non-reliance of data obtained
from systems. In such a case, all information, data, and reports would have to be
tested thoroughly for their completeness and accuracy. It could lead to increased
substantive checking i.e., detailed checking.

Impact on controls
It can lead to non-reliance on automated controls, system calculations and accounting
procedures built into applications. It may result in additional audit work.

Impact on reporting
Due to regulatory requirements in respect of internal financial controls (discussed in
subsequent paras) in case of companies, it may lead to modification of auditor’s report
in some instances.

Question 74; A company functions in an automated environment. Discuss in what areas

data analytics can be useful for auditor of the company.
Answer 74; In today’s digital age when companies rely on more and more on IT
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 233 of 277

systems and networks to operate business, the amount of data and information that
exists in these systems is enormous. A famous businessman recently said, “Data is the
new Oil”. The combination of processes, tools and techniques that are used to tap vast
amounts of electronic data to obtain meaningful information is called data analytics.
While it is true that companies can benefit immensely from the use of data analytics in
terms of increased profitability, better customer service, gaining competitive
advantage, more efficient operations, etc., even auditors can make use of similar tools
and techniques in the audit process and obtain good results. The tools and techniques
that auditors use in applying the principles of data analytics are known as Computer
Assisted Auditing Techniques or CAATs in short.

Data analytics can be used in testing of electronic records and data residing in IT
systems using spreadsheets and specialised audit tools viz., IDEA and ACL to perform
the following,
• check completeness of data and population that is used in either test of controls or
substantive audit tests
• selection of audit samples – random sampling, systematic sampling
• re-computation of balances – reconstruction of trial balance from transaction data
• reperformance of mathematical calculations – depreciation, bank interest calculation.
• analysis of journal entries as required by SA 240
• fraud investigation
• evaluating impact of control deficiencies

INTERNAL CONTROL
Question 75; The auditor shall obtain an understanding of major activities that the
entity uses to monitor internal control over financial reporting. Discuss "Monitoring of
control'' as a component of Internal control.
Answer 75; Monitoring of Controls: Component of Internal Control
The auditor shall obtain an understanding of the major activities that the entity uses
to monitor internal control over financial reporting.

Monitoring of controls Defined: Monitoring of controls is a process to assess the

effective ness of internal control performance over time.

(i) Helps in assessing the effectiveness of controls on a timely basis: It involves

assessing the effectiveness of controls on a timely basis and taking necessary remedial
actions.

(ii) Management accomplishes through ongoing activities, separate evaluations etc.:

Management accomplishes monitoring of controls through ongoing activities, separate

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 234 of 277

evaluations, or a combination of the two. Ongoing monitoring activities are often built
into the normal recurring activities of an entity and include regular management and
supervisory activities.

(iii) Management’s monitoring activities include: Management’s monitoring activities

may include using information from communications from external parties such as
customer complaints and regulator comments that may indicate problems or highlight
areas in need of improvement.

(iv) In case of Small Entities: Management’s monitoring of control is often

accomplished by management’s or the owner-manager’s close involvement in operations.
This involvement often will identify significant variances from expectations and
inaccuracies in financial data leading to remedial action to the control.

Question 76; “A satisfactory control environment is not an absolute deterrent to

fraud although it may help reduce the risk of fraud.” Explain.
Answer 76; Satisfactory Control Environment – not an absolute deterrent to fraud:
The existence of a satisfactory control environment can be a positive factor when the
auditor assesses the risks of material misstatement. However, although it may help
reduce the risk of fraud, a satisfactory control environment is not an absolute
deterrent to fraud. Conversely, deficiencies in the control environment may undermine
the effectiveness of controls, in particular in relation to fraud. For example,
management’s failure to commit sufficient resources to address IT security risks may
adversely affect internal control by allowing improper changes to be made to computer
programs or to data, or unauthorized transactions to be processed. As explained in SA
330, the control environment also influences the nature, timing, and extent of the
auditor’s further procedures.

The control environment in itself does not prevent, or detect and correct, a material
misstatement. It may, however, influence the auditor’s evaluation of the effectiveness
of other controls (for example, the monitoring of controls and the operation of specific
control activities) and thereby, the auditor’s assessment of the risks of material
misstatement.

Question 77; So far as the auditor is concerned, the examination and evaluation of the
internal control system is an indispensable part of the overall audit programmer. The
auditor needs reasonable assurance that the accounting system is adequate and that all
the accounting information which should be recorded has in fact been recorded.
Internal control normally contributes to such assurance. Explain stating clearly the
benefits of evaluation of internal control to the auditor.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 235 of 277

Answer 77; So far as the auditor is concerned, the examination and evaluation of
the internal control system is an indispensable part of the overa;ll audit
programmer.
The auditor needs reasonable assurance that the accounting system is adequate and
that all the accounting information which should be recorded has in fact been
recorded. Internal control normally contributes to such assurance. The auditor should
gain an understanding of the accounting system and related internal controls and should
study and evaluate the operations of these internal controls upon which he wishes to
rely in determining the nature, timing and extent of other audit procedures.

Benefits of Evaluation of Internal Control to the Auditor

The review of internal controls will enable the auditor to know:
(i) whether errors and frauds are likely to be located in the ordinary course of
operations of the business;
(ii) whether an adequate internal control system is in use and operating as planned by
the management;
(iii) whether an effective internal auditing department is operating;
(iv) whether any administrative control has a bearing on his work (for example, if the
control over worker recruitment and enrolment is weak, there is a likelihood of dummy
names being included in the wages sheet and this is relevant for the auditor);
(v) whether the controls adequately safeguard the assets;
(vi) how far and how adequately the management is discharging its function in so far as
correct recording of transactions is concerned;
(vii) how reliable the reports, records and the certificates to the management can be;
(viii) the extent and the depth of the examination that he needs to carry out in the
different areas of accounting;
(ix) what would be appropriate audit technique and the audit procedure in the given
circumstances;
(x) what are the areas where control is weak and where it is excessive; and
(xi) whether some worthwhile suggestions can be given to improve the control system.

Question 78; Factors relevant to the auditor’s judgment about whether a control,
individually or in combination with others, is relevant to the audit may include such
matters as materiality, size of the entity etc. Explain the other relevant considerations
in the above context.
Answer 78; Factors relevant to the auditor’s judgment about whether a control,
individually or in combination with others, is relevant to the audit may include such
matters as the following:
 Materiality.
 The significance of the related risk.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 236 of 277

 The size of the entity.

 The nature of the entity’s business, including its organisation and ownership
characteristics.
 The diversity and complexity of the entity’s operations.
 Applicable legal and regulatory requirements.
 The circumstances and the applicable component of internal control.
 The nature and complexity of the systems that are part of the entity’s internal
control, including the use of service organisations.
 Whether, and how, a specific control, individually or in combination with others,
prevents, or detects and corrects, material misstatement.

Question 79; The auditor shall obtain an understanding of the information system,
including the related business processes, relevant to financial reporting, including the
classes of transactions in the entity’s operations that are significant to the financial
statements, controls surrounding journal entries etc. Explain the other considerations
in this regard.
Answer 79; The auditor shall obtain an understanding of the information system,
including the related business processes, relevant to financial reporting, including the
following are as under:
(a) The classes of transactions in the entity’s operations that are significant to the
financial statements;
(b) The procedures by which those transactions are initiated, recorded, processed,
corrected as necessary, transferred to the general ledger and reported in the financial
statements;
(c) The related accounting records, supporting information and specific accounts in the
financial statements that are used to initiate, record, process and report transactions;
(d) How the information system captures events and conditions that are significant to
the financial statements;
(e) The financial reporting process used to prepare the entity’s financial statements;
(f) Controls surrounding journal entries.

Question 80; The auditor shall obtain an understanding of control activities relevant to
the audit, which the auditor considers necessary to assess the risks of material
misstatement. Explain in detail stating clearly the meaning of control activities and also
discuss control activities that are relevant to the audit.
Answer 80; The auditor shall obtain an understanding of control activities relevant to
the audit, which the auditor considers necessary to assess the risks of material
misstatement. An audit requires an understanding of only those control activities
related to significant class of transactions, account balance, and disclosure in the
financial statements and the assertions which the auditor finds relevant in his risk

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 237 of 277

assessment process.

Control activities are the policies and procedures that help ensure that management
directives are carried out.

Control activities, whether within IT or manual systems, have various objectives and
are applied at various organisational and functional levels.

Examples of specific control activities include those relating to the following:

Control activities that are relevant to the audit are:

• Control activities that relate to significant risks and those that relate to risks for
which substantive procedures alone do not provide sufficient appropriate audit
evidence; or

• Those that are considered to be relevant in the judgment of the auditor;

• As part of the risk assessment, the auditor shall determine whether any of the risks
identified are, in the auditor’s judgment, a significant risk.

Q 81; Advise what is included in control environment. Also explain the elements of
control environment.
A 81; Control Environment – Component of Internal Control: The auditor shall obtain
an understanding of the control environment. As part of obtaining this understanding,
the auditor shall evaluate whether:
(i) Management has created and maintained a culture of honesty and ethical behavior;
and
(ii) The strengths in the control environment elements collectively provide an
appropriate foundation for the other components of internal control.

What is included in Control Environment? The control environment includes:

(i) the governance and management functions and
(ii) the attitudes, awareness, and actions of those charged with governance and
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 238 of 277

management.
(iii) The control environment sets the tone of an organization, influencing the control
consciousness of its people.

Elements of the Control Environment: Elements of the control environment that may
be relevant when obtaining an understanding of the control environment include the
following:

(a) Communication and enforcement of integrity and ethical values – These are
essential elements that influence the effectiveness of the design, administration and
monitoring of controls.

(b) Commitment to competence – Matters such as management’s consideration of the

competence levels for particular jobs and how those levels translate into requisite skills
and knowledge.

(c) Participation by those charged with governance – Attributes of those charged with
governance such as:
 Their independence from management.
 Their experience and stature.
 The extent of their involvement and the information they receive, and the scrutiny
of activities.
 The appropriateness of their actions, including the degree to which difficult
questions are raised and pursued with management, and their interaction with internal
and external auditors.

(d) Management’s philosophy and operating style – Characteristics such as

management’s:
 Approach to taking and managing business risks.
 Attitudes and actions toward financial reporting.
 Attitudes toward information processing and accounting functions and personnel.

(e) Organizational structure – The framework within which an entity’s activities for
achieving its objectives are planned, executed, controlled, and reviewed.

(f) Assignment of authority and responsibility - Matters such as how authority and
responsibility for operating activities are assigned and how reporting relationships and
authorization hierarchies are established.

(g) Human resource policies and practices – Policies and practices that relate to, for

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 239 of 277

example, recruitment, orientation, training, evaluation, counselling, promotion,

compensation, and remedial actions.

Question 82; Briefly discuss the limitations of Internal Control.

Answer 82; Limitations of Internal Control:
(i) Internal control can provide only reasonable assurance: Internal control, no
matter how effective, can provide an entity with only reasonable assurance about
achieving the entity’ s financial reporting objectives. The likelihood of their
achievement is affected by inherent limitations of internal control.
(ii) Human judgment in decision-making: Realities that human judgment in decision-
making can be faulty and that breakdowns in internal control can occur because of
human error.
(iii) Lack of understanding the purpose: Equally, the operation of a control may not be
effective, such as where information produced for the purposes of internal control (for
example, an exception report) is not effectively used because the individual responsible
for reviewing the information does not understand its purpose or fails to take
appropriate action.
(iv) Collusion among People: Additionally, controls can be circumvented by the collusion
of two or more people or inappropriate management override of internal control. For
example, management may enter into side agreements with customers that alter the
terms and conditions of the entity’s standard sales contracts, which may result in
improper revenue recognition. Also, edit checks in a software program that are
designed to identify and report transactions that exceed specified credit limits may be
overridden or disabled.
(v) Judgements by Management: Further, in designing and implementing controls,
management may make judgments on the nature and extent of the controls it chooses
to implement, and the nature and extent of the risks it chooses to assume.
(vi) Limitations in case of Small Entities: Smaller entities often have fewer
employees due to which segregation of duties is not practicable. However, in a small
owner-managed entity, the ownermanager may be able to exercise more effective
oversight than in a larger entity. This oversight may compensate for the generally more
limited opportunities for segregation of duties.

On the other hand, the owner-manager may be more able to override controls because
the system of internal control is less structured. This is taken into account by the
auditor when identifying the risks of material misstatement due to fraud.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 240 of 277

Question 83; Internal control over safeguarding of assets against unauthorised

acquisition, use, or disposition may include controls relating to both financial reporting
and operations objectives. Explain stating clearly the objectives of Internal Control.
Answer 83; Objectives of Internal Control
Internal control over safeguarding of assets against unauthorised acquisition, use, or
disposition may include controls relating to both financial reporting and operations
objectives. The auditor’s consideration of such controls is generally limited to those
relevant to the reliability of financial reporting. For example, use of access controls,
such as passwords, that limit access to the data and programs that process cash
disbursements may be relevant to a financial statement audit. Conversely, safeguarding
controls relating to operations objectives, such as controls to prevent the excessive
use of materials in production, generally are not relevant to a financial statement audit.

Objectives of Internal Control are:

(i) transactions are executed in accordance with managements general or specific
authorization;
(ii) all transactions are promptly recorded in the correct amount in the appropriate
accounts and in the accounting period in which executed so as to permit preparation of
financial information within a framework of recognized accounting policies and
practices and relevant statutory requirements, if any, and to maintain accountability
for assets;
(iii) assets are safeguarded from unauthorized access, use or disposition; and
(iv) the recorded assets are compared with the existing assets at reasonable intervals
and appropriate action is taken with regard to any differences. The auditor shall obtain
an understanding of internal control relevant to the audit. Although most controls
relevant to the audit are likely to relate to financial reporting, not all controls that
relate to financial reporting are relevant to the audit. It is a matter of the auditor’s
professional judgment whether a control, individually or in combination with others, is
relevant to the audit.

An understanding of internal control assists the auditor in:

(i) identifying types of potential misstatements;
(ii) identifying factors that affect the risks of material misstatement, and
(iii) designing the nature, timing, and extent of further audit procedures

Question 84; It has been suggested that actual operation of the internal control
should be tested by the application of procedural tests and examination in depth.
Explain with the help of example in respect of the procedure for sales.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 241 of 277

Answer 84; It has been suggested that actual operation of the internal control should
be tested by the application of procedural tests and examination in depth. Procedural
tests simply mean testing of the compliance with the procedures laid down by the
management in respect of initiation, authorization, recording and documentation of
transaction at each stage through which it flows.

For example, the procedure for sales requires the following:

a. Before acceptance of any order the position of inventory of the relevant article
should be known to ascertain whether the order can be executed in time.
b. An advice under the authorisation of the sales manager should be sent to the party
placing the order, internal reference number, and the acceptance of the order. This
advice should be prepared on a standardized form and copy thereof should be
forwarded to inventory section to enable it to prepare for the execution of the order
in time.
c. The credit period allowed to the party should be the normal credit period. For any
special credit period a special authorisation of the sales manager would be necessary.
d. The rate at which the order has been accepted and other terms about transport,
insurance, etc., should be clearly specified. 5. Before deciding upon the credit period, a
reference should be made to the credit section to know the creditworthiness of the
party and particularly whether the party has honored its commitments in the past.

Question 85; Risk of material misstatement refers to the risk that the financial
statements are materially misstated prior to audit. Discuss the levels at which this risk
exists.
Answer 85; The risks of material misstatement may exist at two levels:
(i) The overall financial statement level - Risks of material misstatement at the
overall financial statement level refer to risks of material misstatement that relate
pervasively to the financial statements as a whole and potentially affect many
assertions.
(ii) The assertion level for classes of transactions, account balances, and
disclosures - Risks of material misstatement at the assertion level are assessed in
order to determine the nature, timing, and extent of further audit procedures
necessary to obtain sufficient appropriate audit evidence. This evidence enables the
auditor to express an opinion on the financial statements at an acceptably low level of
audit risk.

Question 86; The division of internal control into five components provides a useful
framework for auditors to consider how different aspects of an entity's internal
control may affect the audit. Mention those components of internal control.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 242 of 277

Answer 86; Division of Internal Control into Components: The division of internal
control into the following five components provides a useful framework for auditors to
consider how different aspects of an entity’s internal control may affect the audit:
(i) The control environment;
(ii) The entity’s risk assessment process;
(iii) Monitoring of controls.
(iv) Control activities; and
(v) The Benefits of Understanding the Internal Control information system, including
the related business processes, relevant to financial reporting, and communication;

Question 87; Auditor GR and Associates have been appointed to conduct audit of PNG
Ltd, a manufacturing company engaged in manufacturing of various food items. While
planning an audit, the auditors do not think that it would be necessary to understand
internal controls. Advise the auditor in this regard explaining clearly the benefits of
understanding the internal control.
Answer 87; The auditor shall obtain an understanding of internal control relevant to
the audit. Although most controls relevant to the audit are likely to relate to financial
reporting, not all controls that relate to financial reporting are relevant to the audit. It
is a matter of the auditor’s professional judgment whether a control, individually or in
combination with others, is relevant to the audit.

Benefits of Understanding the Internal Control

An understanding of internal control assists the auditor in:
(i) identifying types of potential misstatements;
(ii) identifying factors that affect the risks of material misstatement, and
(iii) designing the nature, timing, and extent of further audit procedures.

Question 88; Auditor or Sunshine Ltd. is of the view that due to greater management
intervention to specify accounting treatment, the risk of material misstatement is
greater for non-routine transactions. Is the view of the auditor correct? Specify the
other matters due to which the risk of material misstatement is greater for significant
non-routine transactions.
Answer 88; Risk of Material Misstatement – Greater for Significant Non-Routine
Transactions:
Significant risks often relate to significant non- routine transactions or judgmental
matters. Nonroutine transactions are transactions that are unusual, due to either size
or nature, and that therefore occur infrequently.
Risks of Material Misstatement– Greater for Significant Non-Routine Transactions
Risks of material misstatement may be greater for significant non-routine
transactions arising from matters such as the following:
(a) Greater management intervention to specify the accounting treatment.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 243 of 277

(b) Greater manual intervention for data collection and processing.

(c) Complex calculations or accounting principles.
(d) The nature of non-routine transactions, which may make it difficult for the entity
to implement effective controls over the risks.

Keeping in view above, view of Auditor of Sunshine Ltd is correct.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 244 of 277

CHP 5; AUDIT OF ITEMS OF FS

Question 1; Discuss the audit procedures generally required to be undertaken by the

auditor while auditing Goods sent out on Sale or Return Basis.
Answer 1; The audit procedure generally required to be undertaken by the auditor
while auditing Goods sent out on Sale or Return Basis is as under:
(i) Check whether a separate memoranda record of goods sent out on sale or return
basis is maintained. The party accounts are debited only after the goods have been sold
and the sales account is credited.
(ii) Verify that price of such goods is unloaded from the sales account and the trade
receivables record. Check the memoranda record to confirm that on the receipt of
acceptance from each party, his account has been debited and the sales account
correspondingly credited.
(iii) Ensure that the goods in respect of which the period of approval has expired at
the end of the year, have either been received back or customers’ accounts have been
debited.
(iv) Confirm that the inventory of goods sent out on approval, the period of approval in
respect of which had not expired till the end of the year lying with the party, has been
included in the closing inventory.

Question 2; How will you vouch/verify the following:

(a) Goods sent on consignment.
(b) Foreign travel expenses.
(c) Receipt of capital subsidy.
(d) Provision for income tax.
Answer 2; (a) Goods Sent on Consignment:
(i) Verify the accounts sales submitted by the consignee showing goods sold and
inventory of goods in hand.
(ii) Reconcile the figure of the goods on hand, as given in the last accounts sales, with
the Performa invoices and accounts sales received during the year. If any consignment
inventory was in the hands of the consignee at the beginning of the year, the same
should be taken into account in the reconciliation.
(iii) Obtain confirmation from the consignee for the goods held on consignment on the
balance sheet date. Verify the terms of agreement between the consignor and the
consignee to check the commission and other expenses debited to the consignment
account and credited to the consignee’s account. The accounts sales also must be
correspondingly checked.
(iv) Ensure that the quantity of goods in hand with the consignee has been valued at
cost plus proportionate non-recurring expenses, e.g., freight, dock dues, customs due,
etc., unless the value is lower. In case net realisable value is lower, the inventory in
hand of the consignee should be valued at net realisable value. Also see that the
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 245 of 277

allowance has been made for damaged and obsolete goods in making the valuation.
(v) See that goods in hand with the consignee have been shown separately under the
head inventories.

(b) Foreign Travel Expenses:

(i) Examine Travelling Allowance bills submitted by the employees stating the details of
tour, details of expenses, etc.
(ii) Verify that the tour programme was properly authorised by the competent
authority.
(iii) Check the T.A. bills along with accompanying supporting documents such as air
tickets, travel agents bill and hotel bills with reference to the internal rules for
entitlement of the employees and also make sure that the bills are properly passed.
(iv) See that the tour report accompanies the T.A. bill. The tour report will show the
purpose of the tour. Satisfy that the purpose of the tour as shown by the tour report
conforms to the authorisation for the tour.
(v) Check Reserve Bank of India’s permission, if necessary, for withdrawing the foreign
exchange. For a company the amount of foreign exchange spent is to be disclosed
separately in the accounts as per requirement of Schedule III to the Companies Act,
2013 and Accounting Standard 11 “The Effects of Changes in Foreign Exchange Rates”.

(c) Receipt of Capital Subsidy:

(i) Check the application made for the claim of subsidy to ascertain the purpose and
the scheme under which the subsidy has been made available.
(ii) Examine documents for the grant of subsidy and note the conditions attached with
the same relating to its use, etc.
(iii) Ensure that the conditions to be fulfilled and other terms especially whether the
same is for a specific asset or is for setting up a factory at a specific location.
(iv) Check relevant entries for receipt of subsidy.
(v) Check compliance with requirements of AS 12 on “Accounting for Government
Grants” i.e. whether it relates to specific amount or in the form of promoters’
contribution and accordingly accounted for as also compliance with the disclosure
requirements.

(d) Provision for Income Tax:

(i) Obtain the computation of income and income tax prepared by the entity and verify
whether it is as per the Income-tax Act, 1961 and Rules made thereunder.
(ii) Review adjustments, expenses, disallowed special rebates, etc. with particular
reference to the last available completed assessment.
(iii) Examine relevant records and documents pertaining to advance tax, self-
assessment tax and other demands.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 246 of 277

(iv) Compute tax payable as per the latest applicable rates in the Finance Act.
(v) Ensure that overall provisions on the date of the balance sheet is adequate having
regard to current year provision, advance tax paid, assessment orders, etc.
(vi) Ensure that the requirements of AS 22 on Accounting for Taxes on Income have
been appropriately followed for the period under audit.

Question 3; The auditor A of ABC & Co.- firm of auditors is conducting the audit of
XYZ Ltd and while performing testing of additions wanted to verify that all PPE
(Property Plant and Equipment) purchase invoices are in the name of the entity he is
auditing. For all additions to land, building in particular, the auditor desires to have
concrete evidence about ownership. The auditor is worried about whether the entity
has valid legal ownership rights over the PPE claimed to be held by the entity and
recorded in the financial statements. Advise the auditor.
Answer 3; In addition to the procedures undertaken for verifying completeness of
additions to PPE during the period under audit, the auditor while performing testing of
additions should also verify that all PPE purchase invoices are in the name of the entity
that entitles legal title of ownership to the respective entity. For all additions to land,
building in particular, the auditor should obtain copies of conveyance deed/ sale deed to
establish whether the entity is mentioned to be the legal and valid owner.

The auditor should insist and verify the original title deeds for all immoveable
properties held as at the balance sheet date. In case the entity has given such
immoveable property as security for any borrowings and the original title deeds are not
available with the entity, the auditor should request the entity’s management for
obtaining a confirmation from the respective lenders that they are holding the original
title deeds of immoveable property as security. In addition, the auditor should also
verify the register of charges, available with the entity to assess that any charge has
been created against the PPE.

Question 4; How would you vouch/verify the following:

(a) Advertisement Expenses.
(b) Sale of Scrap.
Answer 4; (a) Advertisement Expenses:
(i) Verify the bills/invoices from advertising agency to ensure that rates charged for
different types of advertisement are as per the contract.
(ii) See that the advertisement relates to client’s business.
(iii) Inspect the receipt issued by the agency.
(iv) Ascertain the nature of expenditure – revenue or capital expenditure and see that
it has been recorded properly.
(v) Ascertain the period for which payment is made and see that prepaid amount, if

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 247 of 277

any, is carried to the balance sheet.

(vi) See that all outstanding advertisement bills have been provided for.

(b) Sale of Scrap:

(i) Review the internal control as regards generation, storage and disposal of scrap.
(ii) Check whether the organization is maintaining reasonable record for generation of
scrap.
(iii) Analyze the raw material used, production and generation pattern of scrap and
compare the same with figures of earlier year.
(iv) Check the rates at which scrap has been sold and compare the rate with previous
year.
(v) Vouch sales, with invoices raised, advertisement for tender, rate contract with
scrap dealers.
(vi) Ensure that there exists a proper control procedure to identify scrap and good
units and they are not mixed up and sold as scrap.
(vii) Make an overall assessment of the value of realization from scrap as to its
reasonableness

Question 5; As statutory auditor of the company, list out audit procedures required to
be undertaken for the following:
(i) Interest income from fixed deposits
(ii) Dividend income.
(iii) Gain/(loss) on sale of investment in Mutual funds.
Also indicate disclosure requirements of above as per Companies Act, 2013.
Answer 5; (i) For verifying interest income on fixed deposits:
• Obtain a listing of fixed deposits opened during the period under audit along with the
applicable interest rate and the number of days for which the deposit was outstanding
during the period. Verify the arithmetical accuracy of the interest calculation made by
the entity by multiplying the deposit amount with the applicable rate and number of
days during the period under audit.
• For deposits still outstanding as at the period- end, trace the same to the direct
confirmation obtained from the respective bank/ financial institution.
• Obtain a confirmation of interest income from the bank and verify that the interest
income as per bank reconciles to the calculation shared by the entity.
• Also, obtain a copy of Form26AS (TDS with holding by the bank/financial institution)
and reconcile the interest reflected therein to the calculation shared by client.

(ii) Dividend Income:

For Dividends, verify that the same are recognized in the statement of profit and loss
only when the entity’s right to receive payment of the dividend is established, provided
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 248 of 277

it is probable that the economic benefits associated with the dividend will flow to the
entity and the amount of the dividend can be measured reliably.

(iii) Gain/(loss) on sale of investment in mutual funds: Verify that Gain/(loss) on sale
of investment in mutual funds is recorded as other income only on transfer of title
from the entity and is determined as the difference between the redemption price and
carrying value of the investments. For the purpose, obtain the mutual fund statement
and trace the gain / loss as recorded in the books of account to the gain/ loss as
reflected in the statement.

Disclosure Requirements:
Ensure whether the following disclosures as required under Ind AS compliant Schedule
III to Companies Act, 2013 have been made:
Whether ‘other income’’ has been classified as:
• Interest income
• Dividend income
• Other non-operating income (net of expenses directly attributable to such income)

Question 6; Name the assertions for the following audit procedures:

(i) Year end inventory verification.
(ii) Depreciation has been properly charged on all assets.
(iii) The title deeds of the lands disclosed in the Balance Sheet are held in the name of
the company.
(iv) All liabilities are properly recorded in the financial statements.
(v) Related party transactions are shown properly.
Answer 6; (i) Year-end inventory verification: Existence Assertion.
(ii) Depreciation has been properly charged on all assets: Valuation Assertion.
(iii) Title deed of lands disclosed in the Balance Sheet are held in the name of the
Company: Rights & Obligations Assertion.
(v) All liabilities are properly recorded in the financial statements: Completeness.
(vi) Related party transactions are shown properly: Presentation & Disclosure.

Question 7; Explain clearly the examples of matters relevant in planning attendance at

physical inventory counting.
Answer 7; Matters relevant in planning attendance at physical inventory counting
include, for example:
(a) Nature of inventory.
(b) Stages of completion of work in progress.
(c) The risks of material misstatement related to inventory.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 249 of 277

(d) The nature of the internal control related to inventory.

(e) Whether adequate procedures are expected to be established and proper
instructions issued for physical inventory counting.
(f) The timing of physical inventory counting.
(g) Whether the entity maintains a perpetual inventory system.
(h) The locations at which inventory is held, including the materiality of the inventory
and the risks of material misstatement at different locations, in deciding at which
locations attendance is appropriate
(i) Whether the assistance of an auditor’s expert is needed.

Question 8; "While the auditor may choose to analyse the monthly trends for expenses
like rent, power and fuel but for other expenses, an auditor generally prefers to verify
other attributes." Mention those attributes.
Answer 8; While the auditor may choose to analyse the monthly trends for expenses
like rent, power and fuel, an auditor generally prefers to vouch for other expenses to
verify following attributes:
(i) Whether the expenditure pertained to current period under audit;
(ii) Whether the expenditure qualified as a revenue and not capital expenditure;
(iii) Whether the expenditure had a valid supporting like travel tickets, insurance
policy, third party invoice etc.;
(iv) Whether the expenditure has been classified under the correct expense head;
(v) Whether the expenditure was authorised as per the delegation of authority matrix;
(vi) Whether the expenditure was in relation to the entity’s business and not a personal
expenditure

Question 9; The auditor may choose to analyse the monthly trend for Power & Fuel
expense. Explain how this analysis will be performed by the auditor
Answer 9; Power and fuel expense -
• Obtain a month wise expense schedule along with the power bills.
• Verify if expense has been recorded for all 12 months.
• Also, compile a month wise summary of power units consumed and the applicable rate
and check the arithmetical accuracy of the bill raised on monthly basis.
• In relation to the units consumed, analyse the monthly power units consumed by
linking it to units of finished goods produced and investigate reasons for variance in
monthly trends.

Question 10; While reviewing Employee benefits expenses of a company, how you as an
auditor you will evaluate its hiring, appraisal and retirement process?
Answer 10; While reviewing Employee Benefits expenses auditor needs to obtain a
clear understanding about the organization and its hiring, appraisal and retirement
process in the following manner:
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 250 of 277

i. The auditor first tests the controls the company has set around the employee
benefit payment process to determine how strong and reliable they are. I they are
strong; the auditor can minimize the amount of transaction testing he must do. Common
internal controls over the employee benefit payment cycle includes maintaining of
attendance records, authorization and approval of monthly payroll processing and
disbursement.
ii. The auditor selects a random sample of transactions and examines the related
appointment letters, appraisal letters, attendance records, HR policies, employee
master etc.
iii. The auditor performs Substantive analytical procedure consisting of monthly
expense reasonability, comparison with previous accounting period, any analysis auditor
may find relevant and most important of all setting an expectation in relation to the
expense incurred during the period under audit and compare that with the client’s
business operations and overall trend in the industry.

Question 11; Explain with examples the audit procedure to establish the existence of
intangible fixed assets as at the period- end.
Answer 11; Since an Intangible Asset is an identifiable non-monetary asset,
without physical substance, for establishing the existence of such assets, the auditor
should verify whether such intangible asset is in active use in the production or supply
of goods or services, for rental to others, or for administrative purposes.

Example- for verifying the existence of software, the auditor should verify whether
such software is in active use by the entity and for the purpose, the auditor should
verify the sale of related services/ goods during the period under audit, in which such
software has been used. Example- For verifying the existence of design/ drawings, the
auditor should verify the production data to establish if such products for which the
design/ drawings were purchased, are being produced and sold by the entity.

In case any intangible asset is not in active use, deletion should have been recorded in
the books of account post approvals by the entity’s management and amortization
charge should have ceased to be charged beyond the date of deletion.

Question 12; Write the audit procedures to be performed as an auditor for valuation
(assertion) of following: (i) Loans and Advances and other current assets. (ii) Finished
goods and goods for resale.
Answer 12; (i) Audit procedure for valuation of Loans and Advances and other
current assets
• Assess the allowance for doubtful accounts. Review the process followed by the

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 251 of 277

Company to derive an allowance for doubtful accounts. This will include a consistency
comparison with the method used in the last year, and a determination of whether the
method is appropriate for the underlying business environment.

• Obtain the ageing report of loans and advances, split between not currently due, 30
days old, 30-60 days old, 60-180 days old, 180-365 days old and more than 365 days
old. Also, obtain the list of loans and advances under litigation and compare with
previous year.

• Scrutinize the analysis and identify those loans and advances that appear doubtful;
Discuss with management their reasons, if any of these loans/ advances are not
included in the provision for bad recoverable; Perform further testing where any
disputes exist; Reach a final conclusion regarding the adequacy of the bad and doubtful
loans/ advances provision.

• Assess bad loans/ advances write-offs. Prepare schedule of movements on Bad loans/
advances – Provision Accounts and loans/ advances written off.

• Check that write-offs or other reductions in the recoverable balances have been
approved by an appropriate and authorised member of senior management, for example
the financial controller or finance director.

• Check that the restatement of foreign currency loans and advances/ other current
assets has been done properly.

(ii) Audit procedure for valuation of finished goods and goods for resale
• Enquire into what costs are included, how these have been established and ensure
that the overheads included have been determined based on normal costs and appear
reasonable in relation to the information disclosed in the draft financial statements.

• Ensure that inventories are valued at net realizable value if they are likely to fetch a
value lower than their cost. For any such items, also verify if the relevant semi/ partly
processed inventories (work in progress) and raw materials have also been written
down.

• Follow up for items that are obsolete, damaged, slow moving and ascertain the
possible realizable value of such items. For the purpose, request the client to provide
inventory ageing split between less than 30 days, 30-60 days old, 60-90 days old, 90-
180 days old, 180-385 days old and more than 365 days old (refer screenshot below).

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 252 of 277

• Follow up any inventories which at time of observance of physical counting were noted
as being damaged or obsolete.

• Compare recorded costs with replacement costs. Examine vendor price lists to
determine if recorded cost is less than current prices.

• Calculate inventory turnover ratio. Obsolete inventory may be revealed if ratio is

significantly lower.

• In manufacturing environments, test overhead allocation rates and ensure that only
direct labour, direct material and overhead have been included.

• Verify the correct application of lower-of-cost-or-net realizable value principles.

Question 13; A significant and important audit activity is to contact banks/ financial
institution s directly and ask them to confirm the amounts held in current accounts,
deposit accounts, EEFC account, cash credit accounts, etc. as at the end of the
reporting period under audit. Explain the audit procedure in this context.
Answer 13; Direct confirmation procedure
• A significant and important audit activity is to contact banks/ financial institutions
directly and ask them to confirm the amounts held in current accounts, deposit
accounts, EEFC account, cash credit accounts, restrictive use accounts like dividend,
escrow accounts as of the end of the reporting period under audit. This should
necessarily be done for all account balances as at the period-end.

• The Company should be asked to investigate and reconcile the discrepancies, if any,
including seeking written explanations/ clarifications from the banks/ financial
institutions on any unresolved queries.

• The auditor should emphasize for confirmation of 100% of bank account balances. In
remote situations, where no reply is received, the auditor should perform additional
testing regarding the balances. This testing could include:

• Agreeing the balance to bank statement received by the Company or internet/ online
login to account in auditor’s personal presence;

• Sending the audit team member to the bank branch along with the entity’s personal to
obtain balance confirmation from the bank directly.

Question 14; Depreciation and amortization expense generally constitute an entity's

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 253 of 277

significant part of overall expenses and have direct impact on the profit/loss of the
entity. What are the attributes, the Auditor needs to consider while verifying
Depreciation and amortization expense?
Answer 14; Depreciation and amortization generally constitute an entity’s significant
part of overall expenses and have direct impact on the profit/ loss of the entity, hence
auditors need to verify and ensure that such expenditure is appropriate, accurately
calculated and has been accounted as per applicable provisions of Companies Act or
other statutes, to the extent applicable on the respective industry and as per generally
accepted accounting principles.

Auditor needs to consider the following attributes while verifying for depreciation
and amortization expenses:
• Obtain the understanding of entity’s accounting policy related to depreciation and
amortization.
• Ensure the Company policy for charging depreciation and amortization is as per the
relevant provisions of Companies Act/ applicable accounting standards.
• Whether the depreciation has been calculated after making adjustment of residual
value from the cost of the assets.
• Whether depreciation and amortization charges are valid.
• Whether depreciation and amortization charges are accurately calculated and
recorded.
• Whether all depreciation and amortization charges are recorded in the appropriate
period.
• Ensure the parts (components) of each item of property, plant and equipment that are
to be depreciated separately have been properly identified.
• Whether the most appropriate depreciation method for each separately depreciable
component has been used.

Question 15; Newton Ltd. has made loans and advances on the basis of following
securities to various borrowers. As an auditor what type of documents can be verified
to ensure that the company holds a legally enforceable security?
(i) Shares and Debentures
(ii) Life Insurance Policy
(iii) Hypothecation of goods.
Answer 15;
(i) Shares and debentures; The scrip and the endorsement thereon of the name of
the transferee, in the case of transfer.
(ii) Life Insurance Policy; Assignment of policy in favour of the lender, duly registered
with the insurer
(iii) Hypothecation of goods; Deed of hypothecation or other document creating the

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 254 of 277

charge, together with a statement of inventories held at the Balance Sheet date

Question 16; While conducting audit of Vee Ltd, CA Aman, auditor of the company,
found that some goods are lying with third party for a long period. Advise Aman how
will he verify them.
Answer 16; Goods Lying with Third Party: The auditor should check that the
materiality of the item under this caption included in inventories.
(i) He should obtain confirmation of the amount of goods lying with them. The
confirmation may be directly obtained by auditor or be produced by client depending
upon the situation.
(ii) He should inquire into the necessity of sub contractor retaining the inventory. He
should ensure the process that they do are related to the business requirement and
there is no ground for suspicion on this score.
(iii) The goods lying with them for the very long period would merit auditors’ special
attention for making provision.
(iv) The records, voucher/slips for the regulating the movement of inventory into and
out of entity for sub-contracting work be reviewed by vouching for few transaction for
ensuring existence and working of internal control system for them.
(v) The excise gate pass, entry in such records, information in returns, be also cross-
verified.
(vi) The valuation of inventories should be correctly made for including material cost on
appropriate inventory valuation formulae and also for inclusion of proportionate
processing charges for the work in process with the contractors.
(vii) The provision should be created for work done, billed for processing and also for
incidence of any applicable levy like service tax payable.
(viii) Evaluate condition of goods and see whether adequate provision has been made.
(ix) Check whether subsequently the goods lying with third party were sold or received
back after the expiry of stipulated time period.
(x) Ensure that the goods have been included in the closing inventory though lying with
third party.

Question 17; Explain how you will verify the items given while conducting an audit of an
entity:
(a) Recovery of Bad debts written off
(b) Receipt of Insurance claims
(c) Payment of Taxes
Answer 17; (a) Recovery of Bad Debts written off: Recovery of bad debts written
off is verified with reference to relevant correspondence and proper authorisation.
(i) Ascertain the total amount lying as bad debts and verify the relevant
correspondence with the trade receivables whose accounts were written off as bad

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 255 of 277

debt. (ii) Ensure that all recoveries of bad debts have been properly recorded in the
books of account.
(iii) Examine notification from the Court or from bankruptcy trustee. Letters from
collecting agencies or from account receivables should also be seen.
(iv) Check Credit Manager’s file for the amount received and see that the said amount
has been deposited into the bank promptly.
(v) Vouch acknowledgement receipts issued to account receivables or trustees.
(vi) Review the internal control system regarding writing off and recovery of bad debts

(b) Receipt of Insurance Claims: Insurance claims may be in respect of fixed assets
or current assets. While vouching the receipts of insurance claims
a. The auditor should examine a copy of the insurance claim lodged with the insurance
company correspondence with the insurance company and with the insurance agent
should also be seen. Counterfoils of the receipts issued to the insurance company
should also be seen.
b. The auditor should also determine the adjustment of the amount received in excess
or short of the value of the actual loss as per the insurance policy.
c. The copy of certificate/report containing full particulars of the amount of loss
should also be verified.
d. The accounting treatment of the amount received should be seen particularly to
ensure that revenue is credited with the appropriate amount and that in respect of
claim against asset, the Statement of Profit and Loss is debited with the short fall of
the claim admitted against book value, if the claim was lodged in the previous year but
no entries were passed, entries in the Statement of Profit and Loss should be
appropriately described.

(c) Payment of Taxes:

a. Obtain the computation of taxes prepared by the auditee and verify whether it is as
per the Income Tax Act/GST Act/ Rules/ Notifications/ Circulars etc.
b. Examine relevant records and documents pertaining to payment of advance income
tax and self assessment tax.
c. Payment on account of income-tax and other taxes like GST consequent upon a
regular assessment should be verified by reference to the copy of the assessment
order, notice of demand and the receipted challan acknowledging the amount paid.
d. The penal interest charged for non-payment should be debited to the interest
account.
e. Nowadays, electronic payment of taxes is also in trend. Such electronic payment of
taxes by way of internet banking facility or credit or debit cards shall also be verified.
f. The assessee can make electronic payment of taxes also from the account of any
other person. Therefore, it should be verified that the challan for making such

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 256 of 277

payment is clearly indicating the PAN No./TAN No./TIN No./GSTIN etc. of the
assessee on whose behalf the payment is made.

Question 18; XYZ Ltd made huge additions to Intangible assets during the period 01-
04-2021 to 31-03-2022 i.e period under audit. You have been appointed as an auditor
and you want to verify the additions made to intangible assets during the period.
Suggest the audit procedure to verify the additions to intangible assets.
Answer 18;
A. Verify the movement in the intangible assets schedule (asset class wise like
software, designs/ drawings, goodwill etc.) compiled by the management i.e. Opening
balances + Additions – Deletions = Closing balances. Tally the closing balances to the
entity’s books of account.

B. Check the arithmetical accuracy of the movement in intangible assets schedule.

For additions during the period under audit, obtain a listing of all additions from
the management and undertake the following procedures:
(i) For all material additions, verify whether such expenditure meets the criterion for
recognition of an intangible asset as per AS 26.
(ii) Ensure that no cost related to research (or from the research phase of an internal
project) gets recognized as intangible asset.
(iii) Check the certificate or report or other similar documentation maintained by the
entity to verify the date of use of the intangible which could be linked to date of
commencement of commercial production/ economic use to the entity, for all additions
to intangible assets during the period under audit.
(iv) Verify whether the additions (acquisitions) have been approved by appropriate
entity’s personnel.
(v) Verify whether proper internal processes and procedures like inviting competitive
quotations/ proper tenders etc. were followed prior to finalizing the vendor for
procuring item of intangible assets by testing those documents on a sample basis.
(vi) In relation to deletions of intangible assets, understand from the management the
reason and rationale for deletion and the manner of disposal. Obtain the management
approval and disposal note authoring disposal of the asset from its active use.
(vii) Verify the process followed for sale of discarded asset, example inviting
competitive quotes, tenders and the basis of calculation of sales proceeds. Verify that
the management has accurately recorded the deletion of intangible asset (original cost
and accumulated amortization up to the date of disposal) and the resultant gain/ loss on
disposal in the entity’s books of account.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 257 of 277

Question 19; Study mate Limited is a company engaged in the manufacture of

Question 20; Discuss the audit procedure to be considered by an auditor while

performing analytical procedure to obtain audit evidence as to overall reasonableness
of purchase quantity and price.
Answer 20; Auditor needs to perform analytical procedures to obtain audit
evidence as to overall reasonableness of purchase quantity and price which may
include:
(i) Consumption Analysis: Auditor should scrutinize raw material consumed as per
manufacturing account and compare the same with previous years with closing stock and
ask for the reasons from management if any significant variations found.
(ii) Stock Composition Analysis: Auditor to collect the reports from management for
composition of stock i.e. raw materials as a percentage of total stock and compare the
same with compare the same with previous years and ask for the reasons from
management if any significant variations found.
(iii) Ratios: Auditor should compare the creditors turnover ratios and stock turnover
ratios of the current year with previous years.
(iv) Auditor should review quantitative reconciliation of closing stocks with opening
stock, purchases and consumption.

Question 21; BNP Ltd has reduced its Share Capital to a greater extent in the year
for which you are conducting the audit. State how will you proceed for verifying the
reduction of Capital.
Answer 21; Reduction of Capital

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 258 of 277

For verifying reduction of capital, the auditor needs to undertake the following
procedures:
(i) Verify that the meeting of the shareholders held to pass the special resolution was
properly convened and that the proposal was circularized in advance to all the
shareholders;
(ii) Verify that the Articles of Association authorizes reduction of capital;
(iii) Examine the order of the Tribunal confirming the reduction and verify that a copy
of the order and the minutes have been registered and filed with the Registrar of
Companies;
(iv) Check the Registrar’s Certificate as regards to reduction of capital;
(v) Vouch the accounting entries recorded to reduce the capital and to write down the
assets by reference to the resolution of shareholders and other documentary evidence;
also check whether the requirements of Schedule III, Part I, have been complied with
in relation to presentation
(vi) Confirm whether the revaluation of assets has been properly disclosed in the
Balance Sheet.
(vii) Verify the adjustment made in the members’ accounts in the Register of Members
and confirm that either the paid up amount shown on the old share certificates has
been altered or new certificates have been issued in lieu of the old, and the old ones
have been cancelled;
(viii) Confirm that the words “and reduced”, if required by the order of the Tribunal,
have been added to the name of the company in the Balance Sheet.
(ix) Verify that the Memorandum of Association of the company has been suitably
amended.

Question 22; You are an auditor of PQR Ltd. which has spent Rs. 10 lakhs on Research
activities of the product during period under audit. Board of Directors want to
recognize it as an internally generated intangible asset. Advise and discuss the
conditions necessary to be fulfilled to recognize the intangible assets in the financial
statements.
Answer 22; No Intangible asset arising from research (or from the research phase of
an internal project) shall be recognised. Expenditure on research shall be recognised as
an expense when it is incurred since in the research phase of an internal project, an
entity cannot demonstrate that a n intangible asset exists that will generate probable
future economic benefits. Thus, board of directors of PQR Ltd cannot recognize the
expense as internally generated intangible asset.

An intangible asset shall be recognised if, and only if:

(i) the said asset is identifiable;
(ii) the entity controls the asset i.e. the entity has the power to obtain the future

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 259 of 277

economic benefits flowing from the underlying resource and to restrict the access of
others to those benefits;
(iii) it is probable that future economic benefits associated with the asset will flow to
the entity;
(iv) the cost of the item can be measured reliably.

Question 23; The value of intangible assets may diminish due to efflux of time, use
and/or obsolescence. The diminution of the value represents cost to the entity for
earning revenue during a given period. Discuss the audit procedures to be applied by
the auditor to ensure that Intangible assets have been valued appropriately and as per
generally accepted accounting policies and practices.
Answer 23; The value of intangible assets may diminish due to efflux of time, use and/
or obsolescence. The diminution of the value represents cost to the entity for earning
revenue during a given period. Unless this cost in the form of amortization is charged
to the accounts, the profit or loss would not be correctly ascertained and the values of
intangible asset would be shown at higher amounts.

The auditor should:

• Verify that the entity has charged amortization on all intangible assets;
• Verify that the amortization method used reflects the pattern in which the asset’s
future economic benefits are expected to be consumed by the entity.

The auditor should also verify whether the management has done an impairment
assessment to determine whether an intangible asset is impaired. For this purpose, the
auditor needs to verify whether the entity has applied AS 28 - Impairment of Assets
for determining the manner of reviewing the carrying amount of its intangible asset,
determining the recoverable amount of the asset to determine impairment loss, if any

Question 24; CA "X" while conducting an audit of Joyful Ltd. found a considerable
increase in sales as compared to the previous year, he doubts that few fictitious sales
have been recorded by the company to overstate its revenues. Discuss any four audit
procedures to be undertaken by the auditor to ensure revenue from sales of goods and
services performed during the period is not overstated?
Answer 24; CA X, having doubts about fictitious sales being recorded by Joyful Ltd
would ensure that revenue is not overstated by performing following audit procedures:
• Check whether a single sales invoice is recorded twice or a cancelled sales invoice
could also be recorded.
• Test check few invoices with their relevant entries in sales journal.
• Obtain confirmation from few customers to ensure genuineness of sales transaction
• Whether any fictitious customers and sales have been recorded.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 260 of 277

• Whether any shipments were done without the consent and agreement of the
customer, especially at the year end to inflate the sales figure
• Whether unearned revenue recorded as earned.
• Whether any substantial uncertainty exists about collectability
• Whether customer obligations are contingent on other actions (financing, resale etc.)

Question 25; Explain how you would verify rent expense incurred by a Company.
Answer 25; Rent expense can be verified by:
• Obtaining a month wise expense schedule along with the rent agreements.
• Verifying if expense has been recorded for all 12 months and whether the rent
amount is as per the underlying agreement.
• Giving specific consideration to the escalation clause in the agreement to verify if
the rent was required to be recorded on a straight line basis during the period under
audit.
• Also, verifying if the agreement is in the name of the entity and whether the expense
pertains to premises used for running business operations of the entity.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 261 of 277

CHP 9; SPECIAL FEATURES OF AUDIT OF DIFFERENT TYPES OF ENTITIES

Question 1; While planning the audit of an NGO, the auditor may focus on Knowledge
of the NGO’s work, its mission and vision, Updating knowledge of relevant statutes
especially with regard to recent amendments, circulars etc. Explain the other relevant
points the auditor needs to focus while planning the audit of NGO. Answer 1; While
planning the audit, the auditor may concentrate on the following:
(i) Knowledge of the NGO’s work, its mission and vision, areas of operations and
environment in which it operates.
(ii) Updating knowledge of relevant statutes especially with regard to recent
amendments, circulars, judicial decisions viz. Foreign Contribution (Regulation) Act
1976, Societies Registration Act, 1860, Income Tax Act 1961 etc. and the Rules related
to the statutes.
(iii) Reviewing the legal form of the Organization and its Memorandum of Association,
Articles of Association, Rules and Regulations.
(iv) Reviewing the NGO’s Organization chart, then Financial and Administrative Manuals,
Project and Programmed Guidelines, Funding Agencies Requirements and formats,
budgetary policies if any.
(v) Examination of minutes of the Board/Managing Committee/Governing Body/
Management and Committees thereof to ascertain the impact of any decisions on the
financial records.
(vi) Study the accounting system, procedures, internal controls and internal checks
existing for the NGO and verify their applicability.
(vii) Setting of materiality levels for audit purposes.
(viii) The nature and timing of reports or other communications.
(ix) The involvement of experts and their reports.
(x) Review the previous year’s Audit Report.

Question 2; An NGO operating in Delhi had collected large scale donations for Tsunami
victims. The donations so collected were sent to different NGOs operating in Tamil
Nadu for relief operations. This NGO operating in Delhi has appointed you to audit its
accounts for the year in which it collected and remitted donations for Tsunami victims.
Draft audit programme for audit of receipts of donations and remittance of the
collected amount to different NGOs. Mention six points each, peculiar to the situation,
which you will like to incorporate in your audit programme for audit of said receipts and
remittances of donations.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 262 of 277

Answer 2; Receipt of Donations:

(i) Internal Control System: Existence of internal control system particularly with
reference to division of responsibilities in respect of authorised collection of
donations, custody of receipt books and safe custody of money.

(ii) Custody of Receipt Books: Existence of system regarding issue of receipt books,
whether unused receipt books are returned and the same are verified physically
including checking of number of receipt books and sequence of numbering therein.

iii) Receipt of Cheques: Receipt Book should have carbon copy for duplicate receipt
and signed by a responsible official. All details relating to date of cheque, bank’s name,
date, amount, etc. should be clearly stated.

(iv) Bank Reconciliation: Reconciliation of bank statements with reference to all cash
deposits not only with reference to date and amount but also with reference to receipt
book.

(v) Cash Receipts: Register of cash donations to be vouched more extensively. If

addresses are available of donors who had given cash, the same may be cross-checked
by asking entity to post thank you letters mentioning amount, date and receipt number.

(vi) Foreign Contributions, if any, to receive special attention to compliance with

applicable laws and regulations.

Remittance of Donations to Different NGOs:

(i) Mode of Sending Remittance: All remittances are through account payee cheques.
Remittances through Demand Draft would also need to be scrutinised thoroughly with
reference to recipient.

(ii) Confirming Receipt of Remittance: All remittances are supported by receipts and
acknowledgements.

(iii) Identity: Recipient NGO is a genuine entity. Verify address, 80G Registration
Number, etc.

(iv) Direct Confirmation Procedure: Send confirmation letters to entities to whom

donations have been paid.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 263 of 277

(v) Donation Utilisation: Utilisation of donations for providing relief to Tsunami victims
and not for any other purpose.

(vi) System of NGOs’ Selection: System for selecting NGO to whom donations have
been sent.

Question 3; Central Govt. holds 55% of the paid up share Capital in Kisan Credit Co-
operative Society, which is incurring huge losses. Advise when the Central Government
can direct Special Audit under Section 77 of the Multi State Co-operative Society Act.
Answer 3; Central Government shall order for special audit only if that Government or
the State Government either by itself or both hold fifty-one percent or more of the
paid-up share capital in such Multi-State co-operative society. Under section 77 of the
Multi-State Co-operative Societies Act, 2002, where the Central Government is of the
opinion:

i. that the affairs of any Multi-State co-operative society are not being managed in
accordance with self-help and mutual deed and co-operative principles or prudent
commercial practices or with sound business principles; or

ii. that any Multi-State co-operative society is being managed in a manner likely to
cause serious injury or damage to the interests of the trade industry or business to
which it pertains; or

iii. that the financial position of any Multi-State co-operative society is such as to
endanger its solvency.

Thus, in the given case since Central Govt is holding 55% shares and financial position
of Kisan Credit cooperative society is in danger, Central government can direct for
special audit.

Question 4; As an auditor, explain the areas of consideration while auditing the

element of ROOM SALES during the audit of a 5-Star Hotel.
Answer 4; Following points merit consideration while auditing the element of ROOM
SALES during the audit of a Hotel:-
(a) The charge for room sales is normally posted to guest bills by the receptionist/
front office or in the case of large hotels by the night auditor.

(b) The source of these entries is the guest register and audit tests should be carried
out to ensure that the correct numbers of guests are charged for the correct period.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 264 of 277

(c) Any difference between the charged rates used on the guests’ bills and the
standard room rate should be investigated to ensure that they have been properly
authorised.

(d) In many hotels, the housekeeper prepares a daily report of the rooms which were
occupied the previous night and the number of beds kept in each room. This report
tends not to be permanently retained and the auditor should ensure that a sufficient
number of reports are available for him to test both with the guest register and with
the individual guest’s bill.

(e) Ensure compliance with the provisions of FEMA and RBI if receipts are in foreign
currency. Ensure application of proper Conversion rate.

(f) Special emphasis to be laid on receipts through Credit Cards.

(g) The auditor should ensure that proper valuation of occupancy-in-progress at the
balance sheet date is made and included in the accounts.

Question 5; Government audit has not only adopted the basic essentials of auditing as
known and practised in the profession to suit the requirements of governmental
transactions but has also added new concepts, techniques and procedures to the audit
profession. Explain stating clearly the definition of Government auditing as discussed in
U.N. Handbook on Govt Auditing and Developing Countries and also state Objectives of
Govt audit.
Answer 5; Government audit has not only adopted the basic essentials of auditing as
known and practised in the profession to suit the requirements of governmental
transactions but has also added new concepts, techniques and procedures to the audit
profession.

The U.N. Handbook on Government Auditing and Developing Countries defines

government auditing in a comprehensive manner which is as follows:

Government auditing is
 the objective, systematic, professional and independent examination
 of financial, administrative and other operations
 of a public entity
 made subsequently to their execution
 for the purpose of evaluating and verifying them,
 presenting a report containing explanatory comments on audit findings together with
conclusions and recommendations for future actions

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 265 of 277

 by the responsible officials

 and in the case of examination of financial statements, expressing the appropriate
professional opinion regarding the fairness of the presentation.

OBJECTIVES: -
(a) Accounting for Public Funds :- Government audit serves as a mechanism or
process for public accounting of government funds.

(b) Appraisal of Government policies :- It also provides public accounting of the

operational, management, programme and policy aspects of public administration as well
as accountability of the officials administering them.

(c) Base for Corrective actions :- Audit observations based on factual data collection
also serve to highlight the lapses of the lower hierarchy, thus helping supervisory level
officers to take corrective measures.

(d) Administrative Accountability :- The main objective of audit is a combination of

ensuring accountability of administration to legislature and functioning as an aid to
administration

Question 6; Discuss the matters which should be specially considered in the audit
of accounts of a partnership
Answer 6; Matters which should be specially considered in the audit of accounts of
a partnership:
(i) Letter of Appointment:- Confirming that the letter of appointment, signed by a
partner, duly authorised, clearly states the nature and scope of audit contemplated by
the partners, specially the limitation, if any, under which the auditor shall have to
function.

(ii) Partnership Documents:- Studying the minute book, if any, maintained to record
the policy decision taken by partners specially the minutes relating to authorisation of
extraordinary and capital expenditure, raising of loans; purchase of assets,
extraordinary contracts entered into and other such matters as are not of a routine
nature.

(iii) Objects of Partnership:- Verifying that the business in which the partnership is
engaged is authorised by the partnership agreement; or by any extension or
modification thereof agreed to subsequently.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 266 of 277

(iv) Books of Account:- Examining whether books of account appear to be reasonable

and are considered adequate in relation to the nature of the business of the
partnership.

(v) Mutual Interest:- Verifying generally that the interest of no partner has suffered
prejudicially by an activity engaged in by the partnership which, it was not authorised
to do under the partnership deed or by any violation of a provision in the partnership
agreements.

(vi) Provision for Taxes:- Confirming that a provision for the firm’s tax payable by the
partnership has been made in the accounts before arriving at the amount of profit
divisible among the partners.

(vii) Division of Profits:- Verifying that the profits and losses have been divided
among the partners in their agreed profit-sharing ratio.

Question 7; Differences between operating and finance lease

Answer 7;

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 267 of 277

Question 8; The C&AG Act gives powers to the C&AG in connection with the
performance of his duties. Explain.
Answer 8; Powers of C&AG: The C&AG Act gives the following powers to the C&AG in
connection with the performance of his duties
i. To inspect any office of accounts under the control of the Union or a State
Government including office responsible for the creation of the initial or subsidiary
accounts.
ii. To require that any accounts, books, papers and other documents which deal with or
are otherwise relevant to the transactions under audit, be sent to specified places.
iii. To put such questions or make such observations as he may consider necessary to
the person in charge of the office and to call for such information as he may require
for the preparation of any account or report which is his duty to prepare.

In carrying out the audit, the C&AG has the power to dispense with any part of
detailed audit of any accounts or class of transactions and to apply such limited checks
in relation to such accounts or transactions as he may determine.

Question 9; Audit against rules and orders aims to ensure that the expenditure
conforms to the relevant provisions of the Constitution and of the laws and rules made
thereunder. These rules, regulations and orders against which regularity audit is
conducted fall under various categories.
Answer 9; Audit against Rules & Orders - Audit against rules and orders aims to
ensure that the expenditure conforms to the relevant provisions of the Constitution
and of the laws and rules made thereunder. It also seeks to satisfy that the
expenditure is in accordance with the financial rules, regulations and orders issued by a
competent authority. These rules, regulations and orders against which regularity audit
is conducted mainly fall under the following categories:

(i) Rules and orders regulating the powers to incur and sanction expenditure from the
Consolidated Fund of India or of a State (and the Contingency Fund of India or of a
State);

(ii) Rules and orders dealing with the mode of presentation of claims against
government, withdrawing moneys from the Consolidated Fund, Contingency Fund and
Public Accounts of the Government of the India and of the States, and in general the
financial rules prescribing the detailed procedure to be followed by government
servants in dealing with government transactions; and

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 268 of 277

(iii) Rules and orders regulating the conditions of service, pay and allowances, and
pensions of government servants.

It is the function of the executive government to frame rules, regulations and orders,
which are to be observed by its subordinate authorities. The job of audit is to see that
these rules, regulat ions and orders are applied properly by the subordinate
authorities. It is, however, not the function of audit to prescribe what such rules,
regulations and orders shall be. But, it is the function of audit to carry out examination
of the various rules, regulations and orders issued by the executive authorities to see
that:
(a) they are not inconsistent with any provisions of the Constitution or any laws made
thereunder;
(b) they are consistent with the essential requirements of audit and accounts as
determined by the C&AG;
(c) they do not come in conflict with the orders of, or rules made by, any higher
authority; and
(d) in case they have not been separately approved by competent authority, the issuing
authority possesses the necessary rule-making power.

Audit of expenditure against regularity is of a quasi-judicial type of work performed by

the audit authorities. It involves interpretation of the Constitution, statutes, rules,
regulations and orders. The final power of interpretation of these, however, does not
vest with the C&AG.

Question 10; The audit of receipts of government is not as old as audit of expenditure
but with the rapid growth of public enterprises audit of receipts tax or non-tax has
come to stay. Discuss audit of receipts with respect to Government Audit.
Answer 10; Government auditing in India as elsewhere was primarily expenditure-
oriented. Gradually, audit of receipts-tax and non-tax was taken up.
The audit of receipts is neither all pervasive nor as old as audit of expenditure
but has come to stay in some countries. Such an audit provides for checking;
(i) whether all revenues or other debts due to government have been correctly
assessed, realised and credited to government account by the designated authorities;
(ii) whether adequate regulations and procedures have been framed by the
department/agency concerned to secure an effective check on assessment, collection
and proper allocation of cases;
(iii) whether such regulations and procedures are actually being carried out;
(iv) whether adequate checks are imposed to ensure the prompt detection and
investigation of irregularities, double refunds, fraudulent or forged refund vouchers or
other loss of revenue through fraud or willful omission or negligence to levy or collect
TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 269 of 277

taxes or to issue refunds; and

(v) review of systems and procedures to see that the internal procedures adequately
secure correct and regular accounting of demands collection and refunds and pursuant
of dues up to final settlement and to suggest improvement. The basic principle of audit
of receipts is that it is more important to look at the general than on the particular,
though individual cases of assessment, demand, collection, refund, etc. Are important
within the area of test check. A review of the judicial decisions taken by tax
authorities is done to judge the effectiveness of the assessment procedure.
(vi) The extent and quantum of audit required to be done under each category of audit
are determined by the C&AG. These are neither negotiable nor questioned. The
prescribed extent and quantum of audit are structured in accordance with the design
of test check, random sampling, general review, in-depth study of specified areas, etc.
.as may be warranted by the nature of transactions, its importance in the scheme of
activities of a department and the totality of its transactions, the frequency of check
and total plan of audit to be executed during a period.
(vii) Institutional mechanism provides for primary check by the auditor, test check by
the supervisor and control and direction by the group leader. Planning, executing and
reporting of work is directed and monitored at middle and top levels of the audit
hierarchy. There are built –in arrangements within the C&AG to ensure that the work
assigned to each employee is carried out as prescribed.
(viii) The audit is conducted both centrally where accounts and original vouchers are
kept and locally where the drawing and disbursing functions are performed depending
on the organizational and institutional arrangements obtaining.

Question 11; (I) List out the types of Revenue Grants received by local bodies from
the State.
(II) PQR Ltd., a government company, constructed a building in conformity with rules
and regulations for installing a telephone exchange but not used for the same purpose
resulting in the infructuous expenditure. Considering the above case, explain the type
of expenditure audit to be performed to curb the situation.
Answer 11; (i) Revenue grants received by Local Bodies:
Local bodies may receive different types of grants from the state administration.
Broadly the revenue grants are of three types:
(a) General purpose grants: These are primarily intended to substantially bridge the
gap between the needs and resources of the local bodies.
(b) Specific purpose grants: These grants which are tied to the provision of certain
services or performance of certain tasks.
(c) Statutory and compensatory grants: These grants, under various enactments, are
given to local bodies as compensation on account of loss of any revenue on taking over a

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 270 of 277

tax by state government from local government.

(ii) Propriety audit: According to ‘propriety audit’, the auditors try to bring out cases
of improper, avoidable, or infructuous expenditure even though the expenditure has
been incurred in conformity with the existing rules and regulations. Further, it may so
happen that a transaction may satisfy all the requirements of regularity audit insofar
as the various formalities regarding rules and regulations are concerned but may still
be highly wasteful.

In the given situation, PQR Ltd. being a government company, constructed a building in
conformity with rules and regulations for installing a telephone exchange but not used
for the same purpose resulting in an infructuous expenditure.

Thus, propriety audit should be done for PQR Ltd. to bring out improper, avoidable, or
infructuous expenditure even though the expenditure has been incurred in conformity
with the existing rules and regulations to the notice of the proper authorities of
wastefulness in public administration.

Question 12; As an Auditor of NGO, how do you check/verify at least four receipts of
income during the year?
Answer 12; The receipt of income of NGO may be checked on the following lines:
(i) Contributions and Grants for projects and programmes: Check agreements with
donors and grants letters to ensure that funds received have been accounted for.
Check that all foreign contribution receipts are deposited in the foreign contribution
bank account as notified under the Foreign Contribution (Regulation) Act, 1976.

(ii) Receipts from fund raising programmes: Verify in detail the internal control
system and ascertain who are the persons responsible for collection of funds and mode
of receipt. Ensure that collections are counted and deposited in the bank daily.

(iii) Membership Fees: Check fees received with Membership Register. Ensure proper
classification is made between entrance and annual fees and life membership fees.
Reconcile fees received with fees to be received during the year.

(iv) Subscriptions: Check with subscription register and receipts issued. Reconcile
subscription received with printing and dispatch of corresponding magazine/
circulars/periodicals. Check the receipts with subscription rate schedule.

(v) Interest and Dividends: Check the interest and dividends received and receivable

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 271 of 277

with investments held during the year.

Question 13; Explain and also state the role of auditor with respect to the following in
case of a hotel: Pilfering is one of the greatest problems in any hotel and the
importance of internal control cannot be undermined.
Answer 13; Internal control: Pilfering is one of the greatest problems in any hotel and
the importance of internal control cannot be undermined. It is the responsibility of
management to introduce controls which will minimise the leakage as far as possible.
Evidence of their success i s provided by the preparation of regular perhaps weekly,
trading accounts for each sales point and a detailed scrutiny of the resulting profit
percentages, with any deviation from the anticipated form being investigated. The
auditor should obtain these regular trading accounts for the period under review,
examine them and obtain explanations for any apparent deviations.

The auditor should verify a few restaurant bills by reference to K.O.T.s (Kitchen
Order Tickets) or basic record. This would enable the auditor to ensure that controls
regarding revenue cycle are in order. The auditor should satisfy himself that all taxes
collected from occupants on food and occupation have been paid over to the proper
authorities. If the internal control in a hotel is weak or perhaps breaks down, then a
very serious problem exists for the auditor. As a result of the transient nature of
many of his clients’ records, the auditor must rely to a very large extent on the gross
margin shown by the accounts. As a result, the scope of his audit tests will necessarily
be increased and, in the event of a material margin discrepancy being unexplained, he
will have to consider qualifying his audit report.

Question 14; Discuss, in what circumstances, Central Registrar can hold an inquiry into
working and financial condition of a multi-state cooperative society
Answer 14; The Central Registrar may, on a request from :-
• a federal co-operative to which a Multi- State Co-operative society is affiliated or
• a creditor or not less than one-third of the members of the board or
• not less than one-fifth of the total number of members of a Multi-state co-operative
society.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 272 of 277

OTHER PARTS

Question 15; Sporting Club of India is a private club engaged in promotion of sports in
the country. As an auditor of this leading club, discuss any two points to ensure that
expenditure incurred by club during the year is properly authorised.
Answer 14; (i) Vouching payment of grants, also verifying that the grants have been
paid only for a charitable purpose or purposes falling within the purview of the objects
for which the charitable institution has been set up and that no trustee, director or
member of the Managing Committee has benefited there from either directly or
indirectly.
(ii) Verifying the schedules of securities held, as well as inventories of properties both
movable and immovable by inspecting the securities and title deeds of property and by
physical verification of the movable properties on a test- basis.
(iii) Verifying the cash and bank payments.
(iv) Ascertaining that any funds contributed for a special purpose have been utilised
for the purpose.

Question 16; Tomo Construction Engineering LLP approached CA K to understand

various returns to be maintained and filed by them. Guide/Discuss the various returns
to be maintained and filed by them.
Answer 16; Returns to be maintained and filed by an LLP:
 Every LLP would be required to file annual return in Form 11 with ROC within 60 days
of closer of financial year. The annual return will be available for public inspection on
payment of prescribed fees to Registrar.
 Every LLP is also required to submit Statement of Account and Solvency in Form 8

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 273 of 277

which shall be filed within a period of thirty days from the end of six months or the
financial year to which the Statement of Account and Solvency relates.

Question 17; In case of Government entities, audit of accounts of stores and

inventories has been developed as a part of expenditure audit. Discuss about the duties
and responsibilities entrusted to C&AG.
Answer 17; Audit of Accounts of Stores and Inventories in Government Companies:
Audit of the accounts of stores and inventories has been developed as a part of
expenditure audit with reference to the duties and responsibilities entrusted to C&AG.
Audit is conducted:-
(i) to ascertain whether the Regulations governing purchase, receipt and issue, custody,
sale and inventory taking of stores are well devised and properly carried out.
(ii) to bring to the notice of the government any deficiencies in quantities of stores
held or any defects in the system of control.
(iii) to verify that the purchases are properly sanctioned, made economical and in
accordance with the Rules for purchase laid down by the competent authority.
(iv) to ensure that the prices paid are reasonable and are in agreement with those
shown in the contract for the supply of stores, and that the certificates of quality and
quantity are furnished by the inspecting and receiving units. Cases of uneconomical
purchase of stores and losses attributable to defective or inferior quality of stores
are specifically brought by the audit.
(v) to check the accounts of receipts, issues and balances regarding accuracy,
correctness and reasonableness of balances in inventories with particular reference to
the specified norms for level of consumption of inventory holding. Any excess or idle
inventory is specifically mentioned in the report and periodical verification of inventory
is also conducted to ensure their existence. When priced accounts are maintained, the
auditor should see that the prices charged are reasonable and have been reviewed from
time to time. The valuation of the inventories is seen carefully so that the value
accounts tally with the physical accounts and that adjustment of profits or losses due
to revaluation, inventory taking or other causes is carried out.

Question 18; State the points which merit consideration in the audit of a CLUB w.r.t
its members.
Answer 18; The points which merit consideration in the audit of a CLUB w.r.t its
members:
(A) Entrance Fee: Vouch the receipt on account of entrance fees with –
a. members’ applications and counterfoils issued to them,
b. on a reference to minutes of the Managing Committee.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 274 of 277

(B) Member Subscriptions: Vouch members’ subscriptions with –

a. the counterfoils of receipt issued to them,
b. trace receipts for a selected period to the Register of Members;
c. also reconcile the amount of total subscriptions due with the amount collected and
that outstanding.

(C) Subscription Arrears/in Advance: Ensure that –

a. arrears of subscriptions for the previous year have been correctly brought over,
b. arrears for the year under audit and subscriptions received in advance have been
correctly adjusted.
c. Subscriptions received in advance should have been properly accounted for.

(D) Arithmetical accuracy: Check totals of various columns of the Register of

members and tally them across.

(E) Register of Members: See the Register of Members to ascertain –

a. the Member’s dues which are in arrear and
b. enquire whether necessary steps have been taken for their recovery;
c. the amount considered irrecoverable should be mentioned in the Audit Report.

(F) Member Accounts: Trace debits for a selected period from subsidiary registers
maintained in respect of supplies and services to members to confirm that the account
of every member has been debited with amounts recoverable from him.

Question 19; You have been appointed as an auditor of a health care service provider.
Briefly discuss the special points that should be kept in mind as an auditor for
developing an audit program me.
Answer 19; The special points to be kept in mind as an auditor for developing an audit
program me of healthcare service provider are:
A. Register of Patients: Auditors to vouch the Register of patients with copies of
bills issued to them. Verify bills for a selected period with the patients’ attendance
record to see that the bills have been correctly prepared. Also see that bills have been
issued to all patients from whom an amount was recoverable according to the rules of
the hospital.

B. Collection of Cash: Auditor to check cash collections as entered in the Cash Book
with the receipts, counterfoils and other evidence for example, copies of patients bills,
counterfoils of dividend and other interest warrants, copies of rent bills, etc.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 275 of 277

C. Income from Investments, Rent etc. See by reference to the property and
Investment Register that all income that should have been received by way of rent on
properties, dividends, and interest on securities have been collected.

D. Legacies and Donations: Ascertain that legacies and donations received for a
specific purpose have been applied in the manner agreed upon.

E. Reconciliation of Subscriptions: Trace all collections of subscription and donations

from the Cash Book to the respective Registers. Reconcile the total subscriptions due
(as shown by the Subscription Register and the amount collected and that still
outstanding).

F. Authorization and Sanctions: Vouch all purchases and expenses and verify that the
capital expenditure was incurred only with the prior sanction of the Trustees or the
Managing Committee and that appointments and increments to staff have been duly
authorized.

G. Grants and TDS: Verify that grants, if any, received from Government or local
authority has been duly accounted for. Also, that refund in respect of taxes deducted
at source has been claimed.

H. Budgets: Compare the totals of various items of expenditure and income with the
amount budgeted for them and report to the Trustees or the Managing Committee,
significant variations which have taken place.

I. Internal Check: Examine the internal check as regards the receipt and issue of
stores; medicines, linen, apparatus, clothing, instruments, etc. so as to insure that
purchases have been properly recorded in the Inventory Register and that issues have
been made only against proper authorization.

J. Depreciation: See that depreciation has been written off against all the assets at
the appropriate rates.

K. Registers: Inspect the bonds, share scrips, title deeds of properties and compare
their particulars with those entered in the property and Investment Registers.

L. Inventories: Obtain inventories, especially of stocks and stores as at the end of the
year and check a percentage of the items physically; also compare their total values
with respective ledger balances.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 276 of 277

M. Management Representation and Certificate: Get proper Management

Representation and Certificate with respect to various aspects covered during the
course of audit.

Questions 20; An audit of Expenditure is one of the major components of Government

Audit. In the context of ‘Government Expenditure Audit’, write in brief, what do you
understand by:
(i) Audit against Rules and Orders
(ii) Audit of Sanctions
(iii) Audit against Provision of Funds
(iv) Propriety Audit
(v) Performance Audit.
Answer 20; Government Expenditure Audit: Audit of government expenditure is one of
the major components of government audit conducted by the office of C&AG. The basic
standards set for audit of expenditure are to ensure that there is provision of funds
authorized by competent authority fixing the limits within which expenditure can be
incurred. Briefly, these standards are explained below:

(i) Audit against Rules & Orders: The auditor has to see that the expenditure
incurred conforms to the relevant provisions of the statutory enactment and is in
accordance with the financial rules and regulations framed by the competent authority.

(ii) Audit of Sanctions: The auditor has to ensure that each item of expenditure is
covered by a sanction, either general or special, accorded by the competent authority,
authorizing such expenditure.

(iii) Audit against Provision of Funds: It contemplates that there is a provision of

funds out of which expenditure can be incurred and the amount of such expenditure
does not exceed the appropriations made.

(iv) Propriety Audit: It is required to be seen that the expenditure is incurred with
due regard to broad and general principles of financial propriety. The auditor aims to
bring out cases of improper, avoidable, or in fructuous expenditure even though the
expenditure has been incurred in conformity with the existing rules and regulations.
Audit aims to secure a reasonably high standard of public financial morality by looking
into the wisdom, faithfulness and economy of transactions.

(v) Performance Audit: This involves that the various programmers, schemes and
projects where large financial expenditure has been incurred are being run
economically and are yielding results expected of them. Efficiency-cum- performance

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH
AUDIT IMP QUES LIST SEPT 24 by CA AJAY GUPTA; Page 277 of 277

audit, wherever used, is an objective examination of the financial and operational

performance of an organization, programmer, authority or function and is oriented
towards identifying opportunities for greater economy, and effectiveness.

Question 21; State six important advantages of audit of accounts of a Partnership

firm.
Answer 21; Advantages of Audit of Accounts of a Partnership: On broad
considerations, the advantages of audit of accounts of a partnership could be stated as
follows:
(A) Audited accounts provide a convenient and reliable means of settling accounts
between the partners and, thereby, the possibility of occurrence of a dispute among
them is mitigated. On this consideration, it is usually provided in and accepted by the
partners, shall be binding upon them, unless some manifest error is brought to light
within a specified period subsequent to the accounts having been signed.

(B) On the retirement or death of a partner, audited accounts, which have been
accepted by the partners, constitute a reliable evidence for computing the amounts due
to the retiring partner or to the representative of the deceased partner in respect of
his share of capital, profits and goodwill.

(C) The accounts of a partnership, which have been audited, are generally accepted by
the Income Tax Department as the basis for computing the assessable income of the
partners.

(D) Audited statement of accounts are relied upon by the banks when advancing loans,
as well as by prospective purchasers of the business, as evidence of the profitability of
the concern and its financial position.

(E) Audited statements of account can be helpful in the negotiations to admit a person
as a partner, especially when they are available for a number of past years.

(F) An audit is an effective safeguard against any undue advantage being taken by a
working partner or partners especially in the case of those partners who are not
actively associated with the working of the firm.

TELEGRAM CHANNEL;
https://t.me/cainterpreparation

YOUTUBE CHANNEL;
https://youtube.com/@commercechallenge-ajaygupt45?si=ziCXaVCPXbsUQJbH

Egyptian Accounting Standard (EAS) 51-Translation 5
No ratings yet
Egyptian Accounting Standard (EAS) 51-Translation 5
25 pages
Quick Revisionary Note
No ratings yet
Quick Revisionary Note
22 pages
E8-29 Segmented Income Statement: Conceptual Connection
100% (1)
E8-29 Segmented Income Statement: Conceptual Connection
5 pages
2020 FA L4 To L10 Students
No ratings yet
2020 FA L4 To L10 Students
40 pages
Sa Notes
No ratings yet
Sa Notes
328 pages
CA Inter Audit Concept Book Final
No ratings yet
CA Inter Audit Concept Book Final
252 pages
SA Revision - Intermediate
No ratings yet
SA Revision - Intermediate
29 pages
Inter Audit 1122333
No ratings yet
Inter Audit 1122333
65 pages
Harshad Jaju SPC Audit Complier
No ratings yet
Harshad Jaju SPC Audit Complier
405 pages
Engagement & Quality Control Standards: CA Sarthak Jain
No ratings yet
Engagement & Quality Control Standards: CA Sarthak Jain
48 pages
5. AUDIT CA INTER-JAN25 IMP QUESTIONS
No ratings yet
5. AUDIT CA INTER-JAN25 IMP QUESTIONS
268 pages
02 Audit Program Short Notes
No ratings yet
02 Audit Program Short Notes
1 page
Audit of Banks
No ratings yet
Audit of Banks
8 pages
CA Inter Audit Trick Book Notes
No ratings yet
CA Inter Audit Trick Book Notes
95 pages
Basics Audit Neeraj Arora
No ratings yet
Basics Audit Neeraj Arora
22 pages
Summary of SA
No ratings yet
Summary of SA
22 pages
1743665098880
No ratings yet
1743665098880
218 pages
CA Inter Cost & MGT Accounting Theory Book by CA Purushottam Aggarwal
No ratings yet
CA Inter Cost & MGT Accounting Theory Book by CA Purushottam Aggarwal
85 pages
Ca Samiksha Sethia: Nature, Scope and Significance of Auditing
No ratings yet
Ca Samiksha Sethia: Nature, Scope and Significance of Auditing
4 pages
SA 210 - Agreeing The Terms of Audit Engagement CA Inter New Syllabus by Neeraj Arora
No ratings yet
SA 210 - Agreeing The Terms of Audit Engagement CA Inter New Syllabus by Neeraj Arora
1 page
Ca Inter 4-12-2019 PDF
No ratings yet
Ca Inter 4-12-2019 PDF
172 pages
Pradhi CA Inter ABC Sep 24_Jan 25 Schedule
No ratings yet
Pradhi CA Inter ABC Sep 24_Jan 25 Schedule
19 pages
CARO 2020 Summary
No ratings yet
CARO 2020 Summary
22 pages
CARO Notes by CA Ankit Oberoi
No ratings yet
CARO Notes by CA Ankit Oberoi
8 pages
CA Final Study Plan
No ratings yet
CA Final Study Plan
1 page
CA Final Audit - Sa Revision Charts Nov 24 - CA Sagar Jain
No ratings yet
CA Final Audit - Sa Revision Charts Nov 24 - CA Sagar Jain
42 pages
Ibs MCQ Index 3 Copy Single Side Print
100% (1)
Ibs MCQ Index 3 Copy Single Side Print
37 pages
CA INTERMEDIATE Advanced Accounting Final Notes V6 Lyst3864
No ratings yet
CA INTERMEDIATE Advanced Accounting Final Notes V6 Lyst3864
436 pages
Audit Question Bank Nov2023
No ratings yet
Audit Question Bank Nov2023
592 pages
Index: SA 200 - 299 SA 300 - 450 SA 500 - 580
100% (1)
Index: SA 200 - 299 SA 300 - 450 SA 500 - 580
7 pages
Caro 2020
No ratings yet
Caro 2020
9 pages
Praveen Jindal VOL II
No ratings yet
Praveen Jindal VOL II
540 pages
CA Inter FM Top 50 Question WithVKNOW Watermark & ASF Footer New
No ratings yet
CA Inter FM Top 50 Question WithVKNOW Watermark & ASF Footer New
82 pages
Ch. 19 - Professional Ethics - Class Notes
No ratings yet
Ch. 19 - Professional Ethics - Class Notes
38 pages
MCQ ch4 Exemption of GST
No ratings yet
MCQ ch4 Exemption of GST
30 pages
01.CA Inter Audit BHASKAR Regular Notes Vol 1
No ratings yet
01.CA Inter Audit BHASKAR Regular Notes Vol 1
292 pages
Summary Notes Accounts by CA Chiranjeev Jain - Account - StepFly OUTS160521
No ratings yet
Summary Notes Accounts by CA Chiranjeev Jain - Account - StepFly OUTS160521
67 pages
Written Revision of Chapter 5 Part I CA Intermediate Law No Anno PDF
No ratings yet
Written Revision of Chapter 5 Part I CA Intermediate Law No Anno PDF
51 pages
Audit SA Chart by CA Sarishti Sethi
100% (2)
Audit SA Chart by CA Sarishti Sethi
98 pages
02.CA Inter Audit BHASKAR Regular Notes Vol 2
No ratings yet
02.CA Inter Audit BHASKAR Regular Notes Vol 2
317 pages
Expected Questions
No ratings yet
Expected Questions
168 pages
01 Main Material
No ratings yet
01 Main Material
357 pages
Accounts Compiler by Rahul Malkan Sir
100% (1)
Accounts Compiler by Rahul Malkan Sir
301 pages
Auditing Important Questions
No ratings yet
Auditing Important Questions
6 pages
Ankush Chirimaemr Audit Concept Book
No ratings yet
Ankush Chirimaemr Audit Concept Book
176 pages
3B_CA_INTERMEDIATE_CASE_SCENARIOS_BASED_GST_MCQ_SERIES_B_MAY_2025
No ratings yet
3B_CA_INTERMEDIATE_CASE_SCENARIOS_BASED_GST_MCQ_SERIES_B_MAY_2025
34 pages
Ca Neeraj Arora Audit Important Questions May 2024
No ratings yet
Ca Neeraj Arora Audit Important Questions May 2024
4 pages
IDT Additional Qns of RTP & MTP
No ratings yet
IDT Additional Qns of RTP & MTP
16 pages
1_CA Final Audit QB Additions File
No ratings yet
1_CA Final Audit QB Additions File
50 pages
Ca Intermediate: How To Go About It? Mission Nov 2020
No ratings yet
Ca Intermediate: How To Go About It? Mission Nov 2020
13 pages
CA Final - Audit Notes - Index - May'24 Edition - 241111 - 224108
0% (1)
CA Final - Audit Notes - Index - May'24 Edition - 241111 - 224108
18 pages
Audit Top 70 Questions by CA VIDHI CHHEDA
No ratings yet
Audit Top 70 Questions by CA VIDHI CHHEDA
64 pages
Audit of Item of FS Updated
No ratings yet
Audit of Item of FS Updated
10 pages
CA - Inter - ABC - Analysis - May24 - Exam @CAInterLegends
No ratings yet
CA - Inter - ABC - Analysis - May24 - Exam @CAInterLegends
17 pages
Cia Part 3 - Study Unit 8 Strategic Decisions Core Concepts
No ratings yet
Cia Part 3 - Study Unit 8 Strategic Decisions Core Concepts
3 pages
Inter CA Auditing and Assurance
No ratings yet
Inter CA Auditing and Assurance
689 pages
Chapter 9 Audit of Items of Financial Statements
No ratings yet
Chapter 9 Audit of Items of Financial Statements
58 pages
Amendments for May25 - CA CMA Final IDT - By CA Jay Agarwal
No ratings yet
Amendments for May25 - CA CMA Final IDT - By CA Jay Agarwal
15 pages
CA Final FR - MAY 2024 EXAM PAPER - CASE SCENARIO BASED MCQ - Prepared by CA CPA Vinod Kumar Agarwal
No ratings yet
CA Final FR - MAY 2024 EXAM PAPER - CASE SCENARIO BASED MCQ - Prepared by CA CPA Vinod Kumar Agarwal
9 pages
Auditing Standards List
No ratings yet
Auditing Standards List
2 pages
C5 Audit Question Bank New
100% (2)
C5 Audit Question Bank New
21 pages
Audit Must Do List
No ratings yet
Audit Must Do List
104 pages
Audit MCQs Book @mission - CA - Inter
100% (1)
Audit MCQs Book @mission - CA - Inter
148 pages
Rahul Kumar MBA Finance 4 Sem
No ratings yet
Rahul Kumar MBA Finance 4 Sem
6 pages
Organizational Ethics and Business Functions: Mcgraw-Hill
No ratings yet
Organizational Ethics and Business Functions: Mcgraw-Hill
34 pages
Basic Accounting Level II: Sivakumar Ganesan B. SC, ACA, ICWA, PMP, PDIM
No ratings yet
Basic Accounting Level II: Sivakumar Ganesan B. SC, ACA, ICWA, PMP, PDIM
63 pages
Errors Worksheet Complete
No ratings yet
Errors Worksheet Complete
2 pages
A Successful ERP Implementation Journey
No ratings yet
A Successful ERP Implementation Journey
29 pages
Week 2 Tutorial Solutions PDF
No ratings yet
Week 2 Tutorial Solutions PDF
23 pages
Finacc Rev
No ratings yet
Finacc Rev
2 pages
DCF AAPL Course Manual PDF
100% (2)
DCF AAPL Course Manual PDF
175 pages
31 22 19 Branch Accounts Theory Problems
No ratings yet
31 22 19 Branch Accounts Theory Problems
21 pages
D) The Periodic Amount of Bond Interest Revenue Will Always Be Less To Than The Periodic Amount of Cash Received
No ratings yet
D) The Periodic Amount of Bond Interest Revenue Will Always Be Less To Than The Periodic Amount of Cash Received
24 pages
Accounting Theory Underlying Financial Accounting
No ratings yet
Accounting Theory Underlying Financial Accounting
35 pages
Quiz Auditing
No ratings yet
Quiz Auditing
16 pages
IAS 10 & IAS 23 Events After Balancesheet and Borrowing Cost
No ratings yet
IAS 10 & IAS 23 Events After Balancesheet and Borrowing Cost
53 pages
3 Term SY 2019-2020: Midterm Examination
No ratings yet
3 Term SY 2019-2020: Midterm Examination
10 pages
3585 Statement
No ratings yet
3585 Statement
10 pages
Activity For Trial Balance
No ratings yet
Activity For Trial Balance
3 pages
Fiscal Policy - Instruments and Objectives
No ratings yet
Fiscal Policy - Instruments and Objectives
9 pages
Accounting Notes From Millan
No ratings yet
Accounting Notes From Millan
14 pages
Extracted Pages From PVR LTD - 20
No ratings yet
Extracted Pages From PVR LTD - 20
1 page
Denzel Brooks Opens A Web Consulting Business Called Venture Con
No ratings yet
Denzel Brooks Opens A Web Consulting Business Called Venture Con
1 page
Accounting Information Systems 8th Edition Hall Test Bank - Available For Quick Download And Unlimited Reading
No ratings yet
Accounting Information Systems 8th Edition Hall Test Bank - Available For Quick Download And Unlimited Reading
55 pages
resume - بالعربى
No ratings yet
resume - بالعربى
2 pages
Sap Fi
No ratings yet
Sap Fi
39 pages
Bebbington, 1997
No ratings yet
Bebbington, 1997
17 pages
Seminar XII
No ratings yet
Seminar XII
67 pages
Bcom 6TH Sem Management Accounting
No ratings yet
Bcom 6TH Sem Management Accounting
31 pages
Answer Key ABM2
No ratings yet
Answer Key ABM2
6 pages

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.