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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## AUDITING AND ETHICS -  In the case of goods in the possession of the bank, contents of the packages should be test checked at the time of receipt. The godowns should be frequently inspected by responsible officers of the branch concerned, in addition to the inspectors of the ...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## Test Your Understanding 4 CA P is conducting stock audit of a borrower availing cash credit facility of ` 100 lacs from branch of a bank. The cash credit facility is against security of paid stocks and debtors up to 90 days. Margin stipulated is 25% for stocks and 40% for debtors. Following furthe...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## LOSS ACCOUNT Sub-section (1) of Section 29 of the Banking Regulation Act, 1949, requires the preparation of Profit and Loss Account in Form B of Third Schedule to the Act or as near thereto as the circumstances admit. | | Schedule | For the Yezr ended 31,03,...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 15.1 Income The following items are included under this head: | | Other Income ...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## AUDIT OF BANKS - [ ]  Profit/Loss on Revaluation of Investments - [ ]  Profit on sale of Land, Buildings and Other Assets: - [ ]  Profit/Loss on Revaluation of Fixed Assets - [ ]  Profit on exchange transactions: This includes revaluation gains/losses on forward exchange contracts and ot...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 15.1.1 Audit Approach and Procedures -  Auditor's Concern:In carrying out audit of income, the auditor is primarily concerned with obtaining reasonable assurance that the recorded income arose from transactions, which took place during the relevant period and pertained to the ...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## AUDITING AND ETHICS -  Revenue Uncertainty:In view of the significant uncertainty regarding ultimate collection of income arising in respect of non-performing assets, the guidelines require that banks should not recognize income on nonperforming assets until it is actually reali...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## Reversal of Income: - (a) 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 realised. This will apply to Government...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## On Partial Recoveries in NPAs: In the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e., towards principal or interest due), banks are required to adopt an accounting policy and exercise the right of appropriation of recover...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## Income from Investments Interest Income on Investments: This includes all income derived from Government securities, bonds and debentures of corporates and other investments by way of interest and dividend, except income earned by way of dividends, etc., from subsidiaries and joint ventures abroa...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## Expenditure is to be shown under three broad heads : - (1) Interest expense - (2) Operating expense - (3) Provisions and contingencies. The following items are included under this head: | Interest Expense | Operating Expenses ...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## AUDITING AND ETHICS | Bank's Property | |--------------------------------------------| | ♦ Directors' Fees, Allowances and Expenses | | ♦ Auditors' Fees and Expenses | | ♦ Legal expenses | | ♦ Postage, Telegrams, Telephones, etc. ...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 15.2.1 Audit Approach and Procedures -  In carrying out an audit of interest expense, the auditor is primarily concerned with assessing the overall reasonableness of the amount of interest expense by analysing ratios of interest paid on different types of deposits and borrowings to the a...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## AUDIT OF BANKS -  The auditor should also compare the average rate of interest paid on the relevant deposits with the corresponding figures for the previous years and analyse any material differences. The auditor should obtain general ledger break-up for the interest expense incur...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## For audit of Operating expenses , 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. - should examine whether there are any d...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## For audit of Provisions and contingencies the auditor should :- - ensure that the compliances for various regulatory requirements for provisioning as contained in the various circulars have been fulfilled. - obtain an understanding as to how the bank computes provision on standard assets and non-p...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 15.3 Disclosure of the prior period items Since the format of the profit and loss accounts of banks prescribed in Form B under Third Schedule to the Banking Regulation Act, 1949 does not specifically provide for disclosure of the impact of prior period items on the current year's profit and loss, ...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## CASE STUDY CA M is conducting statutory audit of branch of MMC Bank. During the course of audit, it is noticed as under:- - (i) Loans under 'Kisan credit card' are given by Bank to farmers to meet their short-term credit needs for cultivation of crops. In respect of one agricultural advance...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## Based on above, answer following questions: - (1) As regards description of agricultural advance, which of the following statements is most appropriate in this regard? 2. (a) The branch has erred in making classification as per RBI norms. It is a 'Sub-standard' asset. 3. (b) The classification...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## AUDITING AND ETHICS - (4) Which of the following statements is not true about 'drawing power' (DP)? 2. (a) Drawing Power refers to the amount calculated based on primary security less margin as on particular date. 3. (b) It is always less than sanctioned limit. 4. (c) It can be different from sanc...
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Inter_P5_Audit_Mod2_Chapter_10_Audit_of_Banks.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## SUMMARY - ♦ Commercial banks are the most wide spread banking institutions in India, that provide a number of products and services to general public and other segments of economy. Their main functions are accepting deposits and granting advances. - ♦ Banking operations are conducted only at the b...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## After studying this chapter, you would be able to understand- - ♦ Meaning of 'Ethics' - ♦ Need for Professional Ethics - ♦ Fundamental Principles of Professional Ethics - ♦ Independence of Auditors - ♦ Threats to Independence - ♦ Safeguards to Independence - ♦ Professional Skepticism - ♦ SA 210 Ag...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 1. MEANING OF ETHICS - A STATE OF MIND The term 'Ethics' means moral principles which govern a person's behaviour or his conducting of an activity. It is the branch of knowledge that deals with moral principles. Ethics is something which comes from an individual intrinsically. It has ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 2. NEED FOR PROFESSIONAL ETHICS Professions like law, medicine have their code of ethics. Auditing profession is no exception. Rather, in the profession of auditing, requirement of ethics is manifold. It is due to the reason that society in general, governments, clients, taxing authori...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 3. PRINCIPLES BASED APPROACH VS RULES BASED APPROACH TO ETHICS (ETHICAL OR LEGAL) Ethical guidance may follow principles-based approach or rules-based approach. The essence of principles-based approach to ethics is that it requires compliance with spirit of ethics. It requires accountants to e...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 4. FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS The fundamental principles of ethics establish the standard of behaviour expected of a professional accountant. A professional accountant shall comply with each of the fundamental principles. The fundamental principles of professional ethics are as ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 1. Integrity A professional accountant shall comply with the principle of integrity, which requires an accountant to be straightforward and honest in all professional and business relationships. Integrity implies fair dealing and truthfulness. A professional accountant shall not knowingly b...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 2. Objectivity The principle of objectivity requires an auditor not to compromise professional judgment because of bias, conflict of interest or undue influence of others. It requires that a professional accountant shall not undertake a professional activity if a circumstance or relationship undu...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 3. Professional competence and due care A professional accountant shall comply with the principle of professional competence and due care, which requires an accountant to attain and maintain professional knowledge and skill at the level required to ensure that a client or employ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 4. Confidentiality Confidentiality principle requires a professional accountant to respect the confidentiality of information acquired as a result of professional or business relationships. Confidentiality serves the public interest because it facilitates the free flow of information ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## 5. Professional Behaviour It requires an accountant to comply with relevant laws and regulations and avoid any conduct that the accountant knows or should know might discredit the profession. A professional accountant shall not knowingly engage in any employment, occupation or activity that impair...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
Study_Material
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[Concept: Theory] ## Test Your Understanding 1 CA P. Suryakantam has conducted audit of accounts of an entity for a particular year. ICAI has issued a letter to him relating to certain matters concerning audit. He didn't even bother to reply to the letter despite reminders. Discuss which fundamental princip...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Test Your Understanding 2 A Chartered accountant in practice issued a certificate showing original cost of plant and machinery installed in premises of a client for Rs. 9 crores to save some regulatory fees for his client. However, original cost of plant and machinery was Rs.15 crore ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 5. INDEPENDENCE OF AUDITORS Professional integrity and independence are essential characteristics of all the professions but are more so in the case of accountancy profession. Independence implies that the judgement of a person is not subordinate to the wishes or direction of another pers...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 6. THREATS TO INDEPENDENCE Many different circumstances, or combination of circumstances, may be relevant and accordingly it is impossible to define every situation that creates threats to independence and specify the appropriate mitigating action that should be taken. In addition, the nature ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 1. Self-interest threats Self-interest threats occur when an auditing firm, its partner or associate could benefit from a financial interest in an audit client. Examples include - (i) direct financial interest or materially significant indirect financial interest in a client - (ii) loan...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 2. Self-review threats Self-review threats occur when during a review of any judgement or conclusion reached in a previous audit or non-audit engagement, or when a member of the audit team was previously a director or senior employee of the client. Non audit services include any professi...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 3. Advocacy threats Advocacy threats occur when the auditor promotes, or is perceived to promote, a client's opinion to a point where people may believe that objectivity is getting compromised, e.g., when an auditor deals with shares or securities of the audited company, ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 4. Familiarity threats Familiarity threats are self-evident, and occur when auditors form relationships with the client where they end up being too sympathetic to the client's interests. This can occur in many ways including: - (i) close relative of the audit team working in a senior position in ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 5. Intimidation threats Intimidation threats occur when auditors are deterred from acting objectively with an adequate degree of professional skepticism. Basically, these could happen because of threat of replacement over disagreements with the application of accounting principle...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 7. SAFEGUARDS TO INDEPENDENCE Chartered Accountants have a responsibility to remain independent by taking into account the context in which they practice, the threats to independence and the safeguards available to address the threats. Safeguards are actions, individually or in combination,...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## To address the issue, the following guiding principles are to be applied: - - For the public to have confidence in the quality of audit, it is essential that auditors should always be and appears to be independent of the entities that they are auditing. - Before taking on any work, a...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 8. PROFESSIONAL SKEPTICISM Professional skepticism refers to an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. It signifies that auditor has to remain alert...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Maintaining professional skepticism throughout the audit is necessary if the auditor is to reduce the risks of: - Overlooking unusual circumstances. - Over generalising when drawing conclusions from audit observations. - Using inappropriate assumptions in determining the nature, timing, and extent...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Test Your Understanding 3 CA Raman Gupta is offered appointment as auditor of a company. One of his distant uncles held some shares in the same company. Holding of such shares, by a distant relative, is not prohibited under provisions of law nor does it affect his independence. Before he could a...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Test Your Understanding 4 A Chartered accountant receives about 40% of his total audit fees from a single client. Discuss how it could affect independence of Chartered accountant as auditor of this client. What are such types of threats referred to as?
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Test Your Understanding 5 CA Murli Madhavan provides accounting and book keeping services to a leading NGO engaged in environmental protection work. He is also offered audit of the accounts of NGO. Identify and discuss what kind of threat to independence may be involved in accepting such an engage...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Test Your Understanding 6 The auditors of a company have only relied upon management representation letter regarding treatment of certain tax matters under appeal by the company. The auditors have not carried out any other audit procedures to justify management's treatment of the said ta...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## AUDIT ENGAGEMENT AND TERMS OF AUDIT ENGAGEMENT An audit engagement involves engaging an auditor by a client for audit of its financial statements. Audit engagement terms can include matters such as objective and scope of audit of financial statements, responsibilities...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## AGREEING THE TERMS OF AUDIT ENGAGEMENTS SA 210 deals with the auditor's responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance. This includes establishing that certain preconditions for an audit, respons...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## ETHICS AND TERMS OF AUDIT ENGAGEMENTS The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through: - (A) Establishing whether the preconditions for an audit are present and - (B) Confirming that there is a...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 9A Preconditions for an audit As per SA 210 'Agreeing the Terms of Audit Engagements', preconditions for an audit may be defined as the use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of manag...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## In order to establish whether the preconditions for an audit are present, the auditor shall: - (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 th...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 9B. Agreement on audit engagement terms Except in the cases where it is required under law to get accounts audited (for example in case of companies), audit is a matter of contract between auditor and client. It is, therefore, important, both for the auditor and client, that each par...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## ETHICS AND TERMS OF AUDIT ENGAGEMENTS - (e) Reference to the expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected form and content. If law or regulation prescribes in suff...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## The objective and scope of the audit You have requested that we audit the financial statements of Pristine Products Limited, which comprise the Balance Sheet as at March 31st, 20XX, the Statement of Profit & Loss, Cash Flow Statement for the year then ended, and notes to the financial statemen...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## The responsibilities of the auditor We will conduct our audit in accordance with Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India (ICAI). Those Standards require that we comply with ethical requirements. As part of an audit in accordance with SAs, we exercise...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## The responsibilities of management Our audit will be conducted on the basis that management and, where appropriate, those charged with governance acknowledge and understand that they have responsibility: - (a) For the preparation of financial statements that give a true and fair view i...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## Reporting We will report to the members of Pristine Products Limited as a body, whether in our opinion, the financial statements give the information required by the Companies Act, 2013 in the manner so required and give a true and fair view in conformity with the accounting principles g...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## AUDITING AND ETHICS - (ii) Additional information that we may request from management for the purpose of the audit and - (iii) Unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence. This includes our entitlement to require...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 11. WHAT HAPPENS IF PRECONDITIONS FOR AN AUDIT ARE NOT PRESENT? If the preconditions for an audit are not present, the auditor shall discuss the matter with management. Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement: - - (a) If the ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 12. LIMITATION ON SCOPE PRIOR TO AUDIT ENGAGEMENT ACCEPTANCE If management or those charged with governance impose a limitation on the scope of the auditor's work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 13.1 Request from Entity to change the Terms of Audit Engagement-When Reasonable Justification Exists? A request from the entity for the auditor to change the terms of the audit engagement may result from a change in circumstances affecting the need for the service, a misun...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 13.2 What should auditor consider before agreeing to change the audit engagement to the engagement providing lower level of assurance? If, prior to completing the audit engagement, the auditor is requested to change the audit engagement to an engagement that conveys a lower level of assuranc...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 13.3 Recourse available to auditor in situation of nonagreement to a change in terms of engagement and lack of permission from management to continue original audit engagement If the auditor is unable to agree to a change of the terms of the audit engagement and is not permitted by ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 14. TERMS OF ENGAGEMENT IN RECURRING AUDITS Recurring audit is an audit which is performed by an auditor over years. On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## Test Your Understanding 7 Chirag, as part of articled training, is part of an engagement team conducting audit of a company. He has read somewhere that engagement letter issued by auditor to client also includes expected form and content of the auditor's report. He was at a loss to understand how ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## Test Your Understanding 8 The management of an entity feels that it is not necessary for it to give in writing explicitly to the auditor that it understands its responsibilities for preparation of financial statements in accordance with applicable financial reporting framework. Discuss, whether, i...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 15. AUDIT QUALITY The purpose of an independent audit is to provide confidence to users of audited financial statements. Therefore, high audit quality is essential to maintain confidence in the independent assurance provided by the auditors. It is the responsibility of auditor to maint...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 16. SQC 1 - 'QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF HISTORICAL FINANCIAL INFORMATION, AND OTHER ASSURANCE AND RELATED SERVICES ENGAGEMENTS' SQC 1 requires that the firm should establish a system of quality control designed to provide it with reasonable assurance th...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 17. ELEMENTS OF SYSTEM OF QUALITY CONTROL The firm's system of quality control should include policies and procedures addressing each of the following elements: - - (A) Leadership responsibilities for quality within the firm - (B) Ethical requirements - (C) Acceptance and continuance o...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 17A. Leadership responsibilities for quality within the firm SQC 1 requires firms to establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements. Such policies and procedures should require ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## ETHICS AND TERMS OF AUDIT ENGAGEMENTS The Code establishes the fundamental principles of professional ethics which include integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Observance of 'Independence' in all engagements is the basi...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 17C. Acceptance and Continuance of Client Relationships and Specific Engagements A firm before accepting an engagement should acquire vital information about the client. Such an information should help firm to decide about: - - Integrity of Client - Competence (including capabilities, time ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## AUDITING AND ETHICS whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client. Where issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, it should documen...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## 17D. Human resources The firm should establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to perform its engagements in accord...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 17E. Engagement Performance Consistency in quality of engagement performance is achieved through briefing of engagement teams of their objectives, processes for complying with engagement standards, processes of engagement supervision and training, methods of reviewing performance of work, app...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 17F. Monitoring The firm should ensure that policies and procedures relating to the system of quality control are relevant, adequate, operating effectively and complied with in practice. Such policies and procedures should include an ongoing consideration and evaluation of the fir...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18. SA 220- 'QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS' Based upon quality control system of firm, quality control policies pertaining to audit engagements are decided by engagement teams. Engagement partner of a team is responsible for quality control procedures of a particular audit ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18A. Leadership responsibilities for quality on audits Leadership responsibility of an engagement partner is to take responsibility for the overall quality on each audit engagement. The actions of the engagement partner and appropriate messages to the other members of the engagement team...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18B. Relevant ethical requirements The responsibilities of an engagement partner in relation to ethical requirements in an audit engagement are as under: - - Identifying a threat to independence regarding the audit engagement that safeguards may not be able to eliminate or reduce to an ...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18C. Acceptance and Continuance of Client Relationships and audit Engagements The responsibility of an engagement partner in this regard in an audit engagement is on lines of SQC 1 which requires the firm should obtain such information as it considers necessary in the circumstances before ac...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18D. Assignment of engagement teams It should be ensured by engagement partner that the engagement team and any auditor's experts who are not part of the engagement team, collectively have the appropriate competence and capabilities to perform the engagement in accordance with professional standar...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18E. Engagement Performance Engagement partner has the responsibility for direction, supervision and performance of audit engagement in accordance with professional standards and regulatory and legal requirements. He is responsible for auditor's report being appropriate in circumstances...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## 18F. Monitoring An effective system of quality control includes a monitoring process designed to provide the firm with reasonable assurance that its policies and procedures relating to the system of quality control are relevant, adequate, and operating effectively. The engagement partner shall co...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## Test Your Understanding 9 CA PK Nair is offered appointment as auditor of a company engaged in providing tourism services. While making due diligence of the proposed client, he comes to know that there have been raids on premises of the company and residences of its directors by National Investiga...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## Test Your Understanding 10 CA Arpita has joined a mid-sized CA firm recently. She finds that partners remain too busy and the firm is proposing to accept audit work in areas in which it has no experience or capabilities. The firm is proposing to accept audit of some entities engaged in emerging 'f...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## CASE STUDY Das & Co, a firm of auditors, is offered appointment as auditor of a company, a prospective new client. CA Sukanya, one of partners, is dealing with new client. While meeting with officers of the company, she comes to know that Sushant, CFO of the company, was her class mate. In fac...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## Based on above, answer following questions: 1. Considering discussion about Sukanya and Sushant, which of the following statements seems most appropriate? 2. (a) The above discussion is irrelevant in context of proposed offer. 3. (b) The proposed offer should be accepted by firm. The enga...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
Audit
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[Concept: Theory] ## SUMMARY - ♦ Fundamental principles of professional ethics include integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. - ♦ Independence implies that the judgement of a person is not subordinate to the wishes or direction of another...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## AUDITING AND ETHICS - ♦ Professional skepticism refers to an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. - ♦ Professional skepticism is necessary to the criti...
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Inter_P5_Audit_Mod2_Chapter_11_Ethics_and_Terms_of_Audit_Engagements.pdf
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[Concept: Theory] ## ETHICS AND TERMS OF AUDIT ENGAGEMENTS - ♦ High audit quality is essential to maintain confidence in the independent assurance provided by the auditors. It is the responsibility of auditor to maintain high audit quality. - ♦ SQC 1 and SA 220 both deal with quality control. Wher...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
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[Concept: Theory] ## After studying this chapter, you would be able to understand- -  Audit Documentation. -  Nature and purpose of audit documentation. -  Form, content and extent of audit documentation. -  Audit documentation summary. -  Audit file. -  Assembly of the final audit file. -  Ownership of audit d...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
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[Concept: Theory] ## 1. AUDIT DOCUMENTATION SA 230 on 'Audit Documentation', dea ls with the auditor's responsibility to prepare audit documentation for an audit of financial statements. It is to be adapted as necessary in the circumstances when applied to audits of other historical financial information. The specific...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
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[Concept: Theory] ## 1.2 Objective of the Auditor: The objective of the auditor is to prepare documentation that provides: - (a) A sufficient and appropriate record of the basis for the auditor's report; and - (b) Evidence that the audit was planned and performed in accordance with SAs and applicable legal and regul...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
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N/A
[Concept: Theory] ## 1.3 Nature of Audit Documentation Audit documentation provides: - (a) evidence of the auditor's basis for a conclusion about the achievement of the overall objectives of the auditor; and Objective of the Auditor a - (b) evidence that the audit was planned and performed in accordance with SAs ...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
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N/A
[Concept: Theory] ## 1.4 Purpose of Audit Documentation The following are the purpose of Audit documentation: 1. Assisting the engagement team to plan and perform the audit. 2. Assisting members of the engagement team to direct and supervise the audit work, and to discharge their review responsibilities. 3. Enabling...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
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N/A
[Concept: Theory] ## ILLUSTRATION 1 A new team member of the auditors of Extremely Vibrant Limited was of the view that Audit Documentation does not help in planning the audit of any company. Explain whether Audit Documentation has any relation with regard to planning the audit of a company.
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
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N/A
[Concept: Theory] ## 1.5 Form, Content and Extent of Audit Documentation -  The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand: - (a) The nature, timing and extent of the audit procedures performed. -...
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Inter_P5_Audit_Mod2_Chapter_6_Audit_Documentation.pdf
Audit
Study_Material
N/A
[Concept: Theory] ## The form, content and extent of audit documentation depend on factors such as: 1. The size and complexity of the entity. 2. The nature of the audit procedures to be performed. 3. The identified risks of material misstatement. 4. The significance of the audit evidence obtained. 5. The natu...
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