CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

QUESTION 1 RTP MAY 2025

Adequate planning benefits the audit of financial statements in several ways. Explain.

ANSWER: Adequate planning benefits the audit of financial statements in several ways, including the
following:

(i) Helping the auditor to devote appropriate attention to important areas of the audit.
(ii) Helping the auditor identify and resolve potential problems on a timely basis.
(iii) Helping the auditor properly organize and manage the audit engagement so that it is performed in
an effective and efficient manner.
(iv) Assisting in the selection of engagement team members with appropriate levels of capabilities and
competence to respond to anticipated risks, and the proper assignment of work to them.
(v) Facilitating the direction and supervision of engagement team members and the review of their
work.
(vi) (vi) Assisting, where applicable, in coordination of work done by auditors of components and
experts.

QUESTION 2

Auditor shall develop an audit plan that includes description of audit procedures. Specify requirements in this
regard.

ANSWER: SA 300 states that auditor shall develop an audit plan that shall include description of-

(i) The nature, timing and extent of planned risk assessment procedures
(ii) The nature, timing and extent of planned further audit procedures at assertion level
(iii) Other planned audit procedures that are required to be carried out so that the engagement
complies with SAs.

QUESTION 3

Planning includes consideration of the timing of certain activities and audit procedures that need to be
completed prior to the performance of further audit procedures. For example, planning includes the need to
consider, prior to the auditor’s identification and assessment of the risks of material misstatement, certain
matters. Discuss those matters.

Audit Strategy , Audit Planning and Audit Programme 2.1 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

ANSWER: Prior to auditor’s identification and assessment of risks of material misstatement, planning
includes the need to consider following matters:

1.The analytical procedures to be applied as risk assessment procedures.

2. Obtaining a general understanding of the legal and regulatory framework applicable to the entity and
how the entity is complying with that framework.

3. The determination of materiality.

4.The involvement of experts.

5.The performance of other risk assessment procedures.

QUESTION 4

The ascertaining of reporting objectives of engagement helps the auditor to plan timing of different audit
procedures and also nature of communications. Give three instances to explain.

ANSWER: The ascertaining of reporting objectives of engagement helps the auditor to plan timing
of different audit procedures and also nature of communications. Some of the instances are given
under: -

➢ The entity’s timetable for reporting

➢ Organization of meetings to discuss of nature, timing and extent of audit work with management
➢ Discussion with management regarding the expected type and timing of reports to be issued
including the auditor’s report
➢ Discussion with management regarding the expected communications on the status of audit work
throughout the engagement.
➢ Expected nature and timing of communications among engagement team members, including the
nature and timing of team meetings and timing of the review of work performed.

QUESTION 5

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 energies need to be devoted to significant matters to
obtain desired outcomes. Give three examples to explain the above situation.

ANSWER: 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,

Audit Strategy , Audit Planning and Audit Programme 2.2 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

account balances and disclosures helps auditor in establishing overall audit strategy. More energies need
to be devoted to significant matters to obtain desired outcomes. Few examples are listed as under: -

➢ 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.

QUESTION 6

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.

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.

QUESTION 7

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

Audit Strategy , Audit Planning and Audit Programme 2.3 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

the process of establishment of overall audit strategy will assist him in managing deployment of his human
resources for various audit areas.

ANSWER: Establishing the overall audit strategy- Assistance for the auditor : Overall audit strategy
sets the scope, timing and direction of the audit, and guides the development of the more detailed audit
plan. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the
audit, and that guides the development of the audit plan. The process of establishing the overall audit
strategy assists the auditor to determine, subject to the completion of the auditor’s risk assessment
procedures, such matters as: -

(i) The resources to deploy for specific audit areas, such as the use of appropriately experienced
team members for high-risk areas or the involvement of experts on complex matters
(ii) The amount of resources to allocate to specific audit areas, such as the number of team members
assigned to observe the inventory count at material locations, the extent of review of other
auditors’ work in the case of group audits, or the audit budget in hours to allocate to high risk
areas
(iii) When these resources are to be deployed, such as whether at an interim audit stage or at key cut-
off dates
(iv) (iv) How such resources are managed, directed and supervised, such as when team briefing and
debriefing meetings are expected to be held, how engagement partner and manager reviews are
expected to take place (for example, on-site or off-site), and whether to complete engagement
quality control reviews

QUESTION 8

M/s. PP & Co, a firm of Chartered Accountants, has been auditing the books of accounts of KALI Ltd. for
the past 3 years. The company has recently made some major changes in its business policies. While planning
to start the audit for the 4th year i.e. for financial year 2024-25, the audit manager of the firm, as per
the routine practice, handed over the previous years' audit programme as it is to the audit team with the
instructions to adhere unfailingly to the said audit programme. Evaluate the decision of the audit manager
with reference to the use of audit programme.

ANSWER: Review of the audit programme:

There should be periodic review of the audit programme to assess whether the same continues to be
adequate for obtaining requisite knowledge and evidence about the transactions. Unless this is done, any
change in the business policy of the client may not be adequately known, and consequently, audit work may

Audit Strategy , Audit Planning and Audit Programme 2.4 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

be carried on, on the basis of an obsolete programme and, for this negligence, the whole audit may be
held as negligently conducted and the auditor may have to face legal consequences.

The utility of the audit programme can be retained and enhanced only by keeping the programme as also
the client’s operations and internal control under periodic review so that inadequacies or redundancies of
the programme may be removed.

Audit programme not only lists the tasks to be carried out but also contains a few relevant instructions,
like the extent of checking, the sampling plan, etc. So long as the programme is not officially changed by
the principal, every assistant deputed on the job should unfailingly carry out the detailed work according
to the instructions governing the work. Many persons believe that this brings an element of rigidity in
the audit programme. This is not true provided the periodic review is undertaken to keep the programme
as up-to-date as possible and by encouraging the assistants on the job to observe all salient features of
the various accounting functions of the client. In the given situation, Ms. PP & Co., a firm of Chartered
Accountants has been auditing the books of accounts of KALI Ltd. for the past 3 years and the Company
has recently made major changes in its business policies, therefore, it is very essential to review the
audit programme. Thus, contention of the audit manager to adhere with the instructions of following the
same audit programme as per routine practice is not correct.

QUESTION 9

Subodh has recently joined an audit firm as an articled clerk. He was in process of assembling audit working
papers in audit file of Cop Limited, as per the instructions of his senior. While assembling, he noticed following
working paper in audit file:
Timing of Audit Activities

Activitiy Expected Timing

Audit Planning July 1, 2023 - July 5, 2023
Review by EQCR July 6, 2023 - July 7, 2023
Audit Field Work July 10, 2023 - August 20, 2023
Review by Manager August 21, 2023
Review by Engagement Partner August 22, 2023 - August 25, 2023
Review by EQCR August 26, 2023 - August 27, 2023
Response on Audit Memo August 28, 2023
Review by Partners – internally post response August 29, 2023
audit memo
Review by EQCR August 30, 2023
Finalization of Audit Report and Financial September 01, 2023 - September 02, 2023
Statements

Audit Strategy , Audit Planning and Audit Programme 2.5 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

Issuance of Audit Report and Financial Stateme September 03, 2023

The above working paper lists certain factors which are considered by the auditor while establishing audit
strategy. Explain how these considerations highlighted in above working paper could have helped the auditor?

Answer: The auditor shall establish an overall audit strategy that sets the scope, timing and direction of
the audit, and that guides the development of the audit plan. One of the factors to be taken into
consideration while establishing audit strategy relates to ascertaining of reporting objectives of
engagement to plan the timing of the audit and the nature of the communications required. Some of the
instances are given under:

• The entity’s timetable for reporting

• Organization of meetings to discuss of nature, timing and extent of audit work with management
• Discussion with management regarding the expected type and timing of reports to be issued
including the auditor’s report
• Discussion with management regarding the expected communications on the status of audit work
throughout the engagement.
• Expected nature and timing of communications among engagement team members, including the
nature and timing of team meetings and timing of the review of work performed.

In the given case, working paper highlights that auditor has taken into account
expected timelines to plan the audit and nature of the communications required. Since the working
paper relates to the statutory audit of a company, the ascertaining of reporting objectives of
engagement helps the auditor to plan timing of different audit procedures and also nature of
communications.

QUESTION 10

Sanjana is of the view that there exist some disadvantages in the use of audit programmes but most of these
can be removed by following some concrete steps. Do you agree with her perspective? Comment

ANSWER: The view of Sanjana is appropriate. Some disadvantages are there in the use of audit
programmes but most of these can be removed by following some concrete steps. The disadvantages are:

(i) The work may become mechanical and particular parts of the programme may be carried
out without any understanding of the object of such parts in the whole audit scheme.

(ii)The programme often tends to become rigid and inflexible following set grooves; the business
may change in its operation of conduct, but the old programme may still be carried on. Changes in staff

Audit Strategy , Audit Planning and Audit Programme 2.6 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

or 457 internal control may render precaution necessary at points different from those originally decided
upon.

(iii) Inefficient assistants may take shelter behind the programme i.e., defend deficiencies in
their work on the ground that no instruction in the matter is contained therein.

(iv)A hard and fast audit programme may kill the initiative of efficient and enterprising
assistants.

All these disadvantages may be eliminated by imaginative supervision of the work carried on by the
assistants; the auditor must have a receptive attitude as regards the assistants; the assistants should
be encouraged to observe matters objectively and bring significant matters to the notice of
supervisor/principal.

QUESTION 11

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?

ANSWER: The documentation of the overall audit strategy is a record of the key decisions considered
necessary to properly plan the audit and to communicate significant matters to the engagement team.
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. The auditor may use standard audit programs and/or audit
completion checklists, tailored as needed to reflect the particular engagement circumstances.

A record of the significant changes to the overall audit strategy and the audit plan, and resulting changes
to the planned nature, timing and extent of audit procedures, explains why the significant changes were
made, and the overall strategy and audit plan finally adopted for the audit. It also reflects the
appropriate response to the significant changes occurring during the audit.

QUESTION 12

M/s TP & Co., a firm of Chartered Accountants, has been conducting audit of KSR Ltd. since last 4 years.
KSR Ltd. has diversified their business into newer areas during the last year. The senior member of the audit
team handed over the standard audit programme of earlier years to the audit assistants and instructed them
to follow the same. The assistants are conducting the audit accordingly. Whether the attitude of the audit
assistants is justified? Guide them.

Audit Strategy , Audit Planning and Audit Programme 2.7 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

ANSWER: Auditor wants to ensure Completeness and the audit procedures to be followed by him to verify
that trade payables and liability balances that were supposed to be recorded have been recognized in the
financial statements are as follows:
• The auditor needs to perform the following cut off procedures:
➢ For the last 5 invoices received/ recorded at the end of the reporting date (cut
off date) and which have been included in the trade payables; the goods should
have been received/ risk and rewards of ownership in goods should have been
transferred in favour of the entity;
➢ All goods received prior to the period/ year- end should have been booked in the
form of purchases and included in trade creditors.
• Test purchases/ expenses on a sample basis selecting the same from the accounts payable ledgers
and checking their supporting documents to ensure that the purchases were recorded at the
correct amounts and correct dates.
• Match purchase invoice dates to the gate entry (inward) dates to check whether the purchases
are being recorded in the correct accounting period. This can include an examination of purchase/
expense invoices received subsequent to the period being audited, to see if they should have been
included in the period under audit.
• Review subsequent expense vouchers. Review all material expense vouchers recorded post the
balance sheet date to see if they relate to transactions from within the audit period.
• For advance received from customers/ revenue received in advance, obtain the customer wise
listing along with its ageing and the nature. Enquire from the entity’s management if there has
been any dispute with the customer and if there is any additional liability to be recorded. For all
such advances, the auditor should verify the underlying documentation based on which the entity
had received the advance.
• In relation to statutory dues liability like withholding tax (TDS) payable, GST payable, luxury tax
payable, professional tax payable, PF and ESI payable etc., prepare a reasonability with respect to
sales/ purchases/ employee benefit expenses. Example GST liability for last month may be
calculated by applying the applicable rate to the sales made and in case of any variance with the
GST liability recorded by the entity, reasons for variance should be requested from client and in
case found satisfactory, the same should be maintained as part of audit documentation.

Similarly, Provident Fund liability for last month may be calculated by applying the applicable rate to
the employee benefit expense and in case of any variance with the liability recorded by the entity,
reasons for variance should be requested from client and in case found satisfactory, the same should
be maintained as part of audit documentation. Further, the auditor should obtain and verify the
challans for deposits made subsequent to the period-end for all statutory liabilities as at the balance

Audit Strategy , Audit Planning and Audit Programme 2.8 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

sheet date and also analyse the reasons, if any, in consultation with the management for any variance
between the amounts deposited subsequently vis-à-vis the liability recorded in books of account.

• He shall prepare a complete list of all statutory dues and consider his reporting requirements
under CARO,2020

QUESTION 13

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 to ensure accuracy and compliance. Give some examples of the factors need to be considered by CA
Ravi for establishing the audit strategy.

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.

QUESTION 14

Audit programme is a list of examination and verification steps to be applied and set out in such a way that
the inter-relationship of one step to another is clearly shown and designed, keeping in view the assertions
apparent in the statements of account produced for audit or based on an appraisal of the accounting records
of the client. For example, while auditing a company’s inventory, the program may include steps to verify
physical stock counts, ownership rights, and valuation. What are the advantages of an audit programme?

Audit Strategy , Audit Planning and Audit Programme 2.9 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

ANSWER: The advantages of an audit programme are:

• It provides the assistant carrying out the audit with total and clear set of instructions of the
work generally to be done.
• It is essential, particularly for major audits, to provide a total perspective of the work to be
performed.
• Selection of assistants for the jobs on the basis of capability becomes easier when the work is
rationally planned, defined and segregated.
• Without a written and pre-determined programme, work is necessarily to be carried out on the
basis of some ‘mental’ plan. In such a situation there is always a risk of ignoring or overlooking
certain books and records. Under a properly framed programme, such risk is significantly less and
the audit can proceed systematically.
• The assistants, by putting their signature on programme, accept the responsibility for the work
carried out by them individually and, if necessary, the work done may be traced back to the
assistant.
• The principal can control the progress of the various audits in hand by examination of audit
programmes initiated by the assistants deputed to the jobs for completed work.
• It serves as a guide for audits to be carried out in the succeeding year.
• A properly drawn up audit programme serves as evidence in the event of any charge of negligence
being brought against the auditor. It may be of considerable value in establishing that he exercised
reasonable skill and care that was expected of professional auditor.

QUESTION 15

“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.

ANSWER: In establishing the overall audit strategy, the auditor shall:

(i) Identify the characteristics of the engagement that define its scope;
(ii) Ascertain the reporting objectives of the engagement to plan the timing of the audit and the
nature of the communications required;
(iii) Consider the factors that, in the auditor’s professional judgment, are significant in directing the
engagement team’s efforts;
(iv) Consider the results of preliminary engagement activities and, where applicable, whether
knowledge gained on other engagements performed by the engagement partner for the entity is
relevant; and
(v) Ascertain the nature, timing and extent of resources necessary to perform the engagement.

Audit Strategy , Audit Planning and Audit Programme 2.10 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

QUESTION 16

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.

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.

QUESTION 17

APR & Associates, a Chartered Accountant firm, are appointed as the auditors of Time Ltd. and Bakes Ltd.
The volume and nature of business of both the companies are entirely different. CA R is the engagement
partner for Bakes Ltd. CA P is the engagement partner for Time Ltd. CA R formulates an Audit Programme
for conducting the audit of Bakes Ltd. He suggests CA P to use the same audit programme for Time Ltd. But
CA P is of the opinion that this audit programme will not be useful for the audit of Time Ltd. In light of the
above, mention the matters that should generally be considered while preparing an Audit Programme. Is CA
P correct in emphasizing for a different Audit Programme for Time Ltd.?

ANSWER: Following matters should be considered generally while preparing an Audit Programme:

(1) Stay within the scope and limitation of the assignment.

(2) Prepare a written audit programme setting forth the procedures that are needed to implement the
audit plan.

Audit Strategy , Audit Planning and Audit Programme 2.11 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

(3) Determine the evidence reasonably available and identify the best evidence for deriving the
necessary satisfaction.
(4) Apply only those steps and procedures which are useful in accomplishing the verification purpose in
the specific situation.
(5) Include the audit objectives for each area and sufficient details which serve as a set of instructions
for the assistants involved in audit and help in controlling the proper execution of the work.
(6) Consider all possibilities of error.
(7) Co-ordinate the procedures to be applied to related items.
Evolving one audit programme- Not Practicable for All businesses: Businesses vary in nature, size
and composition; work which is suitable to one business may not be suitable to others; efficiency and
operation of internal controls and the exact nature of the service to be rendered by the auditor are
the other factors that vary from assignment to assignment. On account of such variations, evolving
one audit programme applicable to all business under all circumstances is not practicable.
In view of above mentioned provisions, CA. P is correct in emphasizing for a different audit
programme for Time Ltd.

QUESTION 18

B Ltd. is a company manufacturing bed-sheets and pillow covers. They have appointed M/s C & Co., Chartered
Accountants, as their auditors. The auditor is establishing audit strategy with his team members. As the
work progressed, they came to know that the company has diversified its business and now they are also
planning to manufacture wooden furniture. The auditor, in his professional judgement, considers this to be a
significant factor in directing the engagement team’s efforts. Give examples of factors that, in auditor’s
professional judgement, are significant in directing the engagement team’s efforts.

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 energies need to be devoted to significant matters to obtain desired outcomes. Few
examples are listed as under: -

(i) Volume of transactions which may determine whether it is more efficient for the auditor to rely
on internal control.
(ii) Significant industry developments such as changes in industry regulations and new reporting
requirements.
(iii) Significant changes in the financial reporting framework, such as changes in accounting standards.

Audit Strategy , Audit Planning and Audit Programme 2.12 | P a g e

CA INTER : WORKBOOK CA CPA NIVEDHA SHANKAR

(iv) Other significant relevant developments, such as changes in the legal environment affecting the
entity.

QUESTION 19

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.

ANSWER: Nature of Audit Planning- A Continuous and iterative process: Planning includes the need
to consider, prior to the auditor’s identification and assessment of the risks of material misstatement,
such matters as:

1. The analytical procedures to be applied as risk assessment procedures.

2. Obtaining a general understanding of the legal and regulatory framework applicable to the entity and
how the entity is complying with that framework.
3. The determination of materiality.
4. The involvement of experts.
5. The performance of other risk assessment procedures.

Audit Strategy , Audit Planning and Audit Programme 2.13 | P a g e