CA Final Audit – Chapter 5 – Company Audit – Set II

Reporting of Fraud to CG as per Section 143(12) is required only in case of?

Reporting of Fraud to CG as per Section 143(12) is required only when

___________ means, a step-by-step sequential record which provides evidence of the documented history of financial transactions to its source.

The auditor shall report the fraud to the Board or the Audit Committee, as the case may be, immediately but not later than __ days of his knowledge of the fraud

The Auditor may seek their reply or observations within __days

The report on fraud shall be sent to the _____________ in a sealed cover by Registered Post with Acknowledgement Due

The report on fraud shall be in the form of a statement as specified in which form?

The auditor is liable for penalty under Section 147 for contravention of the which of the following sections

Every company including all units and branches thereof, shall, in respect of each of its financial year is required to maintain cost records in which Form

Every company shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within ___________

Every company shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government through electronic mode, which form

The cost auditor appointed shall continue in such capacity till the expiry of ________________, for the financial year for which he has been appointed.

The cost auditor shall submit the cost audit report along with his or its reservations or qualifications or observations or suggestions, if any, in which form?

The cost Auditor shall forward his duly signed report to the Board of Directors of the company within a period of how many days from the closure of the financial year to which the report relates

Statement 1: The requirement for cost audit under these rules shall not be applicable to a company which is operating from a special economic zone
Statement 2: The requirement for cost audit under these rules shall not be applicable to a company which is engaged in generation of electricity

M/s A, a compnay whose revenue from exports, in foreign exchange, is seventy five per cent of its total revenue. Is cost Audit Mandatory?

Who among following can be cost auditor?

A company shall within ____ days from the date of receipt of a copy of the cost audit report prepared (in pursuance of a direction issued by Central Government) furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein, in Form _________

Section 131 of the Companies Act, 2013 allows board of director revise financial statement or a revised report in respect of any of the ______ preceding financial years

Which section of the Act has made the consolidation of financial statement mandatory

Where professional or other misconduct is proved, National Financial Reporting Authority have the power to make order. Which of the following option is correct in case of Individuals

Where professional or other misconduct is proved, National Financial Reporting Authority have the power to make order, Which of the following option is correct in case of Firms

Every LLP is also required to submit Statement of Account and Solvency in Form 8 which shall be filed within a period of ____ from the end of ______ of the financial year to which the Statement of Account and Solvency relates

The fees for such inspection of an LLP is ___/- and fees for certified copy or extract of any document u/s 36 shall ____/- per page

QRP Lifecare Private Limited, (the ‘Company’ or ‘QRP’), is engaged in the business of pharmaceuticals at Hyderabad and has an annual turnover of INR 400 crore. One of the directors of the Company did not give declaration to the Company under section 164(2) of the Companies Act 2013 as at 31st
March 2021. The auditors of the Company completed their audit of the financial statements for the year ended 31st March 2021 and were awaiting this declaration. But the management was of the view that they will not be able to receive this declaration. All other directors had given the required declarations and the auditors had also verified that. QRP had given an advance amounting to INR 50 crore to its subsidiary, RPS Ltd. (RPS), on 12th January 2017 for carrying out certain projects. The net worth of the subsidiary had eroded substantially as at 31st March 2021 and looking at the future projections there was no certainty regarding profitability of the subsidiary in the future years.
QRP has another subsidiary, SPS Ltd. (SPS), in UK. The Company had outstanding trade receivables amounting to INR 10 crore from SPS. QRP observed that there have been some FEMA (Foreign Exchange Management Act) non-compliances on the part of QRP but the management had an action plan which they had initiated and on the basis of which management was sure that the non-compliance would be done good and there would be no penalty on the company. In case the penalty arises in future, the impact would be significant for QRP. The auditors of QRP also evaluated this matter by involving a regulatory matters expert and agreed with the management’s view. QRP was using a customized ERP package upto 31st March 2020.
However, with effect from 1st April 2020, QRP moved to SAP (ERP package) considering the increase in size of the operations of QRP.
The auditors of QRP were of the view that for the financial year ended 31st March 2021, being the first year of SAP implementation, no work on IT controls would be required and they were also evaluating to qualify report on IFC because on the basis of their experience on other clients in the past they had found that the IT controls in the first year
of ERP implementation were very weak.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. How should the auditors of QRP deal with the matter related to
non-receipt of declaration under section 164(2) of the Companies Act?

How should the auditors of QRP deal with the matter related to
erosion of net worth of RPS? Is there any reporting implication for the same?

Do you agree with the way auditors have handled the matter related to FEMA non-compliances? How would you deal with this matter?

QRP has been preparing consolidated financial statements but they do not consolidate financial statements of SPS every year. This is because the financial year followed by SPS is January to December as against April to March followed by QRP. The auditors have also been fine with this position of the management of QRP year on year. Please suggest.

Do you agree with the view of the auditors of QRP regarding not testing IT controls in the first year of SAP implementation and evaluating qualification in IFC report. What would be your suggestion here?

TMRT Retail Limited, (the ‘Company’ or ‘TMRT’), is engaged in the business of retail. The Company follows financial year ending 31st March. The Company also plans to get listed in India in the next 4-5 years.
During the financial year ended 31st March 2019, the management had noted extra-ordinary shrinkages of inventories at one of their stores. Post examination/ analysis by the in-house inventory shrinkage team, the management came to know about fraud of Rs. 19 lakh by the employees of the Company comprising of Head Cashier, Cashier and Public Relations Officer.
TMRT has a joint venture, DT Ltd., which is engaged in the business of trading of goods. DT Ltd. appointed new tax auditors for the financial year ended 31st March 2019. DT Ltd. follows calendar year i.e. year ending 31st December for statutory reporting after obtaining requisite approvals. The appointment of the new tax auditors was done after 31st March 2019.
For the reporting year ended 31st March 2021, TMRT’s management plans to have BKP & Associates as their internal auditors. BKP & Associates also happen to be the statutory auditors of TMRT. However, the management has been advised by a consultant that it cannot appoint statutory auditors as their internal auditors because it would lead to the issue of independence. BKP & Associates have been auditing TMRT for the last 3 years and had considered management override of controls as fraud risk and revenue recognition as significant risk for TMRT. BKP & Associates are evaluating whether they should drop both management override and revenue recognition as significant risks for the financial year ending 31st March 2022 considering they did not find any problems/ observations in respect of these two items in the past years and their reports have been clean for the last 2 years.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. In respect of the fraud identified by the management, what shall be the reporting implications on the part of the auditor?

The management of DT Ltd. did not carry out physical verification of inventory for the year ended 31st March 2019. What could be the reporting implications on the part of the tax auditor in such a case?

The management of TMRT needs your advise in respect of appointment of common auditor both for statutory auditors and internal auditor for the financial year ended 31st March 2021.

Please advise BKP & Associates whether it would be appropriate to drop management override of controls and revenue recognition as significant risks for the financial year ending 31st March 2022.

CA David was appointed as a statutory auditor of Growth Limited having its headquarter at Mumbai. Growth Limited was involved in retail & packaging business and had branches in 6 states of India; Mumbai being its headquarter. It had a policy to appoint different auditor for each branch in different state and a central auditor for Mumbai headquarter. For the FY ended 31st March 2021, all branch audit reports were received by CA David in a timely manner. There was an increase in sales for all the branches, except for the branch of Kerala where sales declined by 17% in comparison to last year. Hence CA David requested CA Chinnaswami, auditor of Kerala branch, to share audit working papers of Growth Limited’s Kerala Branch. During the year, Growth Limited used its securities premium of Rs. 7 crore for writing off unabsorbed depreciation of Rs. 2.5 crore and issue of bonus shares for Rs. 4.5 crore. All the provisions of section 63 of the Companies Act, 2013 for issue of bonus share and applicable rules in respect of issue of Bonus shares were complied with by Growth Limited. CA David also took a written representation which was certified by the Company Secretary employed by Growth Limited in regard to compliance of applicable provisions for usage of securities premium and thus, CA David issued unmodified audit report. The company created provision for doubtful debts amounting to Rs. 8 lakh and presented that under head short term provisions under liabilities in its financial statements. CA David was confused with presentation of such provision in accordance with Ind AS 37.
Advocate Tanay was a practicing advocate representing in the court of law. Tanay and CA David agreed that advocate Tanay will recommend CA David in case of matters relating to finance & other matters and CA David will recommend advocate Tanay in case of matters relating to tax litigations. Further they also decided to share profits with each other in relation to such assignments. With the increased quantum, CA David has to increase his office capacity. He purchased 10 office chairs, tables and other office furniture from Growth Limited. The same were purchased with huge 90% discount under clearance sale. The purchase amounted to Rs. 9 lakh which was not more than statutory audit fees of CA David. CFO of Growth Limited contented that, as a result of this purchase, there exist a business relation between Growth Limited and CA David, hence CA David will be disqualified under section 141(3) of the Companies Act, 2013.

Based on the above facts, answer the following:-

1. Was the opinion formed by CA David in respect of usage of securities premium correct?

In the given case, was the presentation of provision for doubtful
debts correct in accordance with Ind AS 37?

What is the validity of CFO’s contention for disqualification under section 141(3) and will CA David be disqualified?

Ulip Ltd. is a public company listed on the National Stock Exchange since the year, 2015, with share capital of Rs. 150 crore. SRS & Co. is being appointed as its statutory auditor for FY 2020-21 and Mr. Raj is appointed as the engagement partner, on behalf of the firm, to conduct the said audit assignment including conducting of limited reviews and other statutory assignments.
Mr. Raj was conducting limited review for second quarter and during the same while adhering to the responsibilities as conferred upon by SA 250, “Consideration of Laws and Regulations in an Audit of Financial Statements”, he evaluated the implications of noncompliance in relation to other aspects of the audit, including the auditor’s risk assessment and the reliability of written representations and concluded that withdrawal from engagement was necessary in the given circumstances, after seeking legal advice, even though the noncompliance was not material to the financial statements but as the management or those charged with governance refrained from taking the remedial action that he considered appropriate in the circumstances. Such a withdrawal was not prohibited by any law or regulation. Mr. Raj, on behalf of SRS & Co., brought to the notice of the Audit Committee of Ulip Ltd., all his concerns with respect to the proposed resignation, along with relevant documents.
After issuing the necessary reports, as required in the circumstances,
SRS & Co. gave its resignation letter to Ulip Ltd. at 1:00 p.m. on 20th
November, 2021 vide its official email-id, which contained the detailed reasons for such resignation.
Such a letter was forwarded to the stipulated authority by Ulip Ltd. at 4:00 p.m. on 21st November, 2021 vide its official email-id.
SRS & Co. filed the statement with respect to its resignation as a statutory auditor in prescribed form with Ulip Ltd. and the Registrar on 15th January, 2021, respectively, after receiving a notice from MCA. For the purpose of filling the casual vacancy in the office of auditor, the Audit Committee of Ulip Ltd. gave recommendation of an audit firm for being appointed as the statutory auditor to which the Board disagreed and it referred back the recommendation to the committee for reconsideration citing reasons for such disagreement.
However, the Audit Committee, after considering the reasons given by the Board, decided not to reconsider its original recommendation, so, the Board of Ulip Ltd. after recording the reasons for its disagreement with the committee appointed Chavda & Co. as its new statutory auditor on 15th December, 2021. Such an appointment of Chavda & Co. was also approved by the members of Ulip Ltd. at a duly convened general meeting on 3rd February, 2022.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. Whether the reasons for withdrawal from the engagement by SRS & Co. can be considered to be justifiable in the light of the fact that the non-compliance was not material to the financial statements?

In continuation of above Question if it is assumed that the auditor was prohibited by any law or regulation from such withdrawal from engagement, then how he would have reported the non-compliance in the audit report?

Ulip Ltd. was required to disclose to which authority, the detailed reasons for resignation of the auditor and by what time limit as per LODR 2015?

What could be the penalty specified under the Company Act, 2013 that could be levied upon SRS & Co. for failure in filing the statement with respect to its resignation, within the prescribed time limit, with Ulip Ltd. and the Registrar, respectively, if its remuneration was Rs. 40,000?

What was the last date available with board of Ulip Ltd. for filing the casual vacancy in the office of the auditor and by what last date, the general meeting for approving the auditor as appointed by the board should have been made in accordance with the provisions of the Companies Act, 2013?

CA D was a practicing Chartered Accountant in Kolkata from last 15
years. He was appointed as the statutory auditor of Giant Motors Ltd.,
a listed entity, which was involved in the business of manufacturing of motor cars for FY 2020-21. CA D was appointed as joint auditor along with CA T and CA P. They have divided the responsibility for conducting audit in accordance with SA 299. As the company has huge amount of property, plant and equipment, it was decided that all 3 auditors will verify the records relevant to property, plant and equipment. While forming an opinion, CA D was having a different opinion on property, plant and equipment but CA T and CA P were having same opinion. CA D wants to qualify capitalisation of post –
acquisition costs incurred on machinery whereas CA T and CA P were
of the opinion that the treatment done by Giant Motor is correct. Both of them contended that as they are forming a majority, CA D will have to certify common audit report which is in accordance with the opinion of CA T and CA P. While assessing the applicability of CARO, 2020, CA D found that
issued share capital of Giant Motors Ltd. is Rs. 500 crore along with Rs. 30 crore of calls which are being unpaid as they are receivable from retail
investors. In the month of July 2020, Giant Motors Ltd. forfeited shares of worth Rs. 10 crore. There were no reserve and surplus as it was transferred to parent entity. Also, along with equity shares of Rs.
300 crore, there was preference share capital of Rs. 200 crore. CA T while reporting under clause (vi) of CARO, 2020 did not report anything under clause (vi) of CARO 2020 as the government has not
ordered Giant Motors Ltd. to conduct cost audit for its books of account. Hence CA T did not report anything under clause (vi). Giant Motors Ltd has a total number of 11 directors. Mr. Talent is the Executive Chairman of the company. Out of 11 directors, 5 were independent directors.
Mrs. D was not aware that CA D was the statutory auditor of Giant
Motors Ltd. She purchased shares of Giant Motors Ltd. worth Rs.
1,50,000 (book value) on 3rd October 2021 but when she came to
know about the statutory auditor of Giant Motors Ltd., she sold her shares on 10th November 2021. One of the shareholders of Giant Motors Ltd contended that CA D is disqualified and shall vacate his office of statutory auditor.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. Can you please guide whether CA D really needs to go with the opinion formed by CA T and CA P or not?

What should have been CA D’s opinion on applicability of CARO, 2020 for FY 2020-21 assuming forfeited shares are not included in equity share capital?

Was the approach followed by CA T for not reporting under clause (vi) of CARO, 2020 correct?

Was there any non-compliance on the part of Giant Motors Ltd.
in case of appointment of independent directors?

Was the contention of shareholder that CA D should vacate the office of statutory auditor correct?

Chartered Accountant Firms – Tink & Co., Llyods & Co. and Manohar & Co., respectively, were appointed as the joint auditors for conducting the statutory audit for the financial year 2020-21 of Anitya Ltd.
They were having difference of opinion with regards to following points:-
Sr. No.
Reasons for Differences in Opinion
1 Manohar & Co. wanted to refer to the work of the auditor’s expert, Mr. Tanmay in the audit report but the other joint auditors were not agreeing on the same as such reference was not relevant to an understanding in the final audit opinion and also it was not required by any statute.
2 Certain misstatements affected information to be included in ‘Management Discussion and Analysis’ of Anitya Ltd.’s annual report but as they were lower than materiality set for the financial statements as a whole and so according to the Llyods & Co., there was no requirement to perform any audit procedures on the same but the other joint auditors were not agreeing on the same for the reason that the information may reasonably be expected to influence the economic decisions of the users of the financial statements
3 For a selected item, the joint auditors were not able to apply the designed audit procedures or suitable alternate procedures and Llyods & Co. wanted to treat that item as a misstatement in the case of test of controls as well as in the case of test of
details but the other joint auditors were not agreeing on the said treatment.
4 Manohar & Co. had determined for a particular account balance positive confirmation request was necessary to obtain sufficient and appropriate audit evidence but as it had not obtained such confirmation and alternate audit evidence would not have sufficed its requirements, Manohar & Co. wanted to determine its implications on the audit opinion but the other joint auditors were not agreeing on the same.
The differences of opinion in case of Tink & Co. and Llyods & Co. were resolved but there remained disagreement with the one of the opinions of Manohar & Co. due to which Manohar & Co. expressed its opinion in a separate audit report.
Manohar & Co. was initially appointed as a joint auditor in Anitya Ltd. for 5 years term with other two auditors but it gave its resignation as an auditor to the company on 20th October, 2021, due to the reason of having differences of opinion with other joint auditors.
Manohar & Co. filed the required statement with respect to its resignation on 27th November, 2021, with Anitya Ltd. as well as the Registrar, respectively. The Board of Directors of Anitya Ltd. appointed Namo & Co. as a joint auditor in place of Manohar & Co. which was later approved by members in the general meeting of the company.
Namo & Co. before getting appointed, as aforesaid, had :-
(i) Communicated vide a registered post acknowledgment due to the previous joint auditor, Manohar & Co. but the said post was received back with the remarks “Office Found Locked”.
(ii) Ascertained that the requirements of Section 139 and Section 140 of the Companies Act, 2013, with the respect to its
appointment had been duly complied with or not by Anitya Ltd.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. Whether the opinion of Manohar & Co. for referring the work of the auditor’s expert, Mr. Tanmay in the audit report, can be considered as valid?

Whether the opinion of Llyods & Co. for treating the item as a misstatement in the case of test of controls as well in the case of test of details for which the joint auditors were not able to apply the designed audit procedures or suitable alternate procedures, can be considered as valid?

Whether the insistence by Manohar & Co. for determining
implications of not obtaining response to positive confirmation request on the audit opinion can be considered as valid?

By what date, Manohar & Co. should have filed the statement with respect to its resignation with Anitya Ltd. as well as the Registrar and in what form?

Whether Namo & Co. would be considered to have satisfied the requirements of communicating with the previous auditor?

M/s. Suresh & Co., a partnership firm, has been appointed, for the 7th consecutive year, as the statutory auditor of Alkis Ltd., an unlisted public company, for financial year 2020-21. Mr. Suresh is the engagement partner for the audit assignment of Alki s Ltd. The engagement team, before starting the assignment, was made to read the policies and procedures designed to achieve desired quality control, with respect to the type of assignment being undertaken. Mr. Suresh, referred the engagement letter, signed with the management initially and was considering whether there was a requirement to send a new engagement letter, in light of following circumstances in the Company during FY 2020-21:
 Two senior whole time directors of the Company have retired out of total five directors.  40% stake in the Company was held by promoters, which was reduced to 5%, by selling shares to general public.
 One more factory unit was set up in Gorakhpur, this year.
 Management has requested to cover 90% of the transactions with respect to each revenue line item, this time, instead of 80% of the transactions, as was set out in the audit plan, considering the materiality and other factors.
The following data is presented from the audited financial statements of Alkis Ltd., for the financial year 2019-2020:
(I) Paid up share capital – Rs. 8 crore;
(II) Turnover – Rs. 55 crore;
(III) Outstanding Borrowings – Rs. 14 crore;
(IV) Outstanding Public Deposits – Rs. 28 crore.
Mr. Suresh while preparing a report under section 143 of the Companies Act, 2013, made a statement with respect to the remuneration paid by the Alkis Ltd. to one of its directors, Mr. Mahesh, was in excess of the limit laid down under section 197 and also gave such other details as prescribed.
Mr. Suresh, for additional reporting purpose, while auditing with respect to compliance with CARO, 2020, observed the following, relevant to Para 3(vii) of CARO, 2020:
Statutory Dues Undisputed Amount (Rs. in lakh) Date Payable Date Paid

Income Tax
Demand for A.Y. 2018-19 2 25th September, 2020 28th March, 2021
GST 1.5 3rd October, 2020 4th April, 2021
Customs Duty 0.80 20th September, 2020 10th April, 2021
Provident Fund 0.45 12th October, 2020 Not Paid till date
Also, a representation was made to GST Department for waiving a penalty of Rs. 1 lakh for late payment of GST demand.
The board of Alkis Ltd. declared interim dividend of Rs. 20 lakh on 20th May, 2021, to its 180 shareholders, out of surplus in the profit and loss account and such dividend amount was deposited in a separate bank with a branch of SBI. Dividend amounting to Rs. 1 lakh was not claimed by a shareholder, Mr. Rohit, till 19th June, 2021, and so the said amount of Rs. 1 lakh was transferred to Unpaid Dividend Account on 31st July, 2020.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. Which of the following option is correct with respect to Alkis Ltd.?

Under which section of the auditor’s report, Mr. Suresh needs to report with respect to the excess remuneration being paid to Mr. Mahesh?

What total amount of statutory dues needs to be reported by Mr. Suresh as per Para 3 of CARO?

How much amount of interest Alkis Ltd. would be liable to pay with respect to unpaid dividend amount?

By what date, the amount of interim dividend should have been deposited in the scheduled bank after being declared and also by what date, the unpaid or unclaimed dividend amount should have been transferred to Unpaid Dividend Account?