CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

Audit of Various items of FS- short notes:

Before we begin this chapter students should have completed and should be well-versed
with AS, Company Law and Company Final Accounts. Students should have the knowledge
of the revised format and disclosures of Schedule III(ICAI website link given for right
content) https://resource.cdn.icai.org/66657bos53803-mod2-appx.pdf

Blank Page for Tips Techniques and working of the concept of assertions
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

Possible questions from this chapter- Summary notes.

(Please note in these summary notes we have not reprinted the points that you have
already studied under different subjects like company law and accounts. However, proper
references have been given so that you can study in an effective manner from respective
subjects. In case you have doubts- you can use our app chat box by downloading our app
from www.theauditacademy.com )

In-house students can use the doubt solving helpline options as communicated in the group
chats of the app.

We request you one more time to revise schedule III format from
https://resource.cdn.icai.org/66657bos53803-mod2-appx.pdf

Sr.No Question Short answer

Audit of liabilities
1 Audit of Existence  tally with PYFS,  if no change in SC then obtain WR about no changes in
Completeness and SC,  if change in SC then verify changes,  copies of resolution passed,  if
Valuation of share fresh issue then check compliance with Co. Act, 2013,  No shares at
capital (SC) discount,  shares for cash or other than cash?  Compliance with SEBI, 
Forms filed with MCA etc..
2 Audit of Shares Check Section 52 of the Companies Act, 2013
issued at premium
3 Audit of Shares Check Section 53 of the Companies Act, 2013
issued at a
discount
4 Issue of Sweat Check Section 54 of Companies Act, 2013
Equity Shares
5 Audit of reduction Check Sec 66 of the Companies Act, 2013
of share capital
6 Mention the Ensure whether the following disclosure requirements of Schedule III (Part
disclosure for 1) to Companies Act, 2013 have been complied with:
equity as per (Refer Company Final Accounts format)
Schedule III
7 Difference a) Revenue Reserve profits that are available for distribution to
between Revenue shareholders or below purposes such as: (Give examples from accounts
and capital subject) b) Capital Reserve a reserve which does not include any amount
Reserves regarded as free for distribution. They can be utilized only for certain
limited purposes.
8 Audit of Existence,  trace and tally with opg balance from PYFS,  Check addition/utilization
Completeness and in the CYFS  verify whether various reserves used appropriately,  verify
valuation of board resolution for dividend payment,  dividend declared after balance
Reserves and sheet date not a liability but only requires disclosure etc.
Surplus
9 Mention the Ensure whether the following disclosure requirements of Schedule III (Part
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

disclosure for 1) to Companies Act, 2013 have been complied with: (Refer Company
Reserves and Final Accounts format)
Surplus as per
Schedule III
10 Audit of Existence  board minutes of meeting for new lending agreements,  authorization
of borrowings of new loan agreements,  significant debt commitments approved by
board of directors
11 Audit of  Loan recorded vs Loan agreement,  borrowing limits are not exceeded,
Completeness of  balance confirmations (SA 505),  examine trust deed in case of
Borrowings debentures,  on payment of debt discharge note received?  Obtain WR
(SA 580) about validity of debts  Review of subsequent events etc
12 Audit of valuation  balance confirmations (SA 505),  accounting policies appropriate? 
of borrowings method of calculating and recording debt appropriate?  exchange rate
for foreign currency loans?
13 Audit of  Examine the due dates (long vs short term),  restrictive covenants in
presentation, debt agreement requiring disclosure?  whether the loan is classified as
classification and secured only to the extent of the market value of the security (if mv of
disclosure for security falls below loan value),  disclosure of borrowings from related
Borrowings as per parties (AS 18),  Check compliance with Sec 180 of Companies Act, 2013,
Schedule III disclosure of period and amount of default?  Ensure whether the
following disclosure requirements of Schedule III (Part 1) to Companies
Act, 2013 have been complied with: (Refer Company Final Accounts
format)  Ensure whether the following disclosures as required under
Schedule III (Part 1) to Companies Act, 2013 are made for each amount
disclosed under the heading ‘long term borrowings’: (Refer Company final
Accounts format)
13a Disclosure of long- Refer Final Accounts Format Schedule III
term borrowings in
the FS
13b Disclosure of short- Refer Final Accounts Format Schedule III
term borrowings
14 Audit of Existence  controls to stop duplication of purchase/expense invoice,  payable
of Trade Payables balances automatically updated?  accounts payable ageing report
and other current analysis,  journal entries for large amounts,  direct confirmation (SA
liabilities as at the 505) for material balances and purchases (explain in 2-3 paras) 
period-end authorization of related party transactions,  trend analysis of purchases/
expenses and accounts payable.
15 Audit of  cut-off procedures- check in detail last 5 invoices received/recorded at
Completeness of period-end  test purchase/expense on sample basis with their supporting
trade payables and documents  compare purchase invoice date vs Goods received note dates
other current to check whether purchases are recorded in correct accounting period, 
liabilities check invoice received subsequent to period-end,  advance from
customer- check customer wise ageing, check whether outstanding for >6
months,  audit of statutory dues prepare a reasonability analysis with
respect to sales/ purchases/ employee benefit expenses (analytical
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

procedure),  verify the challans for deposits made subsequent to the

period-end for all statutory liabilities
16 Audit of Valuation  audit of accounting process followed,  old credit item requiring write
of trade payables back? approval of such write backs?  ageing of payable balances, split
and other current between current, less than 30 days old, 30-60 days old, 60-180 days old,
liabilities 180- 365 days old and more than 365 days old
17 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURES for (Part 1) to Companies Act, 2013 have been made: (Company Final
trade payables and Accounts) Whether the Company has disclosed the following details
other liabilities relating to micro and small enterprises in the notes: (Company final
accounts) Whether the amount disclosed under other current liabilities
are classified as below: (Company Final Accounts)
18 Provisions and A provision is _______________
Contingent A contingent liability is________________
Liabilities- theory (Refer AS 29 thoroughly for theory)
19 Audit of Existence,  Obtain a list,  Compare with ledger,  agreements with customers-
completeness and warranty etc.  check the working done for each provision,  using the
valuation of work of expert, if required,  As per SA 500 ‘Audit Evidence’- while using
provisions and the work of expert- verify ____ (discussed in chapter 3),  obtain written
contingent representation from the management about validity and recognition of
liabilities provisions and contingent liabilities.
20 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURE for (Part 1) to Companies Act, 2013 have been made: (Company final
provisions and accounts) Unless the possibility of any outflow in settlement is remote,
contingent liability whether disclosure has been made for each class of contingent liability at
the end of the reporting period a brief description of the nature of the
contingent liability and, where practicable: a) Financial effect b)
___________________ (refer AS 29 and Company Final accounts)
Audit of Assets
21 Test of controls  approved customers?  properly recorded in BOA?  segregation of
over trade duties?  timely collection,  follow-up for collection?  provision for
receivables doubtful debts?  authorisation controls?
22 Audit of EXISTENCE  controls over recording of invoice?  period-end accounts receivable
of trade aging report?  whether realization is recorded invoicewise?  reasons for
receivables large balance due?  confirmation from debtors (SA 505)- explain 2 paras.
23 Audit of  Cut-off procedures correctly implemented?  check invoices issued
Completeness of during the last few days (last 5 days of the reporting year) i.e. cut-off date,
Trade Receivables. goods dispatched prior to the period/ year-end invoiced? no goods
dispatched after the year- end have been invoiced ?  Test invoices listed
in receivable report,  Match invoices to shipping/ dispatch log,  large
amount of customer returns after the audit period?  process of giving
discounts?  Review credit memos, on a sample basis, issued during the
audit period?
24 Audit of Valuation  process followed by the Company to derive an allowance for doubtful
of Trade accounts,  comparison with the method used in the last year,  ageing
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

Receivables report of accounts receivable,  list of debtors under litigation,  analysis

and identify those debtors which appear doubtful,  provisions at
appropriate rates?  approval for write-offs?
25 Required Company Final Accounts and AS points:  restatement of foreign currency,
DISCLOSURE for  split between more than 6 months and less than 6 months,  disclosure
trade receivables of Related Party Transactions,  Secured, Unsecured, Doubtful, 
disclosure of amounts due from Directors, officers, entities controlled by
directors
(Refer Final accounts Revised Format Schedule III)
26 Audit of Existence  Surprise Checks,  Year-end balance verification,  cashier to be present
and completeness while cash is being counted,  test entries from the rough Cash Book, 
of cash and cash any slip, chit or I.O.U.s in respect of temporary advances paid to the
equivalent employees?  analyzing the trends,  obtain bank reconciliation
statements (BRS) (explain BRS adjustments in 2-3 paras),  Confirmations
(SA 505) for bank balances (2-3 paras)
27 Valuation of Cash all bank accounts holding foreign currency have been restated at the
and Cash closing exchange rates
equivalents
28 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURES for (Part 1) to Companies Act, 2013 have been made: (Copy from Company
cash and cash Final Accounts format)
equivalents
29 Audit of EXISTENCE  SA 501 read properly  How to test count inventory? observing
of Inventories employees, tagging of all items, proper amounts shown on tags,  reco
count with records,  empty boxes?  cut-off testing by documenting last
5-10 receiving reports and shipping documents as of the period end, 
exclusion of third party stock and damaged or obsolete stock,  If entity
uses periodic system then verify at period end,  if entity uses perpetual
system then verify at interim dates.
30 Completeness of Above procedures + analytical procedures such as inventory turnover
Inventory ratio, vertical analysis (inventory/total assets), budgetary expectations vs
actual,  purchase and sales cut-off procedures,  tests for omitted
transactions,  check mathematical accuracy of inventory listing, 
reconcile physical inventory records with general ledger totals etc.
31 Audit of Rights and  Vouch (examine) documentation of purchase invoice,  check consigned
obligation over goods, Inventory given as collateral for working capital loan?  inventory
inventory held with third party- confirmation or inspection or both
32 Audit of valuation  FIFO or weighted average basis method?  RM and consumables- ____, 
of inventory For WIP- _____,  For FG and Goods for resale- ____,  Follow up for items
that are obsolete, damaged, slow moving (Write from AS-2 and
accounting concepts what needs to be checked.
33 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURES for (Part 1) to the Companies Act, 2013 have been made:  Mode of valuation
inventories  Classification of inventory - _____________  Separate disclosures for
goods-in-transit.
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

34 Audit of EXISTENCE  entity’s plan for physical verification of PPE?  supervision of those
of PPE performing physical verification of PPE,  PPE physical verification report
backed by the working sheets from the entity- whether all details consist,
date? Discrepancies? Etc…
35 Audit of  Check additions and deletions  Verify the movement in the PPE
Completeness of schedule,  arithmetical accuracy of the movement in PPE schedule, 
PPE Tally the opening balances to the PYFS,  For all material additions, verify
if such expenditure meets the criteria of PPE,  items such as spare parts,
stand-by equipment and servicing equipment are recognised as PPE,  not
capitalizing costs of the day-to-day servicing,  additions approved by
authorized personnel?  proper process of vendor finalization followed? 
Reasons for deletions?  Manner of sale/disposal of asset?
36 Audit of valuation  verification of depreciation charged- on all items except freehold land, 
of PPE depreciation method appropriate?  Impairment loss assessed (AS 28)?
37 Audit of rights and  Point number 15 +  verify all PPE purchase invoice  title deeds, 
obligation of PPE sale/conveyance deed?  verify the original title deeds for all immoveable
properties,  request the entity’s management for obtaining a
confirmation  verify the register of charges
38 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURES for (Part 1) to Companies Act, 2013 have been made:  Classification of PPE:
PPE (refer company final accounts)  Whether the entity has disclosed assets
“under lease” separately under each class of asset.  For each class of
PPE= whether entity has disclosed a recon of gross and net carrying
amounts at beginning and end of reporting period.
39 Audit of Existence whether such intangible asset is in active use in production?  In case any
of Intangible assets intangible asset is not in active use, deletion should have been recorded
40 Audit of Additions  Verify the movement in the intangible assets schedule,  Check the
and deletions to arithmetical accuracy,  meets criteria as per AS 26?  no cost related to
Intangible assets research gets recognized as IA  Check the certificate or report maintained
(IA) during the by the entity  verify the date of use,  additions approved by mgmt.? 
period under audit proper process of vendor finalization followed?  audit of deletions-
Reasons for deletions?  Manner of sale/disposal of asset?
41 Audit of Intangible  audit of amortization?  amortization charged on ALL IA?  method of
assets have been amortization?  impairment assessment (AS 28)
VALUED
appropriately
42 Audit of Rights and Point 20 +  verify that all expense invoices/ purchase contracts are in the
obligations over name of the entity that entitles legal title of ownership to the entity.
intangible assets
43 Required Ensure that the following disclosures as required under Schedule III (Part
DISCLOSURES for 1) to Companies Act, 2013 have been made:  Classification of IA: (refer
Intangible Assets company final accounts)  For each class of IA= whether entity has
disclosed - a recon of gross and net carrying amounts at beginning and
end of reporting period
- a recon of accumulated amortization from beginning to the end of the
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

period
- a recon of accumulated impairment from beginning to the end of the
period
44 Audit of existence  similar to point number 2,  loan agreements,  advances to vendors
of loans and etc..
advances and
other current
assets
45 Audit of  list of all advances and other current assets and compare them with
completeness of balances in the ledger,  Verify loan agreements and acknowledgements
loans and of parties in respect of outstanding loans,  inspect minutes of meeting, 
advances and authorization of loans and advances to related parties?,  GST input
other current credit- verify the reasonableness of amount and GST returns etc.
assets
46 Audit of valuation  verify the allowance for doubtful accounts,  process for allowance on
of loans and doubtful accounts,  comparison with PYFS,  ageing report of loans and
advances and advances,  Assess bad loans/ advances write-offs,  authorization of
other current write-offs?  restatement of foreign currency loans and advances- AS 11?
assets
47 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURE for (Part 1) to Companies Act, 2013 have been made:  Classification and sub-
loans and classification of loans and advances- Check Company final accounts 
advances and Separate disclosure of bad and doubtful loans  For loans, whether
other current separate disclosure has been made for amounts due by: DIRECTORS,
assets OFFICERS and ENTITIES CONTROLLED BY DIRECTORS
48 List the expenses The following expenses shall qualify as capital expenditure: a) Acquisition
which shall qualify cost of the asset. b) Additions to the assets that increases the earning
as capital capacity. c) Benefits derived which are of long term in nature. d)
expenditure Expenditure incurred to minimize the cost of production. e) Certain
revenue expenses also qualify as capital expenditure like wages on
installation of machinery, legal expenses in purchase of land and building,
freight inwards on purchase of assets etc
Audit of P/L Items
49 test sales  understanding of the management control, tests the controls the entity
transactions and has set up for the sales,  selects a random sample of transactions and
the internal examines the related customer purchase orders,  Performing substantive
controls over those audit procedures,  Substantive analytical procedures- sales trend
transactions analysis, comparison with previous accounting period, category-wise sales
analysis etc.
50 Audit of  invoice recorded twice?  Test check few invoices,  Obtain confirmation
Occurrence of from few customers,  Fictitious customers and sales?  Shipments done
Sales without consent?  unearned revenue recorded as earned?  uncertainty
about collectability?
51 Audit of  review sequence of sales invoice?  Review journal entries for unusual
Completeness of transactions?  check sales return with sales invoice?  Perform cut-off
Sales
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

procedures,  revenue recognised on invoice date or the date on which

risks and rewards are transferred?  verify credit notes issued after
accounting period,  Review GST tax and GST returns
52 Audit of  Trace a few transactions from inception to completion. (Examination in
Measurement of depth)  Export sales- AS 11,  appropriateness of revenue recognition, 
Sales Compare the rate of sales affected with related parties,
53 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURE for (Part 2) to Companies Act, 2013 have been made:  disclosure for sales of
sales have been each class of goods,  Revenue from operations (sale of products, services,
appropriately other operating revenues,  Sales to related parties,
made
54 Revenue  Interest income on fixed deposits is recognized on a time proportion
Recognition of basis taking into account the amount outstanding and the applicable
other income interest rate.  Dividends are recognised in the statement of profit and
loss only when declared and right to receive is established. 
Gain/(loss)on sale of investment in mutual funds is recorded as other
income on transfer of title from the entity and is determined as the
difference between the redemption price and carrying value of the
investments.
55 Audit of  Audit of interest income on FD- obtain list of FS opened along with
Occurrence, applicable interest rate, number of days for which deposit was
completeness and outstanding during the period,- check arithmetical accuracy of interest
measurement of calculation, - confirmations from bank, - copy of Form 26AS (TDS
interest income on withholding by the bank/ financial institution)
Fixed Deposit
56 Audit of  Audit of gain loss on sale of investments in mutual fund- transfer of title
Occurrence, from the entity AND is determined as the difference between the
completeness and redemption price and carrying value of the investment,  obtain mutual
measurement of fund statement and trace,
gain loss on sale of
investment in
mutual fund
57 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURE for (Par 1) to Companies Act, 2013 have been made:  Classification of other
other income have income- Interest, Dividend and Other non-operating income (net of
been appropriately expenses directly attributable to such income)
made
58 Audit of purchase  identify the control points over purchases,  tests the controls the entity
(overall points has set up for the purchase cycle,  selects a random sample of
transactions and examines the related documents- purchase order, goods
received note, supplier statements etc.  Performing substantive audit
procedures,  substantive analytical procedures such as- comparison with
previous accounting period, category wise purchases, any analysis auditor
may find relevant etc.
59 Audit of  fictitious vendors?  goods received at factory gate?  entry in security
occurrence of gate inward register?  Quality inspection of goods done?  purchase
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

Purchase invoice was approved?  stock record updated?  invoice should have
been booked only once risk and reward incidental to ownership has been
transferred,  invoice should be in the name of entity,  input tax credit? 
audit of purchases from related parties?
60 Audit of Point 11 +  cut-off procedures  examine material inward records, say,
Completeness and last 5 transactions at at the period end,  correct accounting treatment of
measurement of goods – in – transit,  WR from the management,  Perform analytical
purchases procedures- evidence about overall reasonableness of purchase quantity
and price, consumption analysis of raw materials etc.
61 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURES for (Part 1) to Companies Act, 2013 have been made:  separate disclosures
purchases have of purchases of stock-in-trade  Whether changes in inventories of
been appropriately finished goods, stock-in-trade and WIP disclosed?  Separate disclosures
made of transactions with Related Parties.
62 Employee benefit  tests the controls the entity has set around employee benefit payment
expense (overall process,  selects a random sample of transactions and examines the
audit) related documents like appointment letters, attendance records etc. 
Performing substantive audit procedures,  substantive analytical
procedures- monthly expense reasonability, comparison with previous
accounting period etc.
63 Audit of  understanding of entity’s process of capturing employee attendance, 
Occurrence, fictitious employees?  meet the employees in person, on a sample basis.,
completeness and  a list of employees as at the period- end,  For a sample (selected
measurement of randomly) of new hiresverify salary processing,  For a sample (selected
employee benefit randomly) of resigned employeesverify full and final settlement?  Obtain
expense the monthly salary registers,  accrual/ provision for gratuity, bonus and
other employee obligations,  compliance with PF and ESIC payments? 
analytical procedures- production per employee analysis
64 Required Ensure whether the following disclosures as required under Schedule III
DISCLOSURES for (Part 2) to Companies Act, 2013 have been made:  classification into: a)
employee benefit Salaries and Wages b) Contri to provident and other funds c) Staff Welfare
expenses have Expenses
been appropriately
made
65 Attributes while  understanding of entity’s accounting policy,  As per Companies Act?, 
verifying consistency?,  adjustment of residual value from the cost of the assets? 
depreciation and charges are valid?  accurately calculated and recorded?,  recorded in
amortization the appropriate period?,  most appropriate method?
expense
66 Required Ensure whether the following disclosures as required have been made: 
disclosures for Accounting policy for depreciation and amortization,  Useful lives of
depreciation and assets as per Schedule III?  Residual Value of Assets?  Depreciation
amortisation have method??
been appropriately
made
 CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

67 An auditor  current period audit?  qualified as a revenue and not capital

generally prefers expenditure,  valid supporting documents,  classified under the correct
to vouch for other expense head,  expenditure was authorised,  was in relation to the
expenses to verify entity’s business?
following
attributes
68 Audit of Rent  obtain month-wise expense,  for all 12 months,  escalation clause?, 
Expense agreement is in the name of the entity
69 Audit of Power  month wise-sheet with power bills, for all 12 months?,  month wise
and fuel Expense summary of power units consumed,  analyse the monthly power units
consumed?
70 Audit of Insurance  summary of insurance policies,  whether the expense has been
Expense correctly classified?
71 Audit of Legal and  month-wise and consultant-wise summary? ,  monthly retainership
Professional agreements?,  Verify a sample of non- recurring expenses?  cautious
Expense while vouching for legal expenses?
72 Audit of Travel and  summary of expenditure on monthly basis and then analytically
repair, printing compare the trends,  Perform analytical procedures- expenditure per
and miscellaneous unit of production analysis?  analyse expense per unit produced and
expense compare the same?
73 Required Ensure other expense have been classified under: RIP REPAIR LPTM 
DISCLOSURE for Rent.  Insurance.  Power and Fuel.  Repairs and Maintenance- Building,
other expenses Plant and machinery, others.  Legal expense.  Printing and Stationery. 
have been Travel Expenses.  Miscellaneous Expenses.
appropriately
made
74 Corporate Social Disclosures as per Section 135 of Companies Act 2013 and Revised Final
Responsibility (CSR) Accounts Format Schedule III
75 Details of Benami Where any proceedings have been initiated or pending against the
Property held company for holding any benami property under the Benami Transactions
(Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder, the
company shall disclose the following:-
(Disclosure as per Revised Final Accounts Format Schedule III)
76 Relationship with Where the company has any transactions with companies struck off under
Struck off section 248 of the Companies Act, 2013 or section 560 of Companies Act,
Companies 1956, the Company shall disclose the following details:-
(Disclosure as per Revised Final Accounts Format Schedule III)
77 Details of Crypto Where the Company has traded or invested in Crypto currency or Virtual
Currency or Virtual Currency during the financial year, the following shall be disclosed:-
Currency (Disclosure as per Revised Final Accounts Format Schedule III)
78 Following Ratios to (a) Current Ratio, (b) Debt-Equity Ratio, (c) Debt Service Coverage Ratio,
be disclosed:- (d) Return on Equity Ratio, (e) Inventory turnover ratio, (f) Trade
Receivables turnover ratio, (g) Trade payables turnover ratio, (h) Net
capital turnover ratio, (i) Net profit ratio, (j) Return on Capital employed,
(k) Return on investment.
CA Pragnesh Kanabar Sir’s The Audit Academy- CA Inter Audit

 explain the items included in numerator and denominator for

computing the above ratios.
 Further explanation shall be provided for any change in the ratio by
more than 25% as compared to the preceding year.