ICAI MCQs Bank
The Institute's own questions for this paper, reproduced word for word and grouped the way ICAI sets them. Graded instantly, with ICAI's own reasoning as the explanation.
Case Scenarios
58 scenarios · 234 questions
Case Scenario 1
Completion and Review
A Ltd. is a top 1000 listed company engaged in manufacturing of edible oils having its registered office at Mumbai and its branches all over India. M/s HG & Co., Chartered Accountants, have been appointed as the statutory auditors of A Ltd. for the financial year 2024-25. CA H is the engagement partner for this assignment. The company's net worth is ₹ 500 crores, annual turnover is ₹ 1000 crores and net profit is of ₹ 5 crores during immediately preceding financial year 2023-24. During the course of audit, CA H made the following major observations: • A Ltd. has constituted a Corporate Social Responsibility (CSR) Committee of the Board pursuant to Section 135 of the Companies Act, 2013. The CSR Committee has formulated and recommended to the Board a CSR Policy and has recommended the amount of expenditure to be incurred on the specified activities which shall be recognized as CSR spending. CA H observed that an amount of ₹ 20 lacs was unspent in respect of other than on-going projects relating to the CSR spending. CA H is exploring his reporting responsibilities for compliance under CARO, 2020. • CA H during the course of audit noticed that Enforcement Directorate had issued show-cause notices for various non-compliances of Foreign Exchange Management Act and regulatory action against the company may be expected. The Board of Directors have not mentioned the same in their report as the outcome is uncertain. This is not reflecting anywhere in the financial statements, however, CA H thinks that it is relevant for the users' understanding of the financial statements. • The company also has 2 subsidiaries B Ltd. and C Ltd. The auditors are required to prepare the standalone as well as the consolidated financial statements of the company. For the purpose of making current period consolidation adjustments, CA H has asked the company to provide with the financial statements and information of the subsidiaries. Both the subsidiaries are audited by other auditors. © The Institute of Chartered Accountants of India • CA H in consultation with management, decided to visit 10 out of 15 branches of A Ltd., within a period of 15-20 days, situated in various states of India. Management decided to pay CA H advance of ₹ 5 lacs against the estimated expenses of ₹ 5.25 lacs on visits to be conducted as a part of services rendered. In terms of the discussion, ₹ 5 lacs was transferred to his bank account from which he has to meet all the expenses for visiting branches for the audit. However, he failed to keep the amount received from A Ltd. in a separate bank account. Based on the above facts, answer the following MCQs:
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Case Scenario 2
Quality Control
M/s SQC & Associates is a firm of Chartered Accountants, specialising in audit and assurance services for the past 2 decades, having 6 partners with its headquarters at Thiruvananthapuram and branch offices at 3 locations in Kerala. They are appointed as statutory auditors of Kochi Branch of KLM Bank Limited for the Financial Year 2024-25. The Bank branch has granted various types of advances to its customers including export advances. The auditors want to be sure that there is no revenue leakage in the branch and the auditor has conducted a detailed verification of compliance with the bank's policies and guidelines. The following discrepancies are identified during verification of revenue leakage: (i) QT Ltd. was sanctioned a term loan of ₹ 5 crores at an interest rate of 9.5% p.a. as per the sanction letter. However, due to some technical problem, the bank's Core Banking System (CBS) reflects an interest rate of 8.5% p.a. w.e.f. 01/04/2024. (ii) The bank has sanctioned a working capital limit of ₹ 3 crores to NK Pvt. Ltd. The bank's circular mandates a processing fee of 1%, but only 0.5% was charged. (iii) The bank has sanctioned a Cash Credit (CC) limit of ₹ 4 crores to DEF Ltd., with a condition that stock statements must be submitted monthly. DEF Ltd. has not submitted stock statements for 3 months, triggering a penal interest of 2% p.a. as per the sanctioned terms. M/s SQC & Associates are appointed as auditors of Easy Finance Limited, which is an NBFC company for the year 2024-25 for which CA S is the engagement partner. CA S is concerned with calculating the aggregate risk adjusted value of assets for reckoning the minimum capital ratio. Following details are available from the Balance sheet of Easy Finance Limited as on 31st March, 2025: © The Institute of Chartered Accountants of India (i) Cash and bank balances including fixed deposits and certificates of deposits with banks - ₹ 8 crores (ii) Investments - Bonds of public financial institutions - ₹ 50 crores (iii) Current Assets - Loans to staff - ₹ 5 crores (iv) Fixed Assets (Net of Depreciation) - Furniture and Fixtures - ₹ 30 crores (v) Domestic Sovereign - State Government Guaranteed claims which are in default for 75 days - ₹ 60 crores Further M/s SQC & Associates were appointed as statutory auditors of MRP Limited, a listed company, for the financial year 2024-25. It was observed during the audit that MRP Limited has carried out revaluation of its buildings and software assets. The revaluation was conducted by a Registered Valuer certified by the Insolvency and Bankruptcy Board of India (IBBI). • As a result of the revaluation, the carrying value of its "Buildings" was increased. It represents 6% increase over the Gross carrying value of the "Buildings" class as at the beginning of the year. It represents 12% increase over the net carrying value of the "Buildings" class as at the beginning of the year. • The "Software Assets" saw a downward revaluation adjustment. It constitutes 10% reduction over the Gross carrying value of the "software" class as at the beginning of the year. It constitutes 16% reduction over the net carrying value of the "software" class as at the beginning of the year. M/s SQC & Associates are in the course of forming an opinion on the financial statements of MRP Limited. Based on the evaluation of the conclusions drawn from the audit evidence obtained, they have made the following observations: • Observation 1: The Company procures raw materials from a large number of local and international suppliers. As on 31st March 2025, trade payables form a significant portion of total liabilities. A substantial number of supplier accounts were subject to reconciliation issues, delayed confirmations or required significant year-end adjustments. The management did not respond properly to the issues raised by the auditor. It was considered as a high risk area by the auditor. However, based on © The Institute of Chartered Accountants of India other audit procedures, it was concluded that the trade payable balances had been appropriately recorded. • Observation 2: A batch of finished goods worth ₹ 1.8 crores was found to be missing during the physical verification of inventory. It constituted a significant portion of the value of inventory of finished goods. The management stated that it was due to a clerical error in location mapping and claimed to have traced the goods post year-end. However, the documentation presented was insufficient and not independently verifiable. Based on the above facts, answer the following MCQs:
0/4 solved
Case Scenario 3
General Auditing Principles and Auditors Responsibilities
Ratnesh Limited (hereinafter referred to as 'The Company'), a listed entity, is in the business of hiring of Oil Rigs, is established since 2001. The Company is having its Head Office at Mumbai and having its operations across the country. The Company appointed MPR & Co., GKS & Co., YX & Associates and ABC & Associates as joint auditors for the year 2024-25. The professional work was divided by audit firms among themselves mutually. However, work relating to "Information processing" which is a part of the control activities, a component of Internal Controls of the company was allocated to MPR & Co. specifically and was not a part of the joint audit assignment. Due to shortage of resources, MPR & Co. took the help of subordinate staff of ABC & Associates for such verification. While verifying the controls, subordinate staff of ABC & Associates observed the following control activities: (i) Actual performance was reviewed against budgeted one. (ii) Edit checks of input data and numerical sequence checks. (iii) Authorisation for access to computer programs and data files. (iv) Controls over the implementation of new releases of packaged software applications. During audit, one of the joint auditors GKS & Co. observed that the Company has adopted a new IND AS which will be effective from 01.04.2026. Early adoption of the aforesaid IND AS is permitted as per extant guidelines. This early adoption of the new IND AS has a material effect on the financial statements of the Company. The material effect on the financial statements was disclosed in the notes to the financial statements. GKS & Co. performed various audit procedures to verify the same and it was found to be satisfactory in nature. YX & Associates appointed Mr. C, as an expert, to verify the actuarial valuation done by the company. They performed the following specific procedures to evaluate the relevance and reasonableness of Mr. C's findings and their consistency with other audit evidence for the audit purpose: © The Institute of Chartered Accountants of India (i) Performed corroborative procedures for observing Mr. C's work. (ii) Performed detailed analytical procedures to see whether Principles of materiality aspects considered. (iii) Reviewed the data for completeness and internal consistency. (iv) Verified the origin of the data. Based on the above facts, answer the following MCQs:
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Case Scenario 4
Audit Planning, Strategy and Execution
M/s FILE & Co. is a firm of Chartered Accountants consisting of 12 partners based at Mumbai. The audit firm is engaged in the audit of DEAF Ltd. for the financial year 2024-2025 for which CA L is the engagement partner. During the course of the audit of DEAF Ltd., the following misstatements were identified: I. A calculation error in the depreciation schedule amounting to ₹ 1 lakh. II. Management's estimate regarding inventory valuation seemed aggressive, leading to an overstatement of ₹ 5 lakhs, which the auditor deemed unreasonable. III. A sample audit revealed an error in sales invoices amounting to ₹ 60,000 and the population of similar invoices totalled ₹ 1 crore. The auditor's best estimate of misstatement in population identified in the samples to the entire population is ₹ 6 lakhs. CA L has determined a threshold of ₹ 75,000 as the amount below which misstatements would be considered clearly trivial. Further: (i) The auditor communicated with those charged with governance regarding uncorrected misstatements and their effect and requested to them that uncorrected misstatements be corrected. (ii) The management corrected the inventory valuation issue but did not correct the depreciation error or the error in sales invoices amounting to ₹ 60,000, considering the immateriality. (iii) After evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements, CA L is concerned on the documentation aspect with reference to the relevant M/s FILE & Co. is also the statutory auditors of Purple Pvt. Ltd., a manufacturing company, which has been severely impacted by economic downturns and © The Institute of Chartered Accountants of India operational inefficiencies. The company's cash flow statements reveal recurring negative cash flows, and its interim financial statements show a significant decline in profitability. Additionally, Purple Pvt. Ltd. has defaulted on loan covenants, and on-going litigation poses a risk of substantial financial liabilities. Management has stated their plans to mitigate these challenges by restructuring debt, securing additional funding from related parties, and reducing operational costs. However, no formal documentation supporting these plans has been provided yet. M/s FILE & Co. have identified the events and conditions in the case of Purple Pvt. Ltd. which cast significant doubt on the entity's ability to continue as a Going Concern, and auditor needs to obtain sufficient appropriate audit evidence to determine whether or not material uncertainty exists and gather evidence including of mitigating factors. M/s FILE & Co. is planning to perform the following additional procedures: (i) As long as management provides a representation letter stating their plans to address financing difficulties the auditor is not bound by the terms of breached loan agreements. (ii) Confirm the existence, legality, and enforceability of arrangements to provide or maintain financial support, both from related/third parties and the assessment of the financial ability of such parties to provide the promised support as immaterial. (iii) Evaluate the assumptions underlying cash flow, profit, and other relevant forecasts, considering historical accuracy and current market conditions. (iv) Considering whether existing facts and information have become available since the date of management's initial assessment that could impact the going concern conclusion. (v) Review minutes of meetings of shareholders, those charged with governance, and relevant committees for references to financial difficulties, plans for mitigating actions, or discussions on securing additional funding. (vi) If management has not yet performed an assessment, the entity is treated as not a going concern and issue a modified audit opinion without further evidence. © The Institute of Chartered Accountants of India M/s FILE & Co. the statutory auditors of Crypto Ltd., a non-listed public company, carrying out manufacturing activity, have been identified for their quality review based upon risk based approach. However, Crypto Ltd. is neither covered under Rule 3 of NFRA Rules, 2018 nor referred to QRB by NFRA. The Quality Review Board (QRB) is entrusted with conducting a quality review of M/s FILE & Co.'s audit services. During the review, QRB identifies non-compliance with Standards on (SAs) in areas related to engagement documentation and independence. Meanwhile, NFRA receives a whistle blower complaint regarding audit irregularities in Glitch Ltd., a listed company, audited by FILE & Co. M/s FILE & Co. was charged with failure to identify related parties and transactions with them. Glitch Ltd. has made 95% of sales to a related party which was not identified as such in the annual report of the company. NFRA initiates an investigation under Section 132(4) of the Companies Act, 2013. Based on the above facts, answer the following MCQs:
0/4 solved
Case Scenario 5
Materiality, Risk Assessment and Internal Control
M/s TAG & Associates, a Chartered Accountant firm was appointed by Comptroller and Auditor General to conduct performance audit of Wind power Ltd., a public sector undertaking of Government of India for the financial year 2024-25. Wind power Ltd. is engaged in generation of wind power with setting up of wind power plants at distinct locations in the country. The audit is assigned with the objective and systematic examination of evidence for the purpose of providing an independent assessment of the performance of organization, program, activity, or function in order to provide information to improve public accountability and facilitate decision-making by parties with responsibility to oversee or initiate corrective action. The audit firm is concerned with Planning for Performance Audit. The audit manager Mr. G suggested the following procedures in the following sequence of steps for conduct of Performance audit: (1) Understanding the entity/programme (2) Defining the objectives and the scope of audit (3) Deciding audit approach (4) Developing audit questions (5) Determining audit criteria (6) Establishing time table and resources (7) Preparing Audit Design Matrix (8) Assessing audit team skills and whether outside expertise required (9) Intimation of Audit programme to audit entities Further, in the course of performance audit of Wind power Ltd., the engagement partner CA JP entrusted the audit work to four team members namely Mr. P, Mr. Q, Mr. R, Mr. S. The audit team is initially concentrated in deciding audit approach. CA JP suggested that there is no uniform audit approach prescribed that can be applicable to all types of subjects of performance audits. CA JP © The Institute of Chartered Accountants of India asked his team members to suggest a method for conducting the Performance audit. Mr. P suggested a method which involves a descriptive analysis of an entity, scheme or a programme. Mr. Q suggested a method which involves examination of available data relating to financials like earnings, revenue, or data relating to programme implementation like details of beneficiaries etc. Mr. R suggested a method which involves collecting information from members of a population to assess the interrelation of events and conditions. Mr. S suggested a method which involves review of the systems in place for planning, conducting, checking, and monitoring the activity. CA JP analysed the methods suggested by each team member. M/s TAG & Associates were appointed as statutory auditors of Indore Main branch of a public sector bank for the financial year 2024-25. Advances generally constitute a major part of the assets of the branch. There are substantial number of borrowers to whom variety of advances are granted. Hence, they felt that audit of advances requires major attention. M/s TAG & Associates are primarily concerned with obtaining evidence about the following while carrying out audit of advances: Amounts due to the bank are appropriately supported by loan documents. The stated basis of valuation of advances is appropriate and properly applied and recoverability of advances is recognized in their valuation. Advances are disclosed, classified and described in accordance with recognized accounting policies and practices and relevant statutory and regulatory requirements. Appropriate provisions towards advances are made as per RBI norms, accounting standards and generally accepted accounting practices. © The Institute of Chartered Accountants of India Audit approach of advances should encompass designing appropriate audit procedures to obtain audit evidence in all these areas. The engagement partner, CA R assigned the focus areas in advances to the members of audit team as follows: Mr. X was assigned to focus on evaluation of internal control on advances. Mr. Y was assigned to focus on substantive audit procedures on advances. Mr. Z was assigned to focus on recoverability of advances. Further during the course of audit, it was observed that in the case of Kiran Ltd., a trading company which has availed a cash credit facility of ₹ 10 crore from Indore Main branch, the drawing power was not arrived at by bank. As of 31st March 2025, the following details are provided regarding its stock, receivables (with ageing analysis), and creditors for calculating the Drawing Power (DP): Particulars Amount (₹ in lakhs) Remarks Total Stock 900 Includes damaged stock of ₹ 60 lakhs. Total Receivables (Debtors) 800 Ageing details provided below. Creditors for Stock 140 Related to stock financed by creditors. Margin on Stock 25% As per bank sanction terms. Margin on Receivables 40% As per bank sanction terms. Sanctioned Cash Credit Limit Debtors' Ageing Analysis: Age Bucket Amount (₹ in lakhs) 0 - 30 days 31 - 60 days 61 - 90 days > 90 days (Overdue) Total Receivables Based on the above facts, answer the following MCQs: © The Institute of Chartered Accountants of India
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Case Scenario 6
Materiality, Risk Assessment and Internal Control
M/s GDP Associates, a renowned firm of Chartered Accountants consisting of 15 partners was appointed as statutory auditors for the Financial Year 2024-25 of SYNC Technology Ltd., a technology focused engineering company engaged in turnkey electronics manufacturing services, specializing in precision manufacturing for diverse end-use industries including the automotive, healthcare, IT, industrial appliances, energy management, water purification, power supply and consumer products industries. The company's portfolio includes memory, SSDs, motherboards, power adapters, and systems integration. In conducting an initial audit engagement, the objective of the M/s GDP Associates is to obtain sufficient appropriate audit evidence about whether Opening balances contain misstatements that materially affect the current period's financial statements; and 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 were audited by M/s JK Associates, but the predecessor auditor's report was modified due to the non-disclosure of certain liabilities. The opening balances include significant provisions and carry forward adjustments. M/s GDP Associates decides to use sampling to test compliance with internal controls over revenue recognition. As part of the audit of SYNC Technology Ltd., M/s GDP Associates is performing sampling for tests of controls and substantive procedures. At the end of the sampling process, the auditor needed to conclude on whether the sampling results provided a reasonable basis for conclusions about the population tested. During testing, the following scenarios arose: (1) A selected item could not be tested because supporting documentation was unavailable. The auditor is unable to apply the designed audit procedures since documentation relating to sales is lost, like the sales © The Institute of Chartered Accountants of India order record, sales invoice, document for dispatch. (2) A deviation was identified in the sample that could potentially indicate a misstatement in the population. (3) The auditor found an item that seemed anomalous but required further procedures to confirm it was not representative of the population. As part of audit, to confirm the accounts receivable balances with customers, M/s GDP Associates sends confirmation requests to SYNC Technology Ltd.'s top 50 customers, whose account balances represent 80% of the company's total receivables. The auditor sends confirmation requests to confirm balances of cash held in bank accounts and outstanding loans with the bank. The auditor also sends confirmation requests to 200 small suppliers with low-value account balances. The following events occur during the confirmation process: (1) Out of the 50 positive confirmation requests, 10 responses indicate agreement with the balances, 5 responses indicate discrepancies, and 35 do not respond. (2) One response to a positive confirmation appears unreliable due to discrepancies in the customer's letterhead and inconsistent information. (3) The 100 negative confirmation requests receive no responses. (4) In the case of non-response, the audit firm examined subsequent cash disbursements, email correspondences, and other records like goods received notes. Further M/s GDP Associates engaged an external IT expert to evaluate the entity's cyber security framework, a significant area of risk identified during risk assessment. M/s GDP Associates and the expert held discussions to finalize the terms of the engagement, which included: (1) The expert's role in assessing the robustness of SYNC Technology Ltd.'s cyber security systems. (2) The communication protocol, specifying that the expert would provide interim oral reports during the engagement and a formal written report © The Institute of Chartered Accountants of India upon conclusion. (3) The need for confidentiality agreements, as the entity requested additional restrictions on the disclosure of sensitive cyber security information. (4) The identification of specific audit team members responsible for liaising with the expert and facilitating communication between the expert and the entity. During the audit, the following issues arose: The expert delayed submitting the formal report, citing unclear communication about the expected scope of work. The entity expressed concerns about the confidentiality provisions not being adequately addressed. The expert had limited interaction with the auditor, leading to misalignment on the interim findings. Based on the above facts, answer the following MCQs:
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Case Scenario 7
General Auditing Principles and Auditors Responsibilities
WYZ Ltd., incorporated during the year 2002-03, is a leading unicorn startup 6,000 employees. As a pioneer in its industry to be listed on the stock exchange, WYZ Ltd. underscores its longstanding and influential presence in the financial market. The company consistently complies with SEBI's Listing Obligations and Disclosure Requirements Regulations of 2015, ensuring regulatory adherence and maintaining credibility among investors and stakeholders. Considering the nature, size and extent, the company has appointed M/s KAP & Co. and M/s BMS & Co. as their joint auditors. Both the Firms divided the work in accordance with the SA 299, shared the allocation of task to Those Charged with Governance and started conducting the audit procedures. During the audit engagement, M/s KAP & Co. was assigned to verify the Property Plant & Equipment (PPE) Register. Mr. K, the engagement partner of M/s KAP & Co., carried out the verification process, however, he did not maintain any documentation of the same. Additionally, he did not perform impairment testing on the PPE at the end of the financial year. Mr. B, the engagement partner of M/s BMS & Co., was responsible for verification of procure to pay process (P2P). However, he was informed by management that Mr. E, their Internal Auditor, has already verified P2P Process and carried out relevant audit procedures and thereby he relied on the work of Mr. E. He neither conducted any independent audit procedure to evaluate the work of the internal auditor nor documented his conclusion regarding the evaluation of the adequacy of work of internal auditors. Moreover, looking at the increase in the scale of business, the management of WYZ Ltd. took the decision to implement ERP in its business during the year and gave contract to INFO Ltd. to develop an ERP suitable for its business. The development of ERP was completed on Aug 12th, 2023. The management started adoption of ERP and replacing its old practices. The adoption took a span of 4 months and was successfully completed on Dec 3rd, 2023. The previous software did not have an audit trail feature and the audit trail was © The Institute of Chartered Accountants of India operational from Dec 3rd, 2023. However, the auditors of the company have not reported anything on the above matter relating to the audit trail in their main audit report. In addition to the above, the WYZ Ltd., has one Indian wholly owned subsidiary, ABC Private Ltd., who is in the business of acquisition of shares and securities. M/s PQR & Co. are the auditors of ABC Private Ltd. The important financial information of ABC Private Ltd. is as under: Sr. No Particular Amount (₹) 1. Paid-up Capital ₹ 67 Lakhs 2. Loans and Borrowings from Financial Institution ₹ 72 lakhs 3. Turnover ₹ 154 lakhs 4. Reserve and Surplus ₹18.36 lakhs Based on the above case scenario, answer the following MCQs:
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Case Scenario 8
Materiality, Risk Assessment and Internal Control
M/s BNM & Associates, Chartered Accountants, are in the completion phase of the statutory audit of M/s FES Limited, a technology company, for the financial year ended 31st March 2025. Before concluding the audit, there was a difference of opinion between the audit committee and the auditors as to which among the following are the areas which the auditor should take into account to determine “Key Audit Matter” as per SA 701: (I) During last quarter of the year, company’s income was significantly affected by fluctuations in foreign exchange rates, with inadequate hedging arrangements. The auditors had to evaluate the impact of these transactions on financial statements. (II) It was observed that the server maintenance work of company was likely prone to external access, which was an area of high risk as assessed and reported by management’s expert committee. (III) The auditor had to make important judgments in areas where the management of the company also used significant judgment. One key point was that the company depended heavily on a few major clients. While management believed that the market of the company was growing and would bring in more new clients, the auditors had to carefully consider this difference in view while reviewing the financial statements. Following discussions, a mutual understanding was reached, and the audit of FES Limited was concluded smoothly. Subsequently, BNM & Associates came to know about a tender floated by the Dwarka Municipal Corporation for computerisation of its records, requiring an earnest deposit of ₹ 85,000. BNM & Associates has one of its partners residing in Dwarka, hence he persuaded the firm to apply for the tender and paid the earnest deposit. However, another partner of the firm was of the view that such an act would lead to professional misconduct and insisted on withdrawing the © The Institute of Chartered Accountants of India tender application. The firm decided to approach an experienced CA before withdrawing the tender application and went on focusing on other assignments. BNM & Associates also commenced the statutory audit of Cash Limited, a banking company headquartered in India. During the audit, the following observations were made: (i) The staff and officers of the bank were frequently transferred from one position to another, without prior notice. (ii) Cash was test-checked daily and counted in full occasionally by another officer of the bank, apart from the cashier. (iii) Physical custody of cash was solely maintained by the senior-most officer at the branch. (iv) Unpaid cheques received through outward clearing were securely stored in the bank’s lockers. After a detailed discussion and review of internal controls and practices, the firm finalised and issued the audit report for the financial year. CA M, a partner at BNM & Associates, firmly believed that one should always pursue their passion, regardless of their profession or business. Driven by this belief, he engaged in the following activities beyond his Chartered Accountancy practice: (1) Part-time employment with a Non-Profit Organisation based in Noida. (2) Involved in agricultural activities on his personally owned agriculture land located outside Bangalore. (3) Tutorship as a part-time faculty member at a private educational institute in Chennai. (4) Holding an honorary office leadership in a charitable educational organisation in Trivandrum. Based on the above facts, answer the following MCQs: © The Institute of Chartered Accountants of India
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Case Scenario 9
Professional Ethics and Liabilities of Auditors
Mr. Vivek was appointed as the engagement partner on behalf of Reliant & Co., a Chartered Accountant Firm, to conduct statutory audit assignment of Zenith Components Limited, an unlisted public company engaged in the manufacturing of electrical equipment. During the audit, CA Meenal, one of the senior engagement team members, was given the responsibility to audit the matters as per requirements of CARO, 2020. Her major observations included: • One of the buildings owned by Zenith Components Ltd. was revalued during the year based on a valuation report from a registered valuer, increasing the aggregate carrying value of Property, Plant & Equipment (PPE) from ₹ 12.5 crore to ₹ 14.5 crore. • Zenith Components Ltd. was sanctioned a cash credit limit of ₹ 5.25 crore by Unity Bank based on the security of current assets which was reduced to ₹ 4.95 crore after 6 months. In this connection, the company submitted quarterly stock statements to the bank which were in agreement with the books of accounts. Meanwhile, Reliant & Co. was also appointed to conduct the audit of a State Housing Department. During the course of audit, Office of the Comptroller & Auditor General of India (C&AG) observed that the prescribed law in the state defined a "flat" based on the following two criteria in a premises: • Dwelling units exceeding a threshold limit. • Buildings with a total area surpassing a threshold limit. However, it was noted that the relevant database did not include a column for entering the area of the building. Consequently, a certain number of buildings were identified as flats even though they had fewer dwelling units than the threshold limit. In the absence of data regarding the area, the audit team directed physical verification of these flats. The physical verification confirmed that these buildings were incorrectly classified as flats, resulting in the department under collecting water charges. © The Institute of Chartered Accountants of India Further, CA Karan, another partner, was engaged in the audit of EcoTherm Power Ltd., a listed company operating in the thermal energy generation sector. As a part of Business Responsibility and Sustainability Reporting (BRSR), the company disclosed data on its total greenhouse gas emissions from its production outlets during the year and a detailed energy consumption plan which it had devised for the upcoming years. CA Nisha, an independent Chartered Accountant who had recently completed a Certificate Course on Sustainability Reporting, was approached by CA Karan for informal guidance on improving the company’s sustainability disclosures. Impressed by her knowledge, CA Karan later recommended her name for the Board of Management of Navlok Co-operative Bank, a Primary (Urban) Co-operative Bank, which was also one of their audit clients. CA Amit, another professional colleague, advised Nisha to refrain from accepting the post as it could amount to professional misconduct. Based on the above facts, answer the following MCQs:
0/5 solved
Case Scenario 10
Materiality, Risk Assessment and Internal Control
TechNova Solutions Ltd., a software development company and one of the Top 500 listed entities on the NSE, specialises in delivering customised enterprise resource planning (ERP) solutions. During the year, the Chief Financial Officer (CFO) received a highly realistic voice message from a known vendor, "Apex Systems," detailing a last-minute change to their bank details for an upcoming ₹ 45 lakh payment for server maintenance licenses. The message seemed urgent and was syntactically correct, mimicking the vendor’s typical communication style. The CFO, pressed for time, verbally approved the change to the accounts payable team without calling back the vendor to verify. A week later, while the accounts team was preparing for year-end closing, they found that Apex Systems had sent a formal inquiry regarding the delay in payment for the ₹ 45 lakh invoice. Investigation revealed the initial voice message was a sophisticated AI-generated deepfake designed to commit fraud. The money was transferred to a fraudulent account, and the ₹ 45 lakh loss was confirmed and recorded in the financial statements. The company immediately filed a police report and engaged its IT security team. The statutory auditors, M/s A & P Associates, determined that the company's internal controls over disbursements were deficient, specifically regarding change management for vendor banking details. The loss, though material (as it impacts profitability metrics), was determined not to be pervasive to the financial statements as a whole. The auditor’s primary concern shifted to the design and implementation of internal controls to prevent future deepfake fraud. The audit efforts related to testing controls and substantive procedures on cash and payables increased by 15%. The management of TechNova had recently launched a new service line for green computing consultancy. They decided to prepare a statement detailing their environmental, social, and governance (ESG) performance to attract institutional investors. © The Institute of Chartered Accountants of India The management, impressed by the auditor's in-depth knowledge of IT security during the fraud investigation, proposed to appoint M/s A & P Associates to provide internal audit services for the current financial year's Quarter 4 period. Based on the above facts, answer the following:
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Case Scenario 11
Reporting
Supriya is a practicing Chartered Accountant and a partner in SPR Associates, a CA firm engaged in various assignments across audit, advisory, compliance, and management consultancy for clients in the banking, education, co-operative, and public sectors. Recently, the firm received the following engagement request: • Supriya, who is the statutory auditor of one of her major clients, Cosy Textiles Ltd., has been requested by the management to assist in compilation of financial information into a proper format for presentation to prospective investors in accordance with SRS 4410. • She was approached by a hospitality chain for conducting a mystery audit at their 17 branches to evaluate service quality and compliance with SOPs for fee of ₹ 85,000. • Supriya holds the position of Director Simplicitor in Fair Private Limited. The Company is now requesting her to digitally sign ROC forms due to her professional qualification. • Additionally, to expand her practice, she is planning to use a messaging application to inform business groups about her firm’s services and highlight the specialised areas and expertise. Based on the above facts, answer the following:
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Case Scenario 12
Quality Control
ADM & Associates, a medium-sized audit firm, has recently been appointed as the statutory auditor of Muonic Ltd., a listed pharmaceutical company involved in complex global operations and intensive R&D activities. The audit is being led by CA Rajul, an engagement partner. The company was previously audited by a Big 4 firm, which withdrew citing limitations in audit scope. During planning, CA Rajul observes that while her team has good experience with standard manufacturing audits, they lack exposure to pharmaceutical sector audits, especially in relation to R&D accounting and global regulatory requirements. Despite this concern, the Managing Partner insists that the team follow their standard procedures to ensure the audit is completed on time, especially due to the company’s obligations under listing regulations. CA Rajul is concerned about whether the firm possesses the capability and competence to deliver a high-quality audit in line with professional standards. Based on the above facts, answer the following:
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Case Scenario 14
Materiality, Risk Assessment and Internal Control
Karma Ltd. got incorporated in 1980s as a private limited company and started its business into two segments – printing and construction. The two business activities were completely different but those were managed very well and the company grew significantly over a period of time. In year 2001, the company got converted into a public company and in 2008, the company also got listed on Bombay Stock Exchange. The turnover of the company was increasing, however, the margins were not increasing as per the expectations of the management and the management analysed this aspect and realized that the margins were not so high in case of printing segment. The company decided to focus more on construction business and included infrastructure in its line of business. This was also because of the fact that the government policies were favourable towards the infrastructure sector. Eventually, the company decided to sell its printing segment in 2020. The new investor (i.e. buyer) for the printing segment carried out a due diligence of the printing business involving various aspects and the company sold this segment in January 2021. Since the business of the company included infrastructure and it involved transactions with government officials also, the management suspected certain suspicious transactions for which it decided to carry out forensic accounting in the financial year 2021-22. During the audit, certain transactions were identified highly risky, on which the management discussed and set up certain new processes and stringent controls so that the business can function in an efficient manner. For the financial year ended 31st March 2024, Due Diligence was done for the company, which impacted the company significantly in terms of its reputation and business. The company lost some significant contracts during the process of investigation itself. © The Institute of Chartered Accountants of India At the time of due diligence review, the reviewer assessed the business feasibility also so as to assess whether the current business would be more beneficial in future or not. The management of Karma Ltd. did not understand this perspective. The management argued that the reviewer has no powers to assess the business feasibility, as the company was running a profitable business from many years. The company had various litigations going on including those related to matter diligence reviewed these consultation documents and also asked for the documents related to these matters. Further, he also suggested that the decision taken by the company in some matters was not correct. At the time of investigation, the reviewer asked about the background of the promoters of the company. The management explained that there was no need for this investigation. Further, the management explained that the company has already gone through the processes of due diligence and forensic accounting in the previous years and there was no doubt raised on promoters of the company. So, the background of promoters cannot be shared with the reviewer. Based on the above facts, answer the following MCQs:
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Case Scenario 15
Due Diligence, Investigation and Forensic Accounting
CA Harman, a practicing Chartered Accountant, intends to fill out the Multi-purpose Empanelment Form (MEF) to be included in the panel for the statutory audit of bank branches for the financial year 2023-24, as hosted by the Professional Development Committee (PDC) of ICAI. The application along with the computation of income. During the relevant financial year for which the information is sought, CA Harman had engaged in currency and commodity derivatives transactions, declaring the resulting income under Additionally, Pitch Private Limited approached CA Harman to digitally sign and upload a resignation form related to Mr. Rohit, one of its directors, on the Registrar of Companies (ROC) portal. However, the signature of Mr. Rohit had been copied and pasted by another director of the company. Without verifying the authenticity of the resignation letter, CA Harman digitally signed the form, which was then uploaded to the ROC portal. Subsequently, CA Harman's actions were brought under scrutiny when the Director (Discipline) of the Institute of Chartered Accountants of India (ICAI) received complaints regarding alleged misconduct. Upon investigation, he was found guilty of misconduct, and the competent authority imposed the appropriate penalty in accordance with the provisions of the Chartered Accountants Act, 1949. Based on the above facts, answer the following MCQs:
0/3 solved
Case Scenario 16
Audit Planning, Strategy and Execution
Chartered Accountant Firms - Tink & Co., Llyods & Co. and Manohar & Co. respectively, were appointed as the joint auditors for conducting the statutory audit for the financial year 2023-24 of Anitya Ltd. They were having difference of opinion with regards to the following points:- S No. Reasons for Differences in Opinion Manohar & Co. wanted to refer to the work of the auditor’s expert, Mr. Tanmay in the audit report but the other joint auditors were not agreeing on the same as such reference was not relevant to an understanding in the final audit opinion and also it was not required by any statute. Certain misstatements affected information to be included in ‘Management Discussion and Analysis’ of Anitya Ltd.’s annual report but as they were lower than materiality set for the financial statements as a whole and so according to the Llyods & Co., there was no requirement to perform any audit procedures on the same but the other joint auditors were not agreeing on the same for the reason that the information may reasonably be expected to influence the economic decisions of the users of the financial statements. For a selected item, the joint auditors were not able to apply the designed audit procedures or suitable alternate procedures and Llyods & Co. wanted to treat that item as a misstatement in the case of test of controls as well as in the case of test of details but the other joint auditors were not agreeing on the said treatment. Manohar & Co. had determined for a particular account balance positive confirmation request was necessary to obtain sufficient and appropriate audit evidence but as it had not obtained such confirmation and alternate audit evidence would not have sufficed its requirements, Manohar & Co. wanted to determine its implications on the audit opinion but the other joint auditors were not agreeing on the same. © The Institute of Chartered Accountants of India The differences in opinion in the case of Tink & Co. and Llyods & Co. were resolved but there remained disagreement with the one of the opinions of Manohar & Co. due to which Manohar & Co. expressed its opinion in a separate audit report. Further, Manohar & Co. resigned and filed the required statement with respect to its resignation with Anitya Ltd. as well as the Registrar, respectively. The Board of Directors of Anitya Ltd. appointed Namo & Co. as a joint auditor in place of Manohar & Co. which was later approved by members in the general meeting of the company. Namo & Co. before getting appointed, as aforesaid, had :- (i) Communicated vide a registered post acknowledgment due to the previous joint auditor, Manohar & Co. but the said post was received back with the remarks “Office Found Locked”. (ii) Ascertained that the requirements of Section 139 and Section 140 of the Companies Act, 2013, with the respect to its appointment had been duly complied with or not by Anitya Ltd. Based on the above facts, answer the following:
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Case Scenario 17
General Auditing Principles and Auditors Responsibilities
CA Kamlesh was appointed as the engagement partner on behalf of Dutta & Associates for conducting the statutory audit for 3rd consecutive year of Pramat Limited, an unlisted public company, with a turnover of ₹ 35 crore during F.Y. 2022-23. From F.Y. 2023-24 onwards, Pramat Limited had voluntarily adopted to prepare its financial statements as per Division II of Schedule III of the Companies Act, 2013, due to which Dutta & Associates had revised the terms of audit engagement for the current audit engagement. As per the revised terms, it was decided that the auditor’s report on the financial statements will incorporate a paragraph in accordance with SA 706, drawing users’ attention to the additional disclosures. Moreover, it was decided that management will also present appropriate disclosures in the financial statements with respect to this change. Limited that required to invest some portion of its money earned in its business in securities of different blue-chip companies and due to this reason, almost 55% of Pramat Limited’s total assets consisted of such investments. These securities transactions were handled by its broker company, River Securities Private Limited (RSPL). RSPL was also performing necessary investment account reconciliations and was also preparing the MTM gain and loss calculation for the entity. Pramat Limited used to rely upon the calculations performed by RSPL and based on that they pass the MTM entry for their current investments every month. Pramat Limited relying on the controls presents in RSPL for the preparation of this entry. They also listed controls present in RSPL in their Risk Control Matrix as key controls. The engagement quality reviewer, CA Tushar, recommended CA Kamlesh to obtain a Type 2 report from the management of RSPL to which CA Kamlesh said that it was not required to do so as management was already comfortable with the controls present in RSPL. © The Institute of Chartered Accountants of India While finalising the audit report, CA Kamlesh prepared a letter containing key important points to be communicated to Those Charged with the Governance and Audit Committee of the entity. This letter was prepared in addition to the audit report. The audit team was of the view that for the above-mentioned letter the audit team is required to generate UDIN. Based on the above facts, answer the following:
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Case Scenario 18
General Auditing Principles and Auditors Responsibilities
CA Mridul, a practicing Chartered Accountant, has been appointed as the statutory auditor of PQT Limited, a reputed listed company engaged in manufacturing electronic products, as per the provisions of the Companies Act, 2013. In addition to his audit responsibilities, he is actively involved in advising the government on proposed legislation aimed at attracting investments and advocated the proposed policy in TV debates, articles in business newspapers, and advisory submissions to the government. In all such public appearances, he has disclosed his role as the auditor of PQT Limited. Meanwhile, CA Mridul is also the statutory auditor of Fincorp Limited, non-banking financial company, for the financial year 2023-24. While reviewing the financial statements, he observes that the company has made the following provisioning in compliance with the Reserve Bank of India (RBI) Prudential Norms for Asset Classification as of 31st March 2024: Asset Category Balance Outstanding (₹ crores) Provision for FY 2023-24 (₹ crores) Standard Assets NIL Sub-standard Assets (Fully secured) 1.00 Doubtful Assets (1-3 years) (Fully secured) 2.00 Loss Assets 2.00 Total Provision for NPA 5.00 crores Upon review, CA Mridul is of the opinion that the company has not done the provisioning correctly and expresses concerns regarding non-compliance with RBI guidelines. Based on the above facts, answer the following: © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 19
General Auditing Principles and Auditors Responsibilities
Innovate Robotics Pvt. Ltd. (IRPL) engaged in the business of manufacturing appointed M/s Gaur & Associates, Chartered Accountants, as the statutory auditor for the financial year 2024-25. The financial highlights of IRPL for the year were as follows: Particulars Balance as at 31st March 2024) Total Turnover (Previous Year: ₹ 85 crores) ₹ 120 crores Borrowings from banks and financial institutions ₹ 35 crores Paid-up Share Capital ₹ 20 crores ₹ 15 crores During the audit, Engagement Partner CA. Gaurav and his team observed the various issues which are given as under: (i) While conducting substantive procedures, the audit team noticed a significant increase in sales during the last quarter of the financial year. A major portion of this increase, amounting to ₹ 8 crores, was attributed to sales made to a new customer, TechSynergy Solutions Pvt. Ltd., which was incorporated on 1st October, 2024. The audit team’s inquiries revealed that the payment for these sales was received on 5th April, 2025, just before the audit commenced. Upon further investigation, Anjali, an audit assistant, discovered that one of the directors of TechSynergy Solutions was the husband of the daughter of IRPL's Chief Financial Officer (CFO), Mr. Alok. When CA. Gaurav brought this information to Mr. Alok’s attention, the CFO dismissed it as a mere coincidence and insisted that the transaction was conducted at arm’s length. He also argued that since the payment was fully received, there was no risk of a misstatement. Management also refused to disclose this relationship in the financial statements, contending that it was not a related party transaction as per © The Institute of Chartered Accountants of India unnecessarily complicate matters. It was also observed that approval by way of resolution was also not obtained by management before entering into the contract with TechSynergy for sale of goods. (ii) During the physical verification of Property, Plant, and Equipment (PPE), the audit team & management could not locate a highly specialised robotic arm, which was recorded in the fixed asset register with a written down value of ₹ 2.5 crores. Later, management provided a verbal explanation that the asset had been sent to a facility in Germany for immediate calibration in February 2025 and was in transit. However, they failed to provide any supporting documentation such as gate pass, dispatch challan, or insurance documentation for this movement. This matter remained unresolved at the time of finalisation of the audit report. (iii) IRPL holds 60% equity shares in a subsidiary, AutoBots Ltd. The statutory auditors of AutoBots Ltd., in their audit report for FY 2024–25, expressed a qualified opinion due to non-provision of doubtful debts amounting to ₹ 1.5 crores, which the auditor considered materially misstated. During the final phase of the audit, on 15th April 2025, IRPL's CEO offered a position of 'Head of Software Development' to CA. Gaurav's wife, a highly qualified software engineer. CA. Gaurav subsequently discovered that his father purchased 1,00,000 equity shares of ₹ 10 each in AutoBots Ltd., a subsidiary of IRPL on 27th June, 2025 i.e., after issuance of audit report. The total paid-up capital of AutoBots Ltd. is ₹ 5 crores. In the final meeting on 25th April 2025, IRPL's management strongly contended that the unresolved matters were minor in the context of their overall profitable operations. They urged CA. Gaurav to issue an unmodified audit opinion, warning that any modification could jeopardize a crucial funding deal for the company. Based on the above facts, answer the following: © The Institute of Chartered Accountants of India
0/5 solved
Case Scenario 20
General Auditing Principles and Auditors Responsibilities
SCL is a prominent, listed Non-Banking Financial Company (NBFC) (non-deposit taking NBFCs with an asset size of ₹ 1,000 crore and above) primarily engaged in providing corporate loans and retail financing. Mehta & Shah Associates (MSA), a partnership firm with two partners, CA. Karan Mehta and CA. Arjun Shah, was appointed as the statutory auditor of SwiftFin Capital Ltd. (SCL) for the financial year ended 31st March, 2025. During the audit, MSA team led by CA. Mehta, began reviewing SCL's compliance with RBI's Master Directions for NBFCs. They discovered that three large corporate loan accounts, with a total outstanding balance of ₹ 15 crores, had principal and/or interest payments overdue for a period ranging from 95 to 110 days as at the balance sheet date. However, these accounts were still classified as 'Standard Assets' in the company's records. The management of SCL argued that these were long-standing, "blue-chip" clients with whom they these accounts as Non-Performing Assets (NPAs) would trigger cross-default clauses in other agreements of those clients and permanently damage valuable business relationships. They insisted that the non-classification was a temporary measure based on commercial judgment. While reviewing the board minutes, the audit team came to know about a lawsuit filed against SCL in January 2025. A group of retail customers alleged that the company had provided loans by charging interest rates that were not transparently disclosed and were in violation of the RBI's Fair Practices Code. SCL's internal legal department had prepared a note for the board estimating a financial outcome of up to ₹ 5 crores if the judgment went against the company. However, the financial statements contained no provision or disclosure for this matter. Management asserted that their legal advisors believed the probability of an unfavourable outcome was "remote". In April 2025, impressed with the firm's diligence, the management of SCL also 1961, to MSA for the Assessment Year 2025-26. CA. Mehta reviewed the firm's © The Institute of Chartered Accountants of India workload for the assessment year. As on that date, CA. Mehta had already reports. Based on the above facts, answer the following:
0/4 solved
Case Scenario 21
Audit Evidence
Prakriti Limited is a listed company engaged in the manufacture of eco-friendly home appliances. During the financial year, the company significantly expanded its operations by setting up a new manufacturing facility in a semi-rural location. The expansion was aimed at increasing production capacity while benefiting from lower operational costs and proximity to raw material suppliers. During the statutory audit of Prakriti Limited, the auditor became aware of the undisclosed environmental violations and labour-related non-compliances. Management represented that the issues were operational in nature and assured corrective action. Relying on management representations, the auditor did not include any specific reference to these matters in the audit report. The company sources raw materials from a diverse supplier base and employs a large workforce, a substantial portion of which consists of contractual labour engaged through third-party contractors. Prakriti Limited sells its products through online platforms as well as a widespread network of distributors across India. Being a listed entity, Prakriti Limited is required to comply with the Business Responsibility and Sustainability Reporting (BRSR) framework. During the year, the following issues came to the attention of stakeholders and regulators: • Prakriti Limited has published its sustainability policies and environmental commitments on its official website. However, certain material environmental violations relating to emissions and waste management at the newly established plant were disclosed to the public only after these violations were highlighted in media reports. The company did not make timely or voluntary disclosures to its stakeholders when the violations first occurred. • Contractual workers employed at the new manufacturing facility raised complaints regarding delayed payment of wages by contractors and absence of adequate safety measures at the workplace. The workers alleged that despite being aware of these issues, the company did not take sufficient steps to ensure compliance by contractors. © The Institute of Chartered Accountants of India • Prakriti Limited collects customer data through its online sales platform for order processing and customer engagement. During the year, it was observed that the company shared customer data with third-party marketing agencies without obtaining explicit consent from customers. Statutory auditor CA. Manik, during the statutory audit of Prakriti Limited, became aware of the undisclosed environmental violations and labour-related non-compliances. Management represented that the issues were operational in nature and assured corrective action. Relying on management representations, the auditor did not include any specific reference to these matters in the audit report. Based on the above facts, answer the following:
0/4 solved
Case Scenario 22
Professional Ethics and Liabilities of Auditors
Wire Ltd. is a listed company engaged in the manufacture of electrical equipment. The company operates multiple manufacturing units across India and consumes significant quantities of electricity, water, and natural resources such as copper and aluminium for its operations. The production process results in carbon emissions, water discharge, hazardous waste, and e-waste. To address environmental concerns, Wire Ltd. has installed solar power facilities at its plants and implemented water recycling systems. The company has also set measurable targets to reduce its carbon emissions by 30% over the next five years and periodically tracks its emission levels. Wire Ltd. employs a large workforce, including permanent and contract workers. The company has framed policies relating to employee health and safety, labour welfare, gender diversity, equal opportunity, and skill development. It also undertakes community development initiatives in the areas surrounding its manufacturing units. The Board of Wire Ltd. comprises executive and independent directors. The company has constituted various Board committees, including the Audit Committee, Nomination and Remuneration Committee, and Risk Management Committee. Wire Ltd. follows a code of conduct, has a whistle-blower mechanism, and ensures compliance with applicable laws and regulations. In response to increasing investor and regulatory expectations, Wire Ltd. has initiated Environmental, Social and Governance (ESG) reporting, which includes both qualitative disclosures (such as policies and strategies) and quantitative disclosures (such as metrics and key performance indicators). Wire Ltd. appoints a firm of Chartered Accountants APR & Associates to provide automated extraction of ESG data from its ERP systems. Subsequently, CA. Ankur, Partner APR & Associates instruct his article assistant CA Mihir to publish a detailed post on its website and social media platforms highlighting its role in conducting “ESG and Digital Audits of a listed © The Institute of Chartered Accountants of India manufacturing company using AI-based tools” and to invites other corporates to approach the firm for similar assignments. Based on the above facts, answer the following:
0/4 solved
Case Scenario 23
General Auditing Principles and Auditors Responsibilities
CA Kishan, a sole proprietor of M/s R K & Co., is a Chartered Accountant in practice. He employs CA Isha, a qualified Chartered Accountant, as a full-time paid assistant. CA Isha conducts audits, prepares reports and signs certificates under the name and supervision of CA Kishan. The firm also engages Mr. Varun, a non-Chartered Accountant, to assist in administrative coordination, client communication and liaison work. The firm pays him a portion of professional receipts described as “legal consultancy and office support charges”, although Mr. Varun does not possess any recognised professional qualification prescribed by the Council. With prior approval of the Council, CA Kishan purchases the goodwill from Ms. Vishakha, wife of a deceased Chartered Accountant. Following this acquisition, the firm witnesses a rapid expansion of its client base, including corporate and overseas clients. During this expansion phase AMC Ltd., one of the client of CA Kishan, had following cyber fraud attempts: • The CFO of a client company receives an urgent phone call from a person impersonating a bank official, requesting OTP details to reverse a supposedly failed transaction. • Around the same time, the Managing Director receives a “Highly Confidential” email appearing to originate from the Chairman, seeking immediate authorisation for an overseas wire transfer. • The attackers leveraged publicly available information and weak segregation of duties to make their communications appear authentic. Based on the above facts, answer the following: © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 24
Materiality, Risk Assessment and Internal Control
M/s BAT & Co., a firm of Chartered Accountants, recently launched its official website “bat-ca.com”. The website featured bright neon colours, details of the partners, and listed some major clients with the fees charged. The website also used a “push” technology, where updates were automatically sent to subscribers without them requesting it. Around the same time, Mr. P, a partner in the firm, appeared on a business channel TV interview and handed over a bio-data of the firm to the interviewer. The bio-data contained details of: • The firm’s international affiliations. • • Notable clients handled by the firm. Later, another partner, Mr. Q, published a congratulatory advertisement in a leading newspaper with his photograph on the occasion of opening a new branch office. Further, M/s BAT & Co. was appointed as the statutory auditor of RST Ltd., a company covered under CARO 2020. While reporting under Paragraph 3 of CARO 2020 relating to property, plant and equipment, inventory, statutory dues, and borrowings, the audit team relied on system-generated MIS reports from the company’s ERP system, and management representations confirming the accuracy and completeness of such information. The audit team did not carry out independent verification of underlying records or evaluate the effectiveness of internal controls, on the assumption that consistency between MIS reports and management representations provides sufficient audit evidence. Based on the above facts, answer the following MCQs: © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 25
Professional Ethics and Liabilities of Auditors
Verma & Co. has been appointed as the central statutory auditor of Quick Trust Bank Ltd., a private sector bank registered with RBI, for F.Y. 2023–24. Mr. Verma, the engagement partner, while examining the computation of DTL (Demand and Time Liabilities), raised his suspicion regarding the inclusion and exclusion of the following items: Sr. No. Particulars of Item Inclusion/Exclusion Amounts received in INR for disposal of import bills shown under Sundry Deposits Inclusion Net credit balance of Branch Adjustment Account Inclusion Amount received from ECGC by invoking the guarantee Exclusion Margins held and kept in sundry deposits for funded facilities. Inclusion Unaccounted inward remittances received on behalf of customers Inclusion During the course of audit, Verma & Co. also observed that one large advance account of the bank had no recovery of principal or interest for the past 18 months. The bank has not applied the NPA norms as well as income recognition norms to this particular account. When queried the bank management replied that this account was guaranteed by the central government and hence these norms were not applicable. The bank has not invoked the guarantee. Additionally, Verma & Co. was offered Stock audit of a sister concern of Quick Trust Bank Ltd. for F.Y. 2023–24, and Branch audit of its Andheri Branch for F.Y. 2023–24 and Bandra Branch for F.Y. 2024–25, respectively. Based on the above facts, answer the following MCQs: © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 26
General Auditing Principles and Auditors Responsibilities
MINSAN Ltd., an unlisted company in South India, is engaged in the business of spice oil extraction. Total paid up capital of the company is ₹ 9 crore. Details of the annual turnover and profit of the company for the last 3 years are given below: Year ended Turnover (₹ in crore) (₹ in crore) 31-03-2022 31-03-2023 31-03-2024 527.21 (Audited) 301.37 (Audited) 104.13 (provisional) 50.16 01.25 (10.25) The company is using conventional methods for extraction of oil from spices. This requires more human intervention and hence, the cost of production is high as compared to innovative method used by other new companies. Though the company had significant growth in the past years, it has not done well over the last two financial years due to competition. A new competitor viz, Natural Extracts Ltd, had come in the market during the year 2022 and by the end of March, 2023, they captured around 75% of market share by offering the product at a reduced price. They use new machinery which allows a whole range of automated extraction method, thus, minimizing manual steps and reducing cost of labour. In order to reduce cost of production and thereby re-capture the market, the management of MINSAN Ltd. has planned to erect a new plant with an automatic machine. The estimated cost of plant & machinery is ₹ 90 lakh. The company approached SA Bank Ltd. for a term loan of ₹ 80 lakh which would be repaid in 5 years. On 28-12-2023, the bank had sanctioned the loan and disbursed ₹ 40 lakh till 31st March, 2024. MINSAN Ltd. has appointed M/s Check & Check, Chartered Accountants, as auditors of the company at its AGM held on 18-09-2023 for a period of 5 years. As agreed, the audit team commenced their audit work for the year 2023-24 in © The Institute of Chartered Accountants of India February, 2024 and completed the work by the end of May, 2024. The audit team submitted the following findings to the engagement partner: PX Ltd., one of the material suppliers, filed a case against the company on 12-09-2023 for a compensation of ₹ 3 crore. The Company has made an estimate for allowance of debtors @5%. 70% of the value of inventory was only covered in physical verification during the year 2022-23 due to restriction on movement posed by the State Government. Company got a show cause notice from the State Pollution Control Board for the contravention of the provisions of Hazardous and Waste Management Rule. Three incidences of fraud noticed (total ₹ 1.02 crore)- fraud committed by the Purchase Manager ₹ 85 lakh, by Accounts Manager ₹ 15 lakh and by a Cashier ₹ 2 lakh. Based on the above facts, answer the following MCQs:
0/5 solved
Case Scenario 27
General Auditing Principles and Auditors Responsibilities
XY & Associates, Chartered Accountants, have been appointed as auditors of ABC Enterprises, a company that obtained a license from the Central Government to promote cricket in rural areas of India. The company's average annual profit is estimated to be around ₹45 lakh. This profit would not be distributed as dividends to shareholders but is applied toward its objective of promoting sports in the country. During the audit for the financial year 2023-24, the following observations were made: • The company did not maintain proper records for its fixed assets, valued at approximately ₹1.80 crore. • Physical verification of the assets had not been conducted at regular intervals. The last verification occurred on 31st August 2022. Due to these observations, the auditors decided to report on the issues in the Companies (Auditor's Report) Order (CARO). However, the management disagreed, arguing that the issues should not be reported. After discussions, XY & Associates ultimately decided not to report the issues. of QR Ltd., there was a difference of opinion between management and the auditors regarding which of the following areas should be considered "Key Audit Matters" (KAM) as per SA 701: 1. The effect of significant transactions during the financial year on the audit. 2. Areas of high risk, as assessed and reported by the management's expert. 3. Significant auditor judgment related to financial areas that involved significant management judgment. During the audit of ST Bank Ltd., a difference of opinion arose regarding the amount and items that should be disclosed under the head contingent liabilities. Additionally, the auditors made the following observations: © The Institute of Chartered Accountants of India • 59 agricultural loan accounts (guaranteed by the Government of Uttar Pradesh) amounting to ₹29 lakh were overdue for more than two years. • 73 agricultural loan accounts (guaranteed by the Government of India) amounting to ₹25 lakh were overdue for more than two years. • 6 corporate loan accounts (guaranteed three each by the Government of India and Government of Uttar Pradesh) amounting to ₹ 25 lakh each were overdue for more than three months and a half month. Due to their reputation for efficiency, XY & Associates were offered incorporation services for UV General Insurance Ltd., a new company proposed to be set up with a paid-up share capital of ₹ 113 crore, of which preliminary expenses of ₹ 17 crores were included. The audit firm, after considering all facts, decided not to take on either assignment. Based on the above facts, answer the following:
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Case Scenario 28
General Auditing Principles and Auditors Responsibilities
CA Love and CA Kush are close friends and are into practice as sole proprietors. Both decided to expand their focus on taking up more assignments in the field a joint training session for their clients on GST and decided to share the total fee collected thereof. They invited another CA from their professional circle to join the initiative. However, the person declined the same informing that this act was against professional ethics and would lead to disciplinary action from ICAI. The partner of M/s SB & Associates is a close friend of CA Love. The firm was involved in an audit of a listed company which was required to submit Business Responsibility and Sustainability Report (BRSR). The company being audited was into thermal energy production business in India. They had submitted details about the total emissions from its production outlets during the year and a detailed energy consumption plan which it had devised for the upcoming years. Since CA Love had undergone a course on Sustainability Reporting, he was approached for getting advice on what needs to be reported in the BRSR of the company. As a gesture for helping the firm, the partner of the firm suggested CA Love’s name for the post of becoming a member of the Board of Management of KYC Co-operative Bank, a Primary (Urban) Co-operative Bank and a client of SB & Associates. Upon hearing the same, CA Kush requested Love not to take up the post as it would lead to professional misconduct. CA Love was acting as an internal auditor of NN Technologies Private Limited. The company decided to raise more funds for expanding its business across the country by including new age technological services such as AI. Love was observing the business model and the way in which the company was operating for quite some time, and he was keen on investing in the company. As a result, he decided to invest in the company’s shares and ended up acquiring 9.75% of the shares (total face value of the shares acquired was ₹ 4.75 lakhs) of the company during the financial year. CA Kush got to know about this information, and he immediately urged Love to resign from being the internal auditor of NN © The Institute of Chartered Accountants of India Technologies Private Limited, for the reason that an internal auditor cannot hold any shares in the company, and it will lead to professional misconduct and also failure to comply with the provisions of the Companies Act, 2013. However, Love did not accept the argument of Kush, and he said that nothing would happen because of him acquiring 9.75% shares in the company and continuing to act as its internal auditor. CA Kush was the statutory auditor for BD Finance Private Limited, a NBFC head quartered in India. The company’s treasury department had undergone changes in the recent past and the current set of team members did not have much experience in handling the treasury functions. Due to this situation, the company reached out to their auditor, CA Kush, who was also into equity research advisory apart from CA practice, to support the company and the members of its treasury department for a brief period by giving Investment Advisory Services, to ensure efficient utilization and management of the funds of the company. Before committing anything on the offer, CA Kush wanted to consult with CA Love as to whether the service requested by the NBFC can be performed by him. Based on the above facts, answer the following MCQs:
0/5 solved
Case Scenario 29
General Auditing Principles and Auditors Responsibilities
M/s ANS & Associates have been appointed as statutory auditors of Delco Ltd., listed company (referred to as ‘Company’) for the Financial Year 2023-24. Delco Ltd. deals in the manufacture of shoes. During the audit, the auditor found that the company has acquired two subsidiaries namely Sole Ltd. dealing in the manufacture of shoe soles and Soccer Ltd. dealing in the manufacture of kid shoes. The auditors of Sole Ltd. and Soccer Ltd. are M/s XYZ & Associates. Delco Ltd. has prepared the consolidated financial statements under Indian Accounting Standards and consolidated the financial statements of subsidiary Sole Ltd. during the current financial year. However, the company has not consolidated the financial statements of Soccer Ltd., which was also acquired during the current financial year as the company has not yet been able to ascertain the fair values of certain material assets and liabilities of Soccer Ltd. as on the acquisition date. This acquisition is accounted for as an investment in the books of Delco Ltd. Had the company consolidated the financial statements of both the subsidiaries, there would have been material impact on important elements of the financial statements. At the time of finalization of the Audit Report of the company for the year ended on March 31st, 2024, the auditors are considering their reporting responsibility for non-consolidation of the financial statements of Soccer Limited. The auditors also asked the management to disclose their reason for the non- consolidation of financial of Soccer Ltd. in the notes to accounts. Also, the financial statements of Delco Ltd. of the current financial year include the corresponding figures (without consolidation) of the previous financial year i.e. FY 2022-23. Further, the auditors are also considering the implications on their responsibilities and the management’s responsibilities with respect to the financial statements and in the audit of such financial statements. Based on the above facts, answer the following: - © The Institute of Chartered Accountants of India
0/6 solved
Case Scenario 30
Reporting
The Kranti Bank Ltd. was having 150 branches all over India by the year ending 31st March, 2024. 10 branches of the bank were already covered for concurrent audit and the Bank’s Audit Committee decided to include the below mentioned branches for concurrent audit from the year 2023-24. (i) Moradabad branch which started foreign exchange business from December 2023. (ii) Ludhiana branch whose aggregate deposits were more than 45% of the aggregate deposits of the bank. (iii) Mumbai branch which deals in treasury functions like investments and inter bank borrowings but not in bill re-discounting. Mishty and Associates, Chartered Accountants were appointed as the stock auditors by the Bank’s audit committee for ten branches for year 2023-24. The Bank’s management appointed and fixed the remuneration of Mishty and Associates, Chartered Accountants as the statutory auditors also for the year 2023-24, for the same ten branches for which they were given the assignment of stock audit. At the Kerala branch of the bank there were high value cash deposits in one of the current accounts during June 2023. Your firm has been appointed as the concurrent auditors for the Kerala branch for the year 2023-24. The cash collected by the branch was remitted to the currency chest on the very same day but, during the concurrent audit for the month of April 2023 itself the auditor noticed that the branch was unable to show intimations sent via e-mail to currency chest for the cash remittance. Based on the above facts, answer the following:
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Case Scenario 31
Materiality, Risk Assessment and Internal Control
ComTeK Limited, a top 1000 listed entity on the BSE by market capitalization for the past two years, sells IT and related equipment directly to consumers through its website. One day, the CFO of the company received a video call from the Managing Director (MD) instructing him to transfer ₹ 90 lakhs to the bank account of NxT Limited. When questioned by the CFO, the Managing Director explained NxT’s products are fast moving and contribute 30% of the company’s revenue. Further, the amount of payment is within the approved limit and can easily be remitted without any further approval. Satisfied with the explanations, the CFO made the necessary transfer. At the end of the month, while preparing the bank reconciliation statement, the CFO realised that five incremental payments of ₹ 90 lakhs each had been made to NxT Limited. These payments were unreconciled and do not have any corresponding entry in the books of account. The CFO explained the situation to the MD, reminding him about the video call that had instructed him to make such payments. However, the MD denied making any such video call. The CFO and Managing Director engaged a forensic expert, who observed that the company had cyber-attack using sophisticated AI tools. Investigation further revealed that the video call to the CFO was fake and made from the laptop not owned by the company. The hackers have gained access to the CFO’s laptop and have obtained bank details and its authorisation information. The company filed a police complaint and reported the incident to the appropriate authorities. During the risk assessment process, the auditor of the company determined that the IT environment poses a significant risk. The auditor assessed that the principal financial systems used in the preparation of the financial statements were compromised during the cyber-attack. The auditor also focused on the judgements made by management related to the known security incidents. The auditor made inquiries with the Risk Management team and with the Chief Information Officer to understand their assessment of the cybersecurity risk and © The Institute of Chartered Accountants of India the measures in place to mitigate this risk, focusing on the principal financial systems used in the preparation of the financial statements. The auditor also communicated with those charged with governance about the cyber incident. After completion of necessary procedures, the auditor felt that it had incurred additional efforts to the tune of 20%. The auditor reviewed, with the assistance of specialists, management’s assessment of the potential impact on the principal financial systems used in the preparation of the financial statements. The management of the company was impressed by the level of detail and diligence employed by the auditor while dealing with the cyber security incident. They particularly appreciated the in-depth knowledge of the auditor, timely involvement of IT specialist by the auditor and experience in dealing with cyber-security incidents. The management felt that the auditor would be the right fit for conducting a thorough audit of the IT systems of the company. In order to leverage the auditor’s expertise, the management proposed to engage the auditor to conduct a system audit. The stakeholders of the company believe that Integrated Reporting, as prescribed by the International Integrated Reporting Council, should be prepared by the management. The primary purpose was to explain to providers of financial capital how the company creates, preserves or erodes value over time. The Integrated Report would provide relevant information, both financial and other, for the benefits of all the stakeholders interested in a company’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators and policy-makers. Based on the above facts, answer the following:
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Case Scenario 32
Professional Ethics and Liabilities of Auditors
M/s JKL & Associates, Chartered Accountants, were acting as the statutory auditors of M/s IBS Bank Limited. During the statutory audit for the relevant financial year, the following observations were made: Interest income included the following: - • ₹ 5 lakh interest relating to a short-term crop loan where instalment was overdue for one crop season. • ₹ 7 lakh relating to an advance (guaranteed equally by Government of India & Government of Tamil Nadu) where the instalment was due for more than six months. • A 25 month old NPA account worth ₹ 43 lakh (net book value) was sold to an asset reconstruction company for ₹ 45 lakh. The profit from the above transaction was taken to the P&L account. The above NPA was sold ‘without recourse’ and at cash basis. The auditors noticed a discrepancy in this transaction and hence decided to report the same. After completing the bank audit, JKL & Associates agreed to take up the following management consultancy and other services for one of the start-up company based in Noida: (i) Setting up executive incentive plan and wage incentive plan. (ii) Price-fixation and other management decision making. (iii) Mr. K, one of the partners of the firm, felt that providing the above services could result in professional misconduct. Hence, he resigned from the partnership and became a sole practitioner. One of the clients of JKL & associates came to know about the issue and they approached Mr. K to conduct the statutory audit for the financial year. Mr. K took up the assignment without informing the previous firm. Annoyed by this, Mr. J filed a complaint to ICAI regarding the act of Mr. K. After enquiry, it was decided that Mr. K was guilty of professional misconduct. © The Institute of Chartered Accountants of India After this incident, Mr. K also decided to file a complaint against Mr. J. When he was thinking about a reason for the same, he remembered that Mr. J had entered into an agreement with two of his articled clerks to pay stipend on an annual basis, while others were paid on monthly basis. Realising that this act is in violation of Regulation 48 of the Act, he filed a complaint to ICAI. After enquiry, it was found that Mr. J was guilty of professional misconduct. Based on the above facts, answer the following:
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Case Scenario 33
Audit Evidence
Opus Chemicals Ltd., a prominent player in India's industrial landscape, has been etching its mark since its inception in 2008, headquartered in the bustling city of Vadodara, Gujarat. Listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE), the company has steadily grown into a multi-faceted entity, catering to diverse industrial needs. Opus Chemicals Ltd.'s core strength lies in its robust manufacturing capabilities. Spread across multiple state-of-the-art facilities, the company produces a wide range of industrial chemicals, including specialty chemicals, performance chemicals, and basic chemicals. These products have applications in various sectors, from pharmaceuticals and textiles to paints and coatings, construction, and agriculture. NLP & Co., a Chartered Accountants firm, was appointed to conduct the statutory audit for F.Y. 2023-24 for the company. Mr. Kamal was the engagement partner for the said assignment. In the organisational structure, Mr. Kamal noticed that those charged with governance in the company are also involved in managing the entity. During the ongoing engagement of the audit, at the end of the third quarter, two limited review reports were issued by NLP & Co. Before the issuance of the third quarter’s limited review report, the management of the company imposed a limitation on the scope of the audit that Mr. Kamal considered likely to result in the need to express a qualified opinion or to disclaim an opinion on the financial statements, and accordingly, he requested that management remove such limitations. However, the management refused to remove the said limitation. After following the due procedures applicable in the circumstances, finally, Mr. Kamal with his engagement team, concluded that the possible effects on the financial statements of undetected misstatements, could be material and pervasive so that a qualified opinion would be inadequate to communicate the gravity of the situation. Accordingly, he proposed to withdraw from the engagement after consulting with the senior partners of the firm as on © The Institute of Chartered Accountants of India 15th November, 2023. In its resignation letter, the firm mentioned professional pre-occupation as the reason for the resignation. Based on the above facts, answer the following:
0/5 solved
Case Scenario 34
General Auditing Principles and Auditors Responsibilities
JMP Limited is a public company listed on the BSE, having its registered office in Mumbai. The company is primarily engaged in the manufacturing of consumer electronics. During the preceding financial year, the company recorded a remarkable turnover of ₹ 4200 crores, accompanied by a net profit of ₹ 670 crores. Additionally, the company has secured a loan facility from the ICICI Bank amounting to ₹ 850 crores. RST & Co., a firm of chartered accountants based in Mumbai, has been appointed as a joint auditor along with LM & Co. and ABC & Co., an esteemed chartered accountant’s firm in the same city. JMP Limited has completed the appointment related formalities as well as they have also signed engagement letters. The engagement letter contains details on the objective and scope of the audit, responsibilities of the auditors, management, and identification of the framework applicable. Moreover, while planning the audit, joint auditors have divided the responsibility for conducting audit in accordance with SA 299. Further, the audit team has established ₹ 42 Crore as the materiality threshold, calculated at 1% of turnover. During the audit, LM & Co. came to know that one of the employees of the company had been involved in fraud amounting to ₹ 175 Lakhs. Additionally, as a part of the audit procedure, the auditor had sent requests to 90 suppliers for confirming the year end balance. The said requests were designed in such a way that the supplier will directly respond to the auditor indicating that the supplier agrees or disagrees with the same. However, the confirmation responses were received only from 30 Suppliers. Moreover, as a part of the audit procedure, the auditors of JMP Limited decided to roll out external confirmation from the 40 Debtors to confirm their year end balance. However, the management refused the auditors to send the confirmation. After asking the reason for such refusal, auditors concluded that such refusal was unreasonable, and the auditor was also unable to obtain relevant and reliable audit evidence from alternative audit procedures. © The Institute of Chartered Accountants of India In addition, while forming an opinion, RST & Co. had a different opinion on the valuation of inventories, but LM & Co. and ABC & Co. had the same opinion and accordingly, given their majority stance, both LM & Co. and ABC & Co. assert that RST & Co. must endorse a Common audit report aligned with their opinion. Apart from this, AB Private Limited, an associate enterprise of JMP Limited, appointed HJK & Co., another firm of chartered accountants located in Rajasthan as a statutory auditor for the first time for the current financial year. The financial statements of AB Private Limited were audited by its predecessor auditor in the previous financial year. During the audit of the current financial year, HJK & Co. came across a material misstatement in the opening balance, that affected the current year’s financial statement. In this regard, the auditor discussed the facts with the management. However, management fails to address or disclose this adequately in the current year's financial statement. The Other Important financial information of AB Private Limited is as below: (₹ in Crores) Sr. No. Particulars Current Year Previous Year 1. Paid up Share capital 1.80 1.80 2. Credit Balance of Profit & Loss Account 1.50 0.65 3. Turnover 28.00 20.00 4. Borrowing from Banks and Financial Institutions 3.00 2.00 Based on the above facts, answer the following:
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Case Scenario 35
Quality Control
Shield & Co; a reputed Chartered Accountants firm is appointed as a statutory auditor of Prism Limited. The Company is into manufacturing of Steel products. units. The company has incorporated another company “SteelX Private Limited” by investing 45% in the share capital of the company and at the same time having 100% control over the Board of Directors as per the agreement with the majority shareholder. The company is listed in the US Stock Exchange but in the process of listing in the Indian Stock Exchanges, having a net worth of ₹ 280 crore. Viraj promotes the product as its product brand ambassador. You are the audit manager, and your 1st year trainee asks you the following questions listed below. He has also noted down some of the questions for you to answer to discuss the impact on the planning stage after understanding the entity and its environment: • Prism Ltd. is required to appoint the Internal Auditor under the provisions of the Companies Act, 2013 and the company complied with the same by delegating the duties to an employee who joined the company as first year Architect. The audit team is planning to use the work performed by the Internal Auditor as the reports given by him are designed in a marvelous fashion. Even the Board of Directors are astonished by the design of the Internal Audit report. • The company is planning to use the working papers of the previous auditor by demanding the audit working papers from him citing the confidentiality clause. The auditor also plans to use the same for testing the opening balances during the year. The previous year auditor was appointed as the auditor of subsidiaries; the company plans to use his work for verifying the investment balance during the year. Based on the above facts, answer the following:- © The Institute of Chartered Accountants of India
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Case Scenario 36
Reporting
JDDS Deposit Limited, a NBFC registered with RBI under section 45-IA of the RBI Act and listed on National Stock Exchange, appointed BDP & Co. Chartered Accountants as their statutory auditor for the financial year ending on 31st March 2024. Mr. Rajan the audit partner of BDP & Co. extracted the monthly net owned fund position from the books of JDDS Deposit Limited. Month Net Owned Funds (as calculated based on monthly position) April 2023 ₹ 350 Lakh May 2023 ₹ 350 Lakh June 2023 ₹ 320 Lakh July 2023 ₹ 310 Lakh August 2023 ₹ 290 Lakh September 2023 ₹ 250 Lakh October 2023 ₹ 240 Lakh November 2023 ₹ 190 Lakh December 2023 ₹ 180 Lakh January 2024 ₹ 240 Lakh February 2024 ₹ 270 Lakh March 2024 ₹ 310 Lakh During the year, Mr. Rajan recommended to the Board and Audit Committee the appointment of internal auditors. However, the Board rejected this recommendation due to budget constraints. They assured that they would consider establishing an internal audit department within the Company next year. Based on the above facts, answer the following:- © The Institute of Chartered Accountants of India
0/3 solved
Case Scenario 37
Audit Evidence
MSK & Partners, a firm of Chartered Accountants, having CA Manik and CA Taran as partners, is based at Bangalore. MSK & Partners are appointed to conduct statutory audit of Zylo Ltd. Zylo Ltd. is required to appoint an internal auditor as per statutory provisions given in the Companies Act, 2013 and appointed CA. IA as its internal auditor. MSK & Partners asked Mr. IA to provide direct assistance to him regarding evaluating significant accounting estimates by the management and assessing the risk of material misstatements. He also seeks his direct assistance in assembling the information necessary to resolve exceptions in confirmation responses with respect to external confirmation requests and evaluation of the results of external confirmation procedures. appointment since the client was in a hurry to file Return of Income before the due date. After commencing the audit, CA Manik realised his mistake of sent a registered post to the previous auditor and obtained the postal acknowledgement. CA Taran provides management consultancy and other services to its clients. CA Taran was also awarded ‘Best Speaker of the year’ as gratitude from the Institute. Later on, CA Taran posted his framed photograph on his website wherein he was receiving the said award from the Institute. Upon hearing about the efficient services provided by MSK & Partners Chartered accountants, they were approached by XYZ Cooperative Society to act as their statutory auditor for the upcoming financial years. The firm agreed to the offer and had the following options in mind with respect to the fees to be charged from them: (i) To charge fees as percentage of Net Profits, or (ii) To charge fees of ₹ 501/-. © The Institute of Chartered Accountants of India Based on the above facts, answer the following:-
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Case Scenario 38
Internal Audit
Govil is a practicing-chartered accountant and also member of CPA Ireland. He assignments. He was reluctant to accept all the work as he feared breaching the permissible limit of handling clients. After consulting several friends of his, he finally decided to accept the work of just 2 big clients who approached him. Chandan, (Govil’s friend) a chartered accountant in practice and a member empaneled as insolvency professional was acting as the statutory auditor for a listed entity. The audit for the current financial year was completed but there was some difference of opinion between the auditor and the management. As a result of this, the company did not send the notice for AGM to Chandan. When enquired, it was said that the company is not obliged to send notices to the auditor and it’s the responsibility of the auditor to be aware of the AGM. Having heard this, Chandan went to his friend to clarify the above matter. As a result of this incident, the management had not paid a part of the agreed audit fees to Chandan. In retaliation, Chandan took lien over few documents pertaining to the company. Having come to know about this, Govil immediately informed his friend that his act would lead to professional misconduct. Govil & his friend Chandan decided to start a partnership firm. They completed all formalities and went ahead and printed their visiting card as follows: M/s DS & Associates Govil, Chartered Accountant, CPA Ireland Partner No.5, MMM Street, Delhi Phone: 8xxxxxxxx0 M/s DS & Associates Chandan, Chartered Accountant, Insolvency Professional Partner No.5, MMM Street, Delhi Phone: 9xxxxxxxx2 The firm has also received the following assignments: (i) Concurrent audit for TT Bank Ltd. © The Institute of Chartered Accountants of India (ii) Statutory audit for HBT Bank Ltd. (it is to be noted that the bank was not sponsored by TT Bank) (iii) Offer to act as settler of JJ Charitable Trust. (iv) Internal audit of PF Trust of Government Company Ltd. (v) Statutory Auditor of Government Company Ltd. Based on the above facts, answer the following:-
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Case Scenario 39
Quality Control
Honey and Money Associates is a firm of Chartered Accountants that provides assurance services to many companies, including listed companies. The firm has offices across many locations in India, with subject matter experts in most of these locations. The firm has established a comprehensive quality management system covering leadership responsibilities for quality within the firm, ethical requirements, acceptance, and continuance of client relationships and specific engagements based on SQC 1 issued by the ICAI. During the current year, the audit engagement of a listed company was picked up for an inspection by an appropriate authority. The inspection covered various aspects of the audit of financial statements and included an assessment of the firm’s quality control system. The reviewer decided to discuss the following with the audit team members: Matter 1: The reviewer enquired about the roles and responsibilities of CA Honey. CA Honey explained that the engagement team is comprised of CA Honey as the engagement partner and other professionals, including the engagement in-charge. CA Money was the engagement control quality reviewer. As the engagement partner, he was responsible for the direction, supervision and performance of the audit engagement in compliance with professional standards and applicable legal and regulatory requirements; and the auditor’s report being appropriate in the circumstances, taking responsibility for reviews being performed in accordance with the firm’s review policies and procedures. He also explained that he has already completed 7 years as an engagement partner and has decided to continue as an engagement partner for the next year as well. The firm's policy permits that an engagement partner can continue consecutively for 15 years. Matter 2: The reviewer enquired about the roles and responsibilities of CA Money, the engagement control quality reviewer. CA Money explained that the EQCR plays an important role in the quality control process of an audit and is key to safeguarding audit quality. The Firm has established a comprehensive system that prescribes the eligibility of EQCR, the need to maintain objectivity © The Institute of Chartered Accountants of India by EQCR, and considerations for carrying out effective EQC reviews. Specifically, in this engagement, CA Money explained that he has rich experience in handling formal letter confirming his selection as EQCR. The listed company had significant GST litigations. CA Money ensured that he was involved in forming the audit team’s judgments relating to these litigations, including making relevant provisions. CA Money confirmed that the EQC review was conducted in periodic intervals, and the engagement team had resolved all the observations raised during the EQC review. Matter 3: The reviewer enquired about the areas that require discussion with management/ those charged with governance or areas that require significant efforts. CA Honey explained that during the current year, the engagement team observed material prior errors in recognition of revenue, including errors in recognition of revenue on a gross basis instead of a net basis. These errors were identified after the year end and required significant judgement and efforts by the engagement team. After many deliberations, the management agreed to correct the material prior to the period errors by restating the comparative information as per applicable GAAP. Relevant internal controls were accordingly modified after the year end. Considering the complexities involved, the measurement of revenue was identified as a key audit matter. Matter 4: The reviewer enquired about the rationale for material difference between the amount of revenue stated in the financial statements and the corresponding amount in the Board report included as a part of the Annual Report. CA Honey explained that auditors are required to comment on the true and fair view of the financial statements and are not required to comment on the Annual Report. He also explained that the Board Report was not provided to the auditor till the date of the audit report. Accordingly, after considering the requirements of SA 720, a specific statement was made in the audit report regarding the non-availability of the Board Report and that the auditor is not responsible to consider the Board Report which is expected to be received the date of the audit report. Thus, any discrepancy between the Board Report and the audited financial statements does not require any consideration. However, © The Institute of Chartered Accountants of India as good governance, CA Honey has obtained a reconciliation of the amount of revenue between the Board Report and the financial statements. Based on the above facts, answer the following:-
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Case Scenario 40
General Auditing Principles and Auditors Responsibilities
M/s HVM & Co. is a firm of Chartered Accountants based in Chennai. CA M, CA V and CA H are the partners of the firm. The firm is engaged in various assignments including audits and its engagement partners who were handling their respective assignments for the financial year 2023-24 dealt with the following issues raised during and after the course of their respective audits. M/s HVM & Co. are appointed as statutory auditors of AST Ltd. for the financial year 2023-24. CA V, the engagement partner while conducting an audit of AST Ltd. was encountered with significant difficulties. He observed that there are not only inordinate delays by the management but lack of willingness by the authorised personnel of the company in providing the required information necessary to perform audit procedures in making the assessment of AST Ltd.'s ability to continue as a going concern in view of material uncertainty related to it. CA V wants to communicate this and other circumstances as additional information in his report with those charged with the governance. Financial statements of VED Ltd. for the year ended on 31st March 2024 were signed by CA H, the engagement partner on 15th May 2024. The AGM was decided to be held during the month of August 2024. On 17th May 2024, the company had received a communication from the Central Government that an amount of ₹ 8500 crore on account of incentives in respect of F.Y. 2021-22 which was kept in abeyance would be released to the company by 15th June 2024. Accordingly, the Board of Directors of the company agreed to amend the accounts and gave approval to include this amount in the financial statements of the company for the Financial Year ended on 31st March, 2024 and requested CA H to consider this matter. During the course of audit of SIM Limited there arose doubts as to the reliability of written representation regarding the existence and value of certain machineries. The management gave a certificate to prove the existence and value of machinery as appearing in the books of account. The certificate from the Registered Valuer shows a value which is inconsistent with the written representation of management. © The Institute of Chartered Accountants of India HT institute of professional studies is a reputed educational institution providing various courses in the field of commerce and arts. The management of the institution is inclined towards imparting quality education to the students, therefore most of the faculties engaged by them are qualified professionals. CA M of M/s HVM & Co. is an alumnus of the institution, and he has joined as a visiting faculty for teaching financial management and accounting subject. The management of the HT institute of professional studios is highly satisfied with his teaching skills and the level of knowledge he possesses. Due to his capabilities, the management offers CA M to take up the assignment of statutory audit of their institute for the financial year 2023-24. Based on the above facts, answer the following Questions
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Case Scenario 41
Professional Ethics and Liabilities of Auditors
M/s Roshan & Associates (referred to as ‘auditor’) have been appointed as one of the statutory central auditors of GHF Bank (referred to as ‘Bank’) for the Financial Year 2023-24. During the audit, it was found that the bank has a balance with a Swiss based bank. The auditor understands that such balance is a matter of important consideration in the audit of the bank. The engagement partner, Mr. Mitansh, has also advised the audit staff to check in detail the following items appearing in the financial statements of the bank during the year under audit. Amount of interest accrued and not due on deposits amounting to ₹ 87,75,000/. The balance of Interest rate swaps amounting to ₹ 81,26,500/-. Further, the statutory auditors understand that one of the most important areas to be checked in the audit of a bank is compliance with CRR and SLR requirements. The audit staff apprised the engagement partners about the few unaudited branches of the Bank and the course of action in this regard was discussed in detail within the engagement team. The details with respect to unaudited branches are as under: Interest Income: ₹ 27,86,000/-. Interest Expense: ₹ 13,38,220/-. Total advances: ₹ 5,10,22,000/-. Total deposits: ₹ 3,38,00,000/. The auditors also discussed the following with the audit staff and the bank management during the course of the audit: Computation of Demand and Time Liabilities. © The Institute of Chartered Accountants of India Computation of Tier I & Tier II capital of the Bank. Based on the above facts, answer the following:
0/4 solved
Case Scenario 42
Audit Evidence
BNN Ltd., incorporated in the financial year 1980-81, is a distinguished company specialising in the manufacturing of nickel-based batteries. As one of the oldest manufacturing companies in this sector, BNN Ltd. operates with two manufacturing plants and a comprehensive distribution network that spans across India. Remarkably, BNN Ltd. was among the first companies to be listed on the stock exchange, underscoring its longstanding presence in the market. The company has consistently adhered to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, ensuring compliance with all regulatory standards. M/s KP & Co. were the statutory auditors in the previous year and resigned from the role of statutory auditor. M/s JKL & Co. is appointed as a statutory auditor of BNN Ltd. in FY 2023-24. In conducting initial audit engagement, M/s JKL & Co. has simply placed reliance on the closing balances of the preceding period. During the audit, the auditor observed that the company is unable to pay its creditors on time. The company is also not able to properly comply with the terms of the loan agreement with the banks. Moreover, several key ratios are also adverse. In view of the above, the auditor asked management to provide an assessment of going concern, however the management did not provide the same. Despite the following up, the management did not provide the requested assessment. As a result, the auditor documented the request and follow-up regarding the going concern assessment in the working papers. Apart from the above, the company has one accounting software for maintaining its books of accounts, which does not have any feature of edit log (Audit Trail). Accordingly, the auditor reported the said fact of not having the facility of edit log under the heading Other Legal & Regulatory Requirements- Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 in the main audit report. Apart from the above facts, the several important financial information of BNN Limited during the year ended 31st March 2024 are tabulated as below: © The Institute of Chartered Accountants of India (₹ In Crore) Sr. No Particular Amount (₹) 1. Paid Up Share Capital 2. Deficit balance in Profit & Loss Account 11.47 3. Turnover 4. Inventory* 5. Cash Loss 2.95 6. Operating Loss 1.97 *Out of Total inventory as above, inventory amounting to ₹ 12.35 Crore are lying with third party. Based on the above facts, answer the following:-
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Case Scenario 43
General Auditing Principles and Auditors Responsibilities
EFG Ltd., incorporated in 1984-85, has distinguished itself as one of the most rapidly growing non-banking financial companies (NBFCs) having principal business of granting loans. Its head office is situated in Pune, a city renowned for its dynamic financial and industrial sectors. Remarkably, EFG Ltd. holds the notable achievement of being among the first NBFCs to be listed on the stock exchange, which underscores its longstanding and influential presence in the financial market. Over the years, the company has demonstrated an unwavering commitment to regulatory compliance by consistently adhering to the Securities and Exchange Board of India's (SEBI) Listing Obligations and Disclosure Requirements Regulations of 2015. This steadfast adherence ensures that all its operations align with the rigorous standards set by regulatory authorities, thereby reinforcing its credibility and trustworthiness among investors and stakeholders. M/s SDS & Co. thoroughly obtained the knowledge and background of the company, including an understanding of the legal and regulatory requirements applicable to the company. During the audit of the financial statements, the auditor observed that the company has violated one of the prudential guidelines of RBI as applicable to the company relating to the acceptance of public deposit. Since the company was non-deposit taking, and in one case during the year under consideration, the company had accepted the public deposit. In this regard, the management has also provided a detailed note in the financial statements and subsequently also repaid the said deposit in the next financial year. Considering the said note, the auditor feels that the matter is important and required the attention of the users of the financial statements. The auditor of EFG Ltd. sent confirmation requests to 14 debtors (to whom loan has been granted) to confirm the year-end balances as per SA 505. The said requests were designed in such a way that debtors will directly respond to the auditor only when they disagree with the same. Based on the above facts, answer the following: - © The Institute of Chartered Accountants of India
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Case Scenario 44
Due Diligence, Investigation and Forensic Accounting
are now exploring the areas of due diligence and investigation assignments. In this regard, the following events may be noted: (a) One of the clients of Bhuvan & Co. is planning to acquire another company to expand its business. In this regard, due diligence is to be carried out to check if the proposed merger would create operational synergies. Also, a full-fledged financial due diligence is planned to be carried out after a price has been agreed for the business acquisition. They want to include, Cash flow, Accounting Policies, Brief history of the target and background of its promoters, Accounting Information System etc. in the scope of the same. (b) During the course of due diligence, an articled assistant enquires to the principal whether it is required to verify the letter of comfort given by the target company to a bank. (c) Further, Bhuvan & Co. has also received an order in writing from the Central Government, in respect of one of its clients, to carry out an investigation under section 210 of the Companies Act 2013. With respect to this investigation, Bhuvan & Co. is contemplating on the getting the assistance of an expert with respect to certain matters. (d) During the course of carrying out investigation as above, Bhuvan & Co. requires certain evidence from a place outside India in order to establish the correctness of an investment in the shares of a company outside India. Based on the above facts, answer the following:
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Case Scenario 45
Audit Planning, Strategy and Execution
CA Kunal is in the midst of conducting statutory audit for the year 2023-24 of “TSG Chemicals Limited”, a listed company. He is collecting information required for reporting under CARO, 2020 from the management. Audit procedures, as are necessary in the circumstances will be performed on the information obtained. The company’s revenue from sales of products is ₹ 15,000 crore. During this exercise, he obtained the following information: A. The management has provided the following details of dues that have not been deposited on 31st March, 2024 on account of disputes: - Name of Statute Nature of dues Forum where the dispute is pending Period to which the amount relates Amount involved (₹ in crore) Amount unpaid (₹ in crore) Other comments Municipal Corporation Act Hon’ble High Court of Rajasthan FY 2018-19 0.15 0.15 Act, 1961 CIT (Appeals) AY 2019-20 50.00 50.00 Act, 1961 ITAT AY 2021-22 10.00 10.00 EPF Act PF contribution Hon’ble High Court of Rajasthan FY 2020-21 0.10 0.10 The company has already made a provision of ₹10 crore in its financial statements considering the likely outcome of ongoing matters under dispute at ITAT. However, no provision has been made in respect of © The Institute of Chartered Accountants of India B. The following information is available from financial statements / records of the company. (₹ in crore) Non-Current assets As at 31/03/24 As at 31/03/23 Property, Plant and Equipment 3,500 4,000 Right-of-use assets Intangible assets Values stated above are as per gross block. Right-of-use assets consist of leases where the company has obtained the right-of-use asset under lease agreement in accordance with Ind AS 116. TSG Chemicals Limited produces goods for which the Central Government has specified maintenance of cost records. Besides, cost audit has also been mandated under section 148(2) of the Companies Act. The cost auditor has already examined cost records and issued the cost audit report. During the audit, CA Kunal has found that physical verification of inventories of the company has been conducted during the year by management. The following is a summary of inventory as per physical verification conducted by management vis-à-vis its books of accounts as at the year-end: (Amount ₹ in crores) Particulars As per physical verification As per books of accounts Raw material 1,160 1,180 Work-in-progress Finished goods Stores and spares Total 4,290 4,580 © The Institute of Chartered Accountants of India During the course of audit, he is informed by management that two supervisory employees have been dismissed from service due to fraud of ₹ 47 lakh committed by them during the year 2023-24. The amount has also been subsequently recovered from them during the year itself. Based on the above facts, answer the following:
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Case Scenario 46
Quality Control
CA Kumar is statutory auditor of a listed company engaged in providing services relating to “hospitality sector”. He is practicing in sole-proprietorship capacity. The audit of above said listed company was conducted by his proprietary firm and the report was issued for year 2023-24. Subsequently, the audit report was selected by NFRA to oversee quality of service and compliance with Standards. Necessary information was called from the auditor towards the above objective. It was required of him to produce audit working papers to show that audit was and details of risk assessment procedures carried out to identify and assess risk of material misstatement in financial statements were called. It was also required to show how response to assessed risks was designed and implemented and communicated with those charged with governance. Audit working papers sent by him through email included procedures on how some balances in the financial statements were verified. Also included in working papers were procedures performed by him relating to verification of inventories, trade receivables and trade payables. The working papers sent by him to the authority did not include details on audit plan and manner of identifying and assessing risks of material misstatement. On being asked to respond, it was reasoned by him that audit was properly planned and required procedures were carried out in relation to material items on test check basis. It has been further clarified by him to the authority that audit was carried out in accordance with Standards, and it was practically not feasible for a firm of small size to make a detailed audit plan. It was also put on record with authority that he had assessed risk of material misstatement to be low based upon his understanding of the company. He has further reasoned that assessing risks is a matter of professional judgment. Representation has also been made by him stating that communications as necessary were made orally with those charged with governance. © The Institute of Chartered Accountants of India It was also pointed out to him that engagement quality control review was not carried out. He has answered that no contentious matter arose during the course of audit and therefore, no need was felt to carry out this exercise. Attention was also drawn to the fact that financial statements of company were required to be prepared on the basis of Ind-AS. However, at some places in terms of notes to accounts, reference is made to Accounting Standards which are not applicable to the company. These errors have been attributed to data feeding entry errors by junior staff. Based on the above facts, answer the following: -
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Case Scenario 47
General Auditing Principles and Auditors Responsibilities
CA. Munish is conducting audit of Mixer Limited. He is auditor of the company since last three years and has found nothing unusual in operations and financial statements of the company. The company has many locations where substantial inventories are stored and lying. During his fourth year stint, he finds that inventory quantities have risen disproportionately as compared to past few years trends. He has assessed existence of risk of material misstatement due to fraud. The company has revenue of ₹ 580 crore during the year. He has deeply verified all aspects pertaining to revenue recognition of the company and has concluded that there is no risk of material misstatement due to fraud related to revenue recognition. During audit, it has come to his knowledge that company is also required to install online air pollution control monitoring systems in its plant as mandated in state pollution control legislation and regulations. Non-installation of such online air pollution control monitoring systems may lead to fines and even sealing of plants. While verifying payroll data of the company, it has come to notice that provisions of law preventing employment of child labour are not being adhered to and company is employing child labour in flagrant violation of rules in this regard. The company also exports part of its turnover and matter has gone unnoticed in compliance audits carried out by agencies of overseas buyers. Based on the above facts, answer the following:
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Case Scenario 48
Audit Planning, Strategy and Execution
You are the auditor of "Rev Motors Ltd.", a listed company specialising in manufacturing components for electric vehicles. The company has experienced rapid growth in recent years due to the increasing demand for electric vehicles. However, the industry is highly competitive, with several new entrants and rapid technological advancements. Revenue for the year ended March 31, 2024, declined by 15% compared to the previous year. The company reported a net loss of INR 10 Crores for the year ended March 31, 2024. The company's current liabilities exceeded its current assets by INR 25 Crores as at March 31, 2024. The company's debt-to-equity ratio increased from 1.2 to 1.8 during the year ended March 31, 2024. Management has acknowledged the challenges that are present in the market conditions but has expressed confidence in the company's ability to secure new contracts and to bring the company's profitability back in the next financial year. Management had prepared a cash flow forecast for the next 12 months, which provided that the company will need additional financing of INR 30 Crore to meet its obligations. Management is actively looking for various financing options available in the market, including a potential equity rights issue and with banks for additional cash credit up to INR 40 Crore, which is already approved by the board. However, management is pursuing further actions and steps. Rev Motors Ltd. values its inventory using the FIFO method. As at March 31, 2024, the company had INR 5.5 Crores in inventory, a 20% increase from the previous year. During the year, INR 3 Crores of this inventory was on consignment. The dealer confirmed that 50% of the consigned inventory sold but is yet to be delivered. Negotiations for the remaining 50% are expected to conclude by the first quarter of the next financial year. As a result, Rev Motors has classified all consigned inventory as sold, following its internal policy. The company performs a physical inventory count at the end of each year. However, this year, to manage business process costs more efficiently, the company did not conduct a full physical inventory count. Instead, management used cycle counts and other analytical methods to estimate the year-end inventory balance. © The Institute of Chartered Accountants of India The company recognises revenue from its contracts using the percentage of completion method. The contracts typically span over 12 to 18 months. The company's revenue recognition policy is based on management's certification and estimation for the stage of completion of its contracts. Furthermore, the company has faced difficulties in meeting its statutory dues obligations during the year. As at March 31, 2024, there were significant arrears provident fund contributions, amounting to INR 5 Crores each, which have been outstanding for more than six months past their due dates. Additionally, there insurance amounting to INR 2 Crores and INR 1 Crore, respectively, currently Appellate Tribunal and the Employees' State Insurance Court. These arrears and disputes were acknowledged by the management but as at the year end they remain unresolved. Based on the above facts, answer the following: -
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Case Scenario 49
Materiality, Risk Assessment and Internal Control
CA. Sarthak is in midst of finalising audit reports of four clients. On reviewing each file, it is noticed as under: [A] With respect to a company engaged in business of selling of agricultural products which are outside ambit of GST, the engagement team has found that substantial part of revenues of the company (about 75%) is generated through cash sales. However, there is no proper system and internal control to verify accuracy of revenues generated through cash sales. Therefore, the team has been unable to verify such revenues generated through cash sales. [B] Another client, Excel Limited has been dragged to court by Rare Limited for stealing its trade secrets using cyber theft and filed a claim for ₹ 50 crore. On reviewing audit file of Excel Limited, CA Sarthak finds that legal opinion of company’s standing counsel is ambiguous. There are precedent case laws both in favour and against on such issue. The financial statements of Excel Limited are silent on this litigation matter. [C] ₹ 2 crore on a turnover of ₹100 crore. There is an export receivable from a chain of stores outstanding in financial statements of ₹ 3 crore for which there is no chance of recovery. The said chain of stores has gone bankrupt. There is also no hope of recovering money through ECGC (Export credit Guarantee Corporation) due to certain technical issues. Debt has not been written off by the client despite being communicated to client. [D] On reviewing file of a client, it is noticed that team was not informed about finished goods of ₹ 1 crore lying at a location taken on rent in February 2024. The said issue was flagged at time of reconciling inventories by the team. Hence, the audit team could not attend physical inventory counting. The alternative procedures cannot be performed in absence of adequate records pertaining to above location. Total inventories reflected in financial statements is ₹ 8 crores. PBT of client is ₹10 crores. © The Institute of Chartered Accountants of India Based upon above, answer the following questions:
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Case Scenario 50
Audit Evidence
CA Priya, a partner in M/s P & Associates, is carrying out a statutory audit of M/s Zigzag Ltd. for the Financial Year 2023-24, and she is ready to sign her audit report on 05.07.2024. There are some written representations which are pending with the management of the company pertaining to such an audit, and she sent Aakash (her articled trainee), who is also a member of the engagement team, to the company’s office for collection of the same. On returning, Aakash tells CA Priya that major stocks of the company got destroyed because of a fire in their plant on 27.06.2024, and it has affected the company’s operations badly. However, the business operations are likely to be resumed by management at an alternate place. CA Priya postponed the issuance of the audit report to consider the impact of such an event on the financial state of affairs of the company. She wants the management to disclose the impact of this unfortunate event in financial statements for the year 2023-24, to which management is disinclined. After the management’s refusal, she issued her audit report on 15.07.2024. The management of the company seeks an appointment from CA Priya to discuss an important matter on 20.07.2024. They informed her that the company had lost a lawsuit filed against it by one of the creditors on 18.07.2024 in a fast-track court, and now the company has to pay the plaintiff a huge amount of ₹2 crores. The events causing this lawsuit arose after 31.03.2024. CA Priya is a bit perplexed, and her first question to the people from management visiting her office was whether audited financial statements have been made available to any third party or filed with the regulator. The management responded negatively. Now, CA Priya wants them to amend the financial statements to include the impact of this lawsuit on the financial affairs of the company. This time, they agreed and amended the financial statements accordingly to cover the impact of both the events – that of the fire in the plant and losing the lawsuit, but they © The Institute of Chartered Accountants of India requested CA Priya to issue a new audit report against the earlier one dated 15.7.2024. The management amends the financial statements, which are finally approved on 25.7.2024. CA Priya issues a new audit report. Based on the above facts, answer the following:
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Case Scenario 51
Completion and Review
for the year 2023-24, a manufacturing company whose financial statements are required to be prepared in accordance with Division II of Schedule III of the Companies Act, 2013, CA. Akshay Shah notices as under: - (A) The notes to accounts in respect of consolidated financial statements disclose additional information pertaining to the holding company and its subsidiaries. It provides disclosure regarding percentages of consolidated net assets, of consolidated profit and loss and of total comprehensive income along with their respective amounts pertaining to holding company and its subsidiaries. (B) It is noticed by him that financial statements of one foreign subsidiary included in consolidated financial statements are drawn up to 31st December, 2023 in accordance with legal requirements in US. He feels it to be weird and is of the view that consolidated financial statements of group could present a distorted picture. The management, in turn, informs him that it is not practicable to draw the financial statements of foreign subsidiary to 31st March, 2024. (C) During the year 2023-24, goodwill of ₹ 50 crore had arisen on account of the acquisition of a subsidiary during the year and there is no impairment loss as on the balance sheet date. Besides, adjustments have been made in consolidated financial statements with respect to intra-group indebtedness and those related to harmonizing different accounting policies being adopted by parent and its subsidiaries. (D) It is noticed by him that one subsidiary was acquired on 15.06.23. He is in a dilemma as regards to the correctness of consolidation of its financial statements in group financial statements. Besides, he is also in the process of finalising audit report including matters to be reported under CARO, 2020 in respect of consolidated financial statements. © The Institute of Chartered Accountants of India However, he is in a fix in respect of manner of reporting under CARO,2020 relating to consolidated financial statements. Based on the above facts, answer the following:
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Case Scenario 52
Reporting
CA. Ronit is conducting concurrent audit of a branch of a nationalized bank. It is a large branch with deposits of ₹ 300 crore and advances of ₹ 600 crore respectively. The deposits of branch consist of term deposits along with CASA deposits. It is an old branch that has been in operation since the early 80s. Therefore, there are many dormant deposit savings, current and term deposit accounts at the branch. As per CA. Ronit the following is the part of the duty of the concurrent auditor, as regards the dormant deposit accounts in the branch: (i) Following up with account holders to ensure that status of accounts remain active. (ii) Examining authorization for withdrawals. (iii) Verifying that dormant accounts are revived with appropriate authority. Recently, the top management of the bank has been pushing for aggressive targets in the opening of CASA deposits. He wants to ensure that CASA deposit accounts opened by the branch during his term comply with KYC norms. During the concurrent audit of a particular month, Rajan discovers that temporary over limits were granted to few borrowers availing cash credit facilities up to 20% of their respective sanctioned limits. Granting such over limits falls within the powers of Chief Manager of the branch. He also notices that temporary overdrafts are allowed to few customers in their current accounts. However, granting these temporary overdrafts also falls under the Chief Manager’s delegated powers. Temporary over limits and overdrafts as discussed above have been adjusted and paid before the end of the month. Additionally, Rajan observes that the branch has sanctioned 7 fresh advances, aggregating to ₹ 15 crore, within Chief Manager’s powers and in conformity with the bank’s norms. All these sanctioned advances pertain to the same industry, i.e., jute mills manufacturing jute sacks. He feels that branch’s approach is not proper and sanction of 7 advances to the same industry lacks diversity and lending decision of branch is not proper. © The Institute of Chartered Accountants of India Furthermore, during the month, a borrower of branch classified as a “small enterprise” under MSME sector shifted its credit facilities from the branch to a bank in private sector. The branch has levied foreclosure charges on outstanding credit facilities pertaining to borrower by disregarding “Code of Bank’s Commitment to Micro and Small Enterprises”. The borrower is still having a current account with the branch. Reversal of such charges would lead to revenue loss for the branch. He is in a fix as far as reporting is concerned. Based on the above facts, answer the following:
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Case Scenario 53
Reporting
CA. Ananya is statutory auditor of “Vikas Finance Limited”, a micro finance institution, pre-dominantly operating in Uttarakhand, Bihar, Chhattisgarh, and Gujarat. It is a non-deposit taking NBFC catering to credit requirements of rural and semi-urban households and provides small ticket loans. She has performed audit procedures for the year 2023-24 and following further information is given as under:- (A) The Board of Directors of the company has passed a resolution in its meeting held on 25th May 2023 for non-acceptance of public deposits during year ended 31st March, 2024. (B) Audit procedures performed by her included testing design and operating effectiveness of controls relating to allowances for loan losses using Expected Credit Loss Model (ECL) in accordance with Ind-AS 109. Tests of details performed by her included verifying assumptions affecting ECL calculations. (C) The company has obtained certificate of registration dated 20th April, 2013 from RBI in pursuance of section 45-IA of RBI Act, 1934 and it is entitled to hold such certificate of registration in terms of its financial assets/income pattern for year ended 31st March, 2024. (D) It falls in middle layer of scale-based regulations and regulations for a systemically important non-deposit taking NBFC are applicable to it. Its capital adequacy ratio is stated in note 37 of financial statements. (E) The company has identified instances of cash embezzlement by the employees during the year. Such instances relate to employees fleeing after collection of instalments from customers at some centres. The total amount involved is ₹35 lacs and ₹ 10 lacs have been recovered subsequently. The matter has also been reported in note 36 of financial statements. Based on the above facts, answer the following: © The Institute of Chartered Accountants of India
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Case Scenario 54
Reporting
Kochhar & Associates are refreshening up their knowledge on functions of various Parliamentary financial committees and on the varied functions and duties of Comptroller & Auditor General of India in relation to audits of government institutions and government companies. They recognize that a thorough understanding of the C&AG’s responsibilities is essential for conducting audits effectively in this sector. To enhance their knowledge, they have reviewed various resources, both online and offline, including the official C&AG website. Below is a summary of key insights drawn from their research: [A] In one of its reports, the C&AG, in respect of a state government owned industrial development corporation, pointed out non-adherence of One- time settlement (OTS) guidelines of state government by the corporation resulting in acceptance of a below par OTS proposal thus foregoing recovery of loan amounting to ₹ 8.52 crores. The said corporation was providing loans to industrial units. [B] Another C&AG report for a particular year contained results of the Government dealing with “Assessments relating to Agricultural Income”. It included certain observations relating to allowing claim for exemption of agricultural income without supporting documents, use of this area by performed by the Department. [C] In another case, the state government owned PSU was involved in construction of a thermal power plant in the state. C&AG, in its audit report, pointed out delay in completion of work due to failure to decide on the type of water treatment in the cooling plant on a timely basis. Besides, other reasons leading to delay like frequent changes in lay-out and re-testing of soil by the company were pointed out. © The Institute of Chartered Accountants of India [D] Finally, Kochhar & Associates reviewed annual report of a listed public sector company which is a “mini-ratna” PSU, engaged in providing diversified services to Indian Railways. Based on the above facts, answer the following:
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Case Scenario 55
Audit Planning, Strategy and Execution
ABC Ltd. is in the business of trading garments. Within a span of five years since its incorporation, the company has gained a good market reputation. Last year, in its Kochi warehouse the inventory was less than 1% of total inventory value, so the auditor instead of witnessing or performing the physical count of inventory relied upon the management’s inventory confirmation and management in turn relied upon the warehouse keeper’s stock register without verifying the actual count. The same year there was some difference between the store register and books of accounts closing balance. The management considered it to be an immaterial amount and wrote it off through “Miscellaneous Profit and Loss Account”. In the current year, while performing analytical procedure, the auditor saw a significant reduction in sales through Kochi warehouse, whereas there was a spike in freight charges to Kochi. Through further examination, the auditor noticed that there was increase in number of shipments to Kochi and increase in number of invoice cancellation instances and sales return instances from the customers of GST unregistered category. However, this year the inventory lying at Kochi is 4.5% as per books. The Auditor enquired on the periodicity of physical verification and sales process through Kochi warehouse. The management gave the following response to the auditor: 1. The physical verification takes place every six months and the warehouse keeper is responsible for physical verification and sending records back to the head office. 2. Because of low operations in past years the warehouse keeper himself takes care of invoicing and dispatching the goods. 3. Monthly invoice details along with the monthly stock register is sent to the head office. 4. Further, this year too there is a substantial difference among inventory as per books, inventory as per stock register and inventory as per physical verification in descending order. © The Institute of Chartered Accountants of India The auditor decided to visit the Kochi warehouse and conduct the root cause analysis and get the correct closing value of the inventory. After the visit, the auditor concluded that the warehouse keeper was issuing the stocks with invoices, however on the sales return the credit notes were issued to various customers, and the entry was made in the stock register of “Goods received on sales return” but physically the goods were never returned. The auditor also doubts that the same instance might have happened last year as well because of which there was a difference between physical stock and the books. On this information, the management has asked the auditor why this was not brought to notice last year and whether the audit was not conducted properly then. To this, the auditor contended that last year the inventory was not in the sampling materiality level. Further, a consultant was appointed by the management for the overview of internal controls with regard to verification of inventory and for suggesting recommendations Based on the above facts, answer the following Questions
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Case Scenario 56
Professional Ethics and Liabilities of Auditors
Royal Bank of India is a Public Sector Bank founded in the year 1964. The bank has 183 branches all over India as on 31.03.2024. Total deposits of the bank on 31.03.2024 w ₹ 50,000 crore. The Motto of the Bank is “Royalty lies in Loyalty”. The Statutory Auditors for FY 2023-24 are PK & Associates, Chartered Accountants. The audit manager of the firm while reviewing advances noticed the following: (a) The advance granted to Mr. X has been guaranteed by State Government. However, said advance is overdue since November 2023. (b) As on 20.04.2024, the ad hoc limit of account of Mr. Y has not been reviewed even though 120 days of date of ad hoc sanction were over. The above advances have been granted by Meerut Branch. However, this branch is not subject to Concurrent Audit. The Bank has also granted Term Loan of ₹ 20 crore to Samarth Ltd (An Unlisted Company) on 01.02.2024. The sanction letter read as follows: “The Facility shall be used for Repayment of Unsecured Loans of Promoters – ₹ 10 crore and towards development & construction expenses (Other than Land Cost) of the company’s new office to be situated in Faridabad, Haryana – ₹ 10 crore”. The company has utilized the facility as follows as on 31st March 2024: (i) Land Purchased for New Office: ₹ 4 crore. (ii) Development and Construction Expenses of New Office: ₹ 11 crore. (iii) Repayment of Unsecured Loans of Promoters: ₹ 3 crore. (iv) Investment in Fixed Deposit: ₹ 2 crore (Temporarily). Company’s Total Borrowings from all Banks as on 31st March 2024 is ₹ 60 crore. Royal Bank of India is the parent organization (100% Holding) of Royal General Insurance Co. Ltd. The Statutory auditors of Royal General Insurance are AK & © The Institute of Chartered Accountants of India Co., Chartered Accountants (Firm based in Mumbai). Brief financial information is as under as on 31st March 2024: • Value of Assets: ₹ 700 crore. • Amount of Liabilities: ₹ 415 crore. • Capital: ₹ 200 crore. Mr. P (Partner in PK & Associates) also acts as Surveyors and Loss Assessors under the Insurance Act, 1938. However, he has not intimated or taken permission from the Council of the Institute of Chartered Accountants of India. AK and Co., have not included a report on CARO in their statutory auditor report for FY 2023-24 for Royal General Insurance Co. Ltd. Based on the above facts, answer the following:
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Case Scenario 58
Audit Planning, Strategy and Execution
Tom Ltd. is in to the business of manufacturing and distributing of Toys for the past 25 years. Since inception, the company has its own in-house dedicated internal audit department, having team of competent & qualified chartered accountants, headed by the Chief Internal Auditor, who with systematic and disciplined approach monitors various Internal Controls laid down at all levels of the functional areas. M/s Deva & Co., Chartered Accountants, have been newly appointed as the statutory auditors of the company for the F.Y. 2024-25. • M/s Deva & Co. want to use the work of the internal audit function in respect of testing of the operating effectiveness of controls and in respect of substantive procedures involving limited judgement. Due to time constraints and the extensive scope of statutory audit, M/s Deva & Co. want to take direct assistance of internal auditors in the areas of Physical verification of fixed assets, inventory verification and Goodwill impairment assessment. Accordingly, M/s Deva & Co. are in the process of determining in which areas and to what extent internal auditors can be used and in which areas statutory auditors shall not use internal auditors to provide direct assistance to perform procedures. • M/s Deva & Co. during the course of identifying and assessing the risks of material misstatement through understanding the entity and its environment and during the course of performing the audit procedures finds that the company is holding significant bank accounts and having be no clear business justification. Also, there were significant related party transactions which do not appear to be in the normal course of business. • The audit report of Tom Ltd. for the last F.Y. 2023-24, audited by predecessor auditor, contained a qualification regarding non provision of doubtful debts. In F.Y. 2024-25 also, the company does not want to make provision for doubtful debts. The statutory auditors, M/s Deva & Co., in their auditor's report on the current period's financial statements want to report the same. © The Institute of Chartered Accountants of India • Pursuant to the reporting requirements under CARO, 2020 in respect of the company's regularity in depositing undisputed arrears of outstanding statutory dues to the appropriate authorities, M/s Deva & Co. are considering to take a view on the following issue observed during the audit of Tom Ltd. The company in view of voluminous pay roll data consistently follows the method of making lump sum deposit of estimated amount of ESI collections and adjust the excess or deficit against next following months' deposit and the difference of the said amount always remains insignificant. Based on the above facts, answer the following Questions:
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Case Scenario 59
General Auditing Principles and Auditors Responsibilities
XYZ & Associates LLP, is a firm of Chartered Accountants, consisting of 12 partners has been allotted Central statutory audit of Maha Bank Limited, a scheduled commercial bank. (i) As a part of the scope, the audit firm has been asked to find out the correct position of Demand and Time liabilities of Maha Bank. DTL balance as on 30th September 2024 was ₹ 50,000 Crore which included the following- ₹ in Crore (i) Paid up capital 27,000 (ii) Reserves 1,650 (iii) Credit balance in Profit & Loss account 1,210 (iv) Loan taken from RBI (v) Refinance taken from EXIM bank and NHB (vi) Part amounts of recoveries from the borrowers in respect of debts considered bad and doubtful of recovery (vii) Net credit balance in branch adjustment accounts (viii) Interest accrued but not accounted for in books (ix) Margins held and kept in sundry deposits for funded facilities (ii) During the FY 2024-25, XYZ & Associates LLP is appointed as Statutory auditors of APP Ltd., an NBFC, which was set up under the Companies Act, 2013 and got itself registered as non-banking financial company (NBFC) with the Reserve Bank of India, fulfilling the required criteria. During the financial year ending 31st March 2025, the company commenced operations on a massive scale. You are informed that RBI has revised different facets of existing NBFC Classification and regulation like Capital requirements, Government standards, Prudential regulations, etc. based © The Institute of Chartered Accountants of India on four layers that are defined based on their size, activity and perceived riskiness. During the FY 2024-25 APP Ltd. has accepted deposits of ₹ 900 Crore, while its asset size is ₹ 990 Crore. It has also undertaken following activities- (i) Standalone Primary Dealers (SPDs) (ii) Infrastructure Debt Fund (iii) Housing Finance (iv) Infrastructure Finance The auditors are about to begin audit of APP Ltd. for which your audit team has been asked to prepare audit checklist. (iii) XYZ & Associates LLP has been appointed as auditors of Heavy Electricals Corporation, a Public Sector Undertaking (PSU) during the FY 2024-25 by C & AG. It has been intimated about the intention of taking up planned performance audit with the scope and extent of audit including the constitution of audit team and the tentative time schedule, well before the commencement of Audit. The Engagement partner has asked the audit team to prepare an Audit Design Matrix (ADM) as it is a structured and highly focused approach for designing a performance audit study. The audit team has been informed that ADM should be prepared on the basis of information and knowledge obtained during the planning stage. Further, it is desirable to prepare ADM for each of the audit objectives. On the basis of above details, you are required to answer the following questions.
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Case Scenario 60
Audit Evidence
Arpan Films Ltd. is a distributor of movies in the state of West Bengal. The company has a significant interest in other operating segments and operates through multiple subsidiaries. At the consolidated level, major operating segments comprise of movie distribution, selling tea from self-owned tea gardens at Assam, real estate development for commercial purposes and investment in start-up entities. The Group was founded jointly by Mr. Rishu (the Group Managing Director) and Mr. Prashant, an old confidant of Mr. Rishu. Unfortunately, Mr. Rishu met with an accident and expired. His untimely death rattled the entire Group and disrupted the business operations of the Group. The Board of the Parent Company decided to induct his son – Mr. Vishu – as the Managing Director of the Parent Company and the Group. The appointment of Mr. Vishu enraged Mr. Prashant, and he filed an application of oppression of mismanagement with the National Company Law Tribunal alleging various wrongdoings, including inappropriate related party transactions, siphoning off funds through connected entities and manipulation of financial statements. Considering the gravity of the allegations, the existing auditor of the Parent Company tendered his resignation. The Board appointed Shubh and Laabh LLP as the new auditors. Shubh and Laabh LLP informed the previous auditor over the phone and accepted the appointment. After 5 months, Shubh and Laabh LLP sent an email to the previous auditor as a professional courtesy stating that the appointment was for the auditor. The previous auditor replied by stating ‘Received’. To deal with these allegations, the Board of the Parent Company initiated a forensic investigation covering all the major operating segments through an independent professional services firm. The conclusion of the investigation significantly delayed the submission of financial statements for the current year of the Parent Company. The outcome of the forensic investigation included the following: © The Institute of Chartered Accountants of India Matter 1: Neel Ltd.- a subsidiary, is the real estate arm of the Group and has significant receivables from various Partnership Firms/ LLPs. The investigation revealed that these advances, which have been outstanding for more than a decade, were given for the purchase of land. Further, the identity of these entities could not be traced as no PAN/ GST details were available with the subsidiary company. Any attempt to contact these entities proved futile. It was also noted that the auditors of Neel Ltd. had already completed the audit under the Companies Act 2013. Hemant and Manna LLP - the auditor of Neel Ltd. – informed the investigator that, in their view, the allegations do not affect the financial statements of Neel Ltd. and accordingly have issued an unmodified audit opinion on the financial statements of the current year. The financial statements and the audit report were adopted by the shareholders in the AGM. Matter 2: Arpan Films Ltd. - the parent company historically purchases music rights from Sangeet Ltd., which is approximately INR 20 crores per annum. Sangeet Ltd. is controlled by Mr. Prashant. At the beginning of the current year, an advance of INR 50 crores was given to Sangeet Ltd. for the purchase of music rights. Any amount remaining unadjusted would be repaid over a period of 5 years. The advance amount is highly disproportionate to the expected purchase amount to be made, and the credit period is not in line with normal credit terms. The investigation revealed that the advance was given to provide financial support to Sangeet Ltd. as it was undergoing financial distress. As of the end of the year, ₹ 30 crores remained unadjusted. No interest was charged in the unadjusted amount. Matter 3: Assam Tea is a cash-generating unit of Teacup Ltd., a subsidiary company. The unit generates negative cash flow and is expected to do so in the future. Accordingly, it should have been impaired. However, the cash flow projection was fabricated to avoid recognition of impairment expenses in the previous years. There was a disagreement between the subsidiary management and its auditor. The auditor in the audit report under the Companies Act 2013 issued a qualified opinion stating that impairment loss was under-recorded. From the context, the consolidated financial statements understatement of impairment expense would reduce the consolidated: © The Institute of Chartered Accountants of India • Net Profit by 1% • Total assets by 0.5% • Net worth by 2% Based on the above facts, answer the following:
0/5 solved
5 questions held back: ICAI published them without an answer key entry, so they cannot be scored.