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Appendix

CA Final Gr. I

(Solution of May - 2013 & Question of Nov - 2013)

Paper - 3 : Advanced Auditing and Professional Ethics

Chapter:- 1 Auditing and Assurance Standards & Guidance Notes

2013 - May [3] (c)

As per SA -505, ‘External Confirmation’, the auditor should employ external confirmation

procedures in consultation with the management. The auditor may come across certain

situations in which the management may request him not to seek external confirmation

from certain parties because of dispute as the request for confirmation might aggravate

the sensitive negotiations between the Company and creditor.

In such cases, when an auditor agrees to management’s request not to seek

external confirmation regarding certain creditors, the auditor should consider validity of

grounds for such a request and assess management’s integrity and obtain evidence to

support the same.

In the present case, If the auditor of H Ltd. agrees to management’s request not to

seek external confirmation regarding a particular matter, the auditor should document

the reasons for acceding to management’s request and should apply alternative

procedures to obtain sufficient appropriate evidence regarding the matter. While

considering the validity of request, in case the auditor of H Ltd. reaches at a conclusion

that the same was not valid, he may appropriately modify the report.

Chapter:- 2 Accounting Standards & Schedule VI

2013 - May [1] {C} (a), (b), (c), (d)

(a) As per the Revised Schedule - VI, the errors are :

(i) Share Capital & Reserve & Surplus are to be shown under the heading

“Shareholders’ funds”, while preparing the balance sheet.

Appendix CA Final Gr. I Paper - 3 I-2

(ii) Reserve & Surplus is showing zero balance, which is not correct. Debit

balance of Statement of Profit & Loss should be shown as a negative figure

under the head ‘Surplus’. The balance of ‘Reserve and Surplus’, after

adjusting negative balance of surplus shall be shown under the head ‘Reserve

and Surplus’ even if the resulting figure is in the negative.

(iii) Employees Stock Option outstanding should be disclosed under the heading

“Reserve and Surplus”.

(iv) Share application money refundable shall be shown under the sub-heading

“Other Current Liabilities”.

(v) Deferred Tax Assets and Deferred Tax Liabilities, both, cannot be shown in

balance sheet because only the net balance of Deferred Tax Liability or Asset

is to be shown.

(vi) The CWIP shall be shown under Fixed Assets as Capital Work in Progress.

The amount of capital advances included in CWIP shall be disclosed under

the sub-heading “Long term loans and advances” under the heading

Non-Current Assets.

(vii) Deferred Tax Assets shall be shown under Non-Current Assets. It should be

net balance of Deferred Tax Assets after adjusting the balance of Deferred

Tax Liability.

(b) According to AS-15 on “Employee Benefits”, an enterprise should recognize the

expected cost of short-term employee benefits in the form of compensated

absences in the case of accumulating compensated absences, when the

employees render services that increases their entitlement to future compensated

absences

The compensated absence are accumulating in nature because the company

obtained actuarial valuation for leave encashment. An enterprise should therefore

measure the expected cost of accumulating compensated absences as the

additional amount that the enterprise expects to pay as a result of the unused

entitlement that has accumulated at that balance sheet date.

In the present case, Z Ltd. will accumulate the amount of leave encashment

benefits as it is the liability of the company to provide 12% PF on the amount of

leave encashment. Thus, the contention of the auditor is correct that full provision

should be provided by the company.

(c) According to AS-2 on “Valuation of Inventories”, a production process may result

in more than one product being produced simultaneously, when joint products are

produced or when there is a main product and by-products. If the cost of

conversion of each produced are not separable, they are allocated on a rational

and consistent basis.


Many of the by-products as well as scrap or waste materials are immaterial. They

are usually measured at net realizable value and this value is deducted from the

cost of the main product. In the present case, as the value of the by-products is

insignificant, the realizable value of by products should be ascertained and it

should be deducted from the cost of the main product.

As per AS-2 Inventories are those assets (a) which are held for sale in the ordinary

course of business (b) in the process of production for such sale (c) in the form of

materials or supplies to be consumed in the production process or in the rendering

of services. As the stock of by-products is a resource controlled by T Ltd., it is an

asset and it is inventory because it is held for sale in the ordinary course of

business.

Thus in the present case of T Ltd. should deduct the realizable value of its by

products from the cost of production of main product.

(d) According to AS-13 “Accounting for Investments” issued by the Institute of

Chartered Accountants of India, long-term investments are usually of individual

importance to the investing enterprise. The carrying amount of long-term

investments is therefore determined on an individual investment basis. Investments

classified as long - term investments should be carried in the financial statements

at cost. However, the provision for diminution shall be made to recognize a decline,

other than temporary, in the value of investments, such reduction being determined

and made for each investments individually.

Thus in the present case, K Ltd. should provide for the decline in the value of

investments in two subsidiaries despite the fact that the overall investment portfolio

in subsidiaries did not suffer any decline.

2013 - May [7] (c)

Comparative information where amounts and other disclosures for the preceding period

are included as part of the current period financial statements, and are intended to be

read in relation to the amounts and other disclosures relating to the current period.

These corresponding figures are not presented as complete financial statements

capable of standing alone, but are an integral part of the current period financial

statements intended to be read only in relationship to the current period figures.

Chapter:- 3 Audit Strategy, Planning Programming & Techniques

2013 - May [3] (b), (d)

(b) As per SA-450 “Evaluation of Misstatements Identified during the Audit”, the

following are the sources of misstatements arising from other than fraud -

(i) Any inaccuracy in gathering or processing data from the financial statements

are prepared;

(ii) Any omission of an amount or disclosure;


(iii) Any incorrect accounting estimate arising from overlooking, or clear

misrepresentation of facts; and

(iv) Any Judgement of management relating to accounting estimates that the

auditor considers unreasonable or the selection and application of accounting

policies that the auditor considers inappropriate.

(d) According to SA- 210 on “Agreeing the Terms of Audit Engagement”, the auditor

may decide not to send a new audit engagement letter or other written agreement

each period. However, the following factors may make it appropriate to revise the

terms of audit engagement or to remind the entity of existing terms:

(i) An indication that the entity misunderstands the objective and scope of the

audit.

(ii) Any revised or special terms of the audit.

(iii) A recent change of senior management in the organisation structure.

(iv) A significant change in ownership of the enterprise.

(v) A significant change in nature or size of the entity’s business.

(vi) A change in legal or regulatory requirement.

(vii) A change in the financial reporting framework adopted in the preparation of

the financial statements.

(viii) A change in reporting requirements.

Chapter:- 4 Risk Assessment and Internal Control

2013 - May [3] (a)

Factors that may warrant a re-test of controls are:

(i) A deficient control environment.

(ii) Deficient monitoring of controls.

(iii) A significant manual element to the relevant controls.

(iv) Personnel changes that significantly affect the application of the control.

(v) Changing circumstances that indicate the need for changes in the control.

(vi) Deficient general IT-controls.

2013 - May [5] (d)

Inherent audit risk at the level of Account Balance and Class of Transactions is:

(i) Quality of the accounting system.

(ii) Financial statement are likely to be susceptible to misstatement, for e.g.,

accounts which required adjustment in the prior period or which involve a high

degree of estimation.

(iii) The complexity of underlying transactions and other events which might require

using the work of an expert.

(iv) The degree of judgement involved in determining account balance.


(v) Suspectability of assets to loss or misappropriation, for example, assets which

are highly desirable and movable such as cash.

(vi) The completion of unusual and complex transactions, particularly at or near

period and Transactions not subjected to ordinary processing.

Chapter:- 5 Audit under CIS Environment

2013 - May [5] (c)

CAATs may be used by E & Co, a firm of CA in performing various auditing procedures,

include the following:

(i) Test of details of transactions and balances: By the use of audit software for

recalculating interest or the extraction of invoices over a certain value from

computer records;

(ii) Analytical Procedures: Identification of inconsistencies or significant

fluctuations;

(iii) Test of general controls: Testing the set-up or configuration of the operating

system or access procedures to the program libraries or by using code

comparison software.

(iv) Sampling program: to extract data for audit testing;

(v) Reperforming calculation performed by the company’s accounting systems.

Chapter:- 9 Audit Report

2013 - May [6] (a), (b), (c)

(a) The Companies (Auditor’s Report) Order (CARO), 2003, exempts those

private limited companies from its application which fulfils all the following

conditions:

(i) If its paid-up capital and reserves are rupees fifty lakh or less;

(ii) If its outstanding loan from any bank or financial institution are rupees twenty

five lakh or less; and

(iii) If its turnover does not exceed rupees five crore.

The contention of Company is not correct.

In the present case H Pvt. Ltd.’s paid-up capital is less than ̀ 50 lakhs and turnover

is less than ̀ 5 crores. But its outstanding loan from banks and financial institution

is ` 29 Lakhs. Loans against Fixed deposits are to be taken into consideration to

compute the outstanding loan from any bank or financial institution. For the limit of

` 25 Lakhs as loans from banks and financial institutions, all loans from banks and

financial institutions are to be taken cumulatively. Since H. Ltd. does not satisfy all

conditions and CARO, 2003, therefore, will be applicable.


(b) As per SA-501 “Audit Evidence-Specific Considerations for Selected Items”, if

attendance at physical inventory counting is impracticable, the auditor shall perform

alternative audit procedures to obtain sufficient appropriate audit evidence

regarding the existence and condition of inventory. If it is not possible to do so, the

auditor shall modify the opinion in the auditor’s report in accordance with SA 705.

In the present case the audition has to modify his report and for this following

factors are to be considered:

(a) Inventories and the Fixed Assets are material to the financial statements.

(b) Auditor is unable to attend physical verification of the inventories and fixed

assets. In other words, physical verification becomes impracticable due to civil

and political unrest in the foreign country, where the inventory and fixed assets

are located, posing threats to the safety of auditor.

(c) Auditor failed to obtain proper and sufficient audit evidence, even by

alternative audit procedures.

Draft of the suitable report to be incorporated in the main audit report:

“Our responsibility is to express an opinion on these financial statements

based on our audit in accordance with the Standards on Auditing issued by

the Institute of Chartered Accountants of India. Because of the matters

described in the Basis for Disclaimer of Opinion paragraph, however, we were

not able to obtain sufficient appropriate audit evidence to provide a basis for

an audit opinion.

Basis for Disclaimer of Opinion

We were appointed as auditors of the Company and we report that we could

not observe the counting of physical inventories and physical verification of

fixed assets due to civil and political unrest in foreign country where the

company has significant operation. We were also unable to satisfy ourselves

by alternative means concerning the inventory quantities and fixed assets of

the company held at March 31st 20XX, which are stated in the Balance Sheet

at ` XXX and ` XXX, respectively.

Disclaimer of Opinion

Because of the significance of the matters described in the Basis for

Disclaimer of Opinion paragraph, we have not been able to obtain sufficient

appropriate audit evidence to provide a basis for an audit opinion. Accordingly,

we do not express an opinion on the financial statements.

Report on Other Legal and Regulatory Requirements

As required by section 227(3) of the Companies Act, 1956, we report that:

As described in the Basis for Disclaimer of Opinion paragraph, we were

unable to obtain all the information and explanations which to the best of our

knowledge and belief were necessary for the purpose of our audit.


(c) According to Para 4 (xi) of CARO, 2003 the auditors of a company has to state in

his report that whether the Company has defaulted in repayment of its dues to

financial institutions or bank or debentures holders and if yes the period and

amount of default to be reported. The auditor should report the period and amount

of all defaults existing at the balance sheet date.

In this case R Ltd has defaulted in repayment of principal and interest falling due

on 28-02-2013. As R Ltd defaulted in the repayment of principal and interest, so the

auditor has to report in his audit report that the Company has defaulted in its

repayment of principal and interest to the financial institution to the extent of

defaulted amount. The period of default i.e 35 days has also to be stated as per

this clause.

Draft Report

“The company has defaulted in repayment of principal and interest to the financial

institution amounted to `………, that become due on 28th Feb, 2013. Also the

period of default is 35 days”.

Chapter:- 11 Audit of Banks

2013 - May [4] (a)(i) If a government guaranteed advance becomes NPA, then for the purpose of

income recognition, interest on such advances should not be taken to incomeunless interest is realized. Credit facility backed by Central GovernmentGuarantee, though overdue, can be treated as NPA only when the CentralGovernment repudiates its guarantee. In the present case the bank has not revoked the guarantee, therefore thequestion of repudiation does not arise. Hence the bank is correct to the extentof not applying the NPA norms for provisioning purpose. But this exemption isnot available in respect of income recognition norms. Hence the income to theextent not recovered should be reversed. This exception is not applicable for State Government Guarantee advances,where advances is to be considered NPA if its remains overdue for more than90 days

(ii) The audit programme to verify advances against Life Insurance Policies

is as under -1. The auditor should inspect the policies and see whether they are assigned

to the bank and whether such assignment has been registered with theinsurer.

2. The auditor should also examine whether premium has been paid on thepolicies and whether they are in force.

3. Certificate regarding surrender value obtained from the insurer should beexamined.


4. The auditor should particularly see that if such surrender value is subject to

payment of certain premium, the amount of such premium has been

deducted from the surrender value.

Chapter:- 12 Audit of General Insurance Company

2013 - May [4] (b)Please refer 1999 Nov -[3] (b) of Chapter 11 on page no. 281

Chapter:- 13 Audit of Co-operative Societies

2013 - May [7] (a)

Restrictions on Investment of funds of a Central Cooperative Society: According

to Section 32 of the Central Act, a Central Cooperative Society may invest its funds only

in any one or more of the following:

(a) In the Central or State Co-operative Bank.

(b) In any of the securities specified in Section 20 of the Indian Trusts Act, 1882.

(c) In the shares, securities, bonds or debentures of any other society with limited

liability.

(d) In any co-operative bank, other than a Central or State co-operative bank, as

approved by the Registrar on specified terms and conditions.

(e) In any other moneys permitted by the Central or State Government.

The principal provision relating to the investments of funds of a co-operative society, the

Central as well as State Acts does not mention anything about the investment of reserve

fund outside the business specifically.

Chapter:- 15 Audit under Fiscal Laws

2013 - May [4] (c)

The following is an illustrative list of capital receipts which, if not credited to P/L A/c are

to be stated under Clause 13(e) of Form 3CD-

(i) Capital subsidy received in the form of Government grants, which are in the

nature of promoters’ contribution.

(ii) Government grant in relation to a specific fixed asset which is shown as a

deduction from gross value of the assets.

(iii) Compensation for surrendering certain rights.

(iv) Profit on sale of fixed assets/investments which is not credited to P/L A/c.

Chapter:- 17 Special Audit Assignments

2013 - May [7] (e)Volatility margin is imposed to curb excessive volatility in the market and to act as adeterrent to building up of excessive outstanding positions.


Computation Price variations on account of calls, bonuses, rights, mergers,

amalgamations and schemes of arrangements are adjusted for determining volatile

securities and adjustments in prices is made for the purpose of computation of volatility,

when securities are traded ex-benefits.

Application Securities that attract volatility margin and the applicable margin rates are

announced on the last day of the trading cycle and are applicable from the first day of

the succeeding trading cycle. The volatility margin is levied on the net outstanding

positions of the member, in each security, based on the respective margin rates.

Chapter:- 19 Internal Management and Operational Audit

2013 - May [5] (b)

The factors responsible for high Employee Attrition Rate are as under:

(i) Job Stress and imbalance of working life.

(ii) Lop-sided policies of the management.

(iii) Unrealistic behaviour of Senior Staff.

(iv) Working environment.

(v) Limited opportunities for promotion.

(vi) Unsatisfactory monetary benefits.

(vii) Lack of qualified and experienced personnel for the various levels of works.

(viii) In adequacy of work force.

(ix) Lack of training facility.

(x) Lack of opportunities for growth and development.

Chapter:- 20 Investigation and Due Diligence

2013 - May [5] (a)

In order to assess turnover the consideration are as follows:

(i) Trend analysis: A proper study of trend should be made to seek whether in the

past, sales have been increasing/fluctuating.

(ii) Marketability: Possibilities to extend the sales into new markets. Product wise

estimation should be made.

(iii) Political and economic consideration: Are the policies pursued by the

Government likely to promote the extension of the market for goods to other

countries? Whether the sales in the home market are likely to increase/ decrease

as a result of various emerging economic trends.

(iv) Competition: What is the likely effect on the business if other manufacturers

enter the same field or if products which would sell in competition are placed on

the market at cheaper price? Is the demand for competing products increasing?

Is the company’s share in the total trade constant or it has been fluctuating?


Chapter:- 21 Peer Review

2013 - May [7] (b)

Technical, Professional and Ethical Standards means:

(i) Accounting Standards issued by ICAI and /or prescribed and notified by the

Central Government of India;

(ii) Standards issued by the Institute of Chartered Accountants of India including

(a) Engagement standards

(b) Statements

(c) Guidance notes

(d) Standards on Internal Audit

(e) Statements on Quality Control

(f) Notifications/ Directions /Announcements /Guidelines / Pronouncements

/Professional standards issued from time to time by the Council or any of

its committees.

(iii) Framework for the Preparation and presentation of financial statements,

• Framework of statements and Standard on Auditing,

• Standard on Assurance Engagements,

• Standards on Quality Control and Guidance Notes on related services

issued,

(iv) Provisions of the various relevant statutes and/or regulations which are

applicable in the context of the specific engagements being Reviewed

including instructions, guidelines, notifications, directions issued by regulatory

bodies as covered in the scope of assurance engagements.

Chapter:- 22 Professional Ethics

2013 - May [2] (a), (b), (c), (d)

(a) A member is liable to disciplinary action u/s 21 of the Chartered Accountants

Act,1949 if he is found guilty of any professional or other misconduct.

Other misconduct includes the following -

(i) If held guilty by any civil or criminal court for an offence which is punishable

with an imprisonment for a term not exceeding six months;

(ii) If, in the opinion of Council, he has brought disrepute to the profession or the

Institute as a result of his action.

In the given case: Mr. A failed to return the books of accounts and other

documents of his client without any reasonable Clause, and therefore, he

would be guilty under other misconduct.

(b) According to Clause (II) of Part I of First Schedule to the Charted AccountantsAct,1949 a Chartered Accountant is deemed to be guilty of professionalmisconduct if he engages in any business or occupation other than the professionof chartered accountants unless permitted by the council so to engage. The council


of the Institute has formulated Regulations 190 A and 191 granting generalpermission for certain categories of occupation and also providing for priorapproval for specified categories of occupations.The council has clarified that members of the Institute in practice, who areotherwise eligible may practice as advocates subject to the permission or BarCouncil but they should not be allowed to use both designations, that is CharteredAccountant and Advocate simultaneously.Thus Mr. B is guilty of professional misconduct as he has printed his visiting cardmentioning his designation as both Chartered Accountant and Advocate.

(c) As per Clause (1) of Part (I) of second Schedule to the Chartered Accountants Act,1949, it is considered to be a professional misconduct if a Chartered Accountantin practice discloses any information relating to business of his client to any otherperson without the consent of his client. This holds true even after completion ofassignment.In the given case, Mr. C, the CA has disclosed serious violation of the provisionsof the Company’s Act to ROC without the consent of the client. Thus, it is aprofessional misconduct. He could have mentioned the violations in his reportinstead of informing the ROC.

(d) As per Clause 7 of Part-I of Second Schedule of Chartered Accountants Act, 1949,a CA in practice is deemed to be guilty of professional misconduct if he “does notexercise his due diligence or is grossly negligent in the conduct of his professionalduties”.Where a CA has not completed his work relating to the audit of the accounts acompany and had not submitted his audit report in due time to enable thecompany’s to comply with the statutory requirement. He is guilty of professionalmisconduct under Clause (7). In this case, Mr. D has not completed his audit work in time and consequentlycould not submit his audit report in due time. Due to this, company’s could notcomply with the statutory requirement. Hence, the auditor is guilty of professionalmisconduct.

Chapter:- 23 Audit of Consolidated Financial Statements

2013 - May [7] (d)

Permanent consolidated adjustments are those adjustments that are made only on the

first occasion of the preparation and presentation of consolidated financial statements.

They are as follows:

(a) determination of excess or deficit of the cost to the parent of its investment in a

subsidiary over the parent’s portion of equity of the subsidiary, at the date on which

investment in the subsidiary is made (determination of goodwill or capital reserve);


(b) determination of the amount of equity attributable to minorities at the date on whichinvestment in subsidiary is made; and

(c) determination of goodwill or capital reserve arising on application of equity methodto account for investments in associates in consolidated financial statements.

Question Paper of Nov - 2013

Chapter:- 1 Auditing and Assurance Standards & Guidance Notes2013 - Nov [1] {C} (b) G Ltd. is a mobile phone operating company. Barring themarketing function it had outsourced the entire operations like maintenance of mobileinfrastructure, customer billing, payroll, accounting functions, etc. Assist the auditor ofG Ltd. as to how he can obtain an understanding of how G Ltd. uses the services of theoutsourced agency in its operations. (5 marks)2013 - Nov [2](c) C & Co., hired Mr. A, Chartered Accountant, to compile its financialstatements for the interim period ending on 31st December 2012. Kindly assist Mr. Ain drafting scope of engagement letter with specific focus on C & Co's responsibility.

(4 marks)(d) Mr. X was appointed as the auditor of M/s Easygo Ltd. and intends to apply the

concept of materiality for the financial statements as a whole. Please guide him asto the factors that may affect the identification of an appropriate benchmark for thispurpose. (4 marks)

Chapter:- 2 Accounting Standards & Schedule VI2013 - Nov [1] {C} (a) X Limited, a newly incorporated company in India commencedits business from April 1, 2012. The Company purchased fixed assets costing ` 4,000lakhs on 01-04-2012 and the same was fully financed by foreign currency loan (U.S.Dollars) payable in three annual equal installments. Exchange rates were 1 Dollar =` 40.00 and ` 42.50 as on 01-04-2012 and 31-03-2013 respectively. The companyworked out foreign exchange loss as per AS 11 at ̀ 250 Lakhs and expensed the entireamount in the profit and loss account.The Managing Director of the company was worried about this heavy revenue loss andasked the accountant not to follow AS 11 issued by the ICAI for this particulartransaction. The Accountant of the company, followed the instruction of the ManagingDirector and removed exchange loss from the profit and loss account but then he addedthe entire exchange loss to the value of fixed asset and computed the depreciationthereon. As an Auditor of X Limited how you would deal with this particular transaction?

(5 marks)(d) M/s Honest Limited has entered into a transaction on 5th March, 2013, near year-

end, whereby it has agreed to pay ̀ 5 lakhs per month to Mr. Y as annual retainer-ship fee for “engineering consultation”. No amount was actually paid, but ̀ 60 lakhsis provided in books of account as on March 31, 2013.

Your inquiry elicits a response that need-based consultation was obtained round theyear, but there is no documentary or other evidence of receipt of the service. As theauditor of M/s Honest Limited, what would be your approach? (5 marks)


2013 - Nov [3] (a) Excellent Limited, a Company incorporated in India and listed withSEBI, has a scheme for payment of settlement allowance to retiring employees. Underthe scheme, retiring employees are entitled to reimbursement of certain travel expensesfor class they are entitled to as per company rules and regulations. Employees are alsoentitled to claim a lump-sum payment to cover expenses on food and stay during thetravel. The Company also gives option to employees that they can claim a lump-sumamount equal to three months pay last drawn.Excellent Limited have following accounting policies to record these travel expenses:

(i) Settlement allowance does not depend upon the length of service of employee.It is restricted to employee's eligibility under the travel rule of the companytherefore all travel expenses fall under the category of defined contribution plans.

(ii) Since it is not related to the length of service of the employees, it is difficult toestimate reliably and there is no present obligation to pay employees as per AS29 "Provisions, Contingent Liabilities and Contingent Assets", hence it isaccounted for on claim basis.

You are statutory auditor of Excellent Limited. What would be your guidance toaudit team? (4 marks)

2013 - Nov [5] (a) X Ltd. is engaged in the business of newspaper and radiobroadcasting. It operates through different brand names. During FY 12-13 it incurredsubstantial amounts on external trade, business communication and branding expensesby participation in various corporate social responsibility initiatives. The companyexpects to benefits by this expenditure by attracting new customers over a period oftime and accordingly it has capitalized the same under brand development expensesand intends to amortize the same over the period in which it expects the benefits to flow.As the statutory auditor of the company do you concur? Give reasons. (4 marks)(d) X Ltd. closed its manufacturing operations and sold all its manufacturing fixed

assets during the financial year ended 31st March, 2013. However it intendscontinue its operations as a trading company. In respect of other fixed assets, thecompany carried out a physical verification as at the end of 31st March, 2013 andfound a material discrepancy to the tune of ` 1 lac, which was written off and isdisclosed separately in the profit and loss account. Kindly incorporate the abovein your audit report. (4 marks)

Chapter:- 3 Audit Strategy, Planning Programming & Techniques2013 - Nov [3](c) In the audit of Hotel Great Stay Ltd. its auditor wants to use theanalytical procedure as substantive procedure in respect of room rental income as wellas payroll costs. Guide him as to how it can be done. (4 marks)2013 - Nov [6] (a) M Ltd. intends to intensify its advertisement strategy of hoardingadvertisements to increase its sale during the impending festival season. You havebeen appointed as the special auditor to examine the expenditure under this head.What will be usual evidence you will look for in this case to justify the expenditure?

(4 marks)Chapter:- 4 Risk Assessment and Internal Control2013 - Nov [4] (d) The Auditor of S Limited has just commenced the statutory audit.What should be considerations for the effectiveness of a system of internal check?

(4 marks)


Chapter:- 5 Audit under CIS Environment2013 - Nov [3] (b) Q Ltd. operates in an ERP environment. Its auditor requires yourassistance on the aspects that are needed to be looked into in respect of control overinput and output of transactions. Kindly help him. (4 marks)Chapter:- 8 Liabilities of Auditor2013 - Nov [5] (c) Mr. X, a young chartered accountant, wants to start practice and herequires your advice, among other things, on criminal liabilities of an auditor under theCompanies Act, 1956. Kindly guide him. (4 marks)Chapter:- 10 Audit Committee and Corporate Governance2013 - Nov [6] (d) Dishonest Limited, a company incorporated in India has six membersin its Audit Committee. Due to recessionary conditions in India the revenue of thecompany is going down and there is slow down in other activities of the company.Therefore, it was expected that there would not be significant work for members of theAudit Committee. Considering the overall recession in the company and the economy,the members of the Committee decided unanimously to meet once in a year only onMarch 31, 2013. They reviewed monthly information system of the Company and foundno errors. As an auditor of Dishonest Limited would you consider the decision taken bythe Audit Committee is in line with the Clause 49 of the (SEBI) Listing Agreement?

(4 marks)Chapter:- 11 Audit of Banks2013 - Nov [4] (b) While doing the audit of a nationalized bank, your Audit Assistantinformed you that there are a lot of irregularities in Telegraphic Transfers and DemandDrafts. What guidance would be give to the Audit Assistant? (4 marks)Chapter:- 12 Audit of General Insurance Company2013 - Nov [4] (c) ABC Limited, an Indian insurance company carrying on generalinsurance business, is facing liquidity problems and, therefore, it has decided tomaintain deposits under section 7 of the Insurance Act, 1938 at one percent of totalgross premium written in India. The company thinks that it is sufficient, as the companyhas a Paid-up Capital of ` 150 Crores. As an Auditor of ABC Limited what would beyour suggestion to the company for compliance of Insurance Act and rules andregulations made there under? (4 marks)Chapter:- 13 Audit of Co-operative Societies2013 - Nov [7] Write short notes on the following:(d) Aspects to be covered in the books of accounts to be maintained by a multi-state

co-operative society. (4 marks)Chapter:- 15 Audit under Fiscal Laws2013 - Nov [6] (c) Mr. A engaged in business as a sole proprietor presented thefollowing information to you for the FY 12-13. Turnover made during the year ̀ 124 lacs.Goods returned in respect of sales made during FY 10-11 is ` 20 lacs not included inthe above. Cash discount allowed to his customers ̀ 1 lac for prompt payment. Specialrebate allowed to customer in the nature of trade discount ` 5 lacs. Kindly advice himwhether he has to get his accounts audited u/s 44AB of the Income Tax Act, 1961.

(4 marks)


Chapter:- 16 Cost Audit2013 - Nov [7] Write short notes on the following:(b) Cost records in respect of by products (4 marks)Chapter:- 17 Special Audit Assignments2013 - Nov [7] Write short notes on the following:(e) Environment Impact Assessment (4 marks)Chapter:- 19 Internal Management and Operational Audit2013 - Nov [7] Write short notes on the following:(c) Content of Management Discussion and Analysis (4 marks)Chapter:- 20 Investigation and Due Diligence2013 - Nov [5] (b) M Limited is going to acquire S Limited. The purchase considerationhas been decided at ` 4,000 Crores. M Limited is worried about hidden liabilities orovervalued assets of S Limited and approached you to examine the same. List out eightimportant transactions/items which you would like to investigate in the Due Diligenceexercise. (4 marks)Chapter:- 21 Peer Review2013 - Nov [7] Write short notes on the following:(a) Scope of peer review (4 marks)Chapter:- 22 Professional Ethics2013 - Nov [2] (a) Mr. X who passed his CA examination of ICAI on 18th July, 2013 andstarted his practice from August 15, 2013. On 16th August 2013, one female candidateapproached him for articleship. In addition to monthly stipend, Mr. X also offered her 1%profits of his CA firm. She agreed to take both 1% profits of the CA firm and stipend asper the rate prescribed by the ICAI. The Institute of Chartered Accountants of India senta letter to Mr. X objecting the payment of 1% profits. Mr. X replies to the ICAI stating thathe is paying 1% profits of his firm over and above the stipend to help the articled clerkas the financial position of the articled clerk is very weak. Is Mr. X Liable to professionalmisconduct? (4 marks)(b) Mr. Honest, a Chartered Accountant in practice, wrote two letters to M/s XY

Chartered Accountants a firm of CAs; requesting them to allot him someprofessional work. As he did not have a significant practice or clients he also wrotea letter to M/s ABC, a firm of Chartered Accountants for securing professional work.Mr. Clever, an another CA, informed ICAI regarding Mr. Honest’s approach tosecure the professional work. Is Mr. Honest wrong in soliciting professional work?

(4 marks)2013 - Nov [3](d) C.A. Prabhu, is a leading income tax practitioner and consultant forderivative products. He resides in Mumbai near to the ABC commodity stock exchangeand does trading in commodity derivatives. Every day, he invests nearly 50% of his timeto settle the commodity transactions. Is C.A. Prabhu liable for professional misconduct?

(4 marks)2013 - Nov [6] (b) Mr. Nigal, a Chartered Accountant in practice, delivered a speech inthe national conference organized by the Ministry of Textiles. While delivering thespeech, he told to the audience that he is a management expert and his firm providesservices of taxation and audit at reasonable rates. He also requested the audience to


approach his firm of chartered accountants for these services and at the request ofaudience he also distributed his business cards and telephone number of his firm tothose in the audience. Comment. (4 marks)

Chapter:- 23 Audit of Consolidated Financial Statements

2013 - Nov [1] {C} (c) Beta Limited, is a company registered with SEBI, having five

subsidiaries. M/s XYZ, Chartered Accountants, have been appointed as Statutory

Auditors for the audit of the Consolidated Financial Statements for the year ending

March 31, 2013. Out of five subsidiaries, the audit of one subsidiary was conducted by

another auditor, M/s Badnam and Company, Chartered Accountants. The “Opinion”

para of audit report furnished by M/s XYZ Chartered Accountants is given below:

Opinion

In our opinion and to the best of our information and according to the explanations given

to us the consolidated financial statements give a true and fair view, except the financial

statement of one subsidiary whose accounts were audited by M/s Badnam and

Company, Chartered Accountants and about the same we are not in a position to

express our opinion as the audit has not been performed by us:

(i) in the case of the consolidated Balance Sheet, of the state of affairs of the

Company as at March 31,2013.

(ii) in the case of the consolidated Profit and Loss Account, of the profit/loss for the

year ended on that date.

Do you find any deficiencies in the opinion para? If yes, you are required to give

your suggestions and redraft the opinion para. (5 marks)

2013 - Nov [4](a) H Limited, a company registered with SEBI, has three subsidiaries

and one associate. While doing the audit of Consolidated Financial Statements (CFS)

of H Limited you have come to know that the associate entity had made a provision for

proposed dividend in its financial statements. H Limited computed its share of the

results of operations of the associate after taking into account the proposed dividend.

Comment. (4 marks)

Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,

Allahabad - 211002

Visit us : www.shuchita.com

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Documents

Appendix - Sauda.comcompanion.shuchita.co.in/pdf/ca/final/Appendix/Appendix...Appendix CA Final Gr. I Paper - 3 I-5 (v) Su spe ctab ility of assets to loss or misappropriation, for