CA Final Question Papers Group I Advanced Auditing November 2010

CA Final Question Papers Group I

Advanced Auditing

November 2010



This Paper has 24 answerable questions with 0 answered.

[Total No. of Printed Pages — 4
Time Allowed : 3 Hours

Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, hisanswers in Hindi will not be valued.
Q.No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
1. As an auditor, how would you deal with the following:
(a) Mr. Honest, Director of Truth Private Ltd., is also a director of another 5 company – False Private Ltd., which has not filed annual returns and accounts for the last three years, 2006–07; 2007–08 and 2008–09 with the Registrar of Companies. Truth Private Ltd., passed the following resolution reappointing Mr. Honest as Director of the Company at the Annual General Meeting held on 31–08–10. 5 (0)
(b) ‘A’ Ltd. has not made any provision in its accounts as regards losses sustained by its subsidiary ‘B’ Ltd. However, it has credited to the Profit & Loss Account the dividend declared by its subsidiary ‘C’ Ltd., on its investments made in the subsidiary. 5 (0)
(c) XYZ Ltd. purchased an equipment at a price of $ 1,00,000 on 2–4–09. Upon terms of credit that price should be settled within six months from the date of purchase. The company capitalized the asset in terms of Indian Rupees at a rate of exchange prevailing as on date of purchase.
When the liability is settled as per terms on 10–9–2009, it incurs an additional amount of Rs.3,50,000/- due to exchange rate fluctuation on the date of settlement. The said sum is charged off to Profit & Loss Account.

5 (0)
(d) LMN Ltd. has obtained term loan from Nationalized Bank amounting to Rs.10 crores for purchase of Research and Development Equipments. Out of this, Company has utilized Rs.10 lakhs towards purchase of office furniture and car to be used by the Chief Executive Officer of the company. 5 (0)
2. Comment on the following with reference to the Chartered Accountants’ Act, 1949 and schedules thereto :
(a) Mr. Moon is the auditor of M/s Sun Ltd., which has a turnover of Rs.100 crores. The audit fee for the year is fixed at Rs.25 lakhs. During the year the company offers Mr.Moon an assignment of Management Consultancy for a remuneration of Rs.50 lakhs. 4 (0)
(b) A firm of Chartered Accountants RJ & Co. was appointed by a company to evaluate the cost of products manufactured by it for its information system. One of the partners of the firm RJ & Co., was a non–executive Director of the Company. 4 (0)
(c) Mr. A, Chartered Accountant in practice as a Sole Proprietor has an office near Egmore. Due to increase in professional work, he opens another office in Tambaram which is approximately 30 kms away from his existing office. For running the new office, he has employed a retired Income Tax Officer. 4 (0)
(d) A Partner of a Firm of Chartered Accountants during a T.V. interview handed over a biodata of his firm to the Chairperson. Such biodata detailed the standing with International firm and also his achievements and recognition as an expert in the field of Taxation. The biodata was read out during the said interview. 4 (0)
3. (a) The auditors need not review accounting policies unless there is a change in the basis of accounting – Comment. 8 (0)
(b) (i) ‘A’ Ltd. having fixed assets at 10 different locations, in total valuing Rs.5,000 crores, have been physically verifying the assets every third year. Auditor insists for yearly verification of the same – Comment. 4 (0)
(ii) ‘B’ Ltd. manufacturing cycles has 150 employees. Auditors observe that it has not registered itself for Provident Fund and ESI purposes, not remitting the dues in time and auditor insists for qualifying the Report. Management contends that in the absence of registration it can’t be construed that the company is in default of statutory dues on regular basis – Comment. 4 (0)
4. (a) The Company ABC Ltd. has passed a Special Resolution at the Annual General Meeting held on 30–09–09 for buy back of shares to the extent of Rs.12,50,000.
Summary of Financial Position of ABC Ltd. as on 31–03–09
Subscribed & Paidup
Share Capital
Reserves and Surplus
Current Liabilities
15,00,000 Fixed Assets

Current Assets
Loans & Advances 40,00,000

60,00,000 60,00,000
Comment whether the action of the Company is valid.

8 (0)
(b) PQR Private Ltd. has prepared the financial statements for the year ended 31–3–10 and submitted the same to you for audit. Comment whether sundry debtors and loans and advances have been disclosed as required under Schedule VI of the Companies’ Act, 1956.
Balance Sheet of PQR Private Ltd. as on 31–03–10.
Liabilities Rs. Assets Rs.
Share Capital
Authorised 1,00,000 Equity
Shares of Rs.10/- each
Subscribed & paid up
1,00,000 Equity Shares of Rs.10/- each
Reserve & Surplus
Profit & Loss A/c
Secured Loans
Indian Bank
(against hypothecation of Fixed Assets)
Current Liabilities & Provisions
Creditors for Trade




5,00,000 Fixed Assets
Gross Block
Less depreciation
Current Assets
Loans & Advances
Cash & Bank
Sundry Debtors
Loans & Advance


36,50,000 36,50,000
8 (0)
5. (a) (i) For determining the liability for Gratuity, Actuary’s Report is produced to the auditor. On examination auditor notices a serious wrong assumption in the report. Auditor challenges the Actuary’s report – Comment. 4 (0)
(ii) The loss as per Profit and Loss Account of a Ltd. Company is converted in to profits due to crediting of time barred liability relating to the purchase of Plant & Machinery. Directors propose to declare dividend out of such profits – Comment. 4 (0)
(b) You have been approached by an organization to suggest a system where the user wants to access data immediately. What would be your suggestions if they want to process it after validation ? 8 (0)
6. (a) (i) ARG Bank has granted loans to the extent of Rs.1500 crores. 10 parties have not been repaying the principal amount and servicing the interest for more than 36 months. During the year ended 31–3–10, it was found that two of the ten parties have paid interest partly and bank has accounted full amount of interest accrued as income in respect of two parties – Comment. 4 (0)
(ii) ARG Bank has paid money on the drafts issued by other branches. But later on it was found that this amount is shown under suspense account – Comment. 4 (0)
(b) AB & Co., Chartered Accountants, was appointed to compile financial statements of Y & Co., a firm for Tax Audit purposes. During the course of work, the audit firm has noticed that the stock valuation was grossly understated. When it was pointed out, the management told that AB & Co. are not the statutory auditors of the company and need not be concerned about valuation of stock – Comment. 8 (0)
7. Write short note on any four the following: 4×4=16
(a) Other Misconduct (0)
(b) Rolling Statement (0)
(c) Corporate Governance (0)
(d) Enquiry (0)
(e) Reconciliation of cost and financial records. (0)

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