Auditing and EthicsQuestion 5655 of 212
All Questions

4. Which of the audit procedure performed (before finalizing the audit report of M/s. Fox India Limited) by Rahul is not as per SA 560?

Options

AProcedure (i)
BProcedure (ii)
CProcedure (iii)
DProcedure (iv) (2 Marks) Case Scenario 2 CA F has been appointed as an auditor of a manufacturing entity. Pursuant to appointment, CA F planned to assess the risk of material misstatement. During this process, CA F observed that entity has identified various controls to mitigate the risk. The entity has implemented a control (named TARGET) whose objective is to ensure that production systems are processed to meet financial reporting objectives. On completion of risk assessment procedure, CA F was wandering as to how he can verify the existence of related party relationships and transactions. So, he consulted one of his colleagues, CA Z, who suggested following ways to identify the same: (i) Information supplied by the entity to regulatory authorities. (ii) Entity's income tax returns. (iii) Inventory records maintained by the entity. (iv) Life insurance policies acquired by the entity. 4 SUGGESTED ANSWER On-going through the financial statement provided by the entity, CA F observed that the entity has significantly borrowed the amount during the financial year 2023-24. CA F wanted to ensure that all borrowing on the balance sheet represent valid claims by banks or other third parties. Accordingly, he performed the following procedures: (i) Reviewed subsequent transactions after the end of the reporting period. (ii) Recomputed the interest on borrowing. (iii) Reviewed board minutes for approval of new lending agreements. (iv) Agreed loan balance and loan payables to the loan agreement. CA F decided to perform analytical procedures to obtain audit evidence as to overall reasonableness of purchase quantity and price. For this, CA F scrutinized raw material consumed as per manufacturing account and compared the same with previous years with closing stock. The variations observed were discussed with the management of the entity. Based on the above facts, answer the following Q. Nos. 5 to 8.
For any discrepancies in this question, email contact@cadada.in

Correct Answer

✅ Option D — Procedure (iv) (2 Marks) Case Scenario 2 CA F has been appointed as an auditor of a manufacturing entity. Pursuant to appointment, CA F planned to assess the risk of material misstatement. During this process, CA F observed that entity has identified various controls to mitigate the risk. The entity has implemented a control (named TARGET) whose objective is to ensure that production systems are processed to meet financial reporting objectives. On completion of risk assessment procedure, CA F was wandering as to how he can verify the existence of related party relationships and transactions. So, he consulted one of his colleagues, CA Z, who suggested following ways to identify the same: (i) Information supplied by the entity to regulatory authorities. (ii) Entity's income tax returns. (iii) Inventory records maintained by the entity. (iv) Life insurance policies acquired by the entity. 4 SUGGESTED ANSWER On-going through the financial statement provided by the entity, CA F observed that the entity has significantly borrowed the amount during the financial year 2023-24. CA F wanted to ensure that all borrowing on the balance sheet represent valid claims by banks or other third parties. Accordingly, he performed the following procedures: (i) Reviewed subsequent transactions after the end of the reporting period. (ii) Recomputed the interest on borrowing. (iii) Reviewed board minutes for approval of new lending agreements. (iv) Agreed loan balance and loan payables to the loan agreement. CA F decided to perform analytical procedures to obtain audit evidence as to overall reasonableness of purchase quantity and price. For this, CA F scrutinized raw material consumed as per manufacturing account and compared the same with previous years with closing stock. The variations observed were discussed with the management of the entity. Based on the above facts, answer the following Q. Nos. 5 to 8.

All Options:

  • AProcedure (i)
  • BProcedure (ii)
  • CProcedure (iii)
  • DProcedure (iv) (2 Marks) Case Scenario 2 CA F has been appointed as an auditor of a manufacturing entity. Pursuant to appointment, CA F planned to assess the risk of material misstatement. During this process, CA F observed that entity has identified various controls to mitigate the risk. The entity has implemented a control (named TARGET) whose objective is to ensure that production systems are processed to meet financial reporting objectives. On completion of risk assessment procedure, CA F was wandering as to how he can verify the existence of related party relationships and transactions. So, he consulted one of his colleagues, CA Z, who suggested following ways to identify the same: (i) Information supplied by the entity to regulatory authorities. (ii) Entity's income tax returns. (iii) Inventory records maintained by the entity. (iv) Life insurance policies acquired by the entity. 4 SUGGESTED ANSWER On-going through the financial statement provided by the entity, CA F observed that the entity has significantly borrowed the amount during the financial year 2023-24. CA F wanted to ensure that all borrowing on the balance sheet represent valid claims by banks or other third parties. Accordingly, he performed the following procedures: (i) Reviewed subsequent transactions after the end of the reporting period. (ii) Recomputed the interest on borrowing. (iii) Reviewed board minutes for approval of new lending agreements. (iv) Agreed loan balance and loan payables to the loan agreement. CA F decided to perform analytical procedures to obtain audit evidence as to overall reasonableness of purchase quantity and price. For this, CA F scrutinized raw material consumed as per manufacturing account and compared the same with previous years with closing stock. The variations observed were discussed with the management of the entity. Based on the above facts, answer the following Q. Nos. 5 to 8. ✓

Ad

Detailed Solution & Explanation

Under SA 560, "Subsequent Events", the auditor must perform procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment or disclosure have been identified.
These procedures include:
1. Inquiring of management about subsequent events.
2. Reading the entity's latest subsequent interim financial statements.
3. Reading the minutes of meetings of shareholders, board of directors, and audit committees held *after* the date of the financial statements (i.e., after 31.03.2024).
Procedure (iv), which involves reading minutes only up to 31.03.2024, is not designed to detect subsequent events that occur after the balance sheet date.
Hence, **Option D** is the correct answer.

More Questions from Auditing and Ethics

Sum of progression (a+b)\displaystyle (a+b), (a−b)\displaystyle (a-b), (a−3b)...n\displaystyle (a-3b)...n term is

Find the sum of first twenty-five terms of A.P. series whose nth\displaystyle n^{th} term is (n+25)\displaystyle \left(n+\frac{2}{5}\right)

The first and fifth term of an A.P. of 40\displaystyle 40 terms are −29\displaystyle -29 and −15\displaystyle -15 respectively. Find the sum of all positive terms of this A.P

If the common difference of an AP equals to the first term, then the ratio of its mth\displaystyle m^{th} term and nth\displaystyle n^{th} term is:

Find the value of 1+2+3+...+105\displaystyle 1+2+3+...+105

The first and last terms of an arithmetic progression are 5\displaystyle 5 and 905\displaystyle 905. Sum of the terms is 45,955\displaystyle 45,955. The number of terms is

Ready to Master Auditing and Ethics?

Practice all 212 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free