Please assist in 1,12,14,15,16,17 of MTP 2

12 answers

Ravi Staff May 19, 2019

please ask what is specific doubt in these MCQs

#1
Ravi Staff May 19, 2019

CA Final OLD or New or CA IPCC / Inter

#2

CA Final New syllabus MTP 2 MCQ

#3
Ravi Staff May 20, 2019

MCQ 1
While auditing the complete set of consolidated financial statements of Tulips Ltd., a listed company,
using a fair presentation framework, M/s Pintu & Co., a Chartered Accountant firm, discovered that the
consolidated financial statements are materially misstated due to the nonconsolidation of a subsidiary.
The material misstatement is deemed to be pervasive to the consolidated financial statements. The
effects of the misstatement on the consolidated financial statements have not been determined because
it was
not practicable to do so. Thus, M/s Pintu & Co. decided to provide an adverse opinion for the
same and further determined that, there are no key audit matters other than the matter to be described
in the Basis for Adverse Opinion section. Comment whether M/s Pintu & Co. needs to report under
SA 701 Communicating Key Audit Matters in the Independent Auditors Report’?
(a) M
/s Pintu & Co. have the option to follow SA 701, thus, need not to report any key audit matters.
(b) SA 701 is mandatory in the case of audit of listed entities, however, as there are no key audit
matters other than the matter to be
described in the Basis for Adverse Opinion section, no ‘Key
Audit Matters’ para needs to be stated under audit report.
(c) SA 701 is mandatory in the case of audit of listed entities, however, as there are no key audit
matters
other than the matter to be described in the Basis for Adverse Opinion section, M/s Pintu
& Co
. shall state, under ‘Key Audit Matterspara, that ‘exceptfor the matter described in the Basis
for Adverse Opinion section, we have determined that there are no other key audit matters to
communicate in our report.
(d) M/s Pintu & Co. is under compulsion to follow SA 701 as the audit is of a listed companyand shall
report under Key Audit Matters’ para the matter same as stated in Adverse Opinionpara regarding
non
consolidation of a subsidiary.
Answer is C 
SA 700 & 701 — KAM Mandatory if listed company + complete set of financial statements + fair presentation framework
If there is modification it should be explained in basis of modification para and reference should be given in KAM para

#4
Ravi Staff May 20, 2019

MCQ 12
12. SBC Private Limited appointed Mr. Vijay, Chartered Accountant as auditor of the company for the year
2017–18. While verifying the accounts Mr. Vijay noticed that the companyhas neither made any provision
for accrued gratuity liability nor obtained the actuarial valuation thereon. Mr. Vijay obtained the actuarial
valuation and includes the matter in his Audit Report to the Company’s Board of Directors mentioning
the amount of accrued liability not provided for. The Board agreed with the auditor’s observation and the
amount of liability quantified by him. But the auditor didn‘t disclose the same in his audit report to
Member‘s. One of the membersraised an objection on the audit report stating that it does not represent
a true and fair view as even though the company has not maintained proper books of accounts as per
accounting standards, the auditor has not qualified his report. Whether the auditor is require to give a
qualified opinion in his report to members on non-provision of gratuity in company’s accounts when the
same has already been included in the report to Company’s Board of Directors?
(a) As the auditor has already disclosed the matter of non–provisioning in his report to Company’s
Board of Directors, there is no need to disclose the same in report to Member’s u/s 143 of the
Companies Act, 2013.
(b) Non–provisioning for accruing gratuity is in contravention to applicable Accounting Standard
(AS–15), therefore the auditor should qualify his report to members through a paragraph on failure
of management to quantify the amount of liability.
(c) The auditor should revise the accounts as per the actuarial valuation obtained by him and the
revised accounts only should be presented before the Board of Directors and Members. The auditor
is not required to qualify his report.
(d) U/s 143 of the Companies Act, 2013, the auditor should qualify his report to members only when
the matter reported by the auditor is answered in the negative or with a qualification by the Board.
In the above case the board agreed with the auditor‘s observation so he need not qualify his report

Answer is d
Need to read question carefully, there is hint and assumption that adjustments are done by board in financial statements. And after auditor pointed out mistakes things were recorded. It is absolutely fine clean report will be given.

#5
Ravi Staff May 20, 2019

MCQ 14
14. OPP & Co LLP is the statutory auditor of ABBA Private Limited. The company has an annual turnover
of INR 1000 crores and profits of INR 250 crores. The company is planning to get listed next year. The
company appointed OPP & CO LLP as new auditors to have a fresh look on their financial systems so
that the financial reporting can be improved wherever required.
During the course of audit, the auditors have been facing lot of challenges to obtain sufficient appropriate
audit evidence and have discussed the same with the management. Now the auditors are determining
the implications. Please suggest which one of the following should not be the implication in respect of
this matter.
(a) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive, the auditor shall qualify the opinion.
(b) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive so that a qualification of the opinion
would be inadequate to communicate the gravity of the situation, the auditor shall withdraw from
the audit, where practicable and possible under applicable law or regulation.
(c) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive so that a qualification of the opinion
would be inadequate to communicate the gravity of the situation, the auditor shall withdraw from
the audit, where practicable and possible under applicable law or regulation. If withdrawal from the
audit before issuing the auditor‘s report is not practicable or possible, disclaim an opinion on the
financial statements.
(d) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive so that a qualification of the opinion
would be inadequate to communicate the gravity of the situation, the auditor shall withdraw from
the audit, where practicable and possible under applicable law or regulation. If withdrawal from the
audit before issuing the auditor’s report is not practicable or possible, report the matter to the
Registrar of Companies.
Answer should be C, answer given by ICAI “d” is incorrect. See below para 13 from SA 705, will put complaint to ICAI they will rectify it.
Para 13 of SA 705
13. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine the implications as follows:
(a) If the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive, the auditor shall qualify the opinion; or
(b) If the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive so that a qualification of the opinion would be inadequate to communicate the gravity of the situation, the auditor shall:
(i) Withdraw from the audit, where practicable and possible under applicable law or regulation; or 
(ii) If withdrawal from the audit before issuing the auditor’s report is not practicable or possible, disclaim an opinion on the financial statements. 

#6
Ravi Staff May 20, 2019

MCQ 15
15. Yellow Steels Ltd. was engagedin the business of manufacturing and selling steel products.The company was having sales offices at different locations in and outside India. The companydecided to have a sales office at Kanpur on their own land. A Managing Committee of some officers from the companywas formed in order to get a building constructed atlandin Kanpur.BudgetofRs.35 crores was approved bythe company for the same and it was proposed to complete the construction within two years. Rs. 32 crores were already released by the company within a year of start of the projectand the managing committee raised a demand for Rs. 5 crores for further payments to vendors. The management of Yellow Steels wants to get the verification done of all the expenses incurred on site and identify the reasons for increase in construction cost. Which of the following will suffice the purpose of management?
(
a) The management should go for operational audit, as it will evaluate the effectiveness, efficiency
and economy of operations done at the construction site
(b) The management should get a Forensic Audit done in order to rule out any possibility of fraud or any other financial crime.
(c) A Financial Due Diligence is required to be done as no fraud has been reported and the management just want to analyse the books of accounts and other financial matters pertaining to financial matters at site.
(d) A management audit should be done to ensure that the increase in cost of construction is not due to any discrepancies in the formulation of objectives, plans and policies of the top management.


Answer  given by ICAI is “C’ but i think it should be “a”
Operational Audit — Evaluate Economy, efficiency, effectiveness
Forensic Audit — If evidence or report is to be presented in front of authorities, court to prove a point Eg Fraud
Financial Due Diligence — Before acquiring new company on behalf of purchasing company
Management Audit — Overall performance of BOD etc and not of individual site
Will write to ICAI for explanation, will update here as i get answer

#7
Ravi Staff May 20, 2019

MCQ 16
16. APP Ltd. is listed on National Stock Exchange in India. Post audit rotation, KYP & Co LLP have been
appointed as the statutory auditors of APP Ltd. The company has a pending litigation in respect of
service tax matter which has been going on for long time now and exposure of the company towards
that litigation is very significant.
The new auditors got the exposure of this case evaluated by involving their inhouse tax experts who
have shared
a view that the exposure of the company would be medium. As per the requirements of
accounting standards, medium exposure would be considered as a possible impactfor which probability
is 50%. The company has been disclosing this as a contingent liability in the previous years. However,
the new auditors are of the view that this is a significant matter that requires users attention by disclosing
this
in the financial statements and it is of such importance that it is fundamental to users understanding
of financial statements. Further there is a material uncertainty in respect of this matter (i.e. demand
raised by service tax
department).
Basis this, auditors want to include Emphasis of matter (EOM) in their report. Managementisof the view
that since this
was not reported by previous auditors as EOM, hence it should not be included by new
auditors also and also being a listed company, it is not appropriate to include EOM in the first year of
audit by a new firm.
Please
suggest which of the following is correct.
(a) EOM should be included by new auditors.
(b) EOM should not be included by new auditors if the previous auditors have not given that.
(c) EOM should
not be given, however, there should be a disclosure of this matter in the financial
statements and also the fact that auditors are in the first year of audit and this matter would require
detailed evaluation
.
(d) Auditors should quality the report instead of EOM.
Answer is “a” which is correct
Probability is 50% so no provision required, provision is required if its more than 50%
EOM will be perfect to highlight this point in Audit Report

#8
Ravi Staff May 20, 2019

MCQ 17
NT 22 Group is a large group comprising of 22 subsidiary companies, 14 associate companies and
19 joint ventures. NT Ltd. is the holding company which is also listed on Bombay Stock Exchange and
New York Stock Exchange. The Group prepares its consolidated financial statements every quarter
for various reporting requirements SEBI (Stock and Exchange Board of India), Stock Exchanges,
Registrar of Companies in India and others. The turnover of the Group isINR 15,000 crores and many
of its
components have significant operations at standalone level.
The
Group is audited by one audit firm, Seema & Co LLP. For the purpose of group audit of the current
year, the auditors have considered perfoming testing of journal entries across the group to address the
significant
risk, however, the auditors are facing challenges to perform this audit procedure across the
group
because of the volume and limitation of resources. Please suggest the correct options in respect
of this matter.
(a) The Group auditors have a choice to test journal entries of the components which is also backed
up by the auditing standards.
(
b) The Group auditors must test journal entries of all components.
(c) The Group auditors need not test journal entries of components requiring analytical response at
group level.
(d) The Group auditors need not test journal entries of components scoped with comprehensive
approach
.

Answer given is “C” seems correct, at group level audit team may decide where to perform analytical procedures and where to perform test of details (test of journal entries), so as per “C” dont go for test of journal entries where it is decided analytical procedures is required.

#9

Sir any update on Question 15

#10
Ravi Staff May 23, 2019

no update yet, they have seen mail but no reply yet

#11
Ravi Staff May 24, 2019

Please see this for MCQ 14 https://youtu.be/EAp0FVy3DQ8
For MCQ 15 it is pending with BOS

#12

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