AUDIT REVISION MAY 24 CA INTER AUDIT
IMPORTANT MUST DO
QUESTIONS FOR
CHAPTER 4,5,6,7 CA
INTER AUDIT MAY 24
ATTEMPT
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AUDIT REVISION MAY 24 CA INTER AUDIT
CHAPTER 4
SA 500 – AUDIT EVIDENCE
1. 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 and also by the quality of such audit evidence. Obtaining more audit
evidence, however, may not compensate for its poor quality. Explain also stating the
factors affecting auditor's judgment as to sufficiency of audit evidence.(RTP).
Answer
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).
Auditor's judgement as to sufficiency may be affected by the factors such as:
(1) Materiality 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.
(2) Risk of material misstatement 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
(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.
(3) Size of a population 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.
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2.CA Tom audited the books of accounts of Aktis Ltd. for the financial year 2023-2024.
The auditor used an audit procedure according to which all the documents and records
maintained by the company were checked in detail to obtain audit evidence. Explain
the audit procedure used by the auditor and its reliability. (PYQ)
Answer
Audit Procedure:
• Inspection involves examining records or documents, whether internal or external, in paper
form, electronic form, or other media, or a physical examination of an asset. Inspection
of records and documents provides audit evidence of varying degrees of reliability,
depending on their nature and source and, in the case of internal records and documents,
on the effectiveness of the controls over their production.
• Example of inspection used as a test of controls is inspection of records for evidence of
authorisation.
• Some documents represent direct audit evidence of the existence of an asset, for example,
a document constituting a financial instrument such as a inventory or bond. Inspection of
such documents may not necessarily provide audit evidence about ownership or value. In
addition, inspecting an executed contract may provide audit evidence relevant to the
entity's application of accounting policies, such as revenue recognition.
Inspection of tangible assets may provide reliable audit evidence with respect to their
existence, but not necessarily about the entity's rights and obligations or the
valuation of the assets. Inspection of individual inventory items may accompany the
observation of inventory counting.
• In view of above, it can be concluded that CA Tom used Inspection as an audit procedure.
3. Moms International Ltd is manufacturer of pickles, ginger garlic paste, jams etc having
its plant at vadakara. Being in food industry, the company is facing many litigations
in various courts across India. Auditors Ind San & Co. wants to identify such
litigations and claims involving the company which may give rise to risk of material
misstatement. Guide the auditor as to how they should proceed for the purpose.
(MTP)
Answer
The auditor Ind San & Co. shall design and perform audit procedures in order to identity
litigation and claims involving the entity (Moms International Ltd) which may give rise to
a risk of material misstatement, including:
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(i) Inquiry of management and, where applicable, others within the entity, including in-house
legal counsel.
(ii) Reviewing minutes of meetings of those charged with governance and correspondence
between the entity and its external legal counsel; and
(iii) Reviewing legal expense accounts.
4. When using external confirmation procedures, the auditor shall maintain control over
external confirmation requests including sending the requests, including follow-up
requests when applicable, to the confirming party. Explain the other points as to
when using external confirmation procedures, the auditor would be required to
maintain control over external confirmation requests. (PYQ)
Answer
When using external confirmation procedures, the auditor shall maintain control over external
confirmation requests, including:
(a) Determining the information to be confirmed or requested;
(b) Selecting the appropriate confirming party;
(c) Designing the confirmation requests, including determining that requests are properly
addressed and contain return information for responses to be sent directly to the
auditor; and
(d) Sending the requests, including follow-up requests when applicable, to the
confirming party.
SA 550 RELATED PARTY TRANSACTIONS
5. 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. (RTP)
Answer
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:
o Entity income tax returns.
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o Information supplied by the entity to regulatory authorities.
o Shareholder registers to identity the entity's principal shareholders.
o Statements of conflicts of interest from management and those charged with
governance.
o Records of the entity s investments and those of its pension plans.
o Contracts and agreements with key management or those charged with governance.
o Significant contracts and agreements not in the entity's ordinary course of business.
o Specific invoices and correspondence from the entity's professional advisors.
o Life insurance policies acquired by the entity.
o Significant contracts re-negotiated by the entity during the period.
o Internal auditors' reports.
SA 560 SUBSEQUENT EVENTS
6.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. (RTP)
o Answer
o 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.
o Many financial reporting frameworks specifically refer to such events. Such financial
reporting frameworks ordinarily identity two types of events:
o (a) Those that provide evidence of conditions that existed at the date of the financial
statements; and
o (b) Those that provide evidence of conditions that arose after the date of the financial
statements.
o 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.
o 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.
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7. Das & Associates are the statutory auditors of Deluxe Ltd. for the FY 2023-24.
During the course of audit, CA Das, 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 Das. What course of action should CA Das follow in such situation?
Answer
If management of Deluxe Ltd. does not provide one or more of the requested written
representations as per SA 580, CA Das 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.
8.How is "Cash and cash equivalents" disclosed in the Financial Statements as required
under Schedule III (part1) to Companies Act, 2013? (Dec 21).
Answer
Disclosure of Cash & Cash Equivalent in the Financial Statements: Regarding Cash and cash
equivalents- Ensure whether the following disclosures as required under Schedule III
(Part 1) to Companies Act, 2013 have been made:
(i) Cash and cash equivalents shall be classified as:
(a) Balances with banks;
(b) Cheques, drafts on hand;
(c) Cash on hand;
(d) Others (specify nature)
(ii) Earmarked balances with banks (for example, for unpaid dividend) shall be separately
stated.
(iii) Balances with banks to the extent held as margin money or security against the
borrowings, guarantees, other commitments shall be disclosed separately.
(iv) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately
stated.
(v) Bank deposits with more than 12 months maturity shall be disclosed separately.
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9. 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.
[RTP May-21].
Answer
In documenting the nature, timing and extent of audit procedures performed, the auditor
of PQR Ltd shall record-
a. The identifying characteristics of the specific items or matters tested
b. Who performed the audit work and the date such work was completed
c. Who reviewed the audit work performed and the date and extent of such review.
10. In what ways an effective two-way communication between auditor and those
charged with governance is important?
Answer
Communication from auditor is important with those charged with governance.
An effective two-way communication is important in assisting:
a. The auditor and those charged with governance in understanding matters related to
the audit in context, and in developing a constructive working relationship. This
relationship is developed while maintaining the auditor's independence and objectivity.
b. The auditor in obtaining from those charged with governance information relevant
to the audit. For example, those charged with governance may assist the auditor in
understanding the entity and its environment, in identifying appropriate sources of audit
evidence, and in providing information about specific transactions or events; and
c. Those charged with governance in fulfilling their responsibility to oversee the
financial reporting process, thereby reducing the risks of material misstatement of the
financial statements.
CA Indazar Nazar – Audit Question bank - 9633077250
AUDIT REVISION MAY 24 CA INTER AUDIT
11. Following are examples of events or conditions that may cast significant doubt on an
entity’s ability to continue as a going concern. Which of following is an example of
operating event/conditions?
(a) Adverse key financial ratios
(b) Inability to pay creditors on due dates
(c) Indications of withdrawal of financial support by creditors
(d) Shortages of important supplies
Ans (d).
12. Discuss documentation requirements for an auditor regarding misstatements identified
during audit under SA 450.
Answer
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.
CA Indazar Nazar – Audit Question bank - 9633077250
AUDIT REVISION MAY 24 CA INTER AUDIT
• Chapter 1 + SA 210 + SA 220 + SQC 1 ( 12-15 Marks).
• Audit Planning ( Direct Questions – easy questions – do all questions in
Question bank/RTPs last three years.) --- ( 8 to 10 marks).
• Audit Documentation – SA 230 – (4 marks)
• Audit Report ( 12-15 marks) – SA 700 series, SA 299, SA 600 , CARO
2020 – Also cover Sec 139 to 147 in Law paper
• SA 560 , SA 570 , SA 580 , SA 260** OR SA 265, SA 450**( 12-15
Marks)
• SA 500, SA 501, SA 505, SA 510 ( 5-7 Marks)
• Risk assessment + Materiality SA 320 + Automated environment (7-12
marks)
• Bank Audit ( 6-8 marks)
• Audit of different entities ( 7 -8 makrs)
(BANK + SPECIAL AUDITS – 15 marks)
• SA 520 +SA 530 + Internal audit ( 6-10 marks)
• Audit of Financial statements ( 8-10 marks)
DISCLOSURES , ACCOUNTS( Accounting standards) ASSERTIONS ,
PROCEDURES.
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