CH12 AUDIT UNDER FISCAL LAWS

MCQ-FL.1

ABC & Co LLP is a firm of Chartered Accountants having 5 partners. The firm specializes in

taxation work and also has large no of statutory audits and tax audits of corporate entities

and non-corporate entities. During the financial year ended 31 March 2018, the firm has

received various requests for new tax audits. On the basis of limit assigned in respect of tax

audit assignments by a Chartered Accountant/ firm of Chartered Accountants, please suggest

which of the following would be correct.

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• a) Firm can accept 300 tax audits assignments (in total) to be signed by its 5 partners.

• b) Firm can accept 300 tax audits of corporate entities and 300 tax audits of noncorporate

  entities to be signed by its 5 partners.

• c) Firm can accept 300 tax audits of corporate entities, 300 tax audits of non-corporate

  entities and more by outsourcing the same to Chartered Accountants outside the firm,

  however, all these will be signed by its 5 partners.

• d) Since the firm specializes in taxation work, it cannot accept 300 tax audit assignments.

MCQ--FL.2

AJ & Co LLP is a firm of Chartered Accountants. The firm has 10 Partners. The firm has a good portfolio of

clients for statutory audits but the same clients had some other firms as their tax auditors. In the current year

(FY 2018-19), many existing clients for whom AJ & Co LLP happens to be the statutory auditor have requested

the firm to carry out their tax audits as well. The firm is expecting the no of tax audits to increase significantly

this year. One of the partners of the firm has also raised a point that the firm can accepts tax audits up to a

maximum limit. However, other partners are of the strong view that limits on audits is applicable in case of

statutory audits and not for tax audits. This needs to be decided as soon as possible so that the appointment

formalities can also be completed.

You are requested to advise the firm in this matter.

CNO-TAXAUD.120

• a) There is no limit on no of tax audits in case of LLP.

• b) All the partners of the firm can collectively sign 450 tax audit reports.

• c) All the partners of the firm can collectively sign 600 tax audit reports.

• d) All the partners of the firm can collectively sign 450 tax audit reports. However, one partner can individually

  sign maximum 60 tax audit reports.

MCQ--FL.3

AKB Ltd is a large sized company having diversified business activities. The company’s operations are spread

across various locations within India and outside India. The company has many units and plants. The no of

transactions of the company is large and it uses SAP as its ERP package. The company appointed LLM &

Associates as their new tax auditors for the current year. Tax auditors were reviewing the statutory compliances

and observed that currently there is no process of the company to check whether TDS has been correctly

deducted on all transactions or not. Since the transactions of the company may be running in thousands and

covers various provisions of TDS, the management believes that such a process cannot be established. Also in

the past this exercise was never done and no case of any short/non-deduction of TDS has been reported in

Form 3CD in the past. How should the tax auditor deal with this matter in his report?

CNO-TAXAUD.240

• a) Management is right and hence it should be ignored by the tax auditor.

• b) Tax auditor should test check and basis that he should close this point.

• (c) Management should provide a reconciliation to the auditor reconciling the accruals/ expenses with TDS

  deducted during the year to ensure TDS is deducted appropriately. If the same is not available, tax auditor

  should qualify his report.

• d) Management should set up a process as per the requirement of the tax auditor. For the current year, tax

  auditor should obtain management representation on this matter and should close this accordingly.

MCQ--FL.4

AOP Pvt. Ltd. is currently engaged in closing its books of accounts for the financial year ended 31 March 2019. The company has always been a compliance-savvy and has also engaged consultants for the same. The business of the company has been stable over the years and profitability has been good over the last 3 years.

The company got registered for GST on time. Since registration the company has been filing statement of returns in GSTR 3B. However, Annual Return in GSTR 9 has not been filed by the company.

Proper Officer issued a notice for failure to file Annual Return within 15 days. Even then, no Annual Return was filed by the company within the time permitted. Please advise.

CNO-Unique

• a) In such a case, the company becomes a ‘non-filer’.

• b) In such a case, the company would remain fully compliant.

• c) The Proper Officer would be required to discuss this matter with the GST auditors of the company

• d) GST auditor may resign in this situation.

MCQ--FL.5

As an auditor appointed under section 44AB of the Income Tax Act, 1961, under which clause of Form 3CD,

you will report for amounts deemed to be profits and gains under section 32AC, 33AB or 33ABA or 33AC

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• a) clause 24

• b) clause 40

• c) clauses 31

• d) clause 23

MCQ--FL.6

Following are the registered persons under GST Act, 2017. Which one of the registered person is required to

get his accounts audited and also furnish a copy of audited annual accounts and a reconciliation statement,

duly certified in FORM GSTR –9C?

CNO-Unique

• a) Mr. A is an advocate whose turnover for the financial year ended 31 March 2018 was Rs.1.25 crores.

• b) Mr. B is a labour contractor managing construction services and his turnover for 31 March 2018 was Rs.3.95

  crores.

• c) Dr. C is a pediatric surgeon who has newly set up his practice in Pune. He paid an amount of Rs.10.5 lakhs

  as taxes in the current year.

• d) Mr. D who is an architect has paid taxes of Rs.22.5 lakhs in the current year

MCQ--FL.7

Jain Ltd is a medium sized company having operations in Ghaziabad and Lucknow. The

corporate office of the company is based at Delhi. During the year due to certain migration in

the ERP package of the company, the financial statements were finalized very late but were

filed with the regulatory authorities on time as per the requirements of the statute. For the

financial year ended 31 March 2018, the due date of filing income tax return of the company

was 31 October 2018 and tax audit was also applicable to the company.

Since the company was facing internal disturbances, its tax audit could not get completed on

time and the company decided to submit its income tax return on time and form 3CD and tax

audit report later on (i.e. after the due date of filing income tax return once that is properly

audited).

Please suggest which of the following would be correct in this case.

CNO-Unique

• a) Company is doing right by filing income tax return on time without tax audit report.

• b) Company’s move is not right. Income tax return should be filed along with tax audit

  report.

• c) Company is doing the right thing by filing income tax return on time. In the given

  situation, the company may choose not to file tax audit report for the current year.

• d) Company should take written advise from a tax consultant about this and should attach

  that along with income tax return if tax audit report is not being filed.

MCQ--FL.8

Nisha Ltd is engaged in the business of trading of chemicals. Nisha Ltd is a small size

company but on the basis of turnover criteria, tax audit becomes applicable to the company.

The company has been filing its income tax returns on time in the previous years and

understands that the objective of the tax audit is to ensure that proper books of accounts are

maintained by the assesses. Considering the fact that company is also required to get its

accounts audited as per the requirements of the Companies Act 2013, it would like to avail

exemption from tax audit. If that is not possible then the company would go for tax audit report

from an accountant who is cost effective. In this context, please suggest which of the following

should be correct.

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• a) Company can avail tax audit exemption in the given situation.

• b) Company cannot avail tax audit exemption but it may be exempt from submitting the

  tax audit report from a Chartered Accountant.

• c) Company can avail tax audit exemption, however, the statutory auditor in that case

  would be required to cover the same in his statutory audit report.

• d) Company cannot avail tax audit exemption and would need to get this done from a

  Chartered Accountant.

MCQ--FL.9

Rajeev Ltd is a listed company having business of production of motion pictures. For the year ended 31 March 2018, the company wanted to appoint GST auditor. For the purpose, somebody who is familiar with the business of the company/industry was to be preferred for appointment i.e. who would have worked with the company in the past to avoid efforts/ duplication in terms of providing the information to get the GST audit completed. The company had following options for the same. Please advise.

CNO-Unique

• a) Internal auditors can be appointed for this work.

• b) Both statutory and internal auditors can be jointly appointed for this work.

• c) Internal auditors along with the tax consultants of the company can be appointed for this work

• d) Statutory auditors can be appointed for this work.

MCQ--FL.10

RJ & Associates have been the statutory auditors of SH & Co, a partnership firm, for many

years. Tax audit of SH & Co was performed by KJ & Associates. During the year ended 31

March 2018, KJ & Associates resigned as tax auditors of SH & Co due to their personal

reasons. SH & Co appointed RJ & Associates as its tax auditor for the year ended 31 March

2018. The engagement letter of RJ & Associates as statutory auditors of SH & Co was already

signed and RJ & Associates moved ahead without signing another engagement letter for tax

audit since most of the terms related to engagement were covered in the engagement letter

of statutory audit except additional scope and fee which was principally agreed between both

the parties. Please suggest which of the following is correct in the given situation.

CNO-Unique

• a) RJ & Associates need not sign another engagement letter for tax audit.

• b) RJ & Associates need to sign another engagement letter for tax audit.

• c) RJ & Associates need not sign another engagement letter for tax audit. However, they

  should ensure that the same thing is covered in the engagement letter for next year

  i.e. year ending 31 March 2019.

• d) RJ & Associates need not sign another engagement letter for tax audit if the fee for

  tax audit is within the range of 5-10% of statutory audit fee.