Audit for CA Inter by CA SANIDHYA SARAF

4.While performing procedures on designed sample, the engagement team identified certain misstatements in selected sample and projected these to the entire population of revenues. According to the requirements of the Standards on Auditing, which statement is correct in this regard? (a) Anomalous misstatement is auditor’s best estimate of misstatement in population. (b) The projected misstatement plus anomalous misstatement, if any, is best estimate of misstatement in population. (c) When projected misstatement exceeds tolerable misstatement, sample provides a reasonable basis for conclusion about tested population. (d) When projected misstatement plus anomalous statement, if any, exceeds tolerable misstatement, sample provides a reasonable basis for conclusion about tested population.

3.In the given case scenario, assume that the engagement partner has decided to increase tolerable misstatement to ` 10.00 Lakh while designing sample described. Select the correct statement. (a) It would lead to decrease in sample size. (b) It would lead to an increase in sample size. (c) It would have no effect on sample size. (d) It is not possible to draw inference on sample size due to increase in tolerable misstatement.

2.For Priority limited, which benchmark would the engagement partner most likely to use for setting materiality for the financial statements as a whole? (a) A percentage of Revenue (b) A percentage of Total assets (c) A percentage of Profit before tax (d) A percentage of Total liabilities (excluding equity)

1.The auditors of company are in process of establishing audit strategy. Which of the following is not a relevant factor in establishing overall audit strategy in the given case scenario? (a) Consideration of 5 branches which are audited by independent auditors (b) Consideration of wholly owned subsidiary company audited by another audit firm (c) Expected time of holding AGM in accordance with provisions of Companies Act, 2013 (d) Nature, timing and extent of planned procedures for cash and cash equivalents

While designing a sample for verifying revenues of company as part of tests of details, engagement partner has determined “tolerable misstatement” for ` 5.00 Lakh in order to address the risk that aggregate of individual immaterial misstatements may cause the financial statements to be materially misstated and provide a margin for possible undetected misstatements. One of the newly joined engagement team members has little conceptual understanding of “tolerable misstatement” determined by engagement partner. He also has no idea of the effect of change in tolerable misstatement on sample size. (iii) During course of audit, while performing tests of details, engagement team has come across certain misstatements in selected sample pertaining to verification of revenues. The team has projected misstatements to population of revenues. The team wants to comply with the Standards on Auditing strictly. Based on the above facts, answer the following: -

Particulars (Amount in ` crores) Revenue 100 Total Assets 40 Profit before Tax 8 Total Liabilities (excluding Equity) 30

Priority Limited is a large company engaged in manufacturing of terry towels making steady profits on a year-to-year basis. PMR & Associates, statutory auditors of the company since last two years, are in process of establishing audit strategy for conducting statutory audit under Companies Act, 2013 for year 2023-24. The company has 5 branches which are audited by independent auditors appointed under Companies Act, 2013. It also has a wholly owned subsidiary company which is audited by another audit firm under name of JKL & Associates. The engagement team has noticed that company has maintained several bank accounts and there is substantial movement in fixed deposits during the year leading to risk of misstatement in cash and cash equivalents. The engagement team has planned procedures regarding the same. (i) At planning stage, engagement partner is also trying to set materiality for financial statements as a whole. The following information extracted from financial statements is given as under: -

Since exams are approaching,MCQs will be asked from entire syllabus.

2. Keeping in view audit findings in respect of Haryana Power Generation Corporation Limited, identify type of audit carried out. (a) Audit of Government Company (b) Audit against rules and orders (c) Compliance audit (d) Performance audit

1.Based upon plain reading of audit findings stated at Para (A), identify type ofaudit carried out by office of the Comptroller and Auditor General of India. (a) Audit against provision of funds (b) Propriety audit (c) Performance audit (d) Compliance audit

Consider the following five descriptions: - (A)Audit of “Implementation of Nagpur Metro Rail Project” was conducted bythe Comptroller and Auditor General of India. Following is extract of few audit findings placed on website cag.gov.in. “The location of New Airport station was not ideal from the viewpoint of ridership due to sparse population in and around the station and also from the accessibility point of view. Cotton Market station, the second additional station was projected to havehigh peak hour peak direction trips but the work was kept on hold midway citing fund crunch due to non-release of pending contribution from stakeholders. However, the situation could have been managed through prioritization of works.” (B) Another set of audit findings in respect of audit of Haryana Power Generation Corporation Limited, a wholly owned government company responsible for operation of power generation plants in state of Haryana is as under: - “The main reason for low generation was higher variable cost of thermalpower stations which resulted in backing down of plants.” (C) A report was tabled in Parliament highlighting main features of direct taxes administration of country as mandated in Constitution of India. This report primarily discussed compliance to the provisions of the Income Tax Act, 1961 and the associated rules and procedures etc. as applied to administration of direct taxes including irregularities noticed in finalizing assessments etc. (D) Radial finance corporation Limited is a government company. The audit of the company is conducted by statutory auditors appointed by Comptroller and Auditor General of India. (E) Bharat Insurance Company Limited is a general insurance government owned company. The 93 | P a g e By Sanidhya Saraf statutory auditor is appointed by Comptroller and Auditor General of India. The annual report for a particular year also contains comments of statutory auditors on matters such as whether company has carried out reconciliationsin respect of its inter-company balances with other government owned insurance companies. Based on above, answer following questions:

MCQs will be asked next from Special Features of Different type of Entities.

2.Statement 1: Communicating key audit matter in the auditor’s report constitutes a substitute for disclosure in the financial statements. Statement 2: Instead of modifying an opinion in accordance with SA 705, the statutory auditor can use Key Audit Matter paragraph in the audit report with an unmodified opinion. (a) Only Statement 1 is correct (b) Only Statement 2 is correct (c) Both the statements are correct (d) None of the statement is correct