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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 5.7 Negative Confirmations
Negative confirmations provide less persuasive audit evidence than positive confirmations.
Accordingly, the auditor shall not use negative confirmation requests as the sole substantive audit procedure to address an assessed risk of material misstatement at the a... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example
Holders of bank deposit accounts may be more likely to respond if they believe that the balance in their account is understated in the confirmation request, but may be less likely to respond when they believe the balance is overstated. Therefore, sending negative confirmati... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 5.8 Evaluating the Evidence Obtained
The auditor shall evaluate whether the results of the external confirmation procedures provide relevant and reliable audit evidence, or whether performing further audit procedures is necessary.
When evaluating the results of individual external... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 8
CA Jignesh Desai is in midst of audit of a company. The company is fairly large one and has a well -functioning internal audit department. While considering sending out external confirmation requests to trade receivables outstanding as on date of financial statements, he ... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 9
On reviewing schedule of trade receivables of a company, CA Mary finds that in respect of one outstanding balance, the CFO of the company is not willing to allow her to send external confirmation request due to the reason that sending out such request could spoil precario... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.1 Scope of this SA
The Standard on Auditing (SA) 510 'Initial Audit Engagements-Opening Balances' deals with the auditor's responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matt... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.2 Definitions
1. Initial audit engagement refers to an engagement in which either:
2. (i) The financial statements for the prior period were not audited; or
3. (ii) The financial statements for the prior period were audited by a predecessor auditor.
2. Opening balances means those acco... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.3 Objective of Auditor with respect to Opening Balancesin conducting an Initial Audit Engagement
In conducting an initial audit engagement, the objective of the auditor with respect to opening balances is to obtain sufficient appropriate audit evidence about whether:
- (a) Opening ba... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.4 Obtaining sufficient appropriate Audit evidence about opening balances by the Auditor
The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period's financial statements by:
- (a) De... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.5.1 Nature and extent of Audit Procedures
The nature and extent of audit procedures necessary to obtain sufficient appropriate audit evidence regarding opening balances depend on such matters as :
- The accounting policies followed by the entity.
- The nature of the account balances, class... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.5.2 If the prior period's financial statements were audited by a predecessor auditor
If the prior period's financial statements were audited by a predecessor auditor , the auditor may be able to obtain sufficient appropriate audit evidence regarding the opening balances by perusing the... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example
The collection (payment) of opening accounts receivable (accounts payable) during the current period will provide some audit evidence of their existence, rights and obligations, completeness and valuation at the beginning of the period.
In the case of inventories, ho... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.5.4 For non- current assets and liabilities
For non-current assets and liabilities,
- (i) such as property plant and equipment, investments and long-term debt, some audit evidence may be obtained by examining the accounting records and other information underlying the opening balances.... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.6 Consistency of Accounting Policies relating to opening balances
The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period's financial statements, and wheth... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## If the auditor concludes that:
- (a) the current period's accounting policies are not consistently applied i n relation to opening balances in accordance with the applicable financial reporting framework; or
- (b) a change in accounting policies is not properly accounted ... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 6.7 Reporting by the auditor with regard to opening balances
1. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances,
2. the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate, in accordance with... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.1 Scope of this SA
The Standard on Auditing (SA)550 'Related Parties' deals with the auditor's responsibilities regarding related party relationships and transactions when performing an audit of financial statements. Specifically, it applies in relation to risks of material misstatemen... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.2 Definition of Related Party
A party that is either
- (i) A related party as defined in the applicable financial reporting framework; or
- (ii) Where the applicable financial reporting framework establishes minimal or no related party requirements:
- a. A person or other entity that has... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.3 Meaning of control and significant influence in reference to related party
Many financial reporting frameworks discuss the concepts of control and significant influence. They generally explain that:
- (a) Control is the power to govern the financial and operating policies of an e... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.4 Meaning of Related Parties with Dominant Influence
Related parties, by virtue of their ability to exert control or significant influence, may be in a position to exert dominant influence over the entity or its management. Consideration of such behaviour is relevant when identifying and assess... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.5 Meaning of Special-Purpose Entities as Related Parties
In some circumstances, a special-purpose entity may be a related party of the entity because the entity may in substance control it, even if the entity owns little or none of the special- purpose entity's equity. | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.6 Nature of Related Party Relationships and Transactions
Many related party transactions are in the normal course of business. In such circumstances, they may carry no higher risk of material misstatement of the financial statements than similar transactions with unrelate... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example
- (A) Related parties may operate through an extensive and complex range of relationships and structures, with a corresponding increase in the complexity of related party transactions.
- (B) Information systems may be ineffective at identifying or summarising transactions and o... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.7 Understanding the Entity's Related Party Relationships & Transactions
The auditor shall inquire of management regarding:
- (a) The identity of the entity's related parties, including changes from the prior period;
- (b) The nature of the relationships between the entity and these relate... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 7.8 Considerations specific to smaller entities by the auditor
Control environment in smaller entities is likely to be different from larger entities. In particular those charged with governance may not include an outside member, and the role of governance may be undertaken directly by... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## How can an auditor verify the existence of related party relationships and transactions?
During the audit, the auditor should maintain alertness for related party information while reviewing records and documents. He may inspect the following records or documents that may provide information ab... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.1 Meaning of Analytical Procedures
Since routine checks cannot be depended upon to disclose all the mistakes or manipulation that may exist in accounts, certain other procedures also have to be applied like comparisons, trend and ratio analysis in addition to reasonable tests. These co... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 9
CA Aarav wants to verify the payments made by XYZ Ltd. on account of building rent during the FY 2022-23. The rent amounts to ` 50,000/- per month for the year. The monthly rent payments are consistent with the rent agreement. However, the other companies in the similar industry ... | [
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-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SOLUTION
If CA Aarav checks in detail the monthly rent payments, he may find that such payments are consistent with the rent agreement i.e. XYZ Ltd. paid ` 50,000/- per month as rent and the same is getting reflected in the rent agreement. Here, CA Aarav may not be able to find... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 10
Analytical procedure involves analysis of relationship among financial and nonfinancial data. Explain with the help of an example as to how, the statutory auditor of ABC Ltd. will analyse such relationship with respect to the total wages paid by ABC Ltd. during the FY 2022... | [
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0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SOLUTION
As per SA 520, Analytical Procedures means evaluations of financial information through analysis of plausible relationships among both financial and non - fi nancial data. The following example explains the analysis of relationship between financial and non-financial data while applying a... | [
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0.00309448572807014,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example:
CA Brijesh, while verifying the travelling expenses of PRT Ltd., may compare the travelling expenses of current year amounting to ` 2.50 lakhs with previous year travelling expense of PRT Ltd. amounting to ` 2 lakhs and infer that there has been an increase of 25% in the travelling expens... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Examples of Analytical Procedures having consideration of relationships are:
- ♦ Among elements of financial information that would be expected to conform to a predictable pattern based on the entity's experience, such as gross margin percentages.
- ♦ Between financial information and r... | [
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0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 11
| Particulars | Client | Client | Industry | Industry |
|--------------------|----------|----------|------------|------------|
| Year | 2021-22 | 2022-23 | 2021-22 | 2022-23 |
| Inventory Turnover | 2.8 | 2.9 | 3.1 | 2.8 ... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.2 Scope of SA 520
SA 520 deals with the auditor's use of analytical procedures as substantive procedures ('substantive analytical procedures'), and as procedures near the end of the audit that assist the auditor when forming an overall conclusion on the financial statemen... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Objectives
The objectives of the auditor are:
- (a) To obtain relevant and reliable audit evidence when using substantive analytical procedures; and
- (b) To design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusi... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.3A Purpose of Analytical Procedures
Analytical procedures use comparisons and relationships to assess whether account balances or other data appear reasonable.
For instance, establishing the relationship that exists between certain balances included in the Balance Sheet and the Stateme... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
In XYZ Ltd., after applying analytical procedures as comparison of the gross profit ratio with that of the previous year, it is discovered that there has been fall in the ratio. Therefore, it became necessary for the auditor to make further enquiries as it may be due to pilferage of inven... | [
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-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
If balances included in the Statement of Profit and Loss of an entity are compared with those contained in the Statement of Profit and Loss for the same period of another entity engaged in the same trade and working under similar circumstances, it would be possible to find out the cause of... | [
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-... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDIT EVIDENCE
- ♦ Similarly, it would also be possible to compare the balances on the Statement of Profit and Loss with that of the previous period, it would be possible to find out the reasons for increase or decrease in the amount of profits of those years.
- ♦ By setting up certain ex... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.3B Timing of Analytical Procedures
Experienced auditors use analytical procedures in all stages of the audit. Analytical Procedures are required in the planning phase and it is often done during the testing phase. In addition, these are also required during the completion phase.
<!... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.3C Analytical Procedures in Planning the Audit
In the planning stage, analytical procedures assist the auditor in understanding the client's business and in identifying areas of potential risk by indicating aspects of and developments in the entity's business of which he was previously unaware.... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.4 Substantive Analytical Procedures
The auditor's substantive procedures at the assertion level may be tests of details, substantive analytical procedures, or a combination of both. The decision about which audit procedures to perform, including whether to use substantive analytical procedures,... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.5 Factors to be considered for Substantive Audit Procedures
<!-- image -->
The auditor should consider the following factors for Substantive Audit Procedures:
- i) Availability of Data - The availability of reliable and relevant data will facilitate effective analytical procedures.
... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
We can analyze data to understand the relationship to another account and through this, disaggregate the transactions flowing to and from the balance sheet account (e.g., sales and cash receipts flowing through trade receivables), or to compare ratios over time as this enhances our ability... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
Transactions of routine nature like transactions related to sales and purchases are predictable and repetitive in nature. Therefore, on such data analytical procedures can be efficiently applied.
However, Significant Classes Transactions are those classes of transactions in a company's op... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
When side agreements with respect to revenue recognition have been identified as a significant or fraud risk, it is unlikely that an analysis of sales compared to cash receipts or cost of sales would be appropriate to respond to that risk. | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.6 Techniques available as Substantive Analytical Procedures
<!-- image -->
The design of a substantive analytical procedure is limited only by the availability of reliable data and the experience and creativity of the audit team. Substantive analytical procedures generally take one of the foll... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
The auditor may compare the salary paid by the company during the year under audit with the salary paid by the company for several earlier years. There may be some percentage increase in the salary expense over the years. However, an unusual increase in such expense amount may i... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
The statutory auditor can review the Gross profit ratio of the company for the year under audit. The auditor can further compare such GP ratio with the GP ratio of the company in the earlier years or the GP ratio of the other companies in the same industry for the year under audit.
- iii)... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
- ♦ Interest expense against interest bearing obligations
- ♦ Raw Material Consumption to Production (quantity)
- ♦ Wastage & Scrap % against production & raw material consumption (quantity)
- ♦ Work-in-Progress based on issued of materials & Sales (quantity)
- ♦ Sales... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.7 Analytical Procedures used as Substantive Tests
When designing and performing substantive analytical procedures, either alone or in combination with tests of details, as substantive procedures in accordance with SA 330, the auditor shall:
<!-- image -->
- (i) Determine the suitability of pa... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.8 Suitability of particular analytical procedures for given assertions
1. Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time.
2. The application of planned analytical procedures is based on the expectati... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
If an entity has a known number of employees at fixed rates of pay throughout the period, it may be possible for the auditor to use this data to estimate the total payroll costs for the period with a high degree of accuracy, thereby providing audit evidence for a significant item in the f... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.9 The reliability of DATA
The reliability of data is influenced by its source and nature and is dependent on the circumstances under which it is obtained. Accordingly, the following are relevant when determining whether data is reliable for purposes of designing substantive ... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.10 Evaluation of whether the expectation is sufficiently precise
Matters relevant to the auditor's evaluation of whether the expectation can be developed sufficiently precisely to identify a misstatement that, when aggregated with other misstatements, may cause the financial st... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.11 Amount of difference of recorded amounts from expected values that is acceptable
The auditor's determination of the amount of difference from the expectation that can be accepted without further investigation is influenced by materiality and the consistency with the desired level of a... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.12 Investigating results of Analytical Procedures
If analytical procedures performed in accordance with SA 520 identify fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount, the auditor shall investigate s... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.13 Analytical procedures that assist when forming an overall conclusion
The conclusions drawn from the results of analytical procedures designed and performed in accordance with, are intended to corroborate conclusions formed during the audit of individual components or... | [
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-0.023743880912661552,
0.013540728949010372,
-0.015153523534536362,
0.0033601566683501005,
-0.00858660601079464,
0.06467565894126892,
0.04994455352425575,
0.045469075441360474,
-0.022499317303299904,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## CASE STUDY 1
CA Drishti Khandelwal is conducting audit of a company engaged in manufacturing of towels and bedspreads. The company is having its own manufacturing set-up. However, it also gets some manufacturing processes outsourced from third parties. The company has three locations having subst... | [
-0.004741915035992861,
0.0004554646438919008,
0.007961596362292767,
0.004122853744775057,
-0.06392193585634232,
-0.027005022391676903,
0.0005967714241705835,
-0.020405152812600136,
-0.005351108033210039,
0.09207205474376678,
0.03307638317346573,
0.03300144523382187,
0.03618711605668068,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Based on above description, answer the following questions:
1. Which of the following statements is most appropriate regarding inventory count by auditor in accordance with SA 501?
2. (a) She should inspect the inventory to ascertain its existence and condition at all locations, observe h... | [
0.017153123393654823,
-0.015590797178447247,
-0.012137940153479576,
0.026422996073961258,
-0.03591127693653107,
-0.034254249185323715,
0.002578058745712042,
0.025526370853185654,
-0.025371862575411797,
0.08649981766939163,
0.031654831022024155,
-0.003070258302614093,
0.02433799020946026,
-... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## CASE STUDY 2
Financial statements of a firm have been put up for audit before CA Manushi. On going through financial statements, she wants to verify assertions contained in financial statements and has planned certain procedures for carrying out detailed checking.
- (A) She plans to ver... | [
0.013613984920084476,
-0.019411059096455574,
0.019575415179133415,
-0.007482925895601511,
-0.03216459974646568,
-0.009007424116134644,
0.012458249926567078,
-0.004440773744136095,
-0.020100226625800133,
0.07655499130487442,
0.03269987553358078,
0.04838218539953232,
0.056634098291397095,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Based on above description, answer the following questions:
1. As regards description given regarding verification of bills debited in 'Machinery repair' account, identify what she intends to perform?
2. (a) Tests of Controls
3. (b) Tests of transactions
4. (c) Tests of balances
5. (d) Risk assess... | [
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-0.018469341099262238,
0.011573202908039093,
0.009734277613461018,
-0.014539440162479877,
-0.014407466165721416,
0.010523802600800991,
-0.0031701228581368923,
-0.009924671612679958,
0.06955745071172714,
0.025934701785445213,
0.028235290199518204,
0.04274476319551468,
0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDIT EVIDENCE
3. As regards comparison of wages of current year and last year and comparison of relationship between the number of employees and wages paid in both years, identify what she is trying to do?
2. (a) She is intending to perform tests of details.
3. (b) She is intending to perform tes... | [
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-0.013154839165508747,
0.0015422122087329626,
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-0.011552073061466217,
-0.001932990038767457,
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-0.015770968049764633,
0.08794402331113815,
0.023535702377557755,
0.029814613983035088,
0.0363365113735199,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SUMMARY
- ♦ Audit evidence may be defined as the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial statements and othe... | [
-0.007866672240197659,
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-0.012453216128051281,
-0.00979344267398119,
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-0.006034578196704388,
0.08180535584688187,
0.034555885940790176,
0.0007905547972768545,
-0.001431814394891262... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
- ♦ The auditor has to obtain sufficient appropriate audit evidence to draw reasonable conclusions on financial statements.
- ♦ Sufficiency is the measure of the quantity of audit evidence. Appropriateness is measure of quality of audit evidence.
- ♦ Audit procedures ... | [
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-0.02971980720758438,
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-0.007451985497027636,
0.08484148979187012,
0.02365046553313732,
0.022170696407556534,
0.0023984576109796762,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDIT EVIDENCE
- ♦ Audit sampling refers to the application of audit procedures to less than 100% of items within a population of audit relevance, such that all sampling units (i.e all the items in the population) have an equal chance of selection in accordance with SA 530. The o... | [
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0.10814566910266876,
0.05344545841217041,
-0.008963066153228283,
0.022532977163791656,
0.018050... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## After studying this chapter, you would be able to understand-
- ♦ The general considerations in an audit of financial statements.
- ♦ The specific procedures for auditing heads of balance sheet and statement of profit or loss.
- ♦ Audit procedures in respect of certain disclosures in the f... | [
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0.023211143910884857,
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0.004585193935781717,
-0.02087092213332653,
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0.09033390879631042,
0.02117278426885605,
0.015184282325208187,
0.02922770380973816,
-0.008... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## INTRODUCTION
Companies prepare their financial statements in accordance with the framework of generally accepted accounting principles (Indian GAAP ), also commonly referred to as accounting standards (AS) .
A fi nancial statement audit comprises the examination of an entity's fi nancial s... | [
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0.011547684669494629,
-0.017352420836687088,
-0.005297498777508736,
0.06120361015200615,
0.029644206166267395,
0.012245279736816883,
0.010026580654084682,... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
If Company X's balance sheet shows Building with carrying amount of ` 50 lakh, the auditor shall assume that the management has claimed/ asserted that:
- The building recognized in the balance sheet exists as at the period- end (existence assertion);
- Company X owns and co... | [
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0.007363064680248499,
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0.027534877881407738,
0.04872334375977516,
0.040940213948488235,
0.010535084642469883,
0.034982748329639435,... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## INCOME STATEMENT CAPTIONS COMPRISING REVENUE AND EXPENSE BALANCES
| Assertions | Explanation | Example: Employee benefit expenses and sales |
|--------------|--------------------... | [
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-0.02525399811565876,
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0.008286988362669945,
-0.029375065118074417,
-0.02822045609354973,
-0.01006812322884798,
-0.002750576473772526,
-0.006209376268088818,
0.050086114555597305,
0.018059587106108665,
0.03982942923903465,
0.04498143866658211,
0.... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 2. BALANCE SHEET CAPTIONS COMPRISING ASSETS, LIABILITIES AND EQUITY BALANCES
| Assertions | Explanation | Example: Inven... | [
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0.0050126779824495316,
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0.045599110424518585,
-0.050355345010757446,
-0.0334642194211483,
-0.004017223138362169,
0.009010088630020618,
0.02772476151585579,
0.06798353046178818,
0.026395386084914207,
0.022367805242538452,
0.026686059311032295,
0.... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 1
A company is engaged in manufacturing of fabrics from yarn purchased from different suppliers. Occasionally, it also manufactures fabrics tailor made in accordance with requirements of certain mills from yarn received from these mills. The company ra... | [
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0.006960712838917971,
-0.001436769962310791,
0.00548977917060256,
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0.002992150839418173,
-0.034753117710351944,
-0.011220096610486507,
0.10133800655603409,
0.0412510521709919,
0.043419111520051956,
0.05238739773631096,
-0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.1 Share Capital
Every company's lifecycle starts with raising of capital. Other than a private company, every other company issues a prospectus, which may be in the abridged form, or a Statement in lieu of Prospectus, before it proceeds towards allotment of share capital. The Pr... | [
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0.04195311665534973,
0.0014555754605680704,
0.004804457072168589,
0.039742860943078995,
0.034868575632572174,
0.004353902768343687,
0.034952085465192795,
0.017... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
careful attention of the auditor. He must verify that each party, has performed his part of the contract, within the allotted time. For issue of shares, the companies also enter into certain underwriting contracts which become an important part of verification by the auditor.
... | [
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0.07399141788482666,
0.03386339172720909,
0.02675091102719307,
0.03635209798812866,
0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Utilisation of Borrowed funds and share premium:
- (A) Where company has advanced or loaned or invested funds (either borrowed funds or share premium or any other sources or kind of funds) to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understan... | [
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0.06396768242120743,
0.02649161033332348,
0.04559902101755142,
0.04796699061989784,
0.03110... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.2 Reserves and Surplus
Reserves are the amounts appropriated out of profits that are not intended
- to meet any liability,
- contingency,
- commitment or
- diminution in the value of assets known to exist as at the date of the Balance Sheet.
Reserves are a vital source of financing by interna... | [
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0.05991073325276375,
0.0672508254647255,
0.024236585944890976,
0.0329376719892025,
-0.007027291... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
Securities premium, capital redemption reserve.
It may be noted that if a company appropriates revenue profit for being credited to the asset replacement reserve with the objective that these are to be used for a capital purpose, such a reserve shall also be in the nature of a capital res... | [
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-0.011935069225728512,
-0.002446279861032963,
-0.02555040642619133,
0.0683000236749649,
0.058013495057821274,
0.0169687420129776,
0.0494295172393322,
0.015276... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
| | | balance sheet date, but before the financial statements were approved for issue. • Securities Premium - It needs to be confirmed that the company has issued shares in excess of the nominal value of... | [
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0.00619426928460598,
-0.01375933550298214,
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0.058532364666461945,
0.040417902171611786,
0.012354815378785133,
0.03773755580186844,
0.... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.3 Borrowings
Liabilities are the financial obligations of an enterprise other than owners' funds. Liabilities include borrowings, trade payables and other current liabilities, deferred payment credits and provisions.
Verification of liabilities is as important as that of assets, for, if ... | [
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0.06651808321475983,
0.037881478667259216,
0.004739777185022831,
0.053352732211351395,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
The below table summarises the audit procedures generally required to be undertaken while auditing borrowings:
| Brief description | Audit procedures ... | [
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-0.019560059532523155,
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-0.005998512730002403,
-0.00932127982378006,
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0.07878084480762482,
0.024827908724546432,
0.016818320378661156,
0.03345750644803047,
0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Notes:
To be disclosed as Additional Regulatory Information
1. Where the Company has borrowings from banks or financial institutions on the basis of security of current assets, it shall disclose the following:-
2. (a) whether quarterly returns or statements of current assets filed by the Company ... | [
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0.03850960358977318,
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0.015488162636756897,
0.058104969561100006,
0.0513794869184494,
0.021551307290792465,
0.013546915724873543,
-0.... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 2. Wilful Defaulter*
Where a company is a declared wilful defaulter by any bank or financial institution or other lender, following details shall be given:
- (a) Date of declaration as wilful defaulter,
- (b) Details of defaults (amount and nature of defaults),
* wilful defaulter' here means a p... | [
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0.008768548257648945,
0.0596495158970356,
0.02401108108460903,
0.0035498561337590218,
0.01119413785636425,
0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 4. Utilisation of Borrowed funds and share premium:
- (A) Where company has advanced or loaned or invested funds (either borrowed funds or share premium or any other sources or kind of funds) to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the unders... | [
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0.00003027433922397904,
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0.009076272137463093,
-0.006714630872011185,
-0.00896534789353609,
0.03432658687233925,
-0.034533143043518066,
0.008712787181138992,
0.048940613865852356,
0.03771230950951576,
0.05461270734667778,
0.04050488397479057,
0.02... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
- (ii) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries;
the company shall disclose the following:-
- (I) date and amount of fund advanced or loaned or invested in Intermediaries with complete details of each Inte... | [
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-0.01673302985727787,
0.00946822203695774,
0.004906984977424145,
-0.01172376237809658,
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0.01799105294048786,
-0.005783088505268097,
-0.004877455532550812,
0.05927547812461853,
0.02649814449250698,
0.01001307275146246,
0.0361904576420784,
0.027297... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 2
A company has availed cash credit facility of ` 2 crore (O/s balance ` 2 crore as at year end) from a bank for meeting its working capital requirements against security of stocks and debtors and guaranteed by directors of the company. Discuss, how the above cash credit... | [
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0.04054928570985794,
-0.011224782094359398,
-0.0004725705075543374,
0.07123813778162003,
0.041017986834049225,
0.0426168330013752,
0.017921287566423416,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.4 Trade Receivables
Trade receivable are an essential part of any organisation's balance sheet, often referred to as debtors. Typically, an invoice is raised and issued to the customer with the invoice amount being recorded as a debtor balance. Until the invoice is paid, the invoice amount ... | [
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0.06503646820783615,
0.01947616972029209,
0.04684746265411377,
0.028747746720910072,
-0.... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
debtors, collecting the payments, sending reminders etc.)
- Debtors are collected on time.
- In case debtors are not collected in time, sending reminders and taking legal actions if required.
- Balances are regularly reviewed.
- A proper system of follow up exists and if neces... | [
0.006456434261053801,
-0.024390151724219322,
-0.0032113424967974424,
0.04535070061683655,
-0.01897047832608223,
-0.02356838993728161,
-0.004409962333738804,
-0.001906922203488648,
-0.003952098079025745,
0.09092455357313156,
0.020806491374969482,
0.026621727272868156,
0.03744369000196457,
0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
| | balances have been approved by an appropriate authority i.e. the Board of Directors in case of a company. ... | [
0.0386679470539093,
-0.03003206104040146,
0.009577763266861439,
0.024544306099414825,
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0.07264599204063416,
0.011664466001093388,
0.03516445308923721,
0.030542917549610138,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.5 Cash and Cash Equivalents
Cash and cash equivalents in the form of cash in hand, stamps in hand, balances held with bank in current accounts/ margin money accounts, cash credit accounts (debit balance), fixed deposits, cheques in hand etc. represent the most liquid assets of an enterpri... | [
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0.01377035491168499,
0.03939265012741089,
0.01654905453324318,
-0.027857372537255287,
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0.0221983902156353,
0.003471797564998269,
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0.08080435544252396,
0.03663850203156471,
0.0346573181450367,
0.01912912353873253,
-0.00891913... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.6 Inventories
Inventories are assets:
- (a) held for sale in the ordinary course of business;
- (b) in the process of production for such sale; or
- (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.
<!-- image -->
As pe... | [
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-0.005024020094424486,
0.006306581664830446,
0.005254180636256933,
-0.010945314541459084,
-0.015216557309031487,
0.008460916578769684,
-0.0014613925013691187,
-0.0025170580483973026,
0.07233864068984985,
0.03125555440783501,
-0.0016996486810967326,
0.035056691616773605... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.7 Land, Building, Plant & Equipment, Furniture & Fixtures, Vehicles, Office Equipment, Computers etc. referred to AS 'Property, Plant And Equipment' ('PPE')
The Valuation of PPE becomes a very important aspect of consideration by the auditor in the course of his audit. ... | [
-0.0028646544087678194,
-0.006582572124898434,
-0.002893724711611867,
0.018713003024458885,
-0.03188284859061241,
-0.03409013897180557,
0.001318642171099782,
0.005896192044019699,
0.014380786567926407,
0.009191055782139301,
0.04689326137304306,
-0.008412584662437439,
0.017230624333024025,
... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Recognition Criteria for PPE
The cost of an item of PPE should be recognised as an asset if, and only if:
- (a) It is probable that future economic benefits associated with the item will flow to the enterprise, and
- (b) The cost of the item can be measured reliably.
An enterprise evaluates unde... | [
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0.017954764887690544,
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0.0254425797611475,
-0.009995236061513424,
0.011230125091969967,
-0.008116552606225014,
0.014750816859304905,
0.006020703818649054,
0.019434325397014618,
0.038083240389823914,
-0.01684791035950184,
0.030824825167655945,
0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Elements of Cost
The cost of an item of property, plant and equipment comprises:
- (a) its purchase price, including import duties and non -refundable purchase taxes, after deducting trade discounts and rebates.
- (b) any costs directly attributable to bringing the asset to the ... | [
-0.02033521980047226,
-0.021690092980861664,
-0.01806362345814705,
-0.0060691130347549915,
0.024983536452054977,
-0.01906615123152733,
0.02696448750793934,
-0.011033924296498299,
0.00693736644461751,
0.04779280349612236,
0.03420226275920868,
0.025085031986236572,
-0.00796674843877554,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Examples of directly attributable costs are:
- (a) costs of employee benefits (as defined in AS 15, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment;
- (b) costs of site preparation;
- (c) initial delivery and handling costs;
- (... | [
-0.009269640780985355,
0.009633042849600315,
0.0096396179869771,
-0.02476443164050579,
-0.0184484850615263,
-0.04287256300449371,
-0.011768282391130924,
-0.025438999757170677,
0.008568459190428257,
0.05439089983701706,
0.018669966608285904,
-0.001548812142573297,
0.04056200757622719,
0.004... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Examples of costs that are not costs of an item of property, plant and equipment are:
- (a) costs of opening a new facility or business, such as, inauguration costs;
- (b) costs of introducing a new product or service (including costs of advertising and promotional activities);
- (c) ... | [
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-0.014285634271800518,
0.006059136241674423,
-0.03237712383270264,
-0.019329829141497612,
-0.03469027206301689,
0.007974311709403992,
-0.0069411322474479675,
-0.03053845465183258,
0.04067699983716011,
0.05568132922053337,
0.0203624926507473,
0.038068804889917374,
-0.... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Audit procedures
| To establish the EXISTENCE of PPE as at the period-end | Review entity's plan for performing physical verification of PPE i.e. whether performed by own staff or by a third party and the policy regarding periodicity i.e. whether physical verification shall be done on annual b... | [
0.020319148898124695,
-0.0051765223033726215,
0.010202857665717602,
0.03299300745129585,
-0.013489005155861378,
0.003120669862255454,
-0.06476353108882904,
0.006442069076001644,
0.015425334684550762,
0.03697848320007324,
0.01830027438700199,
-0.005417700856924057,
0.04640975594520569,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (i) Title deeds of Immovable Property not held in name of the Company
The company shall provide the details of all the immovable property (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) whose title d... | [
0.003378646681085229,
-0.020606856793165207,
0.01177296880632639,
-0.004512358456850052,
-0.007097316440194845,
-0.03426521643996239,
0.02667929045855999,
0.0015739559894427657,
-0.007408601697534323,
0.049602217972278595,
0.03757701441645622,
0.04144901782274246,
0.06253425031900406,
0.01... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 3.8 Intangible Assets (comprising Goodwill, Brand/ Trademarks, Computer Software etc.)
An intangible asset is an identifiable non - monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative ... | [
-0.029603971168398857,
0.01702955923974514,
-0.036882489919662476,
-0.0115482984110713,
0.014909938909113407,
-0.03022824414074421,
0.03704625740647316,
-0.05247221142053604,
-0.013883384875953197,
0.03454126417636871,
0.021702513098716736,
0.005866494495421648,
0.029358234256505966,
-0.00... |
Inter_P5_Audit_Mod1_Chapter_5_Audit_of_Items_of_Financial_Statements.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licenses, import quotas, franchises, customer or supplier relationships, customer loyalty,... | [
-0.03452809527516365,
-0.011902578175067902,
0.004178510047495365,
-0.005365965887904167,
-0.017427146434783936,
-0.031048964709043503,
0.011081863194704056,
-0.042627979069948196,
-0.008770802058279514,
0.061968494206666946,
0.027938777580857277,
0.022243252024054527,
0.03685975819826126,
... |
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