AUDITING AND ETHICS

Details: Test – 5 CH – 1,2,6 (SA 200, 230, 300, SOQ1)

Question paper

Total Marks: - 40

Q1. The management of Cool Drinks Limited suspects that some employees of the company
may be involved in making fraudulent payments to dummy workers at its various plants in
the country. Therefore, they are considering appointment of a firm of auditors to conduct
audit involving detailed examination of accounts. However, one senior person among Board
members, Mr. P, objects to use of word “audit” in proposed assignment. Comment. Also,
discuss how audit is different from investigation.

(4 MARKS)

Q2. RST Ltd., a retail company, has set up internal controls requiring all invoices to be
stamped and signed by an authorised person in “Goods Receiving Section” of the company
stating the date and time of receiving goods in premises to ensure that only those purchase
bills are produced for payment for which goods have been actually received.

During the audit, the auditor finds that two employees – a purchasing manager and an
accounts clerk – have worked together to bypass this control, submitting fake invoices that
resulted in payments for goods that were never received. You are required to state the
objectives of an audit, as per SA 200, when it comes to ensuring the reliability of financial
statements? Also explain, why auditor can provide only reasonable, rather than absolute,
assurance that the financial statements are free from material misstatement due to fraud or
error in the context of the given situation?

(6 MARKS)

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Q3. 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.

(4 MARKS)

Q4. 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.

(5 MARKS)

Q5. 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. Explain stating clearly the examples of
significant matters.

(5 MARKS)

Q6. CA Aryan completed the audit of a listed company, XYZ Ltd., and the audit report was
issued on July 17th, 2024. However, he had not properly organized the audit working
papers, including records of discussions with management, audit procedures performed,
and conclusions reached. More than six months after issuing the report, he received a letter
from the regulator in connection with the audit of XYZ Ltd., requesting him to share a copy
of the audit file. In a hurry, CA Aryan quickly assembled the audit file, adding some papers
he thought were necessary, but he used the current date on these newly added documents.

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He then sent the audit file to the regulator. Discuss the issues involved related to “audit
documentation” and assembling of the final audit file in this case.

(6 MARKS)

Q7. MCQ’S

1. Which of the following activities is outside the scope of an auditor's responsibility during
a statutory audit?

A. Verifying whether the financial statements are free from material misstatements.

B. Reviewing the accounting treatment of depreciation for fixed assets.

C. Certifying the physical condition and life expectancy of a factory building.

D. Checking compliance with accounting standards applicable to the entity.

2. Which of the following best describes the relationship between the overall audit strategy
and the audit plan?

A) The audit strategy is a part of the audit plan and focuses on individual audit procedures.

B) The audit plan defines the audit objectives, while the audit strategy implements them.

C) The audit strategy sets the overall direction, while the audit plan details how that
direction will be implemented.

D) The audit plan is created first, and the audit strategy is derived from it.

3. Which of the following is NOT a responsibility of the engagement partner in relation to

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A) Continuously remain alert for evidence of non-compliance with ethical requirements by
the engagement team

B) Withdraw from the audit engagement immediately upon identifying any independence
threat

C) Evaluate breaches of the firm’s independence policies to determine the impact on the
audit engagement

D) Form a conclusion on compliance with independence requirements that apply to the

4. Which of the following statements about the assembly of the final audit file is correct?

A) The audit documentation can be deleted after the completion of the final audit file if it is
deemed unnecessary.

B) The completion of the final audit file must occur within 30 days after the auditor’s report
date.

C) The final audit file can include changes made during the assembly process if they are
administrative in nature.

D) The audit documentation must be retained for at least five years after the date of the
auditor’s report.

5. Which of the following best describes the purpose of preparing a Completion

A) To provide a detailed report for the client regarding all audit procedures performed.

B) To summarize the significant matters identified during the audit and how they were
addressed.

C) To compile the financial statements for the entity under audit.

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D) To prepare a final audit report for submission to regulatory authorities.

(2×5= 10 MARKS)

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