Special Points for Audit

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<ul><li><p>TARUN JHALANI 9887595895</p><p>1</p><p>Objectives of an auditing;</p><p> Main Obj Secondary ObjExpression of Opinion Detection &amp; Prevention of</p><p>Fraud Error1. Embezzlement of cash 1. Error of Principal2. Fraudulent Manipulation 2. Error of commission3. Mis app of goods 3. Compensating Errors4. Mis app of A/cs 4. Error of Duplication</p><p>5. Procedural ErrorsAudit Process</p><p>Formulating Audit Plan Just Remember- I LOVE1. Examination &amp; Evaluation of ICS I Intent of management2. Knowledge L Letter of Engagement (AAS-26 &amp; 30 to33)3. Discussions O Objective &amp; scope of audit ( AAS-2 )4. Arithmetical Accuracy V Vouching &amp; Verification5. Documentary Evidence E Evaluation of Evidence (AAS -5)</p><p>U Unqualified (of Qualified or Adverse or6. Validity of Transaction Disclaimer) Opinion (AAS-28)7. Verification8. Accounting Ratios9. Adequate Disclosure</p><p>Audit Process1. Audit Planning2. I/C Evaluation3. Examination of Books of A/CS4. Vouching]5. Compliance verification6. Assets &amp; liabilities verification7. Overall Tests &amp; analytical review8. F/S Scrutiny</p><p> Audit procedures</p><p>]Compliance Audit Procedure Substantive Procedures[About I/C/S] [About A/C/S]Soundness of I/C/S If I/C/S not sound,[Existence, Effectiveness, and Continuity] apply substantive procedures</p><p>Tests of Details Analytical Procedures1. Test of Tr.ie Vouching2. Test of Balances ie Verification</p><p>Following Assertions; Existence, Rights &amp; obligations,Occurrence , Completeness, Valuation, Measurement,Disclosure, Presentation</p></li><li><p>TARUN JHALANI 9887595895</p><p>2</p><p> Auditors Engagement</p><p>Situation of New Engagement Letter Reasons for change in engagement1. Clients Misunderstand the objective 1. Change in circumstances2. Revised &amp; Special Terms 2. Misunderstanding3. Change in BOD 3. Restriction4. New Requirements of ICAI5. Change in Buss Nature</p><p>Types of Audit Evidence;</p><p>Depending upon Nature Depending upon source Depending upon Impact</p><p> 1. Visual 1. Internal 1. Persuasive 2. Oral 2. External 2. Conclusive 3. DocumentaryReliability of Audit Evidence; Source, Nature, Circumstances, Obtain and Materiality</p><p>Audit Evidence; Sufficient Appropriate Audit Evidence1. Nature of Item;2. Internal Controls;3. Nature &amp; Size of buss.4. Materiality;5. Type of Information available;6. Previous audits experience;7. Trends;8. Risk;9. Knowledge of the clients business.</p><p>Fundamental Accounting Assumption; Going Concern , Consistency , Accrual Basis</p><p>Materiality-The concept of Materiality is fundamental to the process of1. Recognition2. Classification3. Aggregation4. Presentation of Financial Information</p><p>Whether the particular information item is material can be judged from1. Its Size/ amount2. Its Nature3. Its contractual violation4. Its legality5. Its Quanitative Materiality</p><p>Considered when:1. Determining the NTE of audit procedures2. Evaluating the effect of misstatement.</p><p>List a few indicators of MaterialityTest of Materiality</p><p>1. Facts and circumstances of each case2. No hard &amp; fast rules</p></li><li><p>TARUN JHALANI 9887595895</p><p>3</p><p>3. Use of JudgementIndicators of Materiality</p><p>1. Value or amt of transaction relative context2. Percentage Analysis3. Impact on the overall figure of P&amp;L4. Previous years figures comparisons5. Estimation errors in determinable amounts6. Minor Deviations from statutory requirements7. Substantial effect of small inaccuracies8. Cumulative effect of small and insignificant items9. Efficacy of Internal Control</p><p>Significance of Surprise Check1. Audit effectiveness2. Review of Internal control3. Detection of Errors and Frauds4. Moral check5. Suitability-Where auditor is not satisfied with I/C/S, Co. is very large or has a diversified</p><p>activites6. Areas-Cash , investments, stores and stocks, statutory registers7. Upto date records8. EDP Audit9. Frequency-at least once10.Communication any weakness to management11.Follow up action-satisfy himself that adequate action is taken by Mgt.12.Reporting</p><p>Audit Risk &amp; ComponentsAudit risk is the probability/ chance that an auditor may give an inappropriate opinion on F/S thatis materially misstated.Components-3 components</p><p>1. Inherent Risk-Risk that error will occur2. Control Risk-Risk that the clients I/C/S may not prevent or correct such a risk3. Detection Risk- Risk of non-detection of errors.</p><p>Inherent Limitations of I/C/S1. Cost2. Unusual Transactions3. Error4. Collusion5. Abuse of authority6. Inadequacy7. Manipulations</p><p>Audit Techniques;</p><p>1. Posting Checking2. Casting Checking3. Physical Verification4. Confirmation5. Inquiry6. Year &amp; Scrunity7. Re computation</p></li><li><p>TARUN JHALANI 9887595895</p><p>4</p><p>8. BRS9. Tracing</p><p>Basic Principal Governing an audit1. Integrity, Objectivity and Independence:2. Confidentiality:3. Skills and Competence:4. Work performed by others:5. Documentation:6. Planning:7. Audit Evidence:8. Accounting Systems and Internal Controls9. Conclusion and Reporting:</p><p>Scope of an audit;a. The terms of the engagementb. The requirements of the relevant legislationc. The pronouncements of the Institute (ICAI)d. The judgments of various courts of law</p><p>Advantages of Audit;1. Reliable F/S 7.2. Safeguard of Financial Interest3. Moral Check4. Settlement of accounts5. Determine the weakness &amp; inadequacy6. Useful for gvt.7. Borrowed from banks8. Detection of Error and frauds9. Detection of Wastage10. Settling liability and trade disputes</p><p>Inherent Limitation of audit;a) Judgementb) reasonable conclusions.c) Depend upon I/C/Sd) Audit evidence is persuasive, and not conclusivee) F &amp; E not detectedf) Lack of audit programmeg) Mechanical Work</p><p>a. Depend upon opinion of Expertsb. Material misstatements resulting from frauds are more difficult to detect than those</p><p>resulting from errors because frauds will usually involve acts with a view to concealfrauds.</p><p>Qualities of An Auditor;1. Integrity 6. Communication Abilities2. Objectivity 7.Tactfulness3. Independence 8. Technical competence4. Logical Abilities 9. Confidentiality5. Awareness</p></li><li><p>TARUN JHALANI 9887595895</p><p>5</p><p>EDP AUDITDesign and procedural Aspects of EDP SYSTEM</p><p>1. Consistency of performance2. Program control procedure3. System generated transactions4. Single point input5. Data security problems</p><p>Benefit of EDP System1. Increase in effectiveness &amp; efficiency2. Scientific Random sampling3. Better Application of analytical review procedures</p><p>Problems Of EDP System1. Audit trial disappearance2. Lack of visual observation3. Internal storage4. Changes in programs5. System jargon6. Technical Expertises7. High cost</p><p>Features of EDP System1. Absence of input documents2. Lack of visible Transaction Trial3. Lack of visible output4. Ease of access to data and computer programs</p><p>Advantages of CAAT1. Audit Effectiveness2. Saving in time3. Effective test checking4. Examination in Depth</p><p>Reliability of Internal Control System on CIS evt.1. Validity of Data2. Error Detection3. Rebooting4. Accuracy of Output5. Data security6. Amendments7. Safe custody</p><p>Government AuditDuties of CAG</p><p>1. To compile and submit A/CS2. To audit receipts &amp; expenditure3. To audit grants &amp; loans4. To audit receipts of unions &amp; states5. To audit Stores &amp; Stocks6. To audit accounts of Gvt co &amp; Corporations</p><p>Power of CAG1. Inspection2. Transmission3. Inquiry &amp; call for information4. Sample Check</p><p>Expenditure Audit</p></li><li><p>TARUN JHALANI 9887595895</p><p>6</p><p>1. Audit of Rules and orders (Regularity audit)2. Audit of sanctions3. Audit Against Provision of funds4. Audit of proprietry5. Performance audit- Efficiency audit, economy audit, effectiveness audit</p><p>Propriety Audit1. Requirement of situation2. Proper Sanction (No sanction for own advantage)3. Ordinary Prudence4. Use for general benefit unless- the expenses is insignificant, enforced in a court of</p><p>law, recognized policy and custom.Procedures for conducting Performance audit</p><p>1. Identification of areas2. Preliminary study3. Planning &amp; execution of audit4. Reporting</p><p>Audit of Gvt Receipts1. Assessment2. Procedure for collection3. Implemention4. Monitor over irregularities &amp; fraud5. Review &amp; suggestions</p><p>Audit of stores &amp; stocks1. Compliance with Rules&amp; procedures (to ensure)2. Certificate furnished (to see)3. Detection of Uneconomical Purchase and defective (to be cheak)4. Account of Receipt , issue , and balance (to be cheak)5. Excess and Idle stock (detect and take action)6. Physical verification &amp; adjustments.</p><p>SPECIAL AUDITCommon points to be considered in special auditLegal status Conditions Of License Minutes book Obtain list of booksP/Y AUDIT REPORT Commission paid I/C/S of purchase Physical verificationOccupancy rate Input output ratio Register memorandam</p><p>recordsGrants received</p><p>Subscription &amp;Donation received</p><p>Confirmation request Borrowing Powers Stock verification</p><p>Investments ver. I/T exemptions Terms of agreement Authorised bycompetent authority</p><p>Compare with P/Y Arithmetical accuracy Outstanding &amp; prepaid TDSAbbreviations used CAG-Comptroller and auditor generalEvt-environmentEDP-Electronic Data ProcessingI/C/S-Internal Control SystemI/T-income taxP/Y-Previous yearC/Y-Current yearMgt-management F/S-Financial statementsBRS- Bank Reconciliation Statement</p></li></ul>

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