Question Paper

BATCH – INTER CA MARKS- 50

SUBJECT – AUDITING & ETHICS
Part – I Multiple Choice Question

Q. 1.-CA. Gaurav Gogoi is about to conclude audit of a company. It has been noticed during the course of audit that
there is shortage of important raw material supplies being imported from China due to prevailing geo-political
situation. The company has shared with him its plan to deal with the situation. He is satisfied with assessment of
the company for dealing with the matter. The issue is disclosed in financial statements and considering
management’s assessment, it is felt that use of going concern assumption by company in preparation of financial
statements is appropriate.
Besides, he also wants to be sure that all subsequent events till now have been considered and accounted for, where
ever necessary, in financial statements.
Before concluding audit, he requests written representations from management regarding its responsibilities.
However, it is noticed that such written representations provided by management use qualifying language.
He has also communicated significant findings from audit in writing with those charged with governance in the
company and has retained copy of relevant mails. Besides, there are certain matters which were communicated by
him orally from time to time during the course of audit to those charged with governance.
Based on above, answer the following questions: - (2 marks each)

i. As regards description of matter above concerning issue of going concern, which of the following
statements is most appropriate for auditor’s report?
(a) The auditor should express an unmodified opinion.
(b) The auditor should express a qualified opinion as material uncertainty exists related to events or
conditions that may cast significant doubt on the entity’s ability to continue as a going concern.
(c) Besides expressing an unmodified opinion, the auditor’s report shall include a separate section under
the heading “Material Uncertainty Related to Going Concern” drawing attention to the note in which
such disclosure is made in financial statements along with related matters.
(d) Such an issue does not affect auditor’s opinion.

ii. As regards going concern basis of accounting is concerned, which of the following statements is true?
(a) A company showing net loss in its financial statements is essentially not a going concern.
(b) Following going concern assumption of accounting is primary duty of auditor.
(c) In case, a company is not a going concern, its financial statements must be prepared on liquidation basis.
(d) Audit procedure seeking confirmation from banker regarding outstanding balance relates to verification
of going concern assumption.

iii. Which of the following statements is true in respect of auditor’s responsibilities in respect of
subsequent events?
(a) There is no obligation for an auditor to perform audit procedures for events occurring between date of
financial statements and date of auditor’s report.
(b) There is no obligation for an auditor to perform audit procedures after signing of auditor’s report, even
if he comes to know of an event, which if known to him earlier would have caused him to amend the
audit report.
(c) The auditor has only to rely upon written representation of management regarding subsequent events.
He has no other means to know about such events.
(d) The auditor should perform necessary audit procedures to know about events occurring between the
date of financial statements and date of auditor’s report.

iv. As regards use of qualifying language in written representations, which of the following statement is
most appropriate?
 (a) It is reasonable for the auditor to accept such wording if the auditor is satisfied that the representations
are being made by those with appropriate responsibilities and knowledge of the matters included in the
representations.
(b) Written representations should be unconditional. Such a wording is not acceptable.
(c) Such a wording dilutes intent of written representations. However, it can be accepted by auditor only in
exceptional circumstances.
(d) Qualifying language in written representations is compulsory

v. As regards auditor’s responsibility regarding matters communicated orally with those charged with
governance, which of following is most appropriate?
(a) Matters communicated orally have to be documented by the auditor stating when and to whom these
were communicated.
(b) Matters communicated orally need not be put into writing. It is sufficient for auditor to have
communicated orally.
(c) Matters communicated orally need not be put into writing. It is not practically feasible.
(d) Matters communicated orally have to be documented by the auditor stating to whom these were
communicated.

2. An auditor of a company communicates significant findings from audit with those charged with governance
in the company. Which of the statements is false in regard to communication made?
(a) Evaluation of adequacy of communication process is required on part of the auditor.
(b) Planned scope and timing of audit has also to be communicated.
(c) Communication of rationale behind audit procedures is necessary.
(d) Significant difficulties encountered during audit, if any, have to be communicated. (1marks)

3. Written representations are: -

(a) Necessary audit evidence
(b) Sufficient appropriate audit evidence
(c) Not audit evidence
(d) Audit evidence depending upon auditor’s professional judgment (1marks)

4. Planning an audit involves

(a) establishing the overall audit strategy for the engagement and developing an audit plan.
(b) establishing the overall audit plan for the engagement and developing an audit strategy.
(c) establishing the overall audit plan for the engagement
(d) developing an audit strategy. (1marks)

5. Which of the following is false regarding communication of misstatements identified during course of an
audit?
(a) The auditor should request those charged with governance for correction of identified misstatements.
(b) The auditor should obtain written representation acknowledging management belief that effect of
uncorrected misstatements is material.
(c) The auditor should obtain written representation acknowledging management belief that effect of
uncorrected misstatements is immaterial.
(d) The auditor should communicate effect of uncorrected misstatements related to prior periods on the
relevant classes of transactions, account balances or disclosures, and the financial statements as a whole.
(1marks)
6. Which of the following is not an example of subsequent event?
(a) Event occurring between date of financial statements and date of auditor’s report.
(b) Event occurring on date of financial statements.
(c) Event occurring after filing audit report with tax authorities. Had such an event been known earlier, auditor
would have amended report.
(d) Event occurring during course of performing audit procedures after date of financial statements.
(1marks)
7. Which of the following is not an example of events or conditions that may cast significant doubt on the
entity’s ability to continue as a going concern?
(a) Adverse key financial ratios
(b) Inability to invest in modernisation of plant
(c) Inability to pay creditors on time
(d) Inability to pay salary of staff (1marks)

8. .......... sets the scope, timing & direction of the audit and guides the development of the more detailed plan.
(a) Audit Programme
(b) Overall Audit Strategy
(c) Completion Memorandum
(d) Audit Plan (1marks)

9. Planning is ______ process of an audit 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:
(a) continuous
(b) discrete
(c) neither continuous nor discreet
(d) strategic (1marks)

Part – II Descriptive Question

Question-1-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 auditor of XYZ Ltd would proceed in the above case.
Also explain how the auditor would proceed if such an assessment has not yet been performed by the
management. (4 marks)

Question 2-
On reviewing internal control over inventories as part of statutory audit of a company, auditor finds
that physical verification is not being conducted at regular intervals as stipulated by the management.
The auditor finds it to be significant deficiency in internal control over inventories.
He points it out to the management in a one-liner as under: -
“Physical verification of inventories is not being conducted at regular intervals as stipulated by
management.”
Is above communication by auditor proper? Ignore statutory reporting requirements, if any in this
regard. (4 marks)

Question-3-
Discuss the impact of uncorrected misstatements identified during the audit & the auditor’s
responses to the same. (4 marks)

Question-4-
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. (4 marks)

Question-5-
-CA K is re-appointed as the auditor of B Ltd. He wants to re-confirm certain matters and has asked
the management to give written representations for the same. Under what circumstances can an auditor
ask the management to reconfirm its acknowledgement and understanding of responsibilities in written
representation? (4 marks)
Question-6-
CA PK Jacob is conducting audit of a company for year 2021-22. The company is engaged in export of
ethnic rugs to buyers in Europe. The audit is nearing completion in month of July 2022. However, it
becomes known to the auditor that one of overseas buyers has made a legal claim against the company
on 1st June 2022 for injury caused to a customer of one European buyer due to sub-standard dyes
used in rugs of one lot of order shipped in August, 2021. The management of company has decided to
agree to an out of court settlement of Rs.5 crore to protect its reputation. The financial statements of
the company are silent on this issue.
Discuss, how, CA PK Jacob should proceed to deal with above issue. (4 Marks)

Question-7-What are the additional matters to communicated to TCWG in case of listed entities in
accordance with SA 260? (4 Marks)

Question-8-Discuss the points to be considered by auditor for the purpose of constructing an audit
programme. (4 Marks)