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bhaviK asked 2 weeks ago

Sir please explain MCQ 22 and MCQ 84
 
For MCQ 22, after overall audit strategy, we frame detailed audit plan. But ICAI answer is opposite. 
For MCQ 84, I’ve no idea, from where it’s asked. 
Please guide sir. 

6 Answers
RaviRavi Staff answered 1 week ago

Question 22
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

(a) Continue with the Audit Plan without considering the Audit Strategy.
(b) Drop the audit and withdraw from the engagement.
(c) First Modify the audit strategy and thereafter, prepare the audit plan according to the modified strategy.
(d) Devise a new audit plan and then, change the strategy as per the Revised Plan

Mohit GuptaMohit Gupta replied 1 week ago

(c)

RaviRavi Staff answered 1 week ago

Para A11 from SA 300
Once the overall audit strategy has been established, an audit plan can be developed to address the various matters identified in the overall audit strategy, taking into account the need to achieve the audit objectives through the efficient use of the auditor’s resources. The establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or sequential processes, but are closely inter-related since changes in one may result in consequential changes to the other.

RaviRavi Staff answered 1 week ago

Conclusion
As per above explanation both “c” & “d” appear appropriate, will communicate with BOS regarding this MCQ

RaviRavi Staff answered 1 week ago

Question 84
84. JK Ltd is a company engaged in the business of software development. It is one of the largest companies in this sector with a turnover of INR 25,000 crore. The operations of the company are increasing constantly, however, the focus of the management is more on cost cutting in the coming years to improve its profitability.
In respect of the financial statements of the company which are used by various stakeholders, some deficiencies were observed in respect of assets reported therein due to which those stakeholders suffered damages. As a result, those stakeholders went for a civil action against the company including all the parties who had the responsibility in respect of those financial statements.
The statutory auditors of the company were also roped in. The statutory auditors went against this civil action and were able to prove that there was no professional negligence on their part.
It was decided that the loss was occasioned through the negligence of directors and the fault of the auditor in failing to verify the asset was considered to be only technical.
On the basis of above mentioned facts, what should be the correct option out of the following?
(a) A penalty should be levied on the auditors but that should not be equivalent to the damages suffered by the stakeholders. The
damages would be required to be made good by the directors of the company.
(b) Both the auditors and the directors should be held liable in respect of the deficiencies identified. Both of them should compensate these stakeholders in respect of the damages and a further penalty of INR 10 lakh would be imposed on them.
(c) Auditors and directors should be held liable in this case. Further because the fault of directors is bigger, they would be subject to
a penalty of INR 10 crore or losses suffered by the stakeholders, whichever is higher.
(d) Since the fault of the auditor is limited to technical in nature, he cannot be held liable for any penalty or damages. However, he
would not be allowed to work for this company and any other company in similar industry for a period of next 5 years as per
the requirements of the Companies Act 2013.
 

RaviRavi Staff answered 1 week ago

Meaning of Technical Error
Technical error means a mistake on an application that does not mislead regarding the truthfulness of the infor- mation provided.
 
We can say that technical error is unintentional.

RaviRavi Staff answered 1 week ago

Sec 147 says that if there is mistake by auditor, he will be penalised but paying damages get attracted only when he knowingly makes misleading statements in audit report. So only applying penalty under option “a” is correct.

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