{"id":14623,"date":"2024-04-08T09:48:04","date_gmt":"2024-04-08T04:18:04","guid":{"rendered":"https:\/\/gstguntur.com\/?p=14623"},"modified":"2024-04-10T17:49:48","modified_gmt":"2024-04-10T12:19:48","slug":"ca-inter-auditing-case-studies-ca-inter-audit-mcq","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/ca-inter-auditing-case-studies-ca-inter-audit-mcq\/","title":{"rendered":"CA Inter Auditing Case Studies \u2013 CA Inter Audit MCQ"},"content":{"rendered":"

Students should practice these CA Inter Auditing Case Studies \u2013 CA Inter Audit MCQ<\/a> based on the latest syllabus.<\/p>\n

CA Inter Auditing Case Studies \u2013 CA Inter Audit MCQ<\/h1>\n

Integrated Case Study – 1
\nMoon Group of companies is a retail chain involved in the selling of daily consumer needs directly to the customer. They are in the process of appointing an audit firm for the audit of their accounts for the financial year 2019-20. Moon Group is a South Indian based consumer store having a total of 16 outlets across 4 cities in South India.
\nSumant & Co. is appointed as the principal auditor for the entire group. Companies Act, 2013 prescribes in detail the terms of this audit engagement. Further, there are many branch auditors appointed for the outlets in the other cities. The company also has an internal audit function conducted on quarterly basis by Ram & Co. Following are the observations during the course of the statutory audit:
\n(a) One of the discounts offered by the store is in the form of payback cards where reward points are accumulated and the customer can redeem the same on subsequent purchase. The management and internal auditors are of the opinion that the points redeemed are to be treated as trade discount. The external auditors are doubtful on the matter.
\nOne of the outlet in Chennai region is in the verge of getting closed and is only left with low value stock to be cleared before closure. During the year, the sales were only around Rs. 1,40,000 and the auditor considers this component immaterial. All other outlets are performing well with good revenue share.
\nThe gratuity valuation of the employees of the retail chain is done by an external valuer. The auditor, considering the quantum involved appoints an external auditor\u2019s expert for the verification of the actuarial calculation of gratuity.<\/p>\n

From the above facts, answer the following questions by choosing the correct answer:
\nQuestion 1.
\nAs per SA 210 – Agreeing the Terms of Audit Engagement, which of the following statement is correct?
\n(a) Though law prescribes in sufficient detail the terms of the audit engagement, the auditor still needs to record them in a written agreement and also seek written agreement from management that it acknowledges and understands that it has responsibility for the preparation of financial statements.
\n(b) Since law prescribes in sufficient detail the terms of the audit engagement, the auditor need not record them in a written agreement except for the fact that law or regulation applies and also seek written agreement from management that it acknowledges and understands that it has responsibility for the preparation of financial statements.
\n(c) The auditor has to take an extract of the law prescribing the details of the terms of the audit engagement and obtain the counter signature of the management in it.
\n(d) Though law prescribes in sufficient detail the terms of the audit engagement, the auditor still needs to record them in a written agreement, however it need not seek written agreement from management that it acknowledges and understands that it has responsibility for the preparation of financial statements.
\nAnswer:
\n(b) Since law prescribes in sufficient detail the terms of the audit engagement, the auditor need not record them in a written agreement except for the fact that law or regulation applies and also seek written agreement from management that it acknowledges and understands that it has responsibility for the preparation of financial statements.<\/p>\n

Reason:
\nAs per SA 210, if law or regulation prescribes in sufficient detail the terms of the audit engagement, the auditor need not record them in a written agreement, except for the fact that such law or regulation applies and that management acknowledges and understands its responsibilities.<\/p>\n

Question 2.
\nWith respect to the treatment of discount on redemption of points in payback card, what should be the action of the external auditor?
\n(a) The auditor can place reliance and go by the opinion of the branch auditor and internal auditor as they have only done a thorough and detailed audit of the accounts
\n(b) The auditor can place reliance on the management’s accounting policy as prima facie they are only responsible for preparation of financial statements.
\n(c) The external auditor has sole responsibility for the audit opinion expressed and hence he should perform procedures to satisfy himself on the correct treatment and issue opinion accordingly.
\n(d) The auditor can advise management on correct treatment but cannot qualify his opinion as branch auditor’s opinion has higher authority than external auditor\u2019s opinion.
\nAnswer:
\n(c) The external auditor has sole responsibility for the audit opinion expressed and hence he should perform procedures to satisfy himself on the correct treatment and issue opinion accordingly.<\/p>\n

Reason:
\nAs per SA 600 and SA 610, Statutory auditor may use the work performed by Another Auditor and Interna! Auditor respectively, however, ultimate responsibility for opinion expressed is of Statutory auditor. Hence, he should perform procedures to satisfy himself on the correct treatment and issue opinion accordingly.<\/p>\n

\"CA<\/p>\n

Question 3.
\nWhat is the main objective of the external auditor, when he uses the work of the internal audit function of Ram & Co.?
\n(a) To determine as to which areas, what extent the work can be used and whether that work is adequate for the purposes of the audit.
\n(b) To appropriately direct, supervise and review the work of the internal audit function
\n(c) Review the internal audit report and audit the areas not covered by the internal audit function
\n(d) Enquire from management on the special points that arose during internal audit and follow up on the course of action on those points.
\nAnswer:
\n(a) To determine as to which areas, what extent the work can be used and whether that work is adequate for the purposes of the audit.<\/p>\n

Reason:
\nAs per SA 610, the objectives of the external auditor, if using the work of the internal audit function, is to determine whether that work is adequate for purposes of the audit.<\/p>\n

Question 4.
\nThe external auditor finds that the branch auditor of the outlet in the Chennai region, which is in the verge of closing down, is audited by an auditor who is not a member of the Institute of Chartered accountants of India. What should the external auditor do?
\n(a) Since the professional competence of the auditor is in question, the external auditor should himself visit the premise and audit the accounts.
\n(b) Since the financial statement of the component is immaterial, the provisions of SA 600 do not apply.
\n(c) The auditor can rely on the financial statements of that component by obtaining written representation from management that the branch auditor is otherwise well qualified.
\n(d) Since the professional competence of the auditor is in question, the external auditor should coordinate with the branch auditor and call for the books of account and other explanations.
\nAnswer:
\n(b) Since the financial statement of the component is immaterial, the provisions of SA 600 do not apply.<\/p>\n

Reason:
\nAs per SA 600, when the principal auditor concludes that the financial information of a component is immaterial, the procedures outlined in SA 600 do not apply. When several components, immaterial in themselves, are together material in relation to the financial information of the entity as a whole, the procedures outlined in SA 600 should be considered.<\/p>\n

Question 5.
\nWhich of these is not a factor affecting the external auditor\u2019s evaluation of the objectivity of the internal audit function?
\n(a) Whether the organizational status of the internal audit function supports the ability of the function to be free from bias, conflict of interest or undue influence of others to override professional judgment.
\n(b) Whether the internal audit function is free of any conflicting responsibilities.
\n(c) Whether the internal auditors have adequate technical training and proficiency in auditing.
\n(d) Whether those charged with governance oversee employment decisions related to internal audit function.
\nAnswer:
\n(c) Whether the internal auditors have adequate technical training and proficiency in auditing.<\/p>\n

Reason:
\nAs per SA 610, in evaluation of the objectivity of the internal audit function, external auditor considers organisational status of internal audit function, conflicting responsibilities, oversight functions of TCWG w.r.t. employment decisions related to the internal audit function.<\/p>\n

Integrated Case Study – 2
\nM\/s JK & Associates have been appointed as auditors of Venus Ltd. for the financial year 2019-20. The team consist of Mr. J & Mr. K both Chartered Accountants as also the engagement partners and the audit staff consisting of 2 article assistants. While starting the audit work of Venus Ltd., the engagement partners briefed the audit staff about the audit work, areas to be covered and the various auditing concepts and their application in the audit of Venus Ltd. along with applicable Standard on Auditing.
\nVarious topics like audit planning, overall audit strategy, audit programme were discussed in detail. The team was told about the purpose and implication of various statements and guidance notes issued by the Institute of Chartered Accountants of India (ICAI) from time to time. Mr. K also briefed the team about the concept of materiality to be applied while planning and performing audit. The team was also explained in detail about the area where benchmark materiality can be applied in case of Venus Ltd.<\/p>\n

Based on the above facts, answer the following:
\nQuestion 1.
\nsets the scope, timing & direction of the audit and guides the development of the more detailed plan.
\n(a) Audit Programme
\n(b) Overall Audit Strategy
\n(c) Completion Memorandum
\n(d) Audit Plan
\nAnswer:
\n(b) Overall Audit Strategy<\/p>\n

Reason:
\nAs per SA 300, the auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan<\/p>\n

Question 2.
\nStatement 1: The establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or sequential process but are closely inter-related.
\nStatement 2: The auditor shall establish an overall audit strategy that guides the development of audit plan.
\n(a) Only Statement 1 is correct
\n(b) Only Statement 2 is correct
\n(c) Both Statements 1 & 2 are correct
\n(d) Both Statements 1 & 2 are incorrect
\nAnswer:
\n(c) Both Statements 1 & 2 are correct<\/p>\n

Reason:
\nAs per SA 300, the establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or sequential processes, but are closely inter-related since changes in one may result in consequential changes to the other.<\/p>\n

\"CA<\/p>\n

Question 3.
\nmeans the amount set bv the auditor at less than materialitv for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatement exceeds materiality for the financial statements as a whole:
\n(a) Benchmark Materiality
\n(b) Materiality in Planning
\n(c) Performance Materiality
\n(d) Materiality.
\nAnswer:
\n(c) Performance Materiality<\/p>\n

Reason:
\nAs per SA 320, performance materiality means the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.<\/p>\n

Question 4.
\nWhich of the following is not an example of benchmark that can be used in determining the materiality in the case of financial statements:
\n(a) Total Revenue
\n(b) Profit before tax
\n(c) Net Asset Value
\n(d) None of the above
\nAnswer:
\n(d) None of the above<\/p>\n

Question 5.
\n(i) Guidance notes issued by ICAI provide guidance to members on matters which may arise in the course of their professional work.
\n(ii) Statements are issued by ICAI with a view to secure compliance by members on some matters,
\n(iii) Guidance notes are recommendatory in nature.
\n(iv) Statements are mandatory in nature.
\n(a) All the above statements are correct
\n(b) Statements 1 & 2 are correct
\n(c) Statements 1, 2 & 3 are correct
\n(d) Statements 1,2 & 4 are correct
\nAnswer:
\n(a) All the above statements are correct<\/p>\n

Integrated Case Study – 3
\nAnvisha Ltd. is a company engaged in the business of software development. It is one of the largest companies in this sector with a turnover of ? 25,000 crores. The operations of the company are increasing constantly, however, the focus of the management is more on cost cutting in the coming years to improve its profitability. Shares of Anvisha Ltd. are listed on Bombay Stock Exchange.
\nCompany in its AGM held on 26.08.2018, appointed M\/s ABC and Associates, Chartered Accountants, as their auditors for five years.
\nIn respect of the financial statements of the company for the year 2018-19, which are used by various stakeholders, some fraud was observed in respect of assets reported therein due to which those stakeholders suffered damages. As a result, those stakeholders applied to Tribunal for change of auditor on the basis that auditor is colluded in the fraud.
\nIn the meanwhile, ABC and Associates, resigned from the company without assigning any reason. As per the requirements of Sec. 140(2) of Companies Act, 2013, the auditor who has resigned from the company shall file within a period of 30 days from the date of resignation, a statement in the Form ADT-3 with the company and the Registrar. However, no such statement is filed by ABC and Associates.<\/p>\n

Based on the above facts, answer the following:
\nQuestion 1.
\nIn case of an listed entity, for the purpose of appointment of a person as auditor of the company, qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company, is to be considered by:
\n(a) Audit Committee
\n(b) Board of Directors
\n(c) Audit Committee and SEBI
\n(d) Board of Directors and SEBI
\nAnswer:
\n(a) Audit Committee<\/p>\n

Reason:
\nAs per Rule 3 of Companies (Audit and Auditor’s) Rules, 2014, in case of a company that is required to constitute an Audit Committee u\/s 177, the audit committee, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company.<\/p>\n

Question 2.
\nAfter appointment of the auditor in AGM, Anvisha Ltd. shall inform ABC and Associates of their appointment. and also file a notice in Form ______ of such appointment with ______ within of the meeting in which the auditor is appointed.
\n(a) Form ADT -1, SEBI, 15 Days
\n(b) Form ADT -1, Registrar, 15 days.
\n(c) Form ADT – 2, SEBI, 30 days
\n(d) Form ADT – 2, Registrar, 30 days.
\nAnswer:
\n(b) Form ADT -1, Registrar, 15 days.<\/p>\n

Reason:
\nAs per Proviso to Sec. 139(1) of the Companies Act, 2013, the company shall inform the auditor concerned of his or its appointment, and also file a notice (Form ADT-1) of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.<\/p>\n

Question 3.
\nWhich of the following stands true in respect of application made by shareholders to Tribunal for change of auditor on the basis that auditor is colluded in the fraud?
\n(a) Application will be rejected by Tribunal as application for change of auditor can be made only by Central Government.
\n(b) Application will be rejected by Tribunal as Only Tribunal may suo motu take action for change of auditor.
\n(c) If Tribunal is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors.
\n(d) Approval of Central Government is required before making application to Tribunal for change of auditors.
\nAnswer:
\n(c) If Tribunal is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors.<\/p>\n

Reason:
\nAs per Sec. 140(5) of Companies Act, 2013, the Tribunal either suo mo to or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors.<\/p>\n

Question 4.
\nAn auditor, whether individual or firm, against whom final order has been passed by the Tribunal u\/s 140(5) of Companies Act, 2013 shall not be eligible to be appointed as an auditor of any company for a period of from the date of passing of the order and the auditor shall also be liable for action under section .
\n(a) 5 years; Sec. 147
\n(b) 10 Years; Sec. 147
\n(c) 5 Years; Sec. 447
\n(d) 10 years; Sec. 447
\nAnswer:
\n(c) 5 Years; Sec. 447<\/p>\n

Reason:
\nAs per Sec. 140(5) of Companies Act, 2013, an auditor, against whom final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing of the order and the auditor shall also be liable for action u\/s 447.<\/p>\n

\"CA<\/p>\n

Question 5.
\nIf the auditor does not comply with the provisions of Sec. 140(2) of Companies Act, 2013, he or it
\nshall be liable to a penalty of:
\n(a) \u20b9 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of ? 100 for each day after the first during which such failure continues, subject to a maximum of \u20b9 1 lakh.
\n(b) \u20b9 50,000 or an amount equal to the remuneration of the auditor, whichever is higher, and in case of continuing failure, with further penalty of? 100 for each day after the first during which such failure continues, subject to a maximum of \u20b9 1 lakh.
\n(c) \u20b9 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of ? 100 for each day after the first during which such failure continues, subject to a maximum of \u20b9 5 lakh.
\n(d) \u20b9 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of? 500 for each day after the first during which such failure continues, subject to a maximum of \u20b9 5 lakh.
\nAnswer:
\n(d) \u20b9 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of? 500 for each day after the first during which such failure continues, subject to a maximum of \u20b9 5 lakh.<\/p>\n

Reason:
\nAs per Sec. 140(3) of Companies Act, 2013, if the auditor does not comply with the provisions of Sec. 140(2), he or it shall be liable to a penalty of ? 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of? 500 for each day after the first during which such failure continues, subject to a maximum of \u20b9 5 lakh.<\/p>\n

Integrated Case Study – 4
\nM\/s NSG & Associates have been appointed as auditors of Viaan Ltd. for the financial year 2019-20. The processes, operations, accounting and decisions are carried out by using computers in Viaan Ltd. The auditors understand that there are several aspects that they should consider to determine the level of automation and complexity in the business environment of Viaan Ltd. While planning the audit work, the engagement partners discussed with the audit staff about the various types of controls in the automated environment.
\nThe different types of audit tests that can be used in audit of an automated business environment were also discussed within the engagement team. The responsibility regarding the Internal Financial Controls was also discussed in detail. Further the tools and techniques that can be used to deal with the enormous data and information of Viaan Ltd. were briefed to the audit staff by the engagement partners.<\/p>\n

From the above facts, answer the following questions by choosing the correct answer:
\nQuestion 1.
\n______ are the manual controls that make use of some form of data or information or report produced from the IT systems and applications.
\n(a) Application Controls
\n(b) IT dependent Controls
\n(c) Automated Controls
\n(d) General IT Controls
\nAnswer:
\n(b) IT dependent Controls<\/p>\n

Question 2.
\nStatement 1: Application controls include both manual and automated controls that operate at a business process level.
\nStatement 2: General IT Controls apply to mainframe, miniframe as well as end user environment.
\n(a) Only Statement 1 is correct
\n(b) Only Statement 2 is correct
\n(c) Both Statements 1 & 2 are correct
\n(d) Both Statements 1 & 2 are incorrect
\nAnswer:
\n(c) Both Statements 1 & 2 are correct<\/p>\n

Question 3.
\n______ are also known as pervasive or indirect controls:
\n(a) General IT Controls
\n(b) Application Controls
\n(c) IT dependent Controls
\n(d) None of the above
\nAnswer:
\n(a) General IT Controls<\/p>\n

Question 4.
\nWhich of the following are not the types of audit tests that can be used in the audit in an automated environment?
\n(a) Observation
\n(b) Inspection
\n(c) Re performance
\n(d) None of the above
\nAnswer:
\n(d) None of the above<\/p>\n

Question 5.
\n______ is the combination of Drocesses. tools and techniaues that are used to taD vast amounts of electronic data to obtain meaningful information:
\n(a) Computer Assisted Audit Techniques
\n(b) Automated Controls
\n(c) Data Analytics
\n(d) None of the above
\nAnswer:
\n(c) Data Analytics<\/p>\n

\"CA<\/p>\n

Integrated Case Study – 5
\nYou are an audit manager at RMT & Co. and you are considering a number of ethical issues which have arisen on some of the firm’s long-standing audit clients.
\nABC Ltd.
\nRMT & Co. is planning its external audit of ABC Ltd. Yesterday, the audit engagement partner, Ramesh, discovered that a significant fee for information security services, which were provided to ABC Ltd. by RMT & Co., is overdue. Mr. Ramesh hopes to be able to resolve the dispute amicably and has confirmed that he will discuss the matter with the finance director, Mr. Keshav, at the weekend, as they are both attending a party to celebrate the engagement of Ramesh\u2019s daughter and Keshav\u2019s son.
\nXYZ (P) Ltd.
\nRMT & Co. is the external auditor of XYZ (P) Ltd. and also provides other non-audit services to the company. While performing the audit for the current year, the audit engagement partner was taken ill and took an indefinite leave of absence from the firm. The ethics partner has identified the following potential replacements and is keen that independence is maintained to the highest level:<\/p>\n