AUDIT & ASSURANCE

Time allowed- 3:30 hours

[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. a) Recently news scam in financial and nonfinancial organization has been published in the print and
electronic media of the country. Most of them are occurring due to related party transactions. In
the partners meeting of your firm, it has been decided to perform a training session for the
professional staff of the firm and you are given the responsibility.
Requirements:
You are required to prepare notes for the training session on how to identify related party
transactions. Your notes should include:
i) A list of possible features which would lead you to investigate a particular transaction to
determine whether it is, in fact, a related party transaction. 6
ii) A summary of general audit procedures you would perform to ensure that all material related
part of transactions have been identified. 6
b) Members of the Institute of Chartered Accountants of Bangladesh (ICAB) are expected to well
grasp the ethical codes promulgated by the IESBA as adopted by the ICAB as well as those
embedded in the Schedule-C of ICAB Bye Laws.
There has been a perennial debate about whether professional accountants can advertise their
services and activities! On the other hand, advertisement is believed to be one of the key drivers
to the business growth. Professional accountants in practice are usually guided by two sets of
ethical codes underlying their services provided to the clients. Alongside local codes, respective
jurisdiction might be guided by the IESBA codes of ethics.
Requirement:
Being an accountant in practice, describe if accountants in practice are allowed to advertise their
practices. 4
c) You are the Partner in Charge of client acceptance in your firm of Chartered Accountants. Below
are two prospective clients for your final review.
• Reed Ltd. is a fast-growing company in the trading industry and deals in hardware. Your firm
has been nominated to be the auditor of Reed Ltd. and formal communication has been
received by your firm. Your firm of chartered accountants has significant shares in the largest
distributor of hardware in the country.
• Fast Communication Ltd. advertised for audit services and your firm submitted a bid in
response to the advertisement and was nominated as auditors. Your firm has audit experience
in this industry because it is the current auditor of Link Ltd. a company in the same industry.
The year-end of Fast Communication Ltd. is different from that of Link Ltd. and so the same
engagement team will audit both Companies.
Requirement:
Describe the response that you will give in view of the nominations for your firm to be auditor of
the two companies above. 4
2. a) Most of the business entities are small in size in our country. The management of the company does
not want to go to different professionals for professional service. Most of the companies want to get
services from one professional firm. Under these circumstances, your Chartered Accountancy firm,
having seven partners, has been invited by Mr. Hilton, the Managing Director and majority
shareholders of Paltan Ltd. to accept appointment as the auditor of the company and provide
assistance with the preparation of the financial statements as well as the company tax matters.
The principal activity of Paltan Ltd. is to process and pack tea bags and tea cups which are sold to
customers operating in fast foods and retail shops. The main purpose of this audited financial
statements is to obtain loan from bank. As per country leading policy, debt equity ratio is required
for such small business is 1:1.
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 The accounting records are computerized and the company uses the software which was developed by
Proton Software Ltd. a company owned by Mr. Hilton's brother. The software has been customized to
integrate inventory control with receivables and payables. Proton Software Ltd. also provides support
for the company's computer systems. The accounting records are maintained by Mr. XYZ, assisted by
Mr. PQR who is a part time employee of the company and responsible for payroll processing.
Requirement:
State, with reasons, what matters are to be considered at procedures to be performed prior to your
firm accepting and commencing the audit of Palton Ltd. 5
b) ABC Limited, a company dealing with the production and distribution of electrical equipment, has
been in the market since January 2015. About 80% of their production is sold in the local market
so far while the remaining 20% is exported to the Sub-Saharan countries in Africa. Given the
growth in the business coupled with the reputation gained by the company, there has been a
possibility of attracting new investors to their business. So, with a view to adding more credibility
to their financial reporting status and underlying acceptability, they have started thinking of
engaging a better audit firm to do their audits.
Requirement:
Being a potential auditor of this company, you are asked to delineate the minimum conditions you
would take into consideration before accepting such an engagement. 5
c) ISA 210 prescribes the terms of an audit engagement. So, a careful read and grasp of the contents
of the respective ISA is critical to accepting an audit engagement.
Requirement:
Elucidate the term as prescribed in ISA 210 for an audit engagement. 5
3. a) Gamston Ltd. is a private limited company engaged in manufacturing and exporting garment items.
Raw materials (yarn) import and finished products export are taken place on Back-to-Back L/C. Due
to Covid-19 and Russia-Ukraine war, the exports, have been hampered severely. Several export
orders have been cancelled by the buyer. Lending bank has created demand loan by substantial amount
and in the sanction of demand loan, bank has given condition that Gamston Ltd. can be allowed to
open further L/C up to the limit of 75% repayment of demand loan. Under this situation, your firm
has been appointed auditor of Gamston Ltd. In a partners’ meeting the managing partner of the firm
informed the engagement parties of the audit assignment of Gamston Ltd. that there is a risk of going
concern issue in the Gamston Ltd. and we have responsibility to obtain sufficient appropriate audit
evidence about the appropriateness of management’s use of going concern assumption.
Requirements:
i) Identify the tasks that will have to be carried out to identify the genuineness of going concern
assumptions of Gamston Ltd. 7
ii) Write down the possible indications of going concern problems as per ISA 570. 7
b) ISA 240, while talks about auditors’ responsibility with regards to fraud in audit of financial
statements, among others uses the term management override to refer to the unique ability of
management to manipulate the accounting records and therefore produce misleading financial
statements. Reasons for management override are many and varied, for example financial gain,
tax avoidance, or the enhancement of personal or business performance. Auditors need to assess
the risk of management override during the planning stage of the audit, and design appropriate
audit procedures in response.
Requirement:
Indicate the minimum procedures that would give you reasonable confidence in arriving at the
conclusion that frauds emanating from management override have not occurred in the financial
statements under audit. 5
4. a) You are planning the audit of the financial statements of Frangos Ltd. for the year ended 31
December 2022. Frangos Ltd. imports its raw materials through Chottogram port where port staff
generally calls for strike to achieve their salary increment movement. During the current year the
company experienced serious delays in the arrival of raw materials due to delays arising from the
strike. This is the first time you will be auditing a company in the chemical industry.
You are leading a team of newly recruited Audit Assistants, who completed their studies recently,
on the audit of the financial statements of Frangos Ltd.

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 Frangos Ltd. manufactures fertilizers and company was awarded a contract by the Ministry of
Agriculture to supply fertilizer to the Govt. Depots. In the last two years, Frangos Ltd. could not
meet the demand for its products due to the company failing to meet its production targets. This
was attributed to old equipment which constantly breaks down. As a result of this, the Technical
Manager of Frangos Ltd. resigned this year citing frustrations in failing to meet production levels.
It is not easy to find technical staff in this industry. In view of the award of the contract to supply
fertilizers for the next farming season, the company undertook extensive repairs of its ageing
equipment during the year and in some cases, complete refurbishment of the equipment. The
Managing Director is concerned that if the company fails to meet its contractual obligations the
contract would be cancelled, and the company would face difficulties repaying the bank loan which
it secured for the repairs and refurbishment of the equipment. The loan is secured on the equipment
purchased using the facility.
You establish that a farmer based in Bogra sued Frangos Ltd. in the year under review claiming
that the company supplied him with expired fertilizer resulting in his losing TK1.5m. The farmer
is claiming damages and interest as the courts may determine.
There has been increased monitoring of the disposal of hazardous substances by the concerned
ministry and agency for managing environment and climate.
Requirements:
i) State four matters that should be documented in the working papers with regards to materiality
in the audit of the financial statements of Frangos Ltd. 4
ii) Identify and explain four audit risks in the audit of the financial statements of Frangos Ltd.
and suggest suitable responses for each risk. 4
iii) Identify and explain four business risks in Frangos Ltd. 4
b) Chowdhury & Associates are auditors of Cyba Limited and the audit of the financial statements of
Cyba Limited for the year ended 31 December 2023 is nearing completion.
The company has not paid out any dividends for the last five years on account of re-investing most
of the profits in order to improve the liquidity of the company. In the year under review, the
company failed to satisfy customer requirements resulting in some customers switching suppliers.
In an effort to retain customers the company offered 30 days extended credit to some of its
customers who were on cash basis. This significantly affected the liquidity of the company. Major
suppliers withdrew credit to Cyba Limited on account of delayed payments.
Because of poor liquidity, the company experienced a number of labor disputes during the year
resulting in workers withdrawing labor. The Audit Manager performed analytical procedures of the
financial statements and the result shows a net current liability position. The directors of Cyba Limited
evaluated the ability of the company as a going concern and concluded that it was a going concern
and that it would be recapitalized and the liquidity position would improve in the next twelve months.
You are the Engagement Partner for the audit of the financial statements of Cyba Limited and four
other clients of your firm.
You are reviewing the working papers of the four other audit clients and the following information
has been extracted from the working papers:
Client one
The audit team on this audit obtained sufficient appropriate evidence on which to base the opinion.
There is a matter that you are concerned about and you would like to include it in the audit report.
This relates to a provision for a pending legal case involving a spillage of hazardous substances by
the company. You are concerned that environmentalists may express concern if this matter is not
mentioned in the audit report. The penalty for the spillage according to the act is small and is
considered immaterial to this client.
You are pleased that management correctly accounted for this and adequately disclosed it in note
2 of the financial statements.
Client two
An evaluation of the schedule of uncorrected material misstatements in the audit of the financial
statements shows that the uncorrected misstatements are above the materiality figures set at the planning
stage. The request to management to pass an adjustment in the financial statements was declined.
The total amount of uncorrected misstatements is material but not pervasive to the financial statements.
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 Client three
A few days before the inventory count at the year end, fire gutted part of the warehouse destroying
the entire inventory. The book value of the inventory was used to determine the inventory value.
It was not possible to obtain sufficient appropriate evidence of the value of inventory at the year
end and you concluded that inventory is material figures in the financial statements and considered
pervasive to the financial statements.
Client four
The client uses a manual accounting system and the audit team observed that the filing of
documents is very poor. The audit team was not able to obtain the necessary evidence regarding
70% of the samples on sales revenue. It was not possible to obtain the required evidence through
other means and this was brought to the attention of management.
A misstatement of the revenue figures in the audit of this client will result in a misstatement of the
profit for the year.
Requirements:
i) Explain the reasons why auditors are concerned with the ability of client companies operating
as going concerns. 3
ii) Identify and explain four conditions that suggest that Cyba Limited has going concern problems. 3
iii) Suggest, giving reasons, a suitable opinion for each of your firm’s audit clients one to four above. 3

5. a) Edward & Co. Chartered Accountants (EdCo) has been appointed auditor for the Mittal Group of
companies for the year ended 31 December 2023. The scope of the work of EdCo includes auditing
and expressing opinions on the financial statements of Mittal Holdings Limited and 5 others out
of 7 companies of the group. Under the engagement term, EdCo would remain responsible for
issuing opinions on the consolidated financial statements of the group. Two other companies are
also very important and material to the reporting of the group but are being audited by other firms.
Under strict deadlines to finalise the audits, EdCo finds that they do not have adequate staff to run
all audits in the engaged entities simultaneously. EdCo, under this unavoidable circumstance, has
decided to sub-contract audit engagements for 2 companies and take loan of 8 staffs from other firms.
EdCo has issued audit instructions to component teams where a list of deliverables and timetable has
been mentioned. Component teams are required to determine their own materiality level.
Requirements:
i) What are the ethical or professional issues arising from sub-contracting audit engagements
and taking staff loans? 3
ii) As principal auditor, what are the procedures that EdCo should perform in respect of the
components that are not being audited by EdCo? 3
iii) What evidence should EdCo obtain in order to express its opinion on the consolidated financial
statements? 3
iv) Say, one of the component auditors has expressed qualified audit opinion in its audit report.
How will this opinion affect the opinion of EdCo on the financial statements of Mittal
Holdings Ltd. and the consolidated financial statements of the group. 3
b) Mittal Holdings Ltd. is a listed company that manufactures and sells various types of household
electrical equipment. To sell their products, the company uses both their own selling outlets in a
few major cities as well as countrywide retailers and distributors. The latest annual general meeting
of the company was held on 28 March 2023, where shareholders appointed Edward & Co.
Chartered Accountants (EdCo) as auditor for the year ending 31 December 2023.
Being a listed company, the statutory auditors must issue their reports with mandatory paragraph
of Key Audit Matters (KAM). Though the term itself offers an indication of what those matters
should be, the auditors remain confused of selecting Key Matters to be mentioned.
Requirements:
Being Engagement Manager nominated by your firm to deal with the proposed audit, you are asked
to narrate the determining criteria of KAM as indicated in ISA 701. 3

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6. a) Described below are three situations which have been arisen in three audits. The year end in each
case is 30 June 2023.
(i) Alpha Ltd. sold goods to Beta & Co. valued Tk. 5,000. The goods were delivered to the store of
Beta at 7:00 pm when there was no responsible person to acknowledge the receipt of goods. At
the same night at 10:00 pm fire had taken place and the delivered goods were burnt. The
management of the Beta has refused to pay the value of delivered goods with a logic that they
did not acknowledge the receipt of the goods. However, Alpha Ltd. has accounted for the
delivered goods as “sales” and “receivable from Beta”. The issue has remained with the
arbitrator.
The pre-tax profits of Alpha Ltd. for the year ended 30 June 2023 was Tk. 3,000,000 and total
assets at 30 June 2023 was Tk. 6,000,000.
(ii) Due to the devastating flood inventory sheet kept at the warehouse of TP Ltd. was destroyed.
The destroyed inventory sheet was only the record of the Company’s inventories at the year
end. The company has included an estimated inventory figure of Tk. 8,50,000.
The pre-tax profits of TP Ltd. for the year ended 30th June 2023 was Tk. 1,200,000 and total
assets at 30 June was Tk. 1,750,000.
(iii) During the course of audit of PQR ltd, it has been noted by the auditor that 80% of its revenue
is derived from a single retailer customer with whom it has a three-year renewable contract.
This contract is due for renewal in November 2023. However, the directors require the
auditor’s report on the financial statements to be signed on 31 August 2023.
Requirement:
For each situation describe the effect on the auditor's report. 6
b) As a partner of MNO & Co. Chartered Accountants and engagement partners of providing audit
service to Petersons Ltd. in one hand you have issued audit report with “unmodified opinion” on
the other hand as the second point under the “Report on other Legal and Regulatory Requirements”
you have mentioned.
“In our opinion, proper books of accounts were required by law have not been kept by the company
as far as it appeared from our examination of this books”
Reviewing the report, The Financial Reporting Council wanted clarification as you have issued
contradictory auditor’s report.
Requirement:
You are required to clarify your position in support of issued auditor’s report. 4

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