CA FINAL IMPORTANT TOPICS MAY 17:AUDITING

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DEAR STUDENT, I HAVE MADE MY BEST EFFORT TO PROVIDE THE AREAS IN ADVANCED AUDITING WHICH ARE IMPORTANT ONLY FOR MAY 17 EXAM . I HOPE THIS MATERIAL WILL BE HELPFUL IN YOUR PREPARATION. IF YOU HAVE ANY DOUBTS PLEASE MAIL ME AT ANY TIME IN MY E-MAIL ID CAGROUPS4ALL@GMAIL.COM

WISH YOU ALL THE BEST FOR YOUR EXAM.

NOTE: POINTS IN BOLD LETTERS ARE VERY IMPORTANT

1. CA FINAL IMPORTANT TOPICS FOR STANDARDS ON AUDITING (very important) Read Requirements paragraphs with the connected application paragraphs in SAs ( particularly the paragraphs where practical examples are given in application paragraphs in SAs)

1. SA-200 – Application paragraphs on Audit Risk (Paras A32 to A44) read with Chapter 5

2. SA-210 – Revision of Audit Engagement Letter (Para 13 and A27) and Acceptance of a Change in the nature of engagement (Paras 14 to 17 and A28 to A32)

3. SA-240 – Fraudulent Financial Reporting (Paras A3 and A4)

4. SA-250- Audit Procedures regarding consideration of compliance and Audit procedures regarding non- compliance (Paras 12 to 17 and 18 to 21)

5. SA-260- Communication Process (Paras 14 to 19)

6. SA-402- Entities using Service Organisations- Audit Procedures (Paras 9 to 12)

7. SA-510- Initial Audit Engagements- Opening Balances (Audit Procedures)- Paras 5 to 7

8. SA-530- Definitions in Audit Sampling and Appendix IV at the end (short note question) read along with Chapter 5

9. SA-540- Audit of Accounting Estimates including (Paras 8 to 15, A2, A3, A6, A7)

10. SA-550- Maintaining Alertness regarding related parties- Paras 15 to 22 and Sources of related party information (examples in application paragraphs)

11. SA-560- Audit Procedures regarding subsequent events – Paras 6 to 11

12. SA-570- Audit Procedures and Material Uncertainty (Paras 16 to 21, A2)

13. SA-580- Written Representations (Paras 15 to 19)

14. SA-610- Evaluation of Internal Audit Function and Using Specific Work (Paras 8 to 12)

15. SA-700- Elements of an Auditor’s Report- Paras 21 to 42 (Ilustrations at the end of the SA are very important to know how to draft various paragraphs in the Auditor’s Report particularly Auditor’s Responsibility and Auditor’s Opinion )

16. SA-705- Modifications to Auditor’s Opinion and Circumstances for expressing different types of Modified Opinions and Ilustrations at the end of the SA (very important for drafting of different types of modified opinions)

17. SA-706- Emphasis of Matter Paragraph and Other Matter Paragraph (Paras 5 to 8, A1 to A5) and Ilustrations at the end of the SA (Ilustrations at the end of the SA very important for drafting of EOM and OM paragraph)

18. SA-710- Definitions of Comparitive information, Corresponding figures and Comparitive Financial Statements (for short note question)

19. SA-720- Material inconsistency (Paras 6 to 10)

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2. AS -1, 4, 5, 9, 10, 11, 12, 13, 16, 18, 22, 26, 29- Applicability of these standards, Exceptions, Treatment of special items, Disclosure aspects of these standards are important for auditing.

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3. Guidance Notes

1. Proposed Dividend (End of Chapter 6- Non- Provision for proposed dividend)

2. Audit Reports and Certificates for Special Purposes (Chapter -8)

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4. Chapter-4- AUDIT IN A CIS ENVIRONMENT

1. Effect of Computers on Internal Controls

2. Effect of Computers on Auditing

3. Internal Control Requirement in CIS Environment

4. Computer assisted Audit Techniques-Uses of CAAT, Considerations in the use of CAAT

5. Procedures for Controlling the Application CAAT

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5. Chapter-5- SPECIAL AUDIT TECHNIQUES

1. Audit Risk

2. Sampling Risk

3. Materiality and Audit Risk

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6. Company Audit– Chapter X of Companies Act, 2013 applicable for this exam (Sections 139 to 148) and some portions of Chapter 6 is also relevant for preparation

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In Chapter-6

1. Auditor appointed in AGM failing to accept appointment

2. True and Fair-to be read with Significance of True and Fair

• Personal expenses of Directors

1. Distribution of capital profits, Capital Reserve (Reserves)

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In Chapter-IX of Companies Act, 2013 (Sections 128 to 138)

1. Books of Account – Section 128

2. Financial Statements – Section 129

3. Board’s Report – Section 134

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In Chapter-X of Companies Act, 2013 (to be read with Companies (Audit and Auditors) Rules, 2014) 

1. Rotation of Auditors – Section 139(2)

2. Disqualifications – Section 141(3)

3. Auditor’s Report – Section 143 fully

4. Prohibited Other Services – Section 144

5. Duty to attend AGM – Section 146

6. Applicability of Cost Audit – Section 148 to be read with the Cost Audit Rules, 2014

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Chapter 8 – Auditor’s Report and Volume II

1. SA-700, SA-705 & SA-706

2. CARO Reporting Requirements – Statement on CARO is very important- Exemption of Private Limited company from CARO – Reporting clauses 1(c), 2(b), 7, 9, 11, 15, 16, 17, 21- Council’s comments under clauses in Statement on CARO under clauses 7, 9, 11, 15, 16, 17 and 21 are VERY IMPORTANT– While quoting sections in CARO provisions the applicable sections of Companies Act, 2013 should be quoted. Some of the provisions should be also be connected with applicable SAs.

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Chapter -9- Corporate Governance

Revised clause 49 of the listing agreement (applicability)- Audit Committee (all provisions important)- Auditor’s Responsibility- Verification of Composition of Board, CEO/CFO Certification, Report on Corporate Governance

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Chapter-10- Audit of Consolidated Financial Statements

Auditor’s Responsibility, Permanent consolidation adjustments, Current consolidation adjustments

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Chapter-11- BANK AUDIT

1. Appointment of Auditor, Audit Report

2. Evaluation of Internal Controls (Advances, Credit Card Operations)

3. Audit of Investments – Prudential Guidelines regarding market portfolio- Master circular ( Latest- Revised in 2011) – Classification and Valuation of Investment Portfolio under Held to Maturity, Held for Trading, Available for Sale- Non-Performing Investments (NPI)

4. Prudential norms for NPA classification, income recognition norms, asset classification norms, Provisioning Norms

5. Contingent liabilities ( Verification of six items under Contingent liabilities )

6. Concurrent Audit system- Scope of Concurrent Audit– Coverage of branches and Reporting systems

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Chapter-12- AUDIT OF GENERAL INSURANCE COMPANIES

1. Requirements of Schedule B to the IRDA Regulations, 2000- Audit Considerations

2. Audit of Accounts

3. Schedule-C-Form of Auditor’s Report

4. Verification of Claims Paid

5. Verification of Commission

6. Verification of Operating expenses of the Management

7. Verification of Outstanding Premiums and Agents Balances

8. Unexpired Risk Reserve

9. Facultative and Treaty Re-insurance (Proportional and non-proportional treaties-omit fully)

10. Co-insurance

11. Solvency Margin

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Chapter-13- Audit of Co-operative societies

Special Features of Co-operative Audit (Very Important-10 points),

Rights and Duties of Co-operative Auditors, Audit of Multi State Co-operative Societies

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Chapter-14- Audit of Non-Banking Financial Companies

1. Registration with RBI

2. NBFC Public Deposits Directions

3. NBFC Prudential Norms Directions

4. Audit Check List- Investment, Loan, Hire Purchase, Equipment Leasing Companies

5. Obligation to make an Exception Report to RBI

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Chapter-15- Tax Audit (Revision in Form 3CD should be known and clause numbers will change and therefore I have given only the provisions which are important without clause numbers which need not be quoted)

Audit of Public Trusts- Audit u/s 44AB- Accounting Standards, Audit Reports,

In Form 3CD

1. Method of accounting

2. Amounts not credited to Profit and Loss Account

3. Amounts debited to Profit and Loss Account

4. Disallowance under section 43B

5. Acceptance of Loans/Deposits – section 269SS

6. Deduction of Tax at Source

7. Accounting Ratios

(Concentrate on the Notes given under these clauses in Form 3 CD)

Audit under VAT (Preparation for Audit and Approach to Audit)

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Chapter-16 – Cost Audit

1. Advantages of Cost Audit

2. Reconciliation of Cost and Financial Accounts

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Chapter-17 – Audit of Members of Stock exchanges– (Definite short note question)

1. Margin Deposits

2. Rolling Settlement

3. Circuit Filter and Circuit Breaker

4. Books of Accounts to be maintained under Rule 15 by a member

5. Contract Notes

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Chapter-17 – Other Special Audits

1. Audit of Mutual Funds – Inspection and Audit under Regulation 61

2. Audit of Depositories – Inspection and Audit under Regulation 59

3. Environmental Auditing – Environment Impact Assessment and Audit Format (Probable Format of Environment Report)

4. Energy Audit – Key Functions of Energy Auditor and Approach to Energy Audit (different phases in energy audit)

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Chapter-18- AUDIT OF GOVERNMENT COMPANIES

Provisions of section 143(5),(6) and (7) of Companies Act, 2013 important regarding powers of C&AG in audit of government companies and deemed government companies.

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Chapter-18- PROPRIETY AUDIT

Propriety elements in 143(1) , Propriety elements in CARO, Problems in Propriety Audit

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Chapter-19- INTERNAL AUDIT, MANAGEMENT AUDIT, OPERATIONAL AUDIT

• Relationship between External Auditor and Internal Auditor (SA610)
• Overall objectives of Operational Audit (just 4 points and no explanation)
• Differences between Financial Audit and Operational Audit (at the end of the Chapter)

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Chapter-20- INVESTIGATION AND DUE DILIGENCE

Special Issues in Investigation –

Non-statutory Investigations (six types of investigations)- Investigation into frauds

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DUE DILIGENCE- (VERY IMPORTANT)

What is Due Diligence? Types of Due Diligence Full fledged Financial Due Diligence– Review of Financial statements (Examples of Hidden Liabilities and Overvalued Assets) Cash flow, Taxation, Financial Projections

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Chapter-21- PEER REVIEW

Objectives of Peer Review, Scope of Peer Review (Focus), Execution Stage, Reporting Stage, Approach of Peer Reviewer

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Chapter-22- PROFESSIONAL ETHICS

1. Section 2(2) -Definition of Management Consultancy Services and Sections 8, 27 and Other Misconduct (Very important)

2. First Schedule- Part-I- clauses 2, 4, 6 7, 8, 11, 12 (New Regulations 53A and Regulation 53B, Regulation 191 and Regulation 190A

3. First Schedule- Part-II- clause 2

4. First Schedule- Part-III- clause 2

5. Second Schedule-Part-I- clauses 3, 4, 5, 6, 7, 8, 10- ( Case laws under clauses 5,6,7,8,9 very important)

6. Second Schedule-Part-II-clauses 1, 3, ( Case laws under clause 1 important)

7. Council’s General Guidelines, 2008- Chapter IV to Chapter IX is important (Chapter XII has been recently deleted and in Chapter IV the definition of “relative” has been amended which is now as defined in AS-18

8. Latest Council Notification No.116 of 2008 issued on 25th September 2008 which includes new Regulation 53A and Regulation 53B which is relevant for clauses 2,3,4,5 of Part-I of First Schedule

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PROBABLE SHORT NOTES QUESTIONS

(Certain short notes questions, which are already covered in the respective chapters given above, have not been repeated here)

1. Audit Risk, Risk of Material Misstatement, Detection Risk -SA-200 – Definitions

2. Fraudulent Financial Reporting – SA 240 – Application paragraphs

3. Unmodified Opinion, Qualified Opinion, Disclaimer of Opinion, Emphasis of Matter and Other Matter (SA-700, SA-705, SA 706)

4. Company Audit- Personal expenses of Directors, Capital Reserves, Interim Dividend, Non-provision for Proposed Dividend, Non-provision for tax liability

5. Special Report to the Registrar of Co-operative societies (Point No.8 in Special Features in Co- operative Audit)

6. Audit of Members of Stock Exchange – refer to points given earlier in S.No. 15 above

7. Definitions in SA 530, 710

8. SA-570- Financial, Operating and Other Indications

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NOTE: Sarbanes Oxley Act, 2002 (SOX) given at the end of Chapter 3 cannot be missed and only the Eleven Titles given first are important and in that Titles 1, 2, 3, 4, 8, 9, 10, 11 should be covered- only points

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GENERAL NOTES:

1. All the areas given here are based on LATEST EDITION of Institute Study Material

2. Provisions of Companies Act, 2013 applicable should be read with the respective Rules.

3. Do not answer questions 1 and 2 at the beginning of the exam. First answer two or three direct and simple questions before attempting questions 1 and 2 which are practical.

4. Present the answers point-wise and avoid paragraph-wise presentation.

5. Examples and illustrations given in Chapters are important for practical questions.

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ONCE AGAIN I WISH YOU THE VERY BEST FOR YOUR EXAMS. I REQUEST YOU TO MESSAGE OR EMAIL ME REGARDING YOUR EXPERIENCE AFTER WRITING THE AUDITING EXAMINATION.