Page 117 - CA Final PARAM Digital Book.

QNO Expert report inconsistent with other audit evidence Old Course – (N11R, N16R, SM17, PM17, M19R,
58.500 TITANIUM CNO--SA500.100 SM21)
Based upon the legal opinion of a leading advocate, X Ltd made a provision of Rs 5 crores towards Income
Tax liability The assessing authority has worked out the liability at Rs 50 crores It is observed that the
opinion of the advocate was inconsistent with legal position with regard to certain revenue items
OR
Based upon the legal opinion of a leading advocate, X Ltd. made a provision of ₹ 3 crores towards Income
Tax liability. The assessing authority has worked out the liability at ₹ 5 crores. It is observed that the
opinion of the advocate was inconsistent with legal position with regard to certain revenue items.
Answer Part I -- Relevant Standards & Laws
▪ SA 500 “Audit Evidence”

Part II -- Requirements of Relevant Standards & Laws
➢ SA 500
SA 500 on "Audit Evidence" discusses the auditor's responsibility in relation to and the procedures
the auditor should consider in, using the work of an expert as audit evidence.

➢ Use of Expert
During the audit, the auditor may seek to obtain, in conjunction with the client or independently,
audit evidence in the form of reports, opinions, valuations and statements of an expert, e.g., legal
opinions concerning interpretations of agreements, statutes, regulations, notifications, circulars,
etc.

➢ Responsibility

Before relying on advocate's opinion, the auditor should have seen that opinion given by the expert
is prima facie dependable. The question states very clearly that the opinion of the advocate was
inconsistent with legal position with regard to certain items. It is, perhaps, quite possible that auditor
did not seek reasonable assurance as to the appropriateness of the source data, assumptions and
methods used by the expert properly.

➢ Case Discussion
In fact, SA 500 makes it incumbent upon the part of the auditor to resolve the inconsistency by
discussion with the management and the expert. In case, the experts' work does not support the
related representation in the financial information the inconsistency in legal opinions could have
been detected by the auditor if he had gone through the same.

➢ Conclusion

This seems apparent having regard to wide difference in the liability worked out by the assessing
authority. Under the circumstance, the auditor should have rejected the opinion and insisted upon
making proper provision.

QNO Audit evidence for export revenue New Course – (SM23)
58.900 TITANIUM CNO-- Unique
During the course of the audit of TK Home Private Limited, a recognized export house engaged in
manufacturing of T-shirts under brand name of “TK”. CA Tripti is verifying export revenues of the company
for the year 2022-23. She has verified transactions entered in “Export Sales” account maintained in
accounting software from relevant export invoices. The export sales are being made on payment of IGST,
for which a refund is automatically credited in the account of the company after the goods are shipped.

On enquiring from internal audit staff regarding the recognition of export revenues, she is told that export
sales are recognised for the year on the basis of “Bills of Lading”. However, she is not convinced with such
a response and feels that the same does not appear to be proper.

She finds that three export invoices bearing dates in the month of March 2023 having a value of ₹ 75.00
lacs have not been recognized in export revenue on the ground that bills of lading for these invoices were
issued in the month of April 2023 Discuss from what sources she can obtain reliable audit evidence in this
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