CA Inter: Nov'22 & Onwards

CA Hemant Somani
(AIR-46)
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INDEX
Chp No.
Name
1 Nature, Objective and Scope of Audit
2 Audit Strategy, Audit Planning and Audit Programme
3 Audit Documentation and Audit Evidence
4 Risk Assessment and Internal Control
5 Fraud and Responsibilities of the Auditor in this Regard
6 Audit in an Automated Environment
7 Audit Sampling
8 Analytical Procedures
9 NOPE… Not HERE
10 Company Audit > Its Not Here … Separate CHART + Qn BOOK is GIVEN in my
TELEGRAM CHANNEL (Free)
11 Audit Report
12 Audit of Banks
13 Audit of Different Types of Entities
(ITS MAGIC)

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CA HEMANT SOMANI (AIR-46)

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Guidance

A Motivation CUM Story

I always needed a single digit rank in CA Final, But Luck factor was not in my favor,
just before 15 days of my exams, me & my family got infected by COVID, and last 15
days are equivalent to 3 months, But I didn’t loosed hope and gave exam at that time
also, During exams also I was suffering from many post COVID symptoms ………

And Finally, I Secured AIR 46 (Not single digit),

I just want to convey that while doing your preparation, “Always Aim for the BEST &
Prepare for the Worst scenario”
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IMPORTANT

This PDF covers only IMPORTANT CONCEPTS

DON’T REFER THIS PDF DIRECLTY

WITHOUT WATCHING MY YOUTUBE
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(You won’t able to understand it directly)
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1. AUDITING:

“An audit is independent examination of financial information of any entity,

• whether profit oriented or not, and
• irrespective of its size or
• legal form,
• when such an examination is conducted with a view to expressing an opinion
thereon.”

2. ELEMENTS OF A SYSTEM OF QUALITY CONTROL

HE – MALE

H- Human resources

E- Engagement performance

M- Monitoring

A- Acceptance and continuance of client relationships and specific engagements

L- Leadership responsibilities for quality within the firm

E- Ethical requirements

3. Fundamental principles of professional ethics relevant to the auditor when conducting

an audit of financial statements

IPCC – O

I-Integrity

P-Professional behavior

C- Confidentiality

C-Competence (Professional Competence & Due Care)

O- Objectivity
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4. The person conducting this task should take care to ensure that financial statements
would not mislead anybody
he can do honestly by satisfying himself that:

Trick (Read in Hindi – Imagine it as STORY) : apan ko Financial statement check karna h ki wo
sahi bana h ki nahi, Matlab “F.S Proper bana h n jesa accounting standard bolta h wesa”
….tabhi to usse “True & Fair” bolenge
To wo check a krne k liye F.S. ki suru se leke end tak ki steps dekho…ki F.S kese banta h suru
se end tak…
Sabse pahle Journal “entries” pass karte hai…to jo Sale Entries pass kari wo check karo ki
dummy entry to nahi h n…”Supporting check karo uss entry ka” (Sales invoice), and ye bhi
dekho invoices se ki “koi entry Skip to nahi hoi na”…
Fir wo entries se General “Ledger ACCOUNTS” bante hai …
Fir upar wali saari “information” se F.S bante h….

tricks Head point

F.S Proper bana h n jesa 1. the financial statement amounts are
accounting standard bolta h properly classified, described and
wesa disclosed in conformity with accounting
standards; and

tabhi to usse “True & Fair” 2. the statement of accounts present a

bolenge true and fair picture of the
operational results and of the assets
and liabilities.
Entries - Supporting check karo 3. the entries in the books of account are
uss entry ka adequately supported by sufficient and
appropriate evidence
koi entry Skip to nahi hoi na 4. none of the entries in the books of
account has been omitted in the
process of compilation and nothing
which is not in the books of account has
found place in the statements;
entries se General “Ledger 5. the accounts have been drawn up with
ACCOUNTS” bante hai reference to entries in the books of
account;
Fir upar wali saari “information” 6. the information conveyed by the
se F.S bante h statements is clear and unambiguous;
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5. Limitations of Internal Control

Auditor IC ko “CHUMA” dega

CHUMA – C

C- Collusion among People

H- Human judgment in decision-making
U- Unusual Nature of transactions
M- Managements Judgments
A- Abuse of authority by control owner

C-Cost & Benefit analysis (Expected Cost>Benefit)

6. Principal aspects (any four) to be covered in getting accounts audited

(Remember any 5 point)

Trick : auditor ki main responsibility hoti h ki wo FINANCIAL STATEMENT ko AUDIT

kare…to uske liye wo kya kya dekhega…..So Financial statement banana ka suru se leke
end tak ka process

trick Head point

- Sabse pahle koi 1. Verification of the authenticity and validity
TRANSACTION hoa of transaction entered into by making an
examination of the entries in the books of
accounts with the relevant supporting
documents
- Uss transaction ko 2. Checking of the arithmetical accuracy of the
BOOKS me record books of account by the verification of
kare postings, balances
- Fir balance Sheet & 3. Comparison of the balance sheet and profit
P&L banaaya and loss account or other statements with
the underlying record
- Balance sheet se 4. Verification of the title, existence and value
Assets & Liabilities of the assets appearing in the balance sheet.
check kari 5. Verification of the liabilities stated in the
balance sheet
- P&L se bhi Result 6. Checking the result shown by the profit and
check kara loss and to see whether the results shown are
true and fair.
- Audit finish, Ab bas 7. Reporting to the appropriate person/body
report banaake whether the statements of account examined
reporting kardo do reveal a true and fair view of the state of
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affairs and of the profit and loss of the

organisation.

7. Advantages of getting accounts audited

Trick : Dekh bhai, Audit se to sabko advantage hi hoga ….sabko mtlb sabko……………….

Trick Head Points

- Sabse pahle MUJE 1. As an appraisal function, audit reviews the
KHOODKO faayda hoga, existence and operations of various controls in
auditor mere internal the organisations and reports weaknesses,
control wagera check inadequacies, etc., in them
karega….meri weakness 2. An audit can also help in the detection of
nikalega…taaki future me wastages and losses to show the different
mera wastage & Loss kam ways by which these might be checked
ho…
- MERE PARTNER KO 3. Audited accounts are of great help in the
settlement of accounts at the time of
admission or death of partner
- MERE EMPLOYEES & 4. useful for settling trade disputes for higher
LABOUR KO wages or bonus
5. moral check on the employees from committing
defalcations or embezzlement
- GOVT ko 6. Government may require audited and certified
statement before it gives assistance or issues
a license for a particular trade
7. Audited statements of account are helpful in
settling liability for taxes
- Baaki other Persons ko bhi 8. It safeguards the financial interest of
persons who are not associated with the
management of the entity, whether they are
partners or shareholders,bankers, FI’s,
public at large etc.

➢
8. Code of Ethics for Professional Accountants, prepared by the International Federation of
Accountants (IFAC) identifies five types of threats

Threat ye h ki tuje FASSI chadha dega client agar tune galti nikaali to

F- Familiarity threats
A- Advocacy threats
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S- Self-review threats

S- Self-interest threats

I- Intimidation threats

9. A request from the client for the auditor to change the engagement may result from

Trick : When client tell us to change the terms of engt., by frustration we will say
him……………… “ u R MC”

R- Restriction on the scope of the engagement

M- Misunderstanding as to the nature of an audit or related service originally requested

C-Change in circumstances affecting the need for the service

10. The inherent limitations of an audit arise from

Trick Head point

- Auditor ki 1. Nature of Audit Procedures
galti - There is the possibility that management or others may not
provide,intentionally or unintentionally
- Fraud may involve sophisticated and carefully organised
schemes designed to conceal it. Therefore, audit procedures
used to gather audit evidence may be ineffective
- audit is not an official investigation
- Management 2. Nature of Financial Reporting
ki chaalaaki preparation of financial statements involves judgment by
management in applying the requirements of the entity’s
applicable financial reporting framework to the facts and
circumstances of the entity
3. Balance between Benefit and Cost
4. Other Matters
• Fraud, particularly fraud involving senior management or
collusion.

• The existence and completeness of related party

relationships and transactions.
• The occurrence of non-compliance with laws and regulations.
• Future events or conditions that may cause an entity to
cease to continue as a going concern.

11. In case of certain subject matters, limitations on the auditor’s ability to detect material
misstatements are particularly significant. Explain such assertions or subject matters.
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In the case of certain assertions or subject matters, the potential effects of the inherent limitations
on the auditor’s ability to detect material misstatements are particularly significant. Such assertions
or subject matters include: (FiRaNG)

• Fraud, particularly fraud involving senior management or collusion. (Trick- SA-240)

• The occurrence of non-compliance with laws and regulations. (Trick- SA-250)
• The existence and completeness of related party relationships and transactions. (Trick- SA-
550)
• Future events or conditions that may cause an entity to cease to continue a going concern.
(Trick- SA-570)
• Relevant SAs identify specific audit procedures to assist in mitigating the effect of the
inherent limitations.

12. Information which assist the Auditor in accepting and continuing of relationship with Client:
As per SA 220, “

Trick : me client accept karu ya nahi karu, ye depend karega ki CLEINT KESA HAI..IMMANDAAR
hai ya nhii , and jyada Complex client to nii h n… Muje knowledge to h n ki iss client ki audit me
kar pauunga ya nii , baaki pichli baar bhi 1 bhaari kaand hoa tha is client k to

Trick Head points

- Client immandaar h n?? 1. The integrity of the principal
owners, key management and those
charged withgovernance of the
entity
- Muje knowledge to h n…aata to h n 2. Whether the engagement team is
muje..? competent to perform the audit
engagementand has the necessary
capabilities, including time and
resources
3. Whether the firm and the
engagement team can comply with
relevant ethical requirements
- pichli baar bhi 1 bhaari kaand hoa 4. Significant matters that have
tha arisen during the current or
previous audit engagement, and
their implications for continuing the
relationship
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13.Professional judgment is necessary in particular regarding decisions about (SA 200)

Trick : Auditor audit kese karega ….steps ….

Trick: Steps for audit Particular

1. Sabse pahle Auditor 1. Materiality and audit risk
Materiality decide karega ki
ye-ye item material h..inn-inn ki
audit karenge
2. Fir jo material item h, unpe 2, The nature, timing, and extent
audit procedure lagaake of audit procedures used to meet
Evidence lega the requirements of the SAs and
gather audit evidence
3. Upar se jo audit evidence mile 3. Evaluating whether sufficient
wo dekehnge ki Sufficient and appropriate audit evidence has
appropriate h ya nhii been obtained, and whether more
needs
4. Fir above evidence k basis pe 4. drawing of conclusions based on
Conclusion draw karenge the audit evidence obtained
5. evaluation of management’s
judgments in applying the
entity’s applicable financial
reporting framework.

14. Professional skepticism includes being alert to, for example

Tricks Head point

- Jo milaa 1. Audit evidence that contradicts other audit
evidence obtained
- Jo Dikha 2. Conditions that may indicate possible fraud
- Jo sunna 3. Information that brings into question the
reliability of documents and responses to
inquiries to be used as audit evidence
- Unn sabko 4. Circumstances that suggest the need for audit
dekhke lagta h procedures in addition to those required by the
ki orr audit SAs
procedure
perform karne
padegne
5. Maintaining professional skepticism throughout
the audit is necessary if the auditor is to reduce
the risks of:
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- Overlooking unusual circumstances

- Over generalising when drawing conclusions from
audit observations
- Using inappropriate assumptions in determining
the nature, timing, and extent of the audit
procedures and evaluating the results thereof

15. Pre-Conditions of Audit (SA 210)

(a) Determine whether the financial reporting framework is acceptable; and
(b) Obtain the agreement of management that it acknowledges and understands its
responsibility:
(i) For the preparation of the financial statements in accordance with the applicable
financial reporting framework;
(ii) For the internal control as management considers necessary; and
(iii) To provide the auditor with:
• Access to all information such as records, documentation and other matters;
• Additional information that the auditor may request from management for the
purpose of the audit; and
• Unrestricted access to persons within the entity from whom the auditor
determines it necessary to obtain audit evidence

16. Situations where new engagement letter is to be sent.

As per SA 210 on “Agreeing the Terms of Audit Engagements”, the auditor may decide not to send a
new audit engagement letter or other written agreement each period. However, the following factors
may make it appropriate to revise the terms of the audit engagement or to remind the entity of
existing terms:

(i) Any revised or special terms of the audit engagement.

(ii) Any indication that the entity misunderstands the objective and scope of the audit.
(iii) A recent change of senior management.
(iv) A significant change in ownership.
(v) A change in legal or regulatory requirements.
(vi) A significant change in nature or size of the entity’s business.
(vii) A change in the financial reporting framework adopted in the preparation of the financial
statements.
(viii) A change in other reporting requirements.

17. Engagement partner wants to take decision, regarding acceptance and continuance of an
audit engagement Which information’s, he should obtain before accepting an engagement:
SA 220,
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Client
• The integrity of the principal owners, key management and those charged with
governance of the entity;

Auditor
• Whether the engagement team is competent to perform the audit engagement and has
the necessary capabilities, including time and resources;
• Whether the firm and the engagement team can comply with relevant
ethical requirements; and

Previous Audit
• Significant matters that have arisen during the current or previous audit engagement,
and their implications for continuing the relationship.

18. Compliance with Standard on Quality Control on REVIEW of audit work -

As per SQC 1, an engagement quality control review for audits of financial statements of listed
entities includes considering the following: (R-SOCCER)
(i) The work has been performed in accordance with professional standards and regulatory
and legal requirements;
(ii) Significant matters have been raised for further consideration;
(iii) The objectives of the engagement procedures have been achieved
(iv) Appropriate consultations have taken place and the resulting conclusions have been
documented and implemented;
(v) The work performed supports the conclusions reached and is appropriately documented;
(vi) The evidence obtained is sufficient and appropriate to support the report;
(vii) There is a need to revise the nature, timing and extent of work performed;

19. Qualities of an Auditor:

Professional ➢ Knowledge about the business practices and transactions.

/Technical ➢ Knowledge of the required acts:
Qualities: • He should have an expert knowledge of various laws which are
related to his professional duties. He can’t be an expert of all
laws. However, he should have adequate knowledge of the laws
relating to business, banking, companies, tax etc.
➢ Expert knowledge in accounting:
• He should be an expert in understanding various accounting
systems.
• He should have a good knowledge on treatment of various
events / transactions and its effect on various parts of the
financial statements.
➢ Expert knowledge in auditing:
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• This is the most important quality. Unless an auditor thoroughly

knows the techniques to be adopted in an audit, he cannot discharge
his duties efficiently.

➢ Continuing awareness of latest developments:

• Several developments affect the work of the auditor. For example,
the recent growth in the use of computers for maintaining
accounting records had a significant effect on auditing techniques.
Another example is, any changes in law may affect the auditor’s
duties and responsibilities.

Personal • Ethics:
Qualities: He must sincerely follow the professional ethics framed by ICAI.
• Integrity:
Trick: It refers to the honesty of an auditor. He should not issue audit
Vowels: report containing untrue statements.
• Independence in decision making:
a,e,I,O : C He should be independent in decision making with regard to audit
matters i.e. the audit decisions should be taken without giving
importance to his personal wishes.
• Objectivity:
It refers to unbiased, being unaffected by personal feelings or
prejudices.
• Confidentiality:
The nature of audit work is confidential. He should not reveal
anything about his client to others without the consent of the client.

20. Importance of Independent Audit:

Trick: Chaae Company ho ya partnership, Sabko apna F.S audit karwna hi chaaiye, taaki
Independent auditor uspe apna opinion de

➢ Importance of audited financial statement to company form of Organization

In the company form of Organization, there is a divorce between ownership and management
shareholders are so scattered that they have no direct control on the day-to-day
administration of the company while in a proprietary concern, accounts may be audited to get
funds from financial institution, etc.
➢ Importance to Partnership firm: May get its accounts audited to decide questions such as
valuation of goodwill at the time of admission, retirement and death of a partner.

➢ Use of audited financial statements

• However, many others make use of the information for different purpose Management
of the business uses it for decision-making purposes
• Lenders and trade payables examine it to establish the degree of safety of their
money.
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• Government levies tax putting a prima facie reliance on the statements and regulates
the socio-economic state of affairs on a summary view of the information contained in
various accounting statement made available to it
• Investors review the information for making investment decisions.
• Financial analysts can use the information to assess the performance of an entity.

➢ Independence is real safeguard

The report of an independent auditor is, therefore, the only real safeguard available to the
various parties interested in the financial affairs of the entity. It is due to the independence
of the auditor, leading to an objective report, that the risk of people being misled by untrue or
fraudulent financial statement is minimized. As a by-product, managements get attuned to
open and truthful financial statements.

➢ Informed, objective and forthright opinion

The principal advantage of an independent audit lies in the fact that the society is able to get
an informed, objective and forthright opinion on the financial statements of enterprises which
are used in making significant economic decisions by interested segments of the society,
e.g., shareholders, trade payables, bankers, etc. Irrespective of the fact whether audit is
compulsory, statutory or voluntary, the audit of accounts by an independent professional
auditor becomes important for every individual and every type of Organization is only through
audited accounts by an independent professional auditor that the shareholders of a company
are assured that the funds invested by them are safe and they are being used for only the
purposes for which they were raised and collected. The chief utility of audit lies in ensuring
reliable financial statements on the basis of which the state of affairs may be easy to
understand. Information contained in the statement of accounts of a business are primarily
intended for the owners.
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1. The process of establishing the overall audit strategy assists the auditor to determine,
subject to the completion of the auditor’s risk assessment procedures, such matters as:

Employees/ Resources ko

KAB allocate karna h? KAHA allocate karna h? KITNA allocate karna h ?

When these resources resources to deploy for amount of resources to

are to be deployed, specific audit areas, such as allocate to specific audit
such as whether at an the use of appropriately areas, such as the number
interim audit stage or at experienced team members of team members assigned
key cutoff dates for high risk areas to observe the inventory
count at material locations

Fir inn sab resource ko direct/surpervise/review karo co-ordinate karo

How such resources are managed, directed and supervised, such as when
team briefing and debriefing meetings are expected to be held
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2. Plans should be made to cover, among other things

Aaapko Plan banana hai….

To sabse pahle CLIENT 1. Acquiring knowledge of the client’s accounting systems, policies and
ko ACCHE se JAANO, internal control procedures
use samjo..uske baare
me knowledge lo.. 2. establishing the expected degree of reliance to be placed on internal
control

Fir client k according

apne AUDIT PROCEDURE 3. determining and programming the nature, timing, and extent of the audit
procedures to be performed; and
Bannao, and sab team
walo ko bata do ki ye
wala audit procedure tu
karega

Upar ke saari team walo k 4. coordinating the work to be performed

audit procedure ko

Co-ordinate karo
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3. Benefits of adequate planning

Engt. Team ko Important torr pe manage karta h………………….

Tricks Head points

Engagement team ko : 1. Assisting in the selection of
engagement team members with
appropriate levels of capabilities and
competence to respond to anticipated
risk
2. direction and supervision of
engagement team members
3. coordination of work done by auditors
of components and experts
Important torr pe…. 4. devote appropriate attention to
important areas of the audit
5. Identify and resolve potential
problems on a timely basis
Manage karta h 6. auditor properly organize and manage
the audit engagement so that it is
performed in an effective and efficient
manner

4. Planning is not a discrete phase of an audit, but rather a continual and iterative process

For example, planning includes the need to consider, prior to the auditor’s identification and assessment of
the risks of material misstatement, such matters as:

CONTINOUSLY planning kon karta rhata h??.....bas planning hi karta h..kaam kuch ni karta..
“ MALE – Ooooooooooooooo”

M – Materiality : determination of materiality

A - analytical procedures to be applied as risk assessment procedures.
L - legal and regulatory framework : Obtaining a general understanding of the legal and regulatory framework
applicable
E – experts : involvement of experts

O- other risk assessment procedures

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5. Significant points auditor would consider while developing an audit programme

Trick : Audit progg. & Planning poori writing me likh ke bannao..ki aapke saath jo bhi aapka assistant h usko bhi
samaj me aa jaae kya – kisko kya karna h..kon konse Internal control check karne h??...kab karne hai ?..

Tricks Head points

Planning Audit planning : The audit planning ideally
commences at the conclusion of the previous
year’s audit, and along with the related
programme, it should be reconsidered for
modification as the audit progresses
Writing Written Audit Programme
Assistants Audit objective and instruction to assistants
kisko kya karna h..kon konse Internal control Reliance on Internal Controls
check karne
Kab karne h? Timings of performance of audit procedures

6. Advantages of Audit Programme

3 Points are same as importance of audit plan:

• Helping the auditor to devote appropriate attention to important areas of the audit.
• Helping the auditor identify and resolve potential problems on a timely basis.
• Assisting, where applicable, in coordination of work done by auditors of components and
experts.

Remaining:
• Provides the assistant carrying out the audit with total and clear set of instructions of the
work generally to be done.
• Selection of assistants for the jobs on the basis of capability becomes easier when the work
is rationally planned, defined and segregated.
• Without a written and pre-determined programme, work is necessarily to be carried out on the
basis of some ‘mental’ plan. In such a situation, there is always a danger of ignoring or
overlooking certain books and records. Under a properly framed programme, the danger
is significantly less, and the audit can proceed systematically.
• The assistants, by putting their signature on programme, accept the responsibility for the
work carried out by them individually and, if necessary, the work done may be traced back to
the assistant.
• The principal can control the progress of the various audits in hand by examination of audit
programmes initiated by the assistants deputed to the jobs for completed work.
• It serves as a guide for audits to be carried out in the succeeding year.
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7. Dis-advantages of Audit Programme

Trick: Mechanical work ho jaaega, Kuch bhi New Initiative Nahi lega koi, Rigid & inflexibility ki
wajah se Assistant bhi Inefficient ho jaaenge

• The work may become mechanical and particular parts of the programme may be carried out
without any understanding of the object of such parts in the whole audit scheme.
• A hard and fast audit programme may kill the initiative of efficient and enterprising
assistants
• The programme often tends to become rigid and inflexible following set grooves; the business
may change in its operation of conduct, but the old programme may still be carried on. Changes
in staff or internal control may render precaution necessary at points different from those
originally decided upon
• Inefficient assistants may take shelter behind the programme i.e., defend
deficiencies in their work on the ground that no instruction in the matter is contained
therein.

8. In establishing overall audit strategy, the auditor shall ascertain the reporting objectives
of the engagement to plan the timing of the audit and the nature of the communications
required.

Elucidate those cases by which auditor can ascertain the reporting objectives of the
engagement

Pahle mngt se meeting fix karenge 1. organization of meetings with management and those
…… charged with governance to discuss the nature, timing
and extent of the audit work
Taaki unse puch sake ki unhe report 2. discussion with management and those charged with
governance regarding the expected type and timing of
kab chaaiye…?
reports to be issued and other communications
Matlb Interim period pe ya bilkul 3. entity’s timetable for reporting, such as at interim and
final stages
FINAL ME…?

4. discussion with management regarding the expected

Accha thik h..Final end me d communications on the status of audit work throughout
dnge…par bich me thoughout the the engagement
audit ungliyaa mat karna bich bich
me ki abhi status kya h ..kya h..
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9. Factors that would be considered in the development of overall audit plan

Konse Act ke 1. Applicable legal or statutory requirements

according audit kar 2. terms of his engagement and any statutory responsibilities
rhe h?? Co.Act, Inc. 3. Nature and timing of reports
tax act, GST etc…

4. accounting policies adopted by the client and changes in those

AS & SA’s …dono policies
5. new accounting or auditing pronouncements on the audit
follow karo

6. identification of significant audit areas

Aise area dhundho 7. Conditions requiring special attention, such as the possibility of
jaha pe RISK & material error or fraud
FRAUD jyaada h

8. setting of materiality levels for audit purposes

Ab Risk jyada h to
9. Degree of reliance he expects to be able to place on accounting
Matriality jyada raho system and internal control
and IC pe kam rely karo

Fir High risk areas 10. nature and extent of audit evidence to be obtained
me evidence
dhundne k liye 11. work of internal auditors and the extent of their involvement
sabki madad lo…
12. involvement of other auditors in the audit of subsidiaries
Internal auditor
Other auditor, 13. involvement of experts
experts, Staff
14. allocation of work to be undertaken between joint auditors

15. Establishing and coordinating staffing requirements

10. Factors for deciding Benchmark : SA 320:

SA 320 “Materiality in Planning and Performing an Audit” prescribes the use of Benchmarks in Determining
Materiality for the Financial Statements as a Whole.

Determining materiality involves the exercise of professional judgment. A percentage is often applied to a
chosen benchmark as a starting point in determining materiality for the financial statements as a whole.
Factors that may affect the identification of an appropriate benchmark include the following:

(i) [Arul jaithly] The elements of the financial statements (for example, assets, liabilities, equity,
revenue, expenses);
(ii) [Modi ji] Whether there are items on which the attention of the users of the particular
entity’s financial statements tends to be focused (for example, for the purpose of evaluating
financial performance users may tend to focus on profit, revenue or net assets);
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(iii) [Adwani] The nature of the entity, where the entity is at in its life cycle, and the industry and
economic environment in which the entity operates;
(iv) [Amit Shah] The entity’s ownership structure and the way it is financed (for example, if an
entity is financed solely by debt rather than equity, users may put more emphasis on assets,
and claims on them, than on the entity’s earnings); and
(v) [Smiriti Rani] The relative volatility of the benchmark.

11. Various fields from which Auditor will pick up Evidence:

Trick: DPS2 -IAS3 Collect karenge bhai evidence to…………

An auditor picks up evidence from a variety of fields and it is generally of the following broad types:

• Documentary examination,
• Physical examination,
• Statements and explanation of management, officials and employees,
• Statements and explanations of third parties,
•
• Inter-relationship of the various accounting data,
• Arithmetical calculations by the auditor,
• Subsequent action by the client and by others.
• State of internal controls and internal checks,
• Subsidiary and memorandum records,
• Minutes,
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1. Purpose of Audit documentation (SA 230)

Engagement team ki Accountability Internal External

madad karega insepection inspection

1. Assisting the 3. Enabling the Enabling the conduct of Enabling the

engagement team to engagement team to quality control reviews conduct of
plan and perform the be accountable for and inspections in external
audit its work. accordance with SQC 1. inspections in
2. Assisting members of accordance with
the engagement team 4. Retaining a record applicable legal,
to direct and supervise of matters of regulatory or
the audit work, and to continuing other
discharge their review significance to requirements
future audits
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2. The auditors should consider the effect of subsequent events on the financial statement and
on auditor’s report”– Comment according to SA 560

I. obtain an understanding of any procedures management has established to ensure that subsequent
events are identified

II. inquire of management and, where appropriate, those charged with governance as to whether any
subsequent events have occurred which might affect the financial statements.

TRICK : I have arranged them into HEADINGS and SEQUENCES

ASSETS LIABILITY SHARE CAPITAL OTHER

Whether sales or Whether new Whether there Whether any unusual
acquisitions of commitments, have been accounting
assets have borrowings or increases in adjustments
occurred or are guarantees have capital or
planned been entered into. issuance of debt
instruments,
such as the
issue of new
shares or
debentures
Whether any Whether there have Whether any events
events have been increases in have occurred or are
occurred that are capital or issuance likely to occur which
relevant to the of debt instruments, will bring into question
recoverability of such as the issue of the appropriateness of
assets new shares or accounting policies
debentures used in the financial
statements as would be
the case
Whether there have
been any
developments
regarding
contingencies
measurement of
estimates or
provisions made in
the financial
statements
(iii) Read minutes, if any, of the meetings, of the entity’s owners, management and those charged
with governance, that have been held after the date of the financial statements and inquiring about
matters discussed at any such meetings for which minutes are not yet available.

(iv) Read the entity’s latest subsequent interim financial statements, if any.
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3. Form, content and extent of audit documentation depend on factors such as:

Definition of 1. Audit procedure performed:

Audit The nature of the audit procedures to be performed
2. Audit evidence obtained:
Documentation
The significance of the audit evidence obtained
3. Conclusion reached
The need to document a conclusion or the basis for a conclusion not readily
determinable from the documentation of the work performed or audit
evidence obtained.

Jis company ki 4. size and complexity of the entity

audit kar rahe
h wo company
kesi h??

Uss company 5. Identified risks of material misstatement

me kitna RISK 6. nature and extent of exceptions identified
h??

Uss hisaab se
audit 7. nature of the audit procedures to be performed
procedure and 8. audit methodology and tools used
methodology
decide karenge

4. Importance of Audit documentation:

• Assist Engagement Team (ET) to plan & perform Audit

• Assist to Direct & Supervise
• Establishing the accountability of engagement.
• Enabling quality control review
• Enabling external inspection
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5. Following things should form part of auditor’s documentation:

A-DOLAR

A - Agreements with management : Other communications or agreements with management or those

charged with governance regarding the scope, or changes in scope, of our services

D- discussions with the entity’s key decision makers

O- Other reports as specified in the engagement agreement
L- letters : Audit documentation access letters
A-audit committee - Documentation of audit committee pre-approval of services,
R- report : auditor’s report on the entity’s financial statements

6. Documentation of Significant Matters and Related Significant Professional Judgments

SIGNIFICANT 1. SIGNIFICANT RISK : Matters that give rise to significant risks

2. SIGNIFICANT DIFFICULTIES: Circumstances that cause the auditor
significant difficulty in applying necessary audit procedures

FINANCIAL 3. Results of audit procedures indicating (a) that the financial

STATEMENT statements could be materially misstated

AUDIT REPORT 4. Findings that could result in a modification to the audit opinion or
the inclusion of an Emphasis of Matter Paragraph in the auditor’s
report

7. External confirmations generally requires for:

CURRENT FIXED ASSETS NON C. LIABILITIES C. LIABILITIES

ASSETS
Bank balances Property title Amounts due to lenders Accounts payable
deeds held by balances
lawyers
Accounts Investments
receivable held for
balances safekeeping by
third parties
Inventories
held by third
parties
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8. Significant Difficulties Encountered During the Audit: As per SA 260 “Communication with
Those Charged with Governance”

Trick Head point

- Mngt data nahiii de rha 1. Restrictions imposed on the auditor by management

- Wo bolra h ye info to 2. unavailability of expected information

hai hii niii

- Dera hai to bahot der 3. Significant delays in management providing required

se dera hai.. information

- Iss chakkar me extra 4. Extensive unexpected effort required to obtain

effort lagaane pad rahe sufficient appropriate audit evidence
h….

- And Iss wjh se time 5. An unnecessarily brief time within which to complete
lagraa h audit karne me the audit.

9. Procedure for External confirmation SA 505

(a) Determining the information to be confirmed or requested;

(b) Selecting the appropriate confirming party;

(c) Designing the confirmation requests, including determining that requests are properly addressed and
contain return information for responses to be sent directly to the auditor; and

(d) Sending the requests, including follow-up requests when applicable, to the confirming par
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10. Types of assertions

TRICK Assertion

Classes of C- Completeness
transactions and events O- Completeness
C- Classification
COCA – C A-Classification

C-Cut - Off

Account balances R -Rights and obligations

C- Completeness
RC-VE V- Valuation and allocation
E- Existence
Presentation and ORO- Occurence and rights and obligations
Disclosure CU- Classification and understandability
ORO-CU-AV-C AV-Accuracy and valuation
C- Completeness

11. Short note on Physical attendance by auditor during inventory taking. (SA 501)

Attendance at physical inventory counting, unless impracticable, to:

[Evaluate, Inspect, Observe, Test count]

(i) Evaluate management’s instructions and procedures for recording and controlling the results of
the entity’s physical inventory counting;
(ii) Observe the performance of management’s count procedures;
(iii) Inspect the inventory; and
(iv) Perform test counts; and

12. Matters relevant in planning attendance at physical inventory counting include, for
example:

Konsi inventory ka count karna h? 1. Nature of inventory

2. Stages of completion of work in progress

Kab karna hai ? 3. Timing of physical inventory counting

Kaha karna hai? 4. The locations at which inventory is held

Inventory me Risk & Control 5. risks of material misstatement related to

kitnaa h? inventory
6. nature of the internal control related to inventory

Agar risk jyada hai to kisi EXPERT 7. Whether the assistance of an auditor’s expert is
bande se hi kaam karaao needed
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13. Auditor wanted to identify litigation and claims resulting to risk of material
misstatements:
• Inquiry of management and, where applicable, others within the entity, including in-
house legal counsel;
• Reviewing minutes of meetings of those charged with governance and
• Correspondence between the entity and its external legal counsel; and
• Reviewing legal expense accounts

14. Matters the auditor may consider in determining the extent of tests of controls.

Trick: FLERT karega auditor TOC ke saath

• F - The Frequency of the performance of the control by the entity during the period. (Stock count is
weekly Vs Fixed asset count is half yearly)
• L - The Length of time during the audit period that the auditor is relying on the operating effectiveness of
the control. (More time more checking)
• E - The Expected rate of deviation from a control. (If expected rate is very close to tolerable rate of
deviation then we have to check more of that control, to extra sure)
• R - The Relevance and reliability of the audit evidence to be obtained regarding the operating
effectiveness of the control at the assertion level. (Double payment is big risk so software feature to
detect same number of PO is relevant, so check more)
• T -The extent to which audit evidence is obtained from Tests of other controls related to the assertion. (If
other controls on that assertion are not effective do more checking here)

15. Auditor In determining whether it is appropriate to use Audit Evidence Obtained in

Previous Audit:

Trick: Previous means Pahle : Pahle mene GCM liii thi… baad me PCM le li….

• The effectiveness of General IT-controls;

• The effectiveness of other elements of internal control, including the Control environment, the entity’s
monitoring of controls, and the entity’s risk assessment process;
• The risks arising from the characteristics of the control, including whether it is Manual or automated;
• The effectiveness of the control and its application by the entity, including the nature and extent of
deviations in the application of the control noted in previous audits, and whether there have been
Personnel changes that significantly affect the application of the control;
• Whether the lack of a change in a particular control poses a risk due to Changing circumstances; and
• The risks of Material misstatement and the extent of reliance on the control.

16. Evaluate management expert (SA 500)

(CCO- U – A)
• Evaluate the competence, capabilities and objectivity of that expert;
• Obtain an understanding of the work of that expert; and
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• Evaluate the appropriateness of that expert’s work as audit evidence for the relevant
assertion

➢ Competence, Capabilities and Objectivity – Sources of Evidence

The auditor may obtain information regarding the competence, capabilities and objectivity of a
management’s expert from a variety of sources, such as: -

• discussions with that expert;

• knowledge of that expert’s qualifications;
• published papers or books written by that expert.
• personal experience with previous work of that expert;
• discussions with others who are familiar with that expert’s work;

17. Methods of Collecting Audit Evidence (SA 500)

Trick: ICAI – ORR

• Inspection
• External Confirmation
• Analytical Procedures
• Inquiry

• Observation
• Recalculation
• Re-performance

18. Reliability of audit evidence (SA 500)

GOD-WI

• The reliability of audit evidence that is generated internally is increased when the
related controls, including those over its preparation and maintenance, imposed by the
entity are effective
• Audit evidence provided by original documents is more reliable than audit evidence
provided by photocopies or facsimiles, or documents that have been filmed, digitised or
otherwise transformed into electronic form, the reliability of which may depend on the
controls over their preparation and maintenance
• Audit evidence obtained directly by the auditor
• Written: Audit evidence in documentary form, whether paper, electronic, or other
medium, is more reliable than evidence obtained orally
• The reliability of audit evidence is increased when it is obtained from independent
sources outside the entity
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19. For Going concern assumption of an entity, what important indications should be evaluated
(SA-570):

Financial Indications:

• Net liability or net current liability position.

• Fixed-term borrowings approaching maturity without realistic prospects of renewal or
repayment; or excessive reliance on short-term borrowings to finance long-term assets.
• Indications of withdrawal of financial support by creditors.
• Negative operating cash flows indicated by historical or prospective financial statements.
• Adverse key financial ratios.
• Substantial operating losses or significant deterioration in the value of assets used to generate cash
flows. Arrears or discontinuance of dividends.
• Inability to pay creditors on due dates.
• Inability to comply with the terms of loan agreements.
• Change from credit to cash-on-delivery transactions with suppliers.
• Inability to obtain financing for essential new product development or other essential investments.
Operating Indications:

• Management intentions to liquidate the entity or to cease operations.

• Loss of key management without replacement.
• Loss of a major market, key customer(s), franchise, license, or principal supplier(s).
• Labor difficulties.
• Shortages of important supplies.
• Emergence of a highly successful competitor.
Other Indications:

• Non-compliance with capital or other statutory or regulatory requirements, such as solvency or liquidity
requirements for financial institutions.
• Pending legal or regulatory proceedings against the entity that may, if successful, result in claims
that the entity is unlikely to be able to satisfy.
• Changes in law or regulation or government policy expected to adversely affect the entity.
• Uninsured or underinsured catastrophes when they occur.
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1. Components of Internal control

MICRA

M -Monitoring of controls
I-information system
C-control environment
R-risk assessment process
A-Activities : Control activities

2. Control Environment – Component of Internal Control

Agar IPC ki dhaara me saja ho gyi to SHAP jesi saja h………..

I-integrity : Communication and enforcement of integrity and ethical values

P- Participation by those charged with governance
C- Commitment to competence

S-structure : Organizational structure

H-Human resource policies and practices
A-Assignment of authority and responsibility
P-philosophy : Management’s philosophy and operating style

3. As per SA 315 – “Identifying and Assessing the Risk of Material Misstatement Through
Understanding the Entity and its Environment”,the auditor shall obtain an understanding
of the following:

The broad matters to be considered while obtaining knowledge of business for a new audit assignment are set out
in SA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its
Environment. These are: [IRE + FANO]
(i) Relevant industry, regulatory, economic (IRE) and other external factors including the applicable
financial reporting framework.
(ii) The measurement and review of the entity’s financial performance.
(iii) The entity’s selection and application of accounting policies.
(iv) The nature of the entity, including:
a. its operations;
b. its ownership and governance structures;
c. the types of investments that the entity is making and plans to make, including investments in
special-purpose entities; and
d. the way that the entity is structured and how it is financed; to enable the auditor to understand
the classes of transactions, account balances, and disclosures to be expected in the financial
statements.
(v) The entity’s objectives and strategies, and those related business risks that may result in risks of
material misstatement.
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4. Need for Understanding Entity & its Environment

The understanding establishes a frame of reference within which the auditor plans the audit and exercises
professional judgment throughout the audit, for example, when:

Trick: kam se kam Main AREAS ki understanding to lelo………..

• M- Determining materiality in accordance with SA 320;

• A-Considering the appropriateness of the selection and application of accounting policies; R-Assessing risks of
material misstatement of the financial statements;
• E-Evaluating the sufficiency and appropriateness of audit evidence obtained, such as the appropriateness of
assumptions and of management’s oral and written representations.
• A-Developing expectations for use when performing analytical procedures;
• S-Identifying areas where special audit consideration

5. Risk assessment process:

(i) Identify risks throughout the process of obtaining an understanding of the entity and its environment,
including relevant controls that relate to the risks, and by considering the classes of transactions,
account balances, and disclosures in the financial statements;
(ii) Assess the identified risks, and evaluate whether they relate more pervasively to the financial
statements as a whole and potentially affect many assertions;
(iii) Relate the identified risks to what can go wrong at the assertion level, taking account of relevant
controls that the auditor intends to test; and
(iv) Consider the likelihood of misstatement, including the possibility of multiple misstatements, and
whether the potential misstatement is of a magnitude that could result in a material misstatement

6. Significant risks : SA-315

i. Whether the risk is a risk of fraud;

ii. Whether the risk is related to recent significant economic, accounting, or other developments like
changes in regulatory environment, etc., and, therefore, requires specific attention;
iii. The complexity of transactions;
iv. Whether the risk involves significant transactions with related parties;
v. Whether the risk involves significant transactions that are outside the normal course of business for
the entity, or that otherwise appear to be unusual.
vi. The degree of subjectivity in the measurement of financial information related to the risk, especially
those measurements involving a wide range of measurement uncertainty; and

7. Limitations of Internal Control

Auditor IC ko “CHUMA” dega

CHUMA – C

C- Collusion among People

H- Human judgment in decision-making
U- Unusual Nature of transactions
M- Managements Judgments
A- Abuse of authority by control owner
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C-Cost & Benefit analysis (Expected Cost>Benefit)

8. Internal audit function

Internal auditor to ghar (GIR) ka hi hota h, jo IC-FR sambhaaltaa h….

G- Governance: Activities Relating to Governance

I-Internal Control: Activities Relating to Internal Control
R- Risk Management: Activities Relating to Risk Management

Activities Relating to Internal Control:

IC - Evaluation of internal control

F- financial : Examination of financial and operating information

R- Review of operating activities
Review of compliance with laws and regulations

9. Objectives of Internal Control:

Trick: FOLA

➢ Financial Reporting: all transactions are promptly recorded in the correct amount in the
appropriate accounts and in the accounting period in which executed so as to permit
preparation of financial information within a framework of recognized accounting policies
and practices and relevant statutory requirements, if any, and to maintain accountability for
assets;
➢ Operations: Transactions are executed in accordance with managements general or specific
authorization; Transactions are efficient & effective
➢ Law Compliance: Rules & Regulations are followed while executing transactions
➢ Assets: assets are safeguarded from unauthorized access, use or disposition; and the
recorded assets are compared with the existing assets at reasonable intervals and
appropriate action is taken with regard to any differences.

10. Auditor shall obtain an understanding of the information system

Trick: Transaction > JV > Ledger > F.S

➢ The classes of transactions in the user entity’s operations that are significant to the user
entity’s financial statements;
➢ How the user entity’s information system captures events and conditions, other than
transactions, that are significant to the financial statements;
➢ Controls surrounding journal entries, including non-standard journal entries used to
record non-recurring, unusual transactions or adjustments.
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➢ The procedures, within both information technology (IT) and manual systems, by which the user
entity’s transactions are initiated, recorded, processed, corrected as necessary, transferred to
the general ledger and reported in the financial statements;
➢ The related accounting records, either in electronic or manual form, supporting information
and specific accounts in the user entity’s financial statements that are used to initiate, record,
process and report the user entity’s transactions; this includes the correction of incorrect
information and how information is transferred to the general ledger;

11. IT also poses specific risks to an entity’s internal control

SYSTEM me jo DATA pada h, use kisi BANDE ne CHED KHAANIYA khaai h (INTERVENTION)

SYSTEM 1. Reliance on systems or programs that are inaccurately

processing data, processing inaccurate data, or both
2. Unauthorised changes to systems
3. Failure to make necessary changes to system
DATA 4. Unauthorized access : Unauthorised access to data that may
result in destruction of data
5. Unauthorised changes in data master file
6. Potential loss of data
7. inability to access data
BANDE ne CHED 8. possibility of IT personnel gaining access privileges beyond
KHAANIYA khaai h those necessary to perform their assigned duties
(INTERVENTION) 9. Inappropriate manual intervention

12. Whether a control, individually or in combination with others, is relevant to the audit? It
will depend upon following factors:

Trick: CC hai kya …. Me Risk Nii Lera, me to saare Control check karunga chaae relevant ho yaa
niii….

(i) Materiality.
(ii) The significance of the related risk.
(iii) The nature of the entity’s business, including its organisation and ownership
characteristics.
(iv) Applicable legal and regulatory requirements.
(v) The diversity and complexity of the entity’s operations.

Control
(vi) The circumstances and the applicable component of internal control.
(vii) The nature and complexity of the systems that are part of the entity’s internal control,
including the use of service organisations.
(viii) Whether, and how, a specific control, individually or in combination with others, prevents, or
detects and corrects, material misstatement.

(ix) The size of the entity.

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13. Benefits of Evaluation of Internal Control TO the Auditor:

Trick: A4R2IS2E2

• A- whether an adequate internal control system is in use and operating as planned by the management;
• A- whether any administrative control has a bearing on his work (for example, if the control over worker
recruitment and enrolment is weak, there is a likelihood of dummy names being included in the wages sheet
and this is relevant for the auditor);
• A- what would be appropriate audit technique and the audit procedure in the given circumstances;
• A- what are the areas where control is weak and where it is excessive; and

• R- how far and how adequately the management is discharging its function in so far as correct recording of
transactions is concerned;
• R- how reliable the reports, records and the certificates to the management can be;

• I- whether an effective internal auditing department is operating;

• S- whether the controls adequately safeguard the assets;

• S- whether some worthwhile suggestions can be given to improve the control system

• E-whether errors and frauds are likely to be located in the ordinary course of operations of the business;
• E- the extent and the depth of the examination that he needs to carry out in the different areas of
accounting;
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1) Fraud (SA-240):

An intentional act by one or more individuals among

• Management,
• Those charged with governance (TCWG) ,
• Employees, or
• 3rd parties,

To deceive, to mislead or at least to conceal the truth to obtain an unjust or illegal

advantage.

2) Techniques of Fraudulent financial reporting.

• Omitting, advancing or delaying recognition in the financial statements of events and

transactions that have occurred during the reporting period
• Altering records and terms related to significant and unusual transactions.
• Concealing, or not disclosing, facts that could affect the amounts recorded in
the financial statements
• Recording fictitious journal entries, particularly close to the end of an
accounting period, to manipulate operating results or achieve other objectives
• Inappropriately adjusting assumptions and changing judgments used to estimate
account balances
• Engaging in complex transactions that are structured to misrepresent the financial
position or financial performance of the entity

3) Techniques of Misappropriation of assets

• Embezzling receipts (for example, misappropriating collections on accounts receivable

or diverting receipts in respect of written-off accounts to personal bank accounts).
• Stealing physical assets or intellectual property (for example, stealing inventory for
personal use or for sale, stealing scrap for resale, colluding with a competitor by
disclosing technological data in return for payment).
• Using an entity’s assets for personal use (for example, using the entity’s assets as
collateral for a personal loan or a loan to a related party).
• Causing an entity to pay for goods and services not received (for example, payments
to fictitious vendors, kickbacks paid by vendors to the entity’s purchasing agents in
return for inflating prices, payments to fictitious employees).
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4) Fraud Risk Factor:

➢ Incentives/Pressures:
• management is under pressure, from sources outside or inside the entity, to achieve an
expected (and perhaps unrealistic) earnings target or financial outcome
• Personal financial obligations may create pressure on management or employees with access
to cash or other assets susceptible to theft to misappropriate those assets.

➢ Opportunities:
to commit fraud may exist when an individual believes internal control can be overridden, for
example, because the individual is in a position of trust or has knowledge of specific
deficiencies in internal control.

➢ Attitudes/Rationalizations:

Some individuals possess an attitude, character or set of ethical values that allow them
knowingly and intentionally to commit a dishonest act. However, even otherwise honest
individuals can commit fraud in an environment that imposes sufficient pressure on them

5) Instances which induce Management/Employees to commit fraud:

• Financial obligations/ Pressure. Management’s unrealistic goals.

• Dissatisfied Employees or Lack of motivation among employees.
• Opportunity to commit fraud.
• Name game (e.g. management using power of authority by asking employees to do
something illegal).

6) Fraud Indicators - Discrepancies in the accounting records

Trick: Tip mili ki Fraud hai udhar, Fir humne jaake check kara to sahi me Accounting record me
discrepancy thi, Kuch chize Record hii nahi thi, Kuch Unauthorisely record thi… hum udhar
pahuche tab wo log last minute me bhaga dodii kar rhe the…

1) Tips or complaints to the auditor about alleged fraud

2) Discrepancies in the accounting records
3) Transactions that are not recorded in a complete or timely manner or are improperly
recorded a to amount, accounting period, classification, or entity policy.
4) Unsupported or unauthorized balances or transactions.
5) Evidence of employees’ access to systems and records inconsistent with that necessary to
perform their authorized duties.
6) Last-minute adjustments that significantly affect financial results.
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7) Unusual relationships between the auditor and management, including:

Trick: Management khoodd hi Senior ko Complaint kar ra h ki audit time pe khatam nii hori, orr
wo khood hi data de nii rha (Deny), de rha h to delay se de raha h, meri koi baat nii maanra

➢ Time
• Undue time pressures imposed by management to resolve complex or contentious issues.

➢ Denial
• Denial of access to records, facilities, certain employees, customers, vendors, or others
from whom audit evidence might be sought.
• Unwillingness to facilitate auditor access to key electronic files for testing through the
use of computer-assisted audit techniques.
• Denial of access to key IT operations staff and facilities, including security, operations,
and systems development personnel

➢ Delay
• Unusual delays by the entity in providing requested information.

➢ Koi baat nii maan ra:

• An unwillingness to add or revise disclosures in the financial statements to make them

completer and more understandable.
• An unwillingness to address identified deficiencies in internal control on a timely basis.

8) Ways to commit Misappropriation of cash

Receipt kam dikhaai:

• Not accounting for cash sales fully.
• Not accounting for miscellaneous receipts
• Adjusting unauthorised or fictitious rebates, allowances, discounts, etc. to
customer accounts
• Writing off as debts in respect of such balances against which cash has already been
received but has been misappropriated.
• Teeming and Lading

Payment Jyada Dikhaaya:

• inflating cash payments.

✓ payments against fictitious vouchers.
✓ amounts whereof have been inflated.
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✓ Manipulating totals of wage rolls either by including therein names of dummy

workers or by inflating them in any other manner.
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IMPORTANT

This PDF covers only IMPORTANT CONCEPTS

DON’T REFER THIS PDF DIRECLTY

WITHOUT WATCHING MY YOUTUBE
VIDEO
(You won’t able to understand it directly)
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1) Automated Environments : Meaning and Key Features

An automated environment basically refers to a business environment where the Processes,

Operations or Procedures, Accounting and Even Decisions (Re-Order Level / Order Size /
Frequency etc.) are carried out by using computer systems

Features of Automated Environment:

Trick 1: LIC FLASH

L- Provides Latest information.

I- Integration between business operations

C- Connectivity and Networking capability.

F- Enables Faster business operations

L- Ability to process large volumes of transactions

A- Accuracy in data processing and computation

S- Better Security and controls.

H-Less prone to Human Errors.

Trick 2: Latest connection se integration karlo jese airtel 5g, Fast bhi hai & secure bhi, Large-
large file bhi fatakat Accurately download ho jaaegi, without human intervention

1) Provides Latest information.

2) Connectivity and Networking capability.
3) Integration between business operations
4) Enables Faster business operations
5) Better Security and controls.
6) Ability to process large volumes of transactions
7) Less prone to Human Errors.
8) Accuracy in data processing and computation
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2) Some situation & Reasons why IT should be considered relevant to an audit of financial
statements:

Trick 1: aajkal companies badi Hi-Tech ho gayi h,sab automated system & software use lete h
complex-complex, isliye audit ki effectiveness increase karne k liye company bhi policy banati hai
& govt bhi + VR

Trick 2: PVR me CESS to lagna hi Hai

1) Hi-tech nature of business (H)

2) Increased use of Systems and Application Software in Business (S)
3) Complexity of transactions has increased (C)

4) Increases Efficiency and effectiveness of audit. (E)

5) Company Policy (P)
6) Required by Indian and International Standards - (S)

7) Volume of transactions are high

8) Regulatory requirements

3) Reasons why IT should be considered relevant to an audit of financial statements:

1) Konsa system: Information systems being used

2) Kis version ka: Version
3) Kis kaam ka: Their purpose
4) Kis jagah pada h: Location of IT systems

5) Architecture: Architecture
6) Person kon hai?: Key persons
7) Means Inhouse banaya ya Packed liya?: In-house vs Packaged.

8) Interfaces within systems

9) Outsourced activities
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4) IT poses specific risks to an entity’s internal control:

IT Personnel:

1. Possibility of Information Technology personnel gaining access beyond those necessary to

perform their assigned duties thereby breaking down segregation of duties.

Data ko:

2. Unauthorized access to data resulting in destruction of data or improper changes to data.

3. Potential loss of data or inability to access data as required.

System me daalke Process karenge:

4. Failure to make necessary changes to systems/ programs.

5. Unauthorized change to system/ program.
6. Reliance on systems/ programs inaccurately processing data or processing inaccurate data.

7. Unauthorized changes to data in Master files

8. Inappropriate manual intervention.

5) How risks in IT systems, if not mitigated, could have an impact on audit

Trick: Control pe rely nahi kar paaenge, so Substantive audit karni padegi & modified reporting karni
padegi

➢ Impact on Controls:
• Controls cannot rely on automated controls, system calculation and accounting procedures
built into applications.
• cannot rely on IT dependent manual controls.
• system data and reports should be tested substantively for completeness and accuracy.
• more substantive audit work is needed.

➢ Impact on Substantive Audit:

• cannot rely on the data obtained from system.

• system data and reports should be tested substantively for completeness and accuracy
• more audit evidence is needed.
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➢ Impact on Reporting:
• Communication to TCWG.
• modified auditors report.

6) Explain the activities involved in the General IT Controls over “Program Change”.

Trick: Its process, Program Change ki request do..then process hoga change ka………

• Change Requests – record, manage, track.

• Change Management Process – definition, roles & responsibilities.
• Making Changes – analyse, design, develop
• Test Changes – test plan, test cases, UAT Apply Changes in Production Emergency & Minor
Changes
• Documentation – user/technical manuals
• User Training

7) Components of General IT Controls:

(i) Access security (Trick: Turn on computer, Enter password)

(ii) Application system acquisition, development, and maintenance (Trick:Chrome)
(iii) Program change
(iv) Data center and network operations (Trick: Internet)

8) Activities performed by Data Centre and Network Operations

Trick: HDS (Help DeSk) wale bilkul help niii karte BC - BPR karne me

1. Overall Management of Computer Operations Activities

2. Batch jobs – preparing, scheduling and executing
3. Backups – monitoring, storage & retention
4. Performance Monitoring – operating system, database and networks
5. Recovery from Failures – BCP, DRP
6. Help Desk Functions – recording, monitoring & tracking
7. Service Level Agreements – monitoring & compliance
8. Documentation – operations manuals, service reports
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9) Uses of Data Analytics:

Trick: “Complete” “JV ka analysis” to nahi kar paaenge “Sample” basis pe hi “Reperformance”
& “re-computation” kar lo, agar koi bhi “Deficiency” mili to “Fraud” maan lenge usse

• Check Completeness of data and population that is used in either test of controls or
substantive audit tests.
• Analysis of Journal entries as required by SA 240
• Selection of audit Samples – random sampling, systematic sampling.
• Reperformance of mathematical calculations – depreciation, bank interest calculation.
• Re-computation of balances – reconstruction of trial balance from transaction data.
• Evaluating impact of control Deficiencies.
• Fraud investigation.

10) Points to be considered while Reporting when you get certain findings & exceptions in IT
systems

• Are there any weaknesses in IT controls?

• What is the impact of these weaknesses on overall audit?
• Report deficiencies to management – Internal Controls Memo or Management Letter.
• Communicate in writing any significant deficiencies to Those Charged With Governance.
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AUDIT SAMPLING (SA 530)

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1) Sampling Risk (SA 530)

Risk that the auditor’s conclusion based on a sample may be different from the conclusion if the
entire population were subjected to the same audit procedure

➢ Sampling risk can lead to two types

1) In the case of a test of controls, that controls are more effective than they actually are, or in
the case of a test of details, that a material misstatement does not exist when in fact it does.
The auditor is primarily concerned with this type of erroneous conclusion because it affects
audit effectiveness and is more likely to lead to an inappropriate audit opinion.

2) In the case of a test of controls, that controls are less effective than they actually are, or in
the case of a test of details, that a material misstatement exists when in fact it does not. This
type of erroneous conclusion affects audit efficiency as it would usually lead to additional
work to establish that initial conclusions were incorrect.

➢ Sources of Non Sampling risk are:

• Human Mistakes
• Applying audit procedures not appropriate to the objectives of audit
• Relying on erroneous information e.g. erroneous confirmation
• Misinterpreting the sample results

2) Factor effecting Sample size

Trick: RSM-STS

Situation Impact on sample size

R An increase in the auditor’s larger the sample size
assessment of the ROMM
S Decrease in the use of other The less the auditor is relying on other substantive
substantive procedures procedures, the more assurance the auditor will require
directed at the same from sampling and, therefore, the larger the sample size
assertion. can be
M An increase in the amount of larger the sample size
misstatement the auditor
expects to find in the
population
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S Stratification of the When a population cannot be appropriately stratified, the

population when appropriate sample size from the population generally will be Higher
Decrease than the sample size that would have been required
T An increase in the auditor’s The greater the level of assurance that the auditor
desired level of assurance requires that the results of the sample are in fact
that tolerable misstatement is indicative of the actual amount of misstatement in the
not exceeded by actual population, the larger the sample size needs to be.
misstatement in the Population
Decrease in tolerable
misstatement
S Change in the number of Negligible effect for large populations
sampling units in the Population

3) Factors that should be considered for deciding upon the extent of checking on a sampling
plan.

Trick: sampling kitni karni h wo dekhte wqt pata karna ki “Organisation” kitni badi hai, jitni badi
organisation hogi utne jyaada acche “Internal control” & “books” bhi chaaiye, Warna “Error”
jayada hogi.. fir “Confidence” low ho jaaega

• Size of the organisation under audit. (Big)

• State of the internal control. (Strong)
• Adequacy and reliability of books and records. (Accurate & Reliable)
• Tolerable error range. (Not very small)
• Degree of the desired confidence. (Not very high)

4) Advantages of Statistical Sampling

Trick: kitni bhi “LARGE” “Population” ho CMO ko sambhalni hi padegi

• It may provide a better description of a Large mass of data than a complete examination of
all the data, since non-sampling errors such as processing and clerical mistakes are not as large.
• The amount of testing (sample size) does not increase in Proportion to the increase in the
size of the area (Population) tested.

• It provides a means for deriving a “Calculated risk” and corresponding precision (sampling error)
i.e. the probable difference in result due to the use of a sample in lieu of examining all the
records in the group (universe), using the same audit procedures.
• The method provides a means of estimating the Minimum sample size associated with a
specified risk and precision.
• The sample selection is more Objective and thereby more defensible.
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5) Methods of Sampling-

Trick: RSS-HMB me har kisi ko nahi lete, alag-alag method se sampling karte hai fir lete h

1) Random sampling:
2) Stratified Sampling
3) Systematic selection

4) Haphazard selection
5) Monetary Unit Sampling
6) Block selection

6) Precautions of Test Check-

Trick: PLANNING karlo ki kis AREA me sampling karni hai and kisme nahi, Fir jis bhi area me
karni hai, uss area ka ACCOUNTING SYSTEM chalake SAMPLE nikaalna UNBIASED, agar koi
bhi sample me ERROR aaya to ANALYSE karna properly

• Proper planning for Sampling methods to be used and explaining the staff,
• Areas which are not suitable for sampling should be carefully considered. E.g.: compliance
with statutory provisions, transactions of unusual nature etc.
• Thorough study of accounting system should be done before adopting Sampling.
• Sample size should be appropriately determined.
• Sample should be chosen in unbiased way,
• Errors located in the sample should be analyzed properly.
• Proper study of internal control systems.
• Transactions and balances have to be properly classified (stratified)
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1) Analytical procedures”

Means evaluation of financial information through analysis of plausible relationships among both
financial and non-financial data.

Analytical procedures also encompass such investigation as is necessary of identified fluctuations or

relationships that are inconsistent with other relevant information or that differ from expected
values by a significant amount.

Examples of Comparison of Financial Data:

• Comparable information for prior periods

• Anticipated results of the entity, such as budgets or forecasts, or expectations of
the auditor, such as an estimation of depreciation.
• Auditor’s own estimate
• Similar industry information

2) Techniques available as Substantive Analytical Procedures.

Alphabetical order tick: RST

1) Ratio Analysis
2) Reasonableness Tests
3) Structural modelling
4) Trend Analysis (Data Comparisons with previous year)

3) SUBSTANTIVE ANALYTICAL PROCEDURES -- STEPS

Trick: Mummy wo ladka mere liye SUITABLE nahi hai, bilkul RELIABLE nahi h, meri EXPECTATION se
bilkul DIFFERENT h, me thoda orr INVESTIGATE karungi]

(i) Determine the suitability of particular substantive analytical procedures for given assertions, taking
account of the assessed risks of material misstatement and tests of details, if any, for these
assertions;
(ii) Evaluate the reliability of data from which the auditor’s expectation of recorded amounts or ratios
is developed, taking account of source, comparability, and nature and relevance of information
available, and controls over preparation;
(iii) Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is
sufficiently precise to identify a misstatement that, individually or when aggregated with other
misstatements, may cause the financial statements to be materially misstated; and
(iv) Determine the amount of any difference of recorded amounts from expected values that is
acceptable without further investigation and if analytical procedures performed in accordance with
this SA identify fluctuations or relationships that are inconsistent with other relevant information
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or that differ from expected values by a significant amount, the auditor shall investigate such
differences by:
✓ Inquiring of management and obtaining appropriate audit evidence relevant to management’s
responses; and
✓ Performing other audit procedures as necessary in the circumstances.

4) Extent of Reliance on Analytical Procedures (Factor affecting reliability of Data)

Trick: SC-NC

• Source of the information available.

• Comparability of the information available.
• Nature and Relevance of the information available.
• Controls over the preparation of the information that are designed to ensure its
completeness, accuracy and validity.

5) Analytical Procedure-Inventories

TRICK: Assume Trading and Profit & Loss Account ELEMENTS:

Trick Particular
Inventory, purchase 1) Comparison of actual inventory, purchase and sales figures with
and sales figures: the Budgeted figures if available.

Sales/Turnover: 2) Comparison of the inventory Turnover ratios for the current year
with that of the previous year and with industry standards if
available.

Closing Inventories: 3) Comparison of the Closing inventory (Raw materials, closing work-in-
progress and finished goods are percentage of total inventories)
with the corresponding figures of the previous year
4) Comparison of Closing inventory quantities and amounts with those
of the previous year.

Gross Profit: 5) Comparison of current year Gross profit ratio of the previous year.

6) Quantitative Reconciliation of opening inventories, purchases,

production, sales and closing inventories;
7) Comparison of raw-material yield/wastage with previous year
figures.
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6) Analytical Procedures in case of trade receivables:

Trick (Story): Credit “sales” kari Mne, 45 days ki Credit policy hai meri, so muje Estimated tha
ki actual me jayada Closing Debtors nahi bachenge, sab pahle hi realise ho jaaenge, But asal me
sab BAD DEBT ho gye & Debtor Ageing me bhi bhi Old O/s ratios jyada h

• comparison of the relationship between current year trade receivable balances and the current
year sales with the corresponding budgeted figures, if available;
• Check whether there is any change in credit policy of the organization.
• Find the reasons of major variations in the estimated values and actual values.

• Comparison of actual closing balances of trade receivables with the corresponding budgeted
figures, if available;
• comparison of closing balances of trade receivables with the corresponding figures for the
previous year;

• Check the % of bad debts of previous years and current year.

• comparison of current year’s ageing schedule with the corresponding figures for the previous
year;

• comparison of significant ratios relating to trade receivables with the industry norms, if
available.
• comparison of significant ratios relating to trade receivables with similar ratios for other
firms in the same industry, if available;
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1) SA 700:

• Objective:
- To form an opinion on the financial statements based on an evaluation of the conclusions
drawn from the audit evidence obtained; and
- To express clearly that opinion through a written report.

• That conclusion shall take into account:

- whether sufficient appropriate audit evidence has been obtained;
- whether uncorrected misstatements are material, individually or in aggregate;
- The evaluations should include Qualitative Aspect

2) Discuss the concept of True and Fair:

✓ That the assets are neither undervalued or overvalued, according to the applicable
accounting principles,
✓ no material asset is omitted;
✓ The charge, if any, on assets are disclosed;
✓ material liabilities should not be omitted;
✓ The profit and loss account and balance sheet discloses all the matters required to be
disclosed; accounting policies have been followed consistently; and
✓ all unusual, exceptional or non-recurring items have been disclosed separately.

3) When does an auditor issue unqualified opinion

An unqualified opinion should be expressed when the auditor concludes that the financial
statements give a true and fair view in accordance with the financial reporting framework used for
the preparation and presentation of the financial statements.

• The financial statements have been prepared using the generally accepted accounting
principles, which have been consistently applied;
• the financial statements comply with relevant statutory requirements and regulations; and
there is adequate disclosure of all material matters relevant to the proper presentation of the
financial information, subject to statutory requirements, where applicable.

4) Basic Elements of the Auditor’s report:

Trick: TAO B GK M AO SPD

➢ Title;
➢ Addressee;
➢ Auditor’s Opinion
➢ Basis of Opinion
➢ Going Concern (If Required)
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➢ Key Audit Matter (If applicable)

➢ Responsibility of Management for the FST
➢ Auditor’s Responsibility
➢ Other Reporting Responsibility
➢ Signature
➢ Place
➢ Date

5) Opinion section of the auditor’s report

(a) State that the financial statements have been audited;

(b) Identify the entity whose financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting policies; and
(e) Specify the date of, or period covered by, each financial statement comprising the
financial statements

6) Basis for Opinion Para

• Declaration that auditor is independent

• Conducted audit as per SA’s
• How work was conducted: Auditor responsibilities section
• Obtain SAAE

7) Auditor is required to make specific evaluations while forming an opinion in an audit report.”
State them:

Trick: Dr. STEP

Or,

FS Relevant & reliable hi tab kahlaaega jab Accounting policy & Estimate sahi ho bilkul, &
Disclosure me terminology bhi bata dna

• The information presented in the financial statements is Relevant, reliable, comparable,

and understandable;
• The accounting Policies selected and applied are consistent with the applicable financial
reporting framework and are appropriate;
• The financial statements adequately disclose the Significant accounting policies selected
and applied;
• The accounting Estimates made by management are reasonable;
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• The financial statements provide adequate Disclosures to enable the intended users to
understand the effect of material transactions and events on the information conveyed
in the financial statements; and
• The Terminology used in the financial statements, including the title of each financial
statement, is appropriate

SA 701 – Key Audit Matter

Those matters that, in the auditor’s professional judgment, were of most significance in the
audit of the financial statements of the current period. Key audit matters are selected
from matters communicated with those charged with governance.

1) Factors determining Key Audit Matters: [RJS]

(i) Areas of higher assessed risk of material misstatement [ROMM], or significant risks identified
in accordance with SA 315 Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment.
(ii) Significant auditor judgments relating to areas in the financial statements that involved
significant management judgment, including accounting estimates that have been identified as
having high estimation uncertainty.
(iii) The effect on the audit of significant events or transactions that occurred during the period

2) KAM is NOT a substitute of Following :

• A substitute for disclosures in the financial statements that the applicable Financial
reporting framework requires management to make, or that are otherwise necessary to
achieve fair presentation;
• A substitute for the auditor expressing a modified opinion when required by the
circumstances of a specific audit engagement in accordance with SA 705 (Revised);
• A substitute for reporting in accordance with SA 570 when a material uncertainty exists
relating to events or conditions that may cast significant doubt on an entity’s ability to
continue as a going concern; or
• A separate opinion on individual matters.
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SA 705 – MODIFICATIONS TO THE OPINION

IN THE INDEPENDENT AUDITOR’S REPORT

Express clearly an appropriately modified opinion on the financial statements that is necessary when:

• The auditor concludes, based on the audit evidence obtained, that the financial statements as
a whole are not free from material misstatement; or
• The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement.

SA 710 – MODIFICATIONS TO THE OPINION

IN THE INDEPENDENT AUDITOR’S REPORT
Q.Write a short note on Auditor's responsibilities regarding comparatives.

Answer

SA 710, “Comparative Information – Corresponding Figures and Comparative Financial Statements”,

establishes standards on the auditor’s responsibilities regarding comparatives.

The auditor shall determine whether the financial statements include the comparative information
required by the applicable financial reporting framework and whether such information is appropriately
classified. For this purpose, the auditor shall evaluate whether:

(i) The comparative information agrees with the amounts and other disclosures presented in the prior
period;
(ii) The accounting policies reflected in the comparative information are consistent with those applied in
the current period or, if there have been changes in accounting policies, whether those changes have
been properly accounted for and adequately presented and disclosed.

If the auditor becomes aware of a possible material misstatement in the comparative information while
performing the current period audit, the auditor shall perform such additional audit procedures as are
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necessary in the circumstances to obtain sufficient appropriate audit evidence to determine whether a
material misstatement exists. If the auditor had audited the prior period’s financial statements, the
auditor shall also follow the relevant requirements of SA 560 (Revised).

As required by SA 580 (Revised), the auditor shall request written representations for all periods
referred to in the auditor’s opinion. The auditor shall also obtain a specific written representation
regarding any prior period item that is separately disclosed in the current year’s statement of profit and
loss.
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IMPORTANT

This PDF covers only IMPORTANT CONCEPTS

DON’T REFER THIS PDF DIRECLTY

WITHOUT WATCHING MY YOUTUBE
VIDEO
(You won’t able to understand it directly)
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1) Important functions of RBI : Trick: RCB

1) Regulator

Besides, RBI has also been entrusted with the responsibility of regulating the activities of
commercial and other banks. No bank can commence the business of banking or open new branches
without obtaining license from RBI. The RBI also has the power to inspect any bank.

2) Currency Related

• issuance of currency;
• regulation of currency issue;

3) Banker

• acting as banker to the central and state governments; and

• acting as banker to commercial and other types of banks including term-lending institutions.

2) Types of Bank

Trick: CCD - PSR

• Commercial Banks
• Co-operative Banks.
• Development Banks (more commonly known as ‘Term-Lending Institutions’).

• Payment Banks
• Small Finance Banks
• Regional Rural Banks

3) Engagement Team (Discussion) : List out matters which you would discuss at the planning
stage of an audit to gain better understanding of the bank and its environment:

➢ The engagement team should hold discussions to gain better understanding of the bank and
its environment, including internal control, and also to assess the potential for material
misstatements of the financial statements. All these discussions documented for future
reference.
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➢ The discussion provides:

(Tricks: Experience share karnge ki Risk kaha kaha ho sakti h,so kab kaha konse Audit
procedure lagaane hai…)

• An opportunity for more experienced engagement team members, including the audit
engagement partner, to share their insights based on their its environment. (E.g. IT
systems data is not reliable)
• An opportunity for engagement team members to exchange information about the
bank’s business risks. (E.g. Gave huge loans to particular business family)
• An understanding amongst the engagement team members about effect of the results
of the risk assessment procedures on other aspects of the audit, including decisions
about the nature, timing, and extent of further audit procedures.

➢ The engagement team discussion ordinarily includes a discussion of the following matters:

(Tricks: Ye log discuss karenge ki kese Professional skepticism rakhe to give response to Error,
Fraud, ROMM)

• Need to maintain professional scepticism throughout the audit engagement

• Audit responses to RMM
• Errors which have been identified in prior years;
• Errors that may be more likely to occur;
• Method by which fraud might be perpetrated by bank personnel or others within
particular account balances and/or disclosures;
• Need to alert for information or other conditions that indicates, that a material
misstatement may have occurred (e.g., the bank’s application of accounting policies in
the given facts and circumstances)

4) An effective risk management system in a bank generally requires the following:

Trick: Similar to 5 component of IC > MICRA

• Monitoring activities:
• Reliable Information systems:
• Oversight and involvement in the control process by those charged with governance:
• Identification, measurement and monitoring of risks:
• Control Activities:
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5) Reversal of Income

If any advance, including bills purchased and discounted, becomes NPA as at the close of any year,
the entire interest accrued and credited to income account in the past periods, should be reversed or
provided for if the same is not realized. This will apply to Government guaranteed accounts also.
(not recognize income on non-performing assets until it is actually realized.)

6) NPA (Agriculture)
• Short duration crops will be treated as NPA, if the instalment of principal or interest
thereon remains overdue for 2 crop seasons and,
• A loan granted for long duration crops will be treated as NPA, if the instalment of principal
or interest thereon remains overdue for one crop season.

7) Audit of Advances

Trick: Balance sheet me jo bhi amount dikh raha h wo Poora hai & Amount due to Bank hii
hai, Wo check karne ke liye uske supportings dekho & Provision bhi bana lena non-
recoverable amount ka

1. Amounts included in balance sheet in respect of advances are outstanding at the date of the
balance sheet.
2. There are no unrecorded advances.
3. Advances represent amount due to the bank.
4. Amounts due to the bank are appropriately supported by Loan documents and other documents
as applicable to the nature of advances.
5. Appropriate provisions towards advances have been made as per the RBI norms, Accounting
Standards and generally accepted accounting practices. The stated basis of valuation of advances is
appropriate and properly applied, and that the recoverability of advances is recognized in their valuation.
6. The advances are disclosed, classified and described in accordance with recognized accounting
policies and practices and relevant statutory and regulatory requirements.

8) Audit of Advances- Evaluation of Internal Control

Evaluation of 1. Examine all necessary loan documents

Internal 2. Checking out appropriate analytical procedure ;
Controls over 3. Examine existence, enforceability and valuation of securities.
Advances:
4. Checking Compliance with RBI norms including appropriate classification
(DAS – UCO and provisioning; and
bank) 5. Review operations of the accounts and look for adverse features like
unauthorised over drawings beyond limits
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9) Audit of interest expense - Audit approach and procedure

➢ Reasonableness of Interest Expense Perform Analytical Procedures

• re-compute the same on sample basis.

• Month on Month Interest Cost Analysis
• Compare Quarterly Weighted Average with Actual Average Interest Rate
• Compare Actual Average Interest Expense with Previous Year

➢ Test of Details on Sampling Basis

• Interest rates are in accordance with the bank’s internal regulations, of the RBI
directives
• Verify whether Interest has been provided on all deposits up to the date of the
balance sheet

• In case of Fixed Deposits, it should be examined whether the Interest Rate in the
accounting system are in accordance with the Interest Rate mentioned in the
Fixed Deposit Receipt/ Certificate.
• Interest on Savings Account should be checked on a test check basis in accordance
with the rules framed by the bank in this behalf.
• Interest on inter–branch balances has been provided at the rates prescribed by the
head office.
• Interest on overdue/ matured term deposits should be estimated and provided for.

10) Discuss the nature of securities required to be offered to the bank. (NO TRICK -Its
Normal)

• Immovable Property (FA)

• Stock Exchange Securities and Other Instruments
• Gold Ornaments and Bullion
• Life Insurance Policies (INV)
• Goods/Stocks/Debtors /Trade Receivables
• Plantations (For Agricultural Advances)
• Personal Security of Guarantor
• Third Party Guarantees
• Banker’s General Lien (All)
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11) Audit of Operating Expenses. (Trick: Expense jyada lag rha h pichle saal se compare kar lo &
Vouchers dekh lo ki fake to book nii kare se and TOC/TOD kar lo)

➢ Divergent Trends:

The auditor should examine whether there are any divergent trends in respect of major items of
expenses.

➢ Vouching & Verification:

The auditor should also verify expenses with reference to supporting documents and check the
calculations wherever required.

➢ Internal Controls:

The auditor should study and evaluate the system of internal control relating to expenses, including
authorization procedures in order to determine the nature, timing and extent of his other audit
procedures.

➢ Substantive analytical Procedures:

The auditor should perform substantive analytical procedures in respect of these expenses. eg.
assess the reasonableness of expenses by working out their ratio to total operating expenses and
comparing it with the corresponding figures for previous years.

12) Explain what would the auditor state in his report - Auditor's Report (Matters Required by
Law)

Trick: Branch ke andar jo bhi transaction hoi thi, Including B/s, P&L … and All the Information…
sabka Return bhejo HO ko

• Whether or not the transactions of the company which have come to his notice have been
within the powers of the company; (Cannot give loan on the basis of own shares)
• Whether or not the returns received from the offices and branches of the bank have
been found adequate for the purpose of his audit;
• Whether, in his opinion, the balance sheet is a full and fair balance sheet containing all the
necessary particulars and is properly drawn up so as to exhibit a true and fair view of the
affairs of the bank.
• Whether the profit and loss account show a true balance of profit or loss for the period
covered by such account; and
• Whether or not the information and explanations required by him have been found to be
satisfactory;
• Any other matter which he considers should be brought to the notice of the shareholders
of the company
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13) Additional Reports apart from report on financial statements

(a) Report on adequacy and operating effectiveness of Internal Controls over Financial Reporting in
case of banks which are registered as companies under the Companies Act in terms of Section
143(3)(i) of the Companies Act, 2013 which is normally to be given as an Annexure to the main audit
report as per the Guidance Note on Audit of Internal Financial Controls over Financial Reporting
issued by the ICAI.

(b) Long Form Audit Report. (LFAR)

(c) Report on compliance with SLR requirements.

(d) Report on whether the treasury operations of the bank have been conducted in accordance with
the instructions issued by the RBI from time to time.

(e) Report on whether the income recognition, asset classification and provisioning have been made
as per the guidelines issued by the RBI from time to time.

(f) Report on whether any serious irregularity was noticed in the working of the bank which requires
immediate attention.

(g) Report on status of the compliance by the bank with regard to the implementation of
recommendations of the Ghosh Committee relating to frauds and malpractices and of
the recommendations of Jilani Committee on internal control and inspection/credit system.

(h) Report on instances of adverse credit-deposit ratio in the rural areas.

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AUDIT OF Co-Operative Societies

1) Qualifications and Appointment of Auditors –

Apart from a chartered accountant within the meaning of the Chartered Accountants Act, 1949,
some of the State Co-operative Acts have permitted

persons holding a government diploma in co-operative accounts or in cooperation and accountancy

and

also a person who has served as an auditor in the cooperative department of a government to act
as an auditor.

An auditor of a co-operative society is appointed by the Registrar of Co-operative Societies and

the auditor so appointed conducts the audit on behalf of the Registrar and submits his report to him
as also to the society

2) Duties of the auditor

As per section 73(2), the auditor shall make following inquiries:

Trick: A, B, C, D, E, F

• Whether loans and Advances made by the Multi -State co-operative society on the basis of
security have been properly secured and whether the terms on which they have been made are
not prejudicial to the interests of the Multi -State co-operative society or its members,
• Whether transactions of the Multi-State co-operative society which are represented merely by
Book entries are not prejudicial to the interests of the Multi-State co- operative society,
• Whether personal Expenses have been charged to revenue account, and
• Where it is Stated in the books and papers of the Multi-State co-operative society that any
shares have been allotted For cash, whether cash has actually, been received in respect of
such allotment, and if no cash has actually been so received, whether the position as stated in the
account books and the balance sheet as correct regular and not misleading

3) Audit Report-

In his opinion and to the best of his information and according to the explanation given to him, the
said account give the information required by this act in the manner so required, and give a true and
fair view:

➢ In the case of the balance-sheet, of the state of the Multi-State co-operative society’s
affairs as at the end of its financial year; and
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➢ In the case of the profit and loss account, of the profit or loss for its financial year. The
auditor’s report shall also state:

Trick: Branch ki Information se Books banaao… Fir books se B/s & PL banaao……..

• Whether the report on the accounts of any branch office than the Multi-State co-
operative society’s auditor has been forwarded to him how he has dealt with the same in
preparing the auditor’s report.
• Whether he has obtained all the information and explanation which to the best of his
knowledge and belief were necessary for the purpose of his audit.
• Whether, in his opinion, proper books of account have been kept by the Multi- State
co-operative society so far as appears from his examination of these books and proper
returns adequate for the purpose of his audit have been received offices of the Multi -
State co-operative society not visited by him.
• Whether the Multi-State co-operative society’s balance sheet and profit and
loss account dealt with by the report are in agreement with the books of account and
return.
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GOVERNMENTR AUDIT:

1) Objective of Govt. Audit

Trick: Govt ko Policies banane & Fund manage karne ke liye CA to rakhna hi padega

• Appraisal of Govt. Policies: -It also provides public accounting of the operational,
management, programme and policy aspects of public administration as well as accountability of
the officials administering them.
• Accounting for Public Funds:- It serves as a mechanism or process for public accounting of
government funds.
• Corrective Actions: - Audit observations based on factual data collection also serve to
highlight the lapses of the lower hierarchy, thus helping supervisory level officers to take
corrective measures
• Administrative Accountability:- The main objective of audit is a combination of
ensuring accountability of administration to legislature and functioning as an aid to
administration

2) Duties of C&AG:

Trick Head Points

Accounts: 1) The C & AG shall compile the accounts relating to the annual
receipts and disbursements of the Union / State / Union
Territory. He shall submit those accounts to the President /
Governor / Administrator.

Audit: 2) The C&AG shall audit and report on-

• All expenditure from consolidated fund of India /state
/union territory.
• All transactions of the Union / State relating to
Contingency Funds and Public Accounts;
• All trading, manufacturing, Profit and Loss Accounts
and Balance Sheets and other subsidiary accounts kept in
any department of the Union / State.

3) The C&AG shall audit and report on all receipts and expenditure
of anybody or authority, which has been substantially financed
from the Consolidated Fund of India / State / Union Territory.
4) He shall audit specific purpose loan or grant given to anybody
other than a foreign state or international organization, out of
the consolidated fund of India /state /union territory.
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5) The C&AG shall audit all receipts payable into the Consolidated
Fund of India / State / Union Territory.
6) The C&AG shall have the authority to audit and report on the
accounts of stores and stock kept in any office or department
of the Union / State.
7) To audit accounts of Government Companies and Corporations

3) Audit of Government Expenditure

Trick: Ppppp………….PSR ratio me Profit share karenge to wo Expense nahi kahlaaega

1) Propriety Audit (expenditure is incurred with due regard to broad and general principles of
financial propriety.)
2) Performance Audit (expenditure has been incurred are being run economically and are yielding
results expected of them. Efficiency-cum performance audit,)

3) Audit against Provision of Funds (whether the monies shown in the accounts as having been
disbursed, were legally available for and applicable to the service or purpose to which they
have been applied)
4) Audit of Sanctions (auditor has to ensure that each item of expenditure is covered by a
sanction, either general or special, accorded by the competent authority, authorizing such
expenditure.)
5) Audit against Rules & Orders: (The auditor has to see that the expenditure incurred
conforms to the relevant provisions of the statutory enactment and is in accordance with the
financial rules and regulations framed by the competent authority)

4) Audit of Government Expenditure

Function of audit to carry out examination of the various rules, regulations and orders issued by
the executive authorities to see that:

Trick: Rule banane wale ki Aukaad (Rule making power) thi kya rule banane ki, and dimaag bhi thaa
kya (Means Sab Consistently banaya n… Not inconsistent)

• In case they have not been separately approved by competent authority, the issuing
authority possesses the necessary rule-making power.

• They are consistent with the essential requirements of audit and accounts as determined by
the C&AG;
• They are not inconsistent with any provisions of the Constitution or any laws made
thereunder;
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• They do not come in conflict with the orders of, or rules made by, any higher authority; and

Breakup of Audit

These rules, regulations and orders against which regularity audit is conducted mainly fall under the
following categories:

Trick: Govt employee ko salar deni hai to Pahle pata karo ki Konse fund se paisa nikalna hai.. then
Withdraw karo usse paisa

• Government Employee Remuneration [Rules and orders regulating the conditions of

service, pay and allowances, and pensions of government servants]
• Which fund can be used? [Rules are framed i.e., For which kind expenditure which Fund is to
be use- Consolidated Fund of India or of a State fund]
i.e.> National Highway --- Consolidated Funds of India, State Highways--- Consolidated Funds
of State
• Procedure for withdrawing from funds

5) Short notes Propriety audit

➢ The Propriety audit is to vet the expenditure in the annals of financial wisdom and
uprightness
➢ Expenditure has been incurred in conformity with the existing rules and regulations.
➢ Audit against propriety seeks to ensure that expenditure conforms to these principles which
have been stated as follows:

• The expenditure should not be prima facie more than the occasion demands. Every
public officer is expected to exercise the same vigilance in respect of expenditure
incurred from public moneys as a person of ordinary prudence would exercise in respect
of expenditure of his own money.
• No authority should exercise its powers of sanctioning expenditure to pass an order
which will be directly or indirectly to its own advantage.
• Public moneys should not be utilized for the benefit of a particular person or section of
the community
unless:
✓ o the amount of expenditure involved is insignificant; or
✓ o a claim for the amount could be enforced in a Court of law; or
✓ o the expenditure is in pursuance of a recognized policy or custom; and

• the amount of allowances, such as travelling allowances, granted to meet

expenditure of a particular type should be so regulated that the allowance are not on
the whole, sources of profit to the recipients.
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6) Short note on Performance Audit

The scope of audit has been extended to cover efficiency, economy and effectiveness audit or
performance audit, or full scope audit.

➢ Economy audit

Economy audit looks into whether government have acquired the financial, human and physical
resources in an economical manner, and whether the sanctioning and spending authorities have
observed economy.

➢ Efficiency audit

Efficiency audit looks into whether the various schemes/projects are executed, and their operations
conducted economically and whether they are yielding the results expected of them, i.e., the
relationship between goods and services produced and resources used to produce them (input output
ratio); and examination aimed to find out the extent to which operations are carried out in an
economical and efficient manner.

➢ Effectiveness audit

Effectiveness audit is an appraisal of the performance of programmes, schemes, projects with

reference to the overall targeted objectives as well as efficiency of the means adopted for the
attainment of the objectives.

➢ Efficiency-cum performance audit, wherever used:

• Is an objective examination of the financial and operational performance of an organization,

programme, authority or function and is oriented towards identifying opportunities for greater
economy, and effectiveness.
• The procedure for conducting performance audit covers identification of topic, preliminary
study, planning and execution of audit, and reporting.
• While the trend towards a comprehensive approach for conducting performance of full scope
audit is visible, the coverage and depth of evaluation vary according to the statutory
limitations, and the organizational constraints of C&AG.

7) Audit of receipts of government

PRINCIPLE 1:

➢ Focus

Whether all revenues or other debts due to government have been correctly assessed, realised and
credit to government account by the designated authorities.
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➢ Steps:

Trick: Kya Assessment & collection of revenue ka koi procedure banaya kya ? ..and
asal me kya wo procedure follow bhi hora h yaa fir aise hi sab irregularity me chal raha h,
agar aisa hai to isse improve kese kare koi suggestion do….

1) Procedure: Whether adequate regulations and procedures have been framed by the
department/agency concerned to secure an effective check on assessment, collection and
proper allocation of cases.
2) Compliance with Procedures:
Whether such regulations and procedures are actually being carried out;
3) Irregularities:
whether adequate checks are imposed to ensure the prompt detection and investigation of
irregularities, double refunds, fraudulent or forged refund vouchers or other loss of revenue
through fraud or wilful-omission or negligence to levy or collect taxes or to issue refunds; and
4) Suggestion regarding improvements
review of systems and procedures to see that the internal procedures adequately secure
correct and regular accounting of demands collection and refunds and pursuant of dues up to
final settlement and to suggest improvement.

PRINCIPLE 2:

Overall is important as compared to Individual

The basic principle of audit of receipts is that it is more important to look at the general the, though
individual cases of assessment, demand, collection, refund, etc. are important within the area of test
check. A review of the judicial decisions taken by tax authorities is done to judge the effectiveness
of the assessment procedure.

8) Power of C&AG:

The C & AG Act gives the following powers to the C & AG in connection with the performance of his
duties:

Trick: Information mangwaa sakta h, BOA ko mangwaa sakta h & fir unhe inspect kar sakta h…..

1) To put questions or make such observations as he may consider necessary to the person in
charge of the office and to call for such information as he may require for the preparation of
any account or report which his duty is to prepare.
2) To require that any accounts, books, papers and other documents which deal with or are
otherwise relevant to the transactions under audit, be sent to specified places.
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3) To inspect any office of accounts under the control of the Union or a State Government
including office responsible for the creation of the initial or subsidiary accounts.

9) List out the types of Revenue Grants received by local bodies from the State
administration:

• General purpose grants: These are primarily intended to substantially bridge the gap between
the needs and resources of the local bodies.
• Specific purpose grants: These grants which are tied to the provision of certain
services or performance of certain tasks.
• Statutory and compensatory grants: These grants, under various enactments, are given to
local bodies as compensation on account of loss of any revenue on taking over a tax by state
government from local government.

10) Important objectives of local body’s audit.

Trick: Hamaare Bharat me thoda Law & Financial Control sudhaarna padega, Desh ke chote chote netabhi saare Paisa
Khood ke updar hi Spent kar rhe h… gaadiyo me gumm rhe h… sab fraud hai saale

• Law Compliance: Reporting on the adherence to legal and/or administrative requirements;

• System: Reporting upon the strengths and weaknesses of systems of financial control;
• Value: Reporting upon whether value is being fully received on money spent; and
• FST: Reporting on the fairness of the content and presentation of financial statements;
• Frauds or Errors: Detection and prevention of error, fraud and misuse of resources.
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Audit of Other Entities

(Hospital, Education, Cinema, Club, Hotel, NGO’s etc.)

Trick:Devide all the answers in 5 points:

• Law & Internal Control
• Major Income
• Major Expense
• Major Asset
• Others

1) Special points in an audit of hospital.

5 Head trick ICAI Head Points:

Law & Internal 1) Internal Check: Examine the internal check as regards the receipt and
Control System issue of stores; medicines, linen, apparatus, clothing, instruments, etc.
so as to ensure that purchases have been properly recorded in the
Inventory Register and that issues have been made only against proper
authorization
Major Income 2) Register of Patients: Vouch the Register of patients with copies of bills
issued to them. Verify bills for a selected period with the patients’
attendance record to see that the bills have been correctly prepared.
Also see that bills have been issued to all patients from whom an amount
was recoverable according to the rules ofthe hospital.
3) Legacies and Donations: Ascertain that legacies and donations
received for a specific purpose have been applied in the manner agreed
upon.
4) Grants and TDS: Verify that grants, if any, received from Government
or local authority has been duly accounted for. Also, that refund in
respect of taxes deducted at source has been claimed.
5) Income from Investments rent etc.: See by reference to the Property
and Investment Register that all income that should have been received
by way of rent on properties, dividends, and interest on securities have
been collected.
6) Collection of Cash: Check cash collections as entered in the Cash Book
with the receipts, counterfoils and other evidence for example, copies of
patient’s bill, counterfoils of dividend and other interest warrants, copies
of rent bills, etc.
Major Expense 7) Authorisation and Sanctions: Vouch all purchases and expenses and
verify that the capital expenditure was incurred only with the prior
sanction of the Trustees or the Managing Committee and that
appointments and increments to staff have been duly authorized.
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8) Depreciation: See that depreciation has been written off against all

the assets at the appropriate rates.

Major Assets – 9) Investment Registers: Inspect the bonds, share scrips, title deeds of
Investment / properties and compare their particulars with those entered in the
Inventories: property and Investment Registers.
10) Inventories: Obtain inventories, especially of stocks and stores as at the
end of the year and check a percentage of the items physically; also
compare their total values with respective ledger balances.

2) Special points in an audit of Educational Institute.

5 Head trick ICAI Head Points:

Law & Internal • Act / Regulations / Deed
Control System In the case of a university, refer to the Act of Legislature and the Regulation
framed thereunder. Examine the Trust Deed or Regulations, in the case of
school or college and note all the provisions affecting accounts.
Major Income ➢ Student Fees:

Jitne bhi student register me the, unse fees lii ya nii lii wo check karo, means
unki counterfolio receipts & cash book check karo.. and ye bhi dekh lena ki
bichare baccho se jayada fees to nii leli n advance me

• Check names entered in the Students Fee Register for each month or
term, with the respective Class Registers, showing names of students on
rolls and test amount of fees charged; and verify that there operates a
system of internal check which ensures that demands against the
students are properly raised.
• Check fees received by comparing counterfoils of receipts granted
with entries in the Cash Book and tracing the collections in the Fee
Register to confirm that the revenue from this source has been duly
accounted for.
• paid in advance have been carried forward and that the arrears that
are irrecoverable have been written off

➢ Hostel Dues / Admission Fees / Fine

Hostel me Admission ke Wqt: Admission Form bharte h + Admission fees lete h +

Deposite lete hai …. Baad me Hostel ki regular fees lete h.. kuch bache ni dete
par.. bhaag jaate hai..

• Check admission fees with admission slips signed by the head of the
institution and confirm that the amount has been credited to a Capital
fund, unless the Managing Committee has taken a decision to the
contrary.
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• Confirm that hostel dues were recovered before student’s accounts

were closed and their deposits of caution money refunded.
• Confirm that fines for late payment or absence, etc. have been either
collected or remitted under proper authority.

➢ Studentship & Concessions / Arrears

• See that free studentship and concessions have been granted by
a person authorized to do so, having regard to the Rules prepared
by the Managing Committee.
• Report any old heavy arrears on account of fees, dormitory rents, etc.
to the Managing Committee.

➢ Legacies / Donations / Grant

• Vouch income from endowments and legacies, as well as interest and

dividends from investment; also inspect the securities in respect of
investments held.
• Vouch donations if any with the list published with the annual report. If
some donations were meant for any specific purpose, see that the money
was utilised for the purpose.
• Verify any Government or local authority grant with the memo of
grant. If any expense has been disallowed for purposes of grant,
ascertain the reasons thereof.

➢ Rental Income

➢ Verify rental income from landed property with the rent rolls, etc.
Major Expense ➢ Vouch, all capital expenditure in the usual way and verify the same with
the sanction for the Committee as contained in the minute book.
➢ See that increase in the salaries of the staff have been sanctioned and
minutes by the Committee.
Major Assets – • See that the investments representing endowment funds for
Investment / prizes are kept separate and any income in excess of the prizes has
Inventories: been accumulated and invested along with the corpus
• Verify that the Provident Fund money of the staff has been invested in
appropriate securities.
• Verify the inventories of furniture, stationary, clothing, provision etc
with inventory register
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3) Special points in an audit of HOTELS.

5 Head trick ICAI Head Points:

Law & Internal Internal Control sahi nahi hoga to pilferage to hoga hi… ye management ki
Control System responsibility h ki IC accha rakhe and regularly P&L banaae… Jisse koi bhi
deviation ho to pahle hi pata pad jaae…..

Pilfering is one of the greatest problems in any hotel and the importance of
internal control cannot be undermined. It is the responsibility of management
to introduce controls which will minimize the leakage as far as possible. Evidence
of their success is provided by the preparation of regular perhaps weekly,
trading accounts for each sales point and a detailed scrutiny of the resulting
profit percentages, with any deviation from the anticipated form being
investigated. The auditor should obtain these regular trading accounts for the
period under review, examine them and obtain explanations for any apparent
deviations.
Major Income ➢ Room Sales:
• The charge for room sales is normally posted to guest bills by the
receptionist/ front office or in the case of large hotels by the night
auditor. The source of these entries is invariably the guest register and
audit tests should be carried out to ensure that the correct numbers of
guests are charged for the correct period. Any difference between the
charged rates used on the guests’ bills and the standard room rate should
be investigated to ensure that they have been properly authorised.
• In many hotels, the housekeeper prepares a daily report of the rooms
which were occupied the previous night and the number of beds kept in
each room. This report tends not to be permanently retained and the
auditor should ensure that a sufficient number of reports are available for
him to test both with the guest register and with the individual guest’s bill.
• Hall Booking: The auditor should ensure that proper records re-maintained
for booking of halls and other premises for special parties and recovered on
the basis of the tariff.
• Food Income: The auditor should verify a few restaurants bills by
reference to K.O.T.s (Kitchen Order Tickets) or basic record. This would
enable the auditor to ensure that controls regarding revenue cycle are in
order
Major Expense • The hotel trade operates to very large extent on casual labour. The
records maintained of such wage payments are frequently inadequate. The
auditor should ensure that defalcation on this account does not take place
by suggesting proper controls to the management.
• The auditor should see that costs of repairs and minor renovation and
redecoration are treated as revenue expenditure, whereas costs of major
alterations and additions to the hotel building and facilities capitalised.
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Major Assets – • Fixed Assets –The accounting policies for fixed assets of individual
Investment / hotels are likely to differ. However, many hotels account for certain
Inventories: quasi-fixed assets & some such as silver and cutlery on inventory
basis. This can lead to confusion between each inventory items and
similar assets which are accounted for on a more normal fixed assets
basis. In such cases, it is important that very detailed definitions of
inventory items exist and the auditor should carry out tests to ensure
that the definitions have been closely followed.
• The inventories in any hotel are both readily portable and saleable
particularly the food and beverage inventories. It is therefore
extremely important that all movements and transfers of such
inventories should be properly documented to enable control to be
exercised over each individual store’s areas and sales point. The auditor
should carry out tests to ensure that all such documentation is accurately
processed.
• Cash –
There are many problems involved in any hotel audit, some of which are
peculiar to the hotel industry such as control of cash assumes greater
proportions.
Almost all sales points in a hotel make both cash and credit sales. The
auditor should reconcile the total sales reported with the total of the
bills issued by the sales point; this total may take the form of a bill
roll or a series of numerically controlled bills. This numerical control
must be checked to ensure that all bills are included in the total. The
cash element of the sales must then be checked to the cash records and
the credit sales in total and detail to the guest’s bills.

4) Special points in an CINEMA HALL.

(Internal Control System – Internal Control) –

Ticket Sale Verify the internal control mechanism-

• that entrance to the cinema-hall during show is only through printed tickets;
• that they are serially numbered and bound into books;
• that the number of tickets issued for each show and class, are different though the numbers
of the same class for the show on the same day, each week, run serially;
• that the inventory of tickets is kept in the custody of a responsible official.

(POINTS RELATED TO: INCOME)

(i) In the case of income from sale of tickets:
(1) Verify the control system as to how it is ensured that the collections on sale of tickets of various
shows are properly accounted.
(2) Verify the system of relating to online booking of various shows and the system of realization of
money.
(3) Check that there is overall system of reconciliation of collections with the number of seats
available for different shows on a day.
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(i) Verify the internal control system and its effectiveness relating to the income from café, shops, pubs,
game zone etc., located within the multiplex.
(ii) Verify the system of control exercised relating to the income receivable from advertisements exhibited
within the premises and inside the hall such as hoarding, banners, slides, short films etc.
(iii) Verify the system of collection from the parking areas in respect of the vehicles parked by the customers.

(POINTS RELATED TO: EXPENSES)

(iv) In the case of payment to the distributors verify the system of payment which may be either through out
right payment or percentage of collection or a combination of both. Ensure at the time of settlement any
payment of advance made to the distributor is also adjusted against the amount due.
(v) Verify the system of payment of salaries and other benefits to the employees and ensure that
statutory requirements are complied with.
(vi) Verify the payments effected in respect of the maintenance of the building and ensure the same is in
order.
(vii) Verify the insurance premium paid and ensure it covers the entire assets

5) Special points in an Audit of Club.

5 Head trick ICAI Head Points:

Law & Internal • Verify the internal check as regards members being charged with the
Control System price of foodstuffs and drinks provided to them and their guests, as well
as, with thefees chargeable for the special services rendered, such as
billiards, tennis, etc.
Major Income • Vouch the receipt on account of entrance fees with members’
applications, counterfoils issued to them, as well as on a reference to
minutes of the Managing Committee.
• Vouch members’ subscriptions with the counterfoils of receipt issued
to them, trace receipts for a selected period to the Register of
Members; also reconcile the amount of total subscriptions due with
the amount collected and that outstanding.
• Ensure that arrears of subscriptions for the previous year have been
correctly brought over and arrears for the year under audit and
subscriptions received in advance have been correctly adjusted.
• See the Register of Members to ascertain the Member’s dues which
are in arrear and enquire whether necessary steps have been
taken for their recovery; the amount considered irrecoverable
should be mentioned in the Audit Report.
Major Expense • Vouch purchase of sports items, furniture, crockery, etc. and trace
their entries into the respective inventory registers.
• Vouch purchases of foodstuffs, cigars, wines, etc., and test their sale
price so as to confirm that the normal rates of gross profit have been
earned on their sales. The inventory of unsold provisions and stores, at
the end of year, should be verified physically and its valuation checked.
Major Assets – • Inspect the share scrips and bonds in respect of investments, check
Investment / their current values for disclosure in final accounts; also ascertain that
Inventories: the arrangements for their safe custody are satisfactory.
• Check the inventory of furniture, sports material and other
assets physically with the respective inventory registers or
inventories prepared at the end of the year
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6) Special points in an Audit of Partnership.

Trick: Jab wo appoint karenge muje tab me sabse pahle dekhunga ki business konsa karti h
company and minutes pahdunga ki jab bhi koi meeting hoti hai tab partner ladte to nahi h n and ek
dusre ko prejudicially harm to nahi karte n…
Uske baad me ab BOA pe aaunga.. nd Check karunga ki Profit baatne k pahle Tax to cut kar liya n

• Confirming that the letter of appointment, signed by a partner, duly authorized, clearly
states the nature and scope of audit contemplated by the partners, specially the limitation, if
any, under which the auditor shall have to function.
• Verifying that the business in which the partnership is engaged is authorized by the
partnership agreement; or by any extension or modification thereof agreed to subsequently.
• Studying the minute book, if any, maintained to record the policy decision taken by partners
specially the minutes relating to authorization of extraordinary and capital expenditure,
raising of loans; purchase of assets, extraordinary contracts entered into and other such
matters as are not of a routine nature.
• Verifying generally that the interest of no partner has suffered prejudicially by an activity
engaged in by the partnership which, it was not authorized to do under the partnership deed
or by any violation of a provision in the partnership agreements.
• Examining whether books of account appear to be reasonable and are considered adequate in
relation to the nature of the business of the partnership.
• Verifying that the profits and losses have been divided among the partners in their agreed
profit- sharing ratio.
• Confirming that a provision for the firm’s tax payable by the partnership has been made in
the accounts before arriving at the amount of profit divisible among the partners.

7) Special points in an Audit of NGO:

5 Head trick ICAI Head Points:

Law & Internal • Studying the constitution under which the charitable institution has
Control System been set up.
• Verifying whether the institution is being managed in the manner
contemplated by the law under which it has been set up.
• Examining the system of internal check, especially as regards
accounting of amounts collected.
• Verifying in detail the income and confirming that the amounts
received have been deposited in the bank regularly and promptly.

Major Income ➢ Subscriptions and donations

• examining the system of internal check regarding moneys
received from box collections, flag days, etc. and checking the
amount received from representatives, with the correspondence
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and the official receipts issued; paying special attention to the

system of control exercised over collections and the steps
taken to ensure that all collections made have been accounted
for; and
• Ascertaining, if any, the changes made in amount of annual
or life membership subscription during the year.
• obtaining the printed list of subscriptions and donations and
agreeing them with the total collections shown in the accounts;
• Whether official receipts are issued;
• obtaining all receipt books covering the period under review;
• confirming that adequate control is imposed over unused receipt
books;
• test checking the counterfoils with the cash book; any
cancelled receipts being specially looked into;

➢ Legacies & Grant

• Legacies - Verifying the amounts received by reference to
correspondence with any figures and other available information.
• Grant: Vouching the amount received with the relevant
correspondence, receipts and minute books.

➢ Investments Income
• Vouching the amounts received with the dividend and interest
counterfoils.
• Checking the calculations of interest received on securities
bearing fixed rates of interest.
Major Expense • Vouching payment of grants, also verifying that the grants have been
paid only for a charitable purpose or purposes falling within the
purview of the objects for which the charitable institution has been set
up and that no trustee, director or member of the Managing Committee
has benefited there from either directly or indirectly.
• Ascertaining that any funds contributed for a special purpose have
been utilized for the purpose.
Major Assets – • Verifying the schedules of securities held, as well as inventories of
Investment / properties both movable and immovable by inspecting the securities
Inventories: and title deeds of property and by physical verification of the
movable properties on a test- basis.
• Verifying the cash and bank balances.

8) Audit Program for RECIPTS & REMITTENCE OF NGO:

Receipt of Donations: Trick: 1 Internal control banaao… Ki foreign se jo bhi Receipts aae..
Cash me aae to thik.. par Bank (Cheque) me aae to BRS banaa lna

• Internal Control System: Existence of internal control

system particularly with reference to division of
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responsibilities in respect of authorized collection of

donations, custody of receipt books and safe custody of
money.
• Foreign Contributions, if any, to receive special attention to
compliance with applicable laws and regulations.
• Receipt of Cheques: Receipt Book should have carbon copy for
duplicate receipt and signed by a responsible official. All
details relating to date of cheque, bank’s name, date, amount,
etc. should be clearly stated.
• Cash Receipts: Register of cash donations to be vouched more
extensively. If addresses are available of donors who had
given cash, the same may be cross-checked by asking entity to
post thank you letters mentioning amount, date and receipt
number.
• Bank Reconciliation: Reconciliation of bank statements with
reference to all cash deposits not only with reference to
date and amount but also with reference to receipt book.

Remittance of Trick: accha se Genuine NGO select karo sabse pahle, Fir usse
Donations to Different Cheque ya DD se payment karo.. Payment karne k baad Confirmation
NGOs: le lna letter bhjke.. fir baad me check bhi karna ki uska utilisation
sahi purpose ke liye to hora h n

• System of NGOs’ Selection: System for selecting NGO to

whom donations have been sent.
• Identity: Recipient NGO is a genuine entity. Verify address,
80G Registration Number, etc.
• Mode of Sending Remittance: All remittances are through
account payee cheques.
• Remittances through Demand Draft would also need to be
scrutinized thoroughly with reference to recipient.
• Confirming Receipt of Remittance: All remittances are
supported by receipts and acknowledgements.
• Direct Confirmation Procedure: Send confirmation letters to
entities to whom donations have been paid.
• Donation Utilization: Utilization of donations for providing
relief to Tsunami victims and not for any other purpose
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