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Question 2 (a) Mention any three standards issued under authority of ICAI Council which are collectively known as 'Engagement Standards'. (3 Marks) Also mention the purpose of issue of these standards. (2 Marks) (b) Give five examples of operating events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern. (5 Marks) (c) TS Ltd. has raised funds by issuing fully convertible. debentures. These funds were raised for the expansion and diversification of the business. The company had clearly outlined in its board resolution that these funds will be used for business expansion and diversification purposes only. However, the company utllised these funds for repayment of long-term loans and advances rather than for the intended purpose of business growth and expansion. State the reporting responsibility of the auditor under paragraph 3, clause (x) of the Companies Auditor's Report Order, 2020 (CARO 2020). (4 Marks)

Options

A
B
C
D
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Correct Answer

✅ Option descriptive — Correct Option

All Options:

  • A
  • B
  • C
  • D

Detailed Solution & Explanation

(a) Engagement and Quality control Standards: The following Standards issued under authority of ICAI Council are collectively known as Engagement Standards: 1. Standards on Auditing (SAs) which apply in audit of historical financial information. 2. Standards on Review Engagements (SREs) which apply in review of historical financial information. 3. Standards on Assurance Engagements (SAEs) which apply in assurance engagements other than audits and review of historical financial information. 4. Standards on Related Services (SRSs) which apply in agreed upon procedures to information, compilation engagements and other related service engagements. AUDITING AND ETHICS The purpose of issue of these standards is to establish high quality standards and guidance in the areas of financial statement audits and in other types of assurance services. (b) As per SA 570, “Going Concern”, the following are examples of operating events or conditions that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern. • Management intentions to liquidate the entity or to cease operations. • Loss of key management without replacement. • Loss of a major market, key customer(s), franchise, license, or principal supplier(s). • Labour difficulties. • Shortages of important supplies. • Emergence of a highly successful competitor. (c) The auditor is required to report under Clause (x) of Paragraph 3 of CARO 2020 that: (a) whether moneys raised by way of initial public offer or further public offer (including debt instruments) during the year were applied for the purposes for which those are raised, if not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be reported. (b) whether the company has made any preferential allotment or private placement of shares or convertible debentures (fully, partially or optionally convertible) during the year and if so, whether the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied with and the funds raised have been used for the purposes for which the funds were raised, if not, provide details in respect of amount involved and nature of noncompliance.

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