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**Descriptive Auditing Case Study — SA 700 / 705 Forming an Opinion & Circumstances Leading to Modified Opinions (Marks: 5)** During the planning phase of the statutory audit of Navkar Polymers Ltd., CA. Anita, the engagement partner, identifies significant risks relating to revenue recognition and management override of controls. Explain the detailed substantive procedures and auditor's responses required under SA 240 and SA 330 to address the risks identified.

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Detailed Solution & Explanation

### Suggested Solution — ICAI Standards on Auditing **1. Requirements under SA 240 & SA 330:** - In accordance with SA 240, there is an explicit rebuttable presumption that there are risks of fraud in revenue recognition. - Management override of controls is an inherent risk present in all entities. **2. Auditor's Substantive Responses:** - Test the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements. - Review accounting estimates for biases and evaluate whether the circumstances producing the bias represent a risk of material misstatement due to fraud. - Evaluate the business rationale for significant transactions that are outside the normal course of business or that otherwise appear to be unusual.

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