ASSURANCE

Time allowed: 2:15 hours

Full marks: 100

[N. B.: – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and of the manner in which the answers are presented. Different parts, if any, of the same question
must be answered in one place in order of sequence.]

Marks
1. ISA-700 (revised) has brought about a substantially revised format of independent auditor's report. All
of the requirements, as indicated in the format, may not be applicable for all sorts of audit engagements.
However, most of the requirements are applicable to the audit reports to be issued to the listed entities
and therefore, you must be adequately knowledgable. You are therefore, required to briefly narrate all
those requirements. 10

2. Substantial improvements have been ensured in the new audit report format as per ISA-700 (revised), in
terms of presenting critical information on the face of the audit report. The users of the report issued for
the listed companies are expected to have some useful information as well as some early signals as to the
capability of the company to operate profitably in the future.
(a) The most useful introduction is ‘Key Audit Matters’ as a separate section on the face of the report.
You are required to define Key Audit Matters as per ISA-701. 4
(b) ISA-701 specifies certain features assisting auditors to determine Key Audit Matters (KAM). You
are required to write briefly about these determining features. 6

3. (a) Define Business Risk and Control environment. 5

(b) In order to strengthen the system of governance in the listed companies, BSEC has promulgated
specific rule for such companies to mandatorily have an audit committee of the board of directors.
The rule also requires to have written terms of reference for such committee. Explain briefly, the key
points contained in the terms of reference of an audit committee. 10

4. In order to ensure effective and efficient function of sales order processing system in a good business
organisation, the management must weigh all risks associated with it. Thus, for proper identification of
necessary control objectives, there must be documented control system implemented with a view to
mitigating all such risks.
(a) Identify potential risk and control objectives associated with sales order processing. 5
(b) Identify mitigating controls that need to be implemented with a view to ensuring efficient and
effective sales order processing. 5

5. The auditor, while expressing an opinion on the financial statements, uses typical phrases saying, either
the financial statements give true and fair view of the state of the company's affairs or the financial
statements present fairly, in all material respects, the state of the company's affairs. This fairness or true
and fair view is measured in terms of possibility of existence of misstatements left in the underlying
financial statements.
Describe as to how you would evaluate the misstatements that were identified during the course of the
audit. 5

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6. A representation letter might not be sole savior in case an auditor fails to perform audit appropriately and
faces legal consequences. Despite that, it forms a critical part of the audit evidence and hence ISA 580
requires an auditor to obtain a suitably drafted letter of representation signed by the management of the
auditee company.
How does a Letter of Representation supports as audit evidence in an audit engagement and what
should an auditor do, in case management is reluctant to provide representation/internal confirmations?. 5+5=10

7. (a) ‘The auditors formulate an overall audit strategy which is translated into a detailed audit plan for
audit staff to follow’ – what is the difference between audit strategy and audit plan? 5
(b) Why does the auditor make a plan before starting an audit? 7
(c) Describe ‘Risk and materiality’ in the context of an overall audit strategy. 8

8. IESBA Codes have set a number of fundamental principles applicable to professional accountants.
Possibility of breaching the guidelines of the principles is measured in terms of underlying threats.
Write in short, about your understanding of fundamental principles per IESBA Codes and give an
account of available threats as mentioned in the IESBA Code of Ethics that accountants should bear
in their minds while at work. 5+5=10
9. Accountants may be compelled by law or consider it desirable in the public interest to disclose details of
clients affairs to third parties.
In the assurance service why confidentiality of information is so important and under which
circumstances the professional accountant may be required to disclose confidential information? 5+5=10

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