1. (QN-3: ND-23) Daily Bazar Limited (DBL) is an online based seller of groceries, vegetables and other
household items. It sells its product through its website dailyshop.com. Its business model includes three
key processes: Sourcing, Storing and Delivery. All these processes are integrated with a central software
that is linked with its website.
At the beginning of the year, DBL launched its website. It made significant amount of cost to design and
develop the site layout and customer interface. Half of these expenses were related to adding product lists
and images that will be sold through the website. To ensure long term accessibility and business continuity,
it renewed the website domain and purchased hosting space for 5 years. DBL plans to capitalize the website
development cost and amortize over 5-year period. It, however, is currently assessing whether the website
domain cost and hosting cost constitute lease arrangement as it has the right to access and use the domain
and hosting space as required. DBL however does not have control over which hosting server will be used
to provide the space.
The website lists various categories of products. Customers can place orders through the website after
creating an account. When customers make an order, it generates an order ID in its software and records it
against the customer ID. It allows customer to pay at time of delivery or beforehand through online payment
gateway. Customers can check delivery progress from their own account.
Once the order is received, the central software locates nearest warehouse and instructs the warehouse
employees to make the delivery. Delivery team then takes the product from warehouse and delivers to the
customers. If any cash is collected, it is deposited to warehouse manager. Warehouse manager deposits the
cash amount to DBL Bank account on the subsequent day morning. Warehouse reconciles the cash collected
amount and cash on delivery orders on weekly basis.
The software works as backbone of DBL operation. DBL has developed the software internally over last 2
years and commissioned it for use at the beginning of its fiscal year. It has capitalized the software
development costs. However, it is not able to determine the useful life of the software. Management believes
this software can be used indefinitely but major upgrade will be required in 5 years.
When a customer opens an account on the website, customer records are maintained in a SQL database
within its hosting space. All customer orders and necessary details are stored against customer record. DBL
have purchased a Secure Sockets Layer (SSL) certificate from a certifying authority. This SSL Certificate
is a digital certificate that authenticates a website's identity and enables an encrypted connection. DBL does
not have separate firewall or security layer for SQL Database.
At the time of opening, DBL requires customer to accept ‘terms of use’ which allows DBL to store customer
data and communicate promotional offers to customers. It further allows DBL to share customer data with
third parties (including regulators) without customer consent. These customer data help DBL to analyse
customer trends and preferences. Accordingly, it makes push sales to customers by sending promotional
SMS 3 to 4 times a day informing discount offers of daily items.
Requirements:
(i) Explain to DBL management how to account for software and website development cost in light with
IFRS framework and guidance.
5
(ii) Guide DBL management in assessing whether website domain and hosting space constitute a lease
arrangement in accordance with IFRS 16.
5
(iii) Design procedures for auditing DBL’s intangible assets.
6
(iv) Discuss from the ethical point of view of DBL position regarding sharing customer data and sending
promotional offers agreed by the customers.
4
2. (QN-4(a): ND-23) Oriental Company Limited (OCL) was listed in Dhaka Stock exchange on 01 July
2022 with 20,000,000 shares with face value of BDT 10 each. At the time of its listing, it took consulting
service from Creative Consultants Limited (CCL). Agreement with CCL included a fixed fee of BD
4,000,000 which was paid and accounted for when OCL become listed and a variable payment in the form
of 500 share warrants which will be exercisable after a year if the price per share exceeds BDT 20. Each
share warrant gives right to receive 100 shares. OCL intends to settle the obligation in exchange for cash at
an amount based on market price at exercisable date.
On the same date, OCL issued 1,000 share options to each of its 100 employees which will vest on 30 June
2025 with conditions that they will remain with the company and achieve 10% or more net profit each year
during the three-year period. At the grant date, the fair value of each share option was estimated at BDT
15. OCL management expects at least 80 employees will remain with the company after 3 years. Exercise
price is BDT 12.
On 01 January 2023, OCL made an annual engagement agreement with CCL for quarterly book-keeping
service and agreed to pay 500,000 taka per quarter. Alternatively, OCL can make the payment to CCL by
issuing 30,000 shares per quarter which CCL intends to apply. Payments are to be made in advance.
On 30 June 2023, OCL issued 50,000 share options to its CEO as performance bonus. Share options vests
immediately and CEO exercised the options on the same day.
OCL’s fiscal year end is on 30 June 2023 when its share price was BDT 24. OCL’s draft financial statements
at the year-end show revenue of 95,000,000 taka and net profit excluding the impact of the above
transactions was 17,500,000 taka. OCL expects to maintain the net profit growth in next two years.
Requirements:
(i) Assist management in reporting the above transactions in accordance with applicable reporting
framework.
7
(ii) Calculate the basic EPS and diluted EPS for the year.
4
3. (QN-4(b): ND-23) You are Rafiq Chowdhury. You have graduated in IT domain, have taken an MBA
from abroad and then have become CA from UK. After qualifying you decided to come back to Bangladesh
and joined as Director in the largest CA firm in Bangladesh. After joining the firm, you received following
e-mail from your managing partner:
Dear Rafiq,
Welcome to the Firm. We are glad having you with us and hope we can utilize your expertise. For the
starter, I would like to have your help in the following 2 distinct cases:
(i) We are organizing an exclusive training for our fresh audit trainees. I would like you to prepare training
materials on the importance of quality control procedures in audit engagements.
4
(ii)I have been asked by a journalist to write a short article on importance of cyber security to prevent cybercrime and role of auditors over cyber security of an organization in relation to financial statements audit.
Please help me in this regard as you are an expert in IT domain and you also have experience to work in
western countries.
5
Prepare a Memorandum covering the above two cases.
4. (QN-4: JA-23) Strong Build Constructions Limited (SBCL) has appointed your firm as auditor for the
year ended 31 March 2023 and you have been assigned in the audit engagement as manager. SBCL is a
construction company engaged in construction of residential, commercial and infrastructure projects. SBCL
prepares its financial statements in accordance with International Financial Reporting Standards. Analysis
of the draft financial statement identified following matters:
• Qualified opinion by predecessor auditor:
Predecessor auditor have issued a qualified opinion on prior year financial statements due to overstatement
of trade receivables. Report explains that receivables from one particular customer remains uncollected for
more than 365 days due to dispute with customer for which no allowance has been created. You have
reviewed the current year customer ledger which shows significant number of sales transactions and
collection from the same customer. However, closing receivables has increased by 50% from opening.
Management believes no allowance is required as the customer is regularly transacting and making
payments on regular basis.
• Revenue:
SBCL is currently engaged in two residential and one commercial construction projects. Contract price of
these projects are fixed in nature and have been made in US Dollar. However, SBCL is allowed to invoice
to the customers in Taka on agreed upon milestones. However, all the contracts include a condition that if
construction is completed before the agreed period, SBCL will be eligible for 10% performance bonus.
SBCL policy to recognized revenue based on ‘percentage of completion method’. However, due to
variability in dollar price, SBCL were not able to able to determine total contract price in Taka. Therefore,
SBCL have recognized revenue when invoices were issued to the customers based on milestone agreement.
• Cost of revenue and other expense:
Construction costs are mostly in Taka which SBCL reports them as cost to revenue. Significant portion of
the cost recognized raised from provision for expenses. Furthermore, SBCL incurs several administrative
overheads which are proportionately allocated between cost of revenue and administrative expenses. SBCL
has used one of its own forklifts in a construction project. The project has been charged with a cost that
would have been paid if the forklift was rented from third party. Same amount has been deducted from the
administrative expenses.
• Fire on construction site:
SBCL uses several subcontractors in the construction projects. SBCL closely monitors their quality and
timely delivery of work. However, due to poor quality of work and delayed delivery, SBCL terminated one
the subcontractors engaged in commercial construction project. In rage, the subcontractor vandalized and
set fire in the construction site. Due to delay in calling fire service and in absence of firefighting equipment
within the construction site, fire could not be controlled on time. Therefore, construction site was heavily
damaged and SBCL incurred massive loss. Construction was shut down for couple of months. SBCL
estimates it will not be able to deliver this project on time.
In addition to the matter above, independence confirmation of you team member has identified that father
of one audit team member works at SBCL as HR Executive.
Requirements:
a) Identify and assess the risks of material misstatements. Design appropriate audit procedures to address
the identified issues & risks.
9
b) Guide SBCL management to comply with requirements of IFRS in the areas where it is not currently in
compliance. Suggest correcting journals where required.
6
c) Determine your course of action on the matter identified during audit team members’ independence
confirmation.
2
d) Explain the impact of prior year qualification in current year audit report.
3
5. (QN-5: JA-23) You are engagement partner for the audit of financial statements of Nahar Dairy Limited
(NDL) as of 30 June 2023. During audit strategy meeting, your audit manager has highlighted following
matters:
• NDL revenue has decreased from previous year. NDL management has explained that this is due to
decreased in milk production. They believe that milk production has decreased due to recent extreme
heatwaves, poor quality of grass and cows are aging.
• NDL sells UHT milk packs throughout the country. In its product package it mentions that packaged milk
is produced in NDL own firm. However, in reality most of milk are bought from external sources though a
third party.
• NDL has more than 200 cows in its dairy firms which are feed green grass purchased from nearby farmers.
In order to get continuous supply of grass, it provides higher rate compared to other small dairy firms or
individual dairy farmer. NDL sources packing materials and raw grasses at a price and from the parties
directed by its operation manager.
• A recent newspaper published a report on NDL stating that it has built its cow sheds by occupying
government land and filling up part of a cannel. Furthermore, cow waste is though in the cannel which is
causing water and air pollution. NDL has reported these lands and sheds as non-current assets in the
financial statements.
• Analysis of the financial statement shows that repair & maintenance expense and utility expense has
increased. Management explained that these were required to repair the milk processing machines and
adding cooling system in the processing plant during heatwave. Furthermore, medical expenses for the
cows have increased as several cows became ill during the heatwave.
• Although NDL do not intend to sell its cow on Eid-ul-Adha (Qurbani Eid), it measures its biological assets
in financial assets at price it is expected to be sold during Eid-ul-Adha when demand for cow surges.
• NDL sales its milk packs to a distributor who is responsible for selling and distributing the packs across
country. NDL is responsible to raising demand through promotion.
Requirements:
a) Explain to your team members about climate related risks in NDL operation and their effects in the
financial reporting. Recommend the audit procedures your team should perform to address climate related
risks.
4
b) Guide your team on auditors’ response to negative media coverage on client.
4
c) From the business understanding shared by your team, identify the audit risks in NDL operation and
suggest audit procedures that your team members should perform.
7
d) Identify and explain the ethical issues in NDL operation. Explain to your team members how they can
be addressed.
4
6. (QN-4: MA-23) You are an audit manager in Shymal Das, Kibria & co. and currently in-charge of audit
of Fine Vehicles Group Limited (the group) for the year ended at 31 December 2022. This is a new client
to your firm and engagement partner gives utmost priority to this client. The group produces and distributes
motor cycle, three wheeler, sedan car, SUVs etc. It has manufacturing plants and sales centers in Dhaka,
Narayanganj, Savar, Gazipur, Sylhet and Khulna. During later part of 2022 (September), it has acquired a
new plant at Chattogram from another vehicle Company. Each plant and sales center operates through
separate legal entity and the Group owns all entities entirely. The group had reported total revenue of BDT
270 million for 2022 which was BDT 240 million in 2021 and operating profit of BDT 25.5 million in 2022
(BDT 33 million in 2021).
You had a meeting with CEO and Finance Director of the Company and noted the following points:
- Each plant has a finance team who sends their monthly separate financials to head office, and the group
finance controller reviews them and prepares consolidated accounts on quarterly basis. However, currently
the position is vacant as the last controller resigned in November 2021. Finance director is asking whether
your firm can help to prepare consolidated financial statements for the year ended 31 December 2022 as
current team may not be able to do it on time and with accuracy.
- The group acquired a new plant in Chattogram in September 2022 for BDT 25.5 million. This will be
included in consolidated financial statements of 2022. The entire amount is financed by a foreign bank for
5 years and the group must adhere to strict loan covenants; breach of any can make the bank to call back
the loan. The bank requires the group to provide management accounts on quarterly basis. Finance Director
has admitted that they are also struggling to provide management accounts to bank for the quarter ended
December 31, 2022.
- CEO of the group invited full audit team to travel to Chattogram in March 2023 for grand opening of its
Chattogram Plant as his guests. He also ensured that the team will be well taken care while there.
- The group’s policy is to value land and buildings of plants and sales centers at fair value. CEO of the
group confirmed that experts were appointed to value land and buildings at 31 December 2022. Land and
buildings at that date were valued at BDT 330 million, representing a revaluation increase of BDT 36
million.
- During the year, a new bonus scheme was introduced for both managers and directors in order to increase
revenue. The bonus is directly linked to revenue.
Requirements:
a) Draft a memo to the audit partner that outlines (including reasons thereof) key audit risks areas in respect
of Fine Vehicles Group, and recommend an appropriate approach to test each highlighted risk.
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b) Describe the additional audit procedures required in relation to engaging the services of a property expert
to value Land and Buildings.
4
c) Prepare an email to the audit partner assessing any ethical concerns an auditor should have in respect of
the Group audit engagement and recommend appropriate safeguards.
4
7. (QN-5: MA-23) Miratex Limited (Mira) is a garments manufacturing company. Your firm has been
appointed as auditor of the financial statements for the year ended 31 December 2022 and you have been
assigned as engagement manager. Prior year financial statements were audited by a predecessor auditor
who have expressed a qualified audit opinion on inventory valuation due to non-performance of NRV
testing. Karim is the finance manager at Mira who has prepared and shared the draft financial statements
with the audit team. Your team members have brought the following matters to your attention and sought
your instruction.
i) Management of Mira has leased a vacant land at Gazipur for 30 years at BDT 225,000 per month and
started construction of a new factory building from 01 January 2020. Construction of the building has been
completed on 31 October 2022, but machineries have not been installed yet. Therefore, management has
reported total cost of the building of BDT 184,059,244 as ‘Construction Work in Progress’. An analysis of
the cost revealed the following matters:
• Cost includes depreciation of Right-of-Use asset for BDT 9,448,189 and interest expense on lease
liabilities BDT 15,425,930 in relation to leased land.
• Construction of the plant was suspended for 8 months in 2021 due to Covid-19. During the suspended
period Mira received 50% rent concession for 6 months. Mr. Karim reported entire rent as construction cost
and the concession amount as other payable.
• During the current financial year, Mira let out the under-construction site for 6 months to another company
as a temporary warehouse which earned Mira BDT 25,000 per month. Mr. Karim reported the amount as
other income.
• 20% of depreciation of ROU Asset and interest on lease liabilities for leased land are related to
construction suspended period.
• Due to error in design, top floor of the factory building had to be demolished and reconstructed. Mira
spent BDT 7,500,000 for initial construction and BDT 2,500,000 in demolition. It further spent BDT
9,500,000 to reconstruct the top floor.
Your team members are not sure whether the CWIP has been reported in line with IFRS.
ii) Mira generates around 60% revenue by exporting. Quantity of goods and selling rates are predetermined
in the sales contracts with customers. Mira recognizes revenue and invoices customers in USD. On 01
December 2022, Mira received an urgent request from one of the customers to deliver 25,000 pieces of
shirts by 15 January 2023 and received USD 75,000 as 100% advance against the deal. Mira was able to
deliver 5,000 pieces of shirts on December 10 and further 10,000 pieces on 26 December. Accordingly, it
recognized revenue for USD 45,000. During the month of December Mira generated to total export sales
of USD 65,000 including the sales against advance. General practice of the company is to recognize the
export revenue on average rate. At the year-end Mira reported outstanding foreign currency receivables of
USD 172,000 and contract liabilities (advance from customers) of USD 30,000. USD to BDT exchange
rates for the month of December 2022 were:
01 December - 105/$ 10 December - 107/$ Avg. monthly rate - 104/$
26 December - 102/$ 31 December - 103/$
Mira reported the outstanding receivables and contract liabilities at closing rate. Audit team members
having doubts whether revenue and contract liabilities has been stated correctly.
iii) Your team members shared a workpaper in relation to advance & prepayment which shows that team
selected an advance payment to supplier for testing. Advance was paid in July 2022 and remains unadjusted
at the reporting date. Team members requested for copy of payment instrument which was not available
with the finance team. However, finance team traced the advance payment transaction from bank statements
which shows date of transaction and the cheque number used for payment. Your team members concluded
that audit procedures and evidence obtained are satisfactory and no exception was noted after performing
the audit procedures.
Requirements:
a) Explain the audit procedures you need to perform as per ISA for the initial audit.
3
b) Analyze the component of CWIP with relevant IFRs and determine the amount to be reported in the
financial statements.
7
c) Develop the audit strategy for testing the audit assertions related to CWIP.
3
d) Explain to your team member whether revenue and contract liabilities has been reported correctly. 4
e) Evaluate the sufficiency of audit procedures and evidence for advance & prepayment. Describe whether
additional procedures need to be performed.
3
8. (QN-5: Nov-22) You are Rashid Kabir, a recently qualified chartered accountant, who has joined in a
reputed CA firm. On your first day, chief operating partner has given you two assignments.
Assignment – 1: One of our banking clients has had its ICT system hacked and large sums of customers’
money were taken. We advised the client to have a robust cyber security policy and cyber security audit.
Assignment – 2: You most probably are aware about the database leakage of lawyer Massack Fonseca who
was alleged to have aided the people involved to form off-shore companies which enabled them to evade
tax and indulged in money laundering. Unfortunately, one of directors of our audit client has name on that
leaked database. This revelation has implications for professional accountants like us who are required to
report suspicious transactions and activities of clients.
Requirements:
You are required to prepare write-up which will cover following:
(i) Assignment -1: Discuss about cyber security audit and what it wishes to achieve
4
(ii) Assignment – 2: Recommend elements that should be included in anti-money laundering programme
for an accounting firm.
3
9. (QN-4: JA-22) You are an audit manager of Khan Bahadur & Co. who is in charge of the audit of Prima
Doc Ltd. You have received an instruction note from your audit engagement partner Mr. Bahadur which
contains:
The audit of the financial statements of Prima Doc Ltd. for the year ended 30 June 2022 is nearly complete
and the auditor’s report is due to be issued after the meeting scheduled with management within the next
two (2) weeks. The draft financial statements recognize profit before taxation for the year of BDT 324 mn
million and total assets of BDT 2,220 million. The Audit Supervisor has drafted the following points:
Intangible Assets
Prima Doc incurred BDT 240 million during the year on research and development. BDT 204 million of
this expenditure has been capitalized while BDT 36 million has been expensed. The Audit Supervisor has
proposed that an additional BDT 48 million should be expensed since it does not meet the criteria in IAS
38 Intangible assets for recognition as an asset. The Finance Director is of the opinion that the BDT 48
million does meet the criteria specified by the standard.
Legal claim
On 25 June 2022, the company’s directors received a legal claim from a client regarding the malfunctioning
of the accounting software bought on 1 March 2022. The client is demanding a refund of BDT 1,440,000.
It is alleged that Prima Doc’s engineers have failed to rectify the problem. The company’s lawyers have
advised that there is a 10% chance that Prima Doc will lose the case. Included in the draft financial
statements is a provision of BDT 144,000 (10% X 1,440,000). The Audit Supervisor is of the opinion that
the provision is unnecessary although no audit procedures have been carried out.
Earnings per Share (EPS)
The draft financial statements for the year ended 30 June 2022 show EPS of BDT 0.60. The Audit
Supervisor has discovered that the EPS is overstated because the preference dividends have not been
deducted from the earnings in the computation of EPS. The correct EPS is BDT 0.58. I have confirmed the
accuracy of the Audit Supervisor’s computation. The Finance Director, however, is proposing that no
correction should be made because the difference is immaterial.
Uncorrected misstatements on receivables
The Audit Supervisor has sent me an email regarding uncorrected misstatements on receivables. He wants
me to advise him on the action to take, if any. My conclusion was that the uncorrected misstatement is
clearly trivial.
Requirements:
I want you to make a memorandum which will cover the following:
a) Describe the auditors’ responsibility regarding the uncorrected misstatement in receivables.
2
b) For each of the above points: (i) Comment on the matters you should consider, and (ii) The evidence you
should expect to find, in undertaking your review of the audit working papers and draft financial statements
of Prima Doc.
15
c) Describe the audit procedures which should be carried out to obtain sufficient and appropriate audit
evidence in relation to a legal claim.
5
10. (QN-5: JA-22) You are currently auditing Agro Food Processing Limited (AFPL) which has a factory
in a village of Rangamati and head office in Dhaka. Primary products are agro based items which has very
short shelf life. You firm have recently been appointed as auditor of AFPL as the previous auditors resigned
on the ground that engagement was no longer commercially viable for them. Mr. Jayanta, engagement
partner, met with the Mr. Hassan, MD of AFPL, on several professional events and had a good relationship.
When Mr. Hassan offered Mr. Jayanta to be the auditor of AFPL, Mr. Jayanta accepted the appointment
based on their good relationship.
You have received and analysed the financial statements of AFPL. You have checked the underlying
accounting records and noticed that prior year auditor fees are still pending. You have also noted that local
holding tax for its factory premises has not been paid for last 5 years. You have also noticed AFPL reported
payable to a customer from whom no purchase was made. Upon inquiry to management, you have come to
know that local Union Parishad (City Council) has doubled the holding tax for AFPL on the ground that
AFPL factory is causing noise and environmental pollutions. AFPL has disagreed with the increased
holding tax and stopped paying the tax entirely until the issue is settled. However, AFPL is making
provisions against annual holding tax payable. You have noticed that the total tax outstanding is
insignificant for the company.
Your inquiry also found out that last year a customer has paid AFPL twice for the same invoice. AFPL
management showed that they have sent a letter to the customer informing about the double payment. AFPL
has the banking details of the customer but is not remitting the excess receipt to the customer as has not
claimed the amount. It is AFPL policy to extinguish unpaid liability over three years by recognizing it as
income.
In relation to unpaid audit fees, AFPL management has informed that prior auditor has not placed any
invoice. Hence the fee remains payable. Management has not taken any action to notify prior auditor to
raise invoice. You then remembered that you have not received any clearance from prior year auditor. Also,
they have not given access to their working papers for the previous year.
Form your analysis you have also noticed that significant portion of inventories remained unsold at the end
the year end. Your analysis of the company also shows that AFPL has been facing liquidity issues as it is
facing difficulties in collecting from some customers. Accordingly, they are trying to match the cash flows
by deferring the payments to the vendors. This practice by AFPL has led to bitter relationships with its
suppliers.
Requirements:
a) Identify and explain ethical issues involved for the audit firm & the client.
8
b) Identify and assess the risks of material misstatements. Design appropriate audit procedures to address
the identified issues & risks.
7
11. (QN-4: MA-22) Willis Limited was established in 2010 and operates several businesses in Bangladesh
with a total revenue of BDT 385m and PBT of BDT 77m in FY19-20 and total assets of BDT 200m as at
30/06/20. Willis Limited was established as a non-listed company, and its current shareholdings are as
below:
Shareholder
30/06/20
Local Individuals – Mr Willis
10%
Local Corporate – Watson Ltd
30%
Foreign Corporate – Wyatt Ltd
60%
Willis Limited operates several businesses in Bangladesh some of which require highly specialized human
resources which are scarce in Bangladesh. To mitigate this scarcity of resources, Willis Limited has
embarked on a strategy of horizontal integration through which they established Monarch College to
provide tertiary education in the subjects required by resources who could then progress on to work for
organisations such as Willis Limited after graduation.
Monarch College was established by Willis Ltd. on 1st July 2018 to provide a 4-year degree course leading
up to a BSc qualification. To start the college operations from July 2018, Willis Limited had entered into a
rental agreement with Mrs Wastson for a building based in Bashundhara where Willis Limited established
the college campus and hostel. The rental contract was for a period of 6 years from 1st July 2018 at an
initial rent of BDT 2.5m per month with an escalation clause of 10% after every 2 years. An Advance was
paid equal to 50% of the rental for the 1st 2 years to be adjusted against the monthly rental payments of the
1st 2 years. The rental payments are booked as rental expenses as and when they are physically paid and
the Advance is amortized over the full term of the rental contract. Operating costs other than costs already
mentioned above amount to BDT 1.5m per month.
The contract also included a standard termination clause whereby either party may terminate the rental
contract by providing 3 months’ notice and a standard clause requiring Willis Limited to return the property
back to the property owner in the same condition in which it was received at the start of the contract subject
to normal wear and tear.
On 1st July 2018, Willis Limited invested BDT 20m in leasehold improvements, BDT 6m in Computer
equipment, BDT 6m in furniture and BDT 4m in electrical installations. The depreciation policy of the
company is as follows:
Asset Category
Rate
Years
Buildings
2%
50
Leasehold improvements
10%
10
Computers & IT equipment
20%
5
Furniture, fixtures & fittings
10%
10
Electrical installations
10%
10
The financial year runs from July to June. However, the college delivers the education across 3 terms during
the year running from 1st September to 15th December (Winter Term), 1st January to 15th March (Spring
Term) and 1st April to 30th June (Summer Term). There are no educational activities delivered between
July to August and the college is closed to students during this period. The year-end exams take place every
June and the results are published on 15th August based on which successful completion of the academic
year results in progression to the next academic year. At the end of the 4th academic year successful students
are awarded their BSc qualification.
The student fees are currently BDT 200,000 per annum, i.e. BDT 800,000 for the full course, and BDT
200,000 per annum for students staying in the hostel. The fees are booked as revenue over the course of the
year. As an incentive to attract students to the college, Monarch College allowed student to pay 50% of
their annual tuition fee in 2 installments, the 1st instalment at the start of the 1st Term and the 2nd instalment
at the start of the 2nd Term every year.
The remaining 50% of the tuition fee could be paid post qualification provided the student took up
employment with Willis Limited, in which case the remaining amount of the tuition fee would be adjusted
from the employee’s salary over a period of 3 years. To ensure that students paid the rest of their tuition
fee, it was agreed that Monarch College would withhold the BSc certificate until the full tuition fee was
recovered. As Willis Limited was a well reputed employer in a highly sought-after industry, all 120 students
took up the invective offered.
On 27th March 2020 due to the Global COVID Pandemic the Government of Bangladesh declared a
lockdown which continued until June 2020, as a result, Monarch College was unable to deliver any classes
to students during this period.
Requirements:
KPwC are appointed as the statutory auditors for Willis Limited for the year ended 30th June 2020 and you
have been selected to lead the Audit. You are required to identify:
(a) the relevant accounting issues with reference of the related IASs/ IFRSs; and
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(b) the key audit issues based on your answer to (a) above.
You may answer both the requirements together or separately, as you may deem fit.
15
12. (QN-5(a): MA-22) You are auditing Cutting-Edge Technologies Limited (CETL) for the year end 31
December 2021. This is the first year your firm is auditing CETL. Your firm received appointed on 01
October 2021 and issued acceptance letter to the client and Form 23B to registrar of Joint Stock Companies
& Firms (RJSC) on the same date. As there was prior year auditor of CETL, you firm issued a request for
professional clearance to prior year auditor on 3rd October 2021 and subsequently received clearance on
7th of October 2021.
You and your team members started working on 9-month end financial statements which was provided to
you on 10th of October 2021. Your team annualized the financial statements and performed an analysis
which reveals that company will make a loss in 2021 like last 2 years. Revenue of the company has
increased compared to last year but still have not reached to pre-covid period.
While obtaining an understanding of company’s operation, you came to know that company is not operating
at full capacity as there were sufficient supply of logic chips which was very essential for the products
CETL produces. Your team has also noted that most of the employees of the company works from home
which started from the beginning of Covid pandemic. Earlier employees needed to obtain written approval
for making purchase and payment. However, to facilitate the remote working, management now allows
email approval of the purchase. Email approvals are then made PDF file and attached as supporting
evidence which is used to demonstrate that purchase was approved.
CETL generally had a listed vendor for each category of raw materials and items it purchases. However,
during covid pandemic business were disrupted and many of the vendors failed to supply products as per
CETL demands. To ensure continued business, CETL has decided to introduce additional vendors for each
of the category. Purchase officer quickly ran a search and found out several vendors for which CETL
purchases on regular basis. While including these new vendors as listed vendors, legal documents and price
quote of these vendors were obtained. CETL generally performs due diligence on new vendors. However,
considering the covid situation, due diligence was skipped by management. Price for products delivered by
those new suppliers were somewhat higher than regular vendors but were made justified with an
understanding of shortage of supply during pandemic period.
On 31 December 2021 your team members attended physical count of inventories. During count your team
members identified that some inventories were kept in an offsite premises held under 3rd party. Team
member could not perform the count, but CETL warehouse manager provided a certificate issued by the
3rd party offsite premises owner on 25 December 2021 when inventories were stored at 3rd party offsite
premise. Certificate which is dated confirms a list of inventories held by them.
On 15th January 2022, you have received draft financial statements from management which shows an
insignificant amount of profit and higher decrease in revenue than expected. Management have disclosed
significant amount of contingent liabilities in the notes to the financial statements.
Requirements:
i) Identify and explain the professional misconducts done by your firm.
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ii) Identify the impacts of Covid-19 on your audit.
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iii) Identify covid-19 related fraud risks and suggest appropriate audit procedures to address those risks. 5
13. (QN-5(b): MA-22) You are a third-year student of Hassan Biswas & Co., Chartered Accountants
(HBC) and a finalist of CA exam under ICAB. You plan to attend upcoming CA exam session and few
days away from the start of approved study leave for CA final exams. Your current audit assignment is
almost at the end and your team plans to issue the audit opinion before going to the exam leave. Your
manager called you and informed you that your immediate reporting senior has become sick last night and
admitted to hospital. He was auditing a complicated hedge accounting of your ongoing assignment. In
absence of your reporting senior, audit manager instructed you to complete the audit of hedge accounting
before your exam leave. You do not have sufficient experience on hedge accounting and feel that you might
not perform the work without supervision. Furthermore, with audit tasks already in your hand and with new
task assignment, you understand that it would be unrealistic to complete the task before your study leave
and quality of work will deteriorate significantly. You wanted to discuss the matter with your manager, but
you feel slightly intimidated. You also feel pressure to support your firm under this challenging time.
Requirements:
i) Identify the ethical issues involved and the factors you should consider resolving the ethical issues.
ii) What would be your course of actions to resolve identified issues.
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14. (QN-4(a): ND-21) Delta Bakery Limited (DBL) was incorporated in 2015 with a vision to industrialize
bakery business across the country. DBL sells various bakery items like bun, cake, and cookies etc. though
the retailers like small T-stalls and general stores across the country. DBL started with cream bun which
got instant popularity among the customers. Gradually it extended its product category each of which
become very popular. DBL has two bake houses in two different parts of the country to cover delivery in
every corner of the country. These bakery items then are packed and taken to distribution centres. Products
remains as inventory of DBL unless it is sold to retailers. DBL sells these bakery items through sales
representatives who takes order from the retailers in the afternoon and delivers the fresh products in the
morning. Sales representatives collects the product sales price in cash and deposits to the distribution house.
One of the key challenges for DBL is the sort of shelf life of these products. Very often products expires
before it could be sold by the retailers. In this situation DBL delivers replacement products to the owners.
Recently a news has been published in the newspaper and social media that food safety authority has visited
DBL bake houses and found various non-compliance of food safety code and penalized significant amount.
Your firm has been appointed as auditor of DBL upcoming year end 31 December 2021.
Requirements:
i) Identify and assess the audit risks for Delta Bakery Limited; and
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ii) Design appropriate audit procedures to address the identified audit risks.
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15. (QN-4(b): ND-21) Your firm is the auditor of Natural Foods Limited (NFL) which is one of the largest
food processing companies in the country. NFL which has several subsidiaries each of which is engaged in
processing and selling of various category of processed foods. Your firm is responsible for audit of
standalone and consolidated financial statements of NFL. There are several subsidiaries of NFL which are
audited by other audit firms. Your partner has asked you to audit the related party transactions and balances
and confirm whether the transactions and balances has been properly reflected in the consolidated financial
statements.
Requirements:
i) Design procedures that you would perform to audit the related party balances and confirm that balance
of related party agree with each other.
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ii) Describe the audit procedures you would perform on the intercompany transactions and balances where
there are intra-group purchase and selling transactions.
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16. (QN-4(b): ND-21) You are the Partner at Karim Rafik & Co. Chartered Accountants (KRC). Recently
your office administration manager has notified you about following matters:
a) Muntasir is audit manager at KRC and managing a team which is involved in auditing a listed company
called Hallmarks Jewelleries Limited (Hallmark). Last week Muntasir’s father-in-law passed away and his
wife inherited 5,000 shares of Hallmark. His wife plans to hold the shares as memory of her father and an
investment for rainy day.
b) KRC maintains a provident fund for its employees which maintained by an independent trustee board
completely separated from firm management. For employees’ benefits, significant amount of the fund is
invested in Government securities and long-term deposits. However, small portion of the fund is invested
in the secondary share market. As part of the investment plan, KRC Provident fund has purchased share of
Export Star Limited (ESL) from the secondary market. Recently, management of ESL has expressed their
intention to work with KRC and requested KRC to share audit proposal.
Requirement: Identify & comment on the ethical and other professional issues on above matters. 5
17.(QN-4(a):MJ-21)Ganga Limited is a listed company and prepares interim financial statements. On its
interim financial statements for the half year ended, it identified that there are events and conditions present
which requires to impair its goodwill arising from purchase of acquisition and accordingly an impairment
loss was recognized. However, by the of year end, those events and conditions has reversed. As those
conditions are not present at the year end, Ganga Limited has reversed the impairment loss in its financial
statements. You are manager of the audit of Ganga Limited’s financial statements for the year end.
Requirements:
i) Discuss about the events and conditions leading to impairment of assets.
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ii) Comment on reversal of impairment loss at the year end.
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iii) What would be your audit responses related to impairment of goodwill?
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18.(QN-4(b):MJ-21)Chitra Garments Limited is engaged in manufacturing and export of Garments
products. It’s financial statements for the year ended 31 December 2020 is currently being audited by its
auditor. Ever since COVID-19 outbreak, Chitra has experienced with significant decline in the sale revenue.
Customers has instructed Chitra to hold the manufactured goods until further notice. As a result, Chitra
reported Significant number of finished inventories at the financial statements. According to the sales
agreement, Chitra is not able to sell these inventories locally or the third parties. Chitra has not kept any
allowance for the unsold inventories However, subsequent to year end and before the audit report is issued,
Chitra has come to know that its customer has become bankrupt.
Requirements:
i) Discuss the procedures to be performed to check the subsequent events.
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ii) Discuss whether any adjustments are required for subsequent events.
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19.(QN-4(c):MJ-21)You firm is currently auding Halda Limited where you are assigned as engagement
manager. During the audit you have noted that significant amount of inventory has been written off. Upon
inquiry, management informed you that these inventories are non-existent. Management informed you that
their store in-charge sold off inventories without management awareness. Store manager use to increase the
number of inventories to be delivered in delivery challan to bring the inventories out warehouse. Then the
extra inventory would be sold off for his personal benefit. Management analysis shows that store in-charge
was involved in fraudulent activities for last 3 years. Your review of purchase and sales process shows that
store in-charge was solely responsible for recording goods receipts and issuing delivery challans.
Requirements:
i) What would be your audit procedures related to identified fraud?
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ii) Suggest appropriate controls to address the fraud risk.
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20.(QN-5:MJ-21) You are Sinthia Ahmed, a qualified Chartered Accountant, working in a reputed CA
firm in the position of Audit Director. You are currently reviewing the audit of Active Products Limited
(APL), a manufacturer of industrial equipment and machineries, for the year ended March 31, 2021. The
audit work is almost done and you review the audit files to draft a report to those charged with governance.
The statement of financial position of APL as at 31 March 2021 shows total assets of BDT 12,090 million
(31 March 2020 – BDT 10,230 million).
From the audit files you have found following points that may be relevant for your intended purpose:
Farjana , a last level articled student, worked on property, plant and equipment of APL and she wrote in the
working paper that controls over capital expenditure transactions had deteriorated during the year from the
Company’s regular practice. Authorisation had not been granted for the purchase of office equipment with
a cost of BDT 34.875 million. She also wrote that no material errors in the financial statements were
revealed by audit procedures performed on property, plant and equipment.
Ali Ashraf, assistant manager of the firm works as audit senior of APL audit, worked on intangible assets
and wrote in working paper that an internally generated brand name has been included in the statement of
financial position at a fair value of 1,550 million. Working paper showed that enquiry was made to CFO
who responded that BDT 1,550 million represents the present value of future cash flows estimated to be
generated by the brand name. Ali Ashraf commented that this treatment appears to be in breach of IAS 38
Intangible Assets, and that the management refuses to derecognize the asset even though they have been
shown the relevant section of IAS 38.
From the working file of inventories, it is seen that problems were experienced in the audit of inventories.
Due to a misunderstanding by the internal auditors of APL, the external audit team did not receive a copy
of inventory counting procedures prior to attending the count. This caused a delay at the beginning of the
inventory count, when the audit team had to quickly familiarize themselves with the procedures. In addition,
on the final audit, when the audit senior requested documentation to support the final inventory valuation,
it took two weeks for the information to be received because the accountant who had prepared the schedules
had mislaid them.
Requirement:
Draft the points that will be brought attention to those charged with governance and explain the reason for
their inclusion and consequences of each points.
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21.(QN-6: MJ-21) You have recently joined Abul Hasanat & Co (AHC), Chartered Accountants as audit
manager and currently been assigned to two the audit client. Following issues has arisen in your audit
clients.
1. Comfort Real Estates and Design Limited (CREAD).
CREAD is involved in providing architectural design solutions and constructing real states. AHC has no
experience of auditing a real estate company. Mr. Hasanat, proprietor of the firm, believes that auditing a
real estate company will develop firm’s capabilities and portfolio of auditing real estate sector. In order to
penetrate in this sector, AHC has quoted a lower-fees to CREAD which rewarded this audit engagement.
Audit team is facing difficulties in performing audit procedures as none of them have adequate knowledge
the business model and operations of real estate business.
2. Anika Textiles Limited (ATL)
ATL is an audit client of AHC for several years. Audit process was always smooth. Current year audit team
consists of members who was also part of previous year audits. As your first year of involvement, you had
a meeting with various department heads of ATL including board of directors. At time of discussion with
finance manager, you came to know that one of your team members helped ATL in preparation of annual
financial statements. Your partner and other team members were not aware of this information.
Requirement:
Identify the ethical issues in each case and suggest appropriate responses.
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