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IPCC Auditing Notes

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  • Preparedby:YogeshGupta PageNo:1 http://facebook.com/mr.yogeshguptaFormorenotes:[email protected] visitmeat:http://bit.ly/yogeshgupta

    Summarize Notes On Audit for CA-I/PCC Please read your book first and after go through these notes, it is writing in a summarizing manner, when you read this at the time of revision, this will help you. Best of luck for your exams. Yogesh Gupta

    2013

    Yogesh Guptahttp://yogeshguptarohtak.wordpress.com

    http://yogeshguptarohtak.blogspot.com

  • YOGESH GUPTA Student CA-Final, CS-Executive

    Bachelor in Buss. Admn. (June 11)

    Tel: +91 80596-35006 Write me at: [email protected]

    Preparedby:YogeshGupta PageNo:2 http://facebook.com/mr.yogeshguptaFormorenotes:[email protected] visitmeat:http://bit.ly/yogeshgupta

    CHAPTER-1 (NATURE OF AUDITING)

    Audit: Independent Examination of financial information contained in financial statements for expressing an opinion regarding true & fair view.

    Fraud & Errors Detection & preventions duty is by management not by auditor, while auditors duty to consider the impact of fraud & investigation.

    ACCOUNTING AUDITING INVESTIGATION

    Concerned with recording of Transactions and Preparation of Financial Statements

    Independent Examination of financial information contained in financial statements.

    Systematic, critical examination of records for a special purpose.

    SA 200 (AAS - 1) SA 200A (AAS 2) SA 240 (AAS 4)

    Basic Principles Governing an Audit Objectives and Scope of the Audit of Financial Statements

    Auditors Responsibility relating to Fraud in an Audit of Financial Statements.

    GENERAL PURPOSE FINANCIAL STATEMENTS

    TYPES OF AUDIT TYPES OF AUDITORS QUALITIES OF AUDITOR

    Include: (a) Balance Sheet (b) Profit & Loss Account (c) Cash Flow Statement (d) Notes on accounts and

    Explanatory statements

    Statutory Audit (Required under Law)

    Voluntary Audit (Not required under law)

    1. Internal Auditor- Appointed by Management

    2. External Auditor (Statutory Auditor) - Appointed by Company

    1. Technical Qualities: Sound knowledge of accountancy, auditing, taxation & corporate laws.

    2. Personal Qualities: Objectivity, integrity, independence, confidentiality, communication skills reliability and trust.

    OBJECTIVES OF AUDIT

    PRIMARY OBJECTIVE(SA 200A) SECONDARY OBJECTIVE (SA 240)

    Expression of Opinion on True & Fair view of Financial Statements

    Consideration of Risk of Material misstatements resulting from Fraud and Error

    SA 200 BASIC PRINCIPLES GOVERNING AN AUDIT

    SA 200A (AAS 2) SCOPE OF AUDIT

    INHERENT LIMITATIONS OF AUDIT

    1. Integrity, Objectivity and Independence 2. Confidentiality 3. Skills and Competence 4. Work performed by others 5. Documentation 6. Planning 7. Audit Evidence 8. Accounting Systems and Internal Controls 9. Conclusion and Reporting

    Determined by: 1. The terms of the

    engagement 2. The requirements of the

    relevant legislation e.g. CARO 2004

    3. The pronouncements of the Institute (ICAI)

    Due to: 1. Use of judgment 2. Use of Test Checking 3. Weaknesses in internal control 4. Persuasive nature of evidence

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    CHAPTER-2 (BASIC CONCEPTS IN AUDITING)

    AUDIT EVIDENCE AUDITORS INDEPENDENCE TRUE AND FAIR VIEW

    Meaning: Any information, verbal or written obtained by the auditor on which he bases his opinion.

    Objective: Audit evidence is one of the basic principles and requires that the auditor should obtain sufficient and appropriate audit evidence through the performance of compliance and substantive procedures to enable him to draw reasonable conclusions there from on which to base his opinion on the financial statements.

    Sufficient and Appropriate Audit Evidence: Sufficiency of evidence refers to quantum of evidence; and appropriateness refers to relevance and reliability.

    Types of Audit Evidence: Depending upon its source may be classified as: Internal,

    and External. Depending upon nature, may be classified as: Visual,

    Documentary, and Oral Evidence Reliability of Audit Evidence:

    (a) External evidence is usually more reliable than internal evidence.

    (b) Internal evidence will be more reliable, when related internal controls are satisfactory

    (c) Evidence obtained by the auditor himself is more reliable than evidence obtained from entity.

    (d) Documentary evidences are more reliable than oral representations.

    Audit procedures: A) Compliance B) Substantive A) Existence, Effectiveness & Continuity of the control system) B) Completeness, Accuracy & Validity of data produced by the

    accounting system) i) Vouching & Verification ii) Analytical Review Procedures

    Methods of Obtaining Audit Evidence: Inspection, Observation, Inquiry and confirmation, Computation and Analytical Review.

    SA-200 Independence implies that the judgment of a person is not subordinate to the wishes or directions of another person who might have engaged him. It stipulates that the independence is a condition of minds and personal character and should not be confused with the visible standards of independence. Visibility: Independence of auditors must not only exist infact, but should also appear to exist to all reasonable persons.

    Objective: The main objective of an independent audit is to lend credibility to financial information contained in financial statements by expressing an independent opinion. According to Sec-226 of companies law these are not authorized as auditor: a) Employer b) Security Holder c) Indebtness > Rs.

    1000/-

    The phrase true and fair in the auditor's report signifies that the auditor is required to express his opinion as to whether the state of affairs and the results of the entity as ascertained by him in the course of his audit are truly and fairly represented in the accounts under audit.

    What constitutes true and fair has not been defined in the legislation.

    In specific terms to ensure truth and fairness, an auditor has to see:

    (i) that the assets and liabilities are neither undervalued or overvalued;

    (ii) the charge on assets, if any, is disclosed;

    (iii) accounting policies have been followed consistently;

    (iv) all unusual, exceptional, non recurring items have been disclosed separately;

    (v) Accounts have been drawn as per requirement of Schedule VI to the Companies Act & AS.

  • YOGESH GUPTA Student CA-Final, CS-Executive

    Bachelor in Buss. Admn. (June 11)

    Tel: +91 80596-35006 Write me at: [email protected]

    Preparedby:YogeshGupta PageNo:4 http://facebook.com/mr.yogeshguptaFormorenotes:[email protected] visitmeat:http://bit.ly/yogeshgupta

    MATERIALITY SA-320 DISCLOSURE OF ACCOUNTING POLICIES AS 1)

    AS-1 - Material items are items, the knowledge of which might influence the decisions of the users of the financial statements. Information is material if its mis-statement could influence the economic decisions of users taken on the basis of the financial information. Factors influencing materiality: Materiality may be influenced by Legal and regulatory requirements Considerations which may have a significant

    bearing on the financial information, and Considerations relating to individual account

    balances and relationships. Relation in audit materiality & audit risk: INVERSE High Material error: Low Audit risk Low Material error: High Audit risk 9 Auditor has to show separately which are

    material in book 9 Materiality can be judged from two items:

    P&L or B/Sheet AND with comparison from last year.

    1) Meaning of Accounting Policies: Specific accounting principles and the method of applying those principles in the preparation & presentation of financial statements.

    2) Factors affecting accounting policies: Prudence, Substance over form and Materiality

    3) Fundamental Accounting Assumptions: Going Concern, Consistency and Accrual\

    4) Areas in which different accounting policies may be encountered: Method of depreciation, Treatment of expenditure during construction Valuation of inventories, Treatment of goodwill, Valuation of investment etc.

    5) Disclosure requirements: AS1 recommends as under: a) All significant accounting policies adopted in the preparation and

    presentation of financial statements should be disclosed. b) The disclosure should form part of financial statements and

    should normally be at one place c) If the fundamental accounting assumptions are followed, specific

    disclosure is not required. If a fundamental accounting assumption is not followed, the fact should be disclosed.

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    CHAPTER-3 (PREPARATION FOR AN AUDIT)

    AUDIT PROGRAM AUDIT WORKING PAPERS

    Detailed plan of work Prepared by auditor For carrying out audit

    An Audit programme is a detailed plan of work, prepared by the auditor for carrying out an audit. It is comprised of a set of techniques and procedures, which the auditor plans to apply in the given audit for forming an opinion about the clients statement of account. It not only constitutes the plan of the work but also provides a basis for the supervision and control of the audit work

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