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CA Final — Answer Writing

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
FINAL EXAMINATION
PAPER 3 : ADVANCED AUDITING, ASSURANCE AND PROFESSIONAL ETHICS
Time Allowed: 3 HoursMaximum Marks: 100

Question No. 1 is compulsory. Answer any four questions from the remaining five questions.

  1. 1. (a)During the audit of XYZ Ltd., the auditor is unable to obtain sufficient appropriate audit evidence regarding a material investment in a foreign subsidiary, the effects of which are not pervasive. Discuss the reporting implications.(5 Marks)
  2. (b)Explain the auditor's responsibilities relating to fraud under SA 240.(5 Marks)
  3. 2. (a)Comment on the professional misconduct, if any, in the situation described above with reference to the Code of Ethics.(6 Marks)
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Studio 07:30
Advanced Auditing, Assurance and Professional Ethics5 marks

During the audit of XYZ Ltd, the auditor is unable to obtain sufficient appropriate audit evidence regarding a material investment in a foreign subsidiary, which is not pervasive. Discuss the reporting implications.

2
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The auditor should give a qualified opinion because he could not get sufficient evidence and the matter is material but not pervasive. He should also mention the reason in the basis for qualified opinion paragraph. In this case the auditor has been unable to verify the investment in the foreign subsidiary and the amount involved is material to the financial statements. As the effect is confined to one item and the statements as a whole are not affected, the opinion cannot be disclaimed and a qualification is the correct modification. The rest of the report will remain unchanged.
98 / 100 words
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Q. No. 1Advanced Auditing, Assurance and Professional EthicsMax. marks 5
Q1

The auditor should give a qualified opinion because he could not get sufficient evidence and the matter is material but not pervasive. He should also mention the reason in the basis for qualified opinion paragraph. In this case the auditor has been unable to verify the investment in the foreign subsidiary and the amount involved is material to the financial statements. As the effect is confined to one item and the statements as a whole are not affected, the opinion cannot be disclaimed and a qualification is the correct modification. The rest of the report will remain unchanged.

SA 705 by number, and the four-cell matrix stated explicitlySA 260 — communicating the expected modification to those charged with governance
3/5
Page 1Marks for each expected point are written down the right margin
The pen marks on your page
StrongThe correct conclusion, reached by the correct test. The Standard that sets the test is the missing half.
StrongCorrect placement — SA 705 requires exactly this paragraph immediately before the opinion.
What the examiner wanted and did not find
  • SA 705 by number, and the four-cell matrix stated explicitly
  • SA 260 — communicating the expected modification to those charged with governance
  • The effect on the audit report's other sections, including key audit matters
Model answer for this question

Under SA 705, a modification depends on the nature of the matter and the pervasiveness of its effect. Here the auditor faces an inability to obtain sufficient appropriate evidence, and the possible effects are material but not pervasive — the matrix therefore requires a qualified opinion. The report carries a Basis for Qualified Opinion paragraph immediately before the opinion, describing the matter and its effects. The auditor also communicates the expected modification and its wording to those charged with governance under SA 260.

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Evaluation reportIllustrative
Step marking
  • SA 705 — the material versus pervasive matrix1/2

    The matrix is applied but the Standard is not named, and at Final level the citation is expected.

  • Inability to obtain evidence versus misstatement — the correct branch1/1

    Correctly identified as a scope limitation, not a misstatement.

  • Basis for Qualified Opinion paragraph and its placement1/1

    Correct.

  • Consequential requirements — communication with those charged with governance0/1

    SA 260 communication is not addressed.

Total 3/5Above averageAI estimate — not an official score

CA Final at a glance

Conducting bodyThe Institute of Chartered Accountants of India (ICAI)
ModeHandwritten, with one open-book case-study paper
Papers6
MarkingCA Final — step marking
Marked the way CA Final answers are marked — step marking against ICAI's published Suggested Answers: the provision stated, applied to the facts, and concluded.
Confirm the paper list and the duration of the case-study paper against ICAI's current scheme.

What CA Final sets

The papers you sit, and what each is worth.

1Paper 1 — Financial Reporting100 marks 180 min
2Paper 2 — Advanced Financial Management100 marks 180 min
3Paper 3 — Advanced Auditing, Assurance and Professional Ethics100 marks 180 min
4Paper 4 — Direct Tax Laws and International Taxation100 marks 180 min
5Paper 5 — Indirect Tax Laws100 marks 180 min
6Paper 6 — Integrated Business Solutions100 marks

Multidisciplinary case study, open book.

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