CHAPTER 01

INTRODUCTION
1. Audit has been derived from the Latin word “Audire” which means to hear
2. Confidentiality means the auditor should not disclose this information of the client
anywhere outside.
3. The Auditor has to maintain working Papers of important matters of the work done by
him.
4. Window dressing means showing the books of accounts attractive.
5. Secret Reserve means part of the profits secretly kept aside for future use.
6. The primary objective of auditing is Detection & Prevention of error & frauds.
7. In window dressing liabilities are Understated
8. Secret Reserve Liabilities are overstated.
9. Auditing can be done by an Employee of the company.
10. Investigator is appointed by the management.
11. It is Auditing which ensures that the financial statements are authentic & reliable.
12. Integrity reques that an auditor should be Honest frank & sincere in his work.
13. Objectivity means that while performing his duty the auditor should not influenced by
his/her own whims & fancies.
14. Independence means Auditor should not be influenced by any other factors.
15. Apart from his basic qualification auditor should be aware of recent developments in the
field of auditing such as circulars from All of the above
16. The evidences may be obtained through Vouching of transactions, verification of assets
& liabilities ratio, analysis.
17. The prime duty of the auditor is to report on the financial statement of the client.
18. Auditor should verify the genuineness of transaction by verifying Supporting documents
& the entries in the books of A/C.
19. Auditor should ensure that proper distinction is made between revenue & capital
expenditure
20. Auditor should check the title existence & value of the assets appearing in the Balance
sheet.
21. Auditor should ensure that profits shown by profit & loss A/C true and fair
22. The basic object of audit is to express opinion on financial statement of the organization.
23. Auditor Disclose all material facts relating to revenues, expenses, assets & liabilities.
24. The main object behind windows dressing is to cheat others.
25. When there is over statement of profit & net worth investors may get attracted, towards
the co. & may subscribe more for shares.
26. Directors are paid commission on the basis of profit earned by the company.
27. More profits & good net worth creditor’s lenders, financial institutions may grant
favourable terms & conditions.
28. Secret reserve means part of the profit secretly kept aside for Future use.
29. Secret Reserve is exactly opposite of window dressing.
30. Secret Reserve may be created by the management with the intention of Fraud.
31. In secret reserve profit as well as net worth is shown at less value in the books.
32. Secret reserve are harmful to those who deal with the concern especially to investors or
shareholder
33. Secret reserve may be used to hide the losses of the correct year.
34. Secret reserves is against the provisions of schedule VI of companies’ act 2013 it lead to
penalties.
35. Under sec 143 of co. Act 2013 the prime duty of any auditor is to report whether financial
statements audited by him are true & fair.
36. Auditor should see that all liabilities are recorded and there is no Omission or suppression.
37. The audited financial statements are considered to have complied with all legal
requirements.
38. The guideline of ICAI are followed properly while preparing as well as auditing the
financial state.
39. It became easy for the company to obtain loans from banks on the basis of Audited
financial state.
40. Net profit shown in the audited profits & Loss A/C can be taken for the assessment of
tax
41. Audited books of account cab be produced as evidence court of law in case of disputes.
42. Audited financial statement are considered to be true & fair. But they do not take into
consideration the effect of inflation.
43. A company auditor should be a Chartered Account in practice.
44. As per the requirements of SEBI to have the share listed on the stock exchange the book
of accounts have to be audited.
45. Auditor should be Systematic while doing his work.
46. Auditor should be Impartial as well as fearless while performing his duties.
47.

CHAPTER 02
ERRORS AND FRAUDS
1. Error is an Unintentional mistake in financial statement.
2. Fraud is a Deliberate & mala fide mistake
3. At the time of recording the transaction when the basic principal of accounting are no
followed property it is called as Error of principle.
4. Error of principal can be detected only by vouching all material transactions, verification
of assets & liabilities.
5. When a transaction is omitted from the book it is called as Error of Omission.
6. Omission error is may complete or partial.
7. When the whole transaction is not recorded at all in the books it is called as Complete
Omission.
8. When one aspect of transaction is recorded but the other is omitted it is called as Partial
Omission.
9. In case of complete omission the Trail balance will tally & it is difficult to rectify such
error.
10. In case of partial Omission the trail balance will not tally & it becomes easy to detect such
error.
11. When the transaction has been entered in the books but wrongly it is called as Error of
Commission.
12. When the amounts of recorded wrongly it is called Mathematical Error.
13. If errors are omitted while taking totals they are called Casting Errors.
14. When error is occurred while posting the entry in the books it is called Posting Errors.
15. When effect of one error is compensated or nullified by another error it is called
Compensating error.
16. When the same transaction is recorded twice in the books it is called Error of Duplication.
17. In case of NPO omitting cash Donations received.
18. Under casting receipts side of cash books to show less receipts.
19. Over casting receipts side of cash books to show more expenses.
20. Showing credit purchases as Cash purchases & misappropriation the money.

CHAPTER-3
TYPES OF AUDIT
1. Statutory audit is an audit which is compulsory under a particular statute or law.
2. The auditor should be Chartered Accountant in practice.
3. Non Statutory audit are not compulsory under any law.
4. Audit of Small Enterprises is generally voluntary.
5. In small enterprises, the scope of audit is determined by the Owner himself.
6. Auditor should check the Partnership Deed in respect of appointment of auditor.
7. Auditor should verify that proper Minute Book is maintained for the meeting of the
partners.
8. In company, there is a statutory audit.
9. In firm, there is a Non Statutory audit.
10. Auditor is normally appointed by Shareholders in the company.
11. Auditor is appointed by the Partners in the firm.
12. Format of audit report is prescribed under Companies Act 2013 in the company.
13. Format of audit report is decided by the Partners in firm.
14. Internal audit is a thorough examination of the accounting transaction.
15. Internal Audit is a part of internal control system.
16. Internal audit is a kind of Continuous audit.
17. Internal audit is to verify Accuracy and Authenticity of financial records presented to
the management.
18. Internal Auditor should physically check the assets.
19. Internal Auditor is appointed by the management.
20. Statutory Auditor is appointed by the company in annual general meeting.
21. Internal Auditor is an employee of the company.
22. Statutory Auditor is an outside expert.
23. In internal audit, the objective is to find out Fraud and Errors.
24. In statutory audit, the objective is to report whether financial statements are True and
Fair.
25. Internal Auditor is responsible to the management.
26. Statutory Auditor is responsible for the shareholders.
27. Internal auditor has no right to attend the meeting of Shareholders.
28. Statutory auditor has a right to attend the meeting of Shareholders.
29. In Complete audit, auditor is required to check each and every transaction recorded in
the books of accounts.
30. In Partial audit, auditor is not required to check each and every transaction.
31. In Continuous Audit accounting and auditing is done simultaneously.
32. The auditor visit the office of the client at Regular interval.
33. Audit conducted after the end of the accounting year is called as Final Audit.
34. Audit conducted between two annual audits is called as Interim Audit.
35. Interim audit helps to detect and prevent of errors and frauds at an early stage itself.
36. RBI gives guidelines for conduct of concurrent audit.
37. Concurrent audit conducted concurrently or as continuously transaction takes place.
38. The cancellation of appointment of concurrent auditor should be reported to RBI and
ICAI.
39. Concurrent Audit is to be performed for banks.

CHAPTER-4
AUDIT PLANNING & PROCEDURES

1. Establishing the expected degree of reliance on the internal control system

2. Coordination of work done by other auditors and experts
3. Auditor should obtain engagement letter acknowledged by the client
4. The auditor should get the list of all books of accounts maintained by the company
for his detailed examination
5. According to the section of 128 of the companies act every company shall keep at its
registered office proper books of accounts
6. Auditor should go through the minutes books and should examine the resolution
affecting accounting matters
7. The minute’s books must be signed by the chairman of the meeting
8. Preparation of Audit programme is an important part of audit planning
9. Study of relevant legal provisions is applicable to the client's business
10. Auditor should prepare an audit programme according to the nature and objective of
the audit
11. It specifies the allocation and distribution of audit work among the audit staff
members
12. Audit programme helps senior auditors to delegate and supervise the audit work in a
systematic manner
13. Audit programme helps in allocation of work and ensures that available audit staff is
fully utilized
14. Audit programme specifies the time period within which the particular assignment
should be complete.

CHAPTER-5
AUDIT DOCUMENTATION
1. Working papers should be properly designed and should be detailed so as to ensure
proper understanding of audit
2. Having a better understanding of client's accounting and internal control system
3. Working papers help the auditor to supervise and review the on-going audit work
4. Working papers serve as an evidence in the court of law
5. In case of recurring audits working papers can be divided into permanent audit file
and current file pertaining to audit for current year
6. Letters to management by auditor containing observations on earlier audits
7. Correspondence between auditor and outsiders like debtors, creditors & banks
8. Audit working papers are the property of the auditor
9. Auditor should take precautions for custody and safe preservation of working
papers
10. Lien is a right to keep possession of property belonging to another person until a
debt owed by that person is discharged
 11. Client's books can be kept at a different place with board resolution and notice to
the registrar of companies
12. Though it is legally allowed it is practically not possible for the auditor to exercise
right of lien on client's books
13. An audit notebook is a book which is maintained by the audit staff
14. Audit notebook may be a great help to the auditor preparing his audit reports from
such records
15. For each year audit a fresh audit notebook is used
16. Particulars of accounting and financial system and internal control system followed
by the client
17. Audit notebook can be a documentary evidence in case of legal suits filed against
the auditor
18. Audit notebook helps in making an assessment of the work of audit clerks
19. SA-210 deals with terms of Audit engagement
20. To emphasize that the directors and primarily responsible for producing true and
fair accounts
21. Two copies of letter should be sent one to be signed and returned by the client as
acknowledgement

CHAPTER-6
TEST CHECK
1. Auditor’s duty has to state whether financial statements are True & Fair.
2. A large Organization is associated with a large volume of transaction.
3. The organization has satisfactory Internal Check system, auditor need not check all
the transactions.
4. The auditor may resort to Test checking of Transaction.
5. Test Checking means examination of selected number of items.
6. These evidences are in the form of Voucher and the process is called as Vouching.
7. Test check enables him to form his opinion on the Financial Statements.
8. Routine Checking means examination of all transactions.
9. Items are selected by applying statistical techniques of Sampling, It is called as
Statistical Sampling.
10. Thus by adopting test Checking, auditor can save a lot of Time and Energy.
11. Auditor can devote his attention to more important aspects of the accounts.
12. Test Checking can reduce work load of the auditor but it does not reduce his liability.
13. Test checking may be weekly, monthly or Quarterly.
14. Test Checking can reduce work load of the auditor but it does not reduce his liability.

CHAPTER-7
AUDIT SAMPLING

1. The purpose of Standard on Auditing-530 (SA-530) is to provide guidelines for the

design and selection of an audit sample and to evaluate the sample results.
2. SA-530 defines Audit Sampling as the application of audit procedures.
3. Auditor should design and select an audit sample, perform audit procedures on them
and evaluate the sample results.
4. The population is the entire set of data from which the auditor wishes to select the
sample to arrive at a conclusion.
5. The auditor has to determine that the population from which the sample is selected is
appropriate for specific audit evidence.
6. Auditor has to decide the sample size based on the audit objective, and size of
population.
7. Tolerable error is the maximum error in the population that the auditor would be
willing to accept and still conclude that the result from the sample has achieved the
audit objective.
8. If the auditor expects error in the population he has to select a large sample size as
compared to the size where he expects no error in the population.
9. The auditor can conclude that actual error is not greater than the planned tolerable
error.
10. Small sample sizes are selected when population is expected to be free from errors.
11. There are three methods of selecting sample items.
12. Random selection of all items in the population have equal chance of getting selected.
13. In systematic selection sample is selected using constant intervals between selections.
14. In haphazard selection care has to be taken that auditor is not biased in this case.
15. In analyzing the errors detected in the sample auditor needs to first determine that an
item in question is in fact an error.
16. The auditor projects the error results of the sample to the population from which the
sample was selected.
17. Auditor should take care that method of projection is consistent with the method of
selecting the sampling unit.
18. The auditor needs to consider whether errors in the population have exceeded the
tolerable error.
19. To accomplish this, auditor compares the projected population error to the tolerable
error.
 CAHPTER-8
INTERNAL CONTROL & INTERNAL CHECK

1. Internal control are Mechanism rules and procedure implemented by a company to

ensure the integrity of financial an accounting information promote accountability
and prevent fraud.
2. Internal control relates directly to the function of accounting system.
3. Internal control can be classified into two categories Accounting control and
administration controls.
4. Accounting control is related to accounting system.
5. In accounting control transactions are promptly recorded with correct amount.
6. Administration control our internal control other than accounting control.
7. Accounting control has a direct impact on the reliability of the financial
information.
8. Administration control that have effect on reliability of the financial information is
check in financial audit.
9. In a large organization auditor has to depend on the internal control system for the
conduct of his Audit work.
10. Auditor has to collect information about the hierarchy as well as financial power
assigned to various head.
11. Internal controls reduce the amount of audit work and burden on the auditor.
12. Manipulation and miss appropriation by top management itself will completely
defeat the purpose of internal control.
13. Auditor has to study an evaluate the internal controls.
14. Internal control helps the auditor to determine the effectiveness of the system.
15. The auditor may report to the management the weakness in internal control system
it called letter of weaknesses.
 16. Purchase/sales book and stock book should be checked to detect the error and
fraud.
17. Statement of accounts maintaining the amount from debtors, amount receivable
from debtors periodically.
18. Internal check are checks on day-to-day transaction.
19. Internal check is a part of the system of internal controls.
20. Establishment of system of internal check is a responsibility of the management and
not the auditor.
21. Internal check is an arrangement of duties in such a way that work of an employee is
checked by work of another employee.
22. Operational efficiency is ensured by internal control.
23. The object of internal check /internal control/internal audit is to prevent from error
and fraud.
24. Test check is helpful full to the auditor in reducing workload and saving time.
25. Test check is implemented by the statutory order.
26. Internal check is implemented by the management.
27. Test checking means to select an exam in a respective sample from large number of
similar items.
28. Auditor determines whether the internal control our adequate or not.

CHAPTER- 9
INTERNAL AUDIT
1. Internal Audit is a review of the operations and records, sometimes continuously
undertaken, within a business, by specially designed staff.
2. Internal audit is a part of internal control system.
3. Internal check is an arrangement of duties in such a way that work of one employee is
checked by work of another employee.
4. Internal auditor has no right to attend the meeting of shareholder.
5. External auditor is appointed by the company in annual general meeting (AGM).
6. Objective of an internal audit is to examination of accounts.
7. The statutory provision for every unlisted company having paid-up capital Rs.50 crore
or more.
8. The extent of checking done by the internal auditor depends upon the size and type of
the business organization.
9. Statutory provision for every private company having the turnover of Rs.200 crore or
more
10. Every private company having outstanding loans or borrowing from bank or public
financial institutions exceeding Rs.100 crore.
11. The internal auditor has to maintain documents or working paper of important matters
of the work done by him.
12. The external auditor’s role is to evaluate the system of internal auditor.
13. The most important function of internal auditor is to review accounting system and
existing internal control.
14. Internal auditor is appointed by the management.

CHAPTER- 10
VOUCHING
1. Entries in the books of account are made on the basic of various documents. These
documents include bills, receipts, pay in slip, cheques, counter -foils etc. These
documents are called “VOUCHERS”.

2. Name of the concern indicating that the transactions pertain to the client and not to
any other concern.

3. Date of the voucher indicating the period to which the transaction pertains.
4. Serial number of the voucher to ensure that there are no missing vouchers and that all
transactions are recorded.

5. Accounting head auditor should ensure that transaction has be debited / credited to
appropriate accounting head.

6. Description of the transaction so as to understand the nature of the transaction

undertaken.
7. Amount in figure and in words so as to avoid any alteration of figures.

8. Signature of authorized officer so as to ensure the validity of the transaction.

9. Signature of the person preparing the voucher in order to fix the responsibility for any
errors in the voucher.

10. Signature of the payee it works as a proof that the amount has actually been received
by the payee.

11. The act of examining the voucher is called vouching.

12. Vouching is examination of books of account with relevant documentary evidences.

13. Vouching enable to determine that items posted in profit and loss account of
pertaining to that accounting period only.

14. Vouching enable to determine whether accounting entries adhere to recognized

Accounting policies and principles.

15. Vouching ensures that these disclosures are made properly.

16. Auditor should check the date of voucher fall in the accounting period under audit.

17. Auditor should carefully check that amount of voucher is correctly entered in the
books of account.
 18. Duplicate voucher are produced because of loss of original vouchers.

19. Auditor should properly scrutinize such duplicate vouchers so that there is no fraud.

20. Auditor should see that all vouchers are properly filled serially numbered and arrange
in order.

CHAPTER 11
AUDIT OF INCOME
1. Auditor should verify the acknowledgement receipt issued by enterprise.
2. Auditor should verify the Carbon Copies of each cash memo.
3. Auditor should particularly ensure that the date on cash memo tallies with that in the
Cash Book.
4. Vouching receipts helps to ensure that requirement of Schedule VI have been duly taken
care of.
5. When the goods are sent on consignment basis its entry should recorded in a
Memorandum register.
6. Auditor should ensure that goods sent on consignment and unsold at year end are
included in the Closing Stock of the consignor.
7. Auditor should ensure that Commission Paid to the consignee is as per agreement.
8. The sales return has to verify against copy of Credit Note.
9. Date like the name date on credit note sales return book should be same.
10. The most common device of misappropriating cash collections from customers is
known as Teeming and Lading.
11. The scrap should normally generated the input-output ratio.
12. Auditor should review the Internal Control System as regards its storage and disposal.
13. Auditor should verify the copies of bill issued to tenants with reference to the tenancy
agreements.
14. Auditor should verify the entries recorded in the Books of Accounts.
15. Under Section 10 of income tax act dividends received from Indian companies are
exempt from tax.
16. Auditor should obtain fixed deposit register and trace the entries made in it with the
help of fixed deposit certificates.
17. Auditor should verify the agreement and note the conditions of Royalty Payment.
18. Auditor should verify the Bank Statement to ensure that there is no difference in
amount recovered.
19. Auditor should vouch the acknowledgement receipts issued to Debtors or Trustees.
20. Auditor should particular note the rate of commission mode of calculation and due date
21. Interest and dividends showings separately dividends from subsidiary companies.
22. Auditor should confirm as to whether assets were sold by auction or by negotiation.
23. Auditor should verify the Application Form with the entire made in application register.
24. Auditor should ensure that the loans with in prescribed limit of Section 180 should be
station by board of directors
25. Checking deposit in bank account auditor should Pay In Slips
26. Auditor should obtain details and Miscellaneous Receipts recorded by clients

CHAPTER-12
AUDIT EXPENDITURE
1. Business is all about receiving and paying off money.
2. Auditor should check whether discounting entries are made accounting to the
System.
3. Entry in the books of account has been made according to generally accepted
accounting principle (GAAP).
4. Fixed assets are depreciated on the consistent basis.
5. Fictitious assets are written off at the earliest.
6. Documents prepared by the authorized of the concern in the normal causes of the
accounting are called internal evidence.
7. Documents prepared by another concern with which business transaction are entered
into called external evidence.
8. Minutes of proceeding of the meeting including general meeting board meeting.
9. The primary objective of auditing is to determine whether financial statement are
true and fair.
10. Under costing Show the receptor site of cashbook.
11. Over costing show the payment side of dashboard.
12. Bank reconciliation statement is prepared to reconcile the difference in the balance
between the cash book and the passbook.
13. Each voucher has to be authorized by a proper officer having authorized to do it.
14. Auditor should ensure that there are no error of omission as well as Commission.
15. Reconciliation has to be done by the auditor between the purchase and the material
stock to its company.
16. Auditor should ensure that rented premises are not shown as assists of the company.
17. Foreign travel directors require sanction from board of director.
18. Traveling expenses are normally payable to staff according to the rules approved by
the board of directors.
19. Travelling expenses are more than 1% then they should be disclosed separately.
20. Voucher should be duly signed by the receiver of sales Commission.
21. Custom duty paid should be related to the goods imported to the current accounting
year.
22. Excise duty become the payable at the time of the releasing the accessible goods
from the godown or factory.
23. As per schedule 6 the value and the quantity of the sales should be disclosed
separately.
24. Expenses incurred for floating the company or bring the company into existence are
called preliminary expenses.
25. Amount of payable to under writer is called underwriting Commission.
26. Board resolution has to be passed in a board meeting recommending the rate of
dividend.
27. amount of unpaid dividend should be transferred to a special bank account called
investor protection and education funding

CHAPTER- 13

AUDIT ASSETS

1. The most important duties of the auditors verify the ASSETS AND LIABILITY
appearing in the balance sheet.
2. Verification means determining the existence and confirmation of ASSETS AND
LIABILITY on the date of balance sheet.
3. Petty cash in hand should be verified with PETTY CASH BOOK.
4. Verify the balance of pretty cash account in GENERAL LEDGER.
5. AUDITOR should confirm that stocks physically exits on date of balance sheet.
6. Auditor should SCRUTINIZE the ledger account of bills receivable.
7. Auditor should physically verify the BILL RECEIVABLE on the last day of the
accounting year.
8. Debts considered good in respect of which company is FULLY SECURED.
9. Debts considered for good which company holds no security other than debtor’s
PERSONAL SECURITY.
10. Auditor should obtained schedule of debtor and compare it with those in LEDGER
ACCOUNTS.
11. Auditor should check GOOD RECEIVED NOTE,
12. Material issue note, bin cards on test check basis.
13. Auditor should confirm that the TRADEMARKS are registered in the mane of the
client.
14. Auditor should ensure that trademark are properly valued and shown in the
BALANCE SHEET.
15. SPARE PARTS are used in connection with the maintenance of production
facilities.
16. The auditor should get a list of such parts from the WORKS MANAGER.
17. Auditor should see that GOODWILL is never appreciated in the books of the
accounts.
18. LOOSE TOOLS exhausted in a shorter period or even one year.
19. Valuation of assets means examination of the ACCURACY AND PROPERTY of
the valuation.
20. Verification of ASSETS is primarily the responsibility of the management of the
organization.
21. MANAGEMENT of the concern is bound to physically verify it is plant and
machinery.
22. Auditor should ensure that adequate DEPRECIATION has been provide during the
year.
23. Auditor should verify that furniture has been properly shown under fixed assets in
the BALANCE SHEET.
24. Auditor should verify the entry of payment with entry in BANK STATEMENT.
25. The cost of the tools so transferred should be transferred to the TOOLS
ACCOUNTS.
26. INVOICE of rentals are recorded separately, and credited to a separate accounts.

CHAPTER- 14
AUDIT OF LIABILITIES
1. CONTINGENT liability should be disclosed in the balance sheet by way of a note.
2. In case LIABILITIES are omitted or overstated the balance sheet will not represent a
fair view of the company.
3. SECURED and UNSECURED liability have been segregated.
4. The auditor should ask for the list of OUTSTANDING expenses from the client.
5. Auditor should ensure that CREDITORS are disclosed properly in the financial
statements.
6. Auditor should examine the system of INTERNAL CONTROL regarding
acceptance and payment of bills payable.
7. Auditor should also ensure that the bills which have been paid are not recorded as
OUTSTANDING.
8. The loan should be against a PLEDGE or the HYPOTHECATION of certain
assets.
9. The limited companies cannot borrow UNSECURED shares beyond the legally
prescribed limit.
10. The auditor should obtain a certificate from the management that all known
CONTINGENT LIABILITY have been included in the account and have been
properly disclosed.
11. In case of FRESH ISSUE OF SHARES auditor should ensure that application or
allotment money received has been properly accounted.
12. RESERVES are made up of amount appropriated out of profit.
13. REVENUE RESERVES represent profits that are available for distribution to
shareholders.
14. Auditor should ensure that any provisions are not shown as RESERVES.
15. Auditor should examine the computation of TAXABLE INCOME for current year.