Audit Material Q.1 Management Audit 1. 2. 3. 4. 5. 6. 7. Management Audit is an Independent Appraisal Activity.

Purpose: To find Out efficiency of Internal Control System. Scope: Very wide than any other Audit. Periodicity: Once in 2-3 Years. Management Auditor has to report to Top Management. Report Submitted to M.D/Executive Director. Management Audit covers that all activities for which Top Management is Responsible.

Who will Conduct Management Audit? 1. Company Talent – include - Administrative Staff - Audit Committee 2. Out side Management Consultant - CA - CWA - MANAGEMENT CONSULTANT Q.2 CARO-2003 1. CARO is A Modified version of MAOCARO. 2. CARO=Companies Auditor’s Report Order, 2003 3. CARO,2003 is issued by Central Government. 4. Required to follow each and every Company but Exemption is there. 5. Following Indian Company are Exempted from the Provision Of CARO: - Banking Company - Insurance Company - Private Ltd Company which are Exempted Less Then Whose 50 Lakh Paid Up Capital + Reserves 500 Lakh Annual Turnover - Company licensed to operate as per the provisions of Sec.25 of Companies Act. 6. As per CARO,2003 Auditor has to give Expert Opinion On Following issues on Auditors’ Report: - Fixed Assets - Inventory - Loans - Public Deposits

Review of Financial Statement before submission to Board of Directors 2.4 Audit Committee 1. 3. 6.D/W.Internal Audit System .1956 Apply. 2. Vouchers. Remuneration: Remuneration received from General Meeting/BOD (as decided in General Meeting).D Duty: Interact with Auditors about A.3 Branch Audit 1. Out of Directors minimum 2/3 must be M. Sec. Do not have a Right: To receive Notice of General Meeting. Right to Visit Branch. Act as Suggested by B. To Attend and participate such General Meeting.O. 7. 4. SCOPE AND FUNCTION OF AUDIT COMMITTEE 1.T. Right to Obtain Information and Expenses. Normally: Branch Auditor=Branch Auditor Duty: To Prepare Branch Audit Report Forward Report to Company Auditor If Company Auditor = Branch Auditor. Normally Company Auditor shall be appointed as a Branch Auditor.Financial Management etc.. To give Expert Comment is mandatory for the Auditor Q. 4.Fraud . 2. Internal Control B. No Need to prepare Branch Auditor.Maintainance Of Cost Records .292 (A) Company Act. Financial Statement 5. 3. 5. Accounts. Q. Mandatory for: Public Company Having Paid Up Capital Minimum: Out Of Members minimum 3 must be Director. Selection of Statutory Auditors to be recommended for Appointment .D 6.Sickness . Right: Right to access Books.

Pass resolution and appoint Cost Auditor. Take Care. Accounting Standard is prescribed by Institute of Chartered Accountant of India with consultancy of National Advisory Committee on Accounting Standard. . 2. Ensures reliability and credibility of the functionality of the Management. 3. 2. 5. 4. 3. If not follow :Disclosure require Q. This is Known as Pre Audit. 9.5 Cost Auditor 1. Profit and Loss Account and Balance Sheet are prepared as per Accounting Standard. 5. 7. 5. To select and Establish Accounting Policies. 1956 Apply. Board of Directors. 3. Get Auditor’s Confirmation. 7. 217. 6. Get Approval of Central Government about Auditor. Statutory Auditor. Act as a communication link between Internal Auditor. 3.7 Pre Audit 1. Act as Evidence in litigation cases in which Board of Directors and other officials of the organization might be involved.297. Review Expense Accounts of Senior Officers. BENEFITS OF AUDIT COMMITTEE 1. Administrative Control of internal control function.227 Company Act. When Payment are made by business and non business entities. 7. Maintain Internal Audit Operation. Every Company shall follow Accounting Standard. Proper scrutiny is necessary before making such Payment.6 Accounting Standard 1. 6. Q. Central Government directs to appoint Cost Auditor. Appointment in accordance with Sec 224 (1) (B). To act as Liaison between Statutory Auditor and Board Of Directors 4. Inform Cost Auditor. 2. Review financial Statements and seek clarification from the statutory Auditors. 314 etc.3. Follow Sec.211. Travelling Expenses. 2. Accounting Records handed over within 90 days of relevant Accounting Year to Cost Auditor. Q. 8. Presentation and Publication of statements relating to Financial Position and Business Operation. 5. Helps Board of Directors in discharging their functions properly. Example: Payment like Salary. File Form 23C. 8. Sec. Medical Expenses etc. 4. 4.

6. 5. Certificate should guarantee correctness of Financial Information and Other Matters. 2. Professional Integrity and B. 4. Guarantee: Report may not guarantee correctness of Financial Statement. Certificate does not contain any Opinion. Disqualification: . Right of the Auditor and Disqualification of the Auditor 1. Rights of an Auditor: 1. Right to obtain Information and Explanation.Disqualification to act as an Auditor in case of . Opinion: Report is a document through which an Auditor expresses his opinion on Financial Statement. Made: Report is made out of the information available to Auditor. It is very difficult to define Independence Precisely. Q.9 Independence of the Auditor . Pre Audit may not be possible when heavy payments are done within short period of time. Judgments of the Auditor are not dependent on the self Interest or wishes of the person appointing him. Certificate is issued on those fact and data which are capable of absolute Certification. 2. Q. 5. Certain Laws and Rules of Professional Conduct have been framed to guide the Auditor in maintaining the Independence. Right to receive Notice of General Meeting. A. Right to make representation in writing and/or to be heard in General Meeting in connection with his removal. 3. Accounts and Vouchers. 3. These payments are disbursed after making proper scrutiny of the employees of the concern who are normally Internal Auditor. 2. 5. 3.8 Report-Certificate-Difference 1. 6. Independence are essential characteristics of all the learned Professions.4. Right to access Books. Right to Reappointment of an Auditor generally by Shareholders and in certain case by passing of Special Resolution. An Auditor is not only requiring being independent but also appearing to be independent while conducting the Audit of an Enterprise. 4.

6. There is inverse relationship between Audit Risk and Materiality. Types: . Q.Internal Risk . He is an Employee of any Officer. 1. Audit Risk decreases Materiality increases. He has given any guarantee on behalf of any other person of the company. 2. Disqualification to act as an Auditor in case 1. Evidence need not to be documentary 3. Types: . 2. Physical Verification of Fixed Assets conducted by Management. (AAS: 13) Audit Risk Increases Materiality decrease. 10.12 Audit Techniques 1. Computation 7. He is a Partner or an Employee of any Officer or Employee of the company. 3. Confirmation Co-relate with related information Re-tracking Book Keeping Inquiry Observation of pertinent Activity Q. Audit Evidence influence the judgment of an Auditor.10 Observations: Situations where External Auditor can employ techniques of Observations.Detection Risk 5.13 Audit Evidence 1. 4. He owns a sum of more then Rs. Disqualification to act as an Auditor in case 1. Purpose: To get reliable Audit Evidence 3. 10 Techniques Of an Audit 1. Q. 3. It is a tool used by the Auditor. Physical Examination 3. 8. Compare-Documents with records 5. 4.- - 1. Auditor should consider Materiality and its relationship with Audit Risk while conducting an Audit of the Organization. Examine Sub-records 2.Control Risk .11 Audit Risk: Types 1. 2. He is an employee of the Company OR 3. Q. 2. Physical Verification of Inventories. 1000 OR 2. Scanning 9. Observation procedural aspects of payment of wages actually followed to determine compliance with laid down procedure. He is a Partner OR 2.

Corroborative Evidence: Includes: 1. Auditor should look for more compelling Evidence to support the Prima facie Evidence. However. 4. Corroborative Evidence A. 5. 4. Analytical Evidence: Includes 1. if suspicion arises. He can conduct a more effective Audit if he concentrates on intelligently selected areas.A. In Such a Situation. 2. In view of large number of transactions of an Organization.14 Auditing in Depth 1. Confirmations 3. Subsidiary Book 2. 3. Any other Records Which supports the data appearing in the books of accounts B. Auditing in depth comes in handy. Auditor examine supporting records at each Stage . it has become particularly difficult for an auditor to undertake a detailed vouching and post Audit of the large volume. Cancelled Cheques Reliability: . 2. A. Visual.Corroborative Evidence means additional Evidence to supports the original Evidence Suspicion: . Nature. 5. Q. In Auditing in Depth. Def: Auditing in Depth means tracing of a Transaction through its various stages from Origin to Conclusion. Sources-Internal or External B. Invoices 2. Documentary or Oral C. Reconciliation Statement 4. Journal 5. 3. Analytical Evidence B.Reliability of an Audit Evidence depends on its A. On the circumstances under which it is obtained Meaning: . Allocation Sheet 3. 1.Theoretically there is no best evidence and the Auditor normally relies on prima facie evidence which is considered adequate in the absence of suspicion.

Necessary Directions may be given for proceeding further. Who: Submit to Top Management by Internal Auditor 3. Object: To record and demonstrate Audit Work from One Year to Another Record: A. 4.On receipt of such Summary Report . Prepared by tracing: A.AOA. Necessary Directions: . To Prevent such Irregularities B. To Prevent Supervisory Lapses.Partenership Deed B. Major Irregularities B. Q. Profit and Loss A/c 6. Minute Book C. Permanent Audit File . Conclusions from Audit Evidence 5.16 Audit Working Paper 1. 6. Immediate Actions B. Immediate Measure: . Supervisory Lapses C. Audit Procedure C.B. 5.Management will take immediate Measures A. Example: Purchase of an Item from indent stage to receipt/issue of material verifying all related Activities. Irregularities for which immediate action is required 4. Q.Planning and actual Completion of internal Audit can be accessed by summary Report.15 Summary report to Top Management 1. Necessary Directions A. It is a Property of the Auditor.A conclusion from summary report requiring immediate Actions is Important Function. Audit Plan B. Audit Working Paper is a Link between Audit Report and Client Records. Classification: A. When: Submit when internal Audit Complete. 2. Immediate Actions: . B. Functions of Summary Report: A. Balance Sheet. 3. Ascertain whether all the requirement laid down in the system of internal check have been complied with. MOA. Form and content vary from one Audit to Another 7. Content of Summary Report: A. 2.

Audit Note-Book will defend Auditor in the event of action for Negligence. Interest of B. Large variety of matters observed during course of Audit is recorded. 4.17 Audit Note-Book 1. Central Government has power to order special Audit of Accounts of Company for specified Period. 5. At any AGM Retiring Auditors shall be reappointed 3. Extent of documentation is a matter of Professional Judgment. Special Audit ordered if Central Government is of the opinion that : A. . Q. 2. Audit Note-book is a Part of Audit Working Papers.passing of resolution is essential 5. Special Auditor must report to C.224 (2) Company Act. 3. 4. 4.G. Important matters for future reference 6. Each Year prepared separately. Q.T . Principals and Practices: . Even for reappointment of retiring auditor . Audit Notebook includes: A. Sec. 3. 1956 Apply 2.19 Reappointment of retiring Auditor 1.B. Missing receipt and vouchers C. Industry or Trade to which it pertains C. Not Reappointed If: A. It is a bound book.18 Special Audit 1. Current Audit File 8.Affairs of the company not being managed on sound business principals and prudent commercial practices. B.I. In absence of resolution. Sec. Audit queries uncleared B.Company managed in manner which is likely to cause serious or damages to the interest of Business. Resolution passed at meeting for appointing somebody else instead of him OR Providing expressly that he shall not be reappointed.233A Apply 2. Financial Position of the company is such as might endanger its solvency. Not qualified for reappointment C. Remuneration decided by Central Government Q. Remuneration paid by Company 6. 5. Unwillingness B. retiring Auditor not deemed to be reappointed automatically.

Power to appoint auditor is generally of the share holders.initio 3. Sec 224 (5) Company Act. Sec:224(1) a.21 Appointment by Central Government 1. Q. 225. Require to be appointed at AGM but not so appointed C.Q.G. 5. Central Government will appoint auditor out of panel of name suggested by applicant Company. Central Government can appoint auditor if Auditor A. Hold Office till conclusion of Next AGM. First Auditors b. Hold Office until conclusion of Next AGM. Sec :224(1)(A) a. 6. Except: If it is a. If First Auditor named in AOA then they will not be treated 1st Auditor because Ac does not recognize this method 8. 2. At Every AGM.20 First Auditor of the Company 1. Filling of casual Vacancy caused otherwise than by Resignation c. . First Auditor can be appointed only by BOD resolution or GM Resolution. Auditor also required to intimate to ROC in writing within 30 Days of the intimation received by him from the company about acceptance or non acceptance of his Appointment. empowered to appoint Auditor 4. Require to be appointed by special Resolution but not so appointed B. Q. If BOD fails to appoint 1st Auditor then company in general meeting may appoint First Auditor 7. Auditor not appointed as per Sec. Appointment of a person as an auditor at AGM is void-ab. Every Company Shall appoint auditor b. 2.22 Appointment by Share holders 1. 6.188 Company Act. Sec 224 (3) Company Act. Tenure of Appointment: a. 1956 apply 2. c.190. 1956 Apply First Auditors appointed by BOD within 1 month of registration of the company Hold office till conclusion of First AGM Company at GM may remove such Auditor and appoint another in their place Such other can be persons nominated by members of the company of which notice of > 14 days given to company by member. 5. C. 3. Company shall intimate to auditor of appointment within 7 days. 4. 1956 D.

. 1956 Apply Fixed By Appointment authority i. Auditor continuous in the office till AGM actually held and concluded. GENERAL MEETING. Auditor continuous in Office till conclusion of Adjourned Meeting.224 (3) Company Act. Amount fixed for previous period deemed to be considered for current year also as Remuneration 5. 2.b. If AGM is adjourned. Q. If AGM not Held within prescribed time. 3. c. Part II -Separate disclosure is required to be made in P & L A/c of all Amounts Reappointment of Retiring Auditor: In absence of anything contrary. BOD. Sec. CENTRAL GOVERNMENT Remuneration: Paid by the Company in respect of Auditor’s Expenses Disclosure: -Follow Schedule VI.23 Remuneration of an Auditor 1. 4.e.

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