CA Inter (QB) - Chapter 8

CHAPTER 8
AUDIT REPORT
SA 700- Forming an Opinion and Reporting on Financial Statements

Question 1
Examine with reasons (in short) whether the following statements are correct or incorrect:
The auditor shall express an adverse opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive (MTP 2 Marks March
’18, Aug 18, Mar’19 & Oct ‘18)
Answer 1
Incorrect: The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements,
individually or in the aggregate, are material, but not pervasive, to the financial statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion,
but the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive
Question 2
In order to form the audit opinion as required by SA 700, the auditor shall conclude as to
whether the auditor has obtained reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error. Explain the
conclusions that the auditor shall take into account. Also explain the objective of auditor as per
SA 700. (MTP 5 Marks Aug ’18)
Answer 2
The objectives of the auditor as per SA 700 (Revised), “Forming An Opinion And Reporting On
Financial Statements” are:
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(a) To form an opinion on the financial statements based on an evaluation of the conclusions drawn
from the audit evidence obtained; and
(b) To express clearly that opinion through a written report.
The auditor shall form an opinion on whether the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework.
To form opinion - Auditor to obtain Reasonable assurance
In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable
assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error.
That conclusion shall take into account:
(a) whether sufficient appropriate audit evidence has been obtained;
(b) whether uncorrected misstatements are material, individually or in aggregate;
(c) The evaluations
Question 3
The Auditor is fully satisfied with the audit of an entity in respect of its systems and procedures
and wants to issue a report without any hesitation. What type of opinion can be given and give
reasoning. (MTP 3 Marks April 19, May 20, RTP May ’21)
Answer 3
Unqualified Opinion:
1. An unqualified opinion should be expressed when the auditor concludes that the financial
statements give a true and fair view in accordance with the financial reporting framework used
for the preparation and presentation of the financial statements.
2. An unqualified opinion indicates, implicitly, that any changes in the accounting principles or
in the method of their application, and the effects thereof, have been properly determined and
disclosed in the financial statements.
3. An unqualified opinion also indicates that:
(i) the financial statements have been prepared using the generally accepted accounting principles,
which have been consistently applied;
(ii) the financial statements comply with relevant statutory requirements and regulations; and
(iii) there is adequate disclosure of all material matters relevant to the proper presentation of the
financial information, subject to statutory requirements, where applicable.
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Question 4
G & Associates are the Statutory Auditors of R Ltd., a company engaged in the business of
manufacturing of blankets. The auditor has completed the audit and is in the process of forming
an opinion on the financial statements for the F.Y. 2022-2023. CA L, the engagement partner,
wants to conclude that whether the financial statements as a whole are free from material
misstatements, whether due to fraud or error. What factors he should consider to reach that
conclusion? (MTP 4 Marks Sep ’23, PYP 4 Marks Dec ’21)
Answer 4
Factors to be considered to form an opinion: The auditor shall form an opinion on whether the
financial statements are prepared, in all material respects, in accordance with the applicable financial
reporting framework.
whether due to fraud or error. That conclusion shall take into account:
(a) The auditor’s conclusion, in accordance with SA 330, whether sufficient appropriate audit evidence
has been obtained
(b) The auditor’s conclusion, in accordance with SA 450, whether uncorrected misstatements are
material, individually or in aggregate.
(c) The evaluations required
(i) The auditor shall evaluate whether the financial statements are prepared in accordance with the
requirements of the applicable financial reporting framework.
(ii) This evaluation shall include consideration of the qualitative aspects of the entity’s accounting
practices, including indicators of possible bias in management’s judgments.
Question 5
The auditor’s report shall include a section with a heading “Responsibilities of Management
for the Financial Statements.” SA 200 explains the premise, relating to the responsibilities of
management and, where appropriate, those charged with governance, on which an audit in
accordance with SAs is conducted. Explain (MTP 4 Marks April 19, Apr’21, May’20 & April
’23, RTP Nov’18, Old & New SM)
OR
The description of management’s responsibilities in the auditor’s report includes reference to
management’s responsibilities as it helps to explain to users the premise on which an audit is
conducted. Explain (RTP May ’23)
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OR
Give a brief description about the management responsibility to be mentioned in the statutory
auditor’s report. (Old SM)
Answer 5
Responsibilities for the Financial Statements: The auditor’s report shall include a section with a
heading “Responsibilities of Management for the Financial Statements.”
SA 200 explains the premise, relating to the responsibilities of management and, where appropriate,
those charged with governance, on which an audit in accordance with SAs is conducted. Management
and, where appropriate, those charged with governance accept responsibility for the preparation of the
financial statements. Management also accepts responsibility for such internal control as it determines
is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error. The description of management’s responsibilities in the auditor’s report
includes reference to both responsibilities as it helps to explain to users the premise on which an audit
is conducted.
This section of the auditor’s report shall describe management’s responsibility for:
(a) Preparing the financial statements in accordance with the applicable financial reporting framework,
and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error;[because
of the possible effects of fraud on other aspects of the audit, materiality does not apply to
management’s acknowledgement regarding its responsibility for the design, implementation, and
maintenance of internal control (or for establishing and maintaining effective internal control over
financial reporting) to prevent and detect fraud.] and
(b) Assessing the entity’s ability to continue as a going concern and whether the use of the going
concern basis of accounting is appropriate as well as disclosing, if applicable, matters relating to
going concern. The explanation of management’s responsibility for this assessment shall include
a description of when the use of the going concern basis of accounting is appropriate.
Question 6
The auditor evaluated, in respect of T Ltd., whether the financial statements are prepared in
accordance with the requirements of the applicable financial reporting framework. Auditor’s
evaluation included consideration of the qualitative aspects of the entity’s accounting practices,
including indicators of possible bias in management’s judgments. Advise the qualitative aspects
of the entity’s account ing practices. (MTP 5 Marks March ’18 & March 19 & Oct ’18, RTP
May’18, Old & New SM)
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Answer 6
The auditor shall evaluate whether the financial statements are prepared in accordance with the
This evaluation shall include consideration of the qualitative aspects of the entity’s accounting
Qualitative Aspects of the Entity’s Accounting Practices
1. Management makes a number of judgments about the amounts and disclosures in the financial
statements.
2. SA 260 (Revised) contains a discussion of the qualitative aspects of accounting practices.
3. In considering the qualitative aspects of the entity’s accounting practices, the auditor may become
aware of possible bias in management’s judgments. The auditor may conclude that lack of
neutrality together with uncorrected misstatements causes the financial statements to be materially
misstated. Indicators of a lack of neutrality include the following:
(i) The selective correction of misstatements brought to management’s attention during the audit
Example
• Correcting misstatements with the effect of increasing reported earnings, but not correcting
misstatements that have the effect of decreasing reported earnings.
• The combination of several deficiencies affecting the same significant account or disclosure
(or the same internal control component) could amount to a significant deficiency (or material
weakness if required to be communicated in the jurisdiction). This evaluation requires judgment
and involvement of audit executives.
(ii) Possible management bias in the making of accounting estimates.
4. SA 540 addresses possible management bias in making accounting estimates.
Indicators of possible management bias do not constitute misstatements for purposes of drawing
conclusions on the reasonableness of individual accounting estimates. They may, however, affect the
auditor’s evaluation of whether the financial statements as a whole are free from material misstatement.
Question 7
State with reason (in short) whether the following statements are true or false:
An Audit report is an opinion drawn on the entity’s financial statements to make sure that the
records are true and correct representation of the transactions they claim to represent. (RTP
May ’20)
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Answer 7
Incorrect: The purpose of an audit is to enhance the degree of confidence of intended users of the
financial statements. The aforesaid purpose is achieved by the expression of an independent reporting
by the auditor as to whether the financial statements exhibit a true and fair view of the affairs of the
entity.
Thus, an Audit report is an opinion drawn on the entity’s financial statements to make sure that the
records are true and fair representation of the transactions they claim to represent.
Question 8
The first section of the auditor’s report shall include the auditor’s opinion, and shall have the
heading “Opinion.” The Opinion section of the auditor’s report shall also Identify the entity
whose financial statements have been audited. Apart from the above, explain the other relevant
points to be included in opinion section. (RTP May ’20, Old & New SM)
OR
While drafting auditor’s report of LK Ltd., what are the matter to be included by auditor in
Opinion Section paragraph? (RTP Nov’22)
Answer 8
The first section of the auditor’s report shall include the auditor’s opinion, and shall have the heading
“Opinion.”
The Opinion section of the auditor’s report shall also:
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting policies; and
(e) Specify the date of, or period covered by, each financial statement comprising the financial
statements.
Question 9
The requirements of SA 700 are aimed at addressing an appropriate balance between the need
for consistency and comparability in auditor reporting globally. Explain (RTP May ’21)
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Answer 9
The requirements of SA 700 are aimed at addressing an appropriate balance between the need
for consistency and comparability in auditor reporting globally and the need to increase the value
of auditor reporting by making the information provided in the auditor’s report more relevant to
users. This SA promotes consistency in the auditor’s report but recognizes the need for flexibility
to accommodate particular circumstances of individual jurisdictions. Consistency in the auditor’s
report, when the audit has been conducted in accordance with SAs, promotes credibility in the global
marketplace by making more readily identifiable those audits that have been conducted in accordance
with globally recognized standards. It also helps to promote the user’s understanding and to identify
unusual circumstances when they occur.
Question 10
When the auditor disclaims an opinion on the financial statements due to an inability to obtain
sufficient appropriate audit evidence, the auditor shall amend the description of the auditor’s
responsibilities required by SA 700. Explain (RTP May ’22)
OR
CA Guru is in the process of preparing the final audit report of JPA Private Limited and would
like to disclaim his opinion on the financial statements due to an inability to obtain sufficient
appropriate audit evidence. How CA Guru shall amend the description of the auditor’s
responsibilities as required by SA 700 (Revised)? (PYP 3 Marks, July’21)
Answer 10
When the auditor disclaims an opinion on the financial statements due to an inability to obtain sufficient
appropriate audit evidence, the auditor shall amend the description of the auditor’s responsibilities
required by SA 700 (Revised) to include only the following:
(a) A statement that the auditor’s responsibility is to conduct an audit of the entity’s financial statements
in accordance with Standards on Auditing and to issue an auditor’s report;
(b) A statement that, however, because of the matter(s) described in the Basis for Disclaimer of
Opinion section, the auditor was not able to obtain sufficient appropriate audit evidence to provide
a basis for an audit opinion on the financial statements; and
(c) The statement about auditor independence and other ethical responsibilities required by SA 700 (Revised).
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Question 11
State with reason (in short) whether the following statements are true or false
For auditor’s opinion, reasonable assurance is an absolute level of assurance. (RTP Nov’22 &
Nov ‘23)
Answer 11
Incorrect: Reasonable assurance is a high level but not an absolute level of assurance, because there
are inherent limitations of an audit which result in most of the audit evidence on which the auditor
draws conclusions and bases the auditor’s opinion being persuasive rather than conclusive.
Question 12
requirements of the applicable financial reporting framework. Explain stating clearly specific
evaluations made by the auditor. (RTP May ’22, MTP 3 Marks Oct ’21, MTP 4 Marks Apr 21 &
March ’23, PYP 5 Marks, Nov’18)
OR
An auditor is required to make specific evaluations while forming an opinion in an audit report.”
State those evaluations. (Old & New SM)
Answer 12
practices, including indicators of possible bias in management’s judgements.
In particular, the auditor shall evaluate whether:
(a) The financial statements adequately disclose the significant accounting policies selected and
applied;
(b) The accounting policies selected and applied are consistent with the applicable financial reporting
framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The information presented in the financial statements is relevant, reliable, comparable, and
understandable;
(e) The financial statements provide adequate disclosures to enable the intended users to understand the
effect of material transactions and events on the information conveyed in the financial statements; and
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(f) The terminology used in the financial statements, including the title of each financial statement, is
appropriate.
Further, when the financial statements are prepared in accordance with a fair presentation framework,
the evaluation mentioned above shall also include an evaluation by the auditor as to whether the
financial statements achieve fair presentation which shall include consideration of:
(a) The overall presentation, structure and content of the financial statements; and
(b) Whether the financial statements, including the related notes, represent the underlying transactions
and events in a manner that achieves fair presentation.
The auditor shall evaluate whether the financial statements adequately refer to or describe the
applicable financial reporting framework.
Question 13
In considering the qualitative aspects of the entity’s accounting practices, the auditor may
become aware of possible bias in management’s judgements. The auditor may conclude that
lack of neutrality together with uncorrected misstatements causes the financial statements to
be materially misstated. Explain and analyse the indicators of lack of neutrality with examples,
wherever required. (RTP May ’23 & May 20, Old & New SM)
Answer 13
In considering the qualitative aspects of the entity’s accounting practices, the auditor may become
aware of possible bias in management’s judgements. The auditor may conclude that lack of neutrality
together with uncorrected misstatements causes the financial statements to be materially misstated.
Indicators of a lack of neutrality include the following:
(i) The selective correction of misstatements brought to management’s attention during the audit.
Example
• The combination of several deficiencies affecting the same significant account or disclosure (or the
same internal control component) could amount to a significant deficiency (or material weakness
if required to be communicated in the jurisdiction). This evaluation requires judgement and
involvement of audit executives.
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Question 14
What an auditor should state in the “Basis for opinion” section of auditor’s report ? When the
auditor modifies the opinion on the financial statements, explain the amendments he should
make in this section? (RTP Nov ’23 , Nov ’19 & Nov ’20, MTP 3 Marks Oct ’23)
OR
The auditor’s report shall include a section, directly following the Opinion section, with the
heading “Basis for Opinion”. Explain what is included in this “Basis for Opinion” section (Old
& New SM)
Answer 14
An auditor should state in “Basis for Opinion” section of Auditor’s Report as under:
Basis for Opinion:
The auditor’s report shall include a section, directly following the Opinion section, with the heading
“Basis for Opinion”, that:
(i) States that the audit was conducted in accordance with Standards on Auditing;
(ii) Refers to the section of the auditor’s report that describes the auditor’s responsibilities under the
SAs;
(iii) Includes a statement that the auditor is independent of the entity in accordance with the relevant
ethical requirements relating to the audit and has fulfilled the auditor’s other ethical responsibilities
in accordance with these requirements.
(iv) States whether the auditor believes that the audit evidence the auditor has obtained is sufficient
and appropriate to provide a basis for the auditor’s opinion.
Amendments an Auditor should make:
When the auditor modifies the opinion on the financial statements, the auditor shall, in addition to the
specific elements required by SA 700 (Revised):
(i) Amend the heading “Basis for Opinion” required by para of SA 700 (Revised) to “Basis for Qualified
Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion,” as appropriate; and
(ii) Within this section, include a description of the matter giving rise to the modification.
Question 15
State with reason (in short) whether the following statements are true or false: In considering
the qualitative aspects of the entity’s accounting practices, the auditor may become aware of
possible bias in management’s judgments (RTP May ’21 & Nov 20)
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Answer 15
Correct: In considering the qualitative aspects of the entity’s accounting practices, the auditor may
become aware of possible bias in management’s judgments. The auditor may conclude that lack of
neutrality together with uncorrected misstatements causes the financial statements to be materially
misstated.
Question 16
Examine with reasons whether the following statements are correct or incorrect.
Where the firm is appointed as an auditor of the entity the audit report is signed only in the
name of audit firm. (PYP 2 Marks, May’19)
Answer 16
Incorrect: Where the firm is appointed as the auditor, the report is signed in the personal name of the
auditor and in the name of the audit firm. The partner/proprietor signing the audit report also needs to
mention the membership number assigned by the Institute of Chartered Accountants of India along-
with registration number for the firm.
Question 17
State with reasons whether the following statements are correct or incorrect.
The Location of the description of the auditor’s responsibilities for the audit of the financial
statements is always within the body of the auditor’s report. (PYP 2Marks, July’21)
Answer 17
Incorrect: The description of the auditor’s responsibilities for the audit of the financial statement
shall be always shown as below -
• Within the body of the auditor’s report
• Within an appendix to the auditor’s report, in which case the auditor’s report shall include a
reference to the location of the appendix or
• By a specific reference within the auditor’s report to the location of such a description on a website
of an appropriate authority, where law, regulation or national auditing standards expressly permit
the auditor to do so
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Question 18
State with reasons whether the following statements are correct or incorrect:
Where a firm is appointed as the auditor of a company, the report is signed only in the personal
name of the partner signing the report. (PYP 2 Marks Nov 22)
Answer 18
Incorrect: Where the firm is appointed as the auditor, the report is signed in the personal name of the
auditor and in the name of the audit firm. The partner/proprietor signing the audit report also needs to
mention the membership number assigned by the Institute of Chartered Accountants of India. They
also include the registration number of the firm, wherever applicable, as allotted by ICAI, in the audit
reports signed by them.
Alternative Solution:
As per section 145 of the Companies Act, 2013, the person appointed as an auditor of the company
shall sign the auditor’s report or sign or certify any other document of the company. Whereas if a firm
is appointed as an auditor of a company, only the partners who are chartered accountants shall be
authorised to act and sign on behalf of the firm.
The partner signing the audit report also needs to mention the membership number assigned by the
Institute of Chartered Accountants of India. They also include the registration number of the firm,
wherever applicable, as allotted by ICAI, in the audit reports signed by them.
MULTIPLE CHOICE QUESTIONS (MCQS)

1. Which of the following is correct:
(a) The auditor shall express a qualified opinion when the auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements, individually or in the aggregate, are both material
and pervasive to the financial statements.
(b) The auditor shall express a disclaimer opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are
both material and pervasive to the financial statements.
(c) The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements, individually or in the aggregate, are both material
and pervasive to the financial statements.
(d) The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not
pervasive, to the financial statements (MTP 2 Marks March ’19)
Ans: (c)
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2. Most of the auditor’s work in forming the auditor’s opinion consists of:
(a) obtaining audit evidence.
(b) evaluating audit evidence.
(c) obtaining or evaluating audit evidence.
(d) obtaining and evaluating audit evidence. (MTP 1 Mark Oct 19, Apr 19)
Ans: (d)
3. An Audit report is:

(a) an opinion drawn on the entity’s financial statements to make sure that the records are true and
correct representation of the transactions they claim to represent.
(b) an opinion drawn on the entity’s books of accounts to make sure that the records are true and fair
representation of the transactions they claim to represent.
(c) an opinion drawn on the entity’s financial statements to make sure that the records are true and fair
representation of the transactions they claim to represent.
(d) an opinion drawn on the entity’s books of accounts to make sure that the records are true and
correct representation of the transactions they claim to represent. (MTP 1 Mark Oct 19)
Ans: (c)
4. Which of the following is not correct:

(a) SA 700- Forming an Opinion and Repor4ng on Financial Statements
(b) SA 705- Modified Opinion
(c) SA 701- Communica4ng Key Audit MaEers
(d) SA 706-Compara4ve Informa4on (MTP 2 Marks Oct ‘20)
Ans: (d)
5. Which of following is not an element of audit report in accordance with SA 700?

(a) Title
(b) Addressee
(c) Audit strategy
(d) Auditor’s opinion (MTP 1 Mark Oct ’23)
Ans: (c)
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6. CA. Goofy has been appointed as an auditor for audit of a complete set of financial statements
of Dippy Ltd., a listed company. The financial statements of the company are prepared by the
management in accordance with the Accounting Standards prescribed under section 133 of the
Companies Act, 2013.
However, the inventories are m isstated which is deemed to be material but not pervasive to
the financial statements. Based on the audit evidences obtained, CA. Goofy has concluded that
a material uncertainty does not exist related to events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern in accordance with SA 570. Further,
CA. Goofy is also aware of the fact that a qualified opinion would be appropriate due to a
material misstatement of the Financial Statements.
State what phrases should the auditor use while drafting such opinion paragraph?
(a) In our opinion and to the best of our information and according to the explanations given to us,
except for the effects of the matter described in the Basis for Qualified Opinion section of our
report, the aforesaid financial statements present fairly, in all material respects, or give a true and
fair view in conformity with the applicable financial reporting framework.
(b) In our opinion and to the best of our information and according to the explanations given to us, with
the foregoing explanation, the aforesaid financial statements present fairly, in all material respects,
or give a true and fair view in conformity with the applicable financial reporting framework.
(c) In our opinion and to the best of our information and according to the explanations given to us,
subject to the misstatement regarding inventories, the aforesaid financial statements present fairly,
in all material respects, or give a true and fair view in conformity with the applicable financial
(d) In our opinion and to the best of our information and according to the explanations given to
us, with the explanation described in the Basis for Qualified Opinion section of our report, the
aforesaid financial statements present fairly, in all material respects, or give a true and fair view in
conformity with the applicable financial reporting framework. (RTP May ‘19)
Ans: (a)
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SA 705- Modifications to the Opinion in the Independent Auditor’s Report

Question 1
While conducting audit of VED Ltd., you as an auditor are not only prevented in completing
certain audit procedures but also are not able to obtain audit evidence even by performing
alternative procedures.
How you will deal with this situation? (MTP 4 Marks March 22)
Answer 1
As per SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”, if, after accepting
the engagement, the auditor becomes aware that management has imposed a limitation on the scope
of the audit that the auditor considers likely to result in the need to express a qualified opinion or to
disclaim an opinion on the financial statements, the auditor sh all request that management remove
the limitation.
If management refuses to remove the limitation, the auditor shall communicate the matter to those
charged with governance, unless all of those charged with governance are involved in managing
the entity and determine whether it is possible to perform alternative procedures to obtain sufficient
appropriate audit evidence.
If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine the
implications as follows:
(1) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive, the auditor shall qualify the opinion; or
(2) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive so that a qualification of the opinion
would be inadequate to communicate the gravity of the situation, the auditor shall:
(i) Withdraw from the audit, where practicable and possible under applicable law or regulation; or
(ii) If withdrawal from the audit before issuing the auditor’s report is not practicable or possible,
disclaim an opinion on the financial statements.
If the auditor withdraws, before withdrawing, the auditor shall communicate to those charged with
governance any matters regarding misstatements identified during the audit that would have given
rise to a modification of the opinion.
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Question 2
Distinguish between an adverse opinion and a qualified opinion. Also draft an opinion paragraph
for both types of opinion. (MTP 4 Marks Oct’23, Old & New SM)
Answer 2
An auditor shall express an adverse opinion, when the auditor having obtained sufficient and appropriate
audit evidence, concludes that misstatements, individually or in aggregate are both material and
pervasive.
Whereas, when the auditor, having obtained sufficient and appropriate audit evidence, concludes that
misstatements are material but not pervasive, shall express a qualified opinion.
SA705 – “Modifications to the Opinion in the Independent Auditor’s Report” deals with the form and
content of both types of report. The following are the draft of the opinion paragraphs of the reports.
(i) Adverse Opinion
We have audited the accompanying consolidated financial statements of ABC Company Limited
(hereina5er referred to as the “Holding Company”) and its subsidiaries (the Holding Company and its
subsidiaries together referred to as “the Group”), its associates and jointly controlled entities, which
comprise the consolidated balance sheet as at March 31, 2023, the consolidated statement of profit
and Loss, (consolidated statement of changes in equity) and the consolidated statement of cash flows
for the year then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies (hereinafter referred to as the “consolidated financial statements”). In
our opinion and to the best of our information and according to the explanations given to us, because
of the significance of the maker discussed in the Basis for Adverse Opinion section of our report,
the accompanying consolidated financial statements do not give a true and fair view in conformity
with the accounting principles generally accepted in India, of their consolidated state of affairs of the
Group, its associates and jointly controlled entities, as at March 31, 2023, of its consolidated profit/
loss, (consolidated position of changes in equity) and the consolidated cash flows for the year then
ended.
(ii) Qualified Opinion
We have audited the standalone financial statements of ABC Company Limited (“the Company”),
which comprise the balance sheet as at March 31, 2023, and the statement of Profit and Loss,
(statement of changes in equity) and the statement of cash flows for the year then ended, and notes to
the financial statements, including a summary of significant accounting policies and other explanatory
information (in which are included the Returns for the year ended on that date audited by the branch
auditors of the Company’s branches located at (location of branches)) . In our opinion and to the best
of our information and according to the explanations given to us, except for the effects of the maker
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described in the Basis for Qualified Opinion section of our report, the aforesaid financial statements
give a true and fair view in conformity with the accounting principles generally accepted in India, of
the state of affairs of the Company as at March 31st, 2023 and profit/loss, (changes in equity) and its
cash flows for the year ended on that date.
Question 3
What an auditor should state in “Basis for opinion” section of auditor’s report and when the
auditor modifies the opinion on the financial statements, what amendments he should make in
this section? (PYP 4 Marks, Jan’21)
Answer 3
An auditor should state in “Basis for Opinion” section of Auditor’s Report as under: Basis for Opinion:
The auditor’s report shall include a section, directly following the Opinion section, with the heading
“Basis for Opinion”, that:
(i) States that the audit was conducted in accordance with Standards on Auditing;
(ii) Refers to the section of the auditor’s report that describes the auditor’s responsibilities under the
SAs;
(iii) Includes a statement that the auditor is independent of the entity in accordance with the relevant
(iv) States whether the auditor believes that the audit evidence the auditor has obtained is sufficient
Amendments an Auditor should make:
When the auditor modifies the opinion on the financial statements, the auditor shall, in addition to the
specific elements required by SA 700 (Revised):
(i) Amend the heading “Basis for Opinion” required by para of SA 700 (Revised) to “Basis for
Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion,” as
appropriate; and
(ii) Within this section, include a description of the matter giving rise to the modification.
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Question 4
Explain whether the following statements are correct or incorrect, with reasons/ explanations/
examples Communicating Key Audit Matters is a substitute for the auditor expressing a modified
audit opinion when required by the circumstances of a specific audit engagement in accordance
with SA 705. (PYP 2 Marks, Jan’ 21)
Answer 4
Incorrect: Communicating key audit matters in the auditor’s report is not a substitute for the auditor
expressing a modified opinion when required by the circumstances of a specific audit engagement in
accordance with SA 705 (Revised);
Question 5
If financial statements are misstated, and in the auditor’s judgment such misstatement is
material and pervasive, he should issue a qualified opinion. (MTP 2 Marks Oct 19)
Answer 5
Incorrect: As per SA 705 “Modifications to the Opinion in the Independent Auditor’s Report”, the
auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements, individually or in the aggregate, are both material and
pervasive to the financial statements. However, the auditor shall express qualified opinion when he
concludes that misstatement, individually or in aggregate are material but not pervasive.
Question 6
Delightful Ltd. is a company engaged in the production of smiley balls. During the FY 2020 -
21 the company transferred its accounts to computerised system (SAP) from manual system of
accounts. Since the employees of the company were not well versed with the SAP system, there
were many errors in the accounting during the transition period. As such the statutory auditors
of the company were not able to extract correct data and reports from the system. Such data
was not available manually also.
Further, the employees and the management of the company were not supportive in providing
the requisite information to the audit team. The auditor believes that the possible effects on the
financial statements of undetected misstatements could be both material and pervasive.
Explain the kind of audit report that the statutory auditor of the company should issue in this
case. (RTP Nov ’21)
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Answer 6
The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, and the auditor concludes that the possible effects on
the financial statements of undetected misstatements, if any, could be both material and pervasive.
The auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple
uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit
evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the
financial statements due to the potential interaction of the uncertainties and their possible cumulative
effect on the financial statements. In the present case Delightful Ltd, the statutory auditor of the
company is unable to extract correct data and reports from the SAP system for conduct of audit.
Also, such data and reports are not available manually. Moreover, the auditor believes that the possible
effects on the financial statements of undetected misstatements could be both material and pervasive.
As such, the statutory auditor of Delightful Ltd. should give a disclaimer of opinion.
Question 7
An auditor should issue disclaimer of opinion when there is difference of opinion between him
and the management on a particular point (PYP 2 Marks, Nov’18)
Answer 7
Incorrect: The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient
appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any, could be both material and
pervasive.
In case of difference of opinion, either the auditor will issue qualified report or adverse report and not
disclaimer of opinion.
Question 8
Elucidate the circumstances when a modification to the Auditor’s opinion is required. Also state
the factors for making the decision regarding which type of modified opinion is appropriate.
(PYP 3 Marks May ’23, Old & New SM)
Answer 8
Circumstances When a Modification to the Auditor’s Opinion Is Required
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The auditor shall modify the opinion in the auditor’s report in the following circumstances:
1. The auditor concludes that, based on the audit evidence obtained, the financial statements as a
whole are not free from material misstatement; or
2. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial
statements as a whole are free from material misstatement.
The decision regarding which type of modified opinion is appropriate depends upon:
(a) The nature of the matter giving rise to the modification, that is, whether the financial statements are
materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence,
may be materially misstated; and
(b) The auditor’s judgement about the pervasiveness of the effects or possible effects of the matter on
the financial statements.
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1. A company did not disclose accounting policies required to be disclosed under Schedule III or
any other provisions of the Companies Act, 2013, the auditor should issue–
(a) a qualified opinion
(b) an adverse opinion
(c) a disclaimer of opinion
(d) emphasis of matter paragraph. (MTP 1 Mark Oct 19)
Ans: (a)
2. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances,
(a) the auditor shall express a qualified opinion in accordance with SA 705.
(b) the auditor shall express a disclaimer of opinion in accordance with SA 705.
(c) the auditor shall express a qualified opinion or adverse opinion, as appropriate, in accordance with
SA 705.
(d) the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate, in accordance
with SA 705. (MTP 2 Marks Oct 19, Apr’19 1 Mark, 2 Marks May’20, RTP Nov’19)
Ans: (d)
3. An auditor disclaims opinion when_________?

(a) He is unable to obtain audit evidence and concludes that possible effects on financial statements of
undetected misstatements could be material.
(b) He is unable to obtain audit evidence and concludes that possible effects on financial statements of
undetected misstatements could be both material and adverse.
(c) He is unable to obtain audit evidence and concludes that possible effects on financial statements of
undetected misstatements could be both material and pervasive.
(d) He is unable to obtain audit evidence and concludes that possible effects on financial statements of
undetected misstatements could be both material and perverse. (MTP 1 Mark Oct ’23)
Ans: (c)
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SA 706- Emphasis of Matter Paragraphs and Other Matter Paragraphs in the

Independent Auditor’s Report
Question 1
Examine with reasons (in short) whether the following statement is correct or incorrect:
Other matter paragraph is paragraph included in the auditor’s report that refers to a matter
appropriately presented or disclosed in the financial statements that, in the auditor’s judgment,
is of such importance that it is fundamental to users’ understanding of the financial statements.
(MTP 2 Marks March ’18, Aug’18, Oct’18, Mar’19)
Answer 1
Incorrect: Emphasis of Matter paragraph is a paragraph included in the auditor’s report that refers to a
matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment,
is of such importance that it is fundamental to users’ understanding of the financial statements.
Question 2
State clearly the objective of the Auditor as per SA 706. Also define emphasis of matter paragraph
and other matter paragraph. (MTP 4 Marks Oct 20)
Answer 2
As per SA 706 (Revised) on “Emphasis of Matter Paragraphs and Other Matter Paragraphs In The
Independent Auditor’s Report”, the objective of the auditor, having formed an opinion on the financial
statements, is to draw users’ attention, when in the auditor’s judgment it is necessary to do so, by way
of clear additional communication in the auditor’s report, to:
(a) A matter, although appropriately presented or disclosed in the financial statements, that is of such
importance that it is fundamental to users’ understanding of the financial statements; or
(b) As appropriate, any other matter that is relevant to users’ understanding of the audit, the auditor’s
responsibilities or the auditor’s report.
Emphasis of Matter paragraph – A paragraph included in the auditor’s report that refers to a matter
appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of
such importance that it is fundamental to users’ understanding of the financial statements.
Other Matter paragraph – A paragraph included in the auditor’s report that refers to a matter other
than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant
to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report.
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Question 3
The inclusion of an Emphasis of Matter paragraph in the Auditor’s Report affects the auditor’s
opinion. (MTP 2 Marks March ’21, RTP Nov ’23)
Answer 3
Incorrect: When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the
auditor shall Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
Such a paragraph shall refer only to information presented or disclosed in the financial statements. The
inclusion of an Emphasis of Matter paragraph in the auditor’s report does not affect the auditor’s opinion.
Question 4
Examine with reasons (in short) whether the following statements are correct or incorrect :
If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report.
(MTP 2 Marks April ’21 & May 20)
Answer 4
Incorrect: If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances, the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate, in
accordance with SA 705.
Question 5
If the financial statements of the prior period were audited by a predecessor auditor, in addition
to expressing an opinion on the current period’s financial statements, what is required to be
stated by the auditor in an Other Matter paragraph (MTP 3 Marks Sep’22)
Answer 5
If the financial statements of the prior period were audited by a predecessor auditor, in addition to
expressing an opinion on the current period’s financial statements, the auditor shall state in an Other
Matter paragraph:
(i) That the financial statements of the prior period were audited by a predecessor auditor;
(ii) The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the
reasons therefor; and
(iii) The date of that report, unless the predecessor auditor’s report on the prior period’s financial
statements is revised with the financial statements.
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Question 6
What is meant by Emphasis of Matter Paragraph? Give some examples of circumstances where
the auditor may consider it necessary to include an Emphasis of Matter paragraph. (MTP 4
Marks Oct’22)
OR
Discuss any four examples of circumstances where the auditor may consider it necessary to
include an Emphasis of Matter paragraph in his report. (MTP 4 Marks Sep ‘23)
OR
Mention the examples of circumstances where the auditor may consider it necessary to include
an Emphasis of Matter paragraph. (MTP 3 Marks Nov ’21, RTP Nov’22)
Answer 6
Examples of circumstances to include Emphasis of Matter Paragraph: As per SA 706 (Revised)
on “Emphasis of Matter Paragraphs and Other Matter Paragraphs In The Independent Auditor’s
Report”, the examples of circumstances where the auditor may consider it necessary to include an
Emphasis of Matter paragraph are;
(a) An uncertainty relating to the future outcome of an exceptional litigation or regulatory action.
(b) A significant subsequent event that occurs between the date of the financial statements and the
date of the auditor’s report.
(c) Early application (where permitted) of a new accounting standard that has a material effect on the
financial statements.
(d) A major catastrophe that has had, or continues to have, a significant effect on the entity’s financial
position.
Question 7
Define Emphasis of Matter Paragraph and how it should be disclosed in the Independent
Auditor’s Report? (RTP Nov’20, Old & New SM)
Answer 7
Emphasis of Matter paragraph: A paragraph included in the auditor’s report that refers to a matter
When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor
shall:
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(i) Include the paragraph within a separate section of the auditor’s report with an appropriate heading
that includes the term “Emphasis of Matter”;
(ii) Include in the paragraph a clear reference to the matter being emphasized and to where relevant
disclosures that fully describe the matter can be found in the financial statements. The paragraph
shall refer only to information presented or disc losed in the financial statements; and Indicate
that the auditor’s opinion is not modified in respect of the matter emphasized.
Question 8
Define Emphasis of Matter paragraph. When the auditor shall include an Emphasis of Matter
paragraph in the auditor’s report? Also explain how the auditor would include an Emphasis of
Matter in the auditor’s report? (RTP May ’19)
Answer 8
Emphasis of Matter paragraph – A paragraph included in the auditor’s report that refers to a matter
Emphasis of Matter Paragraphs in the Auditor’s Report
If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in
the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental
to users’ understanding of the financial statements, the auditor shall include an Emphasis of Matter
paragraph in the auditor’s report provided:
(a) The auditor would not be required to modify the opinion in accordance with SA 705 (Revised) as
a result of the matter; and
(b) When SA 701 applies, the matter has not been determined to be a key audit matter to be
communicated in the auditor’s report.
Separate section for Emphasis of Matter paragraph When the auditor includes an Emphasis of
Matter paragraph in the auditor’s report, the auditor shall:
(a) Include the paragraph within a separate section of the auditor’s report with an appropriate heading
(b) Include in the paragraph a clear reference to the matter being emphasized and to where relevant
shall refer only to information presented or disclosed in the financial statements; and
(c) Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
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Question 9
Auditor’s Report? (PYP 5 Marks, May’18, Old & New SM)
Answer 9
When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor
shall:
(iii) Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
Question 10
D Ltd. is a company engaged in publishing business magazines. CA P is the statutory auditor
of the company. The company takes property in the barter deal from its real estate customers
against publication of their advertisements. The properties obtained during the year through
such barter deals have been considered in the books of accounts on the basis of possession letter
only and have been included in PPE in the financial statements. Considering this matter of such
importance that is fundamental to the users understanding, CA P has decided to communicate
the same in his report.
CA P seeks your guidance in reporting this matter in his audit report. (PYP 4 Marks May’22)
Answer 10
Emphasis of Matter Paragraphs in the Auditor’s Report: If the auditor considers it necessary to
draw users’ attention to a matter presented or disclosed in the financial statements that, in the auditor’s
judgement, is of such importance that it is fundamental to users’ understanding of the financial
statements, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report provided:
(i) The auditor would not be required to modify the opinion in accordance with SA 705 as a result of
the matter; and
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(ii) When SA 701 applies, the matter has not been determined to be a key audit matter to be
communicated in the auditor’s report.
In the given case as the properties obtained during the year through barter deals and included in
the PPE in the books of accounts on the basis of possession letter only, hence there is a need to add
Emphasis on Matter Paragraph in the Auditor’s Report.
The draft of the same is as under:
Emphasis of Matter – Effect of Properties obtained through barter deals by the company We draw
attention to Note (Y) of the financial statements, which describes the effects of the properties obtained
through barter by the company. Our opinion is not modified in respect of this matter.
Alternative Solution:
In the given case as the properties obtained during the year through barter deals and included in the
PPE in the books of accounts on the basis of possession letter only, hence there is a need to report the
same under Clause i(c) of Paragraph 3 Companies (Auditor’s Report) Order,2020.
Matters to be included in auditor’s report - The auditor’s report on the accounts of a company to
which this Order applies shall include a statement on the following matter, namely:
(i) (c) whether the title deeds of all the immovable properties (other than properties where the company
is the lessee and the lease agreements are duly executed in favour of the lessee) disclosed in the
financial statements are held in the name of the company, if not, provide the details thereof in the
format below:
Reason for
Whether
Period held– not being
promoter,
Description of Gross carrying Held in name indicate held in name
director or
property value of range, where of company*
their relative
appropriate *also indicate
or employee
if in dispute
1 2 3 4 5 6
The auditor should state in the Reason (column 6) for not being held in name of company as follows
“Properties obtained during the year through barter deals and included in the PPE in the books of
accounts on the basis of possession letter only”
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1. Which of the following is correct: (MTP 2 Marks April 19)
(a) When reporting on prior period financial statements in connection with the current period’s audit,
if the auditor’s opinion on such prior period financial statements differs from the opinion the
auditor previously expressed, the auditor need not disclose the substantive reasons for the different
opinion.
(b) When reporting on prior period financial statements in connection with the current period’s audit, if
the auditor’s opinion on such prior period financial statements differs from the opinion the auditor
previously expressed, the auditor shall disclose the substantive reasons for the different opinion in
an Other Matter paragraph in accordance with SA 706.
(c) When reporting on prior period financial statements in connection with the current period’s audit, if
an emphasis of Matter paragraph in accordance with SA 706.
(d) When reporting on prior period financial statements in connection with the current period’s audit, if
an Other Matter paragraph or emphasis of matter paragraph in accordance with SA 706.
Ans: (b)
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SA 701- Communicating Key Audit Matters in the

Independent Auditor’s Report
Question 1
Examine with reasons (in short) whether the following statements are correct or incorrect :
The statutory auditor of ABC Ltd. is of the opinion that communicating key audit matters in
the auditor’s report constitutes a substitute for disclosure in the financial statements. (MTP 2
Marks April 19, PYP 2 Marks May’18, New SM)
Answer 1
Incorrect: Communicating key audit matters in the auditor’s report is not a substitute for disclosures
in the financial statements that the applicable Financial reporting framework requires management to
make, or that are otherwise necessary to achieve fair presentation.
Question 2
As an auditor of listed company, what are the matters that the auditor should keep in mind
while determining “Key Audit Matters”. (MTP 3 Marks Oct ’21, RTP Nov’21)
OR
How would an auditor determine Key Audit Matters as per SA - 701, “Communicating Key
Audit Matters in the Independent Auditor’s Report”? (PYP 3 Marks, Nov’20)
Answer 2
Determining Key Audit Matters: As per SA 701, “Communicating Key Audit Matters in the Independent
Auditor’s Report”, the auditor shall determine, from the matters communicated with those charged
with governance, those matters that required significant auditor attention in performing the audit. In
making this determination, the auditor shall take into account the following:
(i) Areas of higher assessed risk of material misstatement, or significant risks identified in accordance
with SA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding
the Entity and Its Environment.
(ii) Significant auditor judgments relating to areas in the financial statements that involved significant
management judgment, including accounting estimates that have been identified as having high
estimation uncertainty.
(iii) The effect on the audit of significant events or transactions that occurred during the period. The
auditor shall determine which of the matters determined in accordance with above were of most
significance in the audit of the financial statements of the current period and therefore are the key
audit matters.
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Question 3
Communicating key audit matters in the auditor’s report is in the context of the auditor having
formed an opinion on the financial statements as a whole. Communicating key audit matters in
the auditor’s report is not considered as a substitute or alternative for a number of important
items. What are those items? (MTP 3 Marks April 22, RTP Nov ’19 & Nov ‘23)
OR
1. Communicating Key Audit Matter is not a substitute for disclosure in the Financial Statements
Rather Communicating key audit matters in the auditor’s report is in the context of the
Auditor having formed an opinion on the financial statements as a whole. Analyze. (Old &
New SM)
2. The auditor shall evaluate whether the financial statements are prepared in accordance with
the requirements of the applicable financial reporting framework.
This evaluation shall include consideration of the qualitative aspects of the entity’ s accounting
Advise about qualitative aspects of the entity’s accounting practices, including indicators of
possible bias in management’s judgments. (RTP May’18)
Answer 3
As per SA 701, “Communicating Key Audit Matters in the Auditor’s Report”, communicating key
audit matters in the auditor’s report is in the context of the auditor having formed an opinion on the
financial statements as a whole. Communicating key audit matters in the auditor’s report is not:
(i) A substitute for disclosures in the financial statements that the applicable financial reporting
framework requires management to make, or that are otherwise necessary to achieve fair
presentation;
(ii) A substitute for the auditor expressing a modified opinion when required by the circumstances
of a specific audit engagement in accordance with SA 705, “Modifications to the Opinion in the
Independent Auditor’s Report”;
(iii) A substitute for reporting in accordance with SA 570 when a material uncertainty exists relating
to events or conditions that may cast significant doubt on an entity’s ability to continue as a going
concern; or
(iv) A separate opinion on individual matters.
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Question 4
Explain clearly the purpose of communicating key audit matters. (RTP Nov ‘18)
Answer 4
Purpose of communicating key audit matters
As per SA 701, “Communicating Key Audit Matters in the Auditor’s Report”, the purpose of
communicating key audit matters is to enhance the communicative value of the auditor’s report
by providing greater transparency about the audit that was performed. Communicating key audit
matters provides additional information to intended users of the financial statements to assist them in
understanding those matters that, in the auditor’s professional judgment, were of most significance in
the audit of the financial statements of the current period. Communicating key audit matters may also
assist intended user’s in understanding the entity and areas of significant management judgment in the
audited financial statements.
Question 5
Communicating key audit matters in the auditor’s report is a separate opinion on individual
matters. (PYP 2 Marks May ’23)
Answer 5
Incorrect: Communicating key audit matters in the auditor’s report are in the context of the auditor
having formed an opinion on the financial statements as a whole. Communicating key audit matters
in the auditor’s report is not a separate opinion on individual matters.
Alternative solution
Incorrect: Communicating key audit matters in the auditor’s report is not a separate opinion on
individual matters. The auditor shall describe each key audit matter, using an appropriate subheading,
in a separate section of the auditor’s report under the heading “Key Audit Matters”.
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1. Which of the following is incorrect: (MTP 2 Marks April ’19)
(a) Communicating key audit matters in the auditor’s report is not a substitute for disclosures in the
financial statements that the applicable financial reporting framework requires management to
make, or that are otherwise necessary to achieve fair presentation;
(b) Communicating key audit matters in the auditor’s report is not a substitute for the auditor
expressing a modified opinion when required by the circumstances of a specific audit engagement
in accordance with SA 705 (Revised);
(c) Communicating key audit matters in the auditor’s report is not a substitute for reporting in
accordance with SA 570 when a material uncertainty exists relating to events or conditions that
may cast significant doubt on an entity’s ability to continue as a going concern;
(d) Communicating key audit matters in the auditor’s report is a substitute for the auditor expressing a
modified opinion when required by the circumstances of a specific audit engagement in accordance
with SA 705 (Revised);
Ans: (d)
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SA 710- Comparative Information—Corresponding Figures and Comparative

Financial Statements
Question 1
When corresponding figures are presented, the auditor’s opinion shall not refer to the
corresponding figures except in some circumstances. Explain those circumstances. (MTP 5
Marks Aug ’18, Sep 22, PYP 4 Marks Nov ’19)
OR
The senior member of the firm Kaur & Associates, Chartered Accountants, informed to its auditing
staff that at the time of audit reporting regarding corresponding figures, when corresponding
figures are presented, the auditor’s opinion shall not refer to the corresponding figures except in
specified circumstances. What are those exceptional circumstances? (PYP 4 Marks May’22)
Answer 1
When corresponding figures are presented, the auditor’s opinion shall not refer to the corresponding
figures except in the following circumstances.
1. If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a
disclaimer of opinion, or an adverse opinion and the matter which gave rise to the modification
is unresolved, the auditor shall modify the auditor’s opinion on the current period’s financial
statements. In the Basis for Modification paragraph in the auditor’s report, the auditor shall either:
(a) Refer to both the current period’s figures and the corresponding figures in the description of the
matter giving rise to the modification when the effects or possible effects of the matter on the
current period’s figures are material; or
(b) In other cases, explain that the audit opinion has been modified because of the effects or possible
effects of the unresolved matter on the comparability of the current period’s figures and the
corresponding figures.
2. If the auditor obtains audit evidence that a material misstatement exists in the prior period financial
statements on which an unmodified opinion has been previously issued, the auditor shall verify
whether the misstatement has been dealt with as required under the applicable financial reporting
framework and, if that is not the case, the auditor shall express a qualified opinion or an adverse
opinion in the auditor’s report on the current period financial statements, modified.
3. Prior Period Financial Statements Not Audited- If the prior period financial statements were
not audited, the auditor shall state in an Other Matter paragraph in the auditor’s report that the
corresponding figures are unaudited. Such a statement does not, however, relieve the auditor of
the requirement to obtain sufficient appropriate audit evidence that the opening balances do not
contain misstatements that materially affect the current period’s financial statements
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Question 2
The nature of the comparative information that is presented in an entity’s financial statements
depends on the requirements of the applicable financial reporting framework. There are
two different broad approaches to the auditor’s reporting responsibilities in respect of such
comparative information: corresponding figures and comparative financial statements. Explain
clearly stating the essential audit reporting differences between the approaches. Also define
comparative information and audit procedures regarding comparative information. (RTP May
’19)
Answer 2
The nature of the comparative information that is presented in an entity’s financial statements depends
on the requirements of the applicable financial reporting framework. There are two different broad
approaches to the auditor’s reporting responsibilities in respect of such comparative information:
corresponding figures and comparative financial statements. The approach to be adopted is often
specified by law or regulation but may also be specified in the terms of engagement.
The essential audit reporting differences between the approaches are:
(a) For corresponding figures, the auditor’s opinion on the financial statements refers to the current
period only; whereas
(b) For comparative financial statements, the auditor’s opinion refers to each period for which financial
statements are presented.
Definition of Comparative information – The amounts and disclosures included in the financial
statements in respect of one or more prior periods in accordance with the applicable financial reporting
framework.
Audit Procedures regarding comparative information
The auditor shall determine whether the financial statements include the comparative information
required by the applicable financial reporting framework and whether such information is appropriately
classified. For this purpose, the auditor shall evaluate whether:
(a) The comparative information agrees with the amounts and other disclosures presented in the prior
period; and
(b) The accounting policies reflected in the comparative information are consistent with those applied
in the current period or, if there have been changes in accounting policies, whether those changes
have been properly accounted for and adequately presented and disclosed.
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Question 3
NG Ltd. appointed CA N as the statutory auditor for the F.Y. 2021 -2022. Previous year’s
auditor gave a qualified opinion on the Comparative Financial Statements for the year ended
31.03.2021. What will be the reporting responsibility casted on CA N when he forms an opinion
and prepares audit report on the Comparative Financial Statements for the F.Y. 2021-2022?
(PYP 4 Marks Nov 22)
Answer 3
Prior Period Financial Statements Audited by a Predecessor Auditor: As per SA 710, if the
financial statements of the prior period were audited by a predecessor auditor, in addition to expressing
an opinion on the current period’s financial statements, CA. N, the auditor of NG Limited shall state
in an Other Matter paragraph:
(a) That the financial statements of the prior period were audited by a predecessor auditor;
(b) The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the
reasons therefor; and
(c) The date of that report, unless the predecessor auditor’s report on the prior period’s financial
statements is revised with the financial statements.
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AUDIT REPORT
Audit of Branch Office Accounts 128(1)

Question 1
ABC Ltd is a company incorporated in India. It has branches within and outside India. Explain
who can be appointed as an auditor of these branches within and outside India. Also explain to
whom branch auditor is required to report. (RTP May’20, Old & New SM)
Answer 1
Sub-section (8) of section 143 of the Companies Act, 2013, prescribes the duties and powers of the
company’s auditor with reference to the audit of the branch and the branch auditor. Where a company
has a branch office, the accounts of that office shall be audited either by the auditor appointed for the
company (herein referred to as the company’s auditor) under this Act or by any other person qualified
for appointment as an auditor of the company under this Act and appointed as such under section 139,
or where the branch office is situated in a country outside India, the accounts of the branch office shall
be audited either by the company’s auditor or by an accountant or by any other person duly qualified
to act as an auditor of the accounts of the branch office in accordance with the laws of that country
and the duties and powers of the company’ s auditor with reference to the audit of the branch and the
branch auditor, if any, shall be such as may be prescribed:
It may be noted that the branch auditor shall prepare a report on the accounts of the branch examined
by him and send it to the auditor of the company who shall deal with it in his report in such manner
as he considers necessary.
Further as per rule 12 of the Companies (Audit and Auditors) Rules, 2014, the branch auditor shall
submit his report to the company’s auditor and reporting of fraud by the auditor shall also extend to
such branch auditor to the extent it relates to the concerned branch.
Question 2
When the accounts of the branch are audited by a person other than the company’s auditor,
there is need for a clear understanding of the role of such auditor and the company’s auditor
in relation to the audit of the accounts of the branch and the audit of the company as a whole.
Explain. (MTP 4 Marks Oct 20, RTP Nov’18)
Answer 2
Using the Work of another Auditor: When the accounts of the branch are audited by a person other
than the company’s auditor, there is need for a clear understanding of the role of such auditor and the
company’s auditor in relation to the audit of the accounts of the branch and the audit of the company
as a whole; also, there is great necessity for a proper rapport between these two auditors for the
purpose of an effective audit. In recognition of these needs, the Council of the Institute of Chartered
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Accountants of India has dealt with these issues in SA 600, “Using the Work of another Auditor”.
It makes clear that in certain situations, the statute governing the entity may confer a right on the
principal auditor to visit a component and examine the books of account and other records of the
said component, if he thinks it necessary to do so. Where another auditor has been appointed for the
component, the principal auditor would normally be entitled to rely upon the work of such auditor
unless there are special circumstances to make it essential for him to visit the component and/or to
examine the books of account and other records of the said component. Further, it requires that the
principal auditor should perform procedures to obtain sufficient appropriate audit evidence, that the
work of the other auditor is adequate for the principal auditor’s purposes, in the context of the specific
assignment. When using the work of another auditor, the principal auditor should ordinarily perform
the following procedures:
(a) advise the other auditor of the use that is to be made of the other auditor’s work and report and
make sufficient arrangements for co-ordination of their efforts at the planning stage of the audit.
The principal auditor would inform the other auditor of matters such as are as requiring special
consideration, procedures for the identification of inter -component transactions that may require
disclosure and the time-table for completion of audit; and
(b) advise the other auditor of the significant accounting, auditing and reporting requirements and
obtain representation as to compliance with them.
The principal auditor might discuss with the other auditor the audit procedures applied or review
a written summary of the other auditor’s procedures and findings which may be in the form of a
completed questionnaire or check-list. The principal auditor may also wish to visit the other auditor.
The nature, timing and extent of procedures will depend on the circumstances of the engagement and
the principal auditor’s knowledge of the professional competence of the other auditor. This knowledge
may have been enhanced from the review of the previous audit work of the other auditor.
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Question 1
The practice of appointing Chartered Accountants as joint auditors is quite widespread in big
companies and corporations. Explain stating the advantages of the joint audit. (MTP 4 Marks
April ’23, RTP Nov ’19, Old & New SM)
Answer 1
Joint Audit: The practice of appointing Chartered Accountants as joint auditors is quite widespread
in big companies and corporations. Joint audit basically implies pooling together the resources and
expertise of more than one firm of auditors to render an expert job in a given time period which may
be difficult to accomplish acting individually. It essentially involves sharing of the to tal work. This
is by itself a great advantage.
In specific terms the advantages that flow may be the following:
(i) Sharing of expertise.
(ii) Advantage of mutual consultation.
(iii) Lower workload.
(iv) Better quality of performance.
(v) Improved service to the client.
(vi) Displacement of the auditor of the company taken over in a takeover often obviated.
(vii) In respect of multi-national companies, the work can be spread using the expertise of the local
firms which are in a better position to deal with detailed work and the local laws and regulations.
(viii)Lower staff development costs.
(ix) Lower costs to carry out the work.
(x) A sense of healthy competition towards a better performance
Question 2
Before the commencement of the audit, the joint auditors should discuss and develop a joint
audit plan. In developing the joint audit plan, the joint auditors should identify division of audit
areas and common audit areas. Explain stating the other relevant considerations in this regard.
(RTP May ’20, PYP 4 Marks, Nov ‘19)
Answer 2
Before the commencement of the audit, the joint auditors should discuss and develop a joint audit
plan. In developing the joint audit plan, the joint auditors should:
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(a) identify division of audit areas and common audit areas;

(b) ascertain the reporting objectives of the engagement;
(c) consider and communicate among all joint auditors the factors that are significant
(d) in directing the engagement team’s efforts;
(e) consider the results of preliminary engagement activities, or similar engagements performed earlier.
(f) ascertain the nature, timing and extent of resources necessary to accomplish the engagement.
Question 3
Examine with reasons whether the following statements are correct or incorrect.
Joint auditor is always bound by the views of majority of the joint auditors regarding matters
to be covered in report. (PYP 2 Marks, May ‘19)
Answer 3
Incorrect- Where the joint auditors are in disagreement with regard to the opinion or any matters
to be covered by the audit report, they shall express their opinion in a separate audit report. In such
circumstances, the audit report(s) issued by the joint auditor(s) shall make a reference to each other’s
audit report(s). Therefore, joint auditor is not bound by the views of the majority of the joint auditors
regarding the matters to be covered in the audit report.
Question 4
HMB Limited’s business has grown from one state of India to various countries of the world.
Since the business has increased manifold, the management decided to appoint joint auditors for
conducting the statutory audit of the company. They appointed three CA firms for it. For which
audit work the joint auditors will be jointly & severally responsible? (PYP 4 Marks Nov 22)
Answer 4
Joint Audit of Financial Statements:
As per SA 299, “Joint Audit of Financial Statements”, all the joint auditors shall be jointly and
severally responsible for:
i. the audit work which is not divided among the joint auditors and is carried out by all joint auditors;
ii. decisions taken by all the joint auditors under audit planning in respect of common audit areas;
iii. matters which are brought to the notice of the joint auditors by any one of them and there is an
agreement among the joint auditors on such matters;
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iv. examining that the financial statements of the entity comply with the requirements of the relevant
statutes;
v. presentation and disclosure of the financial statements as required by the applicable financial
reporting framework;
vi. ensuring that the audit report complies with the requirements of the relevant statutes, applicable
Standards on Auditing and other relevant pronouncements issued by ICAI.

1. Which of the following is not an advantage of Joint Audit:
(a) Sharing of expertise.
(b) General superiority complexes of some auditors.
(c) Lower workload.
(d) Displacement of the auditor of the company taken over in a take - over often obviated. (MTP 1
Mark Oct 19)
Ans: (b)
2. Which of the following is correct, in case of joint audit, where there is disagreement with
regard to the opinion or any matters to be covered by the audit report.
(a) The auditors shall express their opinion in separate audit report.
(b) The audit report(s) issued by the joint auditor(s) shall make a reference to each other’s audit
report(s).
(c) Both (a) and (b) are correct
(d) The auditor who is having a separate opinion is bound by the opinion of the majority of the
auditors and needs to issue a common audit report. (MTP 2 Marks March ‘21)
Ans: (c)
3. To jointly audit books of accounts of WZ Limited for the financial year 2020-21 two different
firms of Chartered Accountants namely MH and Associates and NR and Associates were
appointed. MH and Associates and NR and Associates can together be called as:
(a) Principal Auditors of WZ Limited.
(b) Branch Auditors of WZ Limited.
(c) Individual Auditors of WZ Limited.
(d) Joint Auditors of WZ Limited. (RTP Nov ’21)
Ans: (d)
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Reporting Requirements under Companies Act

Question 1
The auditor is not required to report on the matters specified in sub-section (1) of Section 143
unless he has any special comments to make on any of the items referred to therein. If he is
satisfied as a result of the inquiries, he has no further duty to report that he is so satisfied.
Explain clearly stating the matters for which the auditor has to perform his duty of inquiry
under this section. (MTP 5 Marks Aug ‘18)
Answer 1
Sections 143 of the Companies Act, 2013 specifies the duties of an auditor of a company in a quite
comprehensive manner. It is noteworthy that scope of duties of an auditor has generally been extending
over all these years.
Section 143(1) - Duty of Auditor to Inquire on certain matters: It is the duty of auditor to inquire into
the following matters-
(a) whether loans and advances made by the company on the basis of security have been properly
secured and whether the terms on which they have been made are prejudicial to the interests of the
company or its members;
(b) whether transactions of the company which are represented merely by book entries are prejudicial
to the interests of the company;
(c) where the company not being an investment company or a banking company, whether so much of
the assets of the company as consist of shares, debentures and other securities have been sold at a
price less than that at which they were purchased by the company;
(d) whether loans and advances made by the company have been shown as deposits;
(e) whether personal expenses have been charged to revenue account;
(f) where it is stated in the books and documents of the company that any shares have been allotted
for cash, whether cash has actually been received in respect of such allotment, and if no cash has
actually been so received, whether the position as stated in the account books and the balance
sheet is correct, regular and not misleading.
The opinion of the Research Committee of the Institute of Chartered Accountants of India on section
143(1) is reproduced below:
“The auditor is not required to report on the matters specified in sub-section (1) unless he has any
special comments to make on any of the items referred to therein. If he is satisfied as a result of the
inquiries, he has no further duty to report that he is so satisfied. In such a case, the content of the
Auditor’s Report will remain exactly the same as the auditor has to inquire and apply his mind to
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the information elicited by the enquiry, in deciding whether or not any reference needs to be made
in his report. In our opinion, it is in this light that the auditor has to consider his duties under section
143(1).” Therefore, it could be said that the auditor should make a report to the members in case he
finds answer to any of these matters in adverse.
Question 2
During the audit of PQR Ltd. you as an auditor requested officers of the company to have access
to secretarial records and correspondence which they refused to provide. Comment. (MTP 4
Marks April 19, RTP May ’21)
Answer 2
Right of Access to secretarial records and correspondence:
1. Section 143(1) of the Companies Act, 2013 grants powers to the auditor that every auditor has a right
of access, at all times, to the books of account and vouchers of the company kept at Registered or
Head Office, branches and subsidiaries in the case of a Holding Company for conducting the audit.
2. Further, he is also entitled to require from the officers of the company such information and
explanations which he considers necessary for the proper performance of his duties as Auditor.
Therefore, he has a statutory right to inspect the secretarial records and correspondence.
3. In order to verify actions of the company and to vouch and verify some of the transactions of the
company, it is necessary for the auditor to refer to the decisions of the shareholders and/or the
directors of the company. It is, therefore, essential for the auditor to refer to the secretarial records
and correspondence which also includes Minute book. In the absence of the same, the auditor may
not be able to vouch/verify certain transactions of the company.
4. The refusal to provide access to secretarial records and correspondence shall constitute limitation
of scope as far as the auditor’s duties are concerned.
5. The auditor may examine whether by performing alternative procedures, the auditor can substantiate
the assertions or else he shall have to either qualify the report or give a disclaimer of opinion.
Question 3
Examine with reasons (in short) whether the following statement is correct or incorrect :
The auditor has to report under section 143 of companies act, 2013 whether company has
adequate internal controls in place and overall effectiveness of such internal controls. (MTP 2
Marks Oct 20)
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Answer 3
Incorrect: Under provisions of Section 143 of the companies Act, 2013, auditor has to report whether
the company has adequate internal financial controls with reference to financial statements in place
and operating effectiveness of such controls. The auditor has to report on adequacy and effectiveness
of internal financial controls only and not internal controls.
Question 4
The auditor has to make inquires on certain matters under section 143(1) of Companies Act,
2013. Discuss those matters. (MTP 6 Marks Oct 20, RTP Nov’18, Old SM)
Answer 4
The auditor has to make inquires on following matters under section 143(1) of Companies Act, 2013:-
(d) whether loans and advances made by the company have been shown as deposits;
(e) whether personal expenses have been charged to revenue account;
(f) where it is stated in the books and documents of the company that any shares have been allotted
for cash, whether cash has actually been received in respect of such allotment, and if no cash has
actually been so received, whether the position as stated in the account books and the balance
sheet is correct, regular and not misleading.
Question 5
The auditor’s reporting on internal financial control will be applicable with respect to interim
financial statements. Discuss (MTP 3 Marks April ’21 & April ’23, PYP 2 Marks,Nov ’19)
Answer 5
Clause (i) of Sub-section 3 of Section 143 of the Act requires the auditors’ report to state whether the
company has adequate internal financial controls system in place and the operating effectiveness of
such controls.
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It may be noted that auditor’s reporting on internal financial controls is a requirement specified in the
Act and, therefore, will apply only in case of reporting on financial statements prepared under the Act
and reported under Section 143.
Accordingly, reporting on internal financial controls will not be applicable with respect to interim
financial statements, such as quarterly or half-yearly financial statements, unless such reporting is
required under any other law or regulation.
In view of above, the given statement is incorrect.
Question 6
Examine with reasons (in short) whether the following statements are correct or incorrect: An
auditor has to report on the matters specified in section 143(1) of the Companies Act, 2013.
(MTP 2 Marks March 22, RTP Nov ’22)
Answer 6
Incorrect: The auditor is not required to report on the matters specified in section 143(1) of the Companies
Act, 2013 unless he has any special comments to make on any of the items referred to therein. If he is
satisfied as a result of the inquiries, he has no further duty to report that he is so satisfied. However, the
auditor should make a report to the members in case he finds answer to any of these matters in adverse.
Question 7
Under provisions of Section 143(2), the auditor shall make a report to the members of the
company on the accounts examined by him. Explain along with relevant rule of The Companies
(Audit and Auditors) Rules, 2014 (MTP 4 Marks March 22)
Answer 7
Under provisions of Section 143(2), the auditor shall make a report to the members of the company
on the accounts examined by him and on every financial statements which are required by or under
this Act to be laid before the company in general meeting and the report shall after taking into account
the provisions of this Act, the accounting and auditing standards and matters which are required to be
included in the audit report under the provisions of this Act or any rules made thereunder or under any
order made under sub-section (11).
Further, auditor has to report whether to best of his information and knowledge, the said accounts,
financial statements give a true and fair view of the state of the company’s affairs as at the end of its
financial year and profit or loss and cash flow for the year and following matters as prescribed under
relevant rules (Rule 11):-
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(i) whether the company has disclosed the impact, if any, of pending litigations on its financial
position in its financial statement;
(ii) whether the company has made provision, as required under any law or accounting standards, for
material foreseeable losses, if any, on long term contracts including derivative contracts;
(iii) whether there has been any delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the company.
(iv) (1) Whether the management has represented that, to the best of its knowledge and belief, other
than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested
(either from borrowed funds or share premium or any other sources or kind of funds) by the
company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”),
with the understanding, whether recorded in writing or otherwise, that the Intermediary shall,
whether, directly or indirectly lend or invest in other persons or entities identified in any manner
whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or provide any guarantee,
security or the like on behalf of the Ultimate Beneficiaries;
(2) Whether the management has represented, that, to the best of its knowledge and belief, other
than as disclosed in the notes to the accounts, no funds have been received by the company from
any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding,
whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly,
lend or invest in other persons or entities identified in any manner whatsoever by or on behalf
of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries; and
(3) Based on such audit procedures that the auditor has considered reasonable and appropriate
in the circumstances, nothing has come to their notice that has caused them to believe that the
representations under sub-clause (i) and (ii) contain any material mis-statement.
(v) Whether the dividend declared or paid during the year by the company is in compliance with
section 123 of the Companies Act, 2013
(vi) Whether the company has used any accounting software for maintaining books of accounts
which has a feature of recording audit trail (edit log) facility and the same has been operated
throughout the year for all transactions recorded in the software and the audit trail features have
not been tampered with and the audit trail has been preserved by the company as per statutory
requirements for record retention. (As per amendment Nov23)
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Question 8
The auditor shall make a report to the members of the company on the accounts examined by
him.
Explain with reference to relevant provisions of the Companies Act, 2013. (MTP 3 Marks March
’23, RTP Nov ’19, Old SM)
Answer 8
Right to report to the members of the company on the accounts examined by him – The auditor
shall make a report to the members of the company on the accounts examined by him and on every
financial statements which are required by or under this Act to be laid before the company in general
meeting and the report shall after taking into account the provisions of this Act, the accounting
and auditing standards and matters which are required to be included in the audit report under the
provisions of this Act or any rules made there under or under any order made under this section and
to the best of his information and knowledge, the said accounts, financial statements give a true and
fair view of the state of the company’ s affairs as at the end of its financial year and profit or loss and
cash flow for the year and such other matters as may be prescribed.
Question 9
CA E was appointed statutory auditor of XYZ Private Limited in AGM held in the month of
August, 2023 for the first time for audit of financial statements of the company from year 2023-
24 onwards.
Since he is new to the company, he wants to be sure about integrity of accounting records. In
this regard, he wants to ensure that software used by company for maintenance of its books of
accounts is capable of tracking user activities and changes made to entries in books of accounts,
if any, during the course of year.
What CA E is looking for in the given situation? Discuss the reporting requirements for CA E
in this matter to be included in audit report to be issued under the Companies Act, 2013. (MTP
3 Marks Oct’23)
Answer 9
In the given situation, the auditor is looking for a feature of “audit trail” in software used by company
for maintenance of books of accounts. Under section 143(3) of Companies Act, 2013, it has to be
reported by the auditor as under: -
Whether the company has used such accounting software for maintaining its books of account which
has a feature of recording audit trail (edit log) facility and the same has been operated throughout the
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year for all transactions recorded in the software and the audit trail feature has not been tampered with
and the audit trail has been preserved by the company as per the statutory requirements for record
retention.
Question 10
Discuss significance of a company auditor’s right/power to obtain information and explanation
from officers of the company. (RTP Nov ’21)
Answer 10
The right of the auditor to obtain from the officers of the company such information and explanations
as he may think necessary for the performance of his duties as auditor is a wide and important power.
In the absence of such power, the auditor would not be able to obtain details of amount collected by
the directors, etc. from any other company, firm or person as well as of any benefits in kind derived
by the directors from the company, which may not be known from an examination of the books. It is
for the auditor to decide the matters in respect of which information and explanations are required by
him.
Therefore, such a right/power is quite significant for discharge of duty of an auditor of a company to
report to the members of the company on accounts examined by him.
Question 11
Explain Auditor’s right to-
Report to the members of the company on the accounts examined by him Obtain information
and explanation from officers. (RTP Nov 18)
Answer 11
Right to report to the members of the company on the accounts examined by him - The auditor
shall make a report to the members of the company on the accounts examined by him and on every
financial statements which are required by or under this Act to be laid before the company in general
meeting and the report shall after taking into account the provisions of this Act, the accounting
and auditing standards and matters which are required to be included in the audit report under the
provisions of this Act or any rules made there under or under any order made under this section and to
the best of his information and knowledge, the said accounts, financial statements give a true and fair
view of the state of the company’s affairs as at the end of its financial year and profit or loss and cash
flow for the year and such other matters as may be prescribed.
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Right to obtain information and explanation from officers - This right of the auditor to obtain
from the officers of the company such information and explanations as he may think necessary for
the performance of his duties as auditor is a wide and important power. In the absence of such power,
the auditor would not be able to obtain details of amount collected by the directors, etc. from any
other company, firm or person as well as of any benefits in kind derived by the directors from the
company, which may not be known from an examination of the books. It is for the auditor to decide
the matters in respect of which information and explanations are required by him. When the auditor
is not provided the information required by him or is denied access to books, etc., his only remedy
would be to report to the members that he could not obtain all the information and explanations he had
required or considered necessary for the performance of his duties as auditors.
Question 12
As per Sec 143(3)(j) of the Companies Act, 2013, the auditor’s report shall also include such
other matters as may be prescribed by Rule 11 of the Companies (Audit and Auditors) Rule,
2014. Discuss those matters on which views and comments of the auditor are required. (RTP
Nov ’23, PYP 3 Marks Dec ’21)
Answer 12
Rule 11 of the Companies (Audit and Auditors) Rules, 2014 prescribes the other matters to be included
in auditor’s report. The auditor’s report shall also include their views and comments on the following
matters, namely:
(i) whether the company has disclosed the impact, if any, of pending litigations on its financial
position in its financial statement;
(ii) whether the company has made provision, as required under any law or accounting standards, for
material foreseeable losses, if any, on long term contracts including derivative contracts;
(iii) whether there has been any delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the company.
(iv) (1) Whether the management has represented that, to the best of it’s knowledge and belief, other
than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested
(either from borrowed funds or share premium or any other sources or kind of funds) by the
company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”),
with the understanding, whether recorded in writing or otherwise, that the Intermediary shall,
whether, directly or indirectly lend or invest in other persons or entities identified in any manner
whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or provide any guarantee,
security or the like on behalf of the Ultimate Beneficiaries;
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(2) Whether the management has represented, that, to the best of it’s knowledge and belief, other
than as disclosed in the notes to the accounts, no funds have been received by the company from
any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding,
whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly,
lend or invest in other persons or entities identified in any manner whatsoever by or on behalf
of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries; and
(3) Based on such audit procedures that the auditor has considered reasonable and appropriate
in the circumstances, nothing has come to their notice that has caused them to believe that the
representations under sub-clause (1) and (2) contain any material misstatement.
(v) Whether the dividend declared or paid during the year by the company is in compliance with
section 123 of the Companies Act, 2013.
(vi) Whether the company has used such accounting software for maintaining its books of account
which has a feature of recording audit trail (edit log) facility and the same has been operated
throughout the year for all transactions recorded in the software and the audit trail feature has not
been tampered with and the audit trail has been preserved by the company as per the statutory
requirements for record retention
Question 13
RJ Limited is in the business of trading of cycles having Head Office at Delhi and branch at
Mumbai. Statutory audit of Head Office was to be done by CA D and statutory audit of branch
at Mumbai was to be done by CA M. During the course of audit by CA D at head office, CA D
Wanted to visit branch at Mumbai and verify the inventory records at Mumbai. The management
of RJ Limited did not allow CA D to visit Mumbai office and verify the inventory records as the
branch audit of Mumbai was already being undertaken by another CA M.
In the above situation, discuss the rights available with CA D in terms of the Companies Act,
2013. (PYP 3 Marks, Nov’20)
Answer 13
Section 143(1) of the Act provides that the auditor of a company, at all times, shall have a right of
access to the books of account and vouchers of the company, whether kept at the registered office of
the company or at any other place and he is entitled to require from the officers of the company such
information and explanation as he may consider necessary for the performance of his duties as auditor.
(a) The right of access is not limited to those books and records maintained at the registered or head
office so that in the case of a company with branches, the right also extends to the branch records,
if the auditor considers it necessary to have access thereto as per Section143(8).
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(b) In the given case where CA D was appointed as Statutory Auditor of Head office of RJ Ltd and
CA M was appointed to conduct Statutory Audit of Branch office of RJ Ltd., CA D wanted to
visit Mumbai Branch to verify the inventory records at Mumbai but management of RJ Ltd did
not allow CA D to verify the inventory records at its Mumbai Branch on the ground that branch
audit was already being undertaken by another CA M.
(c) Keeping in view the above provisions of the Companies Act and facts of the case, it can be
concluded that CA D has a right to visit the branch for verifying inventory records at Mumbai
even if the branch accounts are audited by another auditor CA M, if he considers it necessary to
do so for the performance of his duties as an auditor.
Question 14
Management of the organization is solely responsible for the compliance of auditing standards
while preparing financial statements. (PYP 2 Marks, Nov 2018)
Answer 14
Incorrect: As per Section 143(9) of the Companies Act, 2013, every auditor shall comply with the
auditing standards
Question 15
During the course of audit of PQR Ltd, the statutory auditor CA G came across payments
made to various creditors aggregating to ` 75 lakhs. On verifying the same it is found that the
accounts manager had accounted for fake invoices of credit purchases for ` 25 lakhs in the
books of account in the name of one bogus creditor Mr. X.
Discuss the duties of auditor with reference to the provisions of Companies Act, 2013 and also
the disclosure requirements in the Board’s Report. (PYP 4 Marks May ‘23)
Answer 15
The auditor shall report under clause (xi) of the CARO, 2020 that:
Whether any fraud by the company or any fraud on the company has been noticed or reported during
the year, if yes, the nature and the amount involved is to be indicated;
Reporting to the Audit Committee or Board: Sub-section (12) of section 143 of the Companies Act,
2013 further prescribes that in case of a fraud involving lesser than the specified amount [i.e. less than
` 1 crore], the auditor shall report the matter to the audit committee constituted under section 177 or
to the Board in other cases within such time and in such manner as may be prescribed.
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In this regard, sub-rule (3) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 states that
in case of a fraud involving lesser than the amount specified in sub- rule (1) [i.e. less than ` 1 crore],
the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board
immediately but not later than 2 days of his knowledge of the fraud and he shall report the matter
specifying the following:
(i) Nature of Fraud with description;
(ii) Approximate amount involved; and
(iii) Parties involved.
Disclosure in the Board’s Report: Sub-section (12) of section 143 of the Companies Act, 2013
furthermore prescribes that the companies, whose auditors have reported frauds under this sub-section
(12) to the audit committee or the Board, but not reported to the Central Government, shall disclose
the details about such frauds in the Board’s report in such manner as may be prescribed.
In this regard, sub-rule (4) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 states that
in the Board’s Report the following details of each of the fraud reported to the Audit Committee or the
Board under sub- rule (3) during the year:
(i) Nature of Fraud with description;
(ii) Approximate Amount involved;
(iii) Parties involved, if remedial action not taken; and
(iv) Remedial actions taken.
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1. Which of the following is correct as per section 143(10) of the Companies Act, 2013:
(a) IFAC may prescribe the standards of auditing as recommended by the Institute of Chartered
Accountants of India, in consultation with and after examination of the recommendations made
by the National Financial Reporting Authority.
(b) the International Auditing Standards Board may prescribe the standards of auditing as recommended
by the Institute of Chartered Accountants of India, in consultation with and after examination of
the recommendations made by the National Financial Reporting Authority.
(c) the MCA may prescribe the standards of auditing as recommended by the Institute of Chartered
Accountants of India, in consultation with and after examination of the recommendations made by
the National Financial Reporting Authority.
(d) the Central Government may prescribe the standards of auditing as recommended by the Institute of
Chartered Accountants of India, in consultation with and after examination of the recommendations
made by the National Financial Reporting Authority. (MTP 1 Mark Oct 19)
Ans: (d)
2. Which of the following is not a duty of auditor to report under section 143 (1)
(d) whether the report on the accounts of any branch office of the company audited under subsection
(8) by a person other than the company’s auditors has been sent to him under the proviso to that
sub-section and the manner in which he has dealt with it in preparing his report; (MTP 1 Mark Oct
19)
Ans: (d)
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3. Which of the following is FALSE regarding UDIN? (Unique document identification number)
(a) It is to be generated on UDIN portal.
(b) Its basic objective is to help ICAI in keeping and maintaining an online registry of different
services provided by all of its members.
(c) It has to be generated and stated for each audit report signed by a Chartered Accountant.
(d) It has to be generated and stated for each certificate signed by a Chartered Accountant. (MTP 1
Marks Oct’22)
Ans: (b)
4. UDIN (Unique Document Identification Number) is required to be stated by practising

Chartered Accountant on: -
(a) Each audit report only
(b) Each audit report and each cerGficate
(c) Each audit report issued under Companies Act, 2013 only
(d) Each audit report issued under Companies Act, 2013 only and each cerGficate (MTP 1 Mark Oct ’23)
Ans: (b)
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CARO
Question 1
Discuss the reporting requirements under CARO 2020, with respect to the moneys raised by the
company by way of initial public offer or further public offer and where the company has made
any preferential allotment or private placement of shares. (New SM, MTP 4 Marks April 19,
PYP 2 Marks May ’18, PYP 4 Marks Dec’21)
Answer 1
The following are the disclosure requirements as per CARO 2020, with respect to the moneys raised
by the company by way of initial public offer or further public offer and where the company has made
any preferential allotment or private placement of shares.
(a) whether moneys raised by way of initial public offer or further public offer (including debt
instruments) during the year were applied for the purposes for which those are raised, if not, the
details together with delays or default and subsequent rectification, if any, as may be applicable,
be reported;
(b) whether the company has made any preferential allotment or private placement of shares or
convertible debentures (fully, partially or optionally convertible) during the year and if so, whether
the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied
with and the funds raised have been used for the purposes for which the funds were raised, if not,
provide details in respect of amount involved and nature of noncompliance;
Question 2
Discuss which class of companies are specifically exempt from the applicability of CARO 2016
(CARO 2020). (MTP 3 Marks Oct 19, New SM)
Answer 2
CARO 2016 (CARO 2020) specifically exempts the following class of companies:
(i) A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949;
(ii) An insurance company as defined under the Insurance Act,1938;
(iii) A company licensed to operate under section 8 of the Companies Act;
(iv) A One Person Company as defined under clause (62) of section 2 of the Companies Act;
(v) A small company as defined under clause (85) of section 2 of the Companies Act; and
(vi) A private limited company, not being a subsidiary or holding company of a public company,
having a paid up capital and reserves and surplus not more than rupees one crore as on the balance
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sheet date and which does not have total borrowings exceeding rupees one crore from any bank
or financial institution at any point of time during the financial year and which does not have a
total revenue as disclosed in Scheduled III to the Companies Act, 2013 (including revenue from
discontinuing operations) exceeding rupees ten crores during the financial year asper the financial
statements.
Question 3
M Ltd. has given certain loans to related parties and also has accepted certain deposits. As an
auditor, how will you include the above items in paragraph 3 of CARO, 2016 (CARO 2020)?
(MTP 3 Marks March ’21, PYP 4 Marks, Nov ’19)
Answer 3
Clause (iii) of paragraph 3 of CARO, 2016 (CARO 2020) states
Whether the company has granted any loans, secured or unsecured to companies, firms, Limited
Liability Partnerships or other parties covered in the register maintained under section 189 of the
Companies Act, 2013. If so,
(i) As follows-
A) Aggregate amount during the year, outstanding at the balance sheet date with respect to such
loans and advances to subsidiaries, joint ventures and associates.
B) Aggregate amount during the year, outstanding at the balance sheet date with respect to such
loans and advances to parties other than subsidiaries, joint ventures and associates.
(ii) Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s
interest;
(iii) Whether the schedule of repayment of principal and payment of interest has been stipulated and
whether the repayments or receipts are regular;
(iv) if the amount is overdue, state the total amount overdue for more than ninety days, and whether
reasonable steps have been taken by the company for recovery of the principal and interest;
(v) Specify the amount of any Renew or Extension or Fresh Loan granted to settle the overdues of
existing loans given to same parties.
(vi) Reporting of any loan granted which are repayable on demand or without specifying any terms
or period of payment.
Further, Clause (v) of paragraph 3 of CARO, 2016 (CARO 2020) states in case the company has
accepted deposits,
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(i) whether the directives issued by the Reserve Bank of India and the provisions of sections 73
to 76 or any: ether relevant provisions of the Companies Act, 2013 and the rules framed there
under, where applicable, have been complied with? If not, the nature of such contraventions be
stated;
(ii) If an order has been passed by Company Law Board or National Company Law Tribunal or
Reserve Bank of India or any court or any other tribunal, whether the same has been complied
with or not?
In the given situation, M Ltd. has given certain loans to related parties and also has accepted certain
deposits. Thus, the auditor is required to report the same as per clause (iii) and (v) of Paragraph 3 of
CARO, 2016 (CARO 2020).
Question 4
Provision of CARO, 2016 (CARO 2020) is not applicable to ABC Pvt. Ltd., a subsidiary of XYZ
Ltd. (a public company) having fully paid up Capital and Reserves & Surplus of Rs. 50 lakhs,
Secured loan from bank of Rs. 90 Lakhs and Turnover of Rs. 5 Crore, for the financial year
2018-19. (MTP 3 Marks April ’21, PYP 2 Marks, Nov ’19)
Answer 4
The CARO specifically exempts a private limited company, not being a subsidiary or holding company
of a public company, having a paid up capital and reserves and surplus not more than rupees 1 crore
as on the balance sheet date and which does not have total borrowings exceeding rupees 1 crore from
any bank or financial institution at any point of time during the financial year and which does not
have a total revenue as disclosed in Scheduled III to the Companies Act, 2013 (including revenue
from discontinuing operations) exceeding rupees 10 crore during the financial year as per the financial
statements. From the above, it is clear that ABC Pvt. Ltd. is a subsidiary of XYZ Ltd. and hence not
exempt from CARO, 2016 (CARO 2020) although it is satisfying the conditions that allow exemption
to private limited company which is not a subsidiary or holding company of a public company.
Question 5
State the matters to be included in auditor’s report as per CARO, 2020 regarding “Default in
repayment of loan or borrowing to a financial institution, bank etc.” (MTP 3 Marks March 22,
MTP March’19, 4 Marks, MTP-March’18, 4 Marks, MTP-Nov 21, 3 Marks, MTP 4 Marks
April ’21, RTP May’18)
OR
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ABC Ltd. is a public company, which has availed various loans and cash credit facilities from
Banks and other financial institutions. The company has defaulted in repayments of such
borrowings during the year under audit. What are the reporting requirements in this regard
under the Companies (Auditor’s Report) Order, 2020? (PYP 4 Marks May ‘23)
Answer 5
The auditor is required to report as per clause (ix) of paragraph 3 of CARO 2020
(a) whether the company has defaulted in repayment of loans or other borrowings or in the payment of interest
thereon to any lender, if yes, the period and the amount of default to be reported as per the format below:-
Nature of
Amount not Whether No. of days
borrowing, Name of Remarks, if
paid On due principal or delay or
including debt lender any
date interest unpaid
securities
lender wise
details to
be provided
in case of
defaults
to banks,
financial
institutions
and
Government.
(a) whether the company is a declared wilful defaulter by any bank or financial institution or other
lender;
(b) whether term loans were applied for the purpose for which the loans were obtained; if not, the
amount of loan so diverted and the purpose for which it is used may be reported;
(c) whether funds raised on short term basis have been utilised for long term purposes, if yes, the
nature and amount to be indicated;
(d) whether the company has taken any funds from any entity or person on account of or to meet the
obligations of its subsidiaries, associates or joint ventures, if so, details thereof with nature of such
transactions and the amount in each case;
(e) whether the company has raised loans during the year on the pledge of securities held in its
subsidiaries, joint ventures or associate companies, if so, give details thereof and also report if the
company has defaulted in repayment of such loans raised;
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Question 6
State the matters to be included in auditor’s report as per CARO, 2020 regarding - Verification
of inventory and working capital limits. (MTP 3 Marks April 22)
Answer 6
Matters to be included in Auditor’s report as per CARO 2020:
(i) Clause (ii) of Para 3 of CARO, 2020, requires the auditor to report
(a) whether physical verification of inventory has been conducted at reasonable intervals by the
management and whether, in the opinion of the auditor, the coverage and procedure of such
verification by the management is appropriate; whether any discrepancies of 10% or more in the
aggregate for each class of inventory were noticed and if so, whether they have been properly
dealt with in the books of account;
(b) whether during any point of time of the year, the company has been sanctioned working capital
limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis
of security of current assets; whether the quarterly returns or statements filed by the company with
such banks or financial institutions are in agreement with the books of account of the Company, if
not, give details;
Question 7
Discuss the reporting requirements as per CARO, 2020, regarding:
(i) Inventory and
(ii) Deposits accepted by company or amounts which are deemed to be deposits. (MTP 4 Marks
Oct’22)
Answer 7
Matters to be included as per CARO, 2020:
Inventory
Clause (ii)
(a) whether physical verification of inventory has been conducted at reasonable intervals by the
management and whether, in the opinion of the auditor, the coverage and procedure of such
verification by the management is appropriate; whether any discrepancies of 10% or more in the
aggregate for each class of inventory were noticed and if so, whether they have been properly
dealt with in the books of account;
(b) whether during any point of time of the year, the company has been sanctioned working capital
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limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis
of security of current assets; whether the quarterly returns or statements filed by the company with
such banks or financial institutions are in agreement with the books of account of the Company,
if not, give details;
Deposits accepted by company or amounts which are deemed to be deposits
Clause (v)
In respect of deposits accepted by the company or amounts which are deemed to be deposits, whether
the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other
relevant provisions of the Companies Act and the rules made thereunder, where applicable, have been
complied with, if not, the nature of such contraventions be stated; if an order has been passed by
Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or
any other tribunal, whether the same has been complied with or not;
Question 8
Discuss the reporting requirements as per CARO, 2020, regarding:
(i) disputed and undisputed statutory dues (MTP 2 Marks March ’23, MTP 2 Marks Sep’22,
RTP May’18, MTP 2.5 Marks Aug ’18, MTP 2 Marks May 20) and
(ii) internal audit system of the company (MTP 2 Marks March ’23, MTP 2 Marks Sep’22)
Answer 8
Matters to be included as per CARO, 2020:
Undisputed and Disputed Statutory dues Clause (vii)
(a) whether the company is regular in depositing undisputed statutory dues including Goods and
Services Tax, provident fund, employees’ state insurance, income tax, sales- tax, service tax, duty
of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate
authorities and if not, the extent of the arrears of outstanding statutory dues as on the last day
of the financial year concerned for a period of more than six months from the date they became
payable, shall be indicated;
(b) where statutory dues referred to in sub-clause (a) have not been deposited on account of any
dispute, then the amounts involved and the forum where dispute is pending shall be mentioned (a
mere representation to the concerned Department shall not be treated as a dispute).
Internal audit system
Clause (xiv)
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(a) whether the company has an internal audit system commensurate with the size and nature of its
business;
(b) whether the reports of the Internal Auditors for the period under audit were considered by the
statutory auditor.
Question 9
The head accountant of a company entered fake invoices of credit purchases in the books of
account aggregate of ` 50 lakh and cleared all the payments to such bogus creditor. How will you
deal as an auditor? (RTP May ’20)
Answer 9
Here, the auditor of the company is required to report the fraudulent activity to the Board or Audit
Committee (as the case may be) within 2 days of his knowledge of fraud. Further, the company is also
required to disclose the same in Board’s Report. It may be noted that the auditor need not to report the
central government as the amount of fraud involved is less than ` 1 crore, however, reporting under
CARO, 2016 (CARO 2020) is required.
Question 10
State with reason (in short) whether the following statements are true or false:(RTP May ’22)
According to Para 3(1)(d) of CARO, 2020, an auditor needs to report whether the company
has revalued its Property, Plant and Equipment (including Right of Use assets) or intangible
assets or both during the year and, if so, whether the revaluation is based on the valuation by a
Registered Valuer; specify the amount of change, if change is 5% or more in the aggregate of the
net carrying value of each class of Property, Plant and Equipment or intangible assets.
Answer 10
Incorrect: According to Para 3(1)(d) of CARO, 2020, an auditor needs to report whether the company
has revalued its Property, Plant and Equipment (including Right of Use assets) or intangible assets
or both during the year and, if so, whether the revaluation is based on the valuation by a Registered
Valuer; specify the amount of change, if change is 10% or more in the aggregate of the net carrying
value of each class of Property, Plant and Equipment or intangible assets
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Question 11
Explain the Reporting requirements the auditor should ensure under CARO 2020 related to
PPE and Intangible assets. (RTP May ’22, MTP 2.5 Marks Aug ’18, MTP 3 Marks Oct’18, MTP
2 Marks May 20, PYP 3 Marks May ’19, RTP Nov ’21)
Answer 11
Reporting for PPE and Intangible assets - Clause (i) of Para 3 of CARO ,2020, requires the auditor
to include a statement in the auditor’s report on the following matters, namely -
(a) (A) whether the company is maintaining proper records showing full particulars, including
quantitative details and situation of Property, Plant and Equipment;
(B) whether the company is maintaining proper records showing full particulars of intangible
assets;
(b) whether these Property, Plant and Equipment have been physically verified by the management at
reasonable intervals; whether any material discrepancies were noticed on such verification and if
so, whether the same have been properly dealt with in the books of account;
(c) whether the title deeds of all the immovable properties (other than properties where the company
is the lessee and the lease agreements are duly executed in favour of the lessee) disclosed in the
financial statements are held in the name of the company, if not, provide the details thereof in the
format below:-
Whether
Period held Reason for
promoter,
Description of Gross carrying Held in name –indicate not being held
director or
property value of range, where in name of
their relative
appropriate company*
or employee
*also indicate
if in dispute
(d) whether the company has revalued its Property, Plant and Equipment (including Right of Use
assets) or intangible assets or both during the year and, if so, whether the revaluation is based on
the valuation by a Registered Valuer; specify the amount of change, if change is 10% or more in
the aggregate of the net carrying value of each class of Property, Plant and Equipment or intangible
assets;
(e) whether any proceedings have been initiated or are pending against the company for holding any
benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules
made thereunder, if so, whether the company has appropriately disclosed the details in its financial
statements.
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Question 12
State the matters to be included in the auditor’s report as per CARO, 2020 regarding:
(i) Nidhi Company.
(ii) Transactions with related parties. (RTP Nov ’23)
Answer 12
As per clause (xii) of CARO, 2020, the following matters are required to be included in the auditor’s
report relating to Nidhi Company
(a) whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of
1:20 to meet out the liability;
(b) whether the Nidhi Company is maintaining ten per cent. unencumbered term deposits as specified
in the Nidhi Rules, 2014 to meet out the liability;
(c) whether there has been any default in payment of interest on deposits or repayment thereof for any
period and if so, the details thereof;
As per clause (xiii) of CARO, 2020, the following matter is required to be included in the auditor’s
report relating to transactions with the related parties:
Whether all transactions with the related parties are in compliance with sections 177 and 188 of
Companies Act where applicable and the details have been disclosed in the financial statements, etc.,
as required by the applicable accounting standards;
Question 13
The auditor’s requirement to report under clause (X) of paragraph 3 of the Companies (Auditor’s
Report) Order, 2016 is restricted to frauds noticed or reported during the year. Explain what
auditors may consider for reporting under this clause? (PYP 3 Marks, Nov’20, RTP May’18,
MTP-March’19, 4 Marks, MTP-March’18, 4 Marks,MTP-Nov 21, 3 Marks, MTP 4 Marks
April ’21)
Answer 13
The auditor is required to report under clause (x) (Clause xi) of paragraph 3 of Companies (Auditor’s
Report) Order,2016 (CARO 2020), Where the auditor notices that any fraud by the company or on
the company by its officers or employees has been noticed by or reported during the year, the auditor
should, apart from reporting the existence of fraud, also required to report, the nature of fraud and
amount involved. For reporting under this clause, the auditor may consider the following:
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(i) This clause requires all frauds noticed or reported during the year shall be reported indicating the
nature and amount involved. As specified, the fraud by the company or on the company by its
officers or employees are only covered.
(ii) Of the frauds covered under section 143(12) of the Act, only noticed frauds shall be included here
and not the suspected frauds.
(iii) While reporting under this clause
(a) report whether any fraud by the company or any fraud on the Company by its officers or employees
has been noticed or reported during the year; If yes, the nature and the amount involved is to be
indicated;
(b) Whether any report under sub-section (12) of section 143 of the Companies Act, 2013 has been
filed by the auditors in Form ADT-4.
(c) Whether auditor has considered whistle-blower complaints, if any
Question 14
State with reasons whether the following statements are correct or incorrect
According to CARO 2020, the company auditor is required to state that whether the title deeds
of all immovable properties held in the name of the company are disclosed in its financial
statements. (PYP 2 Marks May’22)
Answer 14
Incorrect: According to CARO, 2020, the company auditor is required to state whether the title deeds
of all the immovable properties (other than properties where the company is the lessee and the lease
agreements are duly executed in favour of the lessee) disclosed in the financial statements are held in
the name of the company.
Question 15
G Pvt. Ltd. had fully paid up Capital and Reserves of ₹ 1.20 crore as at the end of F.Y. 2020-2021.
During the F.Y 2021-2022, business was interrupted due to Covid restrictions and therefore the
company incurred losses to the tune of ₹ 25 lacs. During the year, the company also borrowed
₹ 55 lakh each from a bank and a financial institution independently. It had a turnover of ₹
850 lakh (other than revenue of ₹ 250 lakh from discontinuing operations). Ascertain whether
CARO, 2020 is applicable to the company. (PYP 4 Marks May’22)
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Answer 15
Applicability of CARO, 2020 in case of Private Ltd. Company: CARO, 2020 shall apply to every
company including a foreign company except– a private limited company, not being a subsidiary or
holding company of a public company,
(i) having a paid-up capital and reserves and surplus not more than one crore rupees as on the
balance sheet date; and
(ii) which does not have total borrowings exceeding one crore rupees from any bank or financial
institution at any point of time during the financial year; and
(iii) which does not have a total revenue as disclosed in Scheduled III to the Companies Act (including
revenue from discontinuing operations) exceeding ten crore rupees during the financial year as
per the financial statements.
Applying the above to the given case, G Pvt. Ltd., its paid-up capital and reserves are ₹ 95 Lakh
(₹ 120 Lakh - ₹ 25 Lakh), borrowings from a Bank and financial institution are (₹ 55 Lakh + ₹ 55
Lakh) i.e., ₹ 1.10 Crore, turnover {including discontinuing operations (₹ 850 lakh + ₹ 250 Lakh)} ₹
1100 Lakh i.e., ₹ 11 Crore. Since its borrowings and turnover are exceeding the specified limit and
therefore it is not exempt from the applicability of CARO, 2020.
Question 16
State with reasons whether the following statements are correct or incorrect:
Mr. T, the director of A Ltd., has purchased an old car belonging to the company against the
cooling equipment belonging to the director, which is given to the company as consideration for
the car. The auditor is not required to include this in his CARO report. (PYP 2 Marks Nov 22)
Answer 16
Incorrect: The auditor is required to report the same as per clause (xv) of Paragraph 3 of CARO,
2020, “whether the company has entered into any non-cash transactions with directors or persons
connected with him and if so, whether the provisions of section 192 of Companies Act have been
complied with”.
Question 17
TS Ltd. has raised funds by issuing fully convertible debentures. These funds were raised for
the expansion and diversification of the business. However, the company utilised these funds
for repayment of long-term loans and advances. What are the reporting requirements under
CARO 2020 in this case? (PYP 4 Marks Nov 22, MTP 3 Marks Oct ’21, PYP 4 Marks Nov ’18)
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Answer 17
Reporting Requirements under CARO 2020 for raising funds: As per clause (x)(b) of Para 3 of CARO,
2020, the auditor of a company has to report whether the company has made any preferential allotment
or private placement of shares or convertible debentures (fully, partially or optionally convertible)
during the year and if so, whether the requirements of section 42 and section 62 of the Companies
Act, 2013 have been complied with and the funds raised have been used for the purposes for which the
funds were raised, if not, provide details in respect of amount involved and nature of non-compliance.
In the present case, TS Ltd. has raised funds by issuing fully convertible debentures for expansion
and diversification of the business. However, the company used the funds for repayment of long-term
loans and advances instead of utilization of the same for the purpose for which the funds were raised
i.e. expansion and diversification of business.
Here, the auditor should report the fact in his report that the funds were used for the purpose other than
the purpose for which the funds were raised, as per cl ause (x)(b) of Para 3 of CARO, 2020.

1. In case of a fraud involving less than ` 1 crore, the auditor shall
(a) report the matter to the audit committee constituted under section 177 or to the Board in other
cases within such time and in such manner as prescribed.
(b) report the matter to the audit committee constituted under section 177 within such time and in
such manner as prescribed.
(c) report the matter to the Board within such time and in such manner as prescribed.
(d) report the matter to the audit committee constituted under section 177 and also to the Board within
such time and in such manner as prescribed. (MTP 1 Mark March ’19)
Ans: (a)
2. During the course of audit of a listed company, CA P finds that solar power generating plant
capitalized in books for ₹5.00 crore during the year does not exist. It became known that only
bills were arranged and no assets were actually procured. Besides, financial statements also
reflect depreciation of ₹1.50 core on above.
The bills of capitalized asset were approved by procurement head. The matter was reported to
audit committee by CA P. However, no response was received. Considering above, choose the
most appropriate option: -
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(a) The matter needs to be reported to MCA in ADT-4. It also requires reporting under CARO,2020.
(b) The matter needs to be reported to MCA in ADT-4. It does not require reporting under CARO,2020.
(c) The matter need not be reported to MCA. However, it requires reporting under CARO,2020.
(d) The matter needs neither reporting to MCA nor under CARO,2020 (MTP 1 Marks Oct’22)
Ans: (a)
3. For which of following company, provisions of CARO,2020 would be applicable?

(a) Boost Up Training (OPC) Private Limited
(b) RCI Bank Limited
(c) PST Industries Limited
(d) Moon Insurance Limited (MTP 1 Mark Oct ’23)
Ans: (c)
4. While reporting under CARO, 2020, it is duty of statutory auditor of company to report: -
(a) Fraud of less than ` 1 crore commiSed by officers or employees of company during the year
(b) Fraud of `1 crore or more commiSed by officers or employees of company during the year
(c) Fraud of `5 crore or more commiSed by officers or employees of company during the year
(d) Any fraud by the company or on the company noTced or reported during the year (MTP 1 Mark Oct ’23)
Ans: (d)
5. Eeyore Pvt. Ltd. is incorporated on 1st July, 2017. During the Financial Year ending on 31set
March, 2018, the company did not opt for any borrowing at any point of time and have a total
revenue of ` 60 Lakh. At the year end, it provides the following information regarding its paid-
up capital and reserve & surplus-
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Particulars Amount (in `)

Paid-up Capital
- Consideration received in cash for equity shares (including unpaid calls of `
40,00,000
5,00,000)
- Consideration received in cash for preference shares 25,00,000
- Bonus shares allotted 7,00,000
- Share application money received pending allotment 10,00,000
Sub-Total 82,00,000
Reserve & Surplus
- Balance in Statement of Profit and Loss 15,00,000
- Capital Reserves 10,00,000
Sub-Total 25,00,000
GRAND TOTAL 1,07,00,000
You are provided with the provisions regarding applicability of Companies (Auditor’ s Report)
Order, 2016, (CARO, 2020) issued under section 143(11) of the Companies Act, 2013 to a private
limited company that it specifically exempts a private limited company having a paid up capital
and reserves and surplus not more than ` 1 crore as on the Balance Sheet date and which does
not have total borrowings exceeding ` 1 crore from any bank at any point of time during the
financial year and which does not have a total revenue as disclosed in Scheduled III to the
Companies Act, 2013 exceeding ` 10 crore during the financial year.
Considering the information given above, which of the following shall be considered as a reason
regarding applicability or non-applicability of CARO, 2016 (CARO 2020)?
(a) Reporting under CARO, 2016 (CARO 2020) shall be applicable as the company is having a paid up
capital and reserves and surplus of ` 1.07 crore i.e. more than ` 1 crore as on the Balance Sheet date.
(b) Reporting under CARO, 2016 (CARO 2020) shall be applicable as the company is having a paid
up capital and reserves and surplus of ` 1.02 crore i.e. more than ` 1 crore as on the Balance Sheet
date.
(c) Reporting under CARO, 2016 (CARO 2020) shall not be applicable as the company is having
a paid up capital and reserves and surplus of ` 0.92 crore i.e. not more than ` 1 crore as on the
Balance Sheet date.
(d) Reporting under CARO, 2016 (CARO 2020) shall not be applicable as the company is having
a paid up capital and reserves and surplus of ` 0.82 crore i.e. not more than ` 1 crore as on the
Balance Sheet data (RTP May ‘19).
Ans: (c)
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CASE STUDY
M/s AB & Company is a firm of Chartered Accountants based in Mumbai. Mr. A and Mr. B are
the Partners of the Firm. The Firm is engaged in various assignments including Audits. The
partners are taking a summary of their work in order to prepare themselves to finalize the Audit
and issue the audit report to various clients. You are requested to go through the following and
answer the questions that follow:
• During the audit of M/s Persistent & Co, Mr. A found that the firm has changed the method
of Depreciation from WDV to SLM but has not given the retrospective effect. Mr. A has
calculated the difference of depreciation but M/s Persistent & Co. has stated that they don’t
want to change the financial statements and if auditor persists they may give the effect in the
next financial year.
• During the audit of M/s Dubious Brothers, Mr B observed that the firm had a very large
amount of cash sales and there were no details of the customers to whom the sales were
made. Further, cash generated was not even deposited into bank regularly. When Mr. B
asked the firm to give him an opportunity to count cash, the manager of the firm said that
the cash is with the owner and it cannot be made available to the auditor for the checking
purpose. The manager also declined to give an opportunity for stock verification to Mr B.
• During the audit of M/s Honest & Associates, Mr. A came to know that the firm has changed
its method of valuation of stock. This change has a material impact on the financial statement
of the firm. The firm has made relevant disclosures in the financial statements and has given
proper accounting treatment to this exercise.

Based on above, answer the following questions: -
1. In case of M/s Persistent & Company, what would be an ideal Audit Opinion?
(a) Unmodified
(b) Qualified
(c) Mention the fact in Emphasis of Matter Paragraph
(d) Disclaimer
Ans: (b)
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2. In case of M/s Dubious Brothers, what Audit Opinion should the Auditor give?
(a) Qualified
(b) Adverse
(c) Disclaimer
(d) Unmodified
Ans: (c)
3. According to you, what would be appropriate course to take in case of M/s Honest & Associates?
(a) Issue Qualified Opinion
(b) Issue Adverse Opinion
(c) Mention the fact of change in method in Emphasis of Matter Paragraph
(d) Issue Disclaimer of Opinion
Ans: (c)
4. When the Auditor, after conclusion of an Audit exercise, is of the opinion that there are material
misstatements in the Financial Statements, but they are not pervasive, then what should an
Auditor do?
(a) Issue Unmodified Opinion
(b) Issue Qualified Opinion
(c) Issue Disclaimer of Opinion
(d) Mention it in Emphasis of Matter Paragraph
Ans: (b)
5. When the Auditor concludes that the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework, Auditor shall give:
(a) Modified Opinion
(b) Qualified Opinion
(c) Disclaimer of Opinion
(d) Unmodified Opinion
Ans: (d)
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TEST YOUR KNOWLEDGE

6. While expressing an unmodified opinion on financial statements, the auditor shall not use
which of the following phrases?
(a) present fairly in all material respects
(b) give a true and fair view
(c) with the foregoing explanation
(d) All of the above
Ans: (c)
7. …………………… is a paragraph included in the auditor’s report that refers to a matter

appropriately presented or disclosed in the financial statements that, in the auditor’s judgement,
is of such importance that it is fundamental to the user’s understanding of the financial
statements.
(a) Emphasis of Matter Paragraph
(b) Other Matter Paragraph
(c) Key Audit Matter
(d) Management Responsibility Paragraph.
Ans: (a)
8. Statement 1: Communicating key audit matter in the auditor’s report constitutes a substitute
for disclosure in the financial statements.
Statement 2: Instead of modifying an opinion in accordance with SA 705, the statutory auditor
can use Key Audit Matter paragraph in the audit report with an unmodified opinion.
(a) Only Statement 1 is correct
(b) Only Statement 2 is correct
(c) Both the statements are correct
(d) None of the statement is correct
Ans: (d)
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9. Which of the following is not correct?

(a) SA 700 - Forming an Opinion and Reporting on the Financial Statements
(b) SA 701- Key Audit Matters in the Independent Auditor’s Report
(c) SA 705- Comparative Information- Corresponding figures and Comparative Financial Statements
(d) SA 706- Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
Ans: (c)
10. Responsibilities of Joint Auditors are governed by:

(a) SA 200
(b) SA 229
(c) SA 299
(d) SA 230
Ans: (c)
Correct/Incorrect
State with reasons (in short) whether the following statements are correct or incorrect:
Question 1
The auditor shall express a qualified opinion when the auditor concludes that the financial
statements are prepared, in all material respects, in accordance with the applicable financial
Answer 1
Incorrect: The auditor shall express an unmodified opinion when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the applicable financial
Question 2
There is no need of addressee in the Auditor’s report.
Answer 2
Incorrect: The auditor’s report shall be addressed, as appropriate, based on the circumstances of
the engagement. Law, regulation or the terms of the engagement may specify to whom the auditor’s
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report is to be addressed. The auditor’s report is normally addressed to those for whom the report is
prepared, often either to the shareholders or to those charged with governance of the entity whose
financial statements are being audited.
Question 3
The auditor shall modify the opinion in the auditor’s report only when the auditor concludes
that, based on the audit evidence obtained, the financial statements as a whole are not free from
material misstatement.
Answer 3
Incorrect: The auditor shall modify the opinion in the auditor’s report when:
(a) The auditor concludes that, based on the audit evidence obtained, the financial statements as a
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial
Question 4
The auditor shall express a disclaimer of opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are
both material and pervasive to the financial statements.
Answer 4
Incorrect: The auditor shall express an adverse opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both
material and pervasive to the financial statements.
Question 5
Communicating key audit matter in the auditor’s report constitutes a substitute for disclosure
in the financial statements.
Answer 5
Incorrect: Communicating key audit matters in the auditor’s report is in the context of the auditor
having formed an opinion on the financial statements as a whole. Communicating key audit matters
in the auditor’s report is not a substitute for disclosures in the financial statements that the applicable
financial reporting framework requires management to make, or that are otherwise necessary to
achieve fair presentation.
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Question 6
When the auditor has to express an adverse opinion, he need not communicate with those
charged with governance as this may have an impact on payment of his audit fees.
Answer 6
Incorrect: When the auditor expects to modify the opinion in the auditor’s report, the auditor
shall communicate with those charged with governance the circumstances that led to the expected
modification and the wording of the modification.
Question 7
Instead of modifying an opinion in accordance with SA 705, the statutory auditor can use Key
Audit Matter paragraph in the audit report with an unmodified opinion.
Answer 7
Incorrect: Communicating key audit matters in the auditor’s report is not a substitute for the auditor
expressing a modified opinion when required by the circumstances of a specific audit engagement in
accordance with SA 705 (Revised).
Question 8
The concept of “joint audit” has legal foothold under the Companies Act, 2013.
Answer 8
Correct: Under provisions of section 139(3), the members of a company may resolve to provide
that audit shall be conducted by more than one auditor. Hence, the concept of “joint audit” has legal
foothold also under Companies Act, 2013.
THEORETICAL QUESTIONS ANSWER

Question 1
“The auditor shall form an opinion on whether the financial statements are prepared, in all
material respects, in accordance with the applicable financial reporting framework.” Explain
Answer 1
The auditor shall form an opinion on whether the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework.
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whether due to fraud or error.
That conclusion shall take into account:
(a) Whether sufficient appropriate audit evidence has been obtained;
(b) Whether uncorrected misstatements are material, individually or in aggregate;
(c) The evaluations.
Question 2
“The auditor shall evaluate whether the financial statements are prepared, in all material
respects, in accordance with the requirements of the applicable financial reporting framework.
practices, including indicators of possible bias in management’s judgements.” Discuss stating
clearly qualitative aspects of the entity’s accounting practices.
Answer 2
practices, including indicators of possible bias in management’s judgements.
Question 3
Discuss the factors affecting the decision of the auditor regarding which type of modified opinion
is appropriate.
Answer 3
The decision regarding which type of modified opinion is appropriate depends upon:
(a) The nature of the matter giving rise to the modification, that is, whether the financial statements are
materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence,
may be materially misstated; and
(b) The auditor’s judgement about the pervasiveness of the effects or possible effects of the matter on
the financial statements.
The table below illustrates how the auditor’s judgement about the nature of the matter giving rise to
the modification, and the pervasiveness of its effects or possible effects on the financial statements,
affects the type of opinion to be expressed.
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Auditor’s Judgement about the Pervasiveness of the Effects or

Nature of Matter Giving Rise
Possible Effects on the Financial Statements
to the Modification
Material but not Pervasive Material and Pervasive
Financial statements are
Qualified opinion Adverse opinion
misstated materially
Inability to obtain sufficient
Qualified opinion Disclaimer of opinion
appropriate audit evidence
Question 4
Discuss the objective of the auditor as per Standard on Auditing (SA) 705 “Modifications to The
Opinion in The Independent Auditor’s Report”.
Answer 4
As per Standard on Auditing (SA) 705 “Modifications To The Opinion In The Independent Auditor’s
Report”, the objective of the auditor is to express clearly an appropriately modified opinion on the
financial statements that is necessary when:
(a) The auditor concludes, based on the audit evidence obtained, that the financial statements as a
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial
Question 5
In considering the qualitative aspects of the entity’s accounting practices, the auditor may
become aware of possible bias in management’s judgements. The auditor may conclude that
lack of neutrality together with uncorrected misstatements causes the financial statements to be
materially misstated.
Explain and analyse the indicators of lack of neutrality with examples, wherever required.
Answer 5
In considering the qualitative aspects of the entity’s accounting practices, the auditor may become
aware of possible bias in management’s judgements. The auditor may conclude that lack of neutrality
together with uncorrected misstatements causes the financial statements to be materially misstated.
Indicators of a lack of neutrality include the following:
(i) The selective correction of misstatements brought to management’s attention during the audit.
Example
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The combination of several deficiencies affecting the same significant account or disclosure (or the
same internal control component) could amount to a significant deficiency (or material weakness if
required to be communicated in the jurisdiction). This evaluation requires judgement and involvement
of audit executives.
Question 6
The first section of the auditor’s report shall include the auditor’s opinion, and shall have the
heading “Opinion.” The Opinion section of the auditor’s report shall also identify the entity
whose financial statements have been audited. Apart from the above, explain the other relevant
points to be included in opinion section.
Answer 6
The first section of the auditor’s report shall include the auditor’s opinion, and shall have the heading
“Opinion.”
The Opinion section of the auditor’s report shall also:
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting policies; and
(e) Specify the date of, or period covered by, each financial statement comprising the financial statements.
Question 7
Auditor’s Report?
Answer 7
appropriately presented or disclosed in the financial statements that, in the auditor’s judgement, is of
When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:
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(iii) Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
Question 8
“An auditor is required to make specific evaluations while forming an opinion in an audit
report.” State those evaluations.
Answer 8
Specific Evaluations by the auditor: In particular, the auditor shall evaluate whether :
(i) The financial statements adequately disclose the significant accounting policies selected and applied;
(ii) The accounting policies selected and applied are consistent with the applicable financial reporting
framework and are appropriate;
(iii) The accounting estimates made by management are reasonable;
(iv) The information presented in the financial statements is relevant, reliable, comparable, and
understandable;
(v) The financial statements provide adequate disclosures to enable the intended users to understand
the effect of material transactions and events on the information conveyed in the financial
statements; and
(vi) The terminology used in the financial statements, including the title of each financial statement,
is appropriate.
Question 9
The auditor’s report shall include a section with a heading “Responsibilities of Management
for the Financial Statements.” SA 200 explains the premise, relating to the responsibilities of
management and, where appropriate, those charged with governance, on which an audit in
accordance with SAs is conducted. Explain
Answer 9
Responsibilities for the Financial Statements: The auditor’s report shall include a section with a
heading “Responsibilities of Management for the Financial Statements.”
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SA 200 explains the premise, relating to the responsibilities of management and, where appropriate, those
charged with governance, on which an audit in accordance with SAs is conducted. Management and,
where appropriate, those charged with governance accept responsibility for the preparation of the financial
statements. Management also accepts responsibility for such internal control as it determines is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error. The description of management’s responsibilities in the auditor’s report includes reference
to both responsibilities as it helps to explain to users the premise on which an audit is conducted.
This section of the auditor’s report shall describe management’s responsibility for:
a) Preparing the financial statements in accordance with the applicable financial reporting
framework, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to
fraud or error;[because of the possible effects of fraud on other aspects of the audit, materiality
does not apply to management’s acknowledgement regarding its responsibility for the design,
implementation, and maintenance of internal control (or for establishing and maintaining effective
internal control over financial reporting) to prevent and detect fraud.] and
b) Assessing the entity’s ability to continue as a going concern and whether the use of the going
concern basis of accounting is appropriate as well as disclosing, if applicable, matters relating to
going concern. The explanation of management’s responsibility for this assessment shall include
a description of when the use of the going concern basis of accounting is appropriate.
Question 10
Communicating Key Audit Matter is not a substitute for disclosure in the Financial Statements
rather Communicating key audit matters in the auditor’s report is in the context of the Auditor
having formed an opinion on the financial statements as a whole. Analyse.
Answer 10
Communicating key audit matters in the auditor’s report is not:
(i) A substitute for disclosures in the financial statements that the applicable Financial reporting
framework requires management to make, or that are otherwise necessary to achieve fair presentation;
(ii) A substitute for the auditor expressing a modified opinion when required by the circumstances of
a specific audit engagement in accordance with SA 705 (Revised);
(iii) A substitute for reporting in accordance with SA 570 when a material uncertainty exists relating to events
or conditions that may cast significant doubt on an entity’s ability to continue as a going concern; or
(iv) A separate opinion on individual matters
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Question 11
The auditor’s report shall include a section, directly following the Opinion section, with the
heading “Basis for Opinion”. Explain what is included in this “Basis for Opinion” section.
Answer 11
Basis for Opinion: The auditor’s report shall include a section, directly following the Opinion section,
with the heading “Basis for Opinion”, that:
(a) States that the audit was conducted in accordance with Standards on Auditing;
(b) Refers to the section of the auditor’s report that describes the auditor’s responsibilities under the
SAs;
(c) Includes a statement that the auditor is independent of the entity in accordance with the relevant
(d) States whether the auditor believes that the audit evidence the auditor has obtained is sufficient
Question 12
Distinguish between an adverse opinion and a qualified opinion. Also draft an opinion paragraph
for both types of opinion.
Answer 12
An auditor shall express an adverse opinion, when the auditor having obtained sufficient and appropriate
audit evidence, concludes that misstatements, individually or in aggregate are both material and
pervasive.
Whereas, when the auditor, having obtained sufficient and appropriate audit evidence, concludes that
misstatements are material but not pervasive, shall express a qualified opinion.
SA705 – “Modifications To The Opinion In The Independent Auditor’s Report” deals with the form
and content of both types of report. The following are the draft of the opinion paragraphs of the
reports.
(a) Adverse Opinion
We have audited the accompanying consolidated financial statements of ABC Company Limited
(hereinafter referred to as the “Holding Company”) and its subsidiaries (the Holding Company and its
subsidiaries together referred to as “the Group”), its associates and jointly controlled entities, which
comprise the consolidated balance sheet as at March 31, 2021, the consolidated statement of profit
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and Loss, (consolidated statement of changes in equity) and the consolidated statement of cash flows
for the year then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies (hereinafter referred to as the “consolidated financial statements”). In
our opinion and to the best of our information and according to the explanations given to us, because
of the significance of the matter discussed in the Basis for Adverse Opinion section of our report,
the accompanying consolidated financial statements do not give a true and fair view in conformity
with the accounting principles generally accepted in India, of their consolidated state of affairs of the
Group, its associates and jointly controlled entities, as at March 31, 2021, of its consolidated profit/
loss, (consolidated position of changes in equity) and the consolidated cash flows for the year then
ended.
(b) Qualified Opinion
We have audited the standalone financial statements of ABC Company Limited (“the Company”),
which comprise the balance sheet as at March 31, 2021, and the statement of Profit and Loss,
(statement of changes in equity) and the statement of cash flows for the year then ended, and notes to
the financial statements, including a summary of significant accounting policies and other explanatory
information (in which are included the Returns for the year ended on that date audited by the branch
auditors of the Company’s branches located at (location of branches)) . In our opinion and to the best
of our information and according to the explanations given to us, except for the effects of the matter
described in the Basis for Qualified Opinion section of our report, the aforesaid financial statements
the state of affairs of the Company as at March 31st, 2021 and profit/loss, (changes in equity) and its
cash flows for the year ended on that date.
Question 13
ABC Ltd is a company incorporated in India. It has branches within and outside India. Explain
who can be appointed as an auditor of these branches within and outside India. Also explain to
whom branch auditor is required to report.
Answer 13
Sub-section (8) of section 143 of the Companies Act, 2013, prescribes the duties and powers of the
company’s auditor with reference to the audit of the branch and the branch auditor. Where a company
has a branch office, the accounts of that office shall be audited either by the auditor appointed for the
company (herein referred to as the company’s auditor) under this Act or by any other person qualified
for appointment as an auditor of the company under this Act and appointed as such under section 139,
or where the branch office is situated in a country outside India, the accounts of the branch office shall
be audited either by the company’s auditor or by an accountant or by any other person duly qualified
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to act as an auditor of the accounts of the branch office in accordance with the laws of that country
and the duties and powers of the company’ s auditor with reference to the audit of the branch and the
branch auditor, if any, shall be such as may be prescribed:
It may be noted that the branch auditor shall prepare a report on the accounts of the branch examined
by him and send it to the auditor of the company who shall deal with it in his report in such manner
as he considers necessary.
Further as per rule 12 of the Companies (Audit and Auditors) Rules, 2014, the branch auditor shall
submit his report to the company’s auditor and reporting of fraud by the auditor shall also extend to
such branch auditor to the extent it relates to the concerned branch.
Question 14
Before the commencement of the audit, the joint auditors should discuss and develop a joint
audit plan.
In developing the joint audit plan, the joint auditors should identify division of audit areas and
common audit areas. Explain stating the other relevant considerations in this regard.
Answer 14
Before the commencement of the audit, the joint auditors should discuss and develop a joint audit
plan.
In developing the joint audit plan, the joint auditors should:
(a) identify division of audit areas and common audit areas;
(b) ascertain the reporting objectives of the engagement;
(c) consider and communicate among all joint auditors the factors that are significant in directing the
engagement team’s efforts;
(d) consider the results of preliminary engagement activities, or similar engagements performed earlier.
(e) ascertain the nature, timing and extent of resources necessary to accomplish the engagement.
Question 15
The practice of appointing Chartered Accountants as joint auditors is quite widespread in big
companies and corporations. Explain stating the advantages of the joint audit.
Answer 15
Joint Audit: The practice of appointing Chartered Accountants as joint auditors is quite widespread
in big companies and corporations. Joint audit basically implies pooling together the resources and
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expertise of more than one firm of auditors to render an expert job in a given time period which may
be difficult to accomplish acting individually. It essentially involves sharing of the total work. This is
by itself a great advantage.
In specific terms the advantages that flow may be the following:
(i) Sharing of expertise.
(ii) Advantage of mutual consultation.
(iii) Lower workload.
(iv) Better quality of performance.
(v) Improved service to the client.
(vi) In respect of multi-national companies, the work can be spread using the expertise of the local
firms which are in a better position to deal with detailed work and the local laws and regulations.
(vii) Lower staff development costs.
(viii) Lower costs to carry out the work.
(ix) A sense of healthy competition towards a better performance
Question 16
Discuss the reporting requirements under CARO 2020, with respect to the moneys raised by the
company by way of initial public offer or further public offer and where the company has made
Answer 16
The following are the disclosure requirements as per CARO 2020, with respect to the moneys raised
by the company by way of initial public offer or further public offer and where the company has made
(a) whether moneys raised by way of initial public offer or further public offer (including debt
instruments) during the year were applied for the purposes for which those are raised, if not, the
details together with delays or default and subsequent rectification, if any, as may be applicable,
be reported;
(b) whether the company has made any preferential allotment or private placement of shares or
convertible debentures (fully, partially or optionally convertible) during the year and if so, whether
the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied
with and the funds raised have been used for the purposes for which the funds were raised, if not,
provide details in respect of amount involved and nature of noncompliance;
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Question 17
Discuss which class of companies are specifically exempt from the applicability of CARO 2020?
Answer 17
CARO 2020 shall apply to every company including a foreign company as defined in clause (42) of
section 2 of the Companies Act, 2013, except–
(i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10
of 1949);
(ii) an insurance company as defined under the Insurance Act,1938 (4 of 1938);
(iii) a company licensed to operate under section 8 of the Companies Act;
(iv) a One Person Company as defined in clause (62) of section 2 of the Companies Act and a small
company as defined in clause (85) of section 2 of the Companies Act; and
(v) a private limited company, not being a subsidiary or holding company of a public company,
having a paid up capital and reserves and surplus not more than one crore rupees as on the
balance sheet date and which does not have total borrowings exceeding one crore rupees from
any bank or financial institution at any point of time during the financial year and which does not
have a total revenue as disclosed in Scheduled III to the Companies Act (including revenue from
discontinuing operations) exceeding ten crore rupees during the financial year as per the financial
statements.
Question 18 Illustration
M/s Smart & Associates are the statutory auditors of Hotmeals Ltd. for the FY 2021-22. How
will the auditor address the audit report issued on the financial statements for the FY 2021-22?
Also give a title to the report.
Answer 18
INDEPENDENT AUDITOR’S REPORT
To the Members of Hotmeals Ltd.
Richa International is a partnership firm dealing in export of blankets. The partners of the firm
are Richa and Ashish. Explain how the statutory auditor of the firm will address the auditor’s
report.
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Answer 19
INDEPENDENT AUDITOR’S REPORT
To the Partners of Richa International
M/s Amitabh & Associates are the statutory auditors of Ringston Ltd. which is a company
engaged in the business of manufacture of pen drives. The auditor has started drafting the
audit report for the FY 2021-22. CA Amitabh, the engagement partner is of the view that the
financial statements of Ringston Ltd. represent a true and fair view. Give the draft of the opinion
paragraph of the audit report.
Answer 20
Opinion
We have audited the financial statements of Ringston Limited which comprise the Balance Sheet as
at 31.03.2022 and the statement of Profit and Loss Account and the notes to the financial statements,
including a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, the
aforesaid financial statements give the information required by the Act in the manner so required and
the state of affairs of the company as at 31.03.2022 and the Profit & Loss for the year ending on that
date.
M/s Kite Rite & Associates are the statutory auditors of Prime Deluxe Limited, for the FY 2021-
22. At the time of finalising the audit report, one of the engagement team members, Mr. Robin,
asked the engagement partner, CA Kite as to what all should be included in the Basis of Opinion
Paragraph. The engagement partner CA Kite, explained the team in detail and asked Mr. Robin
to draft such section for the auditor’s report of Prime Deluxe Limited. Help Mr. Robin to draft
the Basis for opinion section.
Answer 21
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section
143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described
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in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We
are independent of the Company in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical requirements that are relevant to our audit of
the financial statements under the provisions of the Companies Act, 2013 and the Rules thereunder,
and we have fulfilled our other ethical responsibilities in accordance with these requirements and the
Code of Ethics.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Diamond Shine Ltd. is a company engaged in the manufacture of detergent. M/s Bright &
Associates are the statutory auditors of the company. Explain how the paragraph related to the
management’s responsibility will come in the auditor’s report.
Answer 22
Management’s Responsibility for the Standalone Financial Statements
The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the
Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements
that give a true and fair view of the financial position, financial performance, (changes in equity) and
cash flows of the Company in accordance with the accounting principles generally accepted in India,
including the accounting Standards specified under section 133 of the Act. This responsibility also
includes maintenance of adequate accounting records in accordance with the provisions of the Act
for safeguarding of the assets of the Company and for preventing and detecting frauds and other
irregularities; selection and application of appropriate accounting policies; making judgements and
estimates that are reasonable and prudent; and design, implementation and maintenance of adequate
internal financial controls, that were operating effectively for ensuring the accuracy and completeness
of the accounting records, relevant to the preparation and presentation of the financial statement that
give a true and fair view and are free from material misstatement, whether due to fraud or error. In
preparing the financial statements, management is responsible for assessing the Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the Company
or to cease operations, or has no realistic alternative but to do so. Those Board of Directors are also
responsible for overseeing the Company’s financial reporting process.
CA Harshad Jaju
98812 92971
AUDIT REPORT
M/s Ajay Vijay & Associates are the statutory auditors of Sarovar Ltd. for the FY 2021- 22. The
company is engaged in the business of manufacture of water bottles. At the time of finalising
the auditor’s report, one of the audit team members asked CA Ajay, the engagement partner
to advise as to how the auditor’s responsibilities can be shown in an appendix to the auditor’s
report. Draft the auditor’s responsibility paragraph so as to advise the audit team member.
Answer 23
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with SAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of the financial statements is included in
appendix X of this auditor’s report. This description, which is located at [indicate page number or
other specific reference to the location of the description], forms part of our auditor’s report.
M/s TUV & Associates are the statutory auditors of Venus Ltd. for the FY 2021-22. At the time
of finalising the auditor’s report, one of the audit team members asked the engagement partner,
CA Tarun, to explain as to how the auditor’s report will be signed. Help CA Tarun in explaining
the same.
Answer 24
The following is the correct way of signing an audit report.
M/s TUV & Associates Chartered
Accountants (Firm’s Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation)
CA Harshad Jaju
8.86 98812 92971
AUDIT REPORT
(Membership No. XXXXX)

Place of Signature: UDIN: 20037320AAAAAH1111
Date:
Auditor’s Report on Financial Statements of a Listed Entity Prepared in Accordance with a
Fair Presentation Framework For purposes of this illustrative auditor’s report, the following
circumstances are assumed:
• Audit of a complete set of financial statements of a listed company (registered under the
Companies Act, 2013) using a fair presentation framework. The audit is not a group audit
(i.e., SA 600 does not apply).
• The financial statements are prepared by management of the entity in accordance with the
accounting Standards prescribed under section 133 of the Companies Act, 2013.
• The terms of the audit engagement reflect the description of management’s responsibility
for the financial statements in SA 210.
• The auditor has concluded an unmodified (i.e., “clean”) opinion is appropriate based on the
audit evidence obtained.
• The relevant ethical requirements that apply to the audit comprise the Code of Ethics issued
by ICAI together with the other relevant ethical requirements relating to the audit and the
auditor refers to both.
• Based on the audit evidence obtained, the auditor has concluded that a material uncertainty
does not exist related to events or conditions that may cast significant doubt on the entity’s
ability to continue as a going concern in accordance with SA 570 (Revised).
• Key audit matters have been communicated in accordance with SA 701.
• Those responsible for oversight of the financial statements differ from those responsible for
the preparation of the financial statements.
• In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under the Companies Act, 2013.
CA Harshad Jaju
98812 92971
AUDIT REPORT
Super Duper Ltd. is a company engaged in the manufacture of office furniture. M/s Young Old
& Associates are the statutory auditors of the company for the FY 2021- 22. During the year
under audit, the engagement partner CA Young noticed that the company has not bifurcated
its loans into long term and short term. CA Young understands that such misstatement is not
pervasive though the same is material. Explain the type of opinion that should be given by M/s
Young Old & Associates in this case.
Answer 26
M/s Young Old & Associates should give a qualified opinion as the effect of the misstatement on
account of the non-bifurcation of loans into long term and short term loans, is material but not
pervasive.
M/s Taj Raj & Associates are the statutory auditors of Polex Ltd. engaged in the manufacture
of premium watches, for the FY 2021-22. During the course of audit, CA Taj, the engagement
partner found that the stocks and debtors of the company constituting about 80% of the total
assets of the company are not realisable. Further, the cashier of the company has committed a
fraud during the year under audit. Both the facts are not reflected in the financial statements for
the year ending 31.03.2022.
Accordingly, CA Taj is of the view that the impact of both the situations on the financial
statements is material and pervasive and thus, the financial statements represent a distorted
view of the state of affairs of the company. Explain the reporting requirements of CA Taj.
Answer 27
The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements, individually or in the aggregate, are both material and
pervasive to the financial statements.
In the case Polex Ltd., CA Taj found that the stocks and debtors of the company constituting about 80%
of the total assets of the company are not realisable. Further, the cashier of the company has committed
a fraud during the year under audit. Such situations are not reflected in the financial statements of the
company despite having a material and pervasive impact on the financial statements. As such, CA Taj
should give an adverse opinion.
Further, CA Taj should also consider the reporting responsibilities under CARO 2020 and section
143(12) of the Companies Act, 2013.
Disclaimer of Opinion The auditor shall disclaim an opinion when the auditor is unable to obtain
CA Harshad Jaju
8.88 98812 92971
AUDIT REPORT
sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the
possible effects on the financial statements of undetected misstatements, if any, could be both material
and pervasive.
The auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple
uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit
evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the
financial statements due to the potential interaction of the uncertainties and their possible cumulative
effect on the financial statements.
Delightful Ltd. is a company engaged in the production of smiley balls. During the FY 2021-22
the company transferred its accounts to computerised system (SAP) from manual system of
accounts. Since the employees of the company were not well versed with the SAP system, there
were many errors in the accounting during the transition period. As such the statutory auditors
of the company were not able to extract correct data and reports from the system. Such data
was not available manually also.
Further, the employees and the management of the company were not supportive in providing
the requisite information to the audit team. Explain the kind of audit report that the statutory
auditor of the company should issue in this case.
Answer 28
When the statutory auditor of the company is unable to obtain sufficient and appropriate audit evidence,
the auditor should give disclaimer of opinion as per SA 705.
In the present case, the statutory auditor of the company is unable to extract correct data and reports
from the SAP system for conduct of audit. Also, such data and reports are not available manually. As
such, the statutory auditor of Delightful Ltd. should give a disclaimer of opinion.
M/s Daisy & Associates are the statutory auditors of Zebra Ltd. for the FY 2021-22. CA Daisy,
the engagement partner wants to verify the cash in hand as on 31.03.2022. The cash balance of
the company as on 31.03.2022 is ` 1,00,000/- and the turnover of the company for the year is `
6 crores. The management of the company informs CA Daisy that such cash verification is not
possible as the cashier is on leave for his marriage and no other employee of the company is
available as all are busy in year ending activities. Explain the relevant provisions to deal with
such a situation.
CA Harshad Jaju
98812 92971
AUDIT REPORT
Answer 29
If, after accepting the engagement, the auditor becomes aware that management has imposed a
limitation on the scope of the audit that the auditor considers is likely to result in the need to express
a qualified opinion or to disclaim an opinion on the financial statements, the auditor shall request that
management remove the limitation.
In the present case CA Daisy, the statutory auditor is unable to verify the cash in hand of Zebra Ltd.
as on 31.03.2022. The same is due to a limitation imposed by the management of Zebra Ltd. which
is due to the non availability of the cashier. In such situation, CA Daisy should perform alternate
procedures to verify the cash on hand of the company. Further, CA Daisy should consider the impact
on the auditor’s report and may consider issuing a qualified opinion in this case.
M/s Sun Moon & Associates are the statutory auditors of Venus Ltd. for the FY 2021-22. Owing
to the pervasive nature of material misstatements in the financial statements of the company, CA
Moon, the engagement partner decided to give an adverse opinion. Explain the responsibility of
CA Moon with respect to communication with those charged with governance.
Answer 30
CA Moon, being the statutory auditor of Venus Ltd. should communicate with those charged with
governance about the circumstances that led to the expected modification i.e. an adverse opinion.
Further the wording of such modification also needs to be discussed.
Lomaxe Ltd. is a company engaged in the business of manufacture of candles. CA Kamalnath is
the statutory auditor of the company for the FY 2021-22. During the year under audit, there was
a fire in the company’s factory as a result of which, some of the company’s plant and machinery
was destroyed.
The same was disclosed by the company in the notes to accounts annexed to the financial
statements for the year ending 31.03.2022. CA Kamalnath decided to communicate this matter
in the auditor’s report as he is of the view that the matter is of such importance that it is
fundamental to the user’s understanding of the financial statements. Help CA Kamalnath to
deal with this situation in the auditor’s report.
Answer 31
In the present case there is a need to add Emphasis on Matter Paragraph in the Auditor’s Report. The
draft of the same is as under:
CA Harshad Jaju
8.90 98812 92971
AUDIT REPORT
Emphasis of Matter – Effects of Fire in Company’s Factory

We draw attention to Note Y of the financial statements, which describes the effects of a fire in the
Company’s factory. Our opinion is not modified in respect of this matter.
Test Your Understanding

Question 1
Maithili Thakur, a CA student, was perusing audit report of a company. Her eyes fell on an
18-digit alpha numeric number stated at end of audit report below the signatures of auditor and
membership number.
Make her understand objective and significance of such a randomly generated number. Is it
required to be stated in case of audit reports only?
Answer 1
The 18-digit alpha numeric number noticed by her at end of audit report is Unique Document
Identification number (UDIN). It is a system generated unique number. Its basic objective is to curb
the malpractices of non-CAs impersonating themselves as CAs. It helps in securing reports and
documents issued by practising CAs.
It is required to be stated in case of audit reports and certificates.
Question 2
CA. Maya Memani has conducted audit of a company. She has asked Sana, a CA student
undergoing training in her office, to prepare draft audit report. Sana was part of engagement
team conducting the audit. She has been further told to prepare draft report expressing
unmodified opinion. After drafting para comprising unmodified opinion, Sana feels no need to
provide basis for opinion. Discuss why her thinking is not proper.
Answer 2
“Basis for Opinion” is one of basic elements of an audit report in accordance with SA-700. Even in
cases where unmodified opinion is expressed by auditor, “Basis for opinion” has to be provided by
auditor. Basis for opinion section provides context about auditor’s opinion.
Therefore, Sana’s thinking is not proper.
CA Harshad Jaju
98812 92971
AUDIT REPORT
Question 3
CA. Sarasbhai Patel, while conducting audit of an entity, feels that there is an atmosphere of
noncooperation all around. He has not been provided with necessary support for attending
inventory count process of entity as at year end. Besides, CFO is not providing him present
addresses of customers as well as suppliers for sending external confirmations. Even mail ids
have not been provided on the pretext of business confidentiality.
He was not able to verify revenues of entity due to lack of complete details. For verifying
expenses, he has been asking for bills on a sample basis, but staff has been making lame excuses.
The matter was brought to knowledge of higher echelons of management, but of no avail. The
auditor feels that there could be misstatements and their possible effects would be material and
affecting many aspects of financial statements.
Assuming it is not possible to withdraw from engagement, what type of opinion should be
expressed by auditor?
Answer 3
In the given case, auditor has not been able to obtain sufficient appropriate audit evidence relating
to inventories, debtors, creditors, revenues and expenses. The matter has brought to knowledge of
management but no result has been achieved. Besides, auditor opines that there could be misstatements
and their possible effects could be both material and pervasive.
In such circumstances, he should make disclaimer of opinion in accordance with SA 705.
Question 4
CA. Dicky Yadav is auditor of a company having four branches. The four branches are audited
by another auditor CA. Yamini Jain. The reports in respect of accounts of branches examined
by her have already been sent to company auditor. During the course of audit, CA Dicky Yadav
asks the branch auditor to share with her summary of audit procedures and findings in respect
of accounts of branches examined.
CA. Yamini Jain feels it as encroachment of her domain. Discuss the issue.
Answer 4
As per SA 600 - “Using the Work of Another Auditor”, the principal auditor might discuss with
the other auditor the audit procedures applied or review a written summary of the other auditor’s
procedures and findings which may be in the form of a completed questionnaire or check-list. Such
review of audit procedures and findings can be undertaken if principal auditor feels that it is necessary
to apply such procedures to obtain sufficient appropriate audit evidence. It is not an encroachment of
another auditor’s domain.
CA Harshad Jaju
8.92 98812 92971
AUDIT REPORT
Question 5
CA. Ravi Patnaik is conducting audit of a company for which reporting requirements under
CARO, 2020 are applicable. He finds that cash credit facilities amounting to ` 4 crores were
released to the company by branch of a bank for meeting its working capital requirements.
He finds that out of above funds, ` 1 crore have been used by company for installing effluent
treatment plant to meet State pollution control Board requirements. Is there any reporting
obligation upon him under CARO,2020?
Answer 5
Clause (ix) (d) of CARO, 2020 whether funds raised on short term basis have been utilised for long
term purposes, if yes, the nature and amount to be indicated.
In the given situation, funds have been raised for meeting working capital requirements for ` 4 crores.
Cash credit facilities for meeting working capital requirements are, by their very nature, short term
borrowings. Out of above, `1 crore have been used by the company for investment in effluent treatment
plant which is ostensibly for a long-term purpose.
Hence, the matter needs to be reported in accordance with requirements of Clause (ix) (d) of CARO,
2020.
CA Harshad Jaju
98812 92971
AUDIT REPORT
CA Harshad Jaju
8.94 98812 92971
AUDIT REPORT
CA Harshad Jaju
98812 92971
AUDIT REPORT
CA Harshad Jaju
8.96 98812 92971

CA Inter (QB) - Chapter 8

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CHAPTER 8

SA 700- Forming an Opinion and Reporting on Financial Statements

MULTIPLE CHOICE QUESTIONS (MCQS)

3. An Audit report is:

4. Which of the following is not correct:

5. Which of following is not an element of audit report in accordance with SA 700?

SA 705- Modifications to the Opinion in the Independent Auditor’s Report

MULTIPLE CHOICE QUESTIONS (MCQS)

3. An auditor disclaims opinion when_________?

SA 706- Emphasis of Matter Paragraphs and Other Matter Paragraphs in the

MULTIPLE CHOICE QUESTIONS (MCQS)

SA 701- Communicating Key Audit Matters in the

MULTIPLE CHOICE QUESTIONS (MCQS)

SA 710- Comparative Information—Corresponding Figures and Comparative

Audit of Branch Office Accounts 128(1)

(a) identify division of audit areas and common audit areas;

MULTIPLE CHOICE QUESTIONS (MCQS)

Reporting Requirements under Companies Act

MULTIPLE CHOICE QUESTIONS (MCQS)

4. UDIN (Unique Document Identification Number) is required to be stated by practising

MULTIPLE CHOICE QUESTIONS (MCQS)

3. For which of following company, provisions of CARO,2020 would be applicable?

Particulars Amount (in `)

MULTIPLE CHOICE QUESTIONS (MCQS)

TEST YOUR KNOWLEDGE

7. …………………… is a paragraph included in the auditor’s report that refers to a matter

9. Which of the following is not correct?

10. Responsibilities of Joint Auditors are governed by:

THEORETICAL QUESTIONS ANSWER

Auditor’s Judgement about the Pervasiveness of the Effects or

(Membership No. XXXXX)

Emphasis of Matter – Effects of Fire in Company’s Factory

Test Your Understanding

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