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PMP Ltd is an associate of PMP Inc, a company based in Kuwait. PMP Ltd is listed in India having its corporate office at Assam. The company’s operations have remained stable over the years and the management is looking to expand the operations for which the management is considering different business ventures.The company’s auditors issued clean audit report on the audit of the
financial statements for the year ended 31 March 2019.For the financial year ended 31 March 2020, the auditors made some changes in their audit team. While the audit partner remained the same, the field incharge has been replaced, as the field incharge who was engaged in the audit of the financial statements for the year ended 31 March 2019 has left the firm. The audit team has a new person as External Quality Control Reviewer (EQCR) who has specialized knowledge of the industry in which the company is operating. EQCR has been employed with the firm for over 2.5 years and is yet to clear his CA (Chartered Accountancy) final exams. The changes were made on the basis of the consideration that the firm has enough experience of engagement with this client.
The audit team commenced the work for audit of the year ended 31 March 2020 after detailed planning and it was observed that EQCR had various comments on certain matters which were not accepted by the audit partner. Audit partner had better understanding of the client and after assessing the comments of the EQCR did not find those relevant.
The audit partner without concurrence of the EQCR finalized the audit and issued the audit report.
In the given situation, please advise which one of the following is correct?
VKPL & Associates, a firm of Chartered Accountants, have been operating for the last 5 years having its office in Gurgaon. The firm has staff of around 25 persons with 3 Partners.The firm has been offering statutory audit, risk advisory and tax services to its various clients. The major work of the firm is for taxation services. The audit partners also discussed that the firm needs to work significantly to improve the quality of the services they offer and that would also help the firm to grown its business. Considering this objective, the firm started training programmes for the staff which were made mandatory to be attended.
During one of the training programmes on quality, a topic was discussed regarding the information that should be obtained by the firm before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client. It was explained that the following points may assist the engagement partner in determining whether the conclusions reached regarding the acceptance and continuance of client relationships and audit engagements are appropriate (as per SA 220):
(i) The integrity of the principal owners, key management and those charged with governance of the entity;
(ii) The qualification of all the employees of the entity;
(iii) Whether the engagement team is competent to perform the audit engagement and has the necessary capabilities, including time and resources;
(iv) The remuneration offered by the entity to its various consultants;
(v) Whether the firm and the engagement team can comply with relevant ethical requirements; and
(vi) Significant matters that have arisen during the current or previous audit engagement, and their implications for continuing the relationship.
We would like to understand from you which of the above mentioned points are relevant for the topic under discussion?
ZOV is a private limited company engaged in the business of mining. The company’s operations are fairly large and its turnover is INR 4,000 crore on an annual basis. Due to the nature of the business and the size of the company, the company has appointed a firm of Chartered Accountants as its statutory auditors who have the relevant experience of the industry in which the company has been operating.
During the course of the audit of the financial statements for the year ended 31 March 2020, the audit team had various observations which resulted in many adjustments in the financial statements of the company and that was also appreciated by the CFO of the company.
At the time of final reviews of the audit team, the audit partner requested working paper on final analytical procedures from the engagement team, however, the engagement team explained that they performed substantive testing procedures which also resulted in some adjustments and the same was incorporated in the final set of financial statements given to the audit partner for the review and accordingly there was no need to perform final analytical procedures. Audit partner was not convinced with this and requested the engagement team to perform this procedure. Considering that the timeline to conclude the audit was approaching, the audit partner also requested the CFO that the audit team would need some more time to perform final analytical procedures. CFO was very impressed with the engagement team and agreed for the time but he also told the audit partner that work of the team was excellent and hence the audit partner should avoid these additional procedures.
You are requested to give your view in respect of this matter as per SA 520.
BDJ Private Ltd was established in 2001 and since then the company’s operations have grown significantly. The company is based in Kanpur and has branch offices outside Kanpur.The company is engaged in tours and travels business and because of the nature of the business, it has voluminous transactions. The annual turnover of the company is INR 700 crore.
During the audit of the financial statements of the company for the year ended 31 March 2020, the auditors observed wide variation in various details of sales and various expenses as compared to last year. Various balances of trade receivables, loans and advances, statutory liabilities showed significant increase and many balances were found to be non- moving which were aged for more than 3 years.
On the basis of the materiality and planned procedures, the audit team requested the client for testing of various samples for sales, expenses etc. The client observed that the number of samples that the team has requested increased as compared to last year and asked the team to cut down on the number of samples so that it is the same number of samples which were tested in the previous years.
The audit team did not agree with this and explained various factors which the team had considered for sample selection and the reasons for changes in the samples and also explained the requirements of SA 530 to the client but the client still did not agree.Now there is a situation of deadlock and you are requested to provide your guidance to resolve this matter.
SKJ Private Ltd is engaged in the business of construction. The company has also got some real estate projects few years back on which it started the work in the last 2 years. The annual turnover of the company is INR 600 crore and profits of INR 40 crore.The statutory auditors of the company got rotated by another audit firm due to mandatory audit rotation requirements as per the Companies Act 2013.
The new statutory auditors of the company started audit of the financial statements for the year ended 31 March 2020 in May 2020. The audit team also requested the client to provide certain information on the opening balances to perform their audit procedures. Initially the management did not provide any information to the auditors on the opening balances thinking that this is not within the scope of their work, however, after going through the auditing standards, the management agreed and provided the required information.Later on, the audit team also started requesting information for the period from 1 April 2020 to 31 May 2020. With this requirement, CFO of the company got very upset and angry and set up a meeting with the senior members of the audit team. CFO raised a concern that the audit team has not been doing the work properly and has been asking for unnecessary information like information on opening balances and then the information for the period after 31 March 2020. The audit partner explained to the CFO that everything requested by the audit team has been as per the auditing standards, however, CFO said that in the earlier years, the previous auditors never asked for such information.
You are requested to give your view in respect of this matter.
M/s Ram Raj & Associates have been appointed as statutory auditors of Venus Ltd. for the FY 2019-20. During the year, the company has entered into some related party transactions. CA Ram, the engagement partner has taken a management representation letter regarding the proper accounting, presentation and disclosure of such related party transactions. Is there any further responsibility of CA Ram with respect to the other procedures to be performed for related party transactions?
MNO Ltd. is a company engaged in the manufacture of Kids toys. The company sells its goods on credit basis. M/s. Ajay Vijay & Associates have been appointed as statutory auditors of MNO Ltd. for the FY 2019 –
20. During the course of audit, CA Ajay, the engagement partner asks the management about the email addresses of trade receivables of the company for the purpose of obtaining balance confirmation from the trade receivables. The management of the company asked its sales supervisor to send confirmation request to the trade receivables and collect all the responses and provide all such responses to the auditor. The management of MNO Ltd. also informed CA Ajay that confirmation with respect to two of its trade receivables namely Sports Star Ltd. and Kids Zone Ltd. won’t be available as a dispute between MNO Ltd. and both the trade receivables is going on. With respect to other trade receivables, the sales supervisor provided CA Ajay with all the balance confirmation. With respect to the balance confirmation request, which of the following is warranted as per the requirement of the relevant SA?
M/s ABC & Associates are the statutory auditors of PQR Ltd. for the FY 2019-20. While conducting the audit, CA Aman, the engagement partner noticed the following:
1) Payments of various fines and penalties
2) Unusual cash payments
3) Payments to various government employees not supported by any document
4) Notices received from various regulatory authorities.
5) Heavy payments to legal counsels.
CA Aman should consider the above as indicative of:
Auditors do not normally examine all the information available to them as it would be impractical to do so and using audit sampling will produce valid conclusions. Random selection ensures that all items in the population have an equal chance of selection, e.g. by use of random number tables or random number generators. Block sampling method includes selection of a block or blocks of continuous items from within the organisation. Which of the following selection can be considered as block sampling method?
You are the audit senior of Tey & Co are responsible for the audit work to be managed for the fixed assets of the company. Tey & Co has 4 properties amounting to ` 12.5 crore. One of the important tasks ahead for you is to confirm the ownership of these properties.
Which of the following would provide the most persuasive evidence of the ownership?
Professional scepticism is defined as:
Professional judgement is defined as:
Judgements about materiality are made in the light of surrounding circumstances, and are affected by:
The following inherent limitations in an audit affect the auditor’s ability to detect material misstatements except:
AK & Co, a firm of Chartered Accountants, have been operating for the last 6 years. Due to the quality of service offered by the firm, it has made its name and is quite renowned especially in Southern India where its head office is located. The firm has a staff size of 240 including graduates, Chartered Accountants, Management Consultants, Company Secretaries and lawyers.
The firm has 3 branches other than head office at Bangalore, Chennai and Pune.
The firm has got many clients for statutory audit over the period and ensures that to maintain the quality of work, proper planning is done by each team before starting any engagement.
One of the engagement team, picked up for statutory audit of Sun Private Ltd, was involved in the process of planning of audit for the financial year ended 31 March, 2020.
The audit for the financial year ended 31 March, 2019 was conducted by a different engagement team. However, the engagement team of Sun Private Ltd for the current year has got the industry experience.
The audit team is confused during the planning work and would like to have your views on following points. Please advise by answering one of them.
Kshitij Private Ltd is a company based out of Kochi having operations primarily in Europe. Because of the nature of the operations of the company, it is required to prepare its financial statements as per International Standards for reporting to the local regulatory authorities over there.
Since the business is based in Europe, the audit team is also required to visit the locations wherever the company has offices and is accordingly, required to perform certain audit procedures over there.
During the audit of this company for the financial year ended 31 March, 2020, the auditors, who had planned their work appropriately and had a large team for conducting the audit, were facing lot of challenges at various stages.
They were also required to revisit their materiality level during the course of the work.
However, at the time of final reviews when this was discussed with the Audit Partner (Audit Incharge), he was not convinced with the approach of the audit team wherein they reassessed their plans continuously resulting in waste of time.
In this situation, please advise which one of the following would be correct.
RJ Private Limited having its office at Bangalore and operations spread across Southern India, had a discussion with its statutory auditors regarding the audit plan and the timelines.
In the past years, there have been significant delays in completion of audit work and the management wanted that for the current year, audit should get completed on time. For doing this, the audit team suggested that the information for the purpose of audit should be ready on time and only then the timelines as agreed can be achieved.
On the basis of the discussions with the client & the auditors and internal discussions amongst the audit team members, a detailed audit programme was prepared by the audit team for the current year’s audit. But the audit team discussed that they will not document this audit programme till the completion of the audit work because at various stages, the work may require changes. If the audit team documents the audit programme then it would create problems later on at the time of assembling of the audit file wherein the audit team would have to show the changes made by them in the audit programme during the course of the audit.
You are required to share your views in respect of this understanding and approach of the auditor.
KJ Private Ltd has a business of pharmaceuticals and has an annual turnover of INR 1,500 crore. During the last few years, considering the environment in which the company operates, its profit has reduced and are still reducing. Hence, the management has been looking at various ways to cut the costs.
AD & Associates are the statutory auditors of the company and RM & Associates are the internal auditors of the company.
Initially, the company did not want to appoint any internal auditors to save costs, however, at insistence of the statutory auditors, the company appointed the internal auditors.
During the course of the statutory audit for the financial year ended 31 March, 2020, the statutory auditors requested for the detailed working papers of the internal auditors which the internal auditors refused. However, the statutory auditors told the management if the same are not provided then they would qualify their report.
In this situation, please advise which of the following would be correct.
RIM Private Ltd is engaged in the business of manufacturing of steel having annual turnover of INR 10,000 crore. The company is very capital intensive and has its plants at two locations – Mohali and Hosur.
During the year ended 31 March, 2019, the company carried out a detailed physical verification of its property, plant and equipment and also reassessed their useful lives by engaging a consultant. The consultant submitted its report to the management on 21 April, 2019.
The statutory auditors of the company started their audit work from May 2019 and when this information was given to them regarding the physical verification and the reassessment of the useful lives of property, plant and equipment, the auditors told the management that the consultant should have submitted its report to the auditors also independently. Further, in the absence of this direct communication of the report of the consultant to the auditors, the audit team would have to review the work of the consultant which is not efficient but it cannot be avoided now.
Management did not agree with both the points of the auditors that the consultant should have shared report with the auditors directly and that the auditors need to review the work of the consultant. The management would like to have your views on this matter.
M/s Viaan Viraj & associates are the statutory auditors of ABC Ltd. for the FY 2019-20. The company has a strong internal audit team. During the course of audit, CA Viaan, the engagement partner found that the company has factories all across the country. In order to verify the wages expenses at all the factories, CA Viaan decided to use the Internal Audit Team of the company. He accordingly discussed the same with Mr. Gaurank, the Chief Internal Auditor of ABC Ltd. to provide him a report on the wages expenses across all factories. Which of the following requirements as per SA 610 are required to be fulfilled by CA Viaan prior to using the direct assistance of the Internal Audit Team of the company?
An auditor’s expert may be either an auditor’s internal or an external expert. Which of the following can not be an auditor’s internal expert?
CA Sameer, after developing the audit strategy for Menka Ltd., develops an audit plan but finds a need to revise the materiality levels set earlier and therefore, a deviation from the already set audit strategy is felt necessary. In this case, he should
M/s MNO & Co. (a CA firm with 3 partners) are the statutory auditors of PCL Limited, a company engaged in real estate business. PCL Limited recently launched a real estate project in Bangalore Whitefield location at an all- inclusive price of ` 5,500. PCL Limited also announced that their first 50 customers would be allowed a special inauguration discount of 10%. Mr. M, one of the partners with MNO & Co. and the audit engagement partner for PCL Limited booked one 3 BHK flat and he was offered the all- inclusive price of ` 4,950 (after 10% inauguration discount). Another partner- Mr. N also booked one 3 BHK flat at the all- inclusive price of ` 5,500. Which of the following statements is correct:
Raj Private Limited is engaged in the business of retail and has its retail outlets concentrated towards Northern India. Currently, the company has 59 outlets and the plan of the management is to take this to at least 100 over the next 2 years.
The company is audited by Raj & Associates, a firm of Chartered Accountants, who have been operating for over 20 years, however, they don’t have much experience in the retail sector. Because of this fact the audit team decided to plan efficiently for the audit of the financial statements of the company for the year ended 31 March 2020, being their first year of audit.
During the course of risk assessment by the auditors, it was discussed that the company is operating in an industry where the operations are not very complicated and mostly the processes are known to all. Considering the same they decided that assessment of inherent risk should not be done for this company as that would be inefficient. However, the auditors will take due care of the control risks. The same assessment was deliberated upon and after lot of discussions it was finalized like this.
In the given situation, please advise which one of the following would be correct.
Kshitij Private Ltd is a company based out of Noida having operations in India and Dubai. The company’s operations in Dubai have increase over the last 2 years and the management is earning very good profits.
Because of the profits, the management also planned that they should now focus on strengthening of internal controls of the company and for that purpose they have discussed with the statutory auditors to carry out the audit for the financial year ended 31 March 2020 very rigorously.
The report on internal financial controls is also applicable to the company and hence the auditors during the course of their work asked for Risk-control matrices from the company. During the year ended 31 March 2019, Risk-control matrix was not available with the company and was prepared in a draft manner and the same was shared with the audit team during that year and the auditors completed their work on the basis of that.
However, for the year ended 31 March 2020, the auditors would like to have robust documentation and are not ready to accept the same Risk- control matrices.
In the given situation, please suggest what should be the course of action.
SK Private Limited is a medium-sized company having operations in Jharkhand. The company manufactures some parts and sells that to various dealers on ex-works basis. The financial statements of the company are prepared as per Ind AS and internal financial controls report is also applicable on the same.
During the course of audit of the financial statements for the year ended
31 March 2020, the management of the company had a detailed discussion with the auditors for audit planning.
Further it was also decided that any observations of the auditors should also be discussed with the management before conclusion by the audit team which was not done in the past years.
Considering this, the auditors started the risk assessment and requested the management to share their documentation for the same on which the management said that they don’t have any risks and if the auditors come across any such thing they can discuss that with the management.
But the auditors were not convinced with the view of the management and the same thing has happened in the past years as well.
You are required to provide your inputs to resolve this matter.
AJ Private Ltd is in the business of telecom and have significant operations across India predominantly in Northern India.The statutory auditors of the company have been continuing for the last 3 years and have been issuing clean report.For the financial year ended 31 March 2021, the statutory auditors commenced their work in March 2021 as per discussions with the management and with a plan to complete the audit by first week of May 2021.
The audit team concluded the work as per the agreed timelines and the financial statements and audit report were signed on 5 May 2021 along with the engagement letter for the financial year ended 31 March 2021.
In the given situation, please advise which of the following would be correct.
RIM Private Ltd is engaged in the business of manufacturing of water bottles and is experiencing significant increase in turnover year on year. It is a subsidiary of RIM Gmbh, based out of Germany.
During the financial year ended 31 March 2019, the company carried out a detailed physical verification of its inventory and property, plant and equipment.
During the year, various other activities were carried out to increase efficiency in operations and reductions of costs.
The statutory auditors of the company started their audit work from April 2019 and requested for a documentation on changes in processes and activities during the year as well as any resultant impact of the same on management controls.
The management of the company told the auditors that all such documentation is maintained by the parent company as this is a closely held private company and even though internal financial control
reporting is applicable on this company, the parent company is taking due care of each and every process.
The auditors did not agree with the views of the management. Please advise both the management and the auditors.
XYZ Private Limited is engaged in trading of parts of machineries used in boiler plants. Company has seen growth of 60% in the sales and management expecting similar growth in next 3 financial years and is planning to onboard new dealers in order to achieve management goal. Purchase department also expect to develop new suppliers in order to meet customer demands.
Internal auditor of the company has identified frequent changes in the bank account and other master details of suppliers. At this expansion planning phase, company has no defined control to provide assurance on said supplier master changes. Management agreed to develop the process of monthly detailed review of supplier master changes done in supplier master by Finance assistant in order to ensure authorized changes in supplier master.
One of the members from the Management would like to know that above controls falls under which category:
The management of Magoo Ltd. has developed a strong internal control in its accounting system in such a way that the work of one person is reviewed by another. Since no individual employee is allowed to handle a task alone from the beginning to the end, the chances of early detection of frauds and errors are high. CA. Olive has been appointed as an auditor of the company for current Financial Year 2019-20. Before starting the audit, she wants to evaluate the internal control system of Magoo Ltd. To facilitate the accumulation of the information necessary for the proper review and evaluation of internal controls, CA. Olive decided to use internal control questionnaire to know and assimilate the system and evaluate the same. Which of the following questions need not be framed under internal control questionnaire relating to purchases?
The firm from which you are pursuing your articleship training is the internal auditor of ABC Ltd. While conducting the audit of the medical expense reimbursements of the company employees, you come across some bills which are clearly not medical in nature, and some others which have been overwritten. During the discussions, the accountant points out that the employee is a functional head who enjoys a significantly higher medical expense reimbursement limit, and that you should ignore those bills as the amount is not material. You will:
Adequate design and effective implementation of Internal Controls may not lead to the identification of:
KPL Private Limited is a large software company based out of Hyderabad. The annual turnover of the company is INR 2,100 crore. The company sells software and is also involved in the implementation of those software for its clients.
The major chunk of the revenue though comes from sale of software only. The company works on a completely paper-less office and accordingly, most of the documents are available in soft copy.
During the financial year ended 31 March 2020, the auditors during the course of their audit obtained various audit evidences some of which were in hard copy but mostly in soft copy.
On conclusion of the audit, the auditors are in a dilemma whether to maintain their documentation entirely in hard copy or soft copy or can it be mixed of both.
After consultations with various persons, the auditors stood that the documentation for this company, being operated in fully automated environment should be in soft copy only.
Please advise whether this understanding is correct.
KJ Private Ltd is engaged in the business of e-commerce wherein most of the operations are automated. The company has SAP at its ERP package and is planning to upgrade the SAP version.
Currently, the version of SAP being used is fine but the higher version would lead to increased efficiencies and hence the company is considering this plan which will also involve a huge outlay.
KPP & Associates, were appointed as the statutory auditors of this company for the year ended 31 March 2020 and the statutory audit firm has been working in this industry for long but most of the work which the firm did was more of risk advisory or internal audit.
For the first time, this audit will be conducted and that’s why the audit team started obtaining understanding of the operations of the company which included understanding of the SAP system of the company.
However, the management of the company was not comfortable with this approach of the audit team particularly because audit team was spending good time on understanding of the IT systems of the company.
The management suggested that the auditors should limit their understanding and should perform audit procedures rather than getting into business/ operations.
But the auditors have a different view on this matter and because of which work has got stuck.
In the given situation, please suggest what should be the course of action.
AR Private Limited is a medium-sized company engaged in the business of trading of electronic equipment. The company has various warehouses where all of these equipment are kept and has an inventory levels of generally 2-3 months.The internal environment of the company is driven by various processes some of them are manual and some automated. Accordingly, the management has also set up various controls both manual and automated and is comfortable with their design and operating effectiveness.
During the course of audit of the financial statements for the year ended 31 March 2020, the auditors raised various queries regarding various processes where the controls were operating effectively. This was because of the fact that auditor was considering either only manual controls or only automated controls in a process.
As per the auditor, the management should have adopted the same approach and hence they would like to increase the substantive audit procedures because they had a view that as per the current approach of the management, controls should be considered as ineffective irrespective of the fact that the testing which the audit team had performed resulted in the controls being effective.
Currently, the concern was regarding the approach on which management was also stuck on their point.
You are required to provide your inputs to resolve this matter.
AJ Private Ltd is in the business of construction and infrastructure having an annual turnover of INR 1,100 crore. The operations of the company are run efficiently driven by the well laid out policies and procedures. The processes of the company are very strong and are well documented and properly communicated to its employees, as required.
The management had also done a detailed risk assessment in the earlier years and currently the risk management system of the company is considered to be very effective. The internal controls include both automated and manual.
During the course of the audit of the financial statements of the company for the financial year ended 31 March 2020, the statutory auditors did their risk assessment and also reviewed the general IT controls which were found to be effective.
Considering the same, one of the senior audit team members asked the team to start performing the substantive audit procedures taking the approach that controls are effective.
However, the audit team did not find this approach correct and discussed that they should also check the effectiveness of other manual and automated controls by testing them and then move on to substantive testing.
The audit team recently had a training on the internal controls and hence their understanding was different from the audit senior.
This led to a conflicting situation between the audit senior and remaining audit team.
In the given situation, please advise which of the following would be correct.
RIM Private Ltd is engaged in the business of manufacturing of cranes and other construction equipment. The nature of the operations are such that purchases are quite significant even though the sales may or may not be very significant, in terms of number of transactions during the year.
The company’s statutory auditors have also obtained certain audit tools to help the audit team on various audit procedures to bring efficiency in various audits.
During the course of the audit of the financial statements for the financial year ended 31 March 2020, the auditors used those audit tools (also known as computed assisted audit techniques) for sampling procedures and data analytics.
The outcome of the tools resulted in some analysis and requirements which the audit team requested from the client. However, the client refused to provide any such information because as per the client all these tools were those of the auditor and any outcome of the same needs to be handled by themselves instead of asking the management.
The auditors have suggested that such an attitude of non-cooperation would not help the either party and would defeat the objective of the audit. The management of the company is, however, ready to provide any other information to the auditors.
In this situation, please advise both the management and the auditors.
In case a registered person is having aggregate turnover greater than 5.00 crore, then-
ABC Private Limited uses in-house developed application system for Accounting. The auditor observed that user ID and password is mandatory to access the application system and felt that this is a good control. What type of control is this?
XYZ Private Limited uses ERP software for all business processes. The application is hosted in cloud and is maintained by a third party. Statutory Auditor is not confident about the risk management process in the third party organization and requests for audit access to such data centre. The request was declined and management informed that the third party is ISO certified and audit on controls at Service Organisation is regularly being conducted. What the auditor should do?
Section 130 re-opening of accounts on Court’s or Tribunal’s orders: of the Companies Act, 2013 states that a company shall not re-open its books of account and not recast its financial statements, unless an application in this regard is made by the Central Government, the Income-tax authorities, the Securities and Exchange Board of India (SEBI), any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that Jain Ltd. has an annual turnover of ` 350 crore and has been into losses for the last 2 years. The operations of the company are good. Due to some technology changes, the company started facing competition and hence, started incurring losses. The company plans to revive in the next 1-2 years with the improvements in its processes. During the year ended 31 March, 2020, the management of the company came across certain transactions relating to the financial year ended 31 March 2019 which were erroneously missed to be accounted for. This would result into losses and hence, the management is considering to take this to the right financial year and for that purpose to re-open its accounts for the financial year ended 31 March 2019. Please advise.
Rimmi Ltd. was set up initially as a private limited company. Subsequently, it got converted into a public company. The company’s management has plans of expansion but the business was not growing in an organic manner. Therefore, the management decided to acquire the competitors. During the financial year ended 31 March, 2020, the company acquired two companies in India and France in September, 2019 and January, 2020 respectively. The company controls both of these companies as per the criteria laid down in the Companies Act 2013 as well as the applicable accounting standards.
The management started discussions with the auditors regarding the audit wherein it was also pointed out by the auditors that the management should also prepare consolidated financial statements (CFS), if they want. Management needs your advise on the same.
SKJ Private Ltd has an annual turnover of INR 200 crore and profits of INR 25 crore. The company is engaged in the business of textiles and has fairly stable operations over the years. There has not been much growth in the company in the last few years despite the attempts of the management. Currently the management is more focused towards cost cutting and has been considering all the options to achieve that objective.
The statutory auditors of the company have been auditing the financial statements for the last 3 years and have issued clean reports over these years.
During the financial year ended 31 March 2019, management got a large project from a new customer which resulted in significant increase in the turnover of the company. However, the profitability of the company did not improve much because the margins in the contract were not high.
The statutory auditors during the course of their audit of financial statements for the year ended 31 March 2019 (their fourth year of audit) did not agree with the revenue recognition criteria followed by the company. Since the matter was significant, lot of discussions/ debates happened between the auditor and the management. But it was finally agreed that the auditors would qualify their audit report.
Auditors wanted that the management should explain this matter in detail in the notes to accounts to the financial statement over which the auditors are qualifying the audit report. However, the management had a different view. Management said that if the auditor is qualifying his report then why should the management also highlight that matter in the financial statement and hence refused to include any note for the same.
On account of the conflict, since audit is not getting concluded. You are required to suggest how the matter get resolved?
A significant deficiency exists in the process of flow of approval of travel re-imbursements of the officials. This was communicated in the previous year to those charged with Governance and no remedial action was taken on the same so far. The auditors are of the opinion that it need not be communicated again. Is the opinion of the auditors on NOT to communicate the deficiency in internal control reported in the previous year correct?
BC Ltd. is the business of manpower consulting. The company has a huge cash and bank balance including fixed deposits with banks. During the course of audit of the financial statements of the company for the year ended 31 March 2021, auditors circulated independent bank balance confirmations. The auditors received all the balance (covering fixed deposits) confirmations independently. Auditors observed that the fixed deposits balances as per the independent balance confirmation did not match with the books balances in some cases. Management produced the fixed deposit certificates to the auditors wherein the balances of fixed assets matched with the balances as per the books. How should the auditor deal with this matter?
While auditing the complete set of consolidated financial statements of Tulips Ltd., a listed company, using a fair presentation framework, M/s Pintu & Co., a Chartered Accountant firm, discovered that the consolidated financial statements are materially misstated due to the non- consolidation of a subsidiary. The material misstatement is deemed to be pervasive to the consolidated financial statements. The effects of the misstatement on the consolidated financial statements have not been determined because it was not practicable to do so. Thus, M/s Pintu & Co. decided to provide an adverse opinion for the same and further determined that, there are no key audit matters other than the matter to be described in the Basis for Adverse Opinion section. Comment whether M/s Pintu & Co. needs to report under SA 701 ‘Communicating Key Audit Matters in the Independent Auditor’s Report’?
In case of GST audit by tax authorities the registered person shall be informed by way of a notice not less than __ _working days prior to the conduct of audit. Select the correct option from the following-
M/s. Jamwant Zims (P) Ltd. is having 4 branches across India. It’s branch-wise turnover during the FY 2018-19 is Mumbai ` 3.65 crore, Delhi ` 1.65 crore, Chennai ` 2.00 crore and Calcutta ` Nil. The company would be subject to audit under section 35(5) of the CGST Act, select the correct option from the following-
AV Ltd is in the business of manufacturing of chemicals and has a net worth of INR 700 crore. The company has been preparing its financial statements as per Ind AS. For the purpose of Form 3CD, management did not identify any items which may require adjustments because of the differences between Ind AS and ICDS. However, the tax auditors during the course of their audit identified few items where adjustments are required to be made and accordingly, should be reported under Clause 13(e) of Form 3CD.
Further tax auditors also are of the view that disclosures in respect of ICDS should be made in Clause 13(f) of Form 3CD which the management has not done. In this case, please suggest which of the following would be the correct option.
OSK Ltd was incorporated on 15 February 2020. The company chose to prepare its financial statements for the purposes of Companies Act 2013 for the period from 15 February 2020 to 31 March 2021 as its first reporting period. The company had a turnover of INR 6 crore for the period ended 31 March 2020 which is expected to increase to INR 50 crore for the period from 1 April 2020 to 31 March 2021. The company
filed its income tax return for the financial year 31 March 2020 before 30 September 2020 i.e. before the due date of filing return of income for the financial year 2019-20 (before considering any extension). The company would prepare its financial statements for the period from 15 February 2020 to 31 March 2021 and would get them audited from its statutory auditors.
In this case, please suggest which of the following would be correct.