Professional Documents
Culture Documents
Audit Suggested Q List
Audit Suggested Q List
An Auditor is required to consider materiality and its relationship with audit risk while
conducting an audit. Describe the matters, which you will consider in this regard.
As an auditor state your views on the following situations: (4 Marks June 2004)
The auditor find that the company has made certain secured loans and advances to a sister
concern at a rate of interest of 5% per annum, from out of the funds raised through a
public issue of 14% non-convertible debentures.
During the course of audit, you encounter following situations: (4 Marks each June 2004)
a. On your request to produce minutes of board meetings, finance director represents that
there is no need to waste time to look at the whole minutes of the year. Instead you may ask
for the copy of the minutes deemed necessary to verify.
b. You receive a letter from the Managing Director of the company under audit, asking you to
give a copy of your entire file containing working papers and the audit program. He argues
that
since these papers contains information concerning his company, he has a right to ask for the
documents. Moreover, the audit program will help the company in coordinating its own
related
activities and thus result in a more effective audit next year.
c. During the finance year 200X the statutory auditor observed the following information
while
auditing the financial statements of an ABC Co. Ltd.:
Share Capital (Issued, Subscribed, Called and Paid up) Rs. 5 Million
Reserve and Surplus (including undistributed profit) Rs. 10 Million
Term Loan and Current Liabilities Rs. 20 Million
Fixed Assets at Book value Rs. 10 Million
Current Assets Rs. 10 Million
Profit and Loss Account (Loss) (Rs. 15 Million)
The statutory auditor is not required to evaluate the professional competence or independence
of the branch auditor, except in situations, which create doubt about the professional
competence or independence of the auditor. Briefly explain.
(6 Marks December 2004)
Give your opinion as an auditor in the following cases with specific reference to criteria on
which your opinion is based.
Mr. RR Pradhan, a Chartered Accountant is attending to the tax matters of Apex Hotel Ltd.
for the fiscal year 2060/61. For this purpose, he has to attend to the company from 9 a.m. to 1
p.m. on all working days and sometimes he also has to present before tax officer in the Inland
Revenue Office at Babar Mahal. He is paid Rs. 30,000/- per month for the same.
Apex Hotel Ltd. intends to appoint Mr. RR Pradhan as its statutory auditor at the annual
general
meeting. Advice Mr. RR Pradhan giving reasons whether he can accept the appointment as
per the companies‟ act 2063 (5 Marks June 2005)
Mr. ABC, a practicing Chartered Accountant audited the financial statements of M/s AP
Finance Company Ltd. for the F/Y 2060/61 and issued audit report on Aswin 28, 2061. The
audited financial statements made a provision of proposed cash dividend of 20%. Mr. XYZ,
managing director of that company then submitted the audited financial statements to Nepal
Rastra Bank along with long form audit report for getting permission to hold Annual General
Meeting of that company for that year on Kartik 25, 2061. The director of Nepal Rastra Bank
after reviewing Financial Statements of that
company found that interest income booked for the period of 3 months ended on Ashad end
2061
which was not actually received on that date has also not in fact received till the NRB review
date. Therefore, the directors from NRB issue a direction to make a provision for interest
suspense that have not been actually received borrowers till the date of NRB review. As a
result of which NRB issued a direction to allow distributing cash dividend of 10% only instead
of 20%. After receiving such direction form NRB, Managing Director requested Mr. ABC to
alter the audited Balance Sheet as per the NRB direction. Give your view on above.
(5 Marks June 2005)
Give your opinion as an auditor in the following cases with specific reference to criteria on
which your opinion is based. (4 Marks each June 2005)
a. Mr. Lok Raj Pandey, CEO of M/s PK Co. Ltd. requested you to provide suggestion on the
utilization of revaluation reserve for issue of bonus share.
Mr. A. Shrestha, a practicing Chartered Accountant, received a major professional
assignment. In order to complete such assignment within the deadline, he needed additional
five computers. Due to his financial crises, he could not afford to buy such computers and
decided to borrow funds from a firm where one of his article clerks and his father were
interested. Is Mr. Shrestha
committed misconduct under the Institute of Chartered Accountants of Nepal, Regulation
2061?
Mr. Ram Singh Bania, a Chartered Accountant in practice had confirmed in the
application
made by his articled clerk Mr. Raja Ram Rauniyar to the Council for permission to study
that the normal working hours of his office were 10 am. to 5 p.m. and the hours during
which Mr. Raja Ram Rauniyar was required to attend college classes in the morning
session which started from 6.30 a.m. to 9.30 a.m. On inquiry form Principal of college, it
was revealed that Mr. Raja Ram Rauniyar used to attend classes from 10 a.m. to 1.30 p.m.
Mr. Ram Singh Bania, pleaded ignorance about his articled clerk, Mr. Raja Ram
Rauniyar, attending the college classes during office hours. Will Mr. Ram Singh Bania be
held guilty of professional misconduct?
While conducting the audit of the financial statements, you come across the certain matters of
Governance Interest. Explain what matters you think need to be considered for
communication. Is it necessary to design audit performance in such a manner as would
enable identification of all matters that may be relevant to those charged with governance?
Explain in the light of NSA 260.
(8 Marks June 2005)
What are audit sampling and other selective testing factors that you employ in an audit of an
entity registered under Companies Act 2063? (8 Marks December 2005)
The company demanded to hand over the external confirmations of debtors and creditors
directly circularized by you during the course of an audit of the company.
(3 Marks December 2005)
What are the responsibilities of an auditor with respect to fraud and error in a financial
statement being audited? (5 Marks December 2005)
Your audit client has prepared its fixed asset and depreciation schedule in full compliance
with the provisions of Income Tax Act 2058 for the purpose of statutory accounts also citing
that it eases preparation of financial statements. As a statutory auditor, how would you react
to this practice of
How does knowledge of business help in planning and performing an audit? Base your
answer on NSA 315: Identifying and Assessing the Risk of Material Misstatement through
Understanding the Entity and Its Environment. (6 Marks June 2006)
What are the provisions with regard to disqualification of an auditor as per Companies Act
2063? (5 Marks June 2006)
While asking for certain evidences, Finance Manager of your clients informs you that he will
include the matter in the management representation. Will you accept management
representation as
evidence? (5 Marks June 2006)
On re-computation of payment to a contractor you find that the contractor was paid less than
amount derived as per agreed terms. The accountant represents that the contractor has
received the amount and has not made further claim. Therefore, auditors are not concerned
anymore.
(5 Marks June 2006)
Give your opinion as an auditor in the following cases with specific reference to criteria on
which your opinion is based.
Mr. Bhishma is appointed auditor of Test Ltd., at a total remuneration of Rs. 1,00,000/- which
is classified as under:
(i) For C Unit of the Company Rs. 45,000/-
(ii) For D Unit of the Company Rs. 60,000/-
(iii) For Central Office Rs. 25,000/-
According to the terms of appointment, Mr. Bhisma can collect his fees on progressive basis,
on
completion of audit of unit (i) and/ or unit (ii).
Mr. Bhisma completed the audit of unit (ii) and recovered Rs. 60,000 on account of the audit
fees though the entire audit is not completed.
Whether Mr. Bhisma is indebted to the company and therefore disqualified?
a) Explain "Reporting Consideration" while using the work of another auditor.
(4 Marks December 2006)
b) Write a short note on Management Representation Letter (4 Marks December 2006)
a) What are the statements of facts that an auditor has to report u/s 115 of the Companies Act,
2063? (5 Marks December 2006)
b) What are the auditor's functions and duties under Company Ordinance, 2062?
(4 Marks December 2006)
c) What are the provisions for removal of Member's name from the Member's register under
Chartered Accountants' Regulations, 2060? (4 Marks December 2006)
a) M/s ABC & Co., a Chartered Accountants firm was appointed as auditor of the
Sagarmatha Ltd by the annual general meeting held on Marg 20, 2062 for the audit of
fiscal year 2062/63. The auditor submitted management letter to the Board of Directors
on Kartik 5, 2063 before the submission of audit report that contains certain serious
issues relating to the accounting and management of the company. The meeting of the
Board of Directors held on Kartik 9, 2063 decided to request the auditor to remove those
issues from the management letter. The auditor did not remove the issues from the
management letter and submitted the final management report on Kartik 22, 2063
without considering the request of the Board. The meeting of the Board held on Kartik
25, 2063 decided to remove the auditor and issued letter to the auditor accordingly. Do
you think the Board can remove the auditor?
The BCD Company Ltd. having paid up capital of Rs. 25 million has retained earning of
Rs. 2 million as per financial statement of the financial year 2062/63 certified by the
auditor. The company prepared the interim financial statements as of Paush 30, 2063
and the profit and loss account ended on that date shows net profit of Rs. 1.5 million.
The board of directors of the company decided to distribute interim dividend of 10
percent. Do you think the decision of the board of directors is appropriate as per
prevailing law?
Why should the auditor assess the professional competence and objectivity of an expert
while using the work of an expert?
a) The XYZ Company Ltd. having paid up capital of Rs. 100 million has accumulated loss
of Rs. 5 million up to financial year 2061/62 as per audited financial statement. The
company earned net profit of Rs. 8 million after tax in the financial year 2062/63. The
board of directors of the company proposed 5 percent dividend out of net profit of the
financial year 2062/63. Can annual general meeting of the company approve the
percentage of the proposed dividend?
b) The BCD & Co. an auditor of the DEF Company Ltd. appointed its employee, Mr. X as
an expert to assess condition and remaining life of the equipment of the company for
accounting depreciation as per Nepal Accounting Standard 16, Property, Plant and
Equipment and Depreciation. Has the BCD & Co. violated the code of ethics of the
Institute of Chartered Accountants of Nepal by appointing its own employee as an
expert?
c) What are the various procedures you would follow as an auditor in a compilation
engagement and under what circumstances you will withdraw from the engagement?
d) Disqualification of Auditors as per Company Act, 2063 (4 Marks December 2007)
a) The auditor is required to take into account the aggregate of all uncorrected
misstatements including those involving estimates in his assessment of materiality in
audit. Discuss. (6 Marks June 2007)
b) M/s ITG Ltd. manufactures "X" machinery used in M/s ABC Ltd. M/s ITG Ltd. quotes
in various tenders issued by M/s ABC Ltd. As per terms of contract, full price of "X"
machinery is not released by M/s ABC Ltd., but 10% thereof is retained and paid after
one year if there is satisfactory performance of the "X" machinery supplied. The
company accounts for only 90% of the invoice value as sales income and the balance
amount in the year of receipt to the extent of actual receipt only. Give your view as the
auditor of the company. (4 Marks June 2007)
Distinguish between:
a) Corresponding figures and Comparative figures (5 Marks June 2007)
b) Positive confirmation and Negative confirmation (5 Marks June 2007)
Comment and give your opinion on the following issues with specific reference to criteria on
which your opinion is based: (5 Marks each June 2007)
a) A commercial bank did not make any provision for proposed dividend of 10 percent in
the financial statement of the fiscal year 2062/63. Nepal Rastra Bank approved the
financial statements for publication without knowing the intention of the bank of
declaring dividend. One of the published agenda of the annual general meeting of the
bank is approval of proposed dividend of 5 percent.
b) The Audit Committee of PST Ltd. recommended the names of possible auditor to be
appointed as auditor of the company at the remuneration of Rs. 125,000 for the financial
year 2063/64. The annual general meeting held on Kartik 7, 2063 failed to appoint the
auditor due to time constraint and delegated power to the Board to appoint the auditor
from the list of the auditors at the remuneration under the terms of condition
recommended by the Audit Committee. The Board meeting held on Kartik 30, 2063
appointed M/s. XP & Co., a Chartered Accountants firm as auditor. Do you think the
appointment is valid and if not why?
M/s Raghu Manufacturing Company Ltd. has invested in the shares and debenture and other
scripts of various companies listed in Nepal Stock Exchange Ltd. During the course of audit
of
the FY 2063/64, in spite of repeated reminders and follow up made by its external auditor,
company officials did not provide the details of investments in shares and various securities
held
by the company at the Balance Sheet date. As a result, the external auditor came to conclusion
that he/she should issue his/her final audit report as follows;
“Subject to the verification of the value of investments held in shares and debentures and
other
scripts of various companies listed in Nepal Stock Exchange Ltd., the balance sheet reflects a
true and fair view.”
Do you think the audit report to be issued by the auditor is appropriate in view of the
Company
Act, 2063? Give your view. (5 Marks December 2007)
a) Explain the composition of the Audit Committee as per the Company Act 2063. How an
audit committee can contribute to the enterprise for maintaining good corporate
governance? (5 Marks June 2008)
b) Explain the provision relating to Registration of Accounting Professional Firm under
the Nepal Chartered Accountants Act, 2053 (with amendment). (5 Marks June 2008)
Give your opinion as an auditor in the following case with specific reference to criteria on
which your opinion is based. (5 Marks December 2008)
You are manager in-charge on the audit of the financial statements of New Nepal Limited, a
large manufacturing company, which has appointed your firm as auditors for the first time.
During the course of finalization of audit, you had various meetings with the senior
management
of the Company. The management of the company is really proud of their systems, business
ethics and transparency in the financial reporting systems. Nevertheless, during discussion
you
came across a situation whereby the management has refused the request of signing the
general
representation letter. The chief executive and chief financial officer of the company are of the
view that all their procedures and financial reporting systems are transparent and you are
given
full liberty to check and verify any information and there is no bar on providing you any
information that you may require for the purpose of your audit. Accordingly, they feel that
through a representation letter, you wish to transfer your responsibility to them. Therefore,
they
are not willing to sign any sort of representations by whatever name called.
Express your views in the following case (5 Marks each June 2009)
a. An auditor of ABC Ltd. was not able to get the confirmation about the existence and value
of
certain machineries. However, the management gave him a certificate to prove the existence
and value of the machinery as appearing in the books of account. The auditor accepted the
same without any further procedure and signed the audit report. Is he right in his approach?
b. A firm of a father and a son is receiving Rs. 2 lakhs towards job work done for XYZ Ltd.
during the year ended on 15th July 2007. The total job work charges paid by XYZ Ltd. during
the year are over Rs. 50 lakhs. The father is a Managing Director of XYZ Ltd. having
substantial holding. The Managing Director told the auditor that since he is not involved in
the activities of the firm and since the amount paid to it is insignificant; there is no need to
disclose the transaction. He further contended that such a payment made in the last year was
not disclosed. Is Managing Director right in his approach?
You are appointed as a statutory auditor of M/s Unreliable Company Limited for the FY
2064/65. When you come across the cases where it is not possible to continue performing the
audit and not able to complete the audit engagement as a result of a misstatement resulting
from
fraud or suspected fraud. What would be your course of action as an auditor of that
company?
(5 Marks June 2009)
Describe the contents of a standard Management Letter issued to the management containing
the findings observed during the course of the audit and recommendations to overcome it?
Give
examples for each component. (5 Marks December 2009)
Express your opinion as an auditor on the following cases with specific reference to the
criteria
on which your opinion is based: (5 Marks each June 2010)
a) The accountant of Kathmandu Ltd. has requested you, not to send balance confirmations to
a particular group of debtors since the said balances are under dispute and the matter is
pending in the court.
b) While the refrigeration units were undergoing modernization, ABC & Co. outsourced all its
cold storage requirements to Dinesh & Co. Warehousing Services. At 31 March 2009 it was
not possible to physically inspect ABC‟s inventory held by Dinesh & Co. due to health and
safety requirements preventing unauthorized access to cold storage areas. ABC‟s
management has provided written representation that inventory held at 31 March 2009 was
Rs. 10.1 million (2008 – Rs. 6.7 million). This amount has been agreed to a costing of
Dinesh & Co.‟s monthly return of quantities held at 31 March 2009.
c) In the course of audit of Hytide Company Limited, you come across a case where one of
your audit assistants had been paid Rs. 50,000/- by the company in the previous year for
providing some sales related information of Medico Company Limited. Medico Company
Limited is also your audit client and both Companies are manufacturer of medicines. Give
your opinion in this regard with reference to the Nepal Standards on Auditing.
Explain the general principals of an audit of financial statements. (8 Marks June 2010)
Comment and give your views as auditor with reasons in the light of Nepal Accounting
Standards and Nepal Standards on Auditing on each of the following case:
(5 Marks each June 2010)
a) The auditor came to know that there was a noncompliance having material effect on
the financial statements of the Bank. The auditor issued an unqualified report as the
Board of Directors of the Bank was of the view that the regulation was for the Commercial
Bank and the Bank had been upgraded as a Commercial Bank from the
Development Bank two months ago.
b) At planning stage of the audit of a new client, you, as an audit manager had a meeting
with the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the
company. Various matters such as company‟s performance, profitability, turnover of
staff, import of plant and machinery during the year, inventory turnover, collection from
debtors, payment to creditors, investment in marketable securities, etc. were discussed.
As a result of the discussion you were able to assess that a significant portion of the
company‟s business is conducted with parties which are closely linked with the company.
c) Mr. TN Sharma a chartered accountant in practice purchased goods worth Rs. 60,000
from M/s Giant Traders Ltd. a trading company on credit. The company has the policy of
selling goods on credit. Mr. Sharma had outstanding dues of Rs. 30,000 on 16.07.2008.
He was appointed as auditor of M/s Giant Traders Ltd. for the F.Y. 2008-09. Without
knowing about his appointment as the auditor, the finance department of the company
issued reminder letter to Mr. Sharma for the payment of due amount. Mr. Sharma
verbally replied that his due can be deducted from his fees.
Mr. Ram Prasad, statutory auditor of XYZ Bank Ltd. while performing audit of the Bank
relied
on Internal Audit Report comments and did not go through separate examination of those
loan
records which has already been examined. The Internal Audit Report had no serious
observations on those loans. Subsequently, it was found that internal auditor Mr. Raju had
not
taken adequate measures to establish the exact situation of various loan accounts and hence
the
deficiencies in loan status were not properly reported. Please answer with reasons whether
Mr.
Ram Prasad or Mr. Raju will be held liable? (4 Marks June 2010)
What are the documents and accounting disclosures requirement of a subsidiary company in
the
annual accounts of holding company as per Company Act, 2006 (5 Marks June 2010)?
Express your opinion as an auditor on the following cases: (5 Marks each June 2010)
a) The annual general meeting of Curex Company Limited on Poush 25, 2066 failed to
appoint
the auditor for the financial year 2066/67 due to time constraint and delegated the power to
appoint the auditor to the Board under the terms recommended by the Audit Committee. The
Board meeting held on Poush 29, 2065 appointed M/S Tibrewala & Co, a Chartered
Accountants firm as auditor remaining within the terms and conditions recommended by the
Audit Committee. Do you think the appointment of M/S Tibrewala & Co is valid?
b) At planning stage of the audit of a new client, you, as an audit manager had a meeting with
the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the company. The
various matters such as company‟s performance, profitability, turnover of staff, import of
plant and machinery during the year, inventory turnover, collection from debtors, payment to
creditors, investment in marketable securities, etc. were discussed.
As a result of the discussion you were able to assess that a significant portion of the
company‟s business is conducted with parties which are closely linked with the company.
The financial statements of Modern Equipment (Pvt.) Limited reveal that the company has
paid
a donation of Rs.15 million to a political party during an election where one of the directors of
the company is a central executive committee member. The company has earned a gross profit
of Rs. 40 million. The selling and administration expenses including the donation amount to
Rs.
60 million and as a result the company has incurred a net loss of Rs. 20 million.
You are required to discuss the significance of the above donation to the auditor and design
appropriate audit procedures to address the issue. (7 Marks December 2010)
Obtaining the proof of evidence is one of the principle procedures of audit. Discuss.
(5 Marks December 2010)
You are meeting with executives of Lily Cosmetics Company to arrange your firm‟s
engagement
to audit the company‟s financial statement for the year ended 32 nd Ashadh 2067. One
executive
suggested that the work should be divided among three audit staff members so one person
would
examine asset accounts, a second would examine liability accounts, and the third would
examine income and expenses accounts to minimize audit time, avoid duplication of staff
effort
and curtail interference with company operations.
Advertising expense being the company‟s expense, and the advertising manager suggested
that a
staff member of your firm whose uncle owns the advertising agency which handles the
company‟s advertising should be assigned to examine the advertising expense account. The
staff
member has a thorough rather complex contract between Lily Cosmetic Company and the
advertising agency on which Lily‟s advertising are based.
To what extent should a Chartered Accountant follow his client‟s suggestions for conducting
an
audit? (4 Marks June 2011)
An auditor of Babar Mahal Ltd. was not able to get the confirmation about the existence and
value of certain machineries. However, the management gave a certificate to prove the
existence
and value of the machinery as appearing in the books of account. The auditor accepted the
same
without any further procedure and signed the audit report. Is the auditor's approach, right?
(5 Marks December 2011)
Mr. Rohan Sharma is a sales executive of M/s Duo Electric Company. He is involved in sales,
collection of payments and stock supervision. Managing Director of the company found that
Rs.
2 lakhs were embezzled by the sales executive by overstating the receivables. How would you
deal with the situation as a statutory auditor? (5 Marks December 2011)
What are the fundamental principles that a professional accountant has to observe in order to
achieve the objectives of the accountancy profession? (8 Marks December 2011)
While compiling the financial statements of a company, you observed that the information
supplied by the company is incomplete, incorrect and some of the Accounting Standards have
not been complied with. Describe, in brief, the procedure you will follow in this case.
(5 Marks June 2012)
Comment and give your views as auditor with reasons in the light of Nepal Accounting
Standards, Nepal Standards on Auditing and Code of Ethics on each of the following case:
(5 Marks each June 2012)
a) Raghabdhoj & Co. and Sansar Bhakta & Co. are the joint auditors of Winchester Bank
Limited. The bank had been able to cleverly conceal certain transactions that could not be
detected by both the auditors, in these circumstances, what would be their professional
responsibilities?
b) The annual general meeting of Sundarijal Company Limited on Poush 11, 2068 failed to
appoint the auditor for the financial year 2068/69 due to time constraint and delegated the
power to appoint the auditor to the Board under the terms recommended by the Audit
Committee. The Board meeting held on Poush 25, 2068 appointed M/s Bhandary & Co., a
Chartered Accountants firm as auditor remaining within the terms and conditions
recommended by the Audit Committee. Do you think the appointment of M/s Bhandary &
Co. is valid?
c) Mr. Relax was appointed as the auditor of M/s XYZ Co. Ltd. However during the course of
the audit, Mr. Q, his senior audit manager led the audit team and supervised all the audit
works of the Co. Mr. Relax was out of town at time of signing the report, and Mr. Q is Mr.
Relax‟s most reliable staff and assisting him for so many years in this profession. Hence,
Mr. Relax is of the opinion that Mr. Q should sign the audit report on behalf of him. Is Mr.
Relax correct in his decision?
d) Mr. Jamun is a chartered accountant who has been recently retired from ABC National
Bank Limited after serving for 25 years as chief finance officer of the Bank. Of late, he has
taken the certificate of practice and owns his own audit firm since his retirement (i.e. from
last 2 year 5 months). He now approached the senior management of the bank for the
statutory audit of the bank and they are agreed to appoint him the next statutory auditor of
the bank. Advise Mr. Jamun and the senior management of the Bank about his validity as
the statutory auditor.
You are auditor of Elina Garments Limited which exports Readymade garments to M/s.
Warnoff Inc., of USA for the financial Year 2067-68. The Company‟s around 75% sale
constitutes export to Warnoff Inc. and there is outstanding balance of Rs. 17 Crore in Sundry
Debtors which covers around 85% of the total debtors as at 32 Ashad, 2068. Due to global
recession, the Warnoff Inc. has filed bankruptcy in USA on 15 Ashwin, 2068 which came to
your notice during the audit. Give your opinion as an auditor.
(5 Marks June 2012)
“The reliability of audit evidence is influenced by its source and by its nature and is dependent
on the individual circumstances under which it is obtained”. Explain.
(5 Marks June 2012)
CA. Mr. A is the auditor of M/S PQR Ltd. During the course of audit, Mr. An encounter few
instances of the risks of material misstatement due to fraud and the results of audit tests
indicate a significant risk of material and pervasive fraud. Hence, Mr. A reach to the
conclusion that he shall not continue the engagement. Suggest the procedure to be followed
by
him to discontinue the engagement.
(5 Marks each December 2012)
Describe in brief “Benefits of Audit Planning” and “Materiality” (8 Marks June 2013)
As per Section 78 of the Company Act, 2063, what is the responsibility of the statutory auditor
of a public limited company? (4 Marks June 2013)
Comment and give your views with reasons on each of the following cases, giving
consideration
to Nepal Accounting Standards, Nepal Standards on Auditing and Code of Ethics.
a) You are the auditor of XYZ Ltd, a contractor, for the year end 31 Ashadh 2070. XYZ
Ltd carried out a major construction work for ABC Pvt. Ltd. and billed work in progress
of Rs. 1 million (total accounts receivable balance at the yearend is Rs. 1.5 million)
which is yet to be paid. ABC Pvt. Ltd. has suspended the payment of contract on the
ground that work carried out is not as per contract signed and appropriate rectifications
have to be done. XYZ Ltd. has accepted the deficiencies and rectified the work in Kartik,
2070. While finalizing the audit report in Mangsir 2070, you came to know that ABC
Pvt. Ltd is not satisfied with the level of rectifications and has terminated the contract.
Assume there are no concerns other than those described above, and that going concern
is not an issue. In relation to the subsequent event issue:
i) Identify the impact (if any) on the financial report for the year ended 31 Ashadh
2070.
ii) Justify your decision in (i) above.
iii) Determine the type of audit opinion that would be issued, assuming that XYZ
management has no intention to addressing the issue in the financial report.
(5 Marks December 2013)
Describe few instances in which the auditor may seek to use the work of an expert during the
course of his audit. (6 Marks December 2013)
As an auditor of M/S XYZ Finance Company Ltd., you came across a payment of Rs. 20
million for investment in share of ABC Hydro Company Ltd. The share investment script was
not provided to you for verification. In response to the positive external confirmation from
ABC
Hydro Company Ltd., you received a phone call confirming the investment of the said amount
and specifying the reason for delay in delivering the investment script on the ground that the
same is in the process of printing. However, upon your personal request, you received a
written
confirmation from ABC Hydro Company Ltd. of the receipt of the said amount but with the
restrictive language „Information is furnished as a matter of courtesy without a duty to do so
and without responsibility, liability, or warranty, expressed or implied‟. Give your opinion
whether the oral confirmation and the written confirmation obtained amounts to sufficient
appropriate audit evidence.
(5 Marks June 2014)
How should the auditor deal with a fraud detected during the audit? Outline the auditor‟s
specific responses in relation to the fraudulent reporting in revenue recognition.
(8 Marks June 2014)
In the course of audit of ABC Ltd., its management refuses to provide written representations.
As an auditor, what is your duty? (4 Marks June 2014)
Comment and give your views with reasons on each of the following cases.
(5 Marks each June 2015)
a) While auditing Galaxy Limited, Mr. GN, the statutory auditor of the company, came to
know that some of the trade payables are outstanding as it is from previous year in the
Balance sheet of the current year. Mr.GN, therefore, requested written confirmation of
balances from trade payables. In the list of confirmations request sent, one of the trade
payables, having outstanding balance of Rs 12 lakh, sent his confirmation through an
electronic mail. You are required to explain what the further procedures are required to rely
on such responses received electronically.
b) ABC ltd entered into agreement with Mr. R on 2070/03/15, whereby it agreed to pay him
Rs. 1 lakh per month as retainership fee for consultation in IT department. However, no
amount was actually paid, and 12 lakhs was provided in the statement of profit and loss for
the year ending 2070/03/31. Management of the company uttered that need-based
consultation was obtained throughout the year. However, no documentary or other evidence
of receipt of such service was found. As the auditor of ABC ltd, what would be your
approach?
c) M/s AP & Associates, auditors of Welfare Dalit Organization, a recognized nonprofit
organization feels that the standard on auditing need not to be applied as Welfare Dalit
Organization is a non-profit making organization.
d) Mr. Raj, a fellow member of the Institute of Chartered Accountants of Nepal, working
as Manager of Ram & Associates, a Chartered Accountant firm, signed the audit report of
Om Ltd. on behalf of Ram & Associates.
Comment and give your views with reasons on each of the following cases.
(4 Marks Each June 2015)
a) The books of accounts of M/s Max & co. for the accounting year 2070/71 have been
prepared estimating the useful life of a depreciable assets being 15 years. However, due
to current market scenario, it has been determined to revise the estimated useful life of
that depreciable asset to 10 years. The management of the company wants to adjust the
same through prior period adjustment. You are required to advise the management in
this regard.
b) Mr. A, a Chartered Accountant was the auditor of 'A Limited'. During the financial year
2070-71, the investment appeared in the Balance Sheet of the company of Rs.10 lakhs and
was the same amount as in the last year. Later on, it was found that the company's
investments were only Rs.25,000, but the value of investments was inflated for the purpose
of obtaining higher amount of Bank loan.
c) Mr. Shyam, a practicing Chartered Accountant, prepared a feasibility report for one of his
clients to obtain a long-term loan of Rs. 5 crores from a commercial bank and decided to
charge fees @ 5% of the loan approved. Subsequently, the bank approved the loan.
Consequent to the approval of loan by the bank, Mr. Shyam raised an invoice for his
services @ 5% of the loan approved as decided.
d) The Company auditor became aware of a matter, only after he had issued his audit
opinion. Had he become aware of the same prior to his issuing the audit report, he would
have issued a different opinion. What are his responsibilities in such a case?
While verifying the employees‟ records in a company, it was found that a major portion of the
labor employed was child labor. On questioning the management, the statutory auditor was
told that it was outside his scope of the financial audit to look into the compliance with other
laws.
(5 Marks December 2015)
Mention any four information which assists the auditor in accepting and continuing of
relationship with the client as per NSA 220. (4 Marks December 2015)
“The auditor should communicate audit matters of governance interest arising from the audit
of financial statements with those charged with the governance of an entity." Briefly state the
matters to be included in such Communication. (8 Marks June 2016)
Comment and give your views with reasons on each of the following cases, giving
consideration
to respective Standards, Laws and Code of Ethics:
a. The statutory auditor of the Holding Company “XYZ Ltd.” demands for the working papers
of the auditors of the subsidiary company “ABC Ltd.” How would you deal with the given
circumstances if you are the auditor of ABC Ltd.?
b. An assistant of Ram & Associates, Chartered Accountants detected an error of Rs.15 for
interest payment which occurred number of times. The General Manager (Finance) of XYZ
Bank Ltd. advised him not to request for passing adjustment entries as individually the
errors were of small amounts. The company had 19,000 deposit accounts and interest was
paid monthly.
The auditor of Mohan Ltd. was not able to get the confirmation about the existence and value
of certain machineries. However, the management gave him a certificate to prove the
existence
and value of the machinery as appearing in the books of account. The auditor accepted the
same without any further procedure and signed the audit report. Is he right in his approach?
(4 Marks June 2016)
What are the elements that auditor should consider while evaluating the design of the entity‟s
control environment? (8 Marks June 2016)
Comment and give your views with reasons on each of the following cases, giving
consideration
to respective Standards, Laws and Code of Ethics:
a) The auditor of a limited company did not verify the investment; he inserted a note in the
balance sheet – “Investment not verified”. The shareholders approved and adopted the
accounts at the annual general meeting. Subsequently, it transpired that the investments
were misappropriated, and the company suffered a loss. (6 Marks December2016)
b) The statutory auditor of the Holding Company demands for the working papers of the
auditors of the subsidiary company, of which you are the auditor. How would you deal with
the situation?
Comment and give your views with reasons on the following cases.
You are a senior audit in-charge working for the firm Ram & Associates. You are currently
carrying out the audit of Bajra Ltd., a manufacturer of plastic bags. You are unhappy with
Bajra Ltd.‟s inventory valuation policy and have raised the issue several times with the audit
manager. He has dealt with the client for a number of years and does not see what you are
making an objection about. He has refused to meet you on site to discuss those issues.
As the audit manager has dealt with Bajra Ltd. for so many years, the other partners have
decided to leave the audit of Bajra Ltd. in his capable hands. (7 Marks June 2017)
XYZ Ltd. has paid up capital of Rs. 20 million. 30% of the company‟s share is owned by
Government of Nepal. The directors of the company are in dilemma regarding the formation
of
audit committee in its organization. Chief Executive Officer desires his son to be the member
of
the committee as he is a Chartered Accountant by profession and has experience in the
accounting field. As an expert, provide your opinion to the company regarding whether audit
committee is actually required or not and also highlighting the qualification criteria to be its
member along with the functions to be performed by the committee.
(10 Marks December 2017)
ABC Ltd. supplies stationery materials to Government Office across the country. The
company
has 15 warehouses at different locations throughout the Nepal of which 8 warehouses at the
borders. The major stocks are generally supplied from the borders. ABC Ltd. appointed M/s
Ram & Associates to conduct its audit for the financial year 2072/73. Mr. Ram, partner of
Ram
& Associates, attended all the physical inventory counting conducted throughout Nepal but
could not attend the same at borders due to some unavoidable reason.
You are required to advice M/s Ram & Associates: (10 Marks December 2017)
i) How sufficient appropriate audit evidence regarding the existence and condition of
inventory may be obtained?
ii) How an auditor is supposed to deal when attendance at physical inventory counting is
impracticable?
a) In the course of audit of Alibaba Ltd., its auditor Mr. Jacob observed that there was a
special audit conducted at the instance of the management on a possible suspicion of a
fraud and requested for a copy of the report to enable him to report on the fraud aspects.
Despite many reminders it was not provided. In absence of the special audit report, Mr.
Jacob insisted that he be provided with at least a written representation in respect of fraud
on/by the company. For this request also, the management remained silent. Please guide
Mr. Jacob as per the relevant provisions of Nepal Standards on Auditing.
(7 Marks June 2018)
b) Amul Ltd., dealing in manufacturing and trading of milk butter, has a benchmark in its
product for so many years. DTC Ltd., a rival company to Amul Ltd., has introduced its new
product, peanut butter. Due to being health conscious, the consumers have shifted from
milk butter to peanut butter within few months. This has resulted into massive loss during
the year to Amul Ltd. due to non-selling of perishable milk products. The company has also
started having negative net worth. It's production head, finance head and marketing head
have also left the company. The company has no sound action plan to mitigate these
situations. Kindly guide the auditor of Amul Ltd., how he should deal with the situation.
(8 Marks June 2018)
Comment and give your views with reasons on the following case:
XYZ & Associates had been appointed as external auditor of ABC Ltd. During the audit, the
auditor relied upon the procedures followed by the internal audit function of the entity and
expressed unmodified opinion on the financial statements. However, later on some
misstatements in the financial statements were revealed. The auditor is seeking relief stating
that the internal audit function of the entity was liable for the negligence. Express your
opinion
regarding the situation. (8 Marks December 2018)
State what may be the evaluative or review procedures that the statutory auditor may do before
concluding as to relevance and reasonableness of auditor's expert work for using it for his
audit purposes? (7 Marks, June 2019)
Describe the provisions on the ceiling of audit to be conducted by the members of ICAN?
(3 Marks December 2010)
Mr. Kailash, a chartered accountant has been paid Rs. 65,000/- as commission by Mr. Dinesh,
another chartered accountant for the referral of the statutory audit of M/s Proper Cure
Company Limited. Express your expert opinion based upon the Code of Ethics issued by the
ICAN.
(5 Marks June 2011)
Mr. Gambler, a practicing-chartered accountant, fixes audit fees with a client as follows: Rs.
50,000 plus 5% of the profit made by the company during the year. Can he do so? (5 Marks
June 2011)
Express your opinion as an auditor on the following cases: (5 Marks each June 2012)
a) X is a partner in a firm of Chartered Accountants who were appointed as statutory
auditor NA Bank. During the audit, X drew an advance of Rs. 1,50,000/- from the
bank towards expenses including travelling and daily allowances. Of this, a sum of
Rs. 70,000/- was spent and the balance remained with X. This was later adjusted by
the bank against the audit fees payable to X. Upon completion of the audit, X
forwarded to the bank the statement of expenses and accounts along with copies of
bills. Can X hold client's money in the firm?
b) Y is a chartered accountant. A complaint was made by Rohit House Occupants Welfare
Association against him on several grounds. One of the grounds was that Y, who was an
auditor of the complainant for the financial years 2065/066 and 2066/067, had also
written the books of account of the complainant for those very financial years thus
compromising his independence as a professional accountant. The complaint listed out
other specific instances of the Y having either failed to or having been grossly negligent
in the discharge of his duties as a Chartered Accountant.
Answer the following questions
a) Mr. Gopal, a practicing Chartered Accountant, appeared on a talk show of one of the
leading TV channels. During the course of the programme the Anchor introduced, on the
basis of the biodata furnished by Mr. Gopal, as the senior most partner of M/s Gopal and
Associates, a worldwide leading firm of chartered accountants and also the services
provided by the firm. Comment.
(5 Marks June 2012)
You are audit manager in PR & Co., an audit firm, express your comments/views on the
following cases, in the light of Nepal Accounting Standards, Nepal Standards on Auditing and
Code of Ethics. (5 Marks each December 2012)
a) You found that several audit clients have requested that PR & Co. provide technical
training on financial reporting and tax issues. This is not a service that the firm wishes to
provide, and the firm has referred the audit clients to a training firm B & Co., which is paying
a referral fee to PR & Co. for each audit client which is referred.
b) You are planning the audit of one of your clients, ABC Financial Ltd. The directors of
ABC Financial Ltd. are planning to list ABC Financial Ltd. on the Stock Exchange within
next few months and have asked if the engagement partner can attend the meetings with
ABC's potential investors.
c) You are planning the audit of one of your client XYZ Ltd. As the company is fast
growing and the owners are involved in diversified business, there are possibilities of getting
lot more assurance assignments. XYZ Ltd. had made it clear that PR & Co. must complete the
audit quickly and with minimum questions/issues if they wish to obtain those assurance
assignments.
d) You are carrying out the audit of a finance company PST Ltd. located in Kathmandu
for the financial year 2068-69. The finance director of PST Ltd. has offered your audit team a
free weekend at Fulbari Pokhara.
You are audit manager of PZC & Co., a large audit firm which specializes in the audit of
retailers. The firm currently audits Alpha Co., a food retailer, but its main competitor Beta Co.
has approached the audit firm to act as auditors. Both the companies are highly competitive
and Alpha Co. is concerned that if PZC & Co. audits both the companies then confidential
information could pass across the Beta Co. You are required to explain the safeguards that
your firm should implement to ensure that this conflict of interest is properly managed.
(6 Marks December 2012)
Question No. 22
Comment and give your views as an auditor with reasons in the light of Nepal Accounting
Standards, Nepal Standards on Auditing and Code of Ethics on each of the following case:
a) You are a partner of a Chartered Accountancy Firm- ABC & Co. A small client,
Everest Pvt. Ltd. (ELL), appoints your firm to audit the financial statements of ELL for
the year ended 31stAshadh 2069.
ELL provides original documents and an incomplete trial balance to your firm for the
audit purpose. ELL is not a public interest entity. ABC & Co. prepares the general
ledger, journal entries and financial statements then carry out audit of these
statements. Consider independence issues: identify any threats to the independence and
outline safeguards to reduce the significance of the threats. (5 Marks June 2013)
b) As an auditor, you have received Rs. 500,000 from a customer of your client, XL
Holding. There is no fees in-arrear from this client. How would you deal with this
money – outline the procedures to handle client's monies in line with the Code of
Ethics. (3 Marks June 2013)
Comment and give your views with reasons on each of the following cases, giving
consideration to Nepal Accounting Standards, Nepal Standards on Auditing and Code of
Ethics.
(5 Marks June 2014)
a) Mr. Sameep Kaji is a practicing Fellow Chartered Accountant. Examine whether his
following activities are in contravention of the Nepal Chartered Accountants Act 1997?
(i) He shares his profit with Mr. Swornim Kaji, his younger brother, who is CA final
year student and working in his firm. He is hopeful that Mr. SwornimKaji will
qualify very soon, and he will be 50% partner in his proprietorship firm.
(ii) He discloses the information of one of his clients gathered in the course of
professional service upon the request of Inland Revenue Department.
(iii) He fixed the audit fee as the percentage of turnover of one of his clients.
(iv) He certifies the financial statements of his client based on the fact that his employee
has checked and verified it thoroughly though he did not get enough time to review
it.
(v) He took up an audit assignment of a company in which his senior employee worked
as an employee till last year.
b) During the course of Inland Revenue Department (Government of Nepal) investigation
of M/S Ding Dong Pvt. Ltd., it was found that few expenses bills included in the books
of accounts are from those companies which are not in existence. After such results,
the management of the Co. reported to the investigation authorities that they have
gathered and included those bills on the advice of their auditor, CA. Mr. Clever; and
the same were supplied by him as well. However, they could not produce the evidence.
Smart Bahadur Nepal is a partner of SBN & Associates, Chartered Accountants. SBN &
Associates is an auditor of A Pvt. Limited. A Pvt. Limited has borrowed money from a bank
where Pretty Nepal, wife of Smart Bahadur has also signed on the letter of guarantee provided
for the purpose of the loan.
Identify the threat if any under Code of Ethics and advise Smart Bahadur if there is any
safeguard available (5 Marks December 2014)
Mr. Prastrut, a Chartered Accountant was invited by the Bankers Association of Nepal, to
present a paper in a symposium on the issues facing Nepalese Banking Industry. During the
course of his presentation he shared some of the vital information of his client‟s business
under the impression that it will help the Industry to cope with present problems faced by the
industry.
Comment and give your views with reasons on each of the following cases:
(4 Marks each December 2015)
a) Mr. Pramesh who passed his CA examination of ICAN on 18thBhadra, 2072 started his
practice from Ashwin 15, 2072. On 16th Ashwin 2072, one female candidate approached
him for articleship. In addition to monthly stipend, Mr. Pramesh also offered her 1 %
profits of his CA firm. She agreed to take both 1 % profits of the CA firm and stipend as
per the rate prescribed by the ICAN. The Institute of Chartered Accountants of Nepal sent
a letter to Mr. Pramesh objecting the payment of 1 % profits. Mr. Pramesh replied to the
ICAN stating that he is paying 1 % profits of his firm over and above the stipend to help
the articled clerk as the financial position of the articled clerk is very weak.
b) A Chartered Accountant in practice has been suspended from practice for a period of 6
months and he had surrendered his Certificate of Practice for the said period. During the
said period of suspension, though the member did not undertake any audit assignments, he
undertook representation assignments for income tax whereby he would appear before the
tax authorities in his capacity as a Chartered Accountant.
What are the areas excluded from the scopes of peer reviewer? (4 Marks December 2015)
Surya Co. Limited has applied to a bank for loan facilities. The bank on studying the financial
statements of the company notices that you are the auditor and requested you to call at the
bank for a discussion. In the course of discussion, the bank asked for the opinion regarding
the company and also asked for detail information regarding a few items in the financial
statements. The information is available in your working file.
(4 Marks June 2016)
What are the situations which give rise to conflicts of interest to the professional accountants?
(4 Marks June 2016)
Comment and give your views with reasons on each of the following cases, giving
consideration to respective Standards, Laws and Code of Ethics:
a) ABC Limited is a public company with 3 major divisions. The board of directors of the
company has decided on 20thAshadh 2073 to close one of these divisions. Management has
decided to make provision in the financial statements for 2072/73 in all the following
situations. (10 Marks December 2016)
i) Before Ashad end 2073, the decision of the board was not communicated to any of the
stakeholders likely to be affected by the decision and no further steps have been taken.
ii) The Board agreed a detailed closure plan on 30thAshadh 2073, and details were given
to customers and employees.
iii) The company is obliged for cleanup costs of Rs. 10 million for environmental damage
that has already caused
iv) The company intends to carry out future expenditures (budget Rs. 5 million) to operate
in a particular way in future.
Answer the following:
a) What are the five categories of threats that compromise or perceived to compromise a
professional accountant‟s compliance with the fundamental principles as per Code of
Ethics issued by ICAN.
Bhal& Associates (an audit firm based at Kathmandu) is the consultant for Gama Limited
for several years and provide a range of services to the client. Bhal receives a request from
the client for service relating to the branch office located at Birgunj of Gama Limited at a
price of Rs. 10 lakhs. Due to lack of professional resources, Bhal & Associates refers this
service to another audit firm based at Birgunj at a referral fee of Rs. 1 lakh and balance
Rs. 9 lakhs to be retained by Birgunj based firm. Comment whether payment/receipt of
referral fee by professional accountant in practice is ethical as per ICAN Code of Ethics.
(3+5 Marks December 2016)
b) The manager of ABC limited approached CA. Ram in the need of a certificate in respect of
a consumption statement of raw material. Without having certificate of practice, CA. Ram
issued the certificate to the manager of the company, in the capacity of a Chartered
Accountant in practice and applied for the COP in the Institute on the very next day to
avoid any dispute. (7 Marks December 2016)
Chapter 3 Governance
What is the corporate governance? Explain the role of audit committees in corporate
governance. (8 Marks December 2004)
Discuss relationship between Internal Audit and Audit Committee for good corporate
governance. (8 Marks December 2005)
Write short notes on the following:
Corporate governance (3 Marks June 2006)
If you are appointed as an Independent Director in a Public Ltd. company, what would be
your role in such company under good corporate governance practice?
(5 Marks December 2007)
Discuss 'Audit Matters of Governance Interest' that arise from the audit of financial
statement
and are required to be communicated to those charged with governance?
(6 Marks June 2008)
Describe Corporate Governance. Briefly mention basic principles of Corporate Governance in
relation to board of Directors of a Commercial Bank. (5 Marks June 2010)
Do you think it is important for an accountant to have good understanding of corporate
governance? Why? Briefly explain the major forces behind the push for the global
convergenceof corporate governance practices. (10 Marks June 2017)
Describe the principle of the equitable treatment of shareholders as per corporate governance
model of Organization for Economic Co-operation and Development.
(7 Marks December 2017)
Define Corporate Governance and explain how can audit function within an entity improve
Corporate Governance structure within the entity. (2+6 Marks December 2018)
You have been appointed as an auditor of DATA Finance Company Ltd., for the financial
year
2065/066. State first three points to be considered before acceptance of audit.
(4 Marks June 2010)
You are the audit manager in charge of the audit of “Everest Nepal Limited”, which is a
newly formed company engaged in the production of Iron Rods. The company‟s main
shareholder isthe managing director who is also in charge of production. The company
employs around 250 employees at present. There is an accountant who is semi-qualified and
there are five other staffs assigned to maintain the books of accounts.
As the Managing Director is very busy with operations, you have had various discussions with
the accountant about the scope and timetable for the audit. You have sent the draft letter of
engagement to the managing director for acceptance, but you have not yet received a response
to it.
Explain the purpose of a letter of engagement and why it is sent before any new audit
appointment is accepted. State four (4) main contents of a letter of engagement. Discuss
actions you would take in response to the non-reply by the management to your draft letter of
engagement.
Understanding the entity and its environment and assessment of audit risk are the essential
part of the audit planning. Describe the information you will seek for the purpose.
(8 Marks June 2005)
In performing an audit of financial statements, the auditor should have or obtain knowledge
of the client' business. Explain in the light of NSA 315. (8 Marks June 2005)
Write short notes on Audit strategy and step involved in designing an audit strategy?
(4 Marks June 2005)
Explain the Fraud Risk Factors in respect of the Deposit Taking Cycle. (5 Marks June 2007)
Define audit strategy. Describe the steps involved in designing an audit strategy.
(10 Marks June 2007)
Describe the factors that auditor needs to consider in assessing inherent risk for purchase
and payroll assertions. (5 Marks December 2007)
While conducting initial meeting with members of your audit team, you have noticed that they
are confused about use of tests of controls in the presence of risk management procedures
related to internal controls. They are of the opinion that auditor is not required to perform
tests of operating effectiveness of internal controls in each audit period. They also believe that
auditor can save much time and energy by omitting substantive procedures when controls
were
in effect throughout the period under audit.
(i) Briefly discuss why tests of control are required to be performed when risk assessment
procedures have already been performed. (3 Marks June 2008)
(ii) How does an auditor rely on operating effectiveness of internal controls tested during
previous audits? (3 Marks June 2008)
(iii)Give your comments on the team's understanding about omitting substantive procedures?
(2 Marks June 2008)
Write short notes Audit Risks and Auditor's roles. (5 Marks December 2008)
Explain Fraud Risk factors in respect of the Loan Lending Cycle. (10 Marks December 2008)
“Surprise Checks” help the auditors to ascertain whether the internal control system is
operating effectively in a company or not. Discuss. (15 Marks June 2009)
Distinguish between Control Risk and Detection Risk (5 Marks June 2010)
"Auditor's assessment of materiality may be different at the time of planning the engagement
than at the time of evaluating the results of his audit procedures." Comment.
(6 Marks June 2010)
Distinguish between Audit procedures and Audit Programme (4 Marks June 2010)
Explain the audit procedures that the auditor should perform in assessing whether or not the
company is a going concern. (5 Marks December 2010)
Briefly describe the following relating to risk-based auditing: (3 Marks each December 2010)
a) Risk criteria
b) Risk retention
c) Risk sharing
d) Risk treatment
You are the audit manager in the firm of Deva & Co., an audit firm with ten national offices.
One of your clients, Shreha & Sons, purchases diamond jewelry from three manufacturers.
The jewelry is then sold from Shreha & Sons‟s four shops. This is the only client your firm
has
in the diamond industry.
You are planning to attend the physical inventory count for Shreha & Sons. Inventory is the
largest account on the balance sheet with each of the four shops holding material amounts.
Due to the high value of the inventory, all shops will be visited, and test counts performed.
With the permission of the directors of Shreha & Sons, you have employed Umang Jewelers
(UJ), a firm of specialist diamond valuers who will also be in attendance. UJ will verify that
the jewelers are, in fact, made from diamonds and that the jeweler is saleable with respect to
current trends in fashion. UJ will also suggest, on a sample basis, the value of specific items
of
jewelry.
Counting will be carried out by shop staff in teams of two using pre-numbered count sheets.
Required:
a) List and explain the reason for the audit procedures used in obtaining evidence in
relation to the inventory count of inventory held in the shops. (10 Marks June 2011)
b) Explain the factors you should consider when placing reliance on the work of UJ.
(5 Marks June 2011)
c) Describe the audit procedures you should perform to ensure that jewelry inventory is
valued correctly. (5 Marks June 2011)
While entering into a contract with UNDP for the Audit of Nationally Executed Programme
of
UN funded programme in Nepal, M/S. Chamatkar & Associates, Chartered Accountants
approached to BC Corporate bank Ltd. to provide a bank guarantee for the period of 9 months
effective from Baishakh to Poush 2068 and the bank accordingly issued a bank guarantee of
Rs. 2 Million for the same period on 2nd Baishakh 2068. In the forthcoming Annual General
Meeting of BC Corporate Bank ltd, held on Jestha 15th, appointed M/S. Chamatkar &
Associates as an auditor of the bank for the Fiscal Year 2067/68. Does the bank guarantee
create a threat to the independence of auditor, i.e. M/S. Chamatkar & Associates?
(4 Marks June 2011)
As an internal auditor for a large manufacturing concern, you are asked to verify whether
there are adequate records for identification and valuation of plant and machinery, tools and
dies and whether any of these items have become obsolete and not in use. Draft a suitable
audit program for the above. (5 Marks December 2011)
"Designing an Audit Strategy" is the backbone of the Audit planning process. Discuss.
(5 Marks June 2012)
Express your opinion as an auditor on the following case: (5 Marks each December 2012)
While the refrigeration units were undergoing modernization Apple & Co. outsourced all its
cold storage requirements to Dugar & Co. Warehousing Services. At 31st March 2009, it was
not possible to physically inspect Apple‟s inventory held by Dugar & Co. due to health and
safety requirements preventing unauthorized access to cold storage areas. Apple‟s
management has provided written representation that inventory held at 31st March 2009 was Rs.
10.1 million (2008 - Rs. 6.7 million). This amount has been agreed to a costing of Dugar &
Co.‟s monthly return of quantities held at 31st March 2009.
Distinguish between Audit Planning and Audit Program. (4 Marks December 2012)
How do you assess the Audit Risk? Explain as an auditor. (4 Marks June 2013)
You have been appointed as the auditor of QFX Cinema Pvt. Ltd. Draw an audit programme
in respect of its revenue and expenditure. (5 Marks December 2013)
Define “Audit Risk”. What are the risk assessment procedures? (8 Marks December 2014)
What are the factors relevant in evaluation of inherent risk? (4 Marks December 2014)
SSP Associates has been appointed as auditor of XYZ Pvt Ltd for the year ended 32nd Ashad
2071. You are audit manager of the SSP Associates and advised to develop the overall audit
plan outlining the expected scope and conduct of the audit of XYZ Pvt Ltd.
(8 Marks June 2015)
Mention briefly the conditions or events, which increase the risk of fraud or error leading to
material misstatement in Financial Statements. (5 Marks June 2015)
Describe the steps involved in designing of an audit strategy. (5 Marks June 2016)
What are the major sources of obtaining information about the client‟s business?
(5 Marks June 2016)
Comment and give your views with reasons on each of the following cases, giving
consideration to respective Standards, Laws and Code of Ethics:
(10 Marks December 2017)
a) Manoj, a member of the board of Swift Tires Limited (STL), has emphasized the
following at a recent board meeting:
“Risk is the main cause of uncertainty in any organization. Thus, we need to increase
our focus on identifying risks and managing them before they affect the business”.
The board of directors was in agreement with Manoj. The board concluded that there
should be a formal process of identifying and responding to the risks faced by the
company.
Further, the directors agreed to implement necessary measures to address the prevailing
internal control weaknesses identified by the internal auditor of the company.
i) Identify the ways of responding to risks faced by a business organization.
ii) Explain the responsibilities of the following persons for internal controls of the
company:
a. the board of directors and
b. the internal auditor
Comment and give your views with reasons on each of the following cases:
a) Everest Pharmaceuticals Products (EPP) Pvt. Ltd. is a pharmaceutical company. The
management of EPP has decided to introduce a new vitamin capsule to its product
range.
EPP operates the production facility in its own building. Adequate safety measures
have been taken to ensure that the products are manufactured to the expected quality
standards. Sophisticated large machinery as well as various types of easily moveable
equipment is used in the manufacturing process. In addition, various electrical equipment,
computers, laptops and motor vehicles for distribution are used by EPP. All
of these are considered as non-current assets of EPP.
Required: (3+3+2=8 June 2019)
i) Identify three (03) risks related to the non-current assets of EPP.
ii) Identify controls that EPP can implement to mitigate the risks identified in (i) above.
iii) List two (02) ways EPP can facilitate physical identification of non-current assets.
What are the ways of obtaining audit evidence in performing compliance and substantive
procedures?
What do you understand by the term 'going-concern basis' in relation to the preparation of
financial statements of a company?
(3 Marks June 2006)
List out four factors, which might cast doubt on the going-concern status of a company.
(4 Marks June 2006)
Is it necessary for an auditor to satisfy himself about the sufficiency and appropriateness of
Opening balances to ensure that they are free form material misstatements? What steps will
you
perform for the purpose when financial statements were audited last year by another auditor?
(6 Marks December 2006)
What are the procedures that the auditor should follow to identify the events that require
adjustment of or disclosures in the financial statements? (7 Marks June 2007)
Distinguish between Adjusting events and non-adjusting events. (5 Marks December 2007)
i. Explain the requirement to maintain the audit working papers under OAG/N directives.
(2 Marks June 2009)
ii. Explain the characteristic of Working papers. (3 Marks June 2009
You have been appointed as an auditor of Gilbert Company Limited for the first time. In this
context, do you think it necessary to satisfy yourself about the sufficiency and appropriateness
of opening balances to ensure that they are free from material misstatements? What audit
procedures would you perform for this purpose?
(7 Marks June 2010)
The company has accounted for management fee of US$ 25,000 payable to its holding
company
during the year. Describe the essential audit evidence that is required for such expenditure.
(5 Marks June 2010)
You have recently joined a medium size-chartered accountants‟ firm as their audit manager.
While reviewing the firm‟s audit methodology, you have observed that the firm follows a
standard set of audit work program. These work program have been used by the firm for the
last many years and rely extensively on traditional judgment sampling. You are of the opinion
that by following the statistical sampling techniques, you would be able to carry out a more
effective and efficient audit.
You are required to write a memo to the partner-in-charge citing the advantages and
disadvantages of judgmental and statistical sampling. (5 Marks December 2010)
Your shops Pvt. Limited manufactures a range of consumer products and stored in a nearby
rented warehouse. The products are perishable nature with an average shelf life of 2 weeks.
The financial year ends on 31st Ashadh 2069. It is now mid Kartik 2069 and the auditor has
not
issued a report. The following event has just come to the auditor's attention, on 1 st Kartik
2069,
a fire in the rented warehouse has destroyed 55% of the inventory held for sale.
Describe the additional audit procedure you as an auditor will carry out. (5 Marks June 2013)
Explain how the results of analytical review can influence the nature and extent of other audit
work. (4 Marks June 2014)
Question No. 23
While planning the audit of a Company, you want to apply sampling techniques. What are the
risk factors you should keep in mind? (4 Marks June 2014)
What are the considerations to be kept in mind while performing analytical procedures on
data
prepared by the client? (6 Marks June 2014)
What is meant by the expression „examination in depth‟ and illustrate by reference to the
verification of a payment made to a creditor for goods supplied. (5 Marks June 2015)
Distinguish between Audit Certificate and Audit Report. ( 4 Marks June 2005)
AB Garment Limited is not operating properly due to cancellation of export orders from
various parts of the World as a result of global recession. In order to sustain the company, the
company initiated a restructuring exercise and announced VRS (Voluntary Retirement
Scheme) to its staff as a measure to reduce cost. During the FY 2064/65, the company paid
NRs. 1 crore as compensation to those who availed the VRS scheme. The Chief Accountant
has reflected the above payment as regular salaries and wages paid by the company. Give your
view. (5 Marks June 2009)
A company is engaged in the manufacture of process control instruments like valves, level
gauges etc. Its substantial sales are to two fertilizer / power projects. The Company receives
purchase order from the project. The purchase order stipulates that spares required for one
year‟s functioning of the instrument should be supplied together with the order.
The company regarded such sales as normal sales and not as sale of raw material because
sale of such spare parts are part of sales in execution of the order regarded as essential
spares to ensure continuous operation of instruments and quantity is stipulated by the
customer to avoid delay in replacement and consequent loss due to suspension of operation.
It is normal feature with equipment manufacturer to supply such set of spares along with
equipment.
But the internal auditor insisted that such dispatch should be treated as sale of raw material
requiring separate quantification.
Express your opinion on:
i) Whether the supply of spares along with sales order should be shown as a part of sales
(turnover) and consequently the quantitative details thereof to be given. If the
equipment is quantified, is it necessary to separately indicate quantity and spare
accompanying them?
ii) Whether it is tantamount to sale of raw materials requiring computation of profit on
sale of raw material and whether it is to be disclosed as such. (5 Marks December
2009)
M/s XYZ Co. Ltd. obtained an actuarial valuation for gratuity liability at the year end. The
actuary changed certain basic assumptions for working out liability at the yearend as
compared to previous year. What should be the auditor‟s responsibility in this regard?
(5 Marks December 2009)
What are the basic elements that should be included in the Auditor‟s Report on examination
of prospective financial information? (5 Marks December 2009)
What are the features of a qualified Audit Report? (7 Marks June 2010)
Apple & Oranges Limited is engaged in manufacturing and sale of office equipment. It has
appointed you in place of ABC & Co. for the audit of financial statements for the year ended
Ashad 32, 2067.
During the audit you noted the following:
An employee of the company, responsible for after-sales-services, misappropriated cash
which he recovered from the customers without raising proper invoices. The amount
was small and much below the materiality level.
During the last year (ended on Ashad 31, 2066), the middle management in connivance
with lower staff booked a sale of material amount which actually pertained to the
current year. The higher management has issued warning letters to the concerned
employees but is reluctant to take any further action as the company has not suffered
any losses. ABC & Co. has given an unmodified report on the financial statements of
the previous year.
You are required to:
i) Describe how each of the above situations will impact the following:
A) Assessment of risk and audit procedures; (2 Marks December 2010)
B) Communication with management and with those charged with governance.
(3 Marks December 2010)
ii) As a result of material misstatement in sales of previous year, the management has agreed
on
restatement of the corresponding figures in the financial statements of current year. How
would you treat this in your auditors‟ report? (5 Marks December 2010)
What are the basic elements of auditor‟s report? (4 Marks December 2010)
Is it mandatory for a company to have its Cash Flow Statement, Statement of changes in
Equity and Notes to the accounts signed by its directors? Where the footnote of the balance
sheet and profit and loss states that “the annexed notes form an integral part of these
accounts”. (5 Marks December 2010)
State the effect on your audit report of the following alternative situations:
i) Depreciation had not been provided on any non-current asset for a number of years, the
effect of which if corrected would be to turn an accumulated profit into a significant
accumulated loss. (3 Marks December 2010)
ii) Doshi& Co were appointed auditors after the end of the financial year 2009-10 of Balaju
& Co. Consequently, the auditors could not attend the year-end inventory count. Inventory
is material to the financial statements. (Note: you are not required to draft any audit
reports). (3 Marks December 2010)
Explain in brief the types of modified audit report? (5 Marks June 2011)
Assume that you are the auditor of M/S LMN Ltd. for FY 2066/67. While conducting the
audit,
you observed that the company has not charged depreciation for the period in the financial
statement provided to you. The carrying amount of pool “Building” is Rs.50 lakhs and
“Equipment” is Rs. 120 lakhs. The management of the company is of the opinion that since
the
Company has suffered a loss of Rs. 235 lakhs during the period, it would not increase the loss
by charging depreciation in the financial statements and it will be disclosed in its notes.
What type of audit report of M/S LMN Ltd. will you issue? Please draft the additional content,
if any, of the report which will be different from an unqualified report?
(4 Marks June 2011)
A has been appointed internal auditor by a co-operative society. This co-operative society is
involved in the business of procuring vegetables through the members of co-operative societies
from the farmers and sells the same in the open market as well as to the members of societies.
The internal auditor accordingly audited the accounts of the co-operatives and signed the
financial statement. The report on above is yet to be given.
The Board of co-operative society proposes certain adjustment/changes in the profit & Loss
account and balance sheet for the year. The proposed adjustment is to transfer ¼ of profit
(subject to final audit) on trading of vegetables to development fund. The society has offered
to
give an indemnity in writing that the said signed financial statement have not been circulated
yet and submitted at any authority. Suggest whether internal auditor can sign the financial
statement after incorporating such adjustments. (5 Marks June 2011)
Explain the circumstances that are considered as disagreement with management and that
may result in other than an unqualified audit report. (4 Marks June 2011)
Distinguish between Disclaimer of opinion and adverse opinion (4 Marks June 2012)
In respect of sales in the seed‟s division of Ramu & Co., prepare a report to be sent to the
audit
committee of Ramu & Co. which: (5 Marks each December 2012)
a) Identifies and explain four weaknesses in the sales system.
b) Explain the possible effect of each weakness; and
c) Provide a recommendation to alleviate each weakness.
The auditor report of Kathmandu Ltd. for the fiscal year 2068/69 contains a qualification
regarding non-provision of doubtful debts. As a statutory auditor of the company for the fiscal
year 2069/70, how would you report if:
i) The company does not make provision for doubtful debts in 2068/69.
ii)The company makes adequate provision for doubtful debts in 2068/69.
(5 Marks December 2013)
You are the auditor of M/S Dragon Tea Limited for the financial year 2069/70. During the
course of audit of the Company, you observed that the accumulated net loss of the Company is
Rs. 50 Million and current liabilities amounts to Rs. 400 Million. The total assets of the
Company amount to Rs. 350 Million only. However, adequate disclosure of the same has been
made in the financial statements of the Company. You want to express unqualified opinion
but
still doubt the company‟s ability to continue as going concern and hence would like to draw
attention to the possibility that the Company may be unable to continue realizing its assets and
discharging its liabilities in the normal course of business. You are requested to draft only the
paragraph showing the emphasis of matter in the audit report that shall be issued by you.
(5 Marks June 2014)
Briefly outline the types of audit report/opinion with an example/scenario for each type of
opinion.
(8 Marks June 2014)
Distinguish between Audit Certificate and Audit Report. (4 Marks December 2014)
Under the applicable standard on auditing, in what circumstances does the report of the
statutory auditor require modification? What are the types of modifications possible to the
said
report?
(8 Marks June 2015)
Write the short note on;
Reporting of Review Engagement (5 Marks December 2016)
ABC and Associates is the Auditor of Omega Limited who has prepared its financial
statements
for 2072/73 in accordance with NFRS. During the course of audit, the audit team noted that
the inventory of Omega as on 31stAshad 2073 is stated as Rs. 13 crores at cost although net
realizable value of the inventory is Rs. 7 crores only. The misstatement of value of inventory is
considered as material but not pervasive by the audit team. Audit manager is not quite clear
about audit opinion and wording of the opinion in such circumstance. As an engagement
partner for this audit what will be your guidance to audit manager.
(8 Marks June 2017)
You are appointed as an auditor of a life insurance company for year 2070/71. Your audit
team raised the following major concerns in this audit.
Premium and claim represents 80% and 30% of total income and expenses respectively.
Similarly, investment accounts for 80% of total assets of the company. The team is under
dilemma on how to frame audit opinion. Please guide your team as the engagement partner
with extract from audit report. (10 Marks June 2018)
Comment and give your views with reasons on the following case, giving consideration to
respective Standards, Laws and Code of Ethics:
The position of ABC Company Private Limited as on Ashadh 32, 2075 is as below:
The paid capital of the company is Rs. 25 crores. The company has fixed assets costing Rs. 2
crores on which depreciation provision was Rs. 1.95 crore, which was equal to the full cost of
depreciable assets. The balance of Rs. 5 lakhs represented the cost of land. It has discontinued
its operations for past many years. The company has made investment in various companies to
the tune of Rs. 30 crores.
Unfortunately, all these investee companies have turned out to be bankrupt and nothing is
expected to be realized on such investments. The company has dues from customers
amounting
to Rs. 4.95 crore of which Rs. 4.90 crore is due from businesses which have become defunct.
The balance Rs. 5 lakhs are due for over 3 years. The accumulated loss is Rs. 10 crores. The
amounts due to suppliers are Rs. 3 crore and they are overdue for long time. The balancing
figure in the balance sheet refers to loan from financial institutions.
Workers who had put in long years of service have lodged claims for termination benefits of
Rs.
10 crores, which have been decreed in their favor. No accounting entries have been passed
since the decree on Jestha 29, 2073. Also, the company continues to prepare its accounts
undergoing Concern assumption.
In the light of NSA 570 (Revised) relating to Going Concern you are required to
i) Analyze the facts of the case and state the reasons supporting your audit
opinion. (5 Marks December 2018)
ii) Draft appropriate paragraph for your audit report:
Basis for Opinion (3.5 Marks December 2018)
Opinion (1.5 Marks December 2018
List the factors to be considered while assessing internal control for following areas:
(15 Marks June 2004)
There is no difference between Performance Audit Report and Due Diligence Report". Do you
agree? State reasons in support of your opinion. (10 Marks June 2006)
List out four factors, which might cast doubt on the going-concern status of a company.
(6 Marks December 2005)
Even an auditing has its own inherent limitations, an audit provides reasonable assurance
that financial statements are presented fairly in all material respects. Justify.
(3 Marks December 2005)
Discuss auditors' responsibility for detecting and reporting internal control weaknesses.
(5 Marks June 2006)
EFG Logistic Pvt. Ltd. get registered to Inland Revenue Department in order to obtain Value
Added Tax Registration Number-TPIN. During the finance year 2004-05 its turnover was Rs.
5Million. This turnover includes Rs. 2 Million from a contract agreement with FAO South
Asia
Region, Bangkok and payment against such contract services was received in convertible
currency, i.e. Japanese Yen. Can the company issue no-VAT bill in a plain paper? If not, give
your suggestion. (5 Marks June 2006)
A systematic planning is a necessity for proper execution of a cost audit. Indicate the matters
to
be included in a Cost Audit Programme. (10 Marks December 2006)
Distinguish between Control Risk and Detection Risk (5 Marks December 2006)
What are the differences between Limited Assurance Engagements and Reasonable
Assurance
Engagements as per International Standards on Assurance Engagements?
(7 Marks December 2007)
The promoters of M/s ABC Bank Ltd. are not in a position to increase share capital as per
Nepal Rastra Bank requirements. Therefore, its promoters wish to sell out its all the shares
held by them. Shree Global Group Pvt. Ltd. is interested to acquire all the shares held by its
promoters. Shree Global Group Pvt. Ltd. requests you to conduct a “Due Diligence” of the
ABC Bank Ltd. and submit your report. What are the key areas you will cover in your review
as
a due diligence auditor?
(10 Marks December 2007,9 Marks December 2008)
Briefly describe the components of Internal Control. (10 Marks December 2009)
Internal Audit is said to be “an independent appraisal activity within an organization for the
review of accounting, financial and other operations as a basis of service to the organization.
It
is a managerial control which functions by measuring and evaluating the effectiveness of
other
controls”. Explain. (10 Marks December 2009)
Distinguish between Internal Audit and External Audit (5 Marks June 2010)
What are the special issues in Investigation? Briefly explain. (6 Marks June 2010)
Distinguish between Management audit and Performance Audit (4 Marks June 2010)
You are a member of the audit team engaged in the audit of a listed company. At the planning
stage, the audit in-charge paid little attention to the internal auditing activity on the pretext
that
internal auditor generally lacks independence in performing its duties.
The department is headed by a professional and experienced individual who is a close friend
of
the Chief Executive Officer and the General Manager of the company. He utilizes such
relations very effectively and applies surprise physical checks, unplanned investigations and
takes on-the-spot corrective measures on detection of errors or flaws in controls. This
approach
has reduced the lengthy paperwork that is normally seen in internal auditing departments of
other companies.
You are required to assess the internal audit function of the company and its relevance for the
external auditors. (5 Marks December 2010)
M/s Standard Bank Limited is operating profitably since last five years and has started
distributing dividend since last year. However, its promoters are not in a position to increase
share capital as per Nepal Rastra Bank requirements. Therefore, its promoters are trying to
sell
out all of its shares held by them. In the process M/s Global Investment Company Limited
showed its interest to acquire all the shares in association with other investor groups. M/S
Global Investment Company Limited requests you to conduct a “Due Diligence” of the
Standard Bank Limited. What are the key areas you will cover in your review as a due
diligence
auditor? (10 Marks December 2010)
Auditors are required to provide assurance for a range of non-audit engagements regularly.
List and explain the elements of an assurance engagement. (8 Marks December 2010)
M/s Kanchanjunga Bank Limited had been operating profitably since last five years and has
started distributing dividend since last year. But however, its promoters are not in a position to
increase share capital as per Nepal Rastra Bank requirements. Therefore, its promoters are
trying to sell out all shares held by them. In the process M/s Global Investment Company
Limited showed its interest to acquire all the shares in association with other investor groups.
M/S Global Investment Company Limited requests you to conduct a “Due Diligence” of the
Kanchanjunga Bank Limited. What are the key areas you will cover in your review as a due
diligence auditor?
(10 Marks June 2011)
Distinguish between Management audit and performance Audit (4 Marks June 2011)
On being appointed the auditor of XYZ Company Ltd. for the first time you find that the
cashier also handles the books of account and the cash receipt are not being banked intact but
parts of these are being utilized for cash payments. What would be your reaction? What
recommendations would you make to the company in this connection?
(10 Marks December 2011)
Define the concept of internal control and explain its inherent limitations.
(4 Marks December 2011)
A manufacturing company whose products are sold both in home market as well as in foreign
market finds a substantial fall in the domestic market during the immediately preceding year
and the demand so far during the current year is also found to be not encouraging. The
production department is of the view that this is due to failure of the sales department.
You have been appointed as investigator to investigate the affairs of the sales department.
State
relevant points on which you would carry out your work. (10 Marks December 2012)
Draft an internal control policy for bank in respect of loans and advances. What factors do
you
consider important while drafting such a policy? (4 Marks December 2012)
What is the purpose of cost audit? (4 Marks June 2013)
What do you mean by due diligence? Distinguish between financial due diligence and
operational due diligence. (10 Marks December 2013)
"Timely reporting is the essence of the concurrent audit". Explain. (5 Marks December 2013)
A trader is worried that in spite of substantial increase in sales compared to earlier year, there
is considerable fall in gross profit. After satisfying himself that the sales and expenses are
correctly recorded and that the valuation of inventories is on consistent basis, he wants to
ensure that purchases have been truthfully recorded. How will you proceed with this
assignment?
What are the important steps involved while conducting investigation on behalf of an
incoming
partner? (8 Marks December 2014)
Explain in brief the behavioral aspects encountered in the management audit and state the
ways to solve them. (8 Marks December 2015)
What do you mean by management letter? What are the contents of management letter?
(4 Marks June 2016)
Z Ltd is intending to acquire A Ltd. It hires B & Co., a firm of Chartered Accountants to
conduct a due diligence. B & Co. wants to reduce the risk of over valuation of assets in its due
diligence exercise. Guide B & Co. (8 Marks December 2016)
What do you mean by forecast and prospective financial information? Explain the statement
that “An auditor generally provides negative assurance while reporting on forecast”. Whether
an auditor can provide reasonable assurance on forecast? (2+4+2 Marks June 2018)
The internal audit was carried out recently at Black Stone Inc. (P) Ltd. as a special
assignment
by an audit practitioner. The draft report issued by the internal auditor to the management
includes a number of internal control weaknesses identified during the audit. The following
have been identified as critical issues:
- Generating of sales invoices, recording of sales and receipt are performed by the
same person. Therefore, there is no segregation of duties.
- There are large numbers of small items with large value and there are inadequate
physical controls to prevent threat of theft.
- Differences have been noted between the sales ledger and the general ledger and the
reason for such differences are not explained.
You are required to:
i) Explain the importance of internal controls to an organization. (3 Marks December 2018)
ii) Discuss two importance of segregation of duties to the company. (3 Marks December
2018)
iii) State measures that management can take to ensure the physical safeguard of inventories.
(2 Marks December 2018)
iv) State the objective of arithmetical and accounting controls. (2 Marks December 2018)
While verifying the employees‟ records in a company, it was found that a major portion of the
labour employed was child labour. On questioning the management, the statutory auditor was
told that it was outside his scope of the financial audit to look into the compliance with other
laws. Comment.
(7 Marks December 2018)
What are the important characteristics of an effective system of Computer Audit Program?
(7 Marks June 2008)
In the process of development of an overall audit plan for the audit of the Financial
Statements
of a bank, the auditor should give particular attention to IT and other system used by bank.
Discuss.(10 Marks June 2009)
"The method of collecting audit evidence and evaluating the same, changes drastically under
the EDP auditing". Discuss the correctness of the said statement. (5 Marks June 2010)
What specific problems may arise in the implementation of internal control system in an
Electronic Data Processing environment? Please explain. (5 Marks December 2010)
Distinguish between On-line real time processing system and batch processing system.
(5 Marks December 2012)
Define “Access Controls” in Computerized Environment and explain the methods of access
control.
(4 Marks June 2014)
Doing an audit in an EDP environment is simpler since the trial balance always tallies
analyze
critically? (5 Marks June 2015)
Khiladi Ltd. transformed its accounting processes from manual to customized accounting
software. Therein, all the transactions are recorded processed and the final accounts
generated from the system. The management tells you that in view of the voluminous nature
of
transactions, there is no need to take printouts and that audit can be conducted on the
computer itself. The management further assures you that any 'query-based reports' as
required can be generated and printed.
As a statutory auditor of the company, enumerate the procedures you would adopt to conduct
the audit in such environment. (7 Marks December 2017)
Chapter 11-CAAT
You are an audit manager of an audit firm whose partner has been in practice since last 20
years and is not familiar with computer assisted audit technique in an audit under the EDP
environment. Upon appointment as an auditor of a company fully computerized, your partner
requested you to discuss the control procedures, which should be adopted in applying CAAT
in
the audit. Provide a memo to your partner on this subject.
(10 Marks December 2005)
What are the factors to be considered while determining the use of Computer Assisted
Auditing Techniques (CAAT)?
If you are recruited as an internal auditor of M/s ABC Bank Ltd., what kind of cyber-crime do
you see that are commonly perpetrated against such bank? (8 Marks December 2007)
Discuss the control procedures, which the auditor should adopt in applying CAAT in an
audit under EDP environment. (10 Marks December 2007)
Universal (Pvt.) Ltd. is a trading company that imports fast moving consumer goods and
distributes them in Nepal. The company has an IT system where inventories and sales
modules
are integrated. The users are provided access to the modules and can log into them using the
individual desktops provided. The company has an IT division and the following information
is
provided.
All goods received and issued are recorded in the inventory module.
Sales invoices are generated through the system.
The standard price database is linked to the invoicing function in the sales module.
Sales prices are picked from the standard price database and these prices cannot be
amended /changed.
If the quantity invoiced does not match with the sale order quantity, the system provides
an error message.
The system does not allow raising an invoice if the required quantity of goods is not
available.
Discuss the importance of having information technology (IT) general controls and
application controls for an entity and Identify three (03) IT general controls that the company
should implement in order to ensure continuity of operations. (7 Marks, June 2019)
Give your opinion as an auditor on the following cases with specific reference to criteria on
which your opinion is based: (5 Marks each December 2005)
a. A state-owned power generating, transmitting and distributing entity provides cash rebates
to its customers if they pay their dues within 7 days after the meter reading days. There will
be no rebate or fines if dues are paid within 8th to 22nd day and after 23rd day to 30th day a
fine of 5% is levied and so on. Income from sale of electricity is accrued once the bills are
raised.
The rebates allowed to customers are accounted for by the entity at the time of payments
against the energy bills by the customers. At the yearend no provision is made in the
accounts towards cash rebate allowed on the payments received in the subsequent year for
bills raised in the year under audit as a consistent practice.
b.You are asked by your audit client to sign on a cheque leaving five cheques to be
prepared for payment to contractors who are erecting transformer but yet to be
transported to the site due to flushing out of the road, while taking cut-off at the yearend.
c. The company collects the dues in respect of sale of its products from its buyers through
cheques by post/ in person/ courier in addition to cash collected through deputation of its
representatives. At the yearend for 2061/62, the cheques bearing date 31st Ashad2062 or
before, though received and realized in the month of Shrawan 2062 are accounted for as
"cheques in hand" and presented in the financial statements of 2061/62.
Answer: Criteria used to form an opinion:
d. A company wants to adjust the bank balance on the balance sheet date by reversing
the entry for a cheque issued in the normal course of business and cancelled after the
year end but before the finalization of accounts. The cheque was returned on the
ground that the signature differs.
List out four factors, which might cast doubt on the going-concern status of a company.
How will you distinguish a change in an accounting estimate from a change in the accounting
policy? Does a change in an accounting estimate need any disclosure? (6 Marks December
2005)
Comment and give your opinion as an auditor on the following issues:
(5 Marks each December 2006)
a) XYZ & Co. Ltd., a company engaged in plantation activities, raising of teak and other
forestry operations. Normally a teak tree takes 10 years to grow. In order to carry these
plantation activities till the tree is fully grown and ready for sale, the company incurred
expenditure on maintaining them and also paying lease rent to the landowners. The
company decided to treat all these costs of planting, its subsequent maintenance and lease
rent as capital expenditures and treat as long term capital receipts.
b) Included under Current Assets of XYZ Ltd. is inventory aggregating to Rs. 20 crores. A part
of the said inventory manufactured for export had to be sold earlier at a discounted price
offshore due to moisture content present at the time of delivery. A part of similar inventory
is included in current year's inventory balance.
c) Everest Construction Ltd. commenced construction of a flyover in Rolpa in Shrawan 2061
under BOLT scheme. The same was completed in Poush 2062. Due to seasonal heavy rains
in Mangsir 2062 in the area, the work on the flyover had to be suspended for 1 month. The
company accordingly suspended borrowing costs of Rs. 1 million for that month from
capitalization.
d) The books of accounts of Sincere Ltd. show huge differences between the control accounts
and subsidiary records. The Finance Manager informs that this is common due to huge
volume of business done by the company during the year.
How will you distinguish a change in an accounting estimate from a change in the accounting
policy? Does a change in an accounting estimate need any disclosure?
(6 Marks December 2006)
Define "Related Parties" and "Related Party Transactions". Explain Auditor's special
consideration and responsibility on "Transactions with Related Parties".
(5 Marks December 2006)
Distinguish between Permanent and Timing Differences (5 Marks December 2006)
Give your opinion as an auditor in the following cases with specific reference to criteria on
which your opinion is based. (5 Marks each December 2007)
a) M/s XYZ Ltd. acquired a fixed asset at the beginning of the year by an integral foreign
operation for FC 540,000 (FC= foreign currency) when the exchange rate of one
reporting currency (RC) was FC 10. The asset has an expected useful life of 5 years and
zero residual value. For tax purposes, the asset is written off over 3 years. The exchange
rate at the end of the financial year is RC 1 =FC 8. The chief accountant of the
company argued that there is no need to show any temporary difference in the financial
statements. Do you agree?
b) The land, building and certain items of plant and machinery of an enterprise have been
revalued upward on the basis of an appraisal carried out by an independent and qualified
firm of architect. The enterprise also possesses certain obsolete items of plant and
machinery, the realizable value of which is much less than their book value. The
management insists on showing such plant and machinery at its book value while showing
land, buildings and other items of plants and machinery at the revalued amount.
c) The company purchased a pollution controlling machinery for which the government has
announced 50% rebate in custom duty. As per the government's policy the machinery shall
be used at-least five years. Your client has credited 50% rebate provided to Income for the
year by disclosing the same in Notes to Financial Statement.
How do you treat the cost of internally developed software into the books of accounts?
(5 Marks December 2007)
Distinguish between Permanent and Timing Difference. (5 Marks December 2007)
Give your opinion as an auditor in the following cases with specific reference to criteria on
which your opinion is based. (5 Marks each June 2008)
a) M/s XYZ Ltd. wishes to bring new advancement in the manufacturing process. In order to
meet its requirement, M/s XYZ Ltd. entered into a contract with M/s ABC Ltd., a UK based
company for collaboration to acquire know-how for both manufacturing process and design,
drawing of the factory at the cost of Rs. 900 Lakhs. Design and drawing cost cover 80
percent of the total collaboration contract. Ms. Shivani, Chief Finance Officer of M/s XYZ
Ltd. capitalized the cost of design and drawing with factory building and cost of
manufacturing process with the cost of machinery.
b) A Company had imported raw material worth US $ 5,00,000 on 25thBaisakh 2065 when the
exchange rate was Rs 62 per US Dollar. The company had recorded the transaction at that
rate. The payment for the import was made on 20thJestha 2065 when the exchange rate was
Rs 65 per US Dollar. However, on 32ndAshadh 2065 the rate of exchange was Rs 66 per US
Dollar. The company passed the entry on 32ndAshadh 2065 adjusting the cost of raw
materials consumed for the difference between Rs. 62 and Rs. 65 per US Dollar.
c) X Ltd. entered into a contract with Y Ltd. to dispatch goods worth Rs. 10 Lakhs every month
for six months upon receipt of entire payment on 1st Baishakh 2064. Y Ltd. accordingly made
the payment. In third month due to natural calamity, Y Ltd. requested X Ltd. not to dispatch
until the further notice. No such notice was sent till the accounts are finalized for 2063/064.
X Ltd. accounted Rs. 20 Lakhs as sales and transferred the balance to advance received
against sales.
d) M/s Sungava Manufacturing Co. Ltd. was making provision for nonmoving stocks based
on no issue for the past one-year upto FY 2062/63. The company hired a technical
consultant Mr. John. Mr. John submitted his technical evaluation report. As per
technical report, provision is required to be made for Rs. 4 Lakhs. The company wishes
to provide provision based on technical evaluation during the year 2063/64 instead of
provision required based on past one year.
Total Value of Stock Rs. 200 Lakhs
Liquidity sold some of its assets to M/s XYZ Ltd, a leasing company. M/s ABC Co. Ltd. leased
back the same assets from M/s XYZ Co. Ltd. In the notes to accounts, the Company stated,
“Assets taken on lease which is repayable in 96 installments of Rs.2,00,000 each." Comment
asan auditor of M/s ABC Company Ltd.
Give your opinion as an auditor in the following cases with specific reference to criteria on
which your opinion is based. (5 Marks each December 2008)
a) M/s ABC TV Ltd. purchased raw material at Rs. 500/- per piece for component “A”. The
price of such component “A” which is used for production of TV is on decreasing trend the
decline. The TV market is very competitive in the country as a result the finished goods i.e.
TV in which the raw material is installed is expected to be sold at below cost. There is a stock
of 5,000 pieces of such component “A” in the stock at the year end. The replacement cost is
Rs. 400/- per piece. The Chief Accountant booked the value of stock of such component “A”
at Rs. 500/- per piece amounting to Rs. 25,00,000/-.
b) The Management of ABC Ltd. tells you that the work in process is not valued since it is
difficult to ascertain the same in view of multiple processes involved and in any case the
value of opening and closing work in process would be more or less the same.
M/s X Hospital Ltd. purchased an ambulance for Rs. 30 Lakhs against which it received grant
from the Japanese Government. The company charged depreciation on the ambulance at the
prescribed rate of 15% and charged expense to Profit and Loss Account. It transferred Rs. 30
Lakhs to Capital Reserve Account. As an auditor express your opinion in this regard. (5
Marks
December 2009)
Distinguish between Prior Period Items and Extra Ordinary Items (4 Marks June
2010)
Express your opinion as an auditor on the following cases with specific reference to the
criteria
on which your opinion is based:
Included under Current Assets of XYZ Ltd. is inventory aggregating to Rs. 5 million. A part of
the said inventory manufactured for export had to be sold earlier at a discounted price
offshore
due to moisture content present at the time of delivery. A part of similar inventory is included
in
Rs. 5 million. (5 Marks June 2010)
Fifty sets of computerised machinery purchased by the company five years back with a
carrying value of Rs. 1,000,000 have become obsolete. On disposal of the same, the company
received Rs. 1,200,000. The company showed the excess of Rs. 200,000 as a revenue.
Comment
and give your views as auditor with reasons.
(5 Marks June 2010)
Nepal Pvt. Ltd., manufacturing garments, has valued at the year end its closing stock of
packed
finished goods for which firm export contracts have been received, at realizable value
inclusive
of profit and export cash incentive. As at the year end, the ownership of the goods has not
been
transferred to the foreign buyers. Express your opinion as an auditor (5 Marks
December 2010)
Express your opinion as an auditor on the following cases with specific reference to the
criteria
on which your opinion is based. (5 Marks each December 2011)
a) Surya Textiles Ltd., as part of overall cost cutting measure announced voluntary retirement
scheme (VRS) to its employees, to reduce the employee strength. During the year ended
31.03.2068, the company paid a compensation of Rs.12 million to those who availed the
scheme. The Chief Accountant has reflected this payment as part of regular salary and
wages paid by the company.
b) Makhan Ltd. manufactures machinery used in Iron Plants. It quotes prices in various
tenders issued by Iron Plants. As per terms of contract, full price of machinery is not
released by the iron plants, but 10% thereof is retained and paid after one year if there is
satisfactory performance of the machinery supplied. The company accounts for only 90% of
the invoice value as sales income and the balance amount in the year of receipt to the extent
of actual receipts only.
c) You are the manager responsible for the audit of Apple & Co. The company‟s principal
activity is wholesaling frozen fish. The draft consolidated financial statements for the
year ended 31 March 2009 show revenue of Rs67 million (PY2008 – Rs. 62.3 million),
profit before taxation of Rs. 11.9 million (PY2008 – Rs.14.2 million) and total assets of
Rs. 48 million (PY2008–Rs.36.4 million). The following issues arising during the final
audit have been noted on a schedule of points for your attention: In early 2009 a
CAP III Paper 3: Advanced Auditing
© The Institute of Chartered Accountants of Nepal 403
chemical leakage from refrigeration units owned by Apple & Co. caused contamination
of some of its property. Apple has incurred Rs. 0.3 million in cleanup costs, Rs. 0.6
million in modernization of the units to prevent future leakage and a Rs. 30,000 fines to a
regulatory agency. Apart from the fine, which has been expensed, these costs have been
capitalized as improvements.
The objective of NAS-10„Events after the reporting period is to prescribe the treatment of
events that occur after an entity‟s reporting period. Define the period to which the NAS-10
relates and distinguish between adjusting and non-adjusting events
(5 Marks December 2011)
b) Avco International Limited, a public company seeks your opinion regarding the accounting
treatment of interest on loan amount taken to acquire machinery during the financial year
2067/068 in view of NAS.
a) Kantipur Publications Ltd. on 15.4.2068 imported a digital printer from Germany at a price
$ 2 million upon terms of credit that price should be settled within three months from the
date of purchase. The company capitalized the asset and created a liability for the capital
goods converting the foreign currency liability to Nepalese Rupees at a rate of exchange
prevailing as on 15.4.2067. When the company settled the liability on 30.6.2068, it had to
incur an additional amount of Rs.10,00,000 due to foreign exchange rate on the date of
settlement. It added this additional amount of exchange variation in the capital cost of the
asset and charged depreciation upon an enhanced amount of asset value from 30.6.2067.
Give your opinion about the treatment given by the company.
(4 Marks December 2011)
b) Under what circumstances can a change in an accounting policy are justified? (4 Marks
December 2011)
c) What are the points to be considered while using the work of an expert? (4 Marks
December 2011)
Express your opinion as an auditor on the following cases: (5 Marks each June 2012)
a) You are the statutory auditor of AT Tobacco Company Limited. During the course of audit,
the management of the company informed you that the work in progress is not valued since
it is difficult to ascertain the same in view of multiple processes involved and in any case the
value of opening and closing work in progress would be more or less the same.
b) M/s Shandar Pollution Extinction Company Limited procured a pollution controlling
machine for which the government has provided 60% rebate in customs duty upon the
precondition that the machine should be used for at least 5 years by the same company.
During the course of audit, you found that the company has credited 60% rebate
provided to income statement for the year by disclosing the same in the Notes to
Accounts. Give your expert comments on the accounting treatment done by the
company.
c) MK Traders operates internet site from which it sells Tanu‟s products. Customers place
orders directly through the internet site and provide credit card details for payment.
MK receives the order and authorization from the credit card company, and passes the
order on to Tanu, who ships the product directly to the customer. MK does not take title
to the products and has no risk of loss or other responsibility for the function or delivery
of the product. Tanu is responsible for all product returns, defects, and disputed credit
card charges. The product typically is sold for Rs. 175 from which MK receives a
commission of Rs. 25. In the event that a credit card transaction is rejected, MK loses its
margin on the sale (i.e. Rs. 25).
MK has accounted for Rs. 175 as revenue and subsequently passes Rs.150 to Tanu after
retaining her commission on the sale products.
M/s Syntax & Co. engaged in manufacturing computer parts and accessories has invested in
shares of M/s Microlord Ltd. The company, after balance sheet date, finds that the share value
is declining and thus, seeking your opinion regarding recording the losses in financial
statement to comply the Nepal Accounting Standard 5, "Event after the Balance Sheet Date".
What would be your suggestion in this regard?
(5 Marks June 2012)
Do you think that a contingent loss or a contingent gain needs to be provided in the accounts?
(5 Marks June 2012)
Distinguish between Adjusting events and non-adjusting events (4 Marks June 2012)
Express your opinion as an auditor on the following case: (5 Marks December 2012)
V Ltd. sold 1 lakh vacuum pumps during the year 2068-69 with a condition to make good by
repair/replacement any manufacturing defects reported within 6 months from the date of sale.
Past experience in this regard showed that there were no replacements carried out, but minor
and major repairs were necessitated to the extent of 10% and 5% respectively of the units sold.
The cost of such minor and major repairs would amount to Rs. 1,000 and Rs. 6,000
respectively. While finalizing the accounts for the year, the company does not reflect any
provision, in this regard.
As an auditor of M/S MVR Garment Co., you are required to verify whether the following
expenses of the company creates deferred tax or not? (4 Marks December 2012)
i) Being the first year of operation, first installment of the total pre-operating expenses of
Rs. 120,000 (which has to be amortized over 5 years period) has been amortized in the
financial books of accounts of the company.
ii) Provision for gratuity made for the year is Rs. 98,000 however no such fund has been
separately transferred or deposited or expensed.
iii) Donation expenses charged in the financial books amounting to Rs. 25,000 given to
local clubs.
iv) Depreciation on the fixed assets charged in the financial books is
During the course of audit of PYC Finance Company Limited, you found that the following
payments were made by the company.
i) Rs. 500,000 for purchase of five sets of computer laptop.
ii) Rs. 250,000 for purchase of computer server.
iii) Rs. 60,000 for purchase of six set of Window 7 i.e. computer operating system one
each for the laptop and computer server without which they cannot operate.
iv) Rs. 1,000,000 for „Pumori IV‟ i.e. accounting software procured from Mercantile
Operating System with the right to use for five years. The software will be installed in
the computer server.
v) Rs. 50,000 to Mercantile Operating System for training the staff of the company about
the use of „Pumori IV‟ software.
The useful life of the laptop and computer software is five years with no residual value.
Suggest the accounting treatments to PYC Finance Company Limited on above payments as
per Nepal Accounting Standard. (5 Marks June 2013)
New Co. Ltd. charged depreciation on SLM basis. For the year ended 31.3.2069, it opted to
use
WDV method. The impact of this change was Rs. 20 lakhs, being additional depreciation
charge. What are the disclosure requirements as per Nepal Accounting Standard?
(5 Marks June 2013)
X Limited entered into an agreement to sell its immovable property recorded in the Balance
Sheet at Rs. 10 lakhs to another company for Rs. 15 lakhs. The agreement to sell was
concluded on 15thBaishakh 2069 and the sale deed was registered on 1stShrawan 2069.
Comment with reference to NAS 5. (2 Marks June 2013)
State the treatment of the following transactions: (3 Marks each June 2013)
i) Substantial expenditure incurred for the repair of machinery.
ii) Expenditure incurred to remove “Overburden” for purposes of facilitating mining
activities.
What are the differences between Finance lease and Operating lease?
(4 Marks December 2013)
Comment and give your views with reasons on each of the following cases, giving
consideration to Nepal Accounting Standards, Nepal Standards on Auditing and Code of
Ethics:
a) XYZ Ltd. filed a lawsuit against ABC Ltd. for Rs.200 million. The management of ABC
Ltd. felt that the suit was without merit, so ABC Ltd. merely disclosed the existence of the
lawsuit in the notes accompanying the financial statements.
Answer: As per NAS 37 "Provisions, Contingent Liabilities
b) During the financial year 2071-72, a company started research work with a view to the
eventual development of a new product. By 31stAshadh 2072, it had spent Rs.1.6 million
on this project. The company has a past history of being particularly successful in
bringing similar projects to a profitable conclusion. As a consequence, the assistant has
treated the expenditure to date on this project as an asset in the statement of financial
position.
A statutory auditor is required to follow the procedures so as to identify the risk of material
misstatement associated with related parties. What are the auditor‟s duties when he identifies
related parties or related party transactions that management has not previously disclosed to
him?
Comment and give your views with reasons on each of the following cases:
(4 Marks each December 2015)
a) Big Ltd. has borrowed Rs. 30 lakhs from Bank during the Financial Year 2071-72.
The borrowings are used to invest in shares of Small Ltd., a subsidiary company of
Big Ltd., which is implementing a new project estimated to cost Rs. 50 lakhs. As on
31stAshadh 2072, since the said project was not complete, the directors of Big Ltd.
resolved to capitalize the interest accruing on borrowings amounting to Rs. 4 lakhs
and add it to the cost of investments.
b) During the course of audit of D Co. Ltd., you as an auditor have observed that inter
corporate deposit of Rs 50 lakhs has been overdue. The D Co. Ltd. has disclosed this
in the notes to accounts stating that Rs. 50 lakhs are overdue from XYZ Co. Ltd.
and the said company is in the process of liquidation. The management is taking
steps to appoint the liquidator.
Comment and give your views with reasons on each of the following cases.
a. Explain how the revenue from the following service transactions would be recognized:
(4 Marks June 2016)
i) Plant installation Fees
ii) Admission fees for Film Festival
iii) Media commission for Advertising agencies
iv) Insurance Agency Commission
b. M/s MeritaImpex is engaged in the business of manufacturing and trading of musical
instruments. A sum of Rs.5 lakhs is received from an insurance company in respect of
a claim for loss of goods in transit costing Rs. 4 lakhs. The amount is credited to the
purchase account. (4 Marks June 2016)
Comment and give your views with reasons on each of the following cases, giving
consideration to respective Standards, Laws and Code of Ethics: (5 Marks each June 2017)
a) During the course of the last three years, a company owning, and operating helicopters lost
four helicopters. The company management felt that after the crash, the maintenance
provision created in respect of the respective helicopters was no longer required and
decided to write back to the profit and loss account as a prior period item.
b) M Ltd. manufactures machinery used in steel plants. It quotes prices in various tenders
issued by steel plants. As per terms of contract, full price of machinery is not released by
the steel plants, but 10% thereof is retained and paid after one year if there is satisfactory
performance of the machinery supplied. The company accounts for only 90% of the invoice
value as sales income and the balance amount in the year of receipt to the extent of actual
receipts only.
c) X Ltd., a listed company, was incurring heavy losses since the last several years and the
industry in which it was functioning was not expected to perform better in the next few
years. While finalizing the accounts for the year ended 31/03/072, the CFO of the company
decided to create a deferred tax asset for the tax benefits that would arise in future years
from the earlier year losses that had remained unabsorbed in income tax. As the statutory
auditor, how would you deal with the situation?
d) Mr. Madhav as a contractor has just entered into a contract with a local body for building
a flyover. As per the contract terms, Mr. Madhav will receive an additional Rs. 50 million if
the construction of the flyover were to be finished within a period of two years of the
commencement of the contract. Madhav wants to recognize this revenue since in the past
he has been able to meet similar targets very easily.
Comment and give your views with reasons of the following case, giving consideration to
respective Standards, Laws and Code of Ethics:
a. A company is engaged in telecom business. The company is listed with Nepal stock
exchange and management of the company is provided handsome incentives based on
revenue growth. The management explains to the auditor that the revenue recognition is
fully automated and there have been no auditor‟s remark on revenue recognition for last
several years and accordingly the auditor is convinced and instructs the audit team for
not focusing on revenue audit because there is no risk of fraud on revenue recognition. (5
Marks June 2018
b. A machinery was purchased at Rs 1 crore on 1 Shrawan 2071 by a Company. The
company's policy was to charge depreciation @ 20% on reducing balance method. The
company management is of the view that straight line method of depreciation will reflect
the pattern in which economic benefits from the asset is consumed and decides to change
the policy of charging depreciation on straight line basis from 2073/74 and financial
statement of 2073/74 is yet to be signed. The chief finance officer intends to give
retrospective effect by adjusting depreciation expenses of comparative year 2072/73 and
retained earnings for the difference amount of 2072/73 and 2071/72. (5 Marks June 2018)
Tik and Tok Private Limited is the leading manufacturing company of Toy in Nepal. The new
accountant is confused about the valuation of stock. The details of cost and expenses are
tabulated below. (5+5=10 Marks, June 2019)
i) Normal waste of material in production process is 3%. 1,000 kg of input was processed
resulting into finished product of 950 kg. The entire quantity of finished product is at stock
at the year end. Cost of input is Rs. 100/kg. The cost of storing the final product was Rs.
6,000. The net realizable value of stock is Rs. 120/kg. The company recognized the finished
good at a value of Rs. 101,000. As an auditor suggest the management regarding the
correct valuation of stores.
ii) Subsequent to year end 2074/75 company‟s sales ledger has been corrupted by computer
virus. A new accountant was able to produce the financial statements prior to the
occurring; however, the audit team has been unable to access the sales ledger to undertake
the detail testing to revenue or year-end receivables. All other accounting records are
unaffected and there are no backups available for sales ledger. Revenue for the financial
year is Rs. 15.60 million, profit before tax is Rs. 2 million and its receivables are Rs. 3.40
million. Describe the procedures to be followed by the audit team to resolve this issue and
its impact on the audit report if it remains unresolved.
c) Milan Metal Industries Ltd. had purchased during the year machinery on deferred
payment basis, payable over next ten years. The company has computed the interest
payable over these 10 years and debited Interest Suspense Account. Every year, 1/10th of
the same is written off to profit and loss account treating the same as deferred revenue
expenditure. As an auditor, give your opinions with reasons.
d) You notice a misstatement resulting from fraud or suspected fraud during the audit and
conclude that it is not possible to continue the performance of audit
(4 Marks each June 2019)