CA Inter Audit Lec 39 & 40 (SA 700)

706.1

Which of the following is correct:

• a)  When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor need not disclose the substantive reasons for the different opinion.

• b)  When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor shall disclose the substantive reasons for the different opinion in an Other Matter paragraph in accordance with SA 706.

• c)  When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor shall disclose the substantive reasons for the different opinion in an emphasis of Matter paragraph in accordance with SA 706.

• d) When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor shall disclose the substantive reasons for the different opinion in an Other Matter paragraph or emphasis of matter paragraph in accordance with SA 706.

Incs.31.2

"ARG & Associates who have been the auditors of Sigma Ltd for the financial year 2019-20 have concluded their audit, prepared their notes and are ready to draft the Auditor’s Report. As per SA 700, the auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

 

There seems to be some confusion between the audit team members in regard to format of Audit report, its contents, issues to be incorporated etc. in the Auditor’s report.

 

Also, Sigma Ltd received a grant of ₹50 lakhs under the PM Make in India Subsidy Scheme for acquiring machinery for setting up new plant. The entire grant received was credited to Profit and Loss Account.

Mr Ram and Mr Sham (two partners of ARG & Associates) differ on an audit point relating to audit of Sigma Ltd. Mr Ram is of the view that it will attract qualification however Mr Sham disagreed with his opinion.

 

Based on above facts, you are required to answer below questions which require special attention while preparing the Audit report of Sigma Ltd."

"In relation to grant of ₹50 lakhs, while preparing the audit report, the auditor needs to:

• a)  qualify the report stating the fact that the income has been overstated to the extent of the amount of grant net of proportionate credit that would have been worked out.

• b) qualify the report stating the fact that the income has been understated to the extent of the amount of grant net of proportionate debit that would have been worked out.

• c) express unmodified opinion as Accounting Standard-12 allow the recognition of grant received as income.

• d) None of the above"

Incs.14.3

During the Audit of M/s Honest & Associates, Mr A came to know that the Firm has changed its method of Valuation of Stock. This change has a material impact on the Financial Statement of the Firm. The Firm has made relevant disclosures in the Financial Statements and has given proper accounting treatment to this exercise."

              " According to you, what would be appropriate course to take in case of M/s Honest & Associates?

• a)  Issue Qualified Opinion

• b) Issue Adverse Opinion

• c) Mention the fact of change in method in Emphasis of Matter Paragraph

• d) Issue Disclaimer of Opinion"

Incs.32.4

           "The auditor has found that the financial reporting framework provided by law or regulation is unacceptable. What should be the impact of this on his report?

• a  Issue an adverse opinion owing to unacceptable financial reporting framework

• b) Include an “Emphasis of Matter Paragraph” drawing user’s attention to additional disclosures other than those as per law.

• c) Include an “Other Matter paragraph” drawing user’s attention to additional disclosure other than those as per law.

• d) No need of any mention in report as law or regulation has prescribed the framework and law holds highest authority.

Incs58.4

   A paragraph was included in the Auditor’s Report of Health is Wealth Limited that referred to a matter which was appropriately disclosed in the financial statements that, in the auditor’s judgment, was of such importance that it was fundamental to users’ understanding of the financial statements. What is this section of the Auditor’s Report called?

• a) Other Matters.

• b) Emphasis of Matters.

• c) Key Audit Matters.

• d) Auditor’s Responsibilities for the Audit of the Financial Statements.

BA.2

Which of the following is not classification of NPA?

• a) Impaired

• b) sub standard

• c) doubtful

• d) Loss

BA.14

The term “Drawing Power” is associated with which of the following facilities as sanctioned by any Bank :-

• a) Letter of Credit

• b) Term Loan

• c) Staff Advances

• d) Cash Credit Limit

BA.16

The auditors should classify Credit card accounts as NPA, if ___________ amount due, as mentioned

in the credit card statement is not paid fully within ___________ days from next statement date.

• a) Total, 90

• b) Minimum, 90

• c) Minimum, 30

• d) Minimum, 60

Incs.58.5

CA A determined whether the financial statements included the comparative information required by the applicable financial reporting framework and whether such information was appropriately classified. One team member, Mr R was curious to know whether the auditor’s opinion referred to the corresponding figures or not, whenever the corresponding figures are presented. CA A explained the circumstances to Mr R in which, when the corresponding figures are presented, auditor’s opinion referred to the corresponding figures. 

Based on the above information, answer the following questions:

CA A explained the circumstances to Mr. R in which, when the corresponding figures are presented, auditor’s opinion referred to the corresponding figures. Which of these circumstances did he mention to Mr. R?

• a) If the auditor obtains audit evidence that a material misstatement exists in the prior period financial statements on which a modified opinion has been previously issued.

• b) If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a disclaimer of opinion, or an adverse opinion and the matter which gave rise to the modification is resolved.

• c) Prior Period Financial Statements are audited by another auditor.

• d) Prior Period Financial Statements not audited.

Incs.29.3

"The auditors should classify Credit card accounts as NPA, if ___________ amount due, as mentioned in the credit card statement is not paid fully within ___________ days from next statement date.

• a) Total, 90

• b) Minimum, 90

• c) Minimum, 30

• d) Minimum, 60