Pages From 2. CA Inter Audit Amendment May 2019

Siddharth Agarwal Classes Audit Amendment
4, R.N. Mukherjee Road (Dalhousie), Near Lal Bazar Police Station,

Nearest Metro - Chandani Chowk, Ph: 7603093714, 9830556635. Inter May 2019
CA/CMA
Inter Audit
RTP-Amendment
Siddharth Agarwal
May/June 2019 Exams

Contents
Sl. No. Topic Page No.
1 RTP based Amendments 2
2 Companies (Amendment) Act 2017 – Sections 40 to 45 3 – 7
3 10 Super MCQs 8 – 11
4 SA 299 (Revised) – Joint Audit of FS 12 – 16
5 SA 720 (Revised) – The Auditor’s Responsibilities Relating to Other 16 – 20
Information

© Siddharth Agarwal. All Rights Reserved.
1

RTP based Amendments

Topic Details
Private Section 143(3)(i), shall not apply to a private company:‐
Co. (i) which is a OPC or a SMALL company; or
Sec (ii) which has turnover < ` 50 cr. as per latest audited financial statement AND which has
143(3)(i) aggregate borrowings from banks or financial institutions or anybody corporate at any point
of time during the financial year < ` 25 Cr.

The exemption regarding IFC shall be applicable for those audit reports in respect of financial
statements pertaining to financial year, commencing on or after 1st April, 2016.
.
The exceptions, modifications and adaptations given in Notification dated 5th June 2015 and
Notification dated 13th June, 2017 shall be applicable to a Private company which has NOT
committed a default in filing of its financial statements u/s 137 or annual return u/s 92 of
with the Registrar.
.
Auditor The provisions relating to Auditor’s Rotation shall apply to the following classes of companies:
Rotation Type of Company Threshold
Listed Company NO limit.
All unlisted Public Companies having PUSC ≥ ` 10 crores
All Private Limited Companies having PUSC ≥ ` 50 crores (20 crores)
All companies having PUSC below 10/50 but Borrowings from FI, Banks or Public Deposits
having public borrowings from financial ≥ ` 50 crores
institutions, banks or public deposits
.
Audit Amendment in the Rules as shown below:‐
1) Following has been Omitted by The Companies (Audit and Auditors) *Second Amendment
Rules, 2018 Dated 7th May 2018
Rule 3
Explanation.‐ For the purposes of this rule, it is hereby clarified that, if the appointment is
not ratified by the members of the company, the Board of Directors shall appoint another
individual or firm as its auditor or auditors after following the procedure laid down in this
behalf under the Act.
[Provided that such appointment shall be subject to ratification in every annual general
meeting till the sixth such meeting by way of passing of an ordinary resolution.]
2) Rule 10A.
For the purposes sectlon 143(3)(i), for the financial years commencing on or after 1st April,
2015, the report of the auditor shall state about existence of internal financial controls
with reference to financial statements (adequate internal financial controls system) and
its operating effectiveness:
3) Rule 14

Instead of ‘cost accountant in practise’ the words ‘cost accountant’ shall be substituted.

2

Companies Amendment Act 2017 (Sec 40-45)

Sections Descriptions Name of the Section as in Companies Act Notified on
2013
40 Amendment in Section 139 Appointment of Auditor 07.05.2018
41 Amendment in Section 140 Removal, resignation of auditor and giving of 09.02.2018
special notice
42 Amendment in Section 141 Eligibility, qualifications and disqualifications 09.02.2018
of auditors.
43 Amendment in Section 143 Powers and duties of auditors and auditing 09.02.2018
standards
44 Amendment in Section 147 Punishment for contravention 09.02.2018
45 Amendment in Section 148 Central Government to specify audit of items 09.02.2018
of cost in respect of certain companies.

Section 40 Amendment in Section 139 (Appointment of Auditor)

Section
139(1)(10)(11) Appointment of Auditor with Rules

Topic Detailed Discussion
Step 3: Tenure and Ratification
The auditor appointed in the annual general meeting shall hold office from the
conclusion of that meeting till the conclusion of the 6th AGM, with the meeting
wherein such appointment has been made being counted as the 1st meeting.

Provided that the company shall place the matter relating to such appointment for
ratification by members at every annual general meeting [Amended via Amendment
Act, 2017].

Section 41 Amendment in Section 140 (Resignation & Removal of
Auditor)

Removal, Resignation of Auditor & Giving of
Section
140
Special Notice

Section 140(2)(3) Resignation by the Auditor
The auditor who has resigned from the company shall file Form ADT – 3 with the
company and the ROC within a period of 30 days from the date of resignation,
indicating the reasons and other facts as may be relevant with regard to his resignation.

3

In case of resignation by the Auditor in a Government Company, Auditor shall file Form
ADT – 3 with the C & AG, company and the ROC within a period of 30 days from the
date of resignation.

Penalty for non‐filing of Form ADT – 3: If the auditor does not comply above, he or it
shall be punishable with
` 50,000 OR Auditor’s Remuneration whichever is less
Minimum Penalty
[Inserted via Amendment Act, 2017]
Maximum Penalty ` 5,00,000
.

Section 42 Amendment in Section 141 (Disqualification of
Auditor)

Section
141(3) Disqualification of Auditors

Section 141(3)(g) a person who is in full time employment elsewhere or a person or a partner of a firm
holding appointment as its auditor, if such persons or partner is at the date of such
appointment or reappointment holding appointment as auditor of more than 20
companies.

Exemption Notification dated 5th June 2015 for Section 141 (3) (g)
(a) Private Companies having PUSC < ` 100 Crores.
(b) One Person Company u/s 2(62)
(c) Dormant Company u/s 455
(d) Small Company u/s 2(85).

Section 141(3)(i) a person who, directly or indirectly, renders any service referred to in section 144 to the
company or its holding company or its subsidiary company.
Explanation‐For the purposes of this clause, the term "directly or indirectly" shall have the
meaning assigned to it in the Explanation to section 144. [Substituted via Amendment Act,
2017]

Section 43 Amendment in Section 143 (Duties of Auditor)

Powers and duties of auditors and auditing
Section
143
standards

Section 143(1) Rights of Auditor – Access books & Inquiry
Every auditor of a company shall have a right of access at all times to the books of
account and vouchers of the company, whether kept at the registered office of the
company or at any other place and shall be entitled to require from the officers of the
4

company such information and explanation as he may consider necessary for the
performance of his duties as auditor.

Provided that the auditor of a company which is a holding company shall also have the
right of access to the records of all its subsidiaries & Associate Company [Inserted via
Amendment Act, 2017] in so far as it relates to the consolidation of its financial
statements with that of its subsidiaries & Associate Company [Inserted via
Amendment Act, 2017]

Section 143(3)(i) Matters on which Auditor should comment in his Main Audit Report
The auditor’s report shall also state—
(a) Whether the company has adequate internal financial controls with reference to
Financial Statements [Substituted via Amendment Act, 2017] in place and the
operating effectiveness of such controls.
Section 143(3)(i), shall not apply to a private company:‐
(a) which is a OPC or a SMALL company; or
(b) which has turnover < ` 50 cr. as per latest audited financial statement AND
which has aggregate borrowings from banks or financial institutions or
anybody corporate at any point of time during the financial year < ` 25 Cr.
.
Section 143(14) CS and CMA also need to report fraud
The provision of Section 143(12) shall also apply, mutatis mutandis, to a Cost
Accountant in Practice [Omitted via Amendment Act, 2017] and a Company secretary
in Practice during the performance of his duties under section 148 and section 204
respectively.

Section 44 Amendment in Section 147 (Penalties on Auditor)

Section
147 Punishment for contravention

Section 147(1) Punishment for contravention of Section 139 to 146 on company and the officer in
default
Punishment as follows:‐
On Company ` 25,000 ≤ Fine ≤ ` 5 lacs
Imprisonment ≤ 1 year or,
On officer in default ` 10,000 ≤ Fine ≤ ` 1 lac or
Both.
.
Section 147(2) Punishment for contravention of Section 139, 143, 144, 145 on the AUDITOR
Punishment as follows: ‐

Minimum Penalty ` 25,000
Contravention of Section
139, 143, 144, 145
` 5 lacs OR 4 times the
Maximum Penalty
remuneration of the Auditor
5

(whichever is less) [Inserted via
Imprisonment ≤ 1 year
If an auditor has contravened AND
such provisions knowingly or Minimum Penalty ` 50,000
willfully with the intention to
deceive the company or its ` 25 lacs OR 8 times the
shareholders or creditors or remuneration of the Auditor
Maximum Penalty
tax authorities (whichever is less) [Inserted via
.
Section 147(3) Refund Audit Fees and pay Damages
Where an auditor has been convicted under sub‐section (2), he shall be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company, statutory bodies or authorities or to members or
creditors of the company [Substituted via Amendment Act, 2017] for loss arising
out of incorrect or misleading statements of particulars made in his audit report.

Section 147(4) Prompt payment of damages
The CG shall, by notification, specify any statutory body or authority or an officer for
ensuring prompt payment of damages to the company or the persons under clause (ii)
of sub‐section (3) and such body, authority or officer shall after payment of damages
to such company or persons file a report with the CG in respect of making such damages
in such manner as may be specified in the said notification.

Section 147(5) Liability of the partner and of the firm jointly and severally
Where, in case of audit of a company being conducted by an audit firm, it is proved
that the partner or partners of the audit firm has or have acted in a fraudulent manner
or abetted or colluded in any fraud by, or in relation to or by, the company or its
directors or officers, the liability, whether civil or criminal as provided in this Act or in
any other law for the time being in force, for such act shall be of the partner or partners
concerned of the audit firm and of the firm jointly and severally.
Provided that in case of criminal liability of an audit firm, in respect of liability other
than fine, the concerned partner or partners, who acted in a fraudulent manner or
abetted or, as the case may be, colluded in any fraud shall only be liable. [Inserted via

Section 45 Amendment in Section 148 (Cost Audit)

Section
148 Cost Audit

Section 148(3) Appointment of Cost Auditor
Cost Audit shall be conducted by a Cost Accountant in Practice [Omitted via
Amendment Act, 2017] who shall be appointed by the Board.

6

Provided that a statutory auditor (CA) of the company shall NOT be appointed for
conducting the audit of cost records.

Provided further that the auditor conducting the cost audit shall comply with the cost
auditing standards.

Explanation‐For the purposes of this sub‐section, the expression ‘cost auditing
standards’ mean such standards as are issued by the Institute of Cost Accountants of
India.

Section 148(5) Qualifications, disqualifications, rights, duties of Cost Auditor
The qualifications, disqualifications, rights, duties and obligations applicable to
auditors under this Chapter shall, so far as may be applicable, apply to a cost auditor
appointed under this section and it shall be the duty of the company to give all
assistance and facilities to the cost auditor appointed under this section for auditing
the cost records of the company.

Provided that the report on the audit of cost records shall be submitted by the cost
accountant in Practice [Omitted via Amendment Act, 2017] to the Board of Directors
of the company.

7

Multiple Choice Questions

Question 1
Marvin Ltd. is a renowned food chain supplier in a posh area providing restaurant facility along with food
delivering. CA. Felix was appointed as an auditor of the company for the Financial Year 2017‐18. While
examining the books of account of the company, CA. Felix came to know about one of the major expenses
of the company i.e. rent expense of ` 1,20,000 per month, for which he applied substantive analytical
procedure for verification purpose. Explain, how would CA. Felix perform SUBSTANTIVE ANALYTICAL
PROCEDURE in the given scenario?
a. CA. Felix would inspect every single rent invoice per month of ` 1,20,000 and verify other elements
appropriately.
b. CA. Felix would compare the rental expense of the company with that of another nearby company
having corresponding dimensions, for high degree of accuracy.
c. CA. Felix would select the first month rent invoice of ` 1,20,000 and appropriately verifying other
elements would predict that the rent for the whole year would be ` 14,40,000 (i.e. ` 1,20,000 * 12).
Thereafter, he would compare the actuals with his prediction and follow‐up for any fluctuation.
d. (b) and (c) both.

Question 2
Coyote Ltd. is dealing in trading of electronic goods. Huge inventory (60% approximately) of the company
is lying on consignment (i.e. under the custody of third party). CA. Star, the auditor of the company, wants
to obtain sufficient appropriate audit evidence regarding the existence and condition of the inventory lying
on consignment. Thus, he requested & obtained confirmation from the third party as to the quantities and
condition of inventory held on behalf of the entity, however, it raised doubts about the integrity and
objectivity of the third party. Which of the following other audit procedures may be performed by CA. Star
to obtain sufficient appropriate audit evidence regarding the existence and condition of the inventory under
the custody of third party? (SA 501)
a. Attend third party’s physical counting of inventory.
b. Arrange for another auditor to attend third party’s physical counting of inventory.
c. Inspect warehouse receipts regarding inventory held by third parties.
d. All of the above.

Question 3
In July, 2018, M/s Tom & Co. entered into an agreement with M/s Jerry & Co. under which a machinery
would be let on hire and M/s Jerry & Co. would have the option to purchase the machinery in accordance
with the terms of the agreement. Thus, M/s Jerry & Co. agreed to pay M/s Tom & Co. a settled amount in
periodical instalments. The property in the goods shall be passed to M/s Jerry & Co. on the payment of last
of such instalments. While checking such hire‐purchase transaction, what would the auditor examine?
a. That the periodical instalments paid are charged as an expenditure by M/s Jerry & Co.
b. That the hire purchase agreement specifies clearly the hire‐purchase price of the machinery to which
the agreement relates.
c. That M/s Tom & Co. charges depreciation throughout the life of the machinery.

8

Question 4
The management of Magoo Ltd. has developed a strong internal control in its accounting system in such a
way that the work of one person is reviewed by another. Since no individual employee is allowed to handle
a task alone from the beginning to the end, the chances of early detection of frauds and errors are high. CA.
Olive has been appointed as an auditor of the company for current Financial Year 2017‐18. Before starting
the audit, she wants to evaluate the internal control system of Magoo Ltd. To facilitate the accumulation of
the information necessary for the proper review and evaluation of internal controls, CA. Olive decided to
use internal control questionnaire to know and assimilate the system and evaluate the same. Which of the
following questions need not be framed under internal control questionnaire relating to purchases?
a. Are authorized signatories for purchases limited to elected officials?
b. Are payments approved only on original invoices?
c. Are monthly bank reconciliations implemented for each and every bank accounts of the company?
d. Does authorized officials thoroughly review the documents before signing cheques?

Question 5
CA. Bobby is a recently qualified Chartered Accountant. He is appointed as an auditor of Droopy Ltd. for the
current Financial Year 2017‐18. He is quite conservative in nature which is also replicated in his professional
work. CA. Bobby is of the view that he shall record all the matters related to audit, audit procedures to be
performed, audit evidence obtained and conclusions reached. Thus, he maintained a file and recorded each
and every of his findings during the audit. His audit file, besides other thing, includes audit programmes,
notes reflecting preliminary thinking, letters of confirmation, e‐mails concerning significant matters, etc.
State which of the following need not be included in the audit documentation?

a. Audit programmes.
b. Notes reflecting preliminary thinking.
c. Letters of confirmation.
d. E‐mails concerning significant matters.

Question 6
While auditing the books of accounts of QHMP Ltd., CA. Ranker, the statutory auditor of the company, came
to know that the management of the company has recognized internally generated goodwill as a fixed asset.
CA. Ranker discussed with the management that according to accounting standards, internally generated
goodwill is not recognized as an asset because it is not an identifiable resource controlled by the enterprise
that can be measured reliably at cost. However, the management is quite rigid to the accounting treatment
followed for internally generated goodwill and not paying attention to the auditor. Thus, through an
example, CA. Ranker explained which type of goodwill may be recognized as a fixed asset for which the
management got justified. State which of the following examples the auditor must have given to the
management?
a. If an item meeting the definition of an intangible asset is acquired in a business combination, it forms
part of the goodwill to be recognized at the date of the amalgamation.
b. Only those goodwill needs to be recognized as a fixed asset which can be touched like physical assets,
for example, land and buildings.
c. Goodwill is recognized only when there is a contractual or other legal rights for a physical asset which
shall not be amortized over the period.
9

Question 7
Eeyore Pvt. Ltd. is incorporated on 1st July 2017. During the Financial Year ending on 31st March, 2018, the
company did not opt for any borrowing at any point of time and have a total revenue of ` 60 Lakh. At the
year end, it provides the following information regarding its paid‐up capital and reserve & surplus‐
Particulars Amount (in `)
Paid‐up Capital
‐ Consideration received in cash for equity shares 40,00,000
(including unpaid calls of ` 5,00,000)
‐ Consideration received in cash for preference shares 25,00,000
‐ Bonus shares allotted 7,00,000
‐ Share application money received pending allotment 10,00,000
Sub‐Total 82,00,000
Reserve & Surplus
‐ Balance in Statement of Profit and Loss 15,00,000
‐ Capital Reserves 10,00,000
Sub‐Total 25,00,000
GRAND TOTAL 1,07,00,000

You are provided with the provisions regarding applicability of Companies (Auditor’s Report) Order, 2016,
(CARO, 2016) issued under section 143(11) of the Companies Act, 2013 to a private limited company that it
specifically exempts a private limited company having a paid up capital and reserves and surplus not more
than ` 1 crore as on the Balance Sheet date and which does not have total borrowings exceeding ` 1 crore
from any bank at any point of time during the financial year and which does not have a total revenue as
disclosed in Scheduled III to the Companies Act, 2013 exceeding ` 10 crore during the financial year.

Considering the information given above, which of the following shall be considered as a reason regarding
applicability or non‐applicability of CARO, 2016?
a. Reporting under CARO, 2016 shall be applicable as the company is having a paid up capital and reserves
and surplus of ` 1.07 crore i.e. more than ` 1 crore as on the Balance Sheet date.
b. Reporting under CARO, 2016 shall be applicable as the company is having a paid up capital and reserves
and surplus of ` 1.02 crore i.e. more than ` 1 crore as on the Balance Sheet date.
c. Reporting under CARO, 2016 shall not be applicable as the company is having a paid up capital and
reserves and surplus of ` 0.92 crore i.e. not more than ` 1 crore as on the Balance Sheet date.
d. Reporting under CARO, 2016 shall not be applicable as the company is having a paid up capital and
reserves and surplus of ` 0.82 crore i.e. not more than ` 1 crore as on the Balance Sheet date.

Question 8
CA. Goofy has been appointed as an auditor for audit of a complete set of financial statements of Dippy
Ltd., a listed company. The financial statements of the company are prepared by the management in
accordance with the Accounting Standards prescribed under section 133 of the Companies Act, 2013.
However, the inventories are misstated which is deemed to be material but not pervasive to the financial
statements. Based on the audit evidences obtained, CA. Goofy has concluded that a material uncertainty
does not exist related to events or conditions that may cast significant doubt on the entity’s ability to
continue as a going concern in accordance with SA 570. Further, CA. Goofy is also aware of the fact that a
qualified opinion would be appropriate due to a material misstatement of the Financial Statements. State
what phrases should the auditor use while drafting such opinion paragraph?
10

a. In our opinion and to the best of our information and according to the explanations given to us, except
for the effects of the matter described in the Basis for Qualified Opinion section of our report, the
aforesaid financial statements present fairly, in all material respects, or give a true and fair view in
conformity with the applicable financial reporting framework.
b. In our opinion and to the best of our information and according to the explanations given to us, with
the foregoing explanation, the aforesaid financial statements present fairly, in all material respects, or
give a true and fair view in conformity with the applicable financial reporting framework.
c. In our opinion and to the best of our information and according to the explanations given to us, subject
to the misstatement regarding inventories, the aforesaid financial statements present fairly, in all
material respects, or give a true and fair view in conformity with the applicable financial reporting
framework.
d. In our opinion and to the best of our information and according to the explanations given to us, with
the explanation described in the Basis for Qualified Opinion section of our report, the aforesaid financial
statements present fairly, in all material respects, or give a true and fair view in conformity with the
applicable financial reporting framework.

Question 9
While auditing the accounts of ThoughtCo Ltd., CA. Bliss, the auditor of the company came across certain
accounts payable balances for which direct confirmation procedure needs to be applied. Thus, for the year
ending 31st March, 2018, he sent positive confirmation requests wherein the trade payables are requested
to respond whether or not they are in agreement with the balance shown. The auditor received all the
confirmation replies from the trade payables on time as correct except from five of them. What other option
the auditor is left with regard to trade payables from which no reply for confirmation requests received?
a. Perform additional testing which may include agreeing the balance to subsequent cash paid.
b. Accept the balances as it is assuming other replies against received confirmation requests being correct.
c. Accept the balances as it is assuming that the trade payables must have replied in case of any
discrepancies.
d. None of the above.

Question 10
CA. Daffy is the auditor of X Bose Ltd. for the previous 2 years. However, due to certain unavoidable
circumstances, no Annual General Meeting (AGM) was held for the current Financial Year ending on 31st
March, 2018 within every possible time limit and thus, the ratification procedure for her appointment in
the AGM could not be performed. Whether she may continue to hold the office of the auditor?
a. CA. Daffy may continue to hold the office of the auditor for the current Financial Year only and
thereafter shall resign herself as the ratification procedure could not be completed.
b. CA. Daffy shall continue to hold the office of the auditor and ask the Board to re‐appoint her in a private
meeting.
c. CA. Daffy shall continue to hold the office of the auditor as no such ratification provisions for
appointment by members at every AGM exist.
d. CA. Daffy shall not continue to hold office of the auditor as the ratification procedure could not be
completed as per proviso to section 139(1) of the Companies Act, 2013.

11

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Siddharth Agarwal Classes Audit Amendment

4, R.N. Mukherjee Road (Dalhousie), Near Lal Bazar Police Station,

Companies Amendment Act 2017 (Sec 40-45)

139(1)(10)(11) Appointment of Auditor with Rules

141(3) Disqualification of Auditors

147 Punishment for contravention

148 Cost Audit

Multiple Choice Questions

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