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Friday, May 6, 2011

Suggested Hints for May 2011 CA Final Advanced Auditing Question Paper

Suggested Hints for May 2011 CA Final Advanced Auditing Question Paper:

Question

Hint

Relevant Question from Class Notes/ Assignment

1 (a)

See SA 402

Q 1 at Page 41 under the heading “Service Organisation”

1 (b)

See SA 315 and SA 450

Q 2 at Page 36 under the heading “Risk Assessment and Internal Control”

1 (c)

See SA 540, SA 320 and SA 330

Question dictated in class

1 (d)

See SA 505

Q 3 at Page 41 under the heading “External Confirmation”

2 (a)

Professional Misconduct. See Clause 1 and Clause 12 of Part I of First Schedule to the Chartered Accountants Act, 1949 (as amended)

Q 1 and Q 54 under the heading “Code of Ethics”

2 (b)

No Professional Misconduct. See Clause 8 of Part I of First Schedule to the Chartered Accountants Act, 1949 (as amended)

Q 38 under the heading “Code of Ethics”

2 (c)

Professional Misconduct. See Clause 6 of Part I of First Schedule to the Chartered Accountants Act, 1949 (as amended)

Q 20 under the heading “Code of Ethics”

2 (d)

Professional Misconduct. See Clause 6 of Part I of First Schedule to the Chartered Accountants Act, 1949 (as amended)

Q 13 under the heading “Code of Ethics”

3 (a)

See SA 300

Q 1 at Page 37 under the heading “Audit Planning”

3 (b)

See SA 620 read with SA 500

Q 1 at Page 37 under the heading “Using the work of an Expert”

4 (a)

Management’s submissions can be admitted by the statutory auditors (See AS 29). “Contingent gains and benefits from contracts to the extent not executed are not accounted for in financial statements since this may result in the recognition of revenue which may never be realised”. This is in accordance with the generally accepted principle of conservatism in accounting. However, the aforementioned paragraph allows and exception to this principle in view of the true and fair presentation of accounts as it further states: “However, when the realisation of a gain is virtually certain, then such a gain is not a contingency and accrual of the gain is appropriate.” Whether, a gain is ‘virtually certain’ has to be decided be the management on the basis of the criteria that the revenue is measurable and that there is a reasonable expectation of its ultimate collection. The management will have to consider the facts and circumstances of each case in order to arrive at this decision.

AS Question from Financial Reporting

4 (b)

Flexi Deposit shall be presented under Bank Balances as per the requirements of Part I of Schedule VI to the Companies Act as follows: Particulars should be given separately for:

“Balances lying with Scheduled Banks on current accounts, call accounts and deposit accounts

Book Overdrafts should be presented separately from sundry creditors under the heading Current Liabilities of Part I of Schedule VI to the Companies Act, 1956: [A book overdraft is not an overdraft at a bank but an excess of outstanding checks on a company's books over its reported bank cash balance. A book overdraft becomes a bank overdraft when outstanding checks are presented for payment]

Schedule VI Question from Financial Reporting

4 (c)

See SA 315 and Chapter on EDP Audit

Q 1 at Page 40 under the heading “EDP Audit” plus Class dictation

5 (a)

See Clause 4 (xi) and (xvi) of CARO, 2003 (because financial institution and term loans both are respectively involved).

Q 11 of CARO

5 (b)

See Clause 4 (ix) of CARO, 2003

Q 29 of CARO

5 (c)

See requirements of Section 227(1A) for personal expenses/ book entries plus Schedule VI reporting

Class dictation

6 (a)

See Chapter on Bank Audit

Class dictation

6 (b)

See Chapter on Audit of General Insurance Company

Class dictation

6 (c)

See Chapter on Audit of Society

Class dictation

7 (a)

See Clause 13 (c) of Form 3CD in Chapter on Tax Audit

Class dictation

7 (b)

See Chapter on Audit of Members of Stock Exchanges

Class dictation

7 (c)

See Chapter on Audit of PSUs

Class dictation

7 (d)

See Chapter on Management and Operational Audit

Class dictation

7 (e)

See Chapter on Investigations and SA 240 with Clause 4 (xxi) of CARO, 2003

Class dictation

General Comments:

  1. A good number of questions were asked on Standards on Auditing (SA). Nearly, these questions accounted for 44 marks out of 116 Marks of total weightage of questions;
  2. Questions on Code of Ethics were comparatively easy and accounted for 16 marks;
  3. The question paper was a mix of direct (Q 6 to Q 7) as well as application based (Q 1 to Q 5) questions

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