Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

a) A proprietary audit firm of Fellow Chartered Accountants has accepted the engagement to audit the accounts of a company with annual turnover of Rs. 10 million at the audit fee of Rs. 12,000. The firm anticipates that the audit will consume estimated time of 3-man days of the Chartered Accountant.
b) During the course of audit of a company for fiscal year 2073/74, the finance director of the company offered your audit team a free weekend at Fulbari Resort Pokhara.

c) Mr. A Kumar and Mr. B Kumar are the two chartered accountants just qualified their exams and took membership from ICAN in Bhadra 2074. A Kumar, who without holding the Certificate of Practice, signed a document in capacity of the member holding Certificate of Practice and B Kumar, as being a member of ICAN, committed an act contrary to the provisions of Section 41of ICAN Act.

Answer

a) Answer
As per the decision of the council, an FCA member holding COP shall charge the audit fee to his clients and the fee shall not be less than Rs. 15,000. In the present case, the FCA member has charged Rs. 12,000 to a private company is less than the minimum fee. The auditor should have charged at least Rs. 15,000 as the audit fee. Hence the member seems to have not followed the directives of the council and accordingly may be subject to disciplinary action.

b) Answer
As per the Section 250 of code of ethics issued ICAN, accepting gifts or hospitality from an audit client may create self-interest threat and familiarity threats. If a firm or member of audit team accepts gifts or hospitality unless the value is nominal and inconsequential the threat created would be so significant that no safeguard could reduce the threats to an acceptable low level. Consequently, a firm or member of the audit team shall not accept such gifts or hospitality.
The given case represents a self-interest threat as the acceptance of goods and services unless value of such goods or service offered is very insignificant. As it is unlikely that a weekend at a luxury hotel for whole audit team has an insignificant value, then, this offer should politely be declined.
c) Answer
Section 41 of Nepal Chartered Accountants Act, 2053 has made different level of punishment for different levels of culpability. Here in case of A Kumar, If a person, who has not obtained a Certificate of Practice and is proved to have signed any document in capacity of the member holding Certificate of Practice, shall be liable to punishment with a penalty up to two thousand rupees or imprisonment for a period of up to three months or both.

In case of B Kumar, if a member, who commits any act contrary to the provisions of this Act or Regulations framed under this Act other than the provisions of this section, shall be suspended for a maximum period of five years and shall be liable of punishment with a maximum penalty of two thousand rupees or imprisonment for a maximum period of three months or both. So, A Kumar and B Kumar are to be punished accordingly.



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