SA Question

109 Pages·2012·3.57 MB·English

SHREE Ganeshaya Namah
Question Bank
Standard On Auditing
C.A. FINAL
EDITION - 1
CA SURENDRA AGRAWAL
PH-9313336776
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(cid:97)(cid:100)(cid:100)(cid:114)(cid:101)(cid:115)(cid:115)(cid:101)(cid:100)(cid:32) (cid:118)(cid:97)(cid:114)(cid:105)(cid:111)(cid:117)(cid:115)(cid:32) (cid:99)(cid:97)(cid:114)(cid:101)(cid:101)(cid:114)(cid:32) (cid:99)(cid:111)(cid:117)(cid:110)(cid:115)(cid:101)(cid:108)(cid:105)(cid:110)(cid:103)(cid:32) (cid:38)(cid:32) (cid:97)(cid:99)(cid:97)(cid:100)(cid:101)(cid:109)(cid:105)(cid:99)(cid:32) (cid:112)(cid:114)(cid:111)(cid:103)(cid:114)(cid:97)(cid:109)(cid:115)(cid:32) (cid:46)(cid:87)(cid:101)(cid:108)(cid:108)(cid:32) (cid:102)(cid:97)(cid:109)(cid:111)(cid:117)(cid:115)(cid:32) (cid:97)(cid:109)(cid:111)(cid:110)(cid:103)(cid:32)
(cid:115)(cid:116)(cid:117)(cid:100)(cid:101)(cid:110)(cid:116)(cid:115)(cid:32)(cid:102)(cid:111)(cid:114)(cid:32)(cid:83)(cid:65)(cid:39)(cid:115)(cid:46)
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(cid:112)(cid:97)(cid:114)(cid:116)(cid:105)(cid:99)(cid:117)(cid:108)(cid:97)(cid:114)(cid:108)(cid:121)(cid:32)(cid:111)(cid:110)(cid:32)(cid:65)(cid:117)(cid:100)(cid:105)(cid:116)(cid:105)(cid:110)(cid:103)(cid:32)(cid:97)(cid:110)(cid:100)(cid:32)(cid:69)(cid:116)(cid:104)(cid:105)(cid:99)(cid:97)(cid:108)(cid:32)(cid:83)(cid:116)(cid:97)(cid:110)(cid:100)(cid:97)(cid:114)(cid:100)(cid:115)(cid:32)(cid:102)(cid:111)(cid:114)(cid:32)(cid:67)(cid:104)(cid:97)(cid:114)(cid:116)(cid:101)(cid:114)(cid:101)(cid:100)(cid:32)(cid:65)(cid:99)(cid:99)(cid:111)(cid:117)(cid:110)(cid:116)(cid:97)(cid:110)(cid:116)(cid:115)(cid:32)(cid:105)(cid:116)(cid:32)(cid:105)(cid:115)(cid:32)(cid:118)(cid:101)(cid:114)(cid:121)(cid:32)
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(cid:65)(cid:117)(cid:100)(cid:105)(cid:116)(cid:105)(cid:110)(cid:103)(cid:32)(cid:97)(cid:110)(cid:100)(cid:32)(cid:80)(cid:114)(cid:111)(cid:102)(cid:101)(cid:115)(cid:115)(cid:105)(cid:111)(cid:110)(cid:97)(cid:108)(cid:32)(cid:69)(cid:116)(cid:104)(cid:105)(cid:99)(cid:115)(cid:8221)(cid:46)
(cid:8220)(cid:74)(cid:85)(cid:83)(cid:84)(cid:32)(cid:68)(cid:79)(cid:78)(cid:39)(cid:84)(cid:32)(cid:67)(cid:82)(cid:65)(cid:77)
(cid:32)(cid:32)(cid:32)(cid:32)(cid:32)(cid:76)(cid:69)(cid:65)(cid:82)(cid:78)(cid:32)(cid:73)(cid:84)(cid:32)(cid:8221)(cid:32)
(cid:66)(cid:101)(cid:115)(cid:116)(cid:32)(cid:111)(cid:102)(cid:32)(cid:76)(cid:117)(cid:99)(cid:107)
(cid:67)(cid:65)(cid:32)(cid:83)(cid:117)(cid:114)(cid:101)(cid:110)(cid:100)(cid:114)(cid:97)(cid:32)(cid:65)(cid:103)(cid:97)(cid:114)(cid:119)(cid:97)(cid:108)
(cid:40)(cid:77)(cid:46)(cid:67)(cid:111)(cid:109)(cid:44)(cid:32)(cid:76)(cid:76)(cid:66)(cid:44)(cid:32)(cid:65)(cid:67)(cid:65)(cid:41)
(cid:69)(cid:45)(cid:77)(cid:97)(cid:105)(cid:108)(cid:32)(cid:58)(cid:32)(cid:99)(cid:97)(cid:46)(cid:115)(cid:117)(cid:114)(cid:101)(cid:110)(cid:100)(cid:114)(cid:97)(cid:64)(cid:103)(cid:109)(cid:97)(cid:105)(cid:108)(cid:46)(cid:99)(cid:111)(cid:109)
(cid:80)(cid:72)(cid:58)(cid:32)(cid:48)(cid:57)(cid:51)(cid:49)(cid:51)(cid:51)(cid:51)(cid:54)(cid:55)(cid:55)(cid:54)
INDEX OF STANDARDS ON AUDITING (SA)
100-199 Introductory Matters
200-299 General Principles and Responsibilities
SA 200 Overall Objectives of the Independent Auditor and the Conduct 200.1-.2
of an
Audit in Accordance with Standards on Auditing
SA 210 Agreeing the Terms of Audit Engagements 210.1
SA 220 Quality Control for an Audit of Financial Statements 220.1
SA 230 Audit Documentation 230.1
SA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of 240.1
FS
SA 250 Consideration of Laws and Regulations in an Audit of FS 250.1
SA 260 Communication with Those Charged with Governance 260.1
SA 265 Communicating Deficiencies in IC to TCWG and Management 265.1
SA 299 Responsibility of Joint Auditors 299.1
300-499 Risk Assessment and Response to Assessed Risks
SA 300 Planning an Audit of Financial Statements 300.1
SA 315 Identifying and Assessing the Risks of Material Misstatement 315.1
through
Understanding the Entity and Its Environment
SA 320 Materiality in Planning and Performing an Audit 320.1
SA 330 The Auditor’s Responses to Assessed Risks 330.1
SA 402 Audit Considerations Relating to an Entity Using Service 402.1
Organisation
SA 450 Evaluation of Misstatements Identified During the Audit 450.1
500-599 Audit Evidence
SA 500 Audit Evidence 500.1
SA 501 Audit Evidence—Specific Considerations for Selected Items 501.1
SA 505 External Confirmations 505.1
SA 510 Initial Audit Engagements –Opening Balances 510.1
SA 520 Analytical Procedures 520.1
SA 530 Audit Sampling 530.1
SA 540 Auditing Accounting Estimates, Including Fair Value 540.1
Accounting
Estimates, and Related Disclosures
SA 550 Related Parties 550.1
SA 560 Subsequent Events 560.1
SA 570 Going Concern 570.1
SA 580 Written Representations 580.1
COMPLITE YOUR CA FINAL AUDIT IN 18 DAYS
BY CA SURENDRA AGRAWAL(M.COM,LLB,ACA)PH-9313336776
CA SURENDRA AGRAWAL
600-699 Using Work of Others
SA 600 Using the Work of Another Auditor 600.1
SA 610 Using The Work of Internal Auditors 610.1
SA 620 Using the Work of an Auditor’s Expert 620.1
700-799 Audit Conclusions and Reporting
SA 700 Forming an Opinion and Reporting on Financial Statements 700.1
SA 705 Modifications to the Opinion in the Independent Auditor’s 705.1
Report
SA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in 706.1
the
Independent Auditor’s Report
SA 710 ComparativeInformation -Corresponding Figures and 710.1
Comparative
Financial Statements
SA 720 The Auditor’s Responsibility in Relation to Other Information in 720.1
Documents Containing Audited Financial Statements
800-899 Specialized Areas
SA 800 Audits of Financial Statements Prepared in Accordance with 800.1
Special
Purpose Frameworks
SA 805 Special Considerations -Audits of Single Financial Statements 805.1
and
Specific Elements, Accounts or Items of a Financial Statement
SA 810 Engagements to Report on Summary Financial Statements 810.1
2000-2699 Standards on Review Engagements (SREs)
SRE 2400 Engagements to Review Financial Statements 2400.1
SRE 2410 Review of Interim Financial Information Performed by the 2410.1
Independent Auditor of the Entity
Engagements Other Than Audits or Reviews of Historical
Financial Information
SAE 3400 The Examination of Prospective Financial Information 3400.1
SAE 3402 Assurance Reports on Controls At a Service Organisation 3402.1
4000-4699 Standards on Related Services (SRSs)
SRS 4400 Engagements to Perform Agreed-upon Procedures Regarding 4400.1
Financial Information
SRS 4410 Engagements to Compile Financial Information 4410.1
Standards on Quality Control (SQCs)
SQC 1 QC for Firms that Perform Audit and Reviews of Historical SQC.1
Financial
Information, & other Assurance & Related Services
Engagements
COMPLITE YOUR CA FINAL AUDIT IN 18 DAYS
BY CA SURENDRA AGRAWAL(M.COM,LLB,ACA)PH-9313336776
CA SURENDRA AGRAWAL
200.1
SA – 200 (Revised)
“Overall Objectives of the Independent Auditor and Conduct of Audit in accordance with SAs
Question-Enumerate (in brief) the basic principles governing an audit.
Answer-
The basic principles which govern the auditor’s professional responsibilities and which should be
complied with wherever an audit is carried are described below:
(i)Integrity, Objectivity and The auditor should bestraightforward, honest and
Independence: sincerein his approach to his professional work.
(ii)Confidentiality: The auditor should respect the confidentiality of
information acquired in the course of his workand
should not disclose any such information to a third party
without specific authority or unless there is a legal or
professional duty to disclose.
(iii)Skills and Competence: The audit should beperformed and the report prepared
with due professional careby persons who have
adequate training, experience and competence in
auditing.
(iv)Work performed by others: When the auditor delegates work to assistants or uses
work performed by other auditor and experts, he will
continue to be responsible for forming and expressing his
opinion on the financial information. However, he will be
entitled to rely on work performed by others, provided
he exercises adequate skill and care and is not aware of
any reason to believe that he should not have so relied.
(v)Documentation: The auditor shoulddocument matters which are
important in providing evidencethat the audit was
carried out in accordance with the basic principles.
(vi) Planning: The auditor shouldplan his work to enable him to
conduct aneffective audit in an efficient and timely
manner.Plans should be based on a knowledge of the
client’s business.
(vii) Audit evidence: The auditor shouldobtain sufficient appropriate audit
evidencethrough the performance of compliance and
CA SURENDRA AGRAWAL(M.COM,LLB,ACA)
PH-9313336776
CA SURENDRA AGRAWAL
200.2
substantiveprocedures to enable him to draw reasonable
conclusions therefrom on which to base his opinion on
the financial information.
(viii) Accounting System and The auditor should gain an understanding of the
Internal Control: accounting system and related controls and should study
and evaluate the operation of those internal controls
upon which he wishes to rely in determining the nature,
timing and extent of other audit procedures.
(ix) Audit conclusions and The auditor should review and assess the conclusions
reporting: drawn from the audit evidence obtain and from his
knowledge of business of the entity as the basis for the
expression of his opinion on the financial information.
Question-2
Comment on the following:
M/sXYZ & Co., auditors of Goodwill Education Foundation, a recognised nonprofit organisation feels
that the standards on auditing need not be applied as Goodwill Education Foundation is a non-profit
making concern.(May 2010)
Answer-
(a) The Preface to Standards on Auditing gives the scopeof the Standards on Auditing.
(b) As per the Preface, the SAs will apply whenever an independent audit is carried out; that is, in
the independent examination of financial statements/information of any entity; whether profit-
oriented or not and irrespective of its size, or legal form (unless specified otherwise) when such an
examination is conducted with a view to expressing an opinion thereon.
(c) Further on discharging their attest function; it is the duty of the Chartered Accountant to ensure
that SAs are followedin the audit of financial information covered by their audit reports.
(d) In the given case, even though the client is a non-profit oriented entity the SAs shall apply and
the auditor shall be guilty of professional misconduct for failing to discharge his duty in case of non-
compliance with SAs.
CA SURENDRA AGRAWAL(M.COM,LLB,ACA)
PH-9313336776
CA SURENDRA AGRAWAL
210.1
SA 210 (REVISED)
AGREEING THE TERMS OF AUDIT ENGAGEMENTS
Question1
R & Co, a firm of Chartered Accountants have not revised the terms of engagements
and obtained confirmation from the clients, for last 5 years despite changes in business
and professional environment. Pleaseelucidate thecircumstancesthatmaywarrantthe
revision interms of engagement.
Answaer-
As per SA 210 on “Agreeing the Terms of Audit Engagements”, the auditor may decide not to
send a new audit engagement letter or other written agreement eachperiod.However,thefollowing
factors may make it appropriate to revise the terms of the audit engagement or to remind the entity of
existingterms:
(i) Anyindicationthattheentitymisunderstandstheobjectiveandscopeoftheaudit.
(ii) Anyrevisedorspecialtermsoftheauditengagement.
(iii) Arecentchangeofseniormanagement.
(iv) Asignificantchangeinownership.
(v) Asignificantchangeinnature orsizeoftheentity’sbusiness.
(vi) Achangeinlegalorregulatoryrequirements.
(vii) A change in the financial reporting framework adopted in the preparation of thefinancial
statements.
(viii) Achangeinotherreportingrequirements.
Question2
M/s. PQR & Company, Chartered Accountants have been appointed Statutory
Auditors of a listed Company for the year ended 31st March, 2008. Draft an
appropriate engagement letter to be sent to the Board of Directors for the same.
Refer Class Notes
CA SURENDRA AGRAWAL(M.COM,LLB,ACA)
PH-9313336776
CA SURENDRA AGRAWAL
220.1
SA 220 -QUALITY CONTROL FOR AN AUDIT OF FS
Question-1
You are an audit senior working for the firm Kala & Company. You are currently carrying out the audit of W Ltd., a
manufacturer of waste paper bins. You are unhappy with W Ltd.'sinventory valuation policy and have raised the
issue several times with the audit manager. He has dealt with the client for a number of years and does not see what
you are making a fuss about. He has refused to meet you on site to discuss these issues.
The former engagement partner to W Ltd. retired two months ago. As the audit manager had dealt with W Ltd. for so
many years, the other partners have decided to leave the audit of W Ltd. in his capable hands. Comment on the
situation outlines above.(RTP)
Answer:
Several quality control issues are raised in the scenario:
(1) Engagement Partner: An engagement partner is usually appointed to each audit
engagement undertaken by the firm, to take responsibility for the engagement
on behalf of the firm.
Assigning the audit to an experienced audit manager is not sufficient.
(2) The lack of an audit engagement partner also means that several of the
requirements of SA 220 directing, supervising and reviewing the audit are not in
place.
(3) Conflicting Views: In this scenario the audit manager and senior have
conflicting views about the valuation of inventory. This does not appear to have
been handled well, with the manager refusing to discuss the issue with the
senior.
(4) Resolving of Disputes: SA 220, requires that the audit engagement partner takes
responsibility for setting disputes in accordance with the firm's policy in respect
of resolution of difference of opinion required by SQC 1" Quality Control for
Firms that Perform Audits and Reviews of Historical Financial Information, and
Other Assurance and Related Services Engagements".
(5) Reasons for Failure to Resolve the Disputes: In this case, the lack of
engagement partner may have contributed to this failure to resolve the disputes.
In any event, at best, the failure to resolve the difference of opinion is a breach of
the firm's policy under SQC 1. At worst, it indicates that the firm does not have
a suitable policy concerning such disputes required by SQC.l "Quality Control
for Firms that Perform Audits and Reviews of Historical Financial Information,
and Other Assurance and Related Services Engagements".
Question-2
"The work performed by each assistant needs to be reviewed by personnel of at least
equal competence."(May 2011)
CA SURENDRA AGRAWAL(M.COM,LLB,ACA)
PH-9313336776
CA SURENDRA AGRAWAL
220.2
Answer:
Reviewing the work performed by Assistant: As per SA 220 "Quality Control for
an Audit of Financial Statements" the firm's review responsibility policies and
procedures are determined on the basis that work of less experienced team
members is reviewed by more experienced team members.
 EPis responsible for the engagement and its performance, and for the report that
is issued on behalf of the firm, and who, where required, has the appropriate
authority from a professional, legal or regulatory body.
 Engagement partner's satisfaction on or before the date of the auditor's report:
 The engagement partner shall ensure that reviews being performed are in
accordance with the firm's review policies and procedures. A review consists of
consideration whether, for example:
(1) The work has been performed in accordance with professional standards and
regulatory and legal requirements;
(2) Significant matters have been raised for further consideration;
(3) Appropriate consultations have taken place and the resulting conclusions have
been documented and implemented;
(4) There is a need to revise the nature, timing and extent of work performed;
(5) The work performed supports the conclusions reached and is appropriately
documented;
(6) The evidence obtained is sufficient and appropriate to support the auditor's
report; and
(7) The objectives of the engagement procedures have been achieved.
Question-3
Importance of KYC Requirements for a Chartered Accountant's Practice. (Nov 2014)
Answer
As per SA-220 (Revised) The practicing chartered accountant should obtain
information regarding the client, whether or not to undertake the assignment with
the client. This may be due to:
a) Client doing an illegal activity.
b) Client putting unnecessary pressure for completing the audit.
 The firm should establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, designed to
provide it with reasonable assurance that it will undertake or continue
relationships and engagements only where it:
CA SURENDRA AGRAWAL(M.COM,LLB,ACA)
PH-9313336776
CA SURENDRA AGRAWAL
220.3
a) Has considered the integrity of the client and does not have information that
would lead it to conclude that the client lacks integrity;
b) Is competent to perform the engagement and has the capabilities, time and
resources to do so; and
c) Can comply with the ethical requirements.
d) The firm should obtain such information as it considers necessary in the
circumstances 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.
With regard to the integrity of a client matters that the firm considers include, for
example:
(1) The identity and business reputation of the client's principal owners, key
management, related parties and those charged with its governance.
(2) The nature of the client's operations, including its business practices.
(3) Information concerning the attitude of the client's principal owners, key
management and those charged with its governance towards such matters as
aggressive interpretation of accounting standards and the internal control
environment.
(4) Whether the client is aggressively concerned with maintaining the firm's fees as
low as possible.
(5) Indications of an inappropriate limitation in the scope of work.
(6) Indications that the client might be involved in money laundering or other
criminal activities.
CA SURENDRA AGRAWAL(M.COM,LLB,ACA)
PH-9313336776