PROFESSIONAL OMPETENCE - Yola

1 PROFESSIONAL COMPETENCE COURSE STUDY MATERIAL AUDITING AND ASSURANCE PAPER 2 Auditing And Assurance BOARD OF STUDIES THE INSTITUTE OF CHARTERED accountants OF INDIA This study material has been prepared by the faculty of the Board of Studies. The objective of the study material is to provide teaching material to the students to enable them to obtain knowledge and skills in the subject. Students should also supplement their study by reference to the recommended text books. In case students need any clarifications or have any suggestions to make for further improvement of the material contained herein, they may write to the Director of Studies. All care has been taken to provide interpretations and discussions in a manner useful for the students. However, the study material has not been specifically discussed by the Council of the Institute or any of its Committees and the views expressed herein may not be taken to necessarily represent the views of the Council or any of its Committees.

2 Permission of the Institute is essential for reproduction of any portion of this material. The Institute of Chartered accountants of India All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher. Website : E-mail : ISBN No. : 978-81-8441-045-7 Published by : The Publication Department on behalf of CA. R. Devarajan, Additional Director of Studies (SG), The Institute of Chartered accountants of India, A-94/4, Sector-58, NOIDA 201 301, India. Printed by : Sahitya Bhawan Publications, Hospital Road, Agra 282 003. May/2008/25,000 Copies (Reprint) PREFACE Auditing is, perhaps, one of the most practical-oriented subjects in the curriculum.

3 The inclusion of this subject at the PROFESSIONAL Competence Course (PCC) Level, aims to provide working knowledge of generally accepted auditing procedures and of techniques and skills needed to apply them in audit and attestation engagements. A good knowledge of the subject would provide a strong foundation to students while pursuing the chartered accountancy course. A good understanding of the theoretical concepts, particularly, in the context of auditing standards would make practical training an enriching and enjoying experience. While studying this paper, students are advised to integrate the knowledge acquired in other subjects, specifically, accounting and corporate laws in a meaningful manner. Such a learning would only help a student to become a better PROFESSIONAL . In nutshell, it is a subject which involves application of theoretical knowledge of other subjects included in the course curriculum.

4 It is this practical aspect of the subject which allows the individual students to exhibit their intelligence and ability upon which the scoring of the marks depends. A systematic study of the subject will not only help in securing good marks and passing the examination but also enable one to become a good chartered accountant. A list of steps to be followed is given below: Familiarise yourself with the syllabus: You must know the exact scope of the syllabus. Divide the entire syllabus into broad topics. At the PCC level, the broad topics are Nature and Objectives of Auditing. Audit Planning, Internal Control, Vouching, Verification of assets and liabilities, Company Audit, Special Audits, etc. Such a division of syllabus would always provide a bench-mark to assess the extent of preparation and, thus, infuse confidence. Read each topic thoroughly: One may read each topic thoroughly, understand and grasp the same.

5 This is not a subject where the student can exploit his intellect and commonsense without having the requisite knowledge of the subject. A thorough preparation is pre-requisite for success in this subject. If necessary, supplement the same with a standard text book. While reading through each topic, take special note of Auditing and Assurance Standards (AASs), Accounting Standards (AS), relevant case laws, provisions of the Companies Act, 1956 or other special legislations, etc. As stated earlier, auditing should not be studied in isolation since it is related to other subjects. In particular, the knowledge of Accounting Standards; laws affecting business organisation, such a Partnership Act, 1932, Companies Act, 1956, etc. is pre-requisite for understanding of the subject and to write a good answer. One must read the monthly publications of the Institute, viz.

6 , The Chartered Accountant and the Students Newsletter regularly to keep abreast of the latest developments in the field. Prepare Notes: You will appreciate that normally mere reading a page from the book does not lead you anywhere. It is very essential to comprehend the subject. Therefore, effective reading is essential to absorb the same. After reading each chapter, prepare comprehensive notes since the actual writing down of the matter helps not only in understanding but facilitates quick revision as well. You may make use of mnemonic while preparing notes. For example, assertions in respect of an item appearing in the balance sheet to be verified may be remembered as VCREP in the mnemonic form wherein V stands for Valuation, C stands for completeness, R stands for Rights/obligation, E stands for existence and P stands for presentation and disclosure requirements.

7 Check Your Progress: Perhaps, the best way to check your progress is to go through question papers of previous examinations. An element of introspection is necessary at this stage. In case a student feels that he is not able to answer the requisite number of questions, he must ask himself and ascertain reasons for the same. You must write answers under mock examination conditions to assess your writing capability and compare the same with suggested answers provided by the Board of Studies. Having regard to the extent of changes, students may note that suggested answers to the questions set at the previous Intermediate Examinations would still be beneficial from the academic preparation view point. A word of caution. While going through Suggested Answers for previous examinations, no attempt should be made to memorise the answers as such. Rather a student may read them thoroughly to gain knowledge and improve understanding and specifically as to how an answer should be written in the examination.

8 Examination Approach: Having prepared thoroughly on the aforesaid lines, a student should not rush to write the answers the examination. Read the question carefully, understand its exact scope, plan the main headings and points to be covered and then write your answer. Answer should be to the point and this can only be so if the question is understood by the students in proper perspective. Question should be read carefully to know its exact requirements. For instance, a question relating to vouching may pertain to any entity or with specific reference to a company. The students should discuss the questions as exhaustively as it could be made remembering at the same time that no insignificant and irrelevant matters are included in the answers. The students should cultivate the habit of remembering all the important and relevant points relating to the question prepared by them. The suggested answers published by the Board stand as the best guide in this rect.

9 Merely stating one or two points is not enough where the question calls for a number of points. All the important and relevant points should either be discussed or at least stated depending upon the marks assigned to the question. Reference to relevant AASs, AS, provisions of the Companies Act, 1956, decided case laws, etc. enriches the quality of an answer. Command over standard English is absolutely essential. You may divide or sub-divide descriptive questions with distinct paragraph headings. In a PROFESSIONAL examination a candidate must attempt all the required number of questions. For instance in Auditing, a candidate must attempt all questions (say, six) in a balanced manner. Proper time management is thus, essential. It may so happen that a candidate is not in a position to write all six answers and may be decided to write five answers in an excellent manner and skip the sixth one.

10 This approach is not advisable since in such a case a candidate would have attempt questions of about 80 marks only. Keep in mind the golden principle that six average answers shall fetch more marks than five best answers. Read on and Best of Luck ! SYLLABUS Paper 2: Auditing and Assurance (One Paper- Three hours -100 Marks) Level of knowledge: Working Knowledge Objective: To understand objective and concept of auditing and gain working knowledge of generally accepted auditing procedures and of techniques and skills needed to apply them in audit and attestation engagements. Contents: 1. Auditing Concepts Nature and limitations of Auditing, Basic Principles governing an audit, Ethical principles and concept of Auditor s Independence, Relationship of auditing with other disciplines. 2. Auditing and Assurance Standards and Guidance Notes Overview, Standard-setting process, Role of International Auditing and Assurance Standards Board, Auditing and Assurance Standards issued by the ICAI AAS 1 AAS 30 and AAS 34; Guidance Note(s) on Audit of Fixed Assets, Audit of Inventories, Audit of Investments, Audit of Debtors, Loans and Advances, Audit of Cash and Bank Balances, Audit of Miscellaneous Expenditure, Audit of Liabilities, Audit of Revenue, Audit of Expenses.