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Saturday, July 20, 2013

8 Questions on Advanced Auditing for CA Final: Check your progress

8 Questions on Advanced Auditing for CA Final: Check your progress:

Important Questions (specially see red questions):

1. CA X was appointed as the statutory auditor of ABC Limited for the year 2010-2011. He is also the tax auditor of its subsidiary PQR Limited. He owes Rs. 15,000/= to PQR Limited. Examine the appointment under the provisions of Companies Act, 1956 and/ or The Chartered Accountants Act, 1949 (as amended) for both the companies. [Hint: Section 226, Clause 9, Part I, First Schedule of the CA Act, Central Council General Guidelines, 2008]


2. ABC Limited, a public company, was having 10 members up to 31st July 2012. Five members died in a road accident and the company has not filled this decline up to 31st March, 2013. Comment as a statutory auditor [Hint: Impact on going concern because the number of members fallen below statutory minimum. See section 433 of Companies Act, 1956]
 

3. A Company’s net worth is eroded and creditors are unpaid due to liquidity constraints. The management represents to the statutory auditors that the promoter’s wife is expected to give an unsecured loan to meet the liquidity constraints and that negotiations are underway to secure large export orders [Hint: SA 570, CARO Clause 4(iii)]

4. Mr. Ram a relative of a Director was appointed as an auditor of the company. Comment [Hint: being relative not a disqualification u/s 226. Discuss Clause 4, Part I, Second Schedule of the CA Act, Familiarity Threat under Guidance Note on Independence of Auditor]

5. Mr. X, director of ABC Limited made a purchase contract for Rs. 10,00,000 with the company. Comment [Hint: Section 301, Clause 4 (v) of CARO]

6. The audit report of P Limited for the year 2010-2011 contained a qualification regarding non-provision of doubtful debts. As the statutory auditor of the company for the year 2011-2012, how would you report, if:
(i) The company does not make provision for doubtful debts in 2011-2012.
(ii) The company makes adequate provision for doubtful debts in 2011-2012 [Hint: SA 540, SA 510, and SA 710]

7. While conducting the statutory audit of ABC Limited, you come across IOUs ("I Owe You") amounting to Rs. 2 crores as against a cash balance shown in the books at Rs. 2.10 crores. You also observe that despite similar high balances throughout the year, small amounts of Rs. 50,000 are withdrawn from the Bank to meet day to day expenses. Comment. [Hint: SA 240, CARO Clause 4 (vii), 4 (xxi), Section 227 (3) (e)]

8. Whether CARO, 2003 (as amended) would be applicable to ABC Producer Company Limited [Hint: Yes, just like private limited companies]

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