Mock Test Paper - Series II: October, 2024

Date of Paper: 3 rd October, 2024

Time of Paper: 2 P.M. to 5 P.M.
FINAL COURSE: GROUP I
PAPER-3: ADVANCED AUDITING, ASSURANCE AND
PROFESSIONAL ETHICS
Time Allowed- 3 hours Maximum Marks-100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I - Case Scenario based MCQs (30 Marks)
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All MCQs are
compulsory and carry 2 Marks each.
1. PIHU Ltd. is a company engaged in the manufacture of Kids toys. The company
sells its goods on credit basis. M/s. Mohan Sohan & Associates have been
appointed as statutory auditors of PIHU Ltd. for the FY 2023-24. During the
course of audit, CA Mohan, the engagement partner asks the management
about the e-mail addresses of trade receivables of the company for the
purpose of obtaining balance confirmation from the trade receivables. The
management of the company asked its sales supervisor to send a confirmation
request to the trade receivables and collect all the responses and provide all
such responses to the auditor. The management of PIHU Ltd. also informed
CA Mohan that confirmation with respect to two of its trade receivables, namely
Moon Ltd. and Sun Ltd. won’t be available as a dispute between PIHU Ltd. and
both the trade receivables is going on. With respect to other trade receivables,
the sales supervisor provided CA Mohan with all the balance confirmation. With
respect to the balance confirmation request, which of the following is warranted
as per the requirement of the relevant SA?
(a) CA Mohan should not have relied on the explanation provided by the
management with respect to the trade receivables, namely Moon Ltd. and
Sun Ltd. and he should perform alternative procedures with respect to
such trade receivables.
(b) CA Mohan should have obtained direct response from all other trade
receivables instead of sales supervisor receiving direct responses from
trade receivables and providing them to the auditor.
(c) Both (a) and (b).
(d) CA Mohan should give a qualified opinion as balance confirmation with
respect to two trade receivables is not available.

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2. CA Rajveer is conducting an audit of a manufacturing company. To streamline
the audit process, he uses a sampling tool to select a representative sample
of transactions from a large dataset of sales records. He also employs a BOT
to cross-check the company’s compliance with statutory payments like GST
and TDS. While reviewing the financial statements, Rajveer relies on Excel to
automate calculations such as variance analysis and trend reports, ensuring
the audit is completed on time and meets regulatory requirements. Which type
of audit is being described in the above?
(a) Digital Auditing.
(b) Auditing Digitally.
(c) Manual Auditing with technological assistance.
(d) Traditional Audit.
3. TK Associates a chartered accountant firm has been appointed as an auditor
of the company for the financial year 2023-24. It consists of two partners CA T
& CA K. CA T is brother of the father of the finance director of the company
BAC Ltd. CA K is an old friend of the finance director of the company BAC Ltd.
What kind of ethical threat is associated with appointment of TK Associates as
an auditor of BAC Ltd.?
(a) Self Interest Threat.
(b) Advocacy Threat.
(c) Familiarity Threat.
(d) Self-Review Threat.
Case Scenario I [MCQ 4-8]
GROSS Ltd., an unlisted company in Jamshedpur, is engaged in the business of
spices. Total paid up capital of the company is ` 10 Crore. Details of annual turnover
and profit of the company for the last 3 years are given below:
Year ended Turnover (` in crore) Profit (loss)before tax (` in crore)
31-03-2022 475.20 (Audited) 65.75
31-03-2023 278.35 (Audited) 01.32
31-03-2024 108.25 (provisional) (06.25)

The company is using conventional method for preparing spices. This requires more
human intervention and hence, cost of production is high as compared to innovative
method used by other new companies. Though the company had significant growth
in the past years, it has not done well over the last two financial years due to
competition.
A new competitor viz, Spice Herbs Ltd., had come in the market during the year
2022 and by the end of March, 2023, they captured around 75% of market share by
offering the product at a reduced price. They use new machinery which allows
minimizing manual steps and reducing cost of labour.

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In order to reduce cost of production and thereby re-capture the market, the
management of GROSS Ltd. has planned to erect a new plant with an automatic
machine. The estimated cost of plant & machinery is ` 75 lakh. The company
approached IDN Bank Ltd. for a term loan of ` 70 lakh which would be repaid in 5
years. On 28-12-2023, the bank had sanctioned the loan; and disbursed ` 35 lakh
till 31st March, 2024.
GROSS Ltd. has appointed M/s Hook & Crook, Chartered Accountants, as auditors
of the company at its AGM held on 15-08-2023 for a period of 5 years. As agreed,
the audit team commenced their audit work for the year 2023-24 in February, 2024
and completed the work by the end of May, 2024. The audit team submitted following
findings to the engagement partner:
• PX Ltd., one of the material suppliers, filed a case against the company on 10-
08-2023 for a compensation of ` 2.5 crore.
• Company has made an estimate for allowance of debtors @8%.
• 65% of the value of inventory was only covered in physical verification during
the year 2023 due to fire.
• Company got a show cause notice from State Pollution Control Board for the
contravention of the provisions of Hazardous and waste Management Rule.
• Three incidences of fraud noticed (Total ` 1.25 crore)- fraud committed by the
Purchase manager ` 90 Lakh, by Accounts manager ` 15 Lakh and by a
cashier ` 20 Lakh.
Based on the above facts, answer the following MCQs:
4. Though the company had significant growth in the past years, it has not done
well over the last two financial years. As per SA 570, there are certain events
or conditions that individually or collectively may cast significant doubt about
the going concern assumptions. In order to assess whether GROSS Ltd. is a
going concern or not, which of the following audit procedures should not be
performed?
(a) Analyse and discuss with the management of the company to find out
whether installation of new plant and machinery would enable the
company to reduce cost of production.
(b) Inquire the company’s legal counsel regarding existence of legal litigation
and claim against the company, reasonableness of management
assessments of their outcome and estimate of their financial implication.
(c) Evaluating management’s future plan and strategy to increase market
share of product.
(d) Analyse and discuss the company’s cash flow and profit of the previous
years with the projected accounts.
5. Company has made an estimate for allowance of debtors @8%. Some financial
statement items cannot be measured precisely but can only be estimated. The
nature and reliability of information available to management to support the
making of an accounting estimate varies widely, which thereby affects the

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 degree of estimating uncertainty associated with accounting estimates. Please
advise which among the following may have higher estimate uncertainty and
higher risk as per SA 540?
(a) Judgments about the outcome of pending litigation with PX Ltd. against
the company.
(b) Estimates made for inventory obsolescence that are frequently made and
updated.
(c) A model used to measure the accounting estimates is well known and the
assumptions to the model are observable in marketplace.
(d) Accounting estimate made for allowance for doubtful debts where the
result of the auditors’ review of similar accounting estimates made in the
prior period financial statements do not indicate any substantial difference
between the original accounting estimate and the actual outcome.
6. The company in the notes accompanying its financial statements disclosed the
existence of suit filed against the company with full details. Based on the audit
evidence obtained, it is necessary to draw user’s attention to the matter
presented in the financial statement by way of clear additional communication
as there is an uncertainty relating to the future outcome of the litigation. In this
situation, which of the following reporting option would be correct if auditor is
satisfied with the conclusions reached by the management and this matter is
fundamental to the reader of financial statements?
(a) Include an Emphasis of Matter paragraph in Auditors report having a clear
reference to the matter being emphasized and issue a qualified opinion.
(b) Include in the Basis for Adverse opinion paragraph and issue an adverse
opinion having a clear reference to the matter referred in the notes on
accounts.
(c) Include in the Basis for Disclaimer of opinion paragraph having a clear
reference to the matter and issue a disclaimer opinion.
(d) Include an Emphasis of Matter Paragraph in Auditors report having a
clear reference to the matter being emphasized and to where relevant
disclosures that fully describe the matter can be found in the financial
statement.
7. Company got a show cause notice from State Pollution Control Board. As per
SA 250, the auditor shall perform the audit procedures to help identify
instances of non-compliance with other laws and regulations that may have a
material effect on the financial statements. As the audit team of the company
became aware of information concerning an instance of non-compliance with
law, what would NOT be the audit procedure to be performed?
(a) Understand the nature of the act and circumstances in which it has
occurred and obtain further information to evaluate the possible effect on
the financial statement.

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 (b) Discuss the matter with management and if they do not provide sufficient
information; and if the effect of non-compliance seems to be material,
legal advice may be obtained.
(c) Monitoring legal requirement and compliance with code of conduct and
ensuring that operating procedures are designed to assist in the
prevention of non-compliance with law and regulation and report
accordingly.
(d) Evaluate the implication of non-compliance in relation to other aspects of
audit including risk assessment and reliability of written representation
and take appropriate action.
8. The company had availed some amount of loan for new plant and machinery
during the year under audit. Out of the total loan sanctioned, an amount of
` 35 lakh was earmarked for the purchase of the machinery - Spice Grinder;
but the company has acquired an improved model of machinery, viz, Spice
grinder and mixer instead. State which of the reporting option would be correct.
(a) State the fact in CARO report that out of term loan taken for machinery-
spice grinder, ` 35 Lakh was not utilized for acquiring the machinery for
which it was sanctioned.
(b) Ask the management to change terms and condition of term loan as the
company has acquired a different machinery. Report under CARO, if the
management does not agree with the demand.
(c) State the fact in CARO report that the term loan taken has been applied
for the purpose for which it was sanctioned.
(d) State the fact in CARO report that the term loan taken has not been
applied for the purpose for which it was sanctioned. Also qualify the report
as there are misstatements that are material but not pervasive.
Case Scenario II [MCQ 9-11]
The UNCO Bank Ltd. was having 145 branches all over India by the year ending
31st March 2023. Twelve branches of the bank were already covered for concurrent
audit and the Bank’s Audit Committee decided to include the below mentioned
branches for concurrent audit from the year 2023-24.
(i) Udaipur branch which deals in treasury functions like investments and
interbank borrowings but not in bill re-discounting.
(ii) Varanasi branch which started foreign exchange business from February 2024.
(iii) Chandigarh branch whose aggregate deposits were more than 35% of the
aggregate deposits of the bank.
Globe and Associates, Chartered Accountants were appointed as the stock auditors
by the Bank’s audit committee for four branches for year 2022-23. The Bank’s
management appointed and fixed the remuneration of Globe and Associates,
Chartered Accountants as the statutory auditors also for the year 2022-23, for the
same five branches for which they were given the assignment of stock audit.

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At the Kolkata branch of the bank there were high value cash deposits in one of the
current accounts during April 2023. Your firm has been appointed as the concurrent
auditors for the Kolkata branch for the year 2023-24. The cash collected by the
branch was remitted to currency chest on the very same day but, during the
concurrent audit for the month of April 2023 itself the auditor noticed that the branch
was unable to show intimations sent via e-mail to currency chest for the cash
remittance.
Based on the above facts, answer the following MCQs:
9. Globe and Associates, Chartered Accountants were already appointed for
stock audit by the audit committee for the four branches, so whether Globe and
Associates, Chartered Accountants are authorised to accept the appointment
as statutory auditors for the same branches? Select correct option from the
following:
(a) Globe and Associates, Chartered Accountants cannot accept the
appointment as it was not offered by the audit committee and Bank’s
management is not authorised to appoint the auditors.
(b) Globe and Associates, Chartered Accountants can accept the
appointment as they were already appointed for the stock audit of those
branches by the audit committee.
(c) Globe and Associates, Chartered Accountants can accept the
appointment as they have been appointed statutory auditors for the same
five branches for which they were conducting stock audit.
(d) Globe and Associates, Chartered Accountants cannot accept the
appointment as the audit firms should not undertake statutory audit
assignment while they are associated with internal assignments in the
Bank during the same year.
10. Whether the Bank’s Management is authorised to appoint and fix the
remuneration of statutory auditors without consulting the Audit Committee of
the Board of Directors or members in Annual General Meeting? Select correct
option from the following:
(a) Bank’s Management cannot appoint or fix the remuneration of the
statutory auditor unless the same is passed by a resolution in the Annual
General Meeting of the Bank.
(b) Bank’s Management can appoint and fix the remuneration of statutory
auditors only in consultation with the Audit Committee of the Board of
Directors.
(c) Globe and Associates, Chartered Accountants were already appointed
for stock audit by the audit committee, therefore only audit committee was
authorised to appoint or fix their remuneration as statutory auditors.
(d) Globe and Associates, Chartered Accountants were already appointed
for stock audit by the audit committee, so the Bank’s Management is
authorised to appoint the same firm as the statutory auditors without
consulting the audit committee or members in the Annual General
Meeting.
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11. How the discrepancy of not preserving the intimations of cash remittances to
currency chest by Kolkata branch of the bank should be dealt by the concurrent
auditor in his audit report? Select the correct option from the following:
(a) The auditor should report the matter as a major irregularity in his audit
report to the management.
(b) The auditor should verify the details from e-mail sent to currency chest
and close the matter.
(c) As it is a minor irregularity the auditor can ignore the same.
(d) The auditor should discuss the importance of preserving the hard / soft
copy of e-mail sent for cash remittance with the Branch Manager and
check for its compliance in the next audit period.
Case Scenario III [MCQ 12-15]
M/s AIM & Co. Chartered Accountants is a newly started firm. Their first assignment
was to conduct a statutory audit of M/s DM Crackers Ltd. (a cracker manufacturing
company). Since it was their first audit, the partners immediately accepted the work,
without paying attention to the relevant procedures. They started their audit work
from 25th May 2023 for the financial year (say previous year) ended on 31 st March
2023.
During the course of the audit,
(I) The auditors requested for the financials of the preceding previous year, along
with the details of transactions till 25 th May of the current year. The
management, however, argued that both the details are out of the scope of
audit and hence told that they can’t provide the details. However, after
repeated request from the auditors, they finally provided in September 2023.
(II) It was suspected that the senior accountant could have indulged in a fraud
amounting to ` 115 lakh. However, on further investigation by management it
was found that there was a gross mistake on part of the accountant, who had
wrongly debited and credited certain accounts by mistake, which amounted to
` 17 lakh. The company provided proper and correct evidence for the balance
amount; hence the auditors were strongly convinced that no fraud had taken
place. Due to the absence of an audit committee, the auditors suggested to
the director (finance) to replace the existing accountant as he was poor in basic
accounting skills.
Initially, the company thought of handing over the tax audit work to the previous
auditor. However, since they had a bad experience last year, in form of an argument
regarding the contents to be included in the tax audit report, especially with respect
to the disclosure of key ratios, it was decided that the AIM & Co. shall also act as
tax auditors.
After the conclusion of the audit, Mr. Shyam, one of the partners of the firm, was
confused as to whether the firm could be held guilty of professional misconduct for
a plausible violation of any of the provisions of the Chartered Accountants Act, 1949.
He contacted Mr. Ghanshyam, his partner, to get clarified about the doubt.

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M/s Hire (P) Ltd., a recruitment agency contacted Mr. Shyam regarding a vacancy
in one of the leading manufacturing company. Eventually Mr. Shyam resigned as
the partner of AIM & Co. and joined the company. The agency raised an invoice for
the service rendered by them, which amounted to 0.2% of the CTC offered. Mr.
Shyam agreed to pay the amount. However, since his friend was a manager at the
agency, he received full discount on the invoice.
Angered by the act of resignation, Mr. Ghanshyam filed a complaint with the Institute
of Chartered Accountants of India (ICAI) stating that Mr. Shyam had violated the
provisions of the Chartered Accountants Act and is guilty of professional
misconduct. Having come to know that Mr. Ghanshyam was the one who had filed
a complaint against him, Mr. Shyam decided to take revenge. While thinking for a
suitable reason to file a complaint, he recalled the fact that Mr. Ghanshyam was
engaged as a Registration Authority for obtaining digital signatures for his clients.
Quoting the same, he filed a complaint against Mr. Ghanshyam stating that he was
guilty of misconduct for violating the provisions of the Chartered Accounta nt Act.
Based on the above facts, answer the following MCQs:
12. What can you infer from the situation given in Point I?
(a) Management was right. Both the details asked by the auditors were out
of the scope of audit.
(b) The auditors have the right to ask only the details of preceding previous
year and not the details of transactions till 15 th May of current year.
(c) Both the auditors and the management have the right to ask both the
details and the right to not provide both the details.
(d) The auditors have the right to ask both the details. The management’s
contention that it is out of the scope of audit is wrong.
13. Is M/s AIM & Co. guilty of professional misconduct for violating any of the
provisions of the Chartered Accountants Act, 1949? If so, as per which clause?
(a) Yes, as per Clause 1 of Part I of Second Schedule.
(b) Yes, as per Clause 8 of Part I of First Schedule.
(c) Yes, as per Clause 2 of Part II of Second Schedule.
(d) No. The firm has not violated any of the provisions and hence not guilty
of professional misconduct.
14. Is Mr. Shyam guilty of professional misconduct, if so, as per which clause?
(a) Yes, as per Clause 1 of Part I of First Schedule.
(b) Yes, as per Clause 2 of Part II of Second Schedule.
(c) No. Mr. Shyam is not guilty of professional misconduct.
(d) Yes, as per Clause 1 of Part II of First Schedule.
15. Is Mr. Ghanshyam guilty of professional misconduct, if so, under which clause?
(a) No. Mr. Ghanshyam is not guilty of professional misconduct.
(b) Yes, as per Clause 11 of Part I of First Schedule.
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 (c) Yes, as per Part III of Second Schedule.
(d) Yes, as per Clause 1 of Part II of Second Schedule.

PART II – Descriptive Question (70 Marks)

Question No.1 is compulsory.
Attempt any four questions from the rest.
1. (a) Neptune Ltd. is a company that holds significant investments in a portfolio
of equity securities. Due to a decline in market values, the company's
investments have suffered a notable diminution in value. For the financial
year ended 31st March 2023, the audit report of Neptune Ltd. included a
qualification regarding the non-provision of ₹ 70 lakh for the diminution in
the value of these investments. As the auditor for the financial year
2023-24, how would you report in the following situations:
(i) If the company does not make a provision for the diminution in the
value of investments in the year 2023-24?
(ii) If the company makes an adequate provision for the diminution in
the year 2023-24? (5 Marks)
(b) Pratibha Ltd. is a company engaged in the manufacturing of iron doors.
JLN & Associates are the statutory auditors of Pratibha Ltd. for the
Financial Year 2023-24. During the course of audit, CA Shiv, the
engagement partner, found that the Company’s financing arrangements
have expired, and the amount outstanding was payable on March 31,
2024. The Company has been unable to re-negotiate or obtain
replacement financing and is considering filing for bankruptcy. These
events indicate a material uncertainty that may cast significant doubt on
the Company’s ability to continue as a going concern and therefore it may
be unable to realize its assets and discharge its liabilities in the normal
course of business. The financial statements (and notes thereto) do not
disclose this fact. What opinion should CA Shiv express in case of
Pratibha Ltd.? (5 Marks)
(c) During the course of audit of PEC Limited, CA Guru has reason to believe
that a fraud involving Rs.75 lakhs has been committed in the company by
its employees. Is CA Guru under statutory obligation to report the above
matter to Central government by filing prescribed form on MCA Portal?
How should he proceed to report above said matter? (4 Marks)
2. (a) Mr. Arjun was appointed as the engagement partner for conducting the
audit of Kurukshetra Tech Ltd. for financial year 2023-24, on behalf of
NEMI & Associates. Mr. Krishna was appointed as the engagement
quality control reviewer (EQCR) by the firm for the said audit.
During financial year 2023-24, Kurukshetra Tech Ltd. implemented an
ERP system in phases, leading to the automation of certain business
processes. This implementation had a substantial impact on the auditor's
overall audit strategy. Mr. Arjun discussed the implementation of such a

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 system with Mr. Krishna and also told him that such matter may be a key
audit matter to be reported in the audit report.
Mr. Krishna considered the significance of said matter, however, he was
of the opinion that ERP implementation did not appear to link with the
matters disclosed in the financial statements and so there was no need
to disclose such matter as a key audit matter.
Whether the contention of Mr. Krishna is appropriate with respect to the
matters to be communicated as a key audit matter? (5 Marks)
(b) CA. Kapila, in practice, is desirous of filling Multi-purpose Empanelment
Form (MEF) for inclusion of her name in panel for allotment of statutory
audit of bank branches web hosted by Professional Development
Committee (PDC) of ICAI for financial year 2023-24. The form requires
applicants to upload XML files of their personal income tax returns along
with computation of income. During relevant year for which information
is being sought for by PDC, CA. Kapila has transacted in futures and
options derivatives (equity) and has reflected income from such
transactions in her return of income as “Business Income”. Analyse the
above situation with reference to the provisions of the Chartered
Accountants Act, 1949.
Would it make any difference if CA. Kapila had earned income from
transacting in currency derivatives and commodity derivatives?
(5 Marks)
(c) Remote audit is an audit where the auditor uses the online or electronic
means to conduct the same. It could be partially or completely virtual,
auditor engages using technology to obtain the audit evidence or to
perform documentation review with the participation of the auditee. For
example, an auditor might use video conferencing and cloud-based file
sharing to review financial records remotely. What are the advantages
and disadvantages of remote auditing? (4 Marks)
3. (a) Studio Ltd. appointed AB & Associates and CD & Co. as joint auditors for
conducting the audit for the year ending on 31st March 2024.
During the audit, it was observed that there is a significant
understatement in the value of trade receivables. The trade receivable
valuation work was looked after by AB & Associates, however, there was
no documentation outlining the division of the work between the joint
auditors.
Comment on the above situation with respect to the allocation of
responsibilities among joint auditors as per relevant Standards on
Auditing. (5 Marks)
(b) Manu Finance Ltd. is a Non-Banking Finance Company and was in the
business of accepting public deposits and giving loans since 2019. The
company was having net owned funds of ` 1,75,00,000/-(one crore
seventy five lakhs) and was not having registration certificate from RBI
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 and applied for it on 29th March 2024. The company appointed Mr. Yuvan
as its statutory auditors for the year 2023-24. Advise the auditor with
reference to auditor procedures to be taken and reporting requirements
on the same in view of CARO 2020? (5 Marks)
(c) DIGI & Associates. conducted Stock Audit of PQR Ltd. as per instructions
issued by ASG Bank. However instead of visiting the site where the stock
was lying, the firm relied on the Management Information Systems report
along with inspections reports and photographs of Stock taken by the
employees of PQR Ltd. The photographs were also carrying the date and
time printed on them.
Comment with reference to the Chartered Accountants Act, 1949 and
Schedules thereon. (4 Marks)
4 (a) Girdhar Ltd. owns 61% voting power in Meera Ltd. It however, holds and
discloses all the shares as "Stock-in-trade" in its accounts. The shares
are held exclusively with a view to their subsequent disposal in the near
future. Girdhar Ltd. represents that while preparing Consolidated
Financial Statements, Meera Ltd. can be excluded from the consolidation.
As a Statutory Auditor, how would you deal? (5 Marks)
(b) Abhinandan Ltd., a company wholly owned by Delhi government was
disinvested during the previous year, resulting in 38% of the shares being
held by public. The shares were also listed on the NSE. Since the shares
were listed, all the listing requirements were applicable, including
publication of quarterly results, submission of information to the NSE etc.
Paras, the Finance Manager of the company is of the opinion that now
the company is subject to stringent control by NSE and the markets,
therefore the auditing requirements of a limited company in private sector
under the Companies Act, 2013 would be applicable to the company and
the C&AG will not have any role to play. Comment. (5 Marks)
(c) CA Ram, a practicing chartered accountant, is well known for his
expertise in handling Goods and Services Tax (GST) cases at the GST
Tribunal and he does not provide any assurance services. Given his long-
standing reputation in the field, CA Ram is approached by DEF Limited
to file an appeal in the Tribunal against a GST demand of ₹ 6 crore, which
was imposed by the Commissioner (Appeals), and to represent DEF
Limited in the matter. CA Ram offers to accept a fee of ₹ 3,50,000 for
filing the appeal and pleading at the GST Tribunal.
Comment on the act of CA Ram in terms of the Chartered Accountant
Act, 1949 and Schedules thereon. (4 Marks)
5. (a) Quality Ltd. is engaged in the business of manufacturing and distribution
of various Ready to cook products like vegetables, Noodles etc. The
government made certain changes in rules and regulations relating to this
sector, consequently management decided to go for expansion.
Management was looking for some financial investor who can fund some
part of the proposed expansion. Mr. Aman is interested in the venture and

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 appoints you to act as an advisor to the proposed investment in the
business of Quality Ltd. You have to investigate the audited financial
statements and ensure that the valuation of shares of the company on
the basis of audited financial statements is appropriate. What process
will be used for checking and can reliance be placed on the already
audited statement of accounts? (5 Marks)
(b) While assessing the impact of uncorrected misstatements in the audit of
MINI Builders Private Limited, Mr. Gautam encountered a significant
issue related to the calculation of materiality on revenue. The initial
materiality calculation was based on estimated figures provided by the
management. Management, to estimate full-year revenue, extrapolated
the sales for 11 months to arrive at a figure for 12 months. However, given
the nature of MINI Builders as a company in the construction sector,
where monthly sales exhibit substantial variations, a unique challenge
emerged.
The actual sales for the last month deviated significantly from the
estimated sales due to an unexpected slowdown in project completions.
As a result, the last month's actual sales represented only 30% of the
estimated sales. Now, Mr. Gautam is confronted with a dilemma
regarding the appropriate approach to evaluate uncorrected
misstatements using the previously calculated materiality. Kindly Guide
Mr. Gautam in the light of relevant Standards on Auditing. (5 Marks)
(c) Consistent Enterprises Ltd., a listed company, has been voluntarily
preparing and disclosing its sustainability report based on the
internationally accepted “Integrated Reporting” framework for some
years, even before BRSR reporting became mandatory. Even after BRSR
reporting became mandatory, it is cross-referencing disclosures made
under such reporting to disclosures sought under BRSR. The key focus
of Integrated Reporting is how the company creates value over the short,
medium, and long term.
Following further information is provided in respect of the above
company:
(i) It has secured a loan to expand its operations and invests the funds
in purchasing raw materials and machinery. The loan, along with
revenue generated from existing sales, contributes to the pool of
resources available for production.
(ii) It has increased the number of beneficiaries under its flagship CSR
programmes from previous 10000 to 75000. It has provided value
for communities and provided sustainable livelihood to them.
Discussing the above information, identify which of the capitals of
“Integrated Reporting” are being referred to at [i] and [ii] respectively?
(4 Marks)
6. (a) Mr. Atharv, while conducting the audit of Black Mountain Mining Ltd.,
which is involved in phosphate mining, decided to engage an auditor’s
expert to assess environmental liabilities and site clean-up costs. Black
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 Mountain Mining Ltd. re-appointed Mr. Aman as an independent expert
for this task. For the past five years, the management has consistently
re-appointed Mr. Aman. He calculated the environmental liabilities for
both completed mining sites and sites scheduled for closure in the near
future, including provisions for clean-up costs. Management accepted his
assessment.
Mr. Atharv, after performing the inquiries with management, was of the
opinion that the objectivity of the independent expert cannot be
questioned just because he was appointed by management as their
expert. Hence, there is no need to raise a question on the objectivity of
Mr. Aman or on his work performed for the company. However, the audit
partner was of the opinion that the audit team needs to evaluate the
objectivity of an expert engaged by the entity, irrespective of the fact that
he was appointed as an independent expert.
Guide the audit partner and Mr. Atharv with respect to requirements
pertaining to evaluating the objectivity of the management expert.
(5 Marks)
(b) Mr. Jay is a practicing Chartered Accountant working as proprietor of
M/s Adhya & Co. He went abroad for 4 months. He delegated the authority
to Mr. Vijay a Chartered Accountant his employee for taking care of
routine matters of his office. During his absence, Mr. Vijay has conducted
the under mentioned jobs in the name of M/s Adhya & Co.
(i) Asking for information or issue of questionnaire.
(ii) Initiating and stamping of vouchers and of schedules prepared for
the purpose of audit.
(iii) Acknowledging and carrying on routine correspondence with clients.
Comment on eligibility of Mr. Vijay for conducting such jobs in name of
M/s Adhya & Co. and liability of Mr. Jay under the Chartered Accountants
Act, 1949. (5 Marks)
(c) The practitioner shall not accept the compilation engagement unless the
practitioner has agreed the terms of engagement with management, and
the engaging party if different. In view of the above, mention the
responsibilities of the management to be agreed on for the compilation
engagement in accordance with SRS 4410. (4 Marks)

OR

A review of financial statements includes consideration of the entity’s

ability to continue as a going concern. If, during the performance of the
review, the practitioner becomes aware of events or conditions that may
cast significant doubt about the entity’s ability to continue as a going
concern. Enumerate the steps to be taken by the practitioner for the
same. (4 Marks)
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