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Friday, May 30, 2014

Suggested Hints to Advanced Auditing and Professional Ethics – May 2014 Question Paper

Suggested Hints to Advanced Auditing and Professional Ethics – May 2014 Question Paper
Q. No.:
Suggested Hints
1 (a)
Refer AS 29, SA 620, SA 580 and SA 230
1 (b)
Refer SAE 3400 and Clause 3, Part 1, Second Schedule to the Chartered Accountants Act, 1949
1 (c)
Refer SA 240 (including consideration for withdrawal from engagement), SA 580, CARO [Clause 4(xxi)], Section 227(3)(e), SA 315, SA330 and SA 230
1 (d)
Refer SA 505, SA 450 and SA 230
2 (a)
Refer SAE 3400 and Clause 3, Part 1, Second Schedule to the Chartered Accountants Act, 1949
2 (b)
Refer Clause 1, Clause 12, Part 1, First Schedule to the Chartered Accountants Act, 1949
2 (c)
Refer Clause 3, Part II, Second Schedule to the Chartered Accountants Act, 1949
2 (d)
Refer Clause 1, Clause 3, Part 1, First Schedule to the Chartered Accountants Act, 1949 as well as Regulation 53A, 53B and 53C of Chartered Accountants Regulations, 1988
3 (a)
Refer Section 227 for auditor’s duty to consider Branch Audit Report alongwith Bracnh Audit and its exemption requirements u/s 228
3 (b)
Refer Section 292A of the Companies Act, 1956
3 (c)
Refer Companies (Transfer of Dividends to Reserves) Rules, 1975. If prescribed conditions are fulfilled then such a transfer is possible.
3 (d)
Refer Clause 1, Clause 7, Part 1,Second Schedule to the Chartered Accountants Act, 1949 alongwith Kingston Cotton Mills Company case.
4 (a) & (b)
Refer Clause 4(iii) and Clause 4(v) for drafting suitable CARO Reporting
4 (c)
Refer Guidance Note on Audit of Consolidated Financial Statements
5 (a)
Refer Chapter on Bank Audit for NPA norms for Agricultural Advances (Direct Question)
5 (b)
Refer Chapter on GIC Audit for verification of Outstanding Premium and Agents’ Balances (Direct Question)
5 (c)
General Question. The points that may be included could be verification of physical existence, examination of any existing charge on these stock and receivables, assessment of market value vis-à-vis amount of advances involved, stocks and receivables aging analysis, any litigation/ dispute going on in respect of these stocks and receivables, etc.
6 (a)
Refer CAG Questionnaire in the Chapter of PSU Audit
6 (b)
Its not out of the scope because operational audit is being carried out to ensure that all the management functions like planning, organizing, staffing, directing and controlling are working effectively and efficiently. Such kind of error is very much in scope because such an existence of error indicates that control system (controlling function) is not sound.
6 (c)
Refer Section 235 to 237 in Paper 4: Corporate and Allied Laws [Chapter: Inspection and Investigation]
6 (d)
Refer Chapter: Other Aspects [Areas not included are other than attestation services, such as:
(i)         Management Consultancy Engagements;
(ii)        Representation before various Authorities;
(iii)       Engagements to prepare tax returns or advising clients in taxation matters;
(iv)       Engagements solely to assist the client in preparing, or compiling information other than financial statements;
(v)        Testifying as an expert witness;
(vi)       Providing expert opinion on points of principle, such as Accounting Standards or the applicability of certain laws, on the basis of facts provided by the client
7 (a)
Refer Chapter on NBFC Audit [Direct Question]
7 (b)
Refer Chapter on CIS Audit and SA 315 [Direct Question]
7 (c)
Refer SA 315 and SA 330 [Direct Question]
7 (d)
Refer SA 315, SA 330 and SA 450 [Direct Question]
7 (e)
Refer SA 450 read with SA 530


Tuesday, April 1, 2014

Important Topics for Advanced Auditing, May 2014

Important Topics for Advanced Auditing, May 2014

1.            Appointment of Auditor by Special Resolution: Material date for 25% holding of subscribed share capital (see page 13 of the book)
2.            Audit of Branch Accounts and Exemption thereto (see page 13 & 14 of the book)
3.            Appointment of Special Auditor u/s 233A and/ vis-à-vis communication under Clause 8 Part I of First Schedule of Chartered Accountants Act, 1949 (as amended) (See class notes)
4.            Audit Strategy (Short Note) (see page 17 of the book)
5.            Dividends and the related Rules on transfer of profits to reserves (see class notes)
6.            Declaration of Dividend in the event of presence of past losses (section 205) (see class notes)
7.            Final Dividend vs. Interim Dividend (see class notes (+) page 22 of the book)
8.            Corporate Form of Practice by CA (Management Consultancy Company, i.e., MCC) (see class notes) and KYC Norms (page 76 of the Book)
9.            New Disciplinary Mechanism (Distinction b/w powers of Board of Discipline and Disciplinary Directorate) (see class notes)
10.        Clause 2, 3, 4, 5, 6, 7, 8, 9 and 12 of Part I, First Schedule (see class notes)
11.        Clause 7 and Clause 10 of Part I, Second Schedule (see class notes)
12.        Part IV and Part III of Schedule First and Schedule Second respectively (see class notes)
13.        Council General Guidelines 2008 under Code of Ethics (see class notes)
14.        Guidelines for Website by CA (see class notes)
15.        Calculation of Turnover u/s 44AB (see page 85 of the book)
16.        Clause 12A, 17, 17A, 18, 21, 22, 24, 27 and 32 of Form 3CD (see class notes)
17.        Audit of Public Trusts (see page 105 of the book)
18.        Cost Audit Applicability, Steps, True and Fair cost of production, Contents of Cost Audit Report (see pages 112 to 114 of the Book)
19.        Propriety Cost audit (see page 115 of the book)
20.        Management Audit and its objectives (see page 116 of the book)
21.        Financial Audit vs. Management Audit vs. Operational Audit vs. Internal Audit (see page 118 of the book)
22.        Types of Management Audit Reports (see page 119 of the book)
23.        Practical question on drafting Management Control Questionnaire (MCQ) (general question to be answered as per guidelines discussed for ‘Due Diligence’ Chapter)
24.        Audit Trail (see class notes)
25.        Approaches to EDP Audit (see class notes)
26.        Service Bureau/ BPO (see SA 402, SAE 3402) (see class notes)
27.        “The objective and scope of audit does not change in CIS environment.” Comment (see class notes)
28.        Propriety Audit and its types (specially objective and scope of PSU audit whether different from statutory audit and Section 619 Questionnaire) (see para 2 and 3 of chapter 9 of the book, pages 133 to 135)
29.        Propriety elements in CARO (see class notes)
30.        Investigation on behalf of Incoming Partner (General Question: see class notes for Due Diligence chapter)
31.        Investigation for Advancing Loan (General Question: see class notes for Due Diligence chapter)
32.        Section 217 requirements for Board of Directors explanation about statutory auditors’ adverse remarks (see class notes)
33.        Due Diligence and contents of DDR (Due Diligence Review) Report (see class notes)
34.        CARO applicability on Private Limited Companies (see class notes)
35.        Clauses of CARO specially dealing with: (i) End use of Funds and Company Trading in Shares, (ii) Section 301, (iii) Statutory Dues, (iv) Other Dues, (v) Term Loans, (vi) Internal Audit, (vii) Frauds, (viii) Sick Company, (ix) Fixed Assets, and (x) Inventories [(see class notes)]
36.        Classification of Investments by Banks and Non-performing Assets with NPA Exemptions [(see class notes)]
37.        Concurrent Audit, Corporate Debt Restructuring and Credit Card Operations in a Bank [(see class notes)]
38.        AS 11, AS 17 and Banks (see class notes)
39.        Donations made by Banks – RBI Requirements (see class notes)
40.        NOSTRO and VOSTRO Accounts of Banks (see class notes)
41.        Solvency Margin (see class notes)
42.        Valuation of Investments by General Insurance Companies (see page 233 of the book)
43.        Reinsurance, Contents of Management Report for GIC (see class notes)
44.        NBFC vs. Banks (see class notes)
45.        Classification of NBFC as per new guidelines of RBI (see class notes)
46.        Appointment of Auditor in Cooperative Societies and Books of Accounts to be maintained by Society (see class notes)
47.        Borrowings and Loans for Cooperative Societies (see class notes)
48.        Appropriation of Profits, Overdue Principal and Interest in case of Cooperative Societies (see class notes)
49.        Features of Indirect Tax Audit (see para 2 at page 270), Excise Audit 2000 (see page 271 of the book)
50.        Accounting Aspects for Mutual Funds (specially the treatment of Underwriting Commission and Unit Premium Reserve), Contents of Audit Report (see class notes)
51.        Whole Chapter on Members of Stock Exchanges, specially Margins, Circuit Breakers, Contract Notes, Types of Market in NEAT system, Limit Orders, Types of books and records, Proprietary Trading (Beneficiary Account) and Pool Trading (Pool Account), Contents of Audit Report (see class notes)
52.        SEBI Investigation for question 50 and 51 above (see class notes)
53.        New definition of Independent Directors under Clause 49 (see class notes)
54.        CEO/ CFO certification under Clause 49 (see class notes)
55.        Whistle Blower Policy under Clause 49 (see class notes)
56.        Audit Committee under Clause 49 (see class notes)
57.        Energy Audit and Environmental Audit (see markings under chapter 20)
58.        Peer Review (can a peer reviewer access the clients’ premises and books of accounts, etc.)  (see class notes)
59.        SOX (Clause 49 known as Indian SOX) (see class notes)
60.        Clause 41 (see class notes)
61.        SA 240, 315, 330, 500 & 501, 620, 580, 299, 520, 530, 570, 560, 540, 510, 710, 505, 700, 705, 720, SRS 4410, 4400, SRE 2400, SAE 3400, SA 800 series (see class notes)
62.        Drafting of (i) Letter of Engagement and (ii) Management Representation Letter (see class notes and page 551 for a very general reference only)
63.        Guidance Notes: Independence of Auditors, Section 227(3)(e) and (f) reporting, Financial Information in Offer Document (see page 527 of Book), Consolidation of Financial Statements (specially the concept of permanent consolidated adjustments and current consolidated adjustments), Revision of Audit Report (see class notes)
64.        Auditor’s Right to Lien (Short Note) (see page 8 of the book)
65.        Auditor’s Right to attend General Meeting (Section 231) (see class notes)
66.        Xerox copies of books of accounts vis-à-vis Auditor’s obligations (see SA 580)
67.        From Company Law: Short Note on XBRL Filing, Buy Back and Deposit Acceptance Rules (see class notes)
68.        May 2004, May 2013 Question Papers and Practice Paper


Accounting Standards (see Financial Reporting Syllabus) and Revised Schedule VI form the integral part of Advanced Auditing and Professional Ethics Paper

Saturday, November 9, 2013

Analysis and Solutions to Audit Paper November 2013 Examination

Analysis and Solution for today's Audit Paper:

The paper was lengthy and technical. Not a tough paper considering CA Final Level. No spoon feeding types questions but only "Application of Mind" types questions. To a very large extent the paper is conceptual with "HARMONIOUS Application" of SA, SRS and SAE with provisions of Companies Act and Accounting Standards. This is evident from the following:

Suggested Hints to the Questions asked in November 2013 Examination:
Q.1.(a).
Refer Para 46A of AS 11 of Companies (Accounting Standards) Rules, 2006 [and not AS 11 issued by ICAI]. Vide Notification dated 29.12.2011, a new paragraph no. 46A was added by MCA to provide that exchange differences arising on reporting of long-term foreign currency monetary items (assets as well as liabilities) arising in respect of accounting periods commencing “ON or AFTER 1 April 2011” would be amortised over the tenure of the underlying long term monetary item. The financial statements should disclose this policy election and provide the details of the unamortised foreign exchange differences. Thus, the company should give the treatment in accordance with CASR AS 11 instead of ICAI AS 11.
Q.1.(b).
Discuss SA 402 read with SAE 3402 (based on Class Booklet Question below the heading “Service Bureau”)
Q.1.(c).
Refer Guidance Note on Audit of Consolidated Financial Statements, SA 705 for the new requirements of Audit Report Formats (Deficiencies involved, e.g. every paragraph to be given appropriate headings such as Basis of Opinion and Type of Opinion, Quantification of financial impact of qualification to the extent practicable). See the Class Notes for these SA points and also see illustrative language on quantification given under special point in Class Notes.
Q.1.(d).
Discuss AS 29 (as amount of provision for Rs. 60 lakhs is not correct), SA 580 (take written representation), SA 500 (other evidence such as TDS u/s 194J or 194C as the case may be etc.) read with SA 505 (external confirmation from the engineer), Communicate the matter with TCWG (SA 260), and SA 705 (issue qualified report with quantification of financial impact of qualification to the extent practicable). See the Class Notes for these SA points and also see illustrative language on quantification given under special point in Class Notes.
Q.2.(a).
Professional misconduct under Clause 2 of Part I of First Schedule for sharing profits with non-members (On the lines of discussions made in respect of Question 3 under Code of Ethics of Class Booklet)
Q.2.(b).
No professional misconduct under Clause 6 of Part I of First Schedule because the work is sought by a CA in practice from other CA who are in practice (On the lines of discussions made in respect of Question 8 under Code of Ethics of Class Booklet)
Q.2.(c).
Question based upon SRS 4410 and SA 210 (see the specimen format of engagement letter distributed in Class and also the special point dictated for “??”)
Q.2.(d).
Discuss the meaning of “Benchmark” as defined in SA 320. Various factors include (i) Audit Risk, Knowledge of Business as mentioned in SA 315 & SA 330, (ii) Analytical Procedures (SA 520), (iii) Fraud and Error (SA 240), (iv) Sampling Risk (SA 530), (v) Persuasive nature of Audit Evidence (SA 500) and (vi) Revised Schedule VI requirements. See the Class Notes for these SA and Revised Schedule VI points.
Q.3.(a).
Question based upon AS 15 (Revised) and AS 29. Accounting policy is not correct. Auditor accordingly should consider issuing qualified report on the basis of advice to the audit team to take Written Representation (SA 580), Assess the Audit Risk (SA 315 & 330), Take assistance of expert if required (SA 620), and Communicate the matter with TCWG (SA 260). See the Class Notes for these SA points.
Q.3.(b).
Discuss IT Controls and Approaches to EDP Audit. See the Class Notes for both these aspects’ points.
Q.3.(c).
Discuss SA 520 and write points like reconciliation of total reported revenue with the multiplication of room rent with number of room occupancy days, and the like. See the Class Notes for these SA points.
Q.3.(d).
Professional Misconduct under Clause 11 of Part I of First Schedule as he is engaged in other occupation with ICAI permission (On the lines of discussions made in respect of Question 57 under Code of Ethics of Class Booklet)
Q.4.(a).
See AS 23 and accounting treatment suggested thereunder for equity method. As per ASI 16 of AS 23, while applying the equity method, proposed dividend provided by the associate in its separate financial statements is not considered by the investor
Q.4.(b).
Refer Chapter on Bank Audit. See the common points in Class Notes as these also would be sufficient in this question
Q.4.(c).
Refer Chapter on Audit of GIC. See Solvency Margin u/s 64VA in the Class Notes read with Section 7 of Insurance Act in your Allied Law Notes
Q.4.(d).
Discuss Steps of Audit (discussed in Class through ILU) alongwith SA 315 (Knowledge of Business, Audit Risk), SA 320 (Materiality), SA 500 (Persuasive nature of audit evidence). See Class Notes for these SA points
Q.5.(a).
Capitalisation not valid because as per para 50 & 51 of AS 26 internally generated brands, mastheads, publishing titles, customer lists and items similar in substance should not be recognised as intangible assets
Q.5.(b).
Refer Chapter on Due Diligence. See Class Notes for the same and hint discussed for second last question under the Chapter: Due Diligence given in the Class Booklet
Q.5.(c).
Direct Question from Chapter 4 of the Text Book
Q.5.(d).
Discuss Clause 4(1) and 4(2) of CARO, SA 570 (Going Concern) and Section 227(3)(e) for bold or italics reporting. See Class Notes for commentary on CARO. Question on the same lines of discussions made in respect as second and fifth bullet point questions given under the heading “Special Questions” in Class Booklet’s Chapter: CARO
Q.6.(a).
Very general question. The evidence may include for example, Written Representation, Copies of Resolution passed by the company permitting such expenditure, permission from Municipal Corporation for placing hoardings at various places, copies of contract with advertisement agency, if any, Examining quotation from various advertisement agencies, On Site visit to see hoardings, Comparing the scale of advertisement by other market players in the same sector, etc.
Q.6.(b).
Professional Misconduct under Clause 6 of Part I of First Schedule (On the lines of discussions made in respect of Question 13 under Code of Ethics of Class Booklet)
Q.6.(c).
Tax audit not applicable u/s 44AB. Very much a IPCC level question from PGBP. For a refreshing reference see Chart in Text Book in Chapter 5 for components of sales, turnover and gross receipts. [Trade discount, turnover discount, Return Inwards will be excluded from sales; Cash discount, commission, bad debts written off, etc. are not part of sales. These should be separately debited to the Profit and Loss Account]
Q.6.(d).
Refer Clause 49. See your Class Notes for Clause 49 on Audit Committee
Q.7.
(a). Refer Chapter: Other Aspects. See your Class Notes for Peer Review
(b). Refer Chapter: Cost Audit. See markings in text book
(c). Refer Chapter: Other Aspects for “Clause 49”. See your Class Notes for various contents of Clause 49
(d). Refer Chapter: Audit of Cooperative Societies. See Class Booklet for Notes for the Aspects
(e). Refer Chapter: Other Aspects. See your Class Notes for EIA
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Best Wishes
God Bless
CA Kamal Garg