Auditing & Ethics

The Ultimate Revision

Chapter – 2 By – Ankit Mundra Sir

 to be covered
1 RTPs Questions

2 MTPs Questions

3 ICAI PYQs
 to be covered
Chapter MTP (1) - May MTP (2) - MTP (1) - MTP (2) - PYQ Sep MTP (1) - MTP (2) -
PYQ May 24 PYQ Jan 25
No. 24 May 24 Sep 24 Sep 24 24 Jan 25 Jan 25

2(b), 3(c), 1(a), 2(d), 2(d), 4(a),

2 2(b), 3(c) 1(a), 6(c) 4(c), 6(b) 4(c), 6(b) 3(c), 4(b) 1(a), 5(a)
6(d) 3(a) 5(a)
Ch-2 : Audit Strategy, Audit
Planning & Audit Programme
All Important Questions
 RTP – May 24

Preliminary engagement activities include certain activities to be performed by an auditor while

planning an audit. Discuss such activities briefly. How performing such activities assists an
auditor?
Preliminary engagement activities include following activities: -
(A) Performing procedures regarding the continuance of the client
relationship
(B) Evaluating compliance with ethical requirements, including
independence
(C) Establishing an understanding of terms of engagement
Performing preliminary engagement activities assists auditor in identifying
and evaluating events or circumstances that may affect auditor’s ability to
plan and perform audit engagement.
 RTP – May 24

The assistant of CA K is assigned responsibility of drafting “audit programme” relating to

purchases appearing in financial statements of “Broad Industries”, a partnership firm. The said
firm is a GST registered tax payer and is engaged in manufacturing of packing boxes from a
special type of paper taxable under GST. Help him by drafting a sample audit programme for
purchases.
Sample audit programme pertaining to purchases
Name of Concern : Broad Industries
Financial Year : 20XX-XX
Prepared by : Name of person with date
Reviewed by : Name of person with date
Approved by : Name of person with date
 Extent of Basis of Done
S.No. Nature of Procedure
Check Sample by
(a) Vouch few purchase invoices of paper
from purchase records of concern.
(b) Trace these invoices into account
books of concern.
(c) Verify few purchase invoices of paper
on GST portal.
(d) Trace few purchase invoices of paper
in stock records to ensure that these
have been added to stocks of raw
material.
 RTP – Sep 24

CA N, engagement partner of LPS & Associates, is planning for audit of a large company. As part of
preliminary engagement activities being performed in this regard, he wants to ensure that
compliance with independence requirements is adhered. How shall he form a conclusion that audit
firm complies with independence requirements?
The engagement partner, CA N shall form a conclusion on compliance with independence
requirements that apply to the audit engagement. In doing so, CA N shall:-
(i) Obtain relevant information from the firm to identify and evaluate circumstances and
relationships that create threats to independence

(ii) Evaluate information on identified breaches, if any, of the firm’s independence policies
and procedures to determine whether they create a threat to independence for the audit
engagement and

(iii) Take appropriate action to eliminate such threats or reduce them to an acceptable level
by applying safeguards, or, if considered appropriate, to withdraw from the audit
engagement, where withdrawal is permitted by law or regulation. The engagement partner
shall promptly report to the firm any inability to resolve the matter for appropriate action.
 RTP – Jan 25

During the audit of ABC Ltd., a medium-sized manufacturing company, the engagement partner is
responsible for directing and supervising the work of the engagement team. The team includes
both experienced members and several new trainees. Additionally, certain areas of the audit have
been identified as high-risk, such as revenue recognition and inventory valuation, due to recent
changes in ABC Ltd.'s accounting policies. What factors should the engagement team members
consider when determining the nature, timing, and extent of direction, supervision, and review of
the engagement team's work?
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:-
1. The size and complexity of the entity.
2. The area of the audit.
3. The assessed risks of material misstatement
4. The capabilities and competence of the individual team members performing the audit
work.
 RTP – May 25

ATL Pvt. Ltd., a leading manufacturing company, appointed CA Atul as an auditor for the year 2023-
24. Given the complexity of the company's operations and the need for a systematic approach, he
plans to design a detailed audit programme to ensure the accuracy of financial assertions. As a CA
student, if you were assisting CA Atul in constructing this audit programme, what are the points you
will keep in mind?
For the purpose of programme construction, the following points should be kept in mind:
(i) Stay within the scope and limitation of the assignment.
(ii) Prepare a written audit programme setting forth the procedures that are needed to
implement the audit plan.
(iii) Determine the evidence reasonably available and identify the best evidence for deriving
the necessary satisfaction.
(iv) Apply only those steps and procedures which are useful in accomplishing the verification
purpose in the specific situation.
(v) 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.
(vi) Consider all possibilities of error.
(vii) Co-ordinate the procedures to be applied to related items.
 MTP 1 – May 24

Adequate planning benefits the audit of financial statements in several ways. Explain.
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.
(f) Assisting, where applicable, in coordination of work done by auditors of components and
experts.
 MTP 1 – May 24

Auditor shall develop an audit plan that includes description of audit procedures. Specify
requirements in this regard.
SA 300 states that auditor shall develop an audit plan that shall include
description of-
(i) The nature, timing and extent of planned risk assessment procedures
(ii) The nature, timing and extent of planned further audit procedures at
assertion level
(iii) Other planned audit procedures that are required to be carried out so
that the engagement complies with SAs.
 MTP 2 – May 24

Planning 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,
certain matters. Discuss those matters.
Prior to auditor’s identification and assessment of risks of material
misstatement, planning includes the need to consider following matters:
1. The analytical procedures to be applied as risk assessment procedures.
2. Obtaining a general understanding of the legal and regulatory framework
applicable to the entity and how the entity is complying with that framework.
3. The determination of materiality.
4. The involvement of experts.
5. The performance of other risk assessment procedures.
 MTP 2 – May 24

The ascertaining of reporting objectives of engagement helps the auditor to plan

timing of different audit procedures and also nature of communications. Give
three instances to explain.
The ascertaining of reporting objectives of engagement helps the auditor to
plan timing of different audit procedures and also nature of communications.
Some of the instances are given under: -
➢ The entity’s timetable for reporting
➢ Organization of meetings to discuss of nature, timing and extent of audit
work with management
➢ Discussion with management regarding the expected type and timing of
reports to be issued including the auditor’s report
➢ Discussion with management regarding the expected communications on
the status of audit work throughout the engagement.
➢ Expected nature and timing of communications among engagement team
members, including the nature and timing of team meetings and timing of the
review of work performed.
 MTP 2 – May 24

The auditor needs to direct efforts of engagement team towards matters that in
his professional judgment are significant. Preliminary identification of material
classes of transactions, account balances and disclosures help auditor in
establishing overall audit strategy. More energies need to be devoted to
significant matters to obtain desired outcomes. Give three examples to explain
the above situation.
The auditor needs to direct efforts of engagement team towards matters that
in his professional judgment are significant. Preliminary identification of
material classes of transactions, account balances and disclosures helps
auditor in establishing overall audit strategy. More energies need to be
devoted to significant matters to obtain desired outcomes. Few examples are
listed as under: -
➢ Volume of transactions which may determine whether it is more efficient
for the auditor to rely on internal control
➢ Significant industry developments such as changes in industry regulations
and new reporting requirements.
➢ Significant changes in the financial reporting framework, such as changes
in accounting standards.
➢ Other significant relevant developments, such as changes in the legal
environment affecting the entity.
 MTP 1 – Sep 24

Subodh has recently joined an audit firm as an articled clerk. He was in process of assembling
audit working papers in audit file of Cop Limited, as per the instructions of his senior. While
assembling, he noticed following working paper in audit file:-
Timing of Audit Activities
Activitiy Expected Timing
Audit Planning July 1, 2023 - July 5, 2023
Review by EQCR July 6, 2023 - July 7, 2023
Audit Field Work July 10, 2023 - August 20, 2023
Review by Manager August 21, 2023
Review by Engagement Partner August 22, 2023 - August 25, 2023
Review by EQCR August 26, 2023 - August 27, 2023
Response on Audit Memo August 28, 2023
Review by Partners – internally post response August 29, 2023
on audit memo
Review by EQCR August 30, 2023
 MTP 1 – Sep 24

Activitiy Expected Timing

Finalization of Audit Report & Financial September 01, 2023 –
Statements September 02, 2023
Issuance of Audit Report and Financial September 03, 2023
Statements

The above working paper lists certain factors which are considered by the auditor while
establishing audit strategy. Explain how these considerations highlighted in above working paper
could have helped the auditor?
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.
One of the factors to be taken into consideration while establishing audit
strategy relates to ascertaining of reporting objectives of engagement to plan
the timing of the audit and the nature of the communications required. Some
of the instances are given under:
• The entity’s timetable for reporting
• Organization of meetings to discuss of nature, timing and extent of audit
work with management
• Discussion with management regarding the expected type and timing of
reports to be issued including the auditor’s report
• Discussion with management regarding the expected communications on
the status of audit work throughout the engagement.
• Expected nature and timing of communications among engagement team
members, including the nature and timing of team meetings and timing of
the review of work performed.

In the given case, working paper highlights that auditor has taken into account
expected timelines to plan the audit and nature of the communications
required. Since the working paper relates to the statutory audit of a company,
the ascertaining of reporting objectives of engagement helps the auditor to plan
timing of different audit procedures and also nature of communications.
 MTP 1 – Sep 24

Sanjana is of the view that there exist some disadvantages in the use of audit
programmes but most of these can be removed by following some concrete steps.
Do you agree with her perspective? Comment.
The view of Sanjana is appropriate. Some disadvantages are there in the use
of audit programmes but most of these can be removed by following some
concrete steps. 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.

All these disadvantages may be eliminated by imaginative supervision of the

work carried on by the assistants; the auditor must have a receptive attitude
as regards the assistants; the assistants should be encouraged to observe
matters objectively and bring significant matters to the notice of
supervisor/principal.
 MTP 2 – Sep 24

CA D is planning an audit of a listed company. List specific documentation

requirements in accordance with SA 300 in relation to planning such an audit.
How such planning documentation is useful?
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.

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.
 MTP 2 – Sep 24

M/s TP & Co., a firm of Chartered Accountants, has been conducting audit of KSR
Ltd. since last 4 years. KSR Ltd. has diversified their business into newer areas
during the last year. The senior member of the audit team handed over the
standard audit programme of earlier years to the audit assistants and instructed
them to follow the same. The assistants are conducting the audit accordingly.
Whether the attitude of the audit assistants is justified? Guide them.
In the given situation, the senior member of the audit team handed over the
standard audit programme of earlier years to the audit assistants and
instructed them to follow the same.The assistant to keep an open mind as
follows:
1. To start with, an auditor having regard to the nature, size and composition
of the business and the dependability of the internal control and the given
scope of work, should frame a programme which should aim at providing
for a minimum essential work which may be termed as a standard
programme.
2. As experience is gained by actually carrying out the work, the programme
may be altered to take care of situations which were left out originally but
are found relevant for the particular concern.
3. Similarly, if any work originally provided for proves beyond doubt to be
unnecessary or irrelevant, it may be dropped.
4. The assistant engaged in the job should be encouraged to keep an open
mind beyond the programme given to him. He should be instructed to note
and report significant matters coming to his notice, to his seniors or to the
partners or proprietor of the firm engaged for doing the audit.

Thus, the attitude of assistants of TP & Co. is not justified. They should keep
an open mind and go beyond the programme to take care of newer areas of
the business of KSR Ltd. into which the Company has diversified.
 MTP 1 – Jan 25

Lotus Ltd., a rapidly growing manufacturing company, appointed Ridhi and Co., as
statutory auditor. The engagement team of Ridhi and Co. identified key areas
requiring scrutiny, such as revenue recognition, inventory valuation, and related
party transactions. Based on his professional judgment, CA Ravi, the engagement
partner, directed the engagement team to focus on these critical areas,
emphasising the need for detailed testing to ensure accuracy and compliance.
Give some examples of the factors need to be considered by CA Ravi for
establishing the audit strategy.
Consider the factors that, in the auditor’s professional judgment, are significant in
directing the engagement team’s efforts. The auditor needs to direct efforts of
engagement team towards matters that in his professional judgment are significant.
Preliminary identification of material classes of transactions, account balances and
disclosures help auditor in establishing overall audit strategy. More attention need to be
devoted to significant matters to obtain desired outcomes.
Examples of the factors that need to be considered by CA Ravi for establishing audit
strategy are: -
• Volume of transactions which may determine whether it is more efficient for the
auditor to rely on internal control.
• Significant industry developments such as changes in industry regulations and
new reporting requirements.
• Significant changes in the financial reporting framework, such as changes in
accounting standards.
• Other significant relevant developments, such as changes in the legal environment
affecting the entity.
 MTP 1 – Jan 25

Audit programme is a list of examination and verification steps to be applied and

set out in such a way that the inter-relationship of one step to another is clearly
shown and designed, keeping in view the assertions apparent in the statements
of account produced for audit or based on an appraisal of the accounting records
of the client. For example, while auditing a company’s inventory, the program
may include steps to verify physical stock counts, ownership rights, and
valuation. What are the advantages of an audit programme?
The advantages of an audit programme are:
• It provides the assistant carrying out the audit with total and clear set of
instructions of the work generally to be done.
• It is essential, particularly for major audits, to provide a total perspective of the
work to be performed.
• Selection of assistants for the jobs on the basis of capability becomes easier when
the work is rationally planned, defined and segregated.
• Without a written and pre-determined programme, work is necessarily to be
carried out on the basis of some ‘mental’ plan. In such a situation there is always a
risk of ignoring or overlooking certain books and records. Under a properly framed
programme, such risk is significantly less and the audit can proceed systematically.
• The assistants, by putting their signature on programme, accept the responsibility
for the work carried out by them individually and, if necessary, the work done may
be traced back to the assistant.
• The principal can control the progress of the various audits in hand by
examination of audit programmes initiated by the assistants deputed to the jobs
for completed work.
• It serves as a guide for audits to be carried out in the succeeding year.
• A properly drawn up audit programme serves as evidence in the event of any
charge of negligence being brought against the auditor. It may be of considerable
value in establishing that he exercised reasonable skill and care that was expected
of professional auditor.
 MTP 2 – Jan 25

“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.
In establishing the overall audit strategy, the auditor shall:
(i) Identify the characteristics of the engagement that define its scope;
(ii) Ascertain the reporting objectives of the engagement to plan the timing
of the audit and the nature of the communications required;
(iii) Consider the factors that, in the auditor’s professional judgment, are
significant in directing the engagement team’s efforts;
(iv) 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
(v) Ascertain the nature, timing and extent of resources necessary to
perform the engagement.
 MTP 2 – Jan 25

The engagement partner, of a firm of auditors, is explaining to his audit team,

undergoing practical training, the inter relationship between audit strategy and
audit plan. Discuss the points which the engagement partner will explain to his
team in this regard.
Relationship between audit strategy and audit plan:
• Audit strategy sets the broad overall approach to the audit whereas audit
plan addresses the various matters identified in the overall audit
strategy.
• Audit strategy determines scope, timing and direction of audit. Audit
plan describes how strategy is going to be implemented.
• 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.
• Once the overall audit strategy has been established, an audit plan can be
developed to address the various matters identified in the overall audit
strategy, taking into account the need to achieve the audit objectives
through the efficient use of the auditor’s resources.
• The establishment of the overall audit strategy and the detailed audit
plan are not necessarily discrete or sequential processes but are closely
inter-related since changes in one may result in consequential changes to
the other.
 PYQ – May 24

APR & Associates, a Chartered Accountant firm, are appointed as the auditors of
Time Ltd. and Bakes Ltd. The volume and nature of business of both the
companies are entirely different. CA R is the engagement partner for Bakes Ltd.
CA P is the engagement partner for Time Ltd. CA R formulates an Audit
Programme for conducting the audit of Bakes Ltd. He suggests CA P to use the
same audit programme for Time Ltd. But CA P is of the opinion that this audit
programme will not be useful for the audit of Time Ltd. In light of the above,
mention the matters that should generally be considered while preparing an
Audit Programme. Is CA P correct in emaphasizing for a different Audit
Programme for Time Ltd. ?
For the purpose of programme construction, the following points should be kept in mind
1. Stay within the scope and limitation of the assignment
2. Prepare a written audit programme setting forth the procedures that are needed
to implement the audit plan.
3. Determine the evidence reasonably available and identify the best evidence for
deriving the necessary satisfaction.
4. Apply only those steps and procedures which are useful in accomplishing the
verification purpose in the specific situation.
5. 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
6. Consider all possibilities of error
7. Co-ordinate the procedures to be applied to related items
 PYQ – May 24

B Ltd. is a company manufacturing bed-sheets and pillow covers. They have

appointed Mis C & Co., Chartered Accountants, as their auditors. The auditor is
establishing audit strategy with his team members. As the work progressed, they
came to know that the company has diversified its business and now they are
also planning to manufacture wooden furniture. The auditor, in his professional
judgement, considers this to be a significant factor in directing the engagement
team's efforts. Give examples of factors that, in auditor's professional judgement,
are significant in directing the engagement team's efforts.
Consider the factors that, in the auditor’s professional judgment, are significant in directing
the engagement team’s efforts: The auditor needs to direct efforts of engagement team
towards matters that in his professional judgment are significant. Preliminary identification
of material classes of transactions, account balances and disclosures help auditor in
establishing overall audit strategy. More energies need to be devoted to significant matters
to obtain desired outcomes. Few examples are listed as under: -
(i) Volume of transactions which may determine whether it is more efficient for the auditor
to rely on internal control.
(ii) Significant industry developments such as changes in industry regulations and new
reporting requirements.
(iii)Significant changes in the financial reporting framework, such as changes in accounting
standards.
(iv)Other significant relevant developments, such as changes in the legal environment
affecting the entity.
 PYQ – May 24

CA E is auditor of LM Ltd. Before commencing with current year's audit, he

initiated planning for the audit. Planning includes the need to consider certain
matters, prior to the identification and assessment of the risk of material
misstatements. Enumerate such matters.
Nature of Audit Planning- A Continuous and iterative process: Planning includes the
need to consider, prior to the auditor’s identification and assessment of the risks of
material misstatement, such matters as: -

1. The analytical procedures to be applied as risk assessment procedures.

2. Obtaining a general understanding of the legal and regulatory framework
applicable to the entity and how the entity is complying with that framework.
3. The determination of materiality.
4. The involvement of experts.
5. The performance of other risk assessment procedures.
 PYQ – Sep 24

The engagement partner, of a firm of auditors, is explaining to his audit team,

undergoing practical training, the inter relationship between audit strategy and
audit plan. Discuss the points which the engagement partner will explain to his
team in this regard.
Relationship between audit strategy and audit plan
• Audit strategy sets the broad overall approach to the audit whereas audit plan addresses the
various matters identified in the overall audit strategy.
• Audit strategy determines scope, timing and direction of audit. Audit plan describes how strategy
is going to be implemented.
• 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.
• Once the overall audit strategy has been established, an audit plan can be developed to address
the various matters identified in the overall audit strategy, taking into account the need to achieve
the audit objectives through the efficient use of the auditor’s resources.
• The establishment of the overall audit strategy and the detailed audit plan are not necessarily
discrete or sequential processes but are closely inter-related since changes in one may result in
consequential changes to the other.
 PYQ – Sep 24

EFG Ltd. has appointed M/s. MN & Co. Chartered Accountants, as the statutory
auditors for the year 2024-25. CA N, the engagement partner, completed his risk
assessment procedure. However, he is concerned about the management of
human resources to be employed to conduct the audit. For this purpose, he wants
to establish an overall audit strategy for setting the scope, timing and direction of
the audit. Describe how the process of establishment of overall audit strategy
will assist him in managing deployment of his human resources for various audit
areas.
Establishing the overall audit strategy- Assistance for the auditor : Overall audit strategy
sets the scope, timing and direction of the audit, and guides the development of the
more detailed audit plan. 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: -
(i) 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
(ii) 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
(iii) When these resources are to be deployed, such as whether at an interim
audit stage or at key cut-off dates
(iv) 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.
 PYQ – Sep 24

M/s. PP & Co, a firm of Chartered Accountants, has been auditing the books of
accounts of KALI Ltd. for the past 3 years. The company has recently made some
major changes in its business policies. While planning to start the audit for the
4th year i.e. for financial year 2024-25, the audit manager of the firm, as per the
routine practice, handed over the previous years' audit programme as it is to the
audit team with the instructions to adhere unfailingly to the said audit
programme. Evaluate the decision of the audit manager with reference to the use
of audit programme.
Review of the audit programme: There should be periodic review of the audit
programme 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 programme and, for this negligence,
the whole audit may be held as negligently conducted and the auditor may have to face
legal consequences.

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 programme may be removed.
Audit programme not only lists the tasks to be carried out but also contains a few
relevant instructions, like the extent of checking, the sampling plan, etc. So long as the
programme is not officially changed by the principal, every assistant deputed on the job
should unfailingly carry out the detailed work according to the instructions governing
the work. Many persons believe that this brings an element of rigidity in the audit
programme. This is not true provided the periodic review is undertaken to keep the
programme as up-to-date as possible and by encouraging the assistants on the job to
observe all salient features of the various accounting functions of the client.

In the given situation, Ms. PP & Co., a firm of Chartered Accountants has been auditing
the books of accounts of KALI Ltd. for the past 3 years and the Company has recently
made major changes in its business policies, therefore, it is very essential to review the
audit programme. Thus, contention of the audit manager to adhere with the instructions
of following the same audit programme as per routine practice is not correct.
 PYQ – Jan 25

AP & Co., Chartered Accountants, are appointed as statutory auditor of Heavy

Industries Limited, a listed company engaged in manufacturing of electric
vehicles, for the F.Y. 2023-24. As per the recent guideline issued by the regulatory
authority, every listed company is required to maintain the digital database of all
those personnel who could access the books of the company to avoid Insider
Trading. In case of non-compliance, hefty fines may be imposed on the company.
CA P is the engagement partner from auditor firm for the audit of Heavy
Industries Limited. During planning, CA P planned that he would inquire from in-
house IT Head of the company about the maintenance of the digital database to
identify and assess the risk of non- compliance with regulatory guidelines. In the
light of above facts, explain :
 PYQ – Jan 25

(i) Whether CA P is required to consider about the maintenance of digital

database while framing audit strategy ?

(ii) Whether the procedures planned by CA P are in line with SA-300 ?

(i) As per SA 300, “Planning an Audit of Financial Statements”, the auditor should
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, key resources to be employed to conduct audit.

The auditor shall take following factors into consideration while establishing or framing
audit strategy viz. identify the characteristics of the engagement that define its scope,
consider the factors that, in the auditor’s professional judgment, are significant in
directing the engagement team’s efforts, etc.
In the given situation, the regulatory guideline requires Heavy Industries Ltd., a listed
company, to maintain a digital database of all those personnel who could access the
company's books to prevent insider trading. Further, hefty fines may be imposed in case
of non- compliance with this guideline. Therefore, it is very essential that auditor while
establishing overall audit strategy evaluate whether the company maintains such a
database and complies with the regulatory requirement.

Thus, in view of above, it can be concluded that CA P should incorporate the assessment
of digital database maintenance into the overall audit strategy.
(ii) As per SA 300, “Planning an Audit of Financial Statements”, planning includes the
need to consider, prior to the auditor’s identification and assessment of the risks of
material misstatement, such matters as obtaining a general understanding of the legal
and regulatory framework applicable to the entity and how the entity is complying with
that framework, etc.
In the given situation, CA P planned to inquire from in-house IT Head of the company
regarding maintenance of the digital database to identify and assess the risk of non-
compliance with regulatory guidelines. Inquiry with the IT Head regarding the
maintenance of the digital database is an appropriate procedure to understand whether
the company complies with the regulations. This inquiry will help CA P in obtaining a
general understanding of the legal and regulatory framework applicable to the company
and how the entity is complying with that framework and other risk assessment
procedures.
Thus, the planned inquiry with the IT Head is in line with SA 300.