Contents About the author I-5 Preface I-7 MODULE 1 PROFESSIONAL ETHICS CHARTERED ACCOUNTANTS ACT, 1949 Overview of Chartered Accountants Act, 1949 3 Overview of Schedules of Chartered Accountants Act, 1949 covering professional misconduct 3 Relevant Provisions of CA Act, 1949 4 n Using Designation as CA [Sec. 7] 6 n Disabilities for purpose of membership [Sec. 8] 7 n Professional Misconduct 7 n Other Misconduct 7 n Disciplinary Mechanism [Sec. 21] 9 n Penalty for falsely claiming to be a member [Sec. 24] 10 n Maintenance of Branch Office [Sec. 27] 10 n Quality Review Board [Secs. 28A - 28B] 11 First Schedule, Part I - Professional misconduct in relation to members in practice 12 First Schedule, Part II - Professional misconduct in relation to members in service 25 First Schedule, Part III - Professional misconduct in relation to members generally 25 I-9
I-10 CONTENTS First Schedule, Part IV - Other Misconduct in relation to members generally 25 Second Schedule, Part I - Professional misconduct in relation to members in practice 26 Second Schedule, Part II - Professional misconduct in relation to the Members of the Institute Generally 35 Second Schedule, Part III - Other misconduct in relation to members of the Institute Generally 36 Council General Guidelines, 2008 37 Guidelines for advertisement for the members in practice 42 Exercise Questions - Try Yourself 44 Answers to exercise Questions 50 MODULE 2 COMPANY AUDIT 1 COMPANY AUDITOR Appointment of auditor 61 Removal of auditor 64 Remuneration of auditors 64 Ceiling on number of audits 65 Qualifications and disqualifications of auditors 66 Powers of auditors 68 Duties of auditors 69 2 CARO 2003 Companies Auditor Report Order, 2003 77 Matters to be included in Auditor s Report 79 3 AUDIT OF DIVIDENDS Audit of dividends 90 4 AUDIT COMMITTEE & CORPORATE GOVERNANCE Corporate Governance 96 Audit Committee [Sec. 292A] 97 Clause 49 of Listing agreement 98 Comparison of Audit Committee Requirements as per Clause 49 and Sec. 292A 100
CONTENTS I-11 5 MISCELLANEOUS Branch Audit 101 Companies (Branch Audit Exemption) Rules, 1961 102 Special Audit 104 Cost Audit (Sec. 233B) 104 True And Fair View 105 Payments controlled by Companies Act, 1956 106 Companies (AS) Rules, 2006 107 Certificates and Reports 109 Auditor s Liabilities for Misstatement in Prospectus - Sec. 62 110 Miscellaneous Questions 110 MODULE 3 DIFFERENT TYPES OF AUDIT 1 AUDIT IN CIS ENVIRONMENT Types of accounting systems 121 Characteristics of CIS Environment/Factors to be considered in understanding CIS Environment 123 Internal Controls in Computer Based System 123 Problems in Implementation of Internal Control in CIS Environment 125 Controls to be evaluated by Auditor in CIS Environment 125 Audit Trail 127 Computer Assisted Audit Techniques 128 Collection and evaluation of audit evidences 131 Miscellaneous 131 2 COST AUDIT Cost Audit 133 3 MANAGEMENT AND OPERATIONAL AUDIT Management Audit 141 Behavioural Aspects 143
I-12 CONTENTS Operational audit 144 Miscellaneous Topics 145 4 TAX AUDIT & VAT AUDIT Audit requirement under Income-tax Act, 1961 149 Form No. 3CD 152 Miscellaneous Questions 160 Audit under State VAT law 162 Audit under Excise Law - Excise Audit, 2000 163 Areas of concern in an audit of indirect taxes 163 5 AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS Audit of Consolidated Financial Statements 165 6 INVESTIGATION & DUE DILIGENCE Audit v. Investigation 169 Investigation under the Companies Act, 1956 170 Investigation on behalf of incoming partner 172 Investigation on behalf of the bank for advances 173 Investigation of Frauds 174 Due diligence 176 7 PEER REVIEW Concept of Peer Review 182 Stages of Peer Review 183 Procedures of reviewer 185 Compliance review procedures 185 Miscellaneous 186 8 SOX AUDIT Sarbanes Oxley Act, 2002 188 Disclosure controls and procedure 189 Internal Control over Financial Reporting 190
CONTENTS I-13 9 SPECIAL AUDIT ASSIGNMENTS Environment audit 192 Energy audit 194 Mutual funds 194 Audit of depositories 195 Miscellaneous Questions 195 MODULE 4 AUDIT OF DIFFERENT ENTITIES 1 AUDIT OF BANKS Principal enactments governing bank audit 201 Internal control procedures in bank 201 Verification of investments 204 Verification of advances 206 Miscellaneous topics 209 Miscellaneous Questions 216 2 AUDIT OF GENERAL INSURANCE COMPANIES Audit of Revenue items 218 Audit of Balance Sheet items 221 Other matters w.r.t. Audit of general insurance companies 223 3 AUDIT OF CO-OPERATIVE SOCIETIES Special features of Co-operative Societies Audit 228 Powers and Duties of Auditor of Multi-State Co-operative Society - Sec. 73 230 Maintenance of Books of Account by Co-operative Societies 231 4 NON-BANKING FINANCE COMPANIES Meaning of NBFC 233 Types of NBFC 233 Compliance of prudential norms by NBFC 233
I-14 CONTENTS Equipment leasing finance company 234 Hire purchase company 234 Loan company 235 Deposits company 235 Investment company 236 5 AUDIT OF MEMBERS OF STOCK EXCHANGE Margins 239 Clearing and settlement mechanism 241 6 AUDIT OF PSU Propriety Audit 244 MODULE 5 ENGAGEMENT STANDARDS Engagement Standards - Basics 251 List of Standards 254 SQC - 1 Quality Control for Firms that Perform Audits & Reviews of Historical Financial Information, and Other Assurance & Related Services Engagements 256 SA - 200 (Revised) Overall Objectives of the Independent Auditor and Conduct of Audit in accordance with SAs (w.e.f. 1-4-2010) 260 SA - 210 (Revised) agreeing the terms of audit engagement (w.e.f. 1-4-2010) 266 SA - 220 (Revised) - Quality Control for an Audit of F.S. (w.e.f. 1-4-2010) 271 SA - 230 (Revised) Audit Documentation (w.e.f. 1-4-2009) 275 SA 240 (Revised) - Auditor s responsibilities relating to fraud in an audit of financial statements (w.e.f. 1-4-2009) 278 SA 250 (Revised) - Consideration of laws and regulations in an audit of financial statements (w.e.f. 1-4-2009) 285 SA 260 (Revised) - Communication with those charged with governance (w.e.f. 1-4-2009) 289 SA 265 - Communicating deficiencies in internal control to those charged with governance & management (w.e.f. 1-4-2010) 294 SA 299 - Responsibility of joint auditors (w.e.f. 1-4-1996) 297 SA 300 (Revised) - Audit Planning (w.e.f. 1-4-2008) 300 SA 315 - Identifying and assessing the risk of material misstatement through understanding the entity and its environment (w.e.f. April 1, 2008) 303 SA 320 (Revised) - Materiality in Planning and Performing an Audit (w.e.f. 1-4-2010) 308 SA 330 - The auditor s responses to assessed risks (w.e.f. 1-4-2008) 311
CONTENTS I-15 SA 402 - Audit considerations relating to an entity using service organisations (w.e.f. 1-4-2010) 315 SA - 450 Evaluation of misstatements identified during the audit (w.e.f. 1-4-2010) 318 SA - 500 (Revised) Audit Evidence 321 SA 501 (Revised) - Audit Evidence - Specific Considerations for Selected Items 325 SA 505 (Revised) External Confirmation 328 SA 510 Intial audit engagements - opening balances (w.e.f. April 1, 2010) 332 SA 520 (Revised) Analytical Procedures 335 SA - 530 Audit sampling (w.e.f. 1-4-2009) 337 SA 540 Auditing accounting estimates, including fair value accounting estimates and related disclosures (w.e.f. 1-4-2009) 341 SA 550 (Revised) Related Parties (w.e.f. 1-4-2010) 344 SA 560 (Revised) subsequent events (w.e.f. 1-4-2009) 350 SA 570 (Revised) Going Concern (w.e.f. 1-4-2009) 352 SA 580 (Revised) - Written representations (w.e.f. 1st April, 2009) 356 SA 600 using the work of another auditor 358 SA 610 (Revised) using the work of internal auditor (w.e.f. 1-4-2010) 362 SA 620 (Revised) - Using the work of an Auditor s Expert 366 SA 700 (Revised) Forming an Opinion & Reporting on F.S. 370 SA 705 Modifications to the Opinion in the Independent Auditor s Report 379 SA 706 Emphasis of Matter Paragraphs and Other Paragraphs in the Independent Auditor s Report 388 SA 710 (Revised) Comparative information - Corresponding figures and comparative financial information 391 SA 720 The auditor s responsibility in relation to other information in documents containing audited F.S. (w.e.f. 1-4-2010) 396 SA 800 Special Considerations - Audit of F.S. Prepared in accordance with Special Purpose Frameworks 398 SA 805 Special Considerations - Audits of Single F.S. and Specific Elements, Accounts or Items of A.F.S. 403 SA 810 Engagements to Report on Summary Financial Statements 408 SRE 2400 (Revised) Engagements to Review Financial Statements 417 SRE 2410 Review of Interim Financial Information performed by Independent Auditor of the Entity 422 SAE 3400 The examination of prospective financial information 431 SAE 3402 Assurance Reports on Controls At a Service Organization 434 SRS 4400 Engagements to perform agreed upon procedures regarding financial information 441 SRS - 4410 Engagements to compile financial information 445
I-16 CONTENTS MODULE 6 IMPORTANT QUESTIONS ON GUIDANCE NOTES AND ACCOUNTING STANDARDS Guidance Notes 453 Guidance Notes - Accounting and Auditing - Practical Illustrations 454 Accounting Standards 457 APPENDIX A Schedule VI of the Companies Act - Summary 479 PREVIOUS EXAM PAPERS May 2013 Question Paper 491 Nov. 2012 Question Paper 495 May 2012 Question Paper 498