CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS.

CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
___________________________________________________________________
Chapter 2 - Audit Strategy, Audit Planning and Audit
Programme

1. CA E is auditor of LM Ltd. Before commencing with current year's audit, he

initiated planning for the audit. Planning includes the need to consider certain
matters, prior to the identification and assessment of the risk of material
misstatements. Enumerate such matters. (4 Marks)
ANSWERS:

2. The engagement partner, of a firm of auditors, is explaining to his audit team, undergoing
practical training, the inter relationship between audit strategy and audit plan. Discuss the
points which the engagement partner will explain to his team in this regard. (3 Marks)

ANSWERS:

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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3. RDB & Co. have been appointed as statutory auditors of INA Group of Hotels. This is the
first time the firm is auditing an industry in food & beverage. The engagement partner, CA
R, and other key members of the engagement team have undertaken the activity of
development of an audit plan of INA Hotels after thorough understanding the Hotel's
business and its environment. As per SA 300, description of which of the following matters
is not a part of developing an audit plan?
(A) The nature, timing and extent of planned risk assessment procedure.
(B) The nature, timing and extent of planned further audit procedures at assertion level.
(C) The nature, timing and extent of resources necessary to perform the engagement.
(D) Other planned audit procedures that are required to be carried out so that the
engagement complies with SAs.

ANSWER: (C)

4. EFG Ltd. has appointed M/s. MN & Co., Chartered Accountants, as the statutory auditors
for the year 2024-25. CA N, the engagement partner, completed his risk assessment
procedure. However, he is concerned about the management of human resources to be
employed to conduct the audit. For this purpose, he wants to establish an overall audit
strategy for setting the scope, timing and direction of the audit. Describe how the process of

ARHAM INSTITUTE BY CS LAVISH VYAS (AIR-19)

 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
___________________________________________________________________
establishment of overall audit strategy will assist him in managing deployment of his
human resources for various audit areas. (4 Marks)
ANSWER:

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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5.

ANSWERS:

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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6.

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
___________________________________________________________________
ANSWER:

7. XWL Limited was engaged in dealing in commodity futures trading based in Surat. CA P,
based at Delhi, was auditor of the company. The auditor did not even once visit office of the
company and failed to understand the nature of business of the company. All the papers
and account books were received on emails and audit was concluded. There were also
included in his working papers checklists which had a requirement of test checking of cost
of raw material consumed & cost of stores and spares. There was nothing in his working
papers showing understanding of nature of business of company. What does it reflect upon
planning of audit by CA P?

ANSWER:
SA 300 requires the auditor to plan the audit in such a manner that it is performed
effectively. It also requires auditor to establish overall audit strategy including identifying
the characteristics of the engagement, facilitating him to define its scope and planning of
nature, timing and extent of audit procedures required to be performed to achieve the
objective of audit. SA 300 further requires the auditor to document the overall audit
strategy, the audit plan and any significant changes made during the audit engagement to
such plans. In the given situation, auditor didn’t even once visit the company and failed to

ARHAM INSTITUTE BY CS LAVISH VYAS (AIR-19)

 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
___________________________________________________________________
understand about business of the company. Therefore, he has flouted requirement of SA
300 to plan the audit in such a manner that it is performed effectively. The auditor has to
plan the audit commensurate to the nature and complexity of the business of the entity and
identify and assess the risk of material misstatement. Further, working papers of auditor
also do not show his understanding of nature of business which is again a blatant violation
of requirement of SA 300 which requires the auditor to document the overall audit
strategy, the audit plan and any significant changes made during the audit engagement to
such plans. Inclusion of a checklist in working papers having requirement of test checking
of cost of raw material consumed & cost of stores and spares shows that it was a general
checklist and specifics of business were never understood and audit was not planned to be
conducted in an effective manner in accordance with requirements of SA 300.

8. CA. Nikita is conducting audit of a leading society engaged in promoting awareness

regarding usefulness of internet among the disadvantaged sections of society through
easily understandable means and methods. The society is also registered under FCRA, 2010
for receipt of foreign contributions. During the course of audit, she embarked upon
extensive procedures relating to verification of receipt of foreign contributions to rule out
“round-tripping” in comparison to procedures originally thought of. She is documenting
various procedures performed by her including relevant audit findings. However, she
doesn’t not feel need for putting into writing about how she planned the whole exercise.
Does she require refreshening of her knowledge?

ANSWER;
SA 300 requires auditor to document audit plan and significant changes made during the
audit engagement to the audit plan. It also requires auditor to document reasons for such
changes. The documentation of the audit plan is a record of the planned nature, timing and
extent of risk assessment procedures and further audit procedures at the assertion level in
response to the assessed risks. It also serves as a record of the proper planning of the audit
procedures that can be reviewed and approved prior to their performance.
Further, changes to audit plan along with reasons thereof due to embarking upon extensive
procedures related to verification of foreign contributions in comparison to what was
originally envisaged need to be documented. Failure to document audit plan could entail
risk of not conducting audit according to professional standards in a qualitative manner.

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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9. CA Rishu is appointed as an auditor of a manufacturing company with a complex supply
chain, multiple inventory locations, and recently introduced financial reporting
requirements. Some article assistants and an expert assigned for inventory verification are
forming part of audit team of CA Rishu. To ensure that audit risk is reduced to an
acceptably low level, CA Rishu is focused on developing an effective and efficient audit plan.
Explain the benefits of adequate audit planning in the audit of financial statements.

ANSWER:

10. CA Tina, the auditor of SKY Ltd., asks its finance and audit head to prepare audit
strategy for conducting audit of SKY Ltd. CA Tina also insists him to draw detailed audit
procedures. In response to the auditor's request, the finance head of the company
completes the audit strategy as well as audit procedures. Subsequently, the auditor realises
that the effectiveness of the audit is compromised and it was his responsibility to prepare
the overall audit strategy. Comment. (4 Marks)

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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ANSWER:

11.

ANSWER:

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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12. “In establishing the overall audit strategy, the auditor shall, among other
considerations, ascertain the nature, timing and extent of resources necessary to perform
the engagement”. Explain those considerations in detail. (4 Marks)
ANSWER:

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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13. The engagement partner, of a firm of auditors, is explaining to his audit team,
undergoing practical training, the inter relationship between audit strategy and audit plan.
Discuss the points which the engagement partner will explain to his team in this regard. (5
Marks)
ANSWER:
Relationship between audit strategy and audit plan: • Audit strategy sets the broad overall
approach to the audit whereas audit plan addresses the various matters identified in the
overall audit strategy. • Audit strategy determines scope, timing and direction of audit.
Audit plan describes how strategy is going to be implemented. • The audit plan is more
detailed than the overall audit strategy that includes the nature, timing and extent of audit
procedures to be performed by engagement team members. Planning for these audit
procedures takes place over the course of the audit as the audit plan for the engagement
develops. • Once the overall audit strategy has been established, an audit plan can be
developed to address the various matters identified in the overall audit strategy, taking
into account the need to achieve the audit objectives through the efficient use of the
auditor’s resources. • The establishment of the overall audit strategy and the detailed audit
plan are not necessarily discrete or sequential processes but are closely inter-related since
changes in one may result in consequential changes to the other.

14. Lotus Ltd., a rapidly growing manufacturing company, appointed Ridhi & Co., as
statutory auditor. The engagement team of Ridhi & Co. identified key areas requiring
scrutiny, such as revenue recognition, inventory valuation, and related party transactions.
Based on his professional judgment, CA Ravi, the engagement partner, directed the
engagement team to focus on these critical areas, emphasising the need for detailed testing

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
___________________________________________________________________
to ensure accuracy and compliance. Give some examples of the factors need to be
considered by CA Ravi for establishing the audit strategy. (4 Marks)
ANSWER:
Consider the factors that, in the auditor’s professional judgment, are significant in directing
the engagement team’s efforts. The auditor needs to direct efforts of engagement team
towards matters that in his professional judgment are significant. Preliminary
identification of material classes of transactions, account balances and disclosures help
auditor in establishing overall audit strategy. More attention need to be devoted to
significant matters to obtain desired outcomes. Examples of the factors that need to be
considered by CA Ravi for establishing audit strategy are: - • Volume of transactions which
may determine whether it is more efficient for the auditor to rely on internal control. •
Significant industry developments such as changes in industry regulations and new
reporting requirements. • Significant changes in the financial reporting framework, such as
changes in accounting standards. • Other significant relevant developments, such as
changes in the legal environment affecting the entity.

15. During the audit of ABC Ltd., a medium-sized manufacturing company, the engagement
partner is responsible for directing and supervising the work of the engagement team. The
team includes both experienced members and several new trainees. Additionally, certain
areas of the audit have been identified as high-risk, such as revenue recognition and
inventory valuation, due to recent changes in ABC Ltd.'s accounting policies. What factors
should the engagement team members consider when determining the nature, timing, and
extent of direction, supervision, and review of the engagement team's work?
ANSWER:

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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16. CA D is planning an audit of a listed company. List specific documentation
requirements in accordance with SA 300 in relation to planning such an audit. How such
planning documentation is useful? (4 Marks)
ANSWER:

17. (EXTRA)

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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ANSWER:

18.

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 CA INTER AUDIT || IMPORTANT PRACTICE QUE & ANS. CHAP-6 ||
CS LAVISH SIR (AIR-19) || ARHAM INSTITUTE
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ANSWER:

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