M/s SQC & Associates is a firm of Chartered Accountants, specialising in audit and assurance services for the past 2 decades, having 6 partners…

M/s SQC & Associates is a firm of Chartered Accountants, specialising in audit and assurance services for the past 2 decades, having 6 partners with its headquarters at Thiruvananthapuram and branch offices at 3 locations in Kerala. They are appointed as statutory auditors of Kochi Branch of KLM Bank Limited for the Financial Year 2024-25. The Bank branch has granted various types of advances to its customers including export advances. The auditors want to be sure that there is no revenue leakage in the branch and the auditor has conducted a detailed verification of compliance with the bank's policies and guidelines. The following discrepancies are identified during verification of revenue leakage: (i) QT Ltd. was sanctioned a term loan of 5 crores at an interest rate of 9.5% p.a. as per the sanction letter. However, due to some technical problem, the bank's Core Banking System (CBS) reflects an interest rate of 8.5% p.a. w.e.f. 01/04/2024. (ii) The bank has sanctioned a working capital limit of 3 crores to NK Pvt. Ltd. The bank's circular mandates a processing fee of 1%, but only 0.5% was charged. (iii) The bank has sanctioned a Cash Credit (CC) limit of 4 crores to DEF Ltd., with a condition that stock statements must be submitted monthly. DEF Ltd. has not submitted stock statements for 3 months, triggering a penal interest of 2% p.a. as per the sanctioned terms. (iv) An exporter, GHI Exports, availed packing credit of 2 crore at 6% p.a. for three months but repayment has been done with 1 month delay. The overdue interest rate is 12% p.a. as per the bank's circular. However, overdue interest rate for the delayed period was not applied in the CBS. M/s SQC & Associates are appointed as auditors of Easy Finance Limited, which is an NBFC company for the year 2024-25 for which CA S is the engagement partner. CA S is concerned with calculating the aggregate risk adjusted value of assets for reckoning the minimum capital ratio. Following details are available from the Balance sheet of Easy Finance Limited as on 31st March, 2025: (i) Cash and bank balances including fixed deposits and certificates of deposits with banks -8 crores (ii) Investments - Bonds of public financial institutions -50 crores (iii) Current Assets - Loans to staff -5 crores (iv) Fixed Assets (Net of Depreciation) - Furniture and Fixtures -30 crores (v) Domestic Sovereign State Government Guaranteed claims which are in default for 75 days -60 crores Further M/s SQC & Associates were appointed as statutory auditors of MRP Limited, a listed company, for the financial year 2024-25. It was observed during the audit that MRP Limited has carried out revaluation of its buildings and software assets. The revaluation was conducted by a Registered Valuer certified by the Insolvency and Bankruptcy Board of India (IBBI). As a result of the revaluation, the carrying value of its "Buildings" was increased. It represents 6% increase over the Gross carrying value of the "Buildings" class as at the beginning of the year. It represents 12% increase over the net carrying value of the "Buildings" class as at the beginning of the year. The "Software Assets" saw a downward revaluation adjustment. It constitutes 10% reduction over the Gross carrying value of the "software" class as at the beginning of the year. It constitutes 16% reduction over the net carrying value of the "software" class as at the beginning of the year. M/s SQC & Associates are in the course of forming an opinion on the financial statements of MRP Limited. Based on the evaluation of the conclusions drawn from the audit evidence obtained, they have made the following observations: Observation 1: The Company procures raw materials from a large number of local and international suppliers. As on 31st March 2025, trade payables form a significant portion of total liabilities. A substantial number of supplier accounts were subject to reconciliation issues, delayed confirmations or required significant year-end adjustments. The management did not respond properly to the issues raised by the auditor. It was considered as a high risk area by the auditor. However, based on other audit procedures, it was concluded that the trade payable balances had been appropriately recorded. Observation 2: A batch of finished goods worth - 1.8 crores was found to be missing during the physical verification of inventory. It constituted a significant portion of the value of inventory of finished goods. The management stated that it was due to a clerical error in location mapping and claimed to have traced the goods post year-end. However, the documentation presented was insufficient and not independently verifiable. On the basis of the above details, you are required to answer the following questions: (Q Nos 5 to 8)