Suggested answer May 2018 - Advance audit and Professional ethics - Only Key Points

1.(a)
SA - 710
(i) If previous audit report has modification and the matter which gave rise to such modification is not resolved by management in current year, then modify current year report and also disclose both figures of previous period and current period.
(ii) However, if provision is made, then auditor need not to refer earlier year's modification.

1.(b)
SA - 501
Auditor shall obtain Sufficient and appropriate audit evidence (SAAE) regarding existence and condition of inventory by attending physical verificaiton
(i) Evaluate management procedure
(ii) Observe the performance of physical count
(iii) Inspect the inventory
(iv) Test count

Impracticable to attend
(i) Perform alternate audit procedure
(ii) Inspect documents regarding inventory movement
(iii) Modify report if SAAE not obtained

1.(c)
SA - 402
(i) Nature of service provided by SO
(ii) Materiality of  transaction processed
(iii) Degree of interaction between Client and SO
(iv) Nature of relation between Client and SO

1.(d)
(i) Previous experience of Auditor about work of expert
(ii) Nature and complexity of expertise involved
(iii) Alternate sources for that information
(iv) Influence of management on expert

2.(a)
PE: Sc 2 Part 1 Clause 4
Deals with Financial statement only in substantial interest
Cost determination is not covered
Not Guilty

2.(b)
Recent changes
(i) Use of digital devices in data collection and accounting
(ii) Use of internet and communication has been increased
(iii) Common documents are replaced by digital forms
(iv) Use of computer programme and software has increased.
(v) GST implementation and audit,
(vi) Complex internal control and lack of audit trail,
(vii) Change in audit evidence collection and evaluation.

2.(c)
Factors to be considered in establishing audit strategy
(i) Identify characteristic of engagement
(ii) Audit team qualification and experience
(iii) NTE of audit assignment
(iv) Knowledge gained from previous audit

Benefit of Audit stratergy
(i) Allocation of resources in better way
(ii) Timing of deployment of resources
(iii) Proper management of resources
(iv) Employment of Qualitative resources

2(d)
SA - 530
(i) Random sampling
(ii) Systematic Sampling
(iii) Haphazard section
(iv) Block sampling

3.(a)
PE: Sc 2 Part 1 Clause 7
Guilty as there is failure to exercise due diligence and skills

3(b)
MSME Disclosure
Schedule III: Bifurcation of creditors required in MSME and other than MSME.

Other disclosure in notes
(i) Principal amount
(ii) Interest paid u/s 16 of MSME act
(iii) Interest due and payable as per calculations of MSME act.

3(c)
Qualified statements
(i) Number of executive directors is less than 50% of strength of board
(ii) A qualified audit committee is not formed
(iii) Audit committee is not independent
(iv) Number of board meeting prescribed not done.
(v) Gap between two BM is more than 4 months.
(vi) Powers as per LODR not vested by board.
(vii) Power of share transfer is not delegated to an officer prescribed.
(viii) The quarterly returns are not properly posted to respective places.

3.(d)
Objective of Auditor in CFS
(i) Enquire into matters specified in 143
(ii) Reporting on matters specified in 143
(iii) Validate the requirement of FRF in CFS
(iv) Satisfy himself that CFS is prepared as per FRF

4.(a)
PE: Sc 1 Part 1 Clause 10
Fees on percentage basis is allowed for cost benefit derived.

4.(b)
I.
 - GC assumption
 - Unfavorable Litigation

II.
 - Managerial remuneration subject to CG approval
 - Improper management estimates

4.(c)
Ceiling limit 141(3)(g) 20 - Excluding one person, dormant, private co. having paid up share capital less than 100 Crore

5.(a)
PE: Sc 2 Part 1 Clause (5)
Guilty for failure of disclose material fact.

5.(b)
Registers
(i) Claim intimation
(ii) Claim paid
(iii) Claim distribution
(iv) Claims supportings
(v) Salvage register

5.(c)
Verification of advances
(i) Santioning
(ii) Authorisation
(iii) Delegation of powers
(iv) Cases where delegation was not used
(v) Bank guarantee with proper security
(vi) Follow up of dues

5.(d)
Clause 32(e) of form 3CD

6.(a)
(i) Procurement practices of PSU
(ii) Resources are properly protected, maintained and effectively used
(iii) Effective operating procedure are used
(iv) Cost effective objective is met

6.(b)
(i) Collect information
(ii) Check F.St.
(iii) Check significant ratios
(iv) Trend analysis of sales
(v) Liabilities and litigations

6.(c)
(i) Organization metrics are as per management objectives
(ii) Responsibility is properly delegated as per organization structure
(iii) Stage wise clarity in responsibility of work

6.(d)
Verification of irregularity in bank guarantee
(i) Examine adequacy of internal control
(ii) Check related registers
(iii) Verify copies of letter of undertaking/guarantee
(iv) Verify securities held as margin

7.(a)
(i) Failure to furnish returns
(ii) Failure to maintain books
(iii) Failure to provide requisite information
(iv) Failure to take certification of registration
(v) Communication of price sensitive informaiton

7.(b)
KYC norms
include general, engagement and regularity information of individual, corporate and non corporate entity.

7.(c)
Warrant of cost audit
(i) Price fixation
(ii) Trade dispute
(iii) Tax assessments
(iv) Inefficient management

7.(d)
Eligibility to be peer reviewer
(i) Practice at least 10 years
(ii) Undergone training as per board
(iii) No disciplinary action
(iv) No conflict of interest with Practicing unit

7.(e)
- Section 140(5)
- Tribunal on suo moto or on application by Tribunal
- Needs to satisfy that auditor acted in fraudulent manner
- On application of CG, Tribunal may order to remove auditor and ask CG to appoint another auditor.
- Liability as per Section 447