KnS School of Business Studies

CA CAF 9 (Audit & Assurance)

Index of CA CAF 9 Audit Report

Practice Questions

S No Question Attempt Marks Page No.

1 Question 6 b ICAP Sept 2015 (3 marks) 1
2 Question 5 ICAP Sept 2016 (17 marks) 2
3 Question 3 b & c ICAP March 2017 (6 marks) 4

ICAP Sept 2015 (3 marks)

Compiled By M. Sajid Kapadia (ACA, FCCA, APFA)

Question 6 (b)
As the engagement partner, you have reviewed the working papers of Nadeem Limited (NL) in
which the audit team has highlighted the following matters:

b) Certain contingent assets have been disclosed in the draft financial statements in which
inflow of economic benefits is possible but not probable. The management is of the view that
International Financial Reporting Standards does not prohibit making additional disclosures
which enhance the users understanding of the financial statements. (03)

Required:
Discuss the possible impact on the audit report.

Answer: (b)
The argument with management relating to additional disclosures is not valid, as this disclosures
will make the financial statements misleading, as IAS allows disclosure of only those contingent
assets which are probable.

If the amount is material and the management refuses to remove the disclosures from the
financial statements, then the auditor may qualify the audit report.

ICAP Sept 2016 (17 marks)

Question 5
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In relation to the audit report on financial statements and the contents thereof (under revised/new
ISAs), discuss the appropriateness or otherwise of the following statements:

a) The management is only responsible for preparation of financial statements in accordance

with the financial reporting framework and for such internal controls as management
determines are necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error. (03)

b) Reasonable assurance is a high level of assurance and is a guarantee that if audit is conducted
in accordance with ISAs, it will always detect a material misstatement whenever it exists.
(03)

c) The auditor obtains an understanding of controls relevant to the audit in order to design audit
procedures that are appropriate in the circumstances and also for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. (03)

d) The description of the auditor’s responsibilities for the audit of the financial statements
should be included within the body of the auditor’s report. (03)

e) The audit report can only be signed in the personal name of the auditor. (02)

f) Key audit matters are determined from the matters communicated with the management of
the entity that required significant auditor’s attention in performing the audit. In making that
determination, the auditor shall take into account the effects on the audit of significant events
or transactions that occurred during the current year and prior period presented.
(03)

Answer 5:
a) The statement is not appropriate, as management is also responsible for assessing the entity’s
ability to continue as a going concern and whether the use of the going concern basis of
accounting is appropriate as well as disclosing, if applicable, matters relating to going
concern.

b) The statement is appropriate to the extent that reasonable assurance is a high level of
assurance. However, second statement is not appropriate as reasonable assurance is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material
misstatement, due to inherent limitations of audit.

c) The statement is appropriate to the extent that auditor has to obtain an understanding of
internal control relevant to the audit in order to design audit procedures that are appropriate

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 in the circumstances. However, the second statement is not appropriate because the auditor is
not required to express an opinion on the effectiveness of internal controls in conjunction
with the audit of the financial statements.

d) The statement is not appropriate the responsibilities in addition to the main body of the audit
report can be included;
 Within an appendix to the auditor’s report, in which case the auditor’s report shall
include a reference to the location of the appendix; or
 By a specific reference within the auditor’s report to the location of such description
on a website of an appropriate authority.

e) The statement is not appropriate as the audit report can either be signed in the name of the
audit firm or the personal name of the auditor or both.

f) The statement is not appropriate as the Key Audit Matters are selected from the matters
communicated with those charged with governance and in making those assessments matters
pertaining current period only are considered as opposed to matters pertaining to prior period.

ICAP March 2017 (6 marks)

Question 3 (b & c)
You are the audit partner in a firm of chartered accountants. Some of the audits are in the

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finalization stage and presently the following matters are under your consideration:

b) There is a legal dispute between Marvi Limited and one of its customers. In this regard,
the legal advisor has confirmed the stance of the management in a meeting with you.
However, he has refused to provide a written confirmation thereon. (02)

c) The management of Laila Limited is not willing to make certain disclosures. The
management is of the view that these disclosures will not add any value to the financial
statements. Further, the information required to make these disclosures cannot be
compiled before the deadline for completion of the audit. (04)

Required:
Discuss the possible impact on the audit report and specify the procedures (if any) which you
would undertake in the above situations.

Answer 3 (b & c):

b) The verbal confirmation from the legal advisor cannot be taken as sufficient appropriate
audit evidence and on account of inability to obtain sufficient appropriate audit evidence.
The auditor may consider to qualify or disclaim an opinion on the financial statements.

c) If in the opinion of the auditor the non-disclosure of information results in material

misstatement in the financial statements, he shall:
 discuss the non-disclosure with those charged with governance;
 describe in the ‘Basis for opinion section’ the nature of the omitted information; and
 Unless the prohibited by law or regulation, include the omitted disclosures in the
audit report provided it is practicable to do so and the auditor has obtained sufficient
appropriate audit evidence about the omitted information.

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