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Question 5 (a) As per SA 299 "Joint Audit of Financial Statements", joint audit basically implies pooling together the resources and expertise of more than one firm of auditors to render an expert job in a given time period which may be difficult to accomplish acting individually. Explain by stating any five advantages of joint audit. (5 Marks) (b) The Management of Sun Shine Ltd. has provided the auditor with a written representation regarding its. responsibilities for the preparation of the AUDITING AND ETHICS financial statements. In addition to this, the auditor may request other written representations about the financial statements. Mention such other representations which may supplement but do not form part of the written representation relating to management's responsibilities regarding preparation of financial statements. (5 Marks) (c) Compute the Drawing power for Cash Credit limit granted to S Ltd. by Trust Bank for the month of March 2025 from the following information: Particulars Amount in (`) Value of stocks 50,000 Value of debtors (including debtors of 5,000 for an invoice dated 17.11.2024) 45,000 Value of creditors for goods 15,000 Sanctioned limit 45,000 Margin on stock is 20% and on debtors is 50%. Note: Debtors older than 3 months are ineligible for calculation of D.P. (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) As per SA 299, “Joint Audit of Financial Statements”, the advantages of Joint Audit are: (i) Sharing of expertise. (ii) Advantage of mutual consultation. (iii) Lower workload. (iv) Better quality of performance. (v) Improved service to the client. (vi) In respect of multi-national companies, the work can be spread using the expertise of the local firms which are in a better position to deal with detailed work and the local laws and regulations. (vii) Lower staff development costs. (viii) Lower costs to carry out the work. 54 SUGGESTED ANSWER (b) As per SA 580, “Written Representations”, in addition to the written representation about management’s responsibilities regarding preparation of financial statements, the auditor may consider it necessary to request other written representations about the financial statements. Other representations which may supplement, but do not form part of the written representation relating to management’s responsibilities regarding preparation of financial statements are the following: (i) Whether the selection and application of accounting policies are appropriate; and (ii) Whether matters such as the following, where relevant under the applicable financial reporting framework, have been recognized, measured, presented or disclosed in accordance with that framework: 1. Plans or intentions that may affect the carrying value or classification of assets and liabilities; 2. Liabilities, both actual and contingent; 3. Title to, or control over, assets, the liens or encumbrances on assets, and assets pledged as collateral; and 4. Aspects of laws, regulations and contractual agreements that may affect the financial statements, including non-compliance. (b) Computation of Drawing power of S Ltd. for the month of March 2025: Value of stocks ` 50,000 Less: creditors for goods ` 15,000 Value of Paid stocks ` 35,000 Less: Margin @ 20% ` 7,000 Drawing power (A) ` 28,000 Value of debtors ` 45,000 Less: debtors exceeding 90 days ` 5,000 ` 40,000 Less: Margin @ 50% ` 20,000 Drawing Power (B) ` 20,000 Drawing Power (A+B) ` 48,000 AUDITING AND ETHICS The sanctioned limit given in the question is ` 45000 whereas drawing power as per the above working is ` 48000. Accordingly, drawing power for Cash Credit Limit granted to S Ltd. by Trust Bank for the month of March 2025 would be restricted to sanctioned limit i.e., ` 45000.

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