CHAPTER 1: INTRODUCTION TO AUDIT............

(Page No 1-26)

1. Distinguish between Concurrent audit and Annual audit.

2. What are the advantages of a continuous audit?
3. Explain the contents of Permanent and Current files. (Dec 2010, Dec 2014)
4. Who is responsible to prepare and present financial statements of a company. (2 M June 2006)
5. Write short note on “Terms of audit engagement” (5 M Dec 2006, June 2011)
6. Generally, purpose of misstatement in a financial statement of a medium sized sole proprietorship business in Nepal is to
benefit proprietor himself. Justify with reason. (December 2010)
7. Proper audit is not possible without adequate knowledge of clients business. Explain it. (5Marks June2011)
8. Justify with reason, whether following statement is true or false. (5MarkseachJune2011)
a) Balance confirmation from debtors/creditors can only be obtained at the end of the financial year.

9. Write short notes on the following:

a) Self-review threat(2.5 Marks July 2015)
b) Teeming and lading(2.5 Marks July 2015)
c) Audit risk at the financial statement level(5 Marks June 2016)
d)Use of flow chart in evaluation of internal control(2.5 Marks June 2014)
10. Doing a statutory audit is full of risk. `Narrate the factors which cause the risk. (5 Marks December 2015)

CHAPTER 4: OVERALL AUDIT PROCESS ......(Page No 41-62)

1. What do you understand by the term “audit trail”? Explain carefully the developments of data processing ,which
have resulted in the auditor often finding the audit trail has been lost. (6Marks June2005).
2. Write short note on “Auditing in Depth” ? Dec 2005 4 marks
3. Write short note on “audit Planning and Materiality” ? Dec 2007 4 marks
4. An auditor is required to develop an audit plan. Do you agree? What are the matters to be considered in
developing the overall audit plan? (8Marks, June 2006)
5. Adequate audit planning would result in efficient and timely audit. Discuss. (5Marks, December 2007)
6. Prepare the chart illustrating different audit procedures. Also explain how the auditor obtains evidence in
performing those audit procedures. (4+6 Marks December 2009)
7. Justify with reason, whether following statement is true or false. “Audit plan is substitute for audit program.”
December2010.
8. Terai Bank Limited provided a long-term loan amounting to Rs. 250 Million to Relax Hotel Pvt.Limited for hotel
operation. The hotel is unable to repay installment (principal & interest) as per repayment schedule. Accordingly,
you are appointed by the Bank for special review of the income o fthe hotel to ensure whether income procedures
are duly complied with and the amount has been fully accounted for. As a special reviewer how would you plan
your review work? (5Marks June2011)
9. Justify with reason, whether following statement is true or false: Audit plan is substitute for audit program (5 Mark
seach December2010).
10. Disadvantages of the use of an audit program. (5Marks June2011)
11. Distinguish Between the following Audit Planning and Audit Program. (5Marks December2011, 5 Marks December
2013, 5Marks December2016)
12. 59Distinguishbetween:
13. Compliance Procedure and Substantial Procedures(5MarksJune2010,June2014)Or
Explain the compliance procedure and substantial procedures as Audit methods of collecting evidences for forming
an audit opinion. (5 Marks June2015)
CHAPTER 5: AUDIT MATERIALITY... (Page No 63-67)

1. An assistant of X & Co. Chartered Accountants detected an error of Rs. 5 per interest payment which recurred
number of times. The General Manager (Finance) of T Ltd. advised him not to request for passing any adjustment
entry as individually the errors were of small amounts. The company had 2,000Deposit Accounts and interest was
paid quarterly.(5 Marks June2003).
2. Explain the concept of Audit Materiality. (December2005 ,December2005 ,December2010-CAPII ,June2010,
December 2010-Intermediate, June2011, December 2015, December 2016).
3. Write short note on audit materiality and audit Risk ? (June 2005, Dec 2009)
4. The concept of „materiality‟ is not always related to financial implications. State your views.
(5Marks, December 2010)
5. Mention briefly the conditions or events, which increase the risk of fraud or error leading to material misstatement
in financial statements. (5 Marks December 2009).
6. Mention briefly the conditions or events, which increase the risk of fraud or error leading to material misstatement
in Financial Statements. (5 Marks June 2010)

CHAPTER 6: AUDIT PROCEDURES AND TECHNIQUES .....(Page No 68-74)

1. Write Short notes Audit techniques (4 Marks, June 2004)

2. Distinguish between principles of auditing and techniques of auditing. (4Marks,June2003, June2004,December2005)
3. Write short notes Analytical Review Procedures. (5 Marks December2006
4. After carrying out the routine audit what are the overall tests which an auditor is required to perform? (5 Marks
June2009)
5. Write short notes on :Audit strategy (2.5 Marks June2013, 2.5 Marks June2019)
6. Distinguish between Test Checking and Routine Checking ( 5 Marks June2018, June)
7. What do you understand by Test Checking? And Its advantages and disadvantages (9 Marks June2001)
8. What safe guards would you suggest in order to minimize such disadvantages of test checking? (7Marks June2001)
9. Distinguish Between. Surprise Check and Test Check. (5 Marks December 2006)
10. Distinguish Between. Sampling and Test Check. (5 Marks December 2006)
11. Distinguish between the following: Compliance Procedures and Substantive Procedure (5 Marks December 2011)
12. Write short notes on the following: (2.5 Marks each, June 2019)
Audit Strategy
13. Distinguish between:(5 Marks June 2019)
Test Check & Internal Check

CHAPTER 7: AUDIT EVIDENCE...............(Page No 75-91)

1. Distinguish between the following: Internal evidence and external evidence (5 Marks June2008).
2. During the course of audit, M/s Guess and Guess Associates, an audit firm, has checked 20 percent of the postings from
Cashbook to General Ledger. Some serious questions could be raised about the representative nature of the sample and
about the validity of sample results. What could those serious concerns be? (5MarksJune2010)
3. STU Bank Ltd. appointed you as due diligence auditor to find reason of loss in international Wool Ltd.The company
imports woolen threads and manufactures and exports woolen sweaters to Wall Mart.Profit margin in such business after
input vat refund is 26%. International Wool Ltd. imported woolen raw materials of Rs. 200 million and sales was 220
million in F/Y 2009/10. Cost of raw materials is inclusive of all material input. Opening and closing stock remained the
same for the year. How would you plan your audit work and what area would you focus? Give your opinions with reason.
(5MarksDecember2010)
4. The concept of evidence is fundamental to auditing. Discuss „management representation‟ as audit evidence.
(5Marks,December2010,December2017).
5. Justify with reason, whether following statement is true or false. (5MarkseachJune2011)
a) Balance confirmation from debtors/creditors can only be obtained at the end of the financial year.
6. Raman Mahaseth, the auditor of a company has signed the audit report on 15 Asoj 2071. He has obtained written
representation from the management of the company dated 15 kartik 2071; i.e. the date of the annual general meeting of
the company. Give your opinion on the above.
(5Marks June2015).
7. Quantity of an inventory item as per records was 4 lakhs units as on the year-end date. Auditor was present during the
inventory count at the year-end date and he noticed that only 350,000 units were there during count. Management
explains that there might be counting error because the record was correctand reconciled with opening stock, purchases
and sales. (5Marks June2016).
8. Write short note on; Written representation (2.5 Marks December 2016)
9. "The statutory auditor is entitled to rely on the internal auditor".Comment. (8Marks, December 2003)
10. Distinguish between: Internal audit evidence and external audit evidence. (4Marks June2002, December2004)
11. Whatconsiderationsthatshouldbetakencareofbytheauditorwhileevaluatingauditevidence. (3MarksDecember2005)
12. Write short note on Surprise checks.(5MarksDecember2007,December 2009June2011)
13. Write short note on Reliability of Audit Evidence.( 5 Marks December 2007)
14. What is 'Audit Evidence 'and how it is obtained? (5Marks, June 2007)Or
What is an "Audit Evidence"? (5MarksDecember2009,December2012)Or
Write short notes on Audit Evidence (4Marks June2005, June2009)Or
Sufficient Appropriate Audit Evidence (5 Marks December 2010)
15. How would you deal with the following situation?
a) While carrying out the audit of a client you had found that direct confirmation from a major customer of the company
had not been received. The management of the company has explained that due to a dispute which arose in the
recent past, it is not advisable to pursue the customer as this would further aggravate the relationship. However, the
management is willing to provide you copies of the statements received from the customer along with the
reconciliation to verify the year-end balance, which you may retain in your working papers as audit evidence. (5
MarksJune2009).
16. What are the assertions with which an auditor is concerned with while obtaining audit evidence from substantive
procedures? (5 Marks December 2009, 5 MarksJune2010)
17. Answer the following:

i) "Physical presence of the auditor at the time of year end verification of stocks is though not always
possible, it is recommended that he should at least be present as an observer." Signify the importance of
this statement and list out the important aspects which the auditor should look into to ensure an effective
physical verification programme. (5Marks December2009)
ii) Indicate briefly the purposes for which analytical procedures are applied by the Auditor. (5MarksDecember
2009).

18. Write short notes on the following: Management representation as an audit evidence (5 Marks June2010).
19. CA. Khari Adhikari heads the internal audit department of Tee limited. The external audit firm decided to rely on the
internal auditor‟s work relevant for external audit because of the professional competency of the chief of internal audit of
Tee Limited. Later it was found that the external auditor had conducted audit procedures himself instead of relying on
internal auditor‟s work; however, claimed that he should not be made responsible for inappropriate audit opinion because
he had relied on the work of qualified internal auditor. (5 Marks June2013)
20. Explain different methods of obtaining audit evidence.(7 Marks December 2013).
21. Give your comments on the following situation.( December 2015)
The management of Sathi Limited suggested for quick completion of the statutory audit that it would give its
representation about the receivables in terms of their recoverability. The management also acknowledged to the auditors
that the management would give their representation after scrutinizing all accounts diligently and they own responsibility
for any errors in these respects. They wanted auditors to complete the audit checking all other important areas except
receivables. The auditor certified the account clearly indicating in his report the fact of reliance he placed on
representation of the management.
22. Explain about the factors that influence the reliability of Audit Evidence. (5 Marks June 2017)
 23. Write short notes on the following: (2.5 Marks each, June 2019)
External confirmation
Audit Strategy

CHAPTER 8: AUDIT DOCUMENTATION ...................(Page No 92-97)

1. Explain the contents of Permanent and Current files. (June2004, June2009, December2009, December 2010,
December 2014)
2. Distinguish between Permanent Audit Files and Current audit files. (Dec 2004)
3. Explain about Audit Note Book. (5Marks,June2005, December2008,December2017)
4. Write short note on audit working paper. (4 marks, December 2005)
5. Distinguished betwn Audit program and Audit notebook. (5m June 2006)
6. Distinguished betwn Audit files and Audit working paper. (5m June 2007)
7. Write short notes on Utility of working paper to auditors (5MarksDecember2007)
8. Explain the advantages of working papers. (7 Marks, December 2010)
9. Write short notes on the following: Contents of Permanent Audit File (2.5 Marks, June 2019)

CHAPTER 9: INTERNAL CONTROL SYSTEM..(Page No 98-124)

1. Mr. Lakhan, Statutory Auditor of Radha Krishna Pvt. Ltd wants to verify cash on hand as on
31stAasadh,2069.TheManagementinformsMr.Lakhanthatitisnotpossibletocooperate,ascashierhasbeen out of
station. Advise Mr. Lakhan on how to deal with the situation. (5 Marks Dec 2012).
2. Discuss briefly the terms Internal Control and Internal Audit .What are the distinguishing features between them?
3. An assistant of X & Co., Chartered Accountants wanted to verify the cash in hand and investment of TLtd. The
General Manager (Finance) of TLtd. Suggested to the assistant of X&Co. that it was not necessary as his staff had
done the same only few days back and no discrepancies were noted.
4. Write short note on testing on Internal Control System. (Dec 2006).
5. Distinguish between Internal Check and Internal Audit. (4 Marks, June2003)
6. Distinguish between Internal Control and Internal Auditing (4MarksDecember2004)
7. State, in respect of each of the following observations, an internal control procedure that would prevent the error
and a substantive procedure through which the auditor can detect the error : (5Marks, June2006)
i. An employee whose services were terminated during the year continued to be paid his monthly salary.

ii. The foreman of a department punches the time card of an employee of his department on days when
the employee is absent or is late for work.

iii. During the year, there was a reduction in the rate of interest granted to employees. The person
responsible for preparing the payroll continued to deduct interest at the old rates while entering the
interest at revised rates in the advances register and pocketed the difference.
8. How an auditor can rely upon the internal control system of inventory accounting?(5Marks, June2007)
9. Distinguish Between the following
a) Inherent Risk and Control Risk (5 Marks June2008)
b) Control Risk and Detection Risk (5 Marks June2009)
10. Briefly describe the components of internal control. (10 Marks December 2008)
11. "Internal control questionnaire is a method to collect information about the existence, operation and efficiency of
internal control in an organization" Discuss. (7 Marks December 2008.
12. Write short notes on the following:
a) Objectives of Internal Audit (5 Marks June2009)
c) Test of Internal Control (5 Marks June2009)
13. What are the general considerations in framing a system of internal check?
14. Distinguish between Test Checking and Statistical Sampling ( 5 Marks June)
15. Internal check and Internal control ( 5 Marks June2010)
16. In a medium size trading organization, the accountant was given additional responsibility of making recoveries
from the debtors. On one occasion, when an insurance claim of Rs. 25,000 was received, he credited the same to
the account of a debtor and misappropriated the cash which he had recovered from the said debtor. Pinpoint
weaknesses in the internal control system which led to this situation. Give your comments on the above situation .(
5 Marks December 2009)
17. Write short notes on Flow Chart (5Marks each December 2009,5 marksJune2011)
18. Explain the difference between Internal Control and Internal Check (5 Marks December 2009) Or
Distinguish between internal control and internal check (4 Marks,December2003)
19. “Internal control questionnaire is a method to collect information about the existence, operation and efficiency of
internal control in an organization". Discuss. (8 Marks June 2010) Or

Explain briefly the technique of "Internal Control Questionnaire" to facilitate the accumulation of information
necessary for proper evaluation of internal control.(5Marks June2014)Or
Write short notes on Internal control questionnaire (5 Marks June2010).
20. Giant Ltd. is newly established cement industry and yet to start commercial production. Various payments, large
and small, are being regularly made. You are required to prepare internal
controlquestionnaireregarding„procedureforauthorization‟forpayments.?(5Marks June2010).
21. So far as the auditor is concerned, the examination and evaluation of the internal control system is an in
dispensable part of the overall audit program. What are the key areas that auditor will enable to know after
reviewing internal controls. (7 Marks June 2010)
22. Torstar‟s Heaven is star level hotel situated at Nagarkot. During the initial discussion it is noticed thatthe hotel
management is aware of pilferage issues, however due attention is not paid to address the situation. You are
required to express your statement underlying the importance of internal control on the pilferage issues and the
probable consequences of it, if not addressed properly. (5Marks June2010)
23. Write short notes on the following:
Utility Routine (5Marks, December2010)
Control Risk (5 Marks December 2011)
Tagging and Tracing (5 Marks December 2011)
Audit risk in the small business (5 Marks December2011)
24. Define the concept of internal control and explain its inherent limitations. 5 Marks December 2010).
25. On being appointed the auditor of a company 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? (8
Marks, June2011)
26. Define the concept of internal control and explain its inherent limitations. (5 Marks June 2011).
27. As an auditor of a small business, how can you assure the internal control system of that company? (8Marks
June2013)
28. Explain the limitations of Internal Control. (5 Marks June2014)
29. Distinguish between Internal Control Questionnaire and Internal Control Evaluation. (5Marks June2014).
30. Based on study and evaluation of internal control system, auditor concludes that internal controls are well designed
and functioning effectively. Still auditor performs appropriate substantive audit procedures to form an opinion on
the financial statements before issuance of audit report. Explain why auditor has to perform appropriate
substantive audit procedures in such an ideal situation also.(5Marks December2014)

24. Explain the control environment as a part of Internal Control System. ( 5 Marks July 2015)
25. Distinguish between: Internal Check and Internal Audit (5 Marks December 2017)
CHAPTER 10: AUDIT RISK AND ITS COMPONENTS ..(Page No 125-129)

1. Write short note on Risk Based Auditing ( Dec 2004).

2. What is the relationship between materiality and audit risk and how audit risk can be reduced to an acceptable level?
(5 Marks, December2009, June2011)
3. Writea short noteon Audit Risk. (5MarksDecember2006)
4. Write short notes on the following:
Detection risk (2.5 Marks June2013)
Tolerable error (2.5Marks June2013)
5. What is audit risk? Explain three components of audit risk and also define their relationship. (8Marks December 2013,5
Marks December 2016)
6. While conducting the audit of X-ray Limited, Mr. Pratap, the statutory auditor found that the
detectionriskrelatingtocertaintransactionscannotbereducedtoacceptablelevel.Asa Statutory Auditor ,how would you deal
in the given situation? (5 Marks June 2013)
7. Write short notes on Detection risk (5 Marks, December 2010, December 2015)
8. Distinguish between: Hot review & Cold Review in audit ( 5 Marks June 2016)

CHAPTER 11: AUDIT IN CIS ENVIRONMENT/EDP ENVIRONMENT ----- (Page No 130-141)

1. A)Whatdoyouunderstandby"auditingaroundthecomputer"and"auditingthroughthecomputer"? (December 2001)

B) State the circumstances in which "auditing through computer" must be used.
2. What are the important features of distinction between computer-based system of according and those of a
Conventional nature.
3. Briefly explain the types of controls in a computerized environment
4. The use of computer facilities by a small enterprise may increase the control risk, comment
5. What do you understand by carrying out audit through the computer?
6. Briefly describe ,“EDP Application Controls” (6 Marks, December 2004, 5 Marks June2006)
7. What are characteristic of an EDP organizational structure in an EDP environment? (Dec 2005)
8. How will you review EDP Application Controls in an audit? (5 Marks, December2006)
9. What are the key internal control issues concerning the auditor while conducting audit in an EDP environment?
(5Marks, June2007,5 Marks December2008)
10. WhatdoyouunderstandbyprocessingcontrolinaComputerizedInformation System?(5Marks December2007)
11. Input controls are the important part of overall controls in EDP system. Briefly Explain. (5Marks June2008)
12. Describe what are the specific controls over the accounting applications in a Computerised Information System
(CIS) environment? (4 Marks June 2009)
13. Answer the following: List out the circumstances, where auditing is done through the computer. (4 marks,
June 2010, 5 Marks December 2010)
14. Write short notes on the following: Audit trail in a computerized accounting environment. (4Marks
December2005, June2011 ,5 Marks June2009)
15. Discuss “Audit through the Computer”. (7 Marks December 2011)
16. Why are computer assisted audi ttechniques (CAAT) needed in Computer Information Systems (CIS) environment
and how it helps the auditor in obtaining and evaluating audit evidences?(5Marks June2012).
17. What are the review area sofan IS Auditor? (5Marks December 2012)
18. Audit in EDP environment is easier as the Trial Balance always tallies.(5 MarksDecember 2012)
19. Distinguish between:
a) Computerized and manual accounting system(5MarksJune2013,June2017)
b) Auditing around computer and Audit through computer(5MarksJune2009andJune2017

20. Your CA firm has been allotted with Information Systems Audit of one of the reputed Commercial Bank of Nepal.
 How would you assess the reliability of internal control system in computerized information system? (5 Marks,
December 2015)
21. Distinguish Between the following: Batch Processing and On-Line Real Time System (5 Marks June 2013)

CHAPTER 12: SAMPLING ...............(Page No 142-151)

1. Distinguish between Judgmental sampling and Statistical sampling (5 marks, June 2006)
2. In auditing,what are the important methods of selecting the sample?(8Marks,June2004).
3. a) Underwhat conditions is statistical sampling likely to prove most successful as audit
Techniques. And
What are the main advantages of statistical sampling properly applied over judgmental sampling?
(5Marks, June2005).
4. Define audit sampling. Discuss the case where audit sampling is not appropriate. 5Marks,December2005)
5. Explain the advantages of Statistical Sampling in Auditing. (5 Marks, December 2006)
6. Write short note on SamplingRisks (5MarksDecember2008)
7. Write short note on Stratified Sampling (5Marks,December2010
8. Briefly explain five methods of sampling. (5 Marks June2011)

CHAPTER 13: VOUCHING AND VERIFICATION..... (Page No 152-178)

1. Write short explanatory notes on Cut-off Procedures .

2. List out the analytical procedures that you would adopt in audit of Revenue of an entity. What are the factors that
determine the extent of reliance on such analytical procedures?(7MarksDecember 2011)
3. You are the internal auditor of AB Manufacturing Co. Ltd. The Managing Director has asked you to enquire into the
causes of abnormal wastage of raw materials during the month of Mangsir 2067.Thewastage percentages are as
follows:
Bhadra,20671.2%
Ashwin,20671.1%
Kartik,2067 1.3%
Mangsir,2067 3.6%
How will you proceed to carry out the Assignment? (8 Marks December 2011)
4. Explain the analytical procedures that an auditor can adopt to verify inventories.(7Marks June2015)
5. Describe steps involved in the verification of the system of internal control for cash transactions.(3 Marks,
June2008)
6. PR Sharma & Co. appointed you as an assistant auditor for audit of a business organization. You were asked to
prepare internal control questionnaire for audit of payments of the organization. (5Marks December 2010)
7. On being appointed, the auditor of a company 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 are the risks involved? What could be your recommendations to mitigate the risks envisaged? (5 Marks
December2011).
8. XYZ has trade receivable balance of Rs. 1 crore as on year end date. The cut off procedure indicates that cheque
of Rs 25 lakhs received in the last week of the year was not entered in the books and it was entered in cheques in
hand register. In the history of the company the cheques are never lost or misappropriated and the cheques are
deposited within the first week of receipt. These cheques were also deposited and trade receivable balances were
accordingly reduced in the next year. Give your comments. (5 Marks June 2016)
9. How will you vouch \ or verify the followings?
a. Repairs to assets. (6 Marks, June 2001)
b. Income from investments. (4 Marks, June 2001)
c. Sale proceeds of Scrap. (5 Marks, June 2001)
d. Payment of taxes (3 Marks, June 2001)
e. Royalties received. (4 Marks, June 2001)
f. Advertisement Expenses (5 Marks each June 2002)
g. Remuneration paid to directors. (4 Marks each, June 2003)
h. Research and development expenditure. (5 Marks, June 2002, 4 Marks each, June 2003, 4
marks June 2004, 5 Marks June 2007)
i. Discounted bills receivable dishonored. (4 Marks each, June 2003)
j. Consignment sale. (4 Marks each, June 2003, 4 Marks June 2004, 4
Marks June 2005, 4 Marks December 2005)
k. Payment of dividends (4 Marks, December 2003)
l. Sales proceeds of junk materials (4 Marks, December 2003)
m. Assets acquired under hire purchase system (4 Marks, December 2003)
n. Borrowings from bank (4 Marks, December 2003)
o. Customs and excise duties (4 Marks each, June 2004)
p. Payments for acquisition of assets (4 Marks each, June 2004)
q. Purchase Returns: (4 Marks each, December 2004)
r. Loans Receivables: (4 Marks each, December 2004)
s. Long Term Debts (4 Marks each, December 2004)
t. Advances given to suppliers (4 Marks each, June 2005)
u. Cut off arrangement (4 Marks each, June 2005)
v. Capital work in progress (3 Marks December 2007 ,5 Marks June 2010)
w. Advertisement expenses (3 Marks each December 2007)
x. Gratuity to employees (3 Marks each December 2007)
y. Receipt of supplier‟s invoice for goods in transit. (3 Marks each June 2008)
z. Expenses requiring provision at the year end. 3 Marks each June 2008)
aa. Sales proceeds of scraps. 3 Marks each June 2008)
bb. Bills Receivables (2 Marks June 2008)
cc. Travelling Expenses (4 Marks June 2008)
dd. Salary and Wages (4 Marks June 2008)
ee. Personal expenses of directors met by the company (5 Marks June 2009)
ff. Preliminary expenses (5 Marks June 2009,5 Marks June 2011, 5 Marks
December 2011)
gg. Patents (5 Marks June 2009, 5 Marks December 2009)
hh. Advances given to suppliers (5 Marks June 2009)
ii. Forfeiture of Shares (5 Marks December 2006, 5 Marks June 2009, 4
Marks December 2005)
jj. Liability towards gratuity (5 Marks December 2009)
kk. Rental Receipts (6 Marks, June 2001, 5 Marks December 2009)
ll. Sale proceeds of scrap material (5 Marks December 2009)
mm. Insurance Claims (6 Marks, June 2001, 5 Marks December 2009, 5
Marks June 2007)
nn. Recovery of Bad-debts written off (5 Marks December 2010)
oo. WIP (5 Marks December 2010)
pp. legal Charges (5 Marks December 2010)
qq. Rental Receipts (5 Marks December 2010)
rr. Receipt of capital subsidy (5 Marks December 2010)
 ss. Purchase of quoted investment (5 Marks December 2010)
tt. Retirement gratuity to employees (5 Marks December 2010)
uu. Sales commission expenditure (5 Marks December 2010)
vv. Purchase return (5 Marks December 2010)
ww. Foreign traveling expenses of a directors in connection with a trip for exports and import of machinery for a new
project. (June 2002)
xx. Interest paid for plant machinery purchased on deferred credit. (June 2002)
yy. Receipt of compensation from the insurance company in respect of a motor accident claim. (June 2002)
zz. Loose tools manufactured in a factory for internal use. (June 2002)
aaa. Sundry Creditors for goods supplied: 5 Marks June 2002)
bbb. Purchase of an Office Building: 5 Marks June 2002)
ccc. Redemption of debentures at a premium. (4 Marks , June 2004)
ddd. Declaration of interim dividends. (4 Marks , June 2004)
eee. Issue of Bonus shares. (4 Marks , June 2004)
fff. Forfeitures and reissue of forfeited shares. (4 Marks , June 2004)
ggg. Preliminary Expenses. (4 Marks December 2005)
hhh. Recovery of bad debts written off two years ago. (4 Marks December 2005)
iii. Transactions with the directors (5 Marks December 2006)
jjj. Stock lying with third parties (4 Marks December 2006)
kkk. Contingent liabilities (6 Marks December 2006, 4 marks December 2005, 4
Marks June 2005) Or
Forward Looking Co Ltd is dealing with various transactions that could be well termed as contingent liability. As an
auditor, suggest some of the procedures for verifying contingent liabilities?(5 Marks June 2010)

lll. Retirement gratuity to employees (5 Marks, June 2007)

Bills payable (5 Marks, June 2007)
Bankruptcy Dividends (5 Marks June 2010)
Royalties received (5 Marks June 2010)
Calls in arrears (5 Marks June 2010)
Provision for income tax (5 Marks , June 2010)
Bank Borrowings (5 Marks , June 2010)
Premium paid for insurance of a Motor car. (5 Marks , June 2010)
Intangible assets (5Marks June 2011)
Sale of Investments (5Marks June 2011)
Leasehold property (5Marks June 2011, 5 Marks June 2010)
Personal expenses of directors met by the company (5 Marks December 2011)
Redemption of debentures at a premium (5 Marks December 2011)
Impairment of assets (5 Marks December 2011)

10. Write short Notes on the Following

a. Depreciation and Fluctuation in Value: (4 Marks June 2002)
b. Floating Charge (4 Marks June 2002)
c. Specific Reserves (4 Marks June 2002, 6 Marks June 2004)
d. Deferred Revenue Expenditure. (4 Marks June 2002)
e. Outstanding Assets (4 Marks June 2004)
 f. Casting or totaling (4 Marks June 2004)
g. Self-Balancing Ledgers (5 Marks June 2009)
h. Stock taking (8 Marks, December 2003)
i. audit of Impersonal Ledger? (8 Marks, June 2005)
j. Balance Sheet Audit (5 Marks June 2009)
k. Revaluation of Fixed Assets (2.5 Marks December 2014)
l. Audit of contingent liabilities ( 2.5 Marks June 2015)

11. Distinguish between Capital and Revenue Expenditures.(8 Marks, December 2003, 5 marks December 2006)

12. The machinery of M/s J.J Pharmaceutical Ltd. has been maintained in excellent conditions and is as good as new.
Therefore, the company has not provided depreciation for the year. (5 Marks December 2004)

13. In the previous year XYZ Co. Ltd, made a provision of 9% of the contract value on an ongoing project. The actual loss on
completion of the contract in the subsequent year was 10%. The management adjusted the difference in the previous year‟s
account. (5 Marks, December 2004)

14. How, as an auditor, will you satisfy yourself that all liabilities for expenses have been provided for in the balance sheet?
(8 Marks, June 2005)
.
15. Distinguish between Vouching and Verification: (4 Marks, December 2005).

16. How would you deal with the following situation?

A company manufacturing pharmaceutical intermediates receives its raw materials in big plastic containers. These
containers are sold or discarded by the company depending upon their condition. The containers lying in the go-down at the
year-end are neither valued nor accounted for. Containers sold are accounted for on cash basis.(5 Marks June 2009)

17. Give your opinions with reason on the following cases: (5 Marks each December 2009)
a) A sum of Rs.10,00,000 is received from an Insurance company in respect of a claim for loss of goods in transit costing
Rs.8,00,000. The amount is credited to the Purchases Account.
b) An auditor of a limited company did not verify the investment and 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 investments were misappropriated and the company suffered a loss.
c) BMG Ltd. is a manufacturing company produces durable consumer goods with an annual turnover of Rs. 100 crores.
The company receives orders from its commission agents all over the country, but goods are dispatched directly to the
customers. The documents including transport bills are sent through the bank for collection. At the end of the 6th year, it
is found that documents covering the dispatch of goods worth Rs. 10 crores were still lying with the banks not cleared by
the customers even though the normal collection period of 15 days from the date of dispatch has expired. Should
revenue be recognized in the above case?
18. Metro Developers Pvt. Ltd is Bharatpur based Real Estate Company. It has invested heavily on the apartments and
commercial complexes on and around Narayangarh. Recently, audit of the transaction for rental receipts was hastily
completed by taking monthly average figure and multiplying it by 12. You are required to suggest appropriate way of
conducting of audit for the above said transaction of rental receipts.(5 Marks June 2010).
19. State briefly the duty of the auditor with regard to:
A sum of Rs.10,00,000 is received from an Insurance Company in respect of a claim for loss of goods in transit costing
Rs.8,00,000. The amount is credited to purchases account.(7 Marks June 2011)
.
20. How would you safeguard your client against the payment for fictitious purchases?(7 Marks June 2013)
21. Distinguish Between Vouching and Verification. (5 Marks December 2006, June 2007, July 2015,December 2017)
22. Describe substantive procedures you should perform in audit to confirm the completeness and accuracy of payroll expense.
(5 Marks December 2016)
23. Write short notes on Vouching of Advances to the Suppliers (2.5 Marks December 2017)
24. As an auditor comment on the following situations:

a. A company had lost a legal action, which had been pending for the last three years and in consequence had
to pay Rs. 75,000 as duty for import of machinery and Rs. 10,000 towards costs. No provision appeared in
the previous year's accounts. (5 Marks June 2001)
b. A company has given a guarantee to the court for payment of Income-tax dues of Rs. 5 lakhs by one of its
subsidiaries. (5 Marks June 2001)
c. A company is depreciating its fixed assets on WDV method at a rate higher than the rate
prescribed by the Income-tax rules. (5 Marks June 2001)
d. One of the godowns of the company was destroyed in the earthquake in respect of which a claim of Rs. 4
lakhs was received from the insurance company including claim for the stock destroyed, the book value
whereof was Rs. 1,50,000. The cost of rebuilding the godown amounted to Rs. 5 lakhs. It has been debited
to Building Repairs Account. (5 Marks June 2001)
25. Give your views on the following issue:
The management of Agrawal Garments (P) Ltd. insists that as a part of statutory audit, the auditors must carry out physical
verification of fixed assets and inventories as a means of collection the necessary audit evidence as also to detect any
frauds. (5 Marks, December 2004)

26. Explain the main procedures to be adopted for verifying the investments. (6 Marks, December 2004, 5 Marks June
2006)Describe the manner of checking the following schedules prepared by the management at the end of the year and
indicate in detail, how such verification would assist the auditor in his work:
Schedule of Outstanding Liabilities (8 Marks, December 2001)
Schedule of Advances Recoverable (8 Marks, December 2001)
27. Express your opinion in the following cases: (5 Marks June 2008)
M/s Trade Link Ltd. incurred a heavy loss of finished stock of goods due to heavy rain in its store. The management treated
the loss as cost of goods and charged it to the cost of goods sold on the ground that ultimately it is cost for the company.
Give your opinion as a financial auditor for the treatment made by the company for such loss.
28. A manufacturing company includes depreciation consistently in its valuation of inventories of manufactured goods. In the
year 2066-67, the company decided not to provide depreciation in the books of account mainly because of lack of profits.
The company however included depreciation in stock valuation for the annual accounts even though depreciation was not
charged to Profit and Loss account during the year. Discuss. (4 Marks June 2009)
29. What are the basic procedures an auditor should follow while examining the records to verify the debtors of a company?(6
Marks June 2009)
30. As an auditor, how would you justify that all assets are reflected in the financial statement of an organization? (5 Marks June
2009)
31. Smart Telecom is one of the leading companies dealing with various tele-communication services, wireless networking and
internet related services. It receives huge collection of cash daily from its customer on various accounts. Everything looked
well, until one day it was noticed that large amount was missing in the bank account. In fact, that said amount was not
credited in the bank account at all
and it was missing since last few years. When the case was revealed, probably it was too late and all the said money was
lost.Considering the above case, what are the likely documents you would like to examine as an auditor of the company?
(5 Marks December 2009)
32. XYZ Hotels Ltd. has incurred loss and one of its illiterate directors wants your assistance to find out exactly what happened
in the company. He suspects that the company has paid excessive interest on its borrowing. He has found average of 12-
month end borrowing balance was Rs. 120 million and prevailing interest rate was 10% for the year. Interest paid for 12
months was Rs. 12 million. Suggest to the director on this matter how he can verify this matter. Give your opinions with
reason.(5 Marks December 2010)
33. As an auditor, express your comments/views on the following situations:(5 Marks each December 2010)
a. Trade and Trust Limited Company has a policy of writing back unclaimed balances (creditors/sundry payables etc.) as
income if it remained for more than 3 years. During the year 2066-67, it has written back Rs.14,050 out of Rs.55,000
balance in dividend payable as the Rs.14,050 was more than 5 years old.
b. You are auditor of Exim Limited which exports Pashmina Goods to M/s. ImexInc, of USA for the financial Year 2066-67.
The Company‟s around 75% sale constitutes export to Imex 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, 2067. Due to global recession, the Imex
Inc. has filed bankruptcy in USA on 15 Ashwin, 2067 which came to your notice during the audit.
34. Babarmahal Trading Ltd (BTL) is a wholesaler of Chinese goods and all accounting information is stored on BTL‟s
computer. You are the audit senior in charge of the audit of the receivables balance. Explain the audit procedures that
should be carried out on the receivables balance at BTL. (5Marks June 2011).
35. Give your comments on the following:
Xylocaine Communications Company is one of the leading companies dealing with various telecommunication services,
wireless networking and internet related services. It receives huge collection of cash daily from its customer on various
accounts. Everything looked well, until one day it was noticed that large amount was missing in the bank account. In fact
that said amount was not credited in the bank account at all and it was missing since last few years. When the case was
revealed, probably it was too late to recover the money. Considering the above case, what are the likely documents you
would like to examine as an auditor of the company? (5 Marks December 2011).
36. Highlight the Audit approach for the "Assets Abroad". (3 Marks December 2011)
37. You have taken up the assignment for Due Diligence Review of the financial statement as of 31 Asadh 2069 of Das Dhunga
Bank Ltd for facilitating the merger process with Lucky Finance Co. Ltd. Write down any seven points you have to pay due
consideration on carrying out the review on assets side (covering each asset category) of the financial statement.(7 Marks
December 2012)
38. As an auditor, express your comments/views on the following situations:(5 Marks December 2012)
While auditing the books of account of Manang Ltd., Chief Accountant did not produce the records of debtors saying that all
the debtors are paying all their dues in due date and insisted that the auditor need not verify the debtor‟s balance, as the
debtors are considered good by the management.
39. How will you verify the retirement gratuity to employees? (5 Marks December 2012).
40. The Company has sent semi-finished goods to third parties for further processing, which is laying with them at the end of the
year. Comment? (5 Marks December 2012)
41. Write down any five audit steps for the audit of Debtors. (5 Marks December 2013)
42. Cash book of an entity showed huge debit balances throughout the year. Comment(5 Marks December 2013).
43. As an auditor, how will you verify application and allotment money received on shares issued for cash? (5 Marks June
2014)

CHAPTER 14: AUDIT OF SPECIAL SECTORS .....(Page No 179-199)

1. Which special points you as an auditor would consider in auditing the accounts of a CharitableEducational
Institution? (16 Marks, JUNE 2001)
Or
What are the special steps involved in conducting the audit of an Educational Institution?
(14 Marks, June 2009, 7 Marks December 2011)

2. What special considerations will you keep in mind while auditing the Income and Expenditure of Club?(16 Marks,
December 2001)
Or
You are appointed as auditor of Big Star Club. State special consideration for audit of a club?(7 Marks December
2012)

3. What are the special steps involved in carrying out the audit of Hospital? (June 2002)
Or
Mention special points which you as an auditor would look into while auditing the books of account of Hospital. (7
Marks June 2012)
Or
What are the special issues involved in an audit of a hospital? (10 Marks, December 2006)

4. Mention the points to be considered in the audit of a leasing company? (16 Marks, December 2001)
5. Discuss special points involved in carrying out the audit of Hire Purchase and Leasing companies.(16 Marks,
June 2005)
6. What is the ideal approach while carrying out an audit of incomplete records?(8 Marks, December 2005)
 7. Discuss the important points in the audit of an educational institution. (9 Marks, June 2006)
8. Briefly state the important matters to be considered by the auditor in audit of a charitable institution.(10 Marks,
December 2006)Or
Discuss the special steps involved in carrying out the audit of a Charitable Institution.(8 Marks December 2003)
9. What are the special steps involved in audit of incomplete records?(5Marks, June 2007, 6 Marks June 2010)
10. Describe the procedures to conduct audit of sales under hire purchase agreement.(4 Marks, June 2008)
11. What are the special issues that should be covered during conducting audit of educational institutions? (8
Marks June 2008)
12. Association for Backward Communities (ABC) is one of the NGOs working in the Midwest part of the country.
There seems to be confusion regarding total receipt of the NGO as what could be the probable revenue sources
and how they should be vouched. The chief of the NGO is mostly on the foreign tour and the accountant of the
NGO simply says „boss knows everything and he is just clerk‟. What documents you will insist to check to deal
with the situation?(5 Marks June 2010)

13. A Donor has appointed you as an auditor for ensuring financial management capacity of the NGO before funding
made to the NGO to rely on the fund operating capability of the NGO. What would be your special focus area for
such assignment? (5 Marks June 2011)

14. Mention any ten special points to be examined by you in the audit of Income and Expenditure of a charitable
institution running a hospital. (10 Marks June 2011)

15. What are the steps followed while conducting audit of incomplete records? (5 Marks December 2011)

16. Nepal Engineers Association organized a three three-day national Conference of Engineers in Kathmandu. You
are asked to audit the accounts of the conference. Draft the audit program for audit of receipt of participation
fees from delegates to the conference. Mention any six point, peculiar to the situation, which you will like to
include in your audit program.(7 Marks December 2011)

17. Mention the special points in case of an audit of the entity from incomplete records.(8 Marks June 2012)

18. District Education Office has appointed you as an auditor for some community schools of Humla District. What
special points do you consider while doing audit of such schools? Explain. (5 Marks June 2013).

19. Help- SIPA, an NGO registered in Nepal raises funds from members, donors or contributors to support victims of
Earthquake of Sindhupalchok. Explain the points which you will consider in preparing the Audit Programme of
this NGO. (5 Marks July 2015)

20. Mr. Abhyudaya has been appointed as an Auditor of Kashvi Enterprises. After appointment, the books of Kashvi
Enterprises have been destroyed by earthquake. State the extensive procedures to be followed for audit in such
scenario. (December 2015)

CHAPTER 15: GOVERNMENT AUDIT .............(Page No 200-209)

1. What are the special features if the audit of Public Sector undertakings? (JUNE 2002)

2. What do you understand by the term "Government Auditing”? (8 Marks, June 2003)

3. Write short notes on Propriety audit (4 Marks December 2003, 4 Marks June 2005)

4. Explain propriety audit in the context of Audit Act, 2048. (5 Marks July 2015)

5. What are the matters to be audited in view of propriety as per Audit Act, 2048 as amended in 2075?

6. Write Short Notes On:

a) Performance Audit (5 Marks June 2002, June 2004, December 2010)

b) Features of government audit (2.5 Marks June 2013)

c) Government audit in Nepal (2.5 Marks December 2015)

7. Distinguish between the following: Propriety Audit and Performance Audit (5 Marks June 2006, June 2007)

8. Powers to issue Directives by the Auditor General (2.5 Marks June 2017)

9. Pandit & Associates is the firm of practicing chartered accountants. The firm accept the audit of Siddhartha Ltd. where
Government of Nepal (GoN) holds 60 % ownership. What is the responsibility of Pandit & Associates before accepting such
audit? Comment (5 Marks December 2017)

CHAPTER 16: COMPANY AUDIT ............(Page No 210-213)

1. C& Z co. was a statutory auditor of CTZ Ltd. for the FY 2059/60. he submitted the audit report to the co. on Poush
15,2060. the company called the annual general meetings on 30 poush,2060. To the date of annual general meeting C
& Z Co. holds the office of the auditor of the Co. But the co. secretary did not notice the auditors to attend the general
meeting saying that the auditors‟ job is completed before the annual general meeting. (5 Marks- December 2004)

2. Briefly explain the steps to be considered necessary for carrying out the audit of “Share Transfer”?(10 Marks,
December 2004)

3. Describe the stages in the issue of shares for cash? (4 Marks December 2005)

4. Write short notes on

Option on share capital (4 Marks June 2008)

5. Comment on the following: The Members of Board of Directors of M/s Kantipur Bank Ltd. could not meet for meeting to
decide on an important issue that required immediate decision. The chairman of the Board of Director instructed
Company Secretary to draft the minute and circulate it to sign by all the members as he had already talked the issue
with other members and they had agreed to sign even there was not meeting. Examine the validity of the decision
taken by the Board of Directors in view of Companies Act, 2063.(4 Marks December 2012)

6. Veri Ltd. is the Public Ltd. Company. It has not appointed Company Secretary. As an internal auditor of the Company
suggest whether the company has to appoint the Company Secretary including for the required qualification of the
Company Secretary. (5 Marks June 2014)

7. Answer/Comment on the following: (2*5=10 June 2019)

a) Explain the disqualifications of auditors as per Section 64 of Banks and Financial Institutions Act, 2073.

b) RGS & Co. a firm of Chartered Accountants has three partners, namely, R, G & S. The firm is allotted the audit of
BY Ltd. Mr. R, partner in the firm subsequently holds 100 shares in BY Ltd. Comment.

CHAPTER 17: AUDIT CONCLUSION AND REPORTING....................(Page No 214-242)

1. Distinguish between Clean Audit Report and Qualified Audit Report. (4 Marks, June 2003)
2. Write short notes on Disclaimer of Opinion and Adverse Opinion(4 Marks, December, 2003, 4 Marks June 2007)
3. How do you express your view as an auditor in the following case? (5 Marks each June 2004)

a) ABC Ltd. has earned a lower profit during the finance year 200X and its assets were idle for more than Seven months
 during the period. During the finance year it has a profit of Rs. 400 thousand, before providing depreciation, and the board
of directors decided for not to provide depreciation on assets, amounting to Rs. 500 thousand, during the finance year.
b) C Company did not produce the records of the debtors to the auditor saying that all the debtors of the company are paying
all their liabilities in due date. And the chief accountant of the company insisted that the auditor need not verify the debtor's
balance, as the debtors are considered good by the management.
c) XYZ Ltd.‟s total turnover for the Finance Year 200X is Rs. 100 lacs and it includes Rs. 1.50 lacs of By-Product sales.
Whereas, the by-product sales are included under the miscellaneous income of the financial statements and is not
separately disclosed in the income head.
d) J Ltd. is a very famous and 50 years old company and is operating through its own premises which is situated in a costlier
locality of the city. During the finance year 200X the auditor observed the following information from the financial statement
of the company:

Share Capital (Issued, Called and Paid up) Rs. 100 Lacs
Reserve and Surplus (including undistributed profit) Rs. 50 Lacs
Term Loan and Current Liability Rs. 200 Lacs
Fixed Assets at Book value Rs. 150 Lacs
Current Assets Rs. 50 Lacs
Current Years Profit (Loss) (Rs. 150 Lacs)

4. As an independent financial auditor, how would you deal with the following situations?(4 Marks each, June 2004)

a. An enterprise changes the method of depreciation from written down value method to straight linemethod.
b. Dividend @10% for the year 2059/60 has been proposed by the company on Shrawan 30, 2060 (i.e. after the
balance sheet date) and therefore not adjusted in the financial statement of 2059/60.
c. A company has borrowed substantial funds for construction of a new plant. The work on the plant is completed
and the plant is ready to be put to use on 28th February 2003. The company capitalizes the interest on borrowed
fund for the period up to 31st March, 2003.
5. State with reasons your opinion in regard to treatment of the following transactions appearing in the books of account. (4
Marks each, June 2004)
a) Travelling expenses incurred by directors for acquisition of plant & machinery.
b) Non-technical staff's salary during the period of installation of plant & machinery.
c) Major repairs to assets.

6. State with reasons your views on the following :(5 Marks each, December 2004)
a) The Nepal Stock Exchange suspended trading in shares of Kasthmandap Ceramics (P) Ltd. (KCPL) after it was de-
listed on 15 Ashadh 2061 due to non- payment if listing fees. On 14 Ashadh 2061 the shares of the company, with the
face value of Rs.100, were traded at Rs.90per share. Alpha Beta co. (P) Ltd. (ABCPL) held 1500 shares of KCPL as its
current investment. The shares were acquired at a price equal to the face value of shares. In the financial statements of
31stAshad 2061, ABCPL stated the value of investment in shares of KCPL at the cost price.
b) In the financial statements for FY 2059/60, Makalu Finance Co. Ltd. (MFCL) had provided Rs.45 lacs towards provision
for income tax. The advance tax paid that year was Rs.60 lacs. Internal Revenue Office assessed Rs.55 lacs as tax for
FY 2059/60. In the financial statements of FY 2060/61, MFCL showed the amount of tax short provided in FY 2059/60
and paid in FY 2060/61 amounting to Rs.10 lacs as appropriations from the distributable profits for FY 2060/61.
c) In connection with the audit of Gamma Delta & Co. (P) Ltd. (GDCPL) for the year ended 31stAshadh 2060, the audit
staff found that as a result of an improper cut-off of inventory shipments at the end of the year, approximately Rs.50, 000
of sale applicable to the subsequent year was recorded in the current year. The management of GDCPL refuses to
adjust the financial statements for the Rs.50, 000 errors.)
d) CD Co. Ltd. a fully subsidiary Co. of AB Co. ltd. was sold by AB Ltd. to ER Ltd. on Bhadra 15 of FY 2061/62 and on 15
Aswin 2061 the Board of Directors of AB Co. Ltd. approved the Financial Statements of FY 2060/61. Is it necessary to
disclose the transaction in the financial statements of FY 2060/61?
7. State with reasons your opinion regarding accounting treatment of the following transactions appearing in the books of account
of Valley Finance & Savings Co. Ltd. (one-year old company) for financial year 2060/61: (4 Marks each, December 2004)
a) Rs.10 lacs were paid to Info-Tech Solutions (P) Ltd. for supply and installation of accounting software.
b) Share underwriting charges of Rs.6 lacs was paid to the issue manager‟s Venture capital Markets Ltd.
c) Company registration charges, legal charges, administration and other expenses totaling Rs12 lacs was incurred during
the first six months prior to commencement of business by the company.
d) Rs. 4 lacs remained unclaimed by several applicants who were not allotted any shares by the company.

8. Distinguish between Qualified Opinion and Adverse Opinion (4 Marks, December 2004)

9. Express your views as an auditor in the following cases: (5x4 = 20 Marks, June 2005)
a) Mr. Ram Singh Kathayat, FCA has been doing audit of ABC Co. Ltd for the past few years. His experience as
auditor of the company for the past few years shows that accounts of the company are always in order. The
managing director of ABC Co. Ltd. requested him to issue an unqualified audit report without conducting the audit
for the year since the audit for the year since the audit report is positively required the next day if the company is
to secure a very good contract.
b) As at the beginning of the year, M/s ABC Ltd. has a capital of Rs. 250 Lakhs, free reserves of Rs.50 Lakhs and
Revaluation Reserves of Rs.450 Lakhs. In the relevant year under the audit, ABC Ltd. has incurred a loss of
Rs.400 lakhs. The company proposes to adjust the loss with the revaluation Reserve.
c) XYZ Company Ltd. did not manage their closing stock of finished product and raw material properly, as a result of
which physical verification of such items could not be carried out properly by the management. However,
management certified the list of stock as true and correct balance of the stock as on the Asadh end 2061.
d) Alex Co. Ltd. wants to provide for non-moving stock during the financial year ending 2060/61 based on technical
evaluation:
Total Value of Stock Rs.2 Crore.
Provision required based on one-year issue Rs.4Lakhs. Provision required on the basis
of technical evaluation Rs.3 Lakhs.

Give your view as an auditor of Alex Co. Ltd.

i. Does this amount to change in Accounting Policy?
ii. Can the company change the method of provision?

10. Distinguish between:

a) Explanatory Notes and Qualificatory Notes. (4 marks December 2005)
b) Disclaimer of Opinion and Adverse Opinion. (4 marks December 2005)
11. What will be your views on the following issues/statements? (4 Marks each December 2005)

a) Mr. RJ Thapa, Chief Accountant booked the expenses of Rs.5,00,000/- incurred in structural modification in the
construction of building of factory premises. He charged this expense in building repairs account.
b) M/s ABC Ltd. sold a plot of land at Rs. 15,00,000/- as the same is not required for use whose cost to the company is
Rs.8,00,000/- resulting thereby a profit of Rs.7,00,000/- on this sale. M/s ABC Ltd. credited entire profit of Rs.7,00,000/- to
the profit and Loss Account. The boards of directors are planning to propose a dividend out of profit made from this sale.
c) A company commenced production on Magh 1, 2061 after a construction period of 3 years. No profit and loss were drawn-
up during the construction period. Now, the company proposes to capitalize all the expenditure incurred during that period.
Just before the end of the construction period, some scrap was sold. The sale proceeds are proposed to be credited to
miscellaneous income

12. State with reasons your opinion in regard to treatment of the following transactions appearing in the books of account. (7
Marks, June 2006)
a) Travelling expense incurred by directors for acquisition of plant and machineries.
 b) Non-technical staffs' salary during the period of installation of plant and machinery.

13. Give your opinion on the following issues:(5Marks, each December 2006)
a) While auditing the financial statements of M/s Sita Ram Ltd. for the year ended on Ashadh 32, 2063, the statutory auditor
came across the case where there has been an error in the valuation of inventory, which affects the financial statements
materially. As a statutory auditor of the said company how would you deal in such situation? Comment in line with NSA
240.
b) M/s ABC Company Ltd. has scrapped a semi-automatic part of a machine (not entirely written off) and replaced with a
more expensive fully automatic part. As a result, it has doubled the output of the machine. The machine so scrapped was
moved to a more suitable place in the factory. This involved the construction of a new foundation in addition to the cost of
dismantling and re-erection. The company wants to charge the whole expenditure to revenue. Give your comment as the
statutory auditor of M/s ABC Company Ltd.
c) A fraud was detected in M/s Thompson Finance Company Ltd. The Chief Finance Officer of the company was found to be
involved in the fraud. The amount involved was subsequently deposited by the Chief Finance Officer who insists that it
need not be reported upon. As a statutory auditor of the said company how would you deal in such situation

14. As an independent financial auditor, how would you deal with the enterprise which has invested a substantial amount in the
shares of another company under the same management. The market price of the shares of the aforesaid company is about
half of that at which these shares were acquired by the enterprise. The management is not prepared to provide for the fall in the
value of shares on the ground that the loss is only notional till the time the shares are actually sold.(5 Marks December 2006)
15. Express your views as an auditor in the following cases: (5Marks, each June 2007)

a) A company has received a final assessment order from the Inland Revenue Office for the FY2058/059.
The assessment order has provided a tax credit of Rs. 15 lakhs being the advance tax paid
in the FY 2058/059. On review of the books of the Company, you came to note that the credit granted was
erroneously charged to the Profit and loss account in the year it was paid. The management seeks your opinion
on the mode of presentation of the tax credit in its financial statements.

b) M/s M & N Company Ltd. is an exporter of Nepali handicrafts. During the FY 2062/63 it sold the handicrafts
amounting to US $ 500,000 out of which US $ 100,000 was on credit which was outstanding and included in
debtors account at the year end. The sales were booked at US $ 1 = NPR. 70.00, which was exchange rate on
the date of sales. However, on the closing day of the year the US $ became costlier the exchange rate being US
$ 1 = NPR 74.00.

The company does not want to account for profit arising out of change in exchange rates for the FY 2062/63 on
the ground that this is notional and no settlement of debtors was done during the year.
16. A and B are Chartered Accountants. They have a partnership firm named AB & Co. AB & Co is the auditor of X limited of which
B is engagement partner. S, a shareholder of the company has filed complaints against AB & Co in the Institute of Chartered
Accountants of Nepal for following faults. You are requested to advise the Institute whether the points raised in the complaints
are valid. The points raised in the complaints are given below:
(5 Marks, December 2007)

a) The company increased sales price of the products from 1stShrawan 2064. To gain profit, the salesman
of the company raised invoice on 31stAshadh 2064 for some goods. The goods were adjusted in invoices raised
on or after 1stSharwan 2064. The company has neither a policy of physical verification of stock nor certification
of ending number of invoices at the year end. The auditors are of the view that it is not a material internal control
weakness and did not report the same.
b) A, the partner of the AB & Co purchased goods worth Rs. 5,000 from the company on 1 stAshadh 2064 on credit.
The company has a policy of normal credit period of 15 days to regular customers. The amount of credit
purchase was paid while finalizing the audit report for the year 2063/064 during Aswin 2064. Auditors are of the
opinion that the transaction is of personal nature. Therefore, it does not apply to the firm.
 c) The company purchased a motor car valued at Rs. 6,00,000 on hire purchase basis on 1 stBaishakh 2064. The
payment is to be made in 60 Equal Monthly Installments of Rs 15,000. The company debited Vehicle account
and created liability to the bank by crediting Rs. 9,00,000. The amount of installment is debited to the financing
bank account as and when paid. The auditors have not mentioned anything in the report about this.
d) The company does not include selling and distribution cost while valuing inventory. The auditors have certified
inventory at value without taking selling and distribution cost as cost of inventory.
17. Just before the year end, a fire broke out in the warehouse of M/s RM Manufacturing Ltd. thereby destroying the huge chunk of
raw materials which forms major part of company‟s current assets.The management was unable to ascertain the value of the
raw materials destroyed in the fire. Insurance claim was lodged for the book value of whole inventory. The claim is pending at
the time of finalization of accounts and the company does not want to make provision for losses and wants to show whole
amount as insurance claim receivable. Give your comments.(5 Marks, June 2008)

18. You are the audit manager on the audit of Hindus Limited. The audit senior has completed the audit of the company for the
year ended Ashad 31, 2065 and submitted a draft audit report for your review. The following paragraphs have been extracted
from the draft audit report:
'We conducted our audit in accordance with the auditing standards as applicable in Nepal. These standards require that we
plan and perform the audit to obtain………. We believe that our audit provides a reasonable basis for our opinion and, after due
verification, we report that:
We did not observe the counting of the physical inventories as of Ashad 31, 2065, since that date was prior to the time we were
initially engaged as auditors of the Company. Owing to the nature of the Company's records, we were unable to satisfy
ourselves as to the quantities of inventory by other audit procedures.
In our opinion and to the best of our information and according to the explanations given to us, the balance sheet ------------------
--so required and respectively give a true and fair view of the view of the state of the Company's affairs as at Ashad 31, 2065
and of the loss, its cash flows and changes in equity for the year then ended.
The Company's liabilities exceed its assets at Ashad 31, 2065 creating an adverse situation which management believes is
reversible over the coming twelve months. Management further believes that the Company is capable of continuing in operation
for twelve months from the date of this report"
Identify the shortcomings in the above paragraphs extracted from the audit report.(10 Marks December 2008)

19. What does qualified opinion mean? What are the situations in which the auditor should qualify the assurance report?(4 Marks
June 2009)
20. Write short notes on Modified Auditor's Report:(5 Marks December 2009)
21. Write short notes on Disclaimer of opinion (5 Marks June 2010)
22. An auditor of New Nepal Ltd. audited and signed the accompanying financial statement of the company as of July 15, 2010
(Corresponding to 31stAshad, 2067). Date of the signature of the audit report was August 16, 2010. Give your opinion with
reasons (5 Marks December 2010)
23. What are the basic elements of the Auditor‟s Report? (10 Marks June 2011)
24. TIGS & Company is the appointed auditors of RACE Ltd. After completing the audit but before issuing report, the auditor has
come to the conclusion that an unqualified opinion cannot be expressed but that the effect of the disagreement with the
management is not so material and pervasive as would require an adverse opinion. Advice in detail how should he report (5
Marks December 2012)
25. Under what circumstances an independent auditor can issue comfort letter to his/her client?(5 Marks June 2013)
26. Explain the situations of modifying the auditor‟s report as per NSA. (8 Marks July 2015)
27. Explain the Process of judgment formation by Auditor (5 Marks June 2009)
28. Present the illustrative auditor's report for an audit of financial statements prepared in accordance with NAS expressing an
unqualified opinion. (8 Marks December 2009)
29. Distinguish between the following:
a) Unqualified Audit Report and Qualified Audit Report. (5 Marks December 2006, December 2009, June 2008, December
2015)
b) Audit report and certificate (5 Marks December 2013, June 2018)

30. Write short notes on the following:

a) Date of auditor‟s report (December 2015)
 b) Competence and objectivity of the expert engaged by auditor (5 Marks June 2016)
31. Write short notes on the following: Limited Assurance Engagement (2.5 Marks, June 2019)

CHAPTER 18: APPOINTMENT OF AUDITOR

1) Comment and give your observations on the following:

a) Mr. A, who was appointed the auditor of the Company in its Annual General Meeting, resigned
before the completion of his term of appointment. The casual vacancy thus created was filled in by
the Board of Directors.(5 Marks, June 2001)
b) UFO & Co. Chartered Accountants were appointed as the first auditors of newly formed public limited
company, APC Ltd. The terms of UFO & Co. have expired and APC Ltd. now proposes toappoint new
auditors due to difference of opinion with UFO & Co. without giving a special notice. (4 Marks,
June 2001
2) All-in-One Limited in general meeting authorized its Board of Directors to fill up the vacancy inthe
office of auditor, which was caused by the resignation of an auditor.
(6 Marks, June 2001)

3) Some of the shareholders of RNP Limited have written letters to auditor of the company demanding
copies of audit report for their perusal and further action. The auditor is in no mood to oblige the
shareholders. (6 Marks, June 2001)
4) M/s AB& Co. were the Statutory Auditors of M/s MNP & Co. Ltd. for last several years. Board of
Directors were not happy with the services rendered by M/s AB & Co. Hence, they appointed M/sCD
& Co. as Statutory auditors by passing a Special resolution in the board meeting. (6 Marks, June
2001)
5) M/s P. Ltd. was incorporated on 1st April 2001. The Board of Directors of M/s P. Ltd appointed M/s
MSP & Co. as auditors within one month of its date of incorporation. The shareholders objected to
the appointment of M/s MSP & Co. as auditors and wish to remove M/s MSP & Co. before the
conclusion of the annual General Meeting (6 Marks, June 2001)
6) What are the powers of auditors? (4 Marks, June 2004)
7) The term of C & Co. as an auditor of CTZ Co. was up to FY 2059/60, and the co. did not appoint anew
auditor in the annual general meeting, held on Poush 30, 2060. Comment (5 Marks December 2004)
8) Explain on disqualifications for appointment of auditors of a company? (4 Marks, December 2004)
9) Explain the provision for appointment of first auditor of the company.
10) Comment on the following situation: (4 Marks each, June 2005)
The Annual General Meeting of the M/s J.J Pharmaceutical Ltd. was held recently. At the Annual
General Meeting, a resolution was passed by the entire body of shareholders restricting some
powers of the statutory Auditors

M/s ABC & Co., Chartered Accountants, were appointed as the first auditors of Manakamana Bank
Ltd. by the Board of Directors

11) State the provisions of the Company Ordinance, relating to:(5 Marks, June 2006)
a) Appointment of first auditor.
b) Appointment of auditors at annual general meeting.
c) Appointment of auditors in case of casual vacancy.
d) Change an auditor other than the first auditor before the expiry of his term.

12) Answer the following: (5 Marks each December 2016)

 a) Discuss about the procedure mentioned in Companies Act, 2063 regarding appointment of
auditors.

b) Discuss about provision relating to removal of appointed auditor as per Companies Act, 2063.
13) Briefly explain the power of auditors under the Company Act
14) "A company auditor can exercise his rights to the extent not restricted by the terms and conditions
ofappointment." Comment.
15) As an auditor, comment on the following situations in line with Companies Act, 2063.
16) In case of reappointment of existing auditor at the Annual General Meeting, the auditor refusedto
accept appointment. State whether the Board of Directors could fill up the vacancy.(5 Marks,
December 2006)
17) Describe the process for appointing auditor of a company by the Registrar of Company.(5 Marks,
June 2007)
18) Explain the provisions of Audit Committee as per the Company Act 2063.(5 Marks, December, 2007)
19) Express your views on following cases: (4 Marks December 2010)
Annual General Meeting of Nepal Petro Limited failed to appoint auditor for the fiscal year 2066-67.
The Board of Directors appointed the previous auditor reasoning that the previous auditor has
conducted audit for two consecutive years only and hence he is eligible.

20) Managing Director of East Nepal Bank Limited tells you that since AGM has appointed you as Auditor
of the Company and every shareholder knows it, there is no necessity of executing/signing audit
engagement letter. Express your view on this matter. (4 Marks December 2010)
21) XYZ Co. Ltd. reappointed A and B as their joint auditors in the Annual General Meeting. The AGM
authorized the Board for fill up the vacancy on their own in the event of both or either of auditors
declined to accept the assignment. The Board passed a resolution to appoint C if any ofthe
auditors declined to accept the assignment. B declined to accept the assignment and Board of
Directors appointed C in place of B as per its resolution. (5 Marks December 2012)
22) Ramu & Co. had conducted the audit of XYZ Limited for the financial years 2067/68, 2068/69 and
2069/70. CA. Raman Saha, partner of Ramu & Co, left the firm on 1 Baishakh 2069. CA. Raman Saha
has been appointed as the auditor of XYZ limited for the year 2070/71. ( 5 Marks December 2013)
23) of Ms. KD was appointed as auditor in 10th AGM of Neupane Limited. She was removed byBoard of
Directors when she was out of Nepal on personal visit. (5 Marks June 2014)
24) Answer the following: (5 Marks each June 2016)
a) Write down the functions, duties and powers of audit committee Company Act, 2063.
b) Write down the disqualifications of the auditor as per Company Act, 2063.
25) CA Aarjit Dongol has been appointed as statutory auditor of MNO Limited for the fiscal year 2072/73.
He has been holding certain paid up share capital of the company since the year 2070. Is the
appointment of CA Dangol valid? (5 Marks each June 2017)
26) Describe the functions and duties of auditors as per Companies Act, 2063. (5 Marks June 2018)
27) Give your comments on the following cases (5 Marks each December 2018)
a) Mr. A, an auditor of Cold Drink Company has obtained trade secret formula during audit process. A
Case was lodged against Cold Drink Company for putting non-edible components in the drink.
Subsequently, auditor was called by Supreme Court to provide documents and his knowing in the
formulae. He shared the information he has received on formula of Cold Drink Company. Mr. B,
lodged complaints to ICAN that, Mr. A has violated Code of Ethics on the ground of breach of
confidentiality.
b) Mr. Ajay, a practicing Chartered Accountant receives commission from Mr. Sanjay, another practicing
Chartered Accountant Rs. 175,000 being 25% of the audit fee for the referral ofstatutory audit of
company limited, a listed company
28) Answer/Comment on the following:(5 Marks December 2018)
a) Significant Familiarity and self-interest threats are noted due to using of same senior personnel on
 an audit engagement over a long period of time. What are the safeguards to be applied to eliminate
such threats or reduce them to an acceptable level?
b) Explain situation resulting in threat to objectivity and threat to fundamental principles arising from
conflict of interest with examples.
29) During the fiscal year 2073/74 ABC & Co., Chartered Accountants, a proprietor Firm have done the
following Statutory Audits.
Listed Company: 3

Limited Company: 10 Private Limited Company: 75INGOs: 5

In the fiscal year 2074/75, one existing listed company did not continue as auditor and other two
companies have approached to the firm to appoint as auditor. In addition, 2 other limited
companyand 2 NGOs approached to the firm for the audit of FY 2074/75.

30) Mr. Kumar KC is practicing as a Chartered Accountant from his proprietorship firm. He nominated Mr.
LK Khatri as partner on profit sharing basis. Mr. Khatri, is not the member of ICAN. (5 Marks
December 2018)
31) As an auditor, give your opinion with explanations on the following case: (5 Marks December 2018)
a) The annual general meeting of Nepal Hydropower Limited failed to appoint the auditor for the fiscal
year 2074/75 due to time constraint and delegated power to the board under the terms
recommendedby the audit committee. The board of directors appoints M/s ABC & Co., Chartered
Accountants as auditor. Do you think the appointment is valid?
32) Answer the following:
Miss Shristi, a Chartered Accountant, has been appointed as an auditor in the 22nd AGM of
M/sKantipur Ltd. She was removed by Board of Directors when she was abroad for her personal visit.

(5 Marks December 2018)

CHAPTER 19: PROFESSIONAL ETHICS........(Page No 247-272)

1. Mr. X, a partner of X & Co., Chartered Accountant died of a heart attack on 30.3.2003 after completing the entire
routine audit work of T Ltd. Mr. Y one of the partners of the firm, therefore signed the accounts of T.Ltd. Without
reviewing the finalization work done by the assistants.) June 2003.
2. A senior assistant of X & Co. Chartered Accountants drew up his audit program without evaluating internal controls
of T Ltd. When the partner asked for the reason, he stated that the controls were developed by the General
Manager (Finance) of T. L td. Who is a Chartered Accountant and had written few books on "Internal Control" and
therefore there was no need to review the said area. (June 2003)
1) State your views on the following:
"The auditor can always exercise lien on books and documents of his client for non-payment of fees due to him." (6
Marks, June 2001)

2) Mr. X a Chartered Accountant was in full time employment with M/s YZ Ltd. Subsequently Mr. Xwas appointed as
auditor of PQ Pvt. Ltd. for the year 2002-2003 by the board of Directors (5 Marks June 2002)
3) 60% of the paid-up Capital of M/s UM Ltd. is held by the Central Government M/s XYZ & Co. firm of Chartered
Accountants were appointed as statutory Auditors of M/s UM Ltd. by passing an ordinary resolution in the Annual
General Meeting (5 Marks June 2002)
4) Discuss the validity of appointment of auditors in the under mentioned case:
a) Mr. Y Chartered Accountant was appointed on the auditor of X Ltd. at the general meeting. Mr.Y declined to accept
 the appointment since the remuneration fixed by the general meeting was less than the proposed by Mr. Y. On Y
declining to accept appointment, Board of Directors of X Ltd. appointed Z & Co. as its auditor. (4 Marks, December
2003)
5) Auditor‟s professional responsibilities are governed by basic principles. Comment.
OR (5 Marks December 2005)

Compliance with the basic principles requires the application of auditing procedures and reportingpractices
appropriate to the particular circumstances

6) Give your opinion on the following issues: (5 Marks,June 2006)

a) Your spouse is a director in a public limited company. You receive an offer of appointment from the company to
audit its annual financial statements. What considerations would you have in mindin deciding whether to accept or
not to accept the offer.
b) Mr. Ram Sundar a Chartered Accountant, is tax consultant of ABC Ltd. for the current fiscal year.For this purpose,
he has to attend the company from 9 a.m. to 3 p.m. and is paid monthly
7) Express your views as an auditor in the following case: (5 Marks, June 2007)
You are the auditor of Honey Enterprise as well as Money Enterprise. Both of the clients are garment industries. You
came to know that in the previous year one of your audit trainees was paid Rs. 5,000by Money Enterprise for
providing some sales related information of Honey Enterprise.

8) Express your opinion in the following cases:

Mrs. Rukmani Sharma is a shareholder of M/s Real Company Ltd. holding 2% of paid upshare capital of the
company. The company wants to appoint Mrs. Rukmani‟s spouse Mr. Janardhan Sharma, a Chartered Accountant in
practice, as the auditor of the company for the year 2064/65.

9) Ramila & Associates is a proprietorship firm of chartered accountant. Ramila, the proprietor of the firm, was the board
member of Lalima Bank Ltd till 32 Asadh, 2067. During the AGM of Bank for the financial year 2066/67, she has been
appointed as statutory auditor for the financial year 2067/68. Should she accept the said appointment?(5 Marks
December 2010)
10) Mr. Yadav, a Chartered Accountant in practice enters into an agreement with Mr. Puspa Adhikari, an individual who
has passed one group of CA final 2 years back. The agreement provides that Mr.Puspa Adhikari shall work in all
professional assignments of Mr. Yadav and shall receive 15 percentof fee received from such assignments as
remuneration. Explain whether the agreement is in order as per Code of Ethics or any other relevant reference? If
remuneration is based on cash flow, does it violate the provisions of the Code of Ethics? (5Marks June 2011)

11) During the audit period, the liaison officer deputed by the client Lumbini Insurance Company constantly asks you to
participate in lunch arranged outside office premises. He has also informed youthat there is a program of welcome and
farewell dinner too. Liaison officer has also informed you that you need not worry about time schedule, as there would
be someone available among client's staff to bailout if needed. Daily newspapers and magazines are made available in
plenty in the audit room. Other staff of the client are also having regular visit in the working area. (5 Marks, December
2011)

12) ABC Ltd. has made loans to (i) X, who is a Director of the Company, (ii) Y and Co. in which relative of X, is a
partner and (iii) LM Private Ltd., which is the subsidiary of ABC Ltd.
Discuss briefly your duties as the Statutory Auditor of ABC Ltd (6Marks, December 2001)

13) Discuss the validity of the appointment of the auditor in under mentioned case and give reasons forthe same.
 Mr. Y a Chartered Accountant mentioned that he is holding the office of statutory auditor in 12 public companies, 6
Corporations and 2 foreign companies. X Ltd. a public company having paidup share capital of Rs. 26 lacs, appointed Mr.
Y as its statutory auditor as the limit specified by the Company Act does not exceed. (4 Marks, December 2003)

14) The explanatory notes which should be adopted while applying ICAN‟s code of ethics. Give your view.
(4 Marks, December, 2003)

15) What are the powers of auditors? (4 Marks, June 2004)

16) M.P. Bhattarai FCA, a sole practitioner, met with an accident and fractured his right wrist which had to be put in the
plaster cast. Due to his inability to write by his hand, he authorized his employee Shyam Prasad Gautam CA to sign the
audit report on his behalf so as not to delay certification of financial statements of his clients. Comment (5 Marks
December 2004)
17) The 15th AGM of Sagarmatha Gems (P) Ltd. (SGPL) held on 15 Magh 2060 appointed Hari Krishna Neupane FCA, sole
proprietor of KKN & Co., as statutory auditor for FY 2060/. H.K. Neupane immigrated to Los Angeles, USA on 15
Baisakh 2061 on diversity visa. Before his departure to USA, HK Neupane converted his sole proprietorship firm into
partnership firm by admitting Shyam Prasad Chattaroy as a partner of the newly registered firm HKN &Co. The SGPLdid
not allow S.P Chattaroy to audit the books of accounts of the company stating that the firm wasnot appointed as
auditors of the company by the AGM. Comment (5 Marks, December 2004)
18) Write short notes on the followings:
a) Independence of auditor
19) Mr. A, a practicing-chartered accountant receives commission from Mr. X, another practicing chartered accountant Rs.
50,000 being 50% of the audit fee for the referral of statutory audit ofXerox Company Limited, a listed company. State
your views. ( 5 Marks, June 2009)
20) Mr. Nimesh, a partner of TMS & Associates, a practicing Chartered Accountant in its businessletter head prints its
previous association as member Secretary to one of the reputed political party of the country. State your views.(5
Marks, June 2009)
21) Mr. Shah has recently joined as Audit Partner of SSS & Co., Chartered Accountants. On assuming the responsibility,
he discovered that the firm does not have comprehensive guidelines for “Engagement Quality Control Review”. He
wants to bring this issue to the notice of Managing Partner.
You are required to prepare discussion points for Mr. Shah explaining the followings:

The basis of selecting engagements for review;

Nature and timing of review; and

Criteria for eligibility of engagement quality control reviewer. (10 Marks June 2009)

22) Your firm is a member of an internationally recognized network of accountancy firms and provides wide range of
professional services. A large multinational company, East to South wishes to have a business presence in Nepal.
Having completed the necessary regulatory formalities, the management ofthe company has approached your firm for
appointment as auditors. The management has also requested you to provide the following services in the current
year:
Carry out market search to identify the parties engaged in distribution business. The feewill be dependent on the
eventual appointment of the distributor by the management;

Recruit professionals in the position of Head of Finance and Internal Audit;

Provide a general ledger package that has been developed by your firm.

Explain your company's position to accept or reject assignments offered in light with the provisions of Code of Ethics
and other pronouncement of the Institute (5 Marks June 2009)
 23) Comment on the following: ( 5 Marks each December 2009)
a) Mr. A, a Chartered Accountant gave 50% of the audit fees received by him to the person, who was not a Chartered
Accountant, under the classification of office allowance and suchan arrangement continued for a number of years.

b) Mr. Baidya, who is a practicing Chartered Accountant, accepted his appointment as an auditor at a lower fee than the
audit fee charged by the previous auditor. Some of the practicing accountants claimed that Mr. Baidya had obtained
the audit by undercutting.
24) M/s Joshi & Joshi is a practicing Chartered Accountants firm. One of the senior partners of the firmis also associated
with import/export trade and he is the sole proprietor of that business. Mr. Joshi has also taken huge amount of loan
from various banks and he is found visiting more to government offices than in his own firm or to his clients. Comment
on given case with reference to „Code of Ethics‟. (5 Marks June 2010)
25) As an auditor, comment on the following situation (5 Marks June 2010)
During the audit period, the liaison officer deputed by the client constantly asks you to participate in lunch arranged
outside office premises. He has also informed you that there is a program of welcome and farewell dinner too. Liaison
officer has also informed you that you need not worry about time schedule, as there would be someone available
among client's staff to bailout if needed. Daily newspapers and magazines are made available in plenty in the audit
room. Other staff of the client are also having regular visit in the working area.

26) As a newly-qualified Chartered Certified Accountant, you have been asked to write an „ethics column‟ for a trainee
accountant on ICAN News Letter. In particular, you have been asked to draft guidance onthe following questions
addressed to the News Letter‟s helpline:(5 Marks each June 2010)
27) What gifts or hospitality are acceptable and when do they become an inducement?
28) If a partner, who is an actuary, provides valuation services to an audit client, can we continuewith the audit?
Can internal audit services be undertaken for an audit client?

29) Himalayan Co. Ltd. reappointed Ram and Ramita as their joint auditors in the Annual General Meeting. The AGM
authorized the Board for fill up the vacancy on their own in the event of both or either of auditors declined to accept
the assignment. The Board passed a resolution to appoint Prabhatif any of the auditors declined to accept the
assignment. Later on, Ramita declined to accept the assignment and Board of Directors appointed Prabhat in place of
Ramita as per its resolution.(5 Marks June 2012)
30) Answer the following: (5 Marks each December 2011)
a) Mr. Shushil Maharjan, a Chartered Accountant published a book and gave his personal details as the author. These
details also mentioned his professional experience and his present association as partner with M/s Daniel Brisk, a
Swedish firm of Chartered Accountant Firm. What will be your opinion in this respect?
b) Mr. Shanti Das a Chartered Accountant audited a religious institution established for purely promoting social values
without charging any audit fee. Give your comment
31) Richak & Associates, a chartered accountant firm, was appointed as an auditor of a company on15 Aswin 2069 for
the year 2068/69 where Ram Lal, one of the partners of the audit firm, was holding 5% shares of the company since
2065. But Ram Lal sold all his shares of the company on 30 Aswin 2069. It was further noted that the audit report was
signed by another partner of the firmon 15 Falgun 2069 only. (5 Marks June 2013)
32) Siddhi & Co., a chartered accountant firm is appointed a fund manager of an INGO situated in Nepal.The INGO has
then transferred money in the current account of Siddhi & Co. for the operation of project activities. Opine on the act
of Siddhi & Co. for transferring certain money to saving bank account and charging/ drawing fee due from the client.
(5 Marks, June 2013)
33) Comment on the following situations/statement. (5 Marks, June 2013)
RB Associates, a firm of chartered accountants has two partners, R and B. The firm is already holdingaudit of 130
companies including audit of 90 NGOs. The firm is offered the audit of Labour Welfare Association.
34) Commission for the Investigation of Abuse of Authority (CIAA) has asked certain information from XYZ & Co.;
Chartered Accountants relating to certain client of the audit firm for which legalproceeding is in process with CIAA.
The XYZ & Co. refused to provide such information to CIAA. Is the action of XYZ & Co. is tenable?(5 Marks June 2013)
35) Answer the following:
Mr. Raj, a fellow member of the Institute of Chartered Accountants of Nepal, working as manager of Rahul &
Associates, a chartered accountant firm, signed the audit report of Om Ltd. on behalfof Rahul & Associates. (5
Marks June 2013)

36) Comment on the following situations/statements: (3*5 =15 Marks December 2013)
a) Ram, a Chartered Accountant prepared a project report for one of his clients to obtain bank finance (long-term) of Rs.
50 lakhs from a commercial bank. Consequent to the sanction of theloan by the bank, Ram charged 2% fee on the
figures of loan sanctioned.
b) Goma Limited, a leading trading business in electronic goods, has appointed CA. Ranaji Ojhaa statutory auditor with
Rs. 1.5 lakhs audit fees. Besides, the company has offered 5 latest model iPhone costing of Rs. 1.5 lakhs to his family
members as gift.
c) While submitting the financial proposal on consultancy works of Emiliya Gypsum Limited,PZT Associates, a CA.
firm has calculated the cost as follows:

FCA Rs. 5,000 Per day/person

ACA Rs. 2,500 Per day/person

RA Rs. 2,000 Per day/person

Assistants Rs. 1,000 Per day/person

37) Auditors of a commercial bank was interviewed by the inspection team of Nepal Rastra Bank and requested the
auditors to share their views on the quality of loans of the bank to assist inspection. Will this situation affect the
confidentiality clause in code of ethics? (5 Marks June 2014)
38) Mr. A, a practicing Chartered Accountant has been found guilty in respect of Professional Misconduct. So, Mr. A, a
Chartered Accountant in practice has been suspended from practice for a period of 4 months. During the said period,
though he did not undertake the audit assignment since he had surrendered certificate of practice, he had appeared
before Income Tax authorities in his capacity as a Chartered Accountant. (5 Marks June 2014)
39) Aashriya & Associates has two Partners holding Certificate of practice. It has 14 Public company clients and other
small clients. The firm is in dilemma as to accept the forthcoming audit request oftwo Public companies. Give your
opinion with reasons. (5 Marks December 2014)
40) Comment on the following situations/statements: (5 Marks each December 2014)
41) Explain the types of threat as explained in ICAN Code of ethics.
Lalu and Associates has been appointed as auditor for the year 2070/71 of ABC Bank Limited, a commercial bank in the
general meeting dated 25 Paush 2070 for remuneration of Rs. 500,000. In the course of the audit, the auditor finds
that the audit fee is too low and negotiateswith the management for increase of the fees to the tune of Rs. 700,000.
The board approvesthe increased fee.

42) An INGO invites bid from interested CA firms for audit service for the calendar year 2014. Upon request by Lakhe & Co,
Chartered Accountants, the INGO does not provide information about the audit fees for the year 2013. Please advise
whether Lakhe & Co should submit his bid for the audit or not. (5 Marks July 2015)
43) Answer the following: (5 Marks each July 2015)
a) Explain the provisions of Custody of Client Assets as given in Code of Ethics. What are thesafeguards or measures to
be taken to balance this threat?
44) Answer the following: (5 Marks each, December 2015)
a) Elephant Bank Ltd. is the "A" Class Commercial Bank. As per audited financial statement of FY 2071/72 , its gross loan
is Rs. 50,000 million and its gross deposit is Rs. 63,000 million. TheAnnual General Meeting of the bank for FY 2071/72
was conducted on 12 Aswin 2072. The auditor for FY 2072/73 has been appointed by the bank with audit fees (other
than other audit related expenses) of Rs. 1,100,000. Comment.
b) Is there any conflict of interest if the engagement auditor prepares financial regulation and internal control system of
the same client?
c) Raman & Associates is the audit firm of registered auditor (B Class). He has carried out the audit of Prabhu Ltd. for FY
2071/72. The Total Assets or Liabilities of Prabhu Ltd. for FY 2071/72 as per Financial Statement is Rs. 650 million.
Comment.
d) KP is Chartered Accountant Member of the Institute of Chartered Accountants of Nepal. He couldnot pay off the
loan taken from one of the Commercial Bank. The Bank blacklisted and published the name in national daily
newspaper. The Bank wrote a letter to ICAN for action.

45) Answer the following: (5 Marks each June 2016)

a) What is the requirement of Code of Ethics regarding use and disclosure of confidentialinformation of client
acquired by a professional accountant as a result of his service to the client?
b) What are the fundamental principles of the Code of Ethics issued by ICAN?

46) Give your comments on the following cases: (5 Marks each December 2016)
a) CA. Oli has been appointed as Tax auditor for the year 2072/73 by ABC Private Limited. He finds that the company has
wrongly claimed excess carry-forward loss of Rs.1 crore in the previous year‟s (2071/72) tax return in which he was
not associated at all. This has no effect in the tax return for the year 2072/73.
b) CA. Ram was appointed as auditor of Alpha Traders Ltd. for 2071/72 for a fee of Rs.300,000. The turnover for that year
was Rs.3 billion, 90 % of the revenue was from sale of electronic productsof “Samsung” for which the company is
authorized distributor. In the early month of 2072/73, theauthorized distributorship of “Samsung” was terminated.
Alpha Traders has requested CA Ram toaccept the audit of 2072/73 for a fee of Rs.100,000 as there would be
negligible transactions as compared to previous year and the time to conduct that audit shall be only 1/3 as compared
to previous year audits

47) Answer the following: (5 Marks each December 2016)

a) What are the basic needs to be met to achieve objectives of accounting profession as per code ofethics?
b) Write briefly on the composition and function of Disciplinary Committee under ICAN Act, 2053.
c) What due care should a professional accountant in public practice adopt while handling client‟smonies?
d) CA. M Khatri is Chairman of Dotel Consulting Ltd. AGM of KC Textile Ltd. is planning to appointDotel Consulting Ltd.
as an auditor for financial year 2073/74.
e) A Chartered accountant who is a member of ICAN is a full-time employee of ABCD & Associates (a CA firm registered
with ICAN). During the audit of an INGO from his firm (ABCD), he was requested by the client to audit a partner
organization of INGO in his personal capacity. Shall he accept the appointment of auditor of Partner Organization of
INGO? (5 Marks December 2016)

48) Give your comments on the following cases: (5 Marks each June 2017)
a) The Joint Merger Committee of Alpha Bank and Beta Bank has appointed CA Ramarjun as Due Diligence Auditor of
both banks for the merger process. The appointment letter has following clause regarding fees: “Fees amounting to
Rs.300, 000 for each bank (exclusive of VAT) shall be paid on submission of DDA report. Additional payment of
Rs.150,000 (inclusive of VAT) shall be made, if the merger is successful.”
b) CA Chandan was appointed auditor of Delta Telecom Ltd. He presented audit plan where in ten teams comprising 4
personnel in each team will be visiting 40 branches (out of 50) across the country for a total of around 4 months.
The finance controller of Delta Telecom offered SIMcards for all the team members engaged in the audit with one-
year free 4G data and voice services and unlimited one year free 10 MB internet to Auditor‟s Office as logistic support
so thatcommunication/emails with all the members are uninterrupted during the course of audit. It is expected that
CA Chandan will be appointed as auditor for next two years as well. The general one-time price of SIM cards and
installation charges for internet however shall have to be paidfor. The Finance Controller requests for replacing
some of the branches with others for audit.
49) Answer/Comment on the following: (5 Marks each June 2017)
a) Rabin & Associates; Chartered Accountants has been operating a separate bank account for keeping client`s money in
course of availing fund manager service to the client. The interest earned on such account during financial year
2072/73 amounting Rs. 100,000 has been transferred to firm`s bank account and booked as miscellaneous income
with corresponding miscellaneous income & expenditure in client`s bank account
50) Give your comments on the following cases: (5 Marks each December 2017)
a) A proprietary audit firm of Fellow Chartered Accountants has accepted the engagement to audit the accounts of a
company with annual turnover of Rs. 10 million at the audit fee of Rs. 12,000. The firm anticipates that the audit will
consume estimated time of 3-man days of the Chartered Accountant.
b) During the course of audit of a company for fiscal year 2073/74, the finance director of the company offered your
audit team a free weekend at Fulbari Resort Pokhara.

c) Mr. A Kumar and Mr. B Kumar are the two chartered accountants just qualified their exams and took membership
from ICAN in Bhadra 2074. A Kumar, who without holding the Certificate of Practice, signed a document in capacity of
the member holding Certificate of Practice and B Kumar, as being a member of ICAN, committed an act contrary to the
provisions of Section 41of ICAN Act.

51) Answer/Comment on the following: (5 Marks each December 2017)

a) Explain the provision related to Second Opinions with reference to Code of Ethics.
b) Explain the various types of threat explained in ICAN Code of Ethics along with examples.
c) Pradhan Ghimire & Associates, a firm of chartered accountant has two partners. The firm is already holding audit of
100 companies including audit of 20 public limited companies. The firm is further offered for the audit of Premier
Investment Limited

52) As an auditor, give your opinion with explanations on the following case:(5 Marks December 2017)
 a) You are an engagement manager for an audit team for M/s Sun Life Ltd. for financial statements as on Ashadh 31,
2073. Your team is about to drafting management letter after all transaction testing andreview; the board of director
of M/s Sun Life Ltd. has appointed new CEO. After assuming his office, he decided to change few general managers
and auditor for FY 2072-73 with immediate effect

53) Mr. KC, Partner of CA firm involved in Audit of X Limited was offered with luxury car by X Limited for his personal use
till financial statements is approved in AGM. Give your comments (5 Marks June 2018)

54) Answer/Comment on the following: (5 Marks each June 2018)

a) What is “Independence of Mind” and “Independence in Appearance”?
b) You are the statutory auditor of PQR Ltd., while carrying out the audit you found existence of certain threats to
objectivity at significant level. What is your duty in such situation? Give the examples of safeguards you will apply in
such situation?
c) Explain the provision relating to 'Conflicts of Interest' with reference to Part B of Code of Ethics

55) Give your comments on the following cases: (5 Marks each June 2019)
a) Mr. Kumar, a practicing Chartered Accountant was ordered to surrender his Certificate of Practice and he was
suspended for one year on certain professional misconduct against him. During the period of suspension, Mr. Kumar,
designating himself as Tax Consultant, did the work of filing of tax returns and made appearance as a consultant
before various related authorities. He contended that there is nothing wrong in it as he, like any other tax consultant,
could take such work and his engagement as such in no way violates the order of suspension inflicted on him.
b) A Ltd. has the total Assets of Rs. 1.2 Arab up to Chaitra end 2075 for financial year 2075/76. It has been estimated that
its total assets would be Rs.1.5 Arab for FY 2075/76. A Ltd. has appointed Ramesh & Associates, the B class audit firm
for the audit of financial year 2075/76, during its AGMheld on 2nd Baishakh 2076.
c) H Ltd. declared dividend amounting to Rs. 3 lakhs out of profits for the year ended 2074/75. Subsequently, it was
noticed that company had failed to make provisions for outstanding expensesof Rs. 4.2 lakhs and the stock were also
overvalued, which was not reported by auditors of the company. Management of H Ltd. held auditors responsible for
this situation

56) Answer/Comment on the following: (3*5=15, June 2019)

a) Dayahang & Co. is being considered as external auditor for audit of Nischal Pvt. Ltd. Dayahang quoted an audit fee of
Rs. 3 Lakhs plus 5% of profit.
b) Write down the provision for "Marketing Professional Services" for professional accountant in public practice.
c) A Chartered Accountancy Firm has known that before issuing audit report of certain client "the independence" has
breached. How the audit firm shall ensure the significance of such breach?

Government Audit

1) The shareholding pattern of R Ltd. was as follows:

 Central Government 10%

Financial Institution in which state Government

holds 20% of the subscribed capital 25%

Y Ltd. (Government Company) 10%

The Annual General Meeting Appointed M/S S & Co. Chartered Accountants on the auditor forthe year 2003-04
by passing ordinary resolution. (4 Marks, December 2003)

2) Answer the following: (5 Marks each June 2016)

Explain the procedures for appointment of auditor of corporate bodies wholly owned byGovernment of Nepal.

Define the term "Performance Audit".

NSQCs NSREs NSEs NSRs

1) You are appointed as manager of quality control section in one of the leading audit firm of Nepal, the senior partner of
the firm instructs you to draft objectives statement for quality control policies & procedures. (8 Marks December
2011)
Question No 42

M/s D & D Associates was the auditor of M/s Paraline Company Pvt. Ltd. One of the shareholders of the company filed a case
in court against the company. The court sought some information from the auditor M/s D & D Associates and one of the
partners of the firm disclosed the required information to the court without informing the client. Judge whether the Auditor
has complied with the code of ethics issued by The Institute of Chartered Accountants of Nepal? (8 Marks December 2011)

Question No 43

Comment on the following situations/statements.

A firm or a member of the audit team accepts gifts or hospitality of which the value is not trivial and inconsequential. (Give
your answer on the basis of the Provision of IFAC Code of Ethics adopted by ICAN.)

ABC Commercial Bank provided loan to an audit team member under terms and conditions other than normal. (Give your
answer on the basis of the Provision of IFAC Code of Ethics adopted by ICAN.)

Question No. 46

What are the basic fundamental principles should a professional accountant have to observe in order to achieve the objectives
of the accountancy profession? (8 Marks June 2012)

Question No. 47

Define the ethical requirements that a professional accountant residing in Nepal should comply withfor Cross Boarder
Activities.

Question No. 48

A proprietary audit firm of Chartered Accountant has accepted the engagement to audit the accounts of a private school with
annual turnover of Rs 10 lakhs at the audit fee of Rs 8,500. The firm anticipates that the audit

Question No. 49
Express your comments/views on the following situation

Puran (A practicing Chartered Accountant) has been appointed as statutory auditor of ABC Development Bank Limited for the
fiscal year 2068/69. Puran has been holding certain paid up share capital of the bank since the year 2060. Is the appointment
of Puran is valid?

(5 Marks December 2012

Ramesh Sharma was Chief Finance Officer of A Ltd for the period 1 Shrawan 2064 to 15 Ashad, 2069. He joined XYZ Chartered
Accountant firm from 1 Shrawan 2069 as Senior Audit Manager. A Ltd. has approached the firm on 15 Shrawan 2069 for the
audit of accounts for the year 2068/69with Ramesh Sharma as Engagement Manager of the audit team. Please provide your
opinion on what the audit firm should do? (5 Marks December 2012)

Mr. Robin, a Chartered Accountant, is an employee of M/s SA & Associates, a firm of Chartered Accountants of Nepal. The firm
is the Auditors of ABC & Co. Ltd. After auditing the accounts of the Company, the Auditor firm allowed Mr. Robin, their
employee, to sign the audit report; which he did. (5 Marks December 2012)

CHAPTER 20: QUALITY CONTROL IN AUDIT FIRM ....... ......(Page No 273-279)

1. As a quality control manager of the audit engagement team of D Limited, how can you ensure
thatyourteamhasperformedtheauditworksasperthestandardmaintainedbyyourauditfirmalongwith the other
mandatory compliance of various national and international standards in auditing and accounting? Points out the
review procedures to ensure the quality oftheaudit work?
(8MarksDecember 2012)
CHAPTER 22: STANDARDS ON AUDITING .....................Page No 284-329)

1. “Company Auditor uses the work of Branch Auditor." Explain the relationship between the two. (16Marks June
2001)
2. Write short notes on :
a) Inherent limitations of an audit (4 Marks, December 2003)
b) Balance confirmation procedures (4 Marks, December 2003)
3. Give your opinion on the following issues/ statements. (4 Marks each, December 2005)
a) Mr. Ram Gopal Sharma, Chief Accountants of M/s Lucky finance Co. Ltd. produced the photocopies of fixed
deposit receipts of Rs. 10,00,000/- to the auditor during the course of audit period as the managing director who
kept original receipts in safe vault was presently out of the country to attend the seminar abroad.
b) While carrying out the audit of M/s Laxmanpur Sugar Factory Ltd. for the year 2061/62, you as an auditor of this
organization found out an error in the valuation of inventory. The error affects the financial statements of above
company materially. Give your comment in line with Auditing and Assurance Standards.

4. There is no need of issuing Audit Engagement Letter once you are appointed by the proprietor of a proprietorship
trading firm to do Statutory and Tax Audits by sending an appointment letter. Comment. (5 Marks, December
2006)
5. Briefly explain the concept of Materiality. (3 Marks June 2008)
6. Express your opinion in the following cases: (5 Marks each June 2008)
a) As an auditor of M/s Clean Kathmandu Valley Company Ltd. you noticed that the company has not adjusted its
closing stock with the actual stock after physical verification. Total 10 items amounting to Rs. 500,000 was short
during verification out of 100 items amounting to Rs. 5,000,000. The management refuses to adjust such short
in its books of account arguing that it will have no material effect over the financial statement. Can you rely upon
the management or what will be your steps to overcome this situation?
b) While reporting on the consolidated financial statements the principal auditor has to evaluate the financial
statements of the subsidiary company also. At times, such financial statements are audited by other auditors.
The principal auditor relied on the audit reports submitted by such company without further audit procedures.(5
Marks December 2008)
7. Write short notes on the Following
a) Peer Review (5 Marks December 2008)
b) Consultation in quality audit (2.5 Marks July 2015)
c) Benefits of implementing IFRS or equivalent national standards (2.5 Marks December 2015)

8. Audit documentation facilitates understanding of the nature, timing and extent of audit procedures; the results of
audit procedures and significant matters arising during the audit.
Discuss briefly:
i) What are the "significant matters" which are required to be documented?(4 Marks December 2008)
ii) In how many days after the date of auditor's report, the auditor is required to complete the assembly of his
final audit file as per NSQC 1?(4 Marks December 2008)
9. How would you determine the aggregate of uncorrected misstatements? (5 Marks December 2008)
10. Comment and give your views as auditor with reasons on each of the following case: (16 Marks June 2009)
a) Mr. Bhandari & Associates, Chartered Accountants was appointed as an auditor of the company. Subsequently,
Mr. Sharma & Associates, Chartered Accountants was offered appointment as an auditor of the company
replacing Mr. Bhandari & Associates, Chartered Accountants. Mr. Sharma & Associates, Chartered Accountants
 for whom this is an initial audit engagement accepts the appointment and starts the audit without
communicating with anyone.
11. Briefly discuss the basis of disclosure of accounting policies according to NAS-1 on “Presentation of Financial
Statements". (4 Marks June 2009)
12. Briefly state the circumstances when the audit report is modified without affecting the auditor‟s opinion (10
Marks June 2009
13. List down the principal contents of an audit engagement letter. (6 Marks June 2009)
14. As an auditor, comment on the following situations: (5 Marks each December 2009)
a) CS & Co. and DS & Co. were appointed as joint auditors of XYZ Bank Ltd. What would be their professional
responsibilities in a case where the company has cleverly concealed certain transactions that escaped the
notice of both the auditors?
b) 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?
15. What is agreed upon procedures? (5 Marks June 2010)
16. How the work of an expert should be evaluated before accepting the same as Audit evidence?(5 Marks June 2010)
17. The auditor may encounter circumstances that, individually or in combination, indicate the possibility that the
financial statements may contain a material misstatement resulting from fraud or error. List down some of those (at
least 8) circumstances that indicate a possible misstatement.(8 Marks June 2010)
18. What are the major responsibilities of the Auditor for detecting material misstatement due to fraud?(7 Marks
December 2010)
19. Shareholder of ABC Ltd. appointed Goddar & Co. as statutory auditor for last financial year. During the audit,
auditor found that previous auditor had issued qualified audit report in respect of assets which was overstated by
Rs.15 Million and a director‟s capital account was credited by that amount. After series of discussion, current
auditor reached in to conclusion that he was appointed for the current financial year and he is not responsible for
the misstatement in previous year which is already reported by previous auditor. Give your opinions with reason.(5
Marks December 2010)
20. A statutory auditor of a commercial Bank is requested to report about frauds. The management suspects that in two
loan files there could be fraud. The auditor has already found a case of misuse of authority relating to a loan amount
of Rs. 2500000 resulting into loss to the Bank to the extent of that amount. However, the auditor was unable to find
fraud in any other loan transactions. Suggest the auditor about his course of action.(8 Marks December 2010)
21. Give your comments on the following: (5 Marks December 2010) Management of MNO production House
argues that the auditor should accept the figure of stock verification conducted by internal audit. The management is
willing to certify this figure. The engagement partner, however, insists that stock verification should be carried out
again by management in presence of his assistants on 25% of locations.
22. Answer the following: (5 Marks each December 2010)
a) What is accounting estimates? Provide eight examples of accounting estimates.
b) What is the importance of working papers to the auditor? List out the documents to be kept in permanent audit
files.
23. Give your opinions with reasons on the following case
Paudel Provident Fund (PPF) is an approved retirement fund, which manages retirement benefits of employees of
group of companies relating to "Poudel Group". PPF has entered into an agreement with a commercial bank for
maintenance and operation of the retirement‟s accounts relating to its beneficiaries. Under the agreement, PPF is
required to open a deposit account in the bank and maintain the entire fund only with the bank. During the audit of
PPF, auditor finds that bank has credited its account with excess interest by 4,32,000. All the interest income in the
account is distributed on pro-rata basis to the individual employees through accounts maintained in the bank itself.(5
Marks June 2011)
24. What are the auditor‟s responsibilities for detection of frauds and errors? (10 Marks June 2011)
25. Give your comments on the following:
You have attended physical verification of Supreme Garments Limited and noted no discrepancies between the
physical quantity and the Store Register for the year ending the management provides a statement of value of
stocks but refuses to provide with the cost sheet and calculations regarding how the value has been arrived. The
company discloses that the value of stocks is as “certified by the management” in the Financial Statement. The
management is ready to disclose the same in the Management Representation letter. (5Marks June 2011)
26. Nepal Standards on Auditing relating to "Management Representation" provides guidance on the use of
management representation as audit evidence. Enumerate five items that could be included in a management
representation letter. (5Marks June 2011)
27. Mr. Lee Wee, partner of M/s Himal & Associates, a Chartered Accountant firm was appointed as an auditor of Xian
Commercial Bank Ltd. One of the shareholders of the bank lodged a complaint against the auditor for not assuming
the responsibilities to consider laws and regulations with regards to lending to a business house in an audit of
financial statements of the bank. You are asked to identify the auditors „responsibilities to consider laws and
regulations in an audit of financial statements of bank with regards to complaint lodged against the auditor?(7
Marks, June 2011)
28. What are the points to be considered while using the work of an expert? (5 Marks, June 2011)
29. Audit of the Sagarmatha Byapar Co. Pvt. Ltd. is in final stage and the audit report is being drafted. Management of
the company, including Chief Executive Officer, is of the view that auditors are primarily responsible for preparation
and fair presentation of financial statements. Management of the company is of the view that they are free to
prepare accounts in their own way and it is the duty of the auditor to satisfy about financial statements to
government and other regulatory agencies. Comment (5 Marks, December 2011)
30. Answer the following:
i) What is the relationship between materiality and audit risk and how audit risk can be reduced to an acceptable
level? (5 Marks December 2011)
j) What are the points to be considered while using the work of an expert? (5 Marks December 2011)
31. Mr. Alex Pitt, partner of M/s Pitt Marwick & Associates, a Chartered Accountant firm was appointed as an auditor of
Cosmopolitan Commercial Bank Ltd. One of the shareholders of the bank lodged a complaint against the auditor for
not assuming the responsibilities to consider laws and regulations with regards to lending to a business house in an
audit of financial statements of the bank. You are asked to identify the auditors „responsibilities to consider laws and
regulations in an audit of financial statements of bank with regards to complaint lodged against the auditor? (5
Marks December 2011)
32. One of the debtors of M/s General Trading Company Limited had filed a case in the court against the company after
the balance sheet date (financial statements for the year 2067/68) seeking that he should be compensated with Rs.
500,000 for damage of goodwill due to the company's negligence during the year 2067/68. The court decided the
case in debtor's favor on before issuing the financial statements for that year. The Chief Accountant wants to simply
disclose this issue in the notes to the account for the year 2067/68 without adjusting the compensation amount in
the financial statement. Express your view on Chief Accountant's move in accordance with relevant Accounting
Standard. (7 Marks December 2011
33. Enumerate, in brief, the important aspects to be evaluated by the external auditor in determining the efficiency and
extent of reliance to be placed on the work and function of an Internal Auditor.(8 Marks December 2011)
34. Write Short Notes on the following
a) Analytical review procedures (5 Marks, June 2009, June 2011)
b) Management representation (5 Marks December 2011, June 2008)
c) Going concern concept (5 Marks December 2011)

35. As an auditor, give your opinions with reasons on the following cases:
A) Surya, a Chartered Accountant was engaged by Terai Company Pvt. Ltd. for auditing their accounts. He sent
his letter of engagement to the Board of Directors, which was accepted by the company. In the course of audit
of the company, the auditor was unable to obtain appropriate sufficient audit evidence regarding inventories.
The client requested for a change in the terms of engagement. (5 Marks June 2012)
B) During the course of audit of M/s Grow Company Limited, you, as an auditor found huge difference between
the control accounts and subsidiary records. The chief finance controller informed that this is common due to
huge volume of business conducted by the company during the year. How would you deal in this situation?
(5 Marks June 2012)

36. While compiling the financial statements of a concern, you observed that the input information supplied by the
concern is incomplete, incorrect and few of the Accounting Standards have not been followed. Describe, in brief, the
procedure you will follow in the given circumstances.(8 Marks June 2012)
37. Describe the policies to be considered by an auditor regarding quality control as prescribed in quality control
standard. (7 Marks June 2012)
38. "The auditors 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 five major matters to be included
in such Communication. (5 Marks June 2012)

39. Comment on the following situation.

On final audit of Hattiban Limited, the physical verification of fixed assets was conducted. However, the auditor was
not able to confirm the existence of valuable items and costly equipment. Though, the auditor received a certificate
from the management to prove its existence and value and accepted the same blindly without applying any further
procedures.(5Marks June 2012)
40. As an auditor, express your comments/views on the following situation:
You are appointed as an auditor of film distributing company. Besides acting as distributors of film, it produces films
under its own banner, owns a studio, which is also let out to other producers and alsoowns a number of exhibiting
halls showing exclusively the films under its distribution. Enumerate the special points that you will include in your
audit programme.(7 Marks June 2012)
41. As statutory Auditor of XYZ Pvt. Ltd. you requested your client for sending letter for balance confirmations from
certain debtors, the client argue that since the said balances with debtors are under dispute and the matter is
pending in the court it is not necessary to ask balance confirmation.(5 Marks December 2012)
42. As an auditor, give your opinions with reasons on the following case:
During the course of audit of a limited company, the auditor detected that the managing director had committed a
fraud involving a loss to the company. And the managing director has also fully compensated the loss as committed
by him to the company immediately after the detection of fraud.(5 Marks June 2013)
43. Give your comments on the following:

a) The chief executive officer of a client company has returned your draft representation letter stating that the
directors fail to see why such a letter is necessary and declaiming to issue the letter. (5 Marks June 2013)
b) The management of Shri Ram Pvt. Ltd. argued that auditor has not carried out the work properly citing reason
that certain fraud and error were revealed after issuing audit report, whereas audit report was silent on such
fraud & error. (5 Marks June 2013)

44. Give your comments on the following:

A) An audit firm was requested to perform the audit of a trading company for the year 2068/69 where all records
relating to sales transactions were seized by Inland Revenue Department for investigation. The company
requested the auditor to accept the appointment saying that audit report with qualification on sales is
acceptable.(5 Marks December 2013)
B) The auditor of G-Mall had completed the audit of the financial statements for the year 2069/70. The date of the
audit report was 8 Kartik 2070 whereas financial statements were approved by the management of the
company on 10 Kartik 2070.(5 Marks December 2013).

45. Write a short note on: Guiding factors of materiality concept (2.5 Marks December 2013)
46. Answer the following: (5 marks each December 2013)
a) What are the elements that an auditor has to be considered while evaluating the design of theentity‟s
control environment?
b) State the reporting responsibilities of an auditor in the context of non-compliance of laws andregulations
in an audit of financial statements
c) Mention briefly the conditions or events, which increase the risk of fraud or error leading tomaterial
misstatement in financial statements.

47. Answer the following: (5 Marks each June 2014)

a) Auditor of Elephant Ltd. was unable to confirm the existence and valuation of stock lying at the remote project
site and accepted a certificate from the management without obtaining other audit evidence.
b) P.G. & Company is the auditors of Professional Systems Company Ltd. The Managing Director of the Company
demands copies of the working papers from the auditors. Are the auditors bound to oblige the Managing Director?

48. What are the factors that are to be considered while designing a confirmation request? (5 Marks June 2014)
49. Comment on the following situations/statements: (5 Marks each June 2014)
 Auditor of Makalu Ltd. is of the opinion that “Nepal Standards of Auditing” are meant only for references and it is not
mandatory to adhere such Standards. Explain Principal Auditor in line with NSA 600. What are the factors to be
considered by auditor to act as Principal Auditor?
50. Write short notes on the following:
a) Professional skepticism (2.5 Marks June 2014)
b) Use of positive confirmations (2.5 Marks June 2014)
51. Explain „Audit Sampling‟ and „Sampling Risk‟ in the light of NSA - 530 Audit Sampling and Other Selective Testing
Procedures. (5 Marks December 2014)
52. “Responsibility for properly determining the quantity and value of inventories rests with the management of the
entity”. Comment (5 Marks December 2014)
53. What are the principal contents of Terms of Audit Engagement as per NSA 210?
54. Explain the circumstances when work of the internal audit function cannot be used by External Auditor.
(December 2015)
55. The financial statement of Sagarmatha Ltd. for the fiscal year 2070/71 has been approved by its Board of Directors
on 1 Kartik 2071; auditor has issued his audit report on 25 Aswin 2071. Give your comments (December 2015)
56. What do you mean by the term 'Sufficient Appropriate Audit Evidence'? State various factors that help the auditor to
ascertain as to what is sufficient appropriate audit evidence.(December 2015)
57. The auditor of a company is unable to obtain audit evidence relating to business promotion expenditures of Rs. 1
lakh. The company has earned net profit of Rs. 1 billion and has net asset base of Rs. 10 billion. The management
explains that the expenditure is genuine although the said invoices are misplaced. However, auditor requests the
management either not to charge the said promotional expenditure to profit or loss statement or he will qualify his
audit report. The auditor does not have any issue raising question on the faithful presentation and preparation of the
financial statements. (5 Marks June 2016)
58. Answer the following: (5 Marks each June 2016)
a) Knowledge of client business is important for effective and efficient conduct of the audit. Pleaseexplain the
various sources from which the auditor can obtain such knowledge.
b) Audit evidences collected from different sources and of different nature are not equally reliable.Please
explain.
c) It is not necessary to sign audit engagement letter every year in case of recurring/ongoingaudits.
Please explain the statement as per provisions of NSA 210.

59. LMN Ltd. deals in electronic goods and has 4 warehouses at different locations in Nepal out of which2 warehouses
at Birgunj Custom borders. The major stocks are generally supplied from warehouse at Birgunj. LMN Ltd. appointed
M/s OPQ & Co. to conduct its audit for the financial year 2072/73. Due to earthquake and subsequent strike for 3-4
months, the warehouse at Birgunj was inaccessible and the auditors were not able to conduct physical verification.
60. NSA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its
Environment describes the five components of an entity‟s internal control. Briefly explain the five components of an
entity‟s internal control.(5 Marks December 2016)

61. Answer the following: (5 Marks each June 2017)

a) NSA 300 Planning an Audit of Financial Statements provides guidance to assist auditors in planning an audit.
Explain the benefits of audit planning.
b) NSA 210 Agreeing the Terms of Audit Engagements requires auditors to agree the terms of an engagement
with those charged with governance and formalize these in an engagement letter. Identify and explain the
factors which would indicate that an engagement letter for an existing audit client should be revised.
c) Verisk Limited has employed an Independent Actuary (Dansk & Co.) for actuarial valuation of its employees‟
 long-term liabilities for the year end 31st Ashadh 2073. This was the first year of actuarial valuation. CA
Mangesh was statutory auditor for the company. He was satisfied with theappropriateness and
reasonableness of the assumptions and methods used along with financial data reflected in the financial
statement and decided to issue an unmodified report. He also added following in his report for more clarity on
the subject “The employees‟ long-term liabilities are based on actuarial valuation by Dansk & C0.”

62. Write short notes on the following:

a) Competence of the audit engagement team (5 Marks June 2016)
b) Financial indicators of going concern issue (5 Marks June 2016)
c) Subsequent Events (2.5 Marks December 2017)

63. Write short notes on the following:

a) Uses of Negative External Confirmation Requests (2.5 Marks June 2017)
b) Use of assertion in an Audit of financial statements (2.5 Marks June 2017)
c) Key Audit Matters (2.5 Marks June 2017)

64. Answer the following (5 Marks each December 2017)

a) The auditor of H Ltd. wanted to obtain confirmation from its creditors. But the management made a request to
the auditor not to seek confirmation from certain creditors citing disputes. Can the auditor of H Ltd. accept to
this request?

b) M/s KBC Associates, a Chartered Accountant was engaged by Hanuman& Co. Ltd. for auditing their
accounts. He sent his letter of engagement to the Board of Directors, which was accepted by the company. In
the course of audit of the company, the auditor was unable to obtain appropriate sufficient audit evidence
regarding receivables. The client requested for a change in the terms of engagement. Offer your comments in
this regard for acceptance of changes in terms of engagement.
65. Write down examples of situations where external confirmations may be used by the auditor. (5 Marks December
2017)

66. Write short notes on the following:

a) Impairment of Assets (2.5 Marks each December 2017)
b) External Confirmation Process to obtain audit evidence at the assertion level

67. Give your comments on the following cases: (5 Marks each June 2018)
a) Your firm has been appointed as the statutory auditor of Super Express Bank Ltd. for the financial year
2074/75. You, as the engagement partner, are in the process of drafting audit plan of the said audit. When
obtaining an understanding and performing a preliminary assessment of the internal audit function for drafting
your audit plan, what are the important criteria to be considered.

b) While auditing accounts of a public limited company for the year ended 31 st Ashadh 2074, an auditor found out
an error in the valuation of inventory, which affects the financial statement materially.

c) Auditor of Maya Limited was unable to confirm the existence and valuation of imported inventory lying with the
transporter and accepted a certificate from the management without obtaining audit evidence. The inventory
lying with the transporter is material to the financial statements.
68. Answer the following: (5 Marks each June 2018)
a) What are the provisions on „Timing of Liaison and Coordination‟ amongst internal audit and external audit in
NSA 610?
b) Mr. Shyam was appointed as the auditor of M/s Himalayan Ltd. and intends to apply the concept of
materiality for the financial statements as a whole. Please guide him as to the factors that may affect the
identification of an appropriate benchmark for this purpose.
c) Explain the concept of True and Fair View.

69. Answer the following: (5 Marks each December 2018)

a) National Company Limited had definite plan of its business being closed within a short period
from the close of the accounting year ended on 32 ndAshadh, 2075. The Financial Statements for the
year ended 32ndAshadh, 2075 had been prepared on the same basis as it had been in earlier periods
with an additional note that the business of the Company shall cease in near future and the assets
shall be disposed of in accordance with a plan of disposal as decided by the management. The
Statutory Auditors of the Company indicated this aspect in "Key Audit Matters" only by a reference as
to a possible cessation of business and making of adjustments, if any, thereto to be made at the time
of cessation only. Comment on the reporting by the Statutory Auditor as above.

b) You are the auditor of Special Mart Ltd. for FY 2074/75. Your audit team has approached to you on how
to judge whether the particular risk is significant or not. As a principal auditor how do you guide your
audit team?

70. Answer the following: (5 Marks each December 2018)

a) In the light of NSA 315, explain understanding the entity and its environment.
b) “The auditor shall exercise professional judgment in planning and performing an audit offinancial
statements”. Comment.
c) What are the assertions with which an auditor is concerned with while obtaining audit evidencefrom substantive
procedures?

71. As an auditor, give your opinion with explanations on the following cases: ) At the year-end (2075-03-31),
Chitwan Biscuits P. Ltd. revealed an inventory of Rs. 3.5 crores at its godown. Due to a fire on 2075-04-01,
inventory worth Rs. 2 crores were destroyed. The salvage value and insurance claim were estimated at Rs. 1.25
crores before the commencement of audit. No provision was made in the books of company for the year ended
2075-03-31 for Rs. 0.75 crore. (5 Marks, June 2019)

72. Binaya Bhandari & Co. is appointed as statutory auditor of Sagarmatha Development Bank Ltd. by an Annual
General Meeting. As a partner at Binaya Bhandari & Co., describe the process Binaya Bhandari & Co. should
undertake to assess whether the preconditions for an audit are present when accepting the audit of Sagarmatha
Development Bank Ltd. (5 Marks June 2019)
73. Answer the following: (3*5=15, June 2019)
a) Mr. Ashish Basnet is a partner at Basnet & Shrestha Associates which is the external auditor of PQR Ltd.,
public company. During the audit, he identified a regulatory non-compliance. He is considering reporting it
to the audit committee. Suggest him in the light of NSA 250, what should be taken into consideration for
 reporting the same to the audit committee.
b) What are the factors auditors need to consider while evaluating the adequacy of the auditor‟s expert‟s
work?

c) Explain what is meant by “Written Representations” and indicate to what extent an auditor can place
reliance on such representations.

CHAPTER 23: NEPAL STANDARD ON ASSURANCE ENGAGEMENT.......(Page No 330-335)

1. How would you react as an Auditor to the following accounting practices being followed by a LimitedCompany?

a. Provision for Income-tax is made as and when tax assessment is made. (5 Marks, December 2001)
b. Excise duty paid is treated as pre-paid expenses. (4 Marks, December 2001)
c. Bank Account opened at construction site in the name of the site manager to facilitate bankoperations
is shown in the Balance Sheet as staff advance. (4 Marks, December 2001)
d. Machinery bought on deferred payment guarantee scheme is capitalized only to the extent billsdrawn
under the scheme have fallen due for payment. (5 Marks, December 2001).

2. Express your view as an auditor in the following case:

The Directors of D Ltd. want to transfer to the Profit and Loss Account a large sum of amount lying in unclaimed dividends
account. The dividends were remained unclaimed over the last three years. (5 Marks, December, 2003)

CHAPTER 24: NEPAL STANDARD ON REVIEW ENGAGEMENT......(Page No 336-345)

CHAPTER 25: Nepal Accounting Standard/ Nepal Financial Reporting Standard

Question No 1

Express your view as an auditor in the following cases:

a) M. Ltd. was a 100% export-oriented ply board manufacturing company. During the year 2002-03 the own
manufactured board of Rs. 1,000,000/- (cost) was used by the company for its interior decoration. The VAT
authority made assessment of Rs. 200,000/- being the VAT credit claimed on the raw material of boards used
for interior decoration. The Accountant debited Rs. 200,000/- only under the head "furniture and fixtures”. (5
Marks, December, 2003)

b) N. Ltd. was the 100% export-oriented undertaking situated at Simara, Nepal. It was operating Pass Book
System with the customs authority and Credit of Rs. 5 Million was given in the pass book by the customs
authority, Birgunj for the Year 2002-03. But the Accountant booked the entirecustoms payment of Rs. 6 million
as the cost of materials. (5 Marks, December, 2003)

c) E Ltd. a Sugar manufacturing Company incurred Rs. 9 million under repairs and overhauling of sugar
machinery for the year 2002-03. Since the repairs and overhauling cost was coming more, the Board of
Directors instructed Accounts Manager to capitalize Rs. 6 million and show only the Rs. 3 million as the
expenses for the year. (5 Marks, December, 2003)

Question No. 2
Mr. Shyam Shivakoti, Finance Manager of M/s ABC Manufacturing Co. Ltd. of received Rs.9,00,000/- from M/s
Apurva Insurance Company Ltd. against the loss of goods in transit Rs. 7,50,000/-. Mr. Shivakoti credited the
amount so received from Insurance Company to the Purchase Account. (4
Marks, December 2005)

Question No. 3
Give your opinion on the following issues/ statements. (4 Marks each, December 2005)
Kasthamandap Bank Ltd. wants to change its depreciation policy from Straight Line Method toWritten
Down Value from the current year 2061/62.

Question No. 4
Give your opinion on the following issues/ statements. (4 Marks each, December 2005) One of
the sundry debtors of Kaushala Iron Ltd. owing Rs.25 lacs have been declared bankrupt on 3rdof Shrawan 2062.
the books of account for the year 2061/62 are yet to be finalized.

Question No. 5
Give your opinion on the following issues: (5 Marks each, June 2006)
a) An enterprise under your audit has taken a loan of Rs. 10 million against security of certain shares. Due to
sharp fall in shares prices, the market value of these shares as on the date of the balance sheet is only Rs. 9.5
million. However, by the time of finalization of accounts, the market value has recovered to Rs. 10.5 million.
The management wants to show the loan as fully secured.

b) Leather Development Corporation (LDC) has installed advanced machinery, costing Rs. 50 Million, which was
provided by the government through DANIDA's grant in FY 2061/62 and is put to use from the date of
installation. LDC is providing depreciation at 15% p.a. as per Income Tax Act 2058 in a consistent basis.
Whereas, such depreciation during the first year amounting to Rs. 7.50 Million was charged to Profit and Loss
Account.
Question No. 6
Express your views as an auditor in the following cases: (5Marks, June 2007)
ABC Company, a multinational, has recently opened its branch office in Nepal. It had received equipment from the
parent company after its incorporation. However, the value has not been received till the date of finalization of the
audit. The management expresses the view that since the value of the equipment is not available the same will
not be brought to the books and the same will be accounted for once advice from parent company regarding the
value is received.

Question No. 7
After review of books of account of M/s Mega Power Company, auditor came to know that Rs. 340,000 was
incurred for replacement of roof of newly constructed building due to water leakage. Company wants to charge this
expense as revenue expenditure. Is this treatment justifiable? (4 Marks, June2008)

Question No. 8
Express your opinion in the following cases: (5 Marks June 2008)

M/s Reliable Hospital Ltd. received a cash grant of Rs. 2.5 Million from the Government of Japan in FY 2063/64
under the agreement that the grant amount will be used to organize 3 free health camps in the eastern Nepal.
In the FY 2063/64 it organized 2 free health camps and spent Rs. 1.5 Million in total.
The company treated Rs. 2.5 Million as miscellaneous income and Rs. 1.5 Million as charity expenses for the year.
Comment in line with applicable accounting standards.

Question No. 9
Express your opinion in the following cases: (5 Marks each December 2008)

a) M/s Quality Garment Pvt. Ltd. a garment manufacturing company calculated cost of finished goods at USD
6,300 per 1000 Pcs. Due to crisis in the export market, the company could not export the expected
quantity and huge chunk of stock was lying in the company‟s inventory at year end. Before the year end,
to clear the inventory and to manage the cash shortage, company collected price bids from the
international parties. It received the best offer of USD 5,750 per 1000 pcs. The company decided to wait
for some time for better price offers.
The company valued its inventory at cost price of USD 6,300 per 1000 Pcs. citing the reason that company
has not sold its stock as yet and the question of market/selling price does not arise. Give your comment.

b) The company you are auditing, which is a listed company manufacturing automotive parts and air-
conditioners for motor vehicle assemblers, is facing a potential legal claim from Reliable Motors Limited
(RML) in respect of defective air conditioners supplied to them. Annual sale of the company is Rs. 850
million and profit before tax is Rs. 60 million. A claim for Rs.25 million being the cost of replacement of air
conditioners and lost production time has been lodged with the Company by RML. The management is of
the view that the claim is not justified, as the air conditioners were properly functioning and had been
tested for quality and that the defects have arisen because of the negligence of RML and its technicians.
However, a provision of Rs. 2 million has been made in the financial statements in this respect.

c) M/s Giant Manufacturing Company Ltd. found that one of its debtors was declared insolventby the court.
The company came to know this fact before finalizing its accounts but after the end of the year. Your view
is sought during finalizing the financial statement.
Question No. 10
How would you vouch and verify the following? (5 Marks each June 2009)
a) Opening balances carried over
b) Erection of fixed assets using own labor and materials in a manufacturing company.

Question No. 11
Comment and give your views as auditor with reasons on each of the following case:
(4 Marks each June 2009)

a) The entire liability for interest on deferred payment terms is treated as part of capital cost of theasset as
such liability was incurred at the time of acquisition of the asset itself.

b) Fire Ltd. purchased equipment for its power plant from Urja Ltd. during the year 2006-07 at a cost of Rs.100
lacs. Out of this they paid only 90% and balance 10% was to be paid after one year on satisfactory
performance of the equipment. During the Financial year 2007-08, Urja Ltd. waived off the balance 10%
amount which was credited to Profit and Loss account by Fire Ltd. asdiscount received.

Question No. 12
Depreciation on certain equipment has been charged at 10% per annum on reducing balance method. This rate is
consistent with prior years and the same rate is being used by most other companies, in the automobile industry.
However, significant losses have recently been recorded on the disposal ofsimilar equipment. Discuss (5
Marks June 2009)
Answer

Question No. 13
Comment and give your views as auditor with reasons on each of the following case:
(16 Marks June 2009)
The management tells you that the work in process is not valued since it is difficult to ascertain the same in view of
the multiple processes involved and in any case the value of opening and closing work in process would be more
or less the same.

Question No. 14
M/s ABC & Co. has decided to change policy of inventory valuation from LIFO to Weighted average method from
the current year 2062/063. What are your duties as an auditor while carrying out the audit to ascertain the
valuation and presentation is fair? (5 Marks June 2009)

Question No. 15
As an auditor, comment on the following situations: (5 Marks each December 2009)
c) Amico 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 2064/065 in view of NAS.

d) Auto Gear Ltd. is engaged in manufacturing and supply of gear boxes to Hulas Automobile Ltd. As per
terms of supply, full price of the goods is not released by Hulas Automobile Ltd. but 10% thereof is retained
and paid after one year, if there is satisfactory performance of the parts supplied. Auto Gear Ltd.
accounts for only 90% of the invoice value as sale at the time of supply and balance 10% is accounted as sale
in the year of receipt of payment.
Question No. 16
Give your comments on the following(5 Marks each December 2009)
a) Gear Ltd. is engaged in manufacturing and supply of gear boxes to Kathmandu Automobile Ltd. As per terms
of supply, full price of the goods is not released by Kathmandu Automobile Ltd. but 10% thereof is retained
and paid after one year, if there is satisfactory performance of the parts supplied. Gear Ltd. accounts for only
90% of the invoice value as sale at the time of supply and balance 10% is accounted as sale in the year of
receipt of payment.
b) Inventories of a car manufacturing company include the value of items required for the manufacture of a
model which was removed from the production line five years back, at cost price.

Question No 17 Write short note on Impairment of assets.(5 Marks, December 2009, December 2010)

Question No.18
Care Limited purchased machinery on 1.4.2065 from a foreign country at a price of $ 200 thousands upon terms of
credit that the price should be settled within six months from the date of purchase. The company capitalized the
asset and created liability for the capital goods converting the foreign currency liability to Nepalese Rupees at a
rate of exchange prevailing as on 1.4.2065. When the company settled the liability on 30 Poush 2065, it had to
incur an additional amount of Rs. 5,00,000 due to change in 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
the enhanced amount of asset value from 1 Magh 2065. Give your opinion.(5 Marks June 2010)

Question No.19
Kathmandu Boarding School was established in year 2010. It recently constructed swimming pool of 20 20-meter
size behind its main building. Due to Vastusastra problem, the swimming pool was reconstructed toward 5-meter
west side of the building. Relocation of the pool incurred additional cost of 20%. Suggest, how this cost be booked
in account.(5 Marks each December 2010)

Question 20
M/s Zahira& Co. engaged in manufacturing pharmaceutical products has invested in shares of M/s Enforce Ltd.
The company, after balance sheet date, finds that the share value was declining and thus, seeking your opinion
regarding recording the losses in financial statement to comply the Nepal Accounting Standard 10, "Event after the
Reporting Period". What would be your suggestion in this regard?(8 Marks, December 2010)

Question No. 21
During the audit of current year, while obtaining confirmation from the debtors, it was found that the revenue
amounting to Rs. 150 million of M/s Mahalaxmi Manufacturing Company Limited for the previous year was not
booked. The management of the company wants to recognize the revenue in current year income statement as
prior period items. As an auditor, you are required to give your opinion for accounting of such revenue based on
relevant Nepal Accounting Standard.(7 Marks December 2010)
Question No. 22
As an auditor, express your comments/views on the following situations:(5 Marks December 2010)
Fire Ltd. purchased equipment for its power plant from Urja Ltd. during the year 2064-065 at a cost of Rs.100 lacs.
Out of this, they paid only 90% and balance 10% was to be paid after one year on satisfactory performance of the
equipment. During the Financial year 2065-066, Urja Ltd. waived off the balance 10% amount which was credited
to Profit and Loss account by Fire Ltd. as discount received.

Question 23

Write short notes on the followings:

a. Deferred tax arising from a business combination (5 Marks December 2010, December 2011)

Question No. 24
The Critical Pollution Extinction Company Limited procured a pollution controlling machine for which the
government has 50% rebate in customs duty upon the precondition that the machine should be used for at least 5
years. During the course of audit, you found that the company has credited 50% rebate provided to income for the
year by disclosing the same in the Notes to Accounts in the Financial Statement. What is your opinion as
regarding the accounting treatment by the company? (5Marks June 2011)

Question No. 25
As an auditor, express your comments/views on the following situations:(5 marks June 2011)
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 15 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 rightin his approach?

c) ABC Construction Company Ltd. is financed loan from bank to acquire Loader (i.e. heavy equipment). Initially
the loan was scheduled to repay within five years but due to sound financial condition, company pre-paid the
balance of loan installments before maturity. Bank instead charged pre-payment fee for such early payment.
The company has opted the allowed alternative treatment for borrowing costs that directly attributes to the
acquisition, construction or production of an asset to include in the cost of that asset. Here, in given case, the
company seeks your opinion whether to include such pre-payment fee in the cost of Loader or recognize as an
expense for that period.

d) Your client in FY 2064/65 had made a provision of Rs. 25,000 for the payment of a claim on account of
enhancement in the price of goods supplied to him. While auditing the amount for the year 2066/67 you find
that the claim during this year has been settled for Rs. 35,000 and the amount has been debited to the
Purchases Account of the year.

Question No. 26
M/s Skyline Industry Ltd. had adopted weighted average method of accounting policy for valuation of inventory
used for segment A business and FIFO method of accounting policy for valuation of inventory used for segment B
business. Segment A business was not into operation till the second year. On third year, segment A business was
started and Industry thought that it would be worthwhile to adopt FIFO method of accounting policy for valuation of
inventory in segment A business too. The chief accountant of the Industry wants to treat the change in method of
valuation as change in accounting policy. Is his opinion justified?(8 Marks, June 2011)

Question No. 27
Give your opinions with reasons on the following cases:(5 Marks each, December 2011))
a) Grand Industries Ltd. is engaged in manufacturing and supply of gear boxes to Suzaki Vehicles Ltd. As per
terms of supply, full price of the goods is not released by Suzaki Vehicles Ltd. but 15% thereof is retained
and paid after one year, if there is satisfactory performance of the parts supplied. Grand Industries Ltd.
accounts for only 85% of the invoice value as sale at the time of supply and balance 15% is accounted as sale
in the year of receipt of payment. Comment
b) The Company`s plant & machinery was Rs. 200 million as on 1stShrawan 2067. It provided depreciation at
15% per annum under WDV method. However, it noticed that about Rs. 20 million worth of imported asset,
which is component of above plant & machinery acquired on 1 stShrawan 2067, would be obsolete in 2 years.
Company wants to write off this asset over 2 years. Can Company do so? Give Comments.

Question No. 28
As an auditor, express your comments/views on the following situations: (4×5=20Marks December 2011)
a) ABC Ltd.‟s total turnover for the FY 2067/68 is Rs. 1 Crore and it includes Rs. 2.1 lakhs from sale of by-
product. Whereas, the by-product sales are included under the miscellaneous income of the financial
statements and is not separately disclosed in the income head.
b) Shakti Pan Masala (P) Ltd. was incurring heavy losses in the last several years since it could not withstand the
competition in the market. The Constituent Assembly in the meantime has passed a bill to ban manufacture
and sale of all kinds of Pan Masalas in the country. While finalizing the accounts for the year ended 31-03-
2067, the CFO of the company created a Deferred Tax Asset for
the tax benefits that would arise in future years from the earlier years losses that had remained unabsorbed in
Income Tax.
c) Salony Airlines Ltd. received confirmation that a foreign governmental authority will grant permission to remit
the consideration from a sale in a foreign country. The Airlines recognized revenue based on the permission
granted. It was noted that some changes in regulation happened and a part of the consideration from the sale
was not eligible to remit in that foreign country. The Airlines adjusted that much of consideration from the sale
not eligible to remit in the revenue that was originally recognized. As an auditor, you are required to examine
the action of the Airlines is correct?
d) 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 31.03.07. 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 rightin his approach?

Question No. 29
Give your comments on the following:
a) Howard 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 32.03.2068 the company paid a
compensation of Rs.10 million to those who availed the scheme. The chief accountant has reflected this
payment as part of regular salaries and wages paid by the company. (5 Marks June 2012)
b) Reena Ltd. received Rs. 50 lakhs as grant from the Nepal Government towards the part cost of a specific
 machinery. The company credited the above sum of Rs. 50 lakhs as income in its profit & loss account for the
year. (5 Marks June 2012))

Question No. 30
As an auditor, give your opinions with reasons on the following cases:
a) 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 32.03.2068. 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 rightin his approach? (5 Marks June 2012)
b) Shree Ltd. has 2 divisions X and Y. The finished products of division X are transferred to division Y where
further processing is carried out before sale to customers. To achieve transparency and accountability
between the divisions, division X raises an invoice on division Y at cost plus normal margins. At the year end
the unrealized profits on inter-division stocks are eliminated. However, the transfers are recorded at the invoice
value as sales and purchases in the respective divisions for the purpose of preparing the Profit & Loss
Account. Suitable disclosures, for this are given in the
„Notes to Accounts‟. (5 Marks June 2012)

Question No. 31 Answer

the following:
Treatment of foreign currency monetary items on balance sheet date. (5 Marks June 2012)

Question No. 32
As an auditor, give your opinions with reasons on the following cases:
Your client has computed the deferred tax assets or liabilities on: i. Fixed assets as per financial base Rs. 500,000,
as per tax base Rs. 600,000; ii. Other assets as per financial base 300,000 as per tax base Rs. 200,000 and other
liabilities as per financial base Rs. 100,000 as per tax base Rs. 50,000. Consider applicable tax rate 5% and
opening balance of deferred tax asset is Rs.5,000. As an Auditor how would be check the accounting treatment
made on deferred tax by your client (show your computation as well)?(5 Marks December 2012)

Question No. 33
Comment on the following situations/statements.
As an auditor, express your comments/views on the following situations:(5 Marks each December 2012)

a) M/s Bulbul Ltd. has taken a Group Gratuity Policy from Insurance Company. During accounting year 2011-12 it
received a communication from the said Insurance Company informing that premium amount for the
accounting year 2010-11 was less charged by Rs. 35 lacs on account of arithmetical error on the part of
Insurance Company. M/s Bulbul Ltd. paid the sum of Rs. 35 lacs during the accounting year 2011-12 by
debiting the same to prior period expenses.

b) Grow Ltd. gave a guarantee to the Court for payment of excise dues of Rs.10 lacs for one of its Subsidiary.
According to the Company, since the guarantee was given on behalf of its subsidiary, no disclosure was
required.

c) Financial Controller of Druk Investment Company Limited noted that the interest recoverable for the year
2066-67 from one of the debtors was wrongly accounted under the head loan receivable. During audit of the
year 2067-68, Financial Controller of the Company requested the auditor to rectify the error by recognizing the
income in current year as prior period item and adjust the loan amount accordingly. State your view whether
the Financial Controller's request can be accepted?
Question No. 34

Comment on the following:

Chief Financial Officer of M/s Subizon Industries Limited prepared financial statements of the Company without
considering the effect of market value of major equipment‟s which is drastically below the book value. As an
auditor, how would you deal with such situation?
(6 Marks December 2012)
Question No. 35 Answer the following:
Write down ten areas where different accounting policies are applied on accounting the financialtransactions
based on the nature of entities. (5 Marks June 2013)

Question No. 36
As an auditor, give your opinions with reasons on the following cases:(5 Marks each June 2013)
a) Satya Limited is company listed in Recognized Stock Exchange of Nepal. During normal course of operation, a
fire broke out on 15thAshoj, 2070, in which material worth 50 lakhs which was lying in stock since 1stAshadh,
2070 was totally destroyed. The financial statements of the company have not been adopted till the date of fire.
The management of the company argues that since the loss occurred in the year, 2070-71, no provision for
the loss needs to be made in the financial statements for 2069-70. State whether argument of management is
in accordance with applicable provision.
b) Dhaulagiri Ltd. is an associate of Sagarmatha Ltd. How do you ensure whether Sagarmatha Ltd. has
significance influence in Dhaulagiri Ltd. or otherwise?

Question No. 37

As an auditor, give your opinions with reasons on the following cases:

a) On the basis of approval accounting policy, Bee Limited has revalued its property and charged Rs. 5 crores
revaluation loss in profit and loss account in 2067/68 whereas transferred Rs. 10 crores the revaluation gain to
revaluation reserve in 2068/69.
(5 Marks June 2013)
b) 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.
(5 Marks June 2013)
c) ABC Hydropower Pvt. Ltd. has purchased equipment worth of Rs. 4 million which is kept stand by for urgent
usage on need basis for repairing the heavy equipment as and when default is reported in functioning of heavy
equipment. The accountant has treated it as recurring inventory item and charged to profit and loss account at
the end of each financial year based on consumption pattern calculated on reasonable basis. Is the accounting
treatment made by accountant is correct? Comment.
(5 Marks December 2013)

Question No. 38
Give your comments on the following: (5 Marks December 2013)

Chitale Limited has declared dividend of 12% for FY 2069/70 in the month of Ashoj 2070. Thecompany has
booked this as Interim Dividend in Financial Statement of 2069/70.
Answer
Question No. 39
As an auditor, give your opinions with reasons on the following cases:
(5 Marks each December 2013)
a) M/s Merita Impex is engaged in the business of manufacturing and trading of musical instruments. A sum of Rs.
5 lakhs, received from an insurance company as an insurance claim for loss of goods in transit costing Rs. 4
lakhs, is credited to the purchase account.
b) Alpha Limited purchased a high value plant from Beta Limited in exchange of 10,000 units of its finished
products. The plant was in use in Beta Limited for last 3 years and expert expects that its useful life could be
further 17 years (i.e. 20 years in total). Alpha limited sells its finished products in the market at Rs 1,000 per unit
whereas there is no specific market for the used plant but the expert valuation of the used plant indicates the
value of the plant as Rs. 1.2 crores. Hence, Alpha Limited has recorded the cost price of the plant at Rs. 1.2
crores.
c) Normal waste of material in production process is 2 % of input. 10,000 kg. of input was made in process with
resultant wastage of 500 kg. Cost per kg of input is Rs. 100. The entire quantity of waste is in stock at the year
end. As an auditor how do you ensure the proper valuation of inventory?
d) Z Ltd. paid Rs. 100,000 income tax for disposal of capital assets during fiscal year 2069/070 and showed as
deduction from cash flow from operating activities. Is this treatment in compliance with NAS 03? Suggest
correct treatment in cash flow statement.
Question No. 40
As an auditor, give your opinions with reasons on the following cases:
(5 Marks each December 2014)
a) Smart Pvt. Limited sold a Television worth of Rs. 500,000 (exclusive of all taxes) on 32 Ashadh 2071 which
includes Rs. 100,000 for servicing fees of the Television for 5 years from the date of sales. The servicing fee is
estimated equal amount for each guaranteed service years. Smart Pvt. Limited booked entire Rs. 500,000 as
revenue for financial year 2070/71.
b) A company purchased a plant for Rs. 20 crores on 1 Shrawan 2070. The company has the policy to charge
depreciation at the rate of 10% on such plants on straight line basis. Due to long dispute between the
management and the labour of the company, the factory was closed from Kartik 1, 2070 to Chaitra end 2070.
Management has charged depreciation of Rs. 1 crore on the said plant to the income statement for the year
because the newly purchased plant was not used for 6 months in the year.
c) XYZ is a manufacturing company. There was huge fire in the factory of XYZ on 1 Ashoj 2071 and fixed assets
of written down value Rs. 10 crores were lost out of total fixed assets of Rs. 20 crores of the company. The
financial statements of the company for the year 2070/71 was approved by the Board on 30 Ashoj 2071 in
which fixed assets have been presented at WDV of Rs. 20 crores despite the severe loss due to fire and the
information about the loss due to fire is properly explained in theNotes to the financial statements.

Question 41

As an auditor, give your opinions with reasons on the following cases:

(5 Marks each July 2015)
a) The following information pertains to the trading stock of a company:

Product Historical cost (Rs.) Net Realizable

value (Rs.)
Color TVs 200,000 270,000
Black & White TVs 115,000 150,000
Ordinary Bikes 200,000 185,000
Sport bikes 110,000 115,000
Computers 80,000 100,000
Total 705,000 820,000
The company has a policy to value stock at lower of cost or net realizable value and
accordingly trading stock has been valued at Rs. 705,000 in the balance sheet of the
company.

b) A company purchased machinery on 1stAsoj 2071 for Rs. 10 crores on credit for 6
months. The seller normally does not sell such machineries on credit and cash price of
the machinery is Rs 9.5 crores. The buying company recognizes machinery at Rs. 10
crores in the books on 1stAsoj and the liability is fully paid on Falgun Masant.

c) Total trade receivable of a company is Rs. 20 crores. It includes receivables from

Maheswary Limited amounting to Rs 2 Crores. Maheswary Limited was declared
bankrupt on 15thAsoj 2071;
i.e. after the reporting period of Ashad end 2071 and before the date when financial
statements were authorized for issue; i.e. Asoj Masant 2071. The company
management claims that the carrying amount of trade receivable does not need to be
adjusted because the information about bankruptcy was known after the reporting
period.

Question No. 42
Give your comments on the following: (5 Marks each July 2015)

Financial Statements for the year 2069/70 was issued in Paush 2070. While preparing the
financial statements of 2070/71, it was known that the financial statements of 2069/70
included error. The auditor advises the management to correct and revise the financial
statements of 2069/70 and circulate the revised financial statements with all the authorities
where original financial statements were submitted.

Question No. 43
As an auditor, give your opinion with explanations on the following cases: (December 2015)
a) A company has 10 vehicles with carrying amount of 5 crores. The company has
purchased a new machinery worth Rs 8 crore by exchanging with its 10 used vehicles
and making further payment of Rs 2 crores in cash. The company management
derecognizes vehicles from its financial statements and recognizes machinery at Rs 7
crores (5 crores plus 2 crores).
b) A company‟s financial year ends on 31 March 2015 for group accounting
purpose. Due to devastating earthquake in the month of April 2015, the company‟s
factory building with carrying amount of Rs 5 crores was totally destroyed. The
board of director authorized the financial statements for issue on 30June 2015. The
financial statements include the destroyed building at Rs 5 crore although the Notes to
account makes appropriate disclosure about the earthquake and the destruction of the
factory building.
c) PQR limited has computed the cost of the inventory using last in fast out (LIFO) method
and the value comes to Rs 2 crores (if the cost of the inventory is computed as per first
in first out formula, its cost will be Rs 2.5 crores). Net realizable Value of the stock is Rs
2.25 crores. Since the policy of the company is to present inventory at lower of cost or
 NRV, the company has presented inventory in the financial statement at Rs 2 crores,
being the lowest.
d) A company purchased a plant at the cost of Rs 10 crores on 1 Srawan 2066 and the
company is charging depreciation on straight line basis over 10 years useful life
assuming there will be no scrap. In the year 2071/72 the company decides to charge
depreciation as per written down value method @ 10%. The company management
considers this as the change in accounting estimate and accordingly considers the
effect due to the change prospectively; i.e. depreciation charged in the year 2071/72 is
Rs 50 lakh and no adjustment in retained earnings and carrying amount of machinery.

Question No. 44
As an auditor, give your opinion with explanations on the following cases: (December 2015)

Organo Pvt. Ltd., manufacturing noodles, has valued at the year end its closing stock of
packed finished goods for which firm sales contracts have been received, at realizable value
inclusive of profit and cash incentive. As at the year end, the ownership of the goods has
not been transferred to the buyers.

Question No. 45
As an auditor, give your opinion with explanations on the following cases:
(5 Marks June 2016)
a) M/s DC Limited signed an agreement with workers for increase in wages with
retrospective effect. The outflow on account of arrears was for 2011-12 Rs. 10.00 lakhs,
for 2012-13 Rs. 12.00 lakhs and for 2013-14 Rs. 12.00 lakhs. This amount is
payable in September, 2014. The accountantwants to charge Rs. 22.00 lakhs as prior
period charges in financial statement for 2014-15.
b) X Ltd. sold the apartment to M Ltd. for Rs. 60 lakhs on 30.09.2014 and gave possession
of the property to M Ltd. However, Malpot documentation and legal formalities are
pending. Due to this, the company has not recorded the sale and has shown the
amount received as an advance. The book value of the building is Rs. 25 lakhs as on
March 31, 2014.
c) Manu Manufacturing Limited acquired an asset which has been declared by
municipality as not meeting the requirements of environment laws which have been
recently enacted. The asset has to be destroyed as per the law. The asset is carried in
the Balance Sheet at the year end at Rs. 6,00,000. The estimated cost of destroying the
asset is Rs. 70,000. The accountant wishes to charge off net balance of Rs.5,30,000 in
next 5 years.

Question No. 46
As an auditor, give your opinion with explanations on the following cases:
(5 Marks each
December 2016)
a) X Ltd. owns five motors that it uses in its business as property, plant, and equipment.
The entity intends to carry three motors under the cost model and the remaining two
under the revaluation model.
b) A Ltd. company has been valuing its closing inventories under the weighted-average
cost method. In 2072/73, management decided to change its accounting policy relating
 to the valuation of inventories to first-in, first-out (FIFO) method since it was considered
to more accurately reflect the usage and flow of inventories in the economic cycle. Is the
change in accounting policy justified?
c) M/s MeritaImpex is engaged in the business of manufacturing and trading of musical
instruments.A sum of Rs. 5 lakhs, received from an insurance company as an insurance
claim for loss of goodsin transit costing Rs. 4 lakhs, is credited to the purchase account.

Question No. 47
As an auditor, give your opinion with explanations on the following cases:(5 Marks each June 2017)
a) Nice Guy Ltd. sells goods with a cost of Rs. 100,000 to Start-up Co. for Rs. 140,000 and
a credit period of six months. Nice Guy‟s normal cash price would have been Rs.
125,000 with a credit period of one month or with a Rs. 5,000 discounts for cash on
delivery. The company wishes to book the revenue as Rs. 140,000.
b) AA Ltd. provided Rs 64 lakhs for Inventory obsolescence in 2072/73. In the subsequent
year, it was determined that 50% of such inventory was usable. The Board of Directors
wants to adjust the same through prior period adjustment.
c) 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 32.03.2072. 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 rightin his approach?

Question No. 49
Sagar International Ltd. has acquired a solar power system on 01.04.2072 for Rs. 100
lakhs. On 02.04.2072, it applied to Alternative Energy Promotion Board of Nepal for a 50%
subsidy. The subsidy application was finally approved on 01.06.2073. While finalizing the
accounts, the company has accounted the subsidy as adjusting event after reporting period.
The board of directors has not yet authorized the financials for issue. (5 Marks each June
2017)

Question No. 50
As an auditor, give your opinion with explanations on the following cases:(5 MarksDecember 2017)
a) M/s Radisson Hotel on 15.4.2073 imported two Mercedes Benz from Germany at a
price Euro 200 thousand each 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 15.4.2073. When the company
settled the liability on 30.8.2073, it had to incur an additional amount of Rs.15,00,000
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 30.8.2073.

b) Mr. Rajaram is a director in M/s P Ltd. and also in M/s Q Ltd. M/s Q Ltd. purchases
 goods from M/s P Ltd. The two companies reported the transaction as transaction with
related party as on Ashadh 31, 2074 under NAS-24.
Question No. 51

As an auditor, give your opinion with explanations on the following cases:(5 Marks each June 2018)
a) AJ Limited has an investment worth NPR 1,000,000 in its financial statements at
31stAshadh 2074. Due to the continuing recession, the investment reduced in value
to NPR 900,000 by 15thShrawan 2074.
b) MNS Ltd. (The Company) is engaged in manufacturing business. The book value of
plant & machinery of the company was Rs. 900 million as on Ashadh end 2073
(purchased at Rs. 1,000 million on 1stShrawan 2072). It provided depreciation on
straight line basis at 10% per annum based on useful life of the plant & machinery.
Imported asset of Rs. 100 million, the component of above plant & machinery was
acquired on 1stShrawan 2073 that would be obsolete in 2 years. The company
wants to write off this asset over 2 years. Can the company do so?
c) X Ltd. entered into an agreement with Y Ltd. to dispatch goods valuing Rs. one lakh
every month for six months upon receipt of entire payments. Y Ltd. accordingly
made the payment. In third month due to a natural calamity Y Ltd. requested X Ltd.
not to dispatch until further notice.
d) During the financial year 2073/74, Y & R Private Limited, a service providing
company purchased generator of Rs. 2 million for smooth functioning of its office.
The accountant claims that there is no necessity to provide for depreciation in
respect of generator as it was kept standby but not used at all during the financial
year.

Question No. 52
As an auditor, give your opinion with explanations on the following cases:(5 Marks December 2018)

a) The total assets of Rs. 250 million of Y & Z Limited includes inventory amounting
to Rs. 50 million. The inventories were valued at cost. The market price of the
inventories was Rs. 42 million. The company has disclosed this fact in the notes to
accounts.

b) A Co. Ltd. has not included in the Balance Sheet as on 32-03-2075 a sum of Rs.
1,500,000 being amount in the arrears of salaries and wages payable to the staff for the
last 2 years because the negotiations were going since last 18 months which
concluded on 30-04-2075. The auditor wants to sign the said financial statement and
give the audit report on 31-05-2075. The auditor came to know the result of the
negotiations on 15-05-2075.
.

Question No. 53
As an auditor, give your opinion with explanations on the following cases: (5 Marks
each June2019
a) Surendra Clothing Pvt. Ltd. has been assessed to Income-tax, in which a demand
of Rs. 10 lakhs have been made. The company has gone in appeal. The company
has deposited Rs. 6 lakhs against the demand, on being pursued by the
 department. The company has been advisedby its counsel that there is 80% chance
of losing in respect of one of the grounds which may end up confirming the demand
of rest Rs. 4 lakhs. How the company should treat the same while preparing the
final accounts for the year ending Asadh end, 2076?
b) During the previous year ABC Limited has followed the straight-line method of
depreciation. During the current year it has been changed to written down value
method.
c) The ABC Ltd., while valuing its finished inventory at the year-end wants to include
interest on Bank Overdraft as an element of cost, for the reason that overdraft has
been taken specifically
for the purpose of financing current assets like inventory and for meeting day to
day workingexpenses.