Deloitte USI Recent Interview

Question for Audit Senior

Assistant
NAME : CA. ASHISH AGGARWAL
Technical Round

Tell Us About Your self

Type of industry you handled as a team leader
What about deduction of TDS on purchases
Have You Ever heard about miss-statement
Have You Ever heard about Management Assertions
What is emphasis of matter para
Applicability of Caro 2020
Anything found during the audit process you have conducted
Type of audit opinion
How you audit cash and bank balance
What is Management Representation
1.Tell Us About
Your self /
describe you self
Give a brief introduction about your self,

2. Type of Name of firm/company in which you are

working with type of work you are handling
industry you and time period in the current firm,
handled as a Type of Industry you handled from previous
team leader organizations
What about deduction of TDS on purchases

Under Section 194Q the buyer is liable to deduct TDS at the rate of 0.1% of the purchase
value above INR 50 Lakhs. However, in case the Permanent Account Number (PAN) of the
seller is not available then the buyer would be liable to deduct tax @5%.
The section is applicable on the satisfaction of the following conditions 1) In the books of the
buyer, the previous financial year total sales, gross receipts, or turnover exceeds Rs 10 cr
and 2) The purchases made from single suppliers exceed Rs 50 lakh in the current financial
year.

TDS on purchase of goods is to be deducted by the buyer within earlier of the following
dates- At the time of credit of the sum into the account of the seller; or At the time of
payment of the sum thereof
 misstatement is a difference between actual financial
Have You Ever statement items prepared by the client and those
required by applicable accounting standards. In this
heard about miss- case, misstatement arises from the transactions or
balances of the company’s accounts which is not in
statement accordance with applicable accounting standards
Have You Ever heard about Management Assertions
Management assertions are claims made by members of management regarding
certain aspects of a business. The auditors test the validity of these assertions by
conducting a number of audit tests. Management assertions fall into the following
three classifications.

1. Transaction-Level Assertions
The following five items are classified as assertions related to transactions, mostly in regard to the income
statement:
•Accuracy. The assertion is that the full amounts of all transactions were recorded, without error.

•Classification. The assertion is that all transactions have been recorded within the correct accounts in the
general ledger.
•Completeness. The assertion is that all business events to which the company was subjected were recorded.

•Cutoff. The assertion is that all transactions were recorded within the correct reporting period.

•Occurrence. The assertion is that recorded business transactions actually took place.
 2. Account Balance Assertions
 The following four items are classified as assertions related to the ending balances in accounts, and so
relate primarily to the balance sheet:
• Completeness. The assertion is that all reported asset, liability, and equity balances have been fully
reported.
• Existence. The assertion is that all account balances exist for assets, liabilities, and equity.
• Rights and obligations. The assertion is that the entity has the rights to the assets it owns and is obligated
under its reported liabilities.
• Valuation. The assertion is that all asset, liability, and equity balances have been recorded at their proper
valuations.
 3. Presentation and Disclosure Assertions
 The following five items are classified as assertions related to the presentation of information within the
financial statements, as well as the accompanying disclosures:
• Accuracy. The assertion is that all information disclosed is in the correct amounts, and which reflect their proper
values.
• Completeness. The assertion is that all transactions that should be disclosed have been disclosed.
• Occurrence. The assertion is that disclosed transactions have indeed occurred.
• Rights and obligations. The assertion is that disclosed rights and obligations actually relate to the reporting
entity.
• Understandability. The assertion is that the information included in the financial statements has been
appropriately presented and is clearly understandable.
What is emphasis of matter para
The emphasis of Matter paragraph is mainly used when the auditor considers it
necessary to draw the attention towards a matter that has been presented or
subsequently disclosed in the financial report, that pertaining to the auditor’s
opinion, is something that is of fundamental importance and therefore, should
ideally be disclosed to the users, as a part of ensuring that they are able to get a
fundamental understanding of the financial report.
 Applicability of Caro 2020
CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021 corresponding to the financial year
2020-21. The order is applicable to all companies which were covered by CARO 2016. Accordingly, the order applies to all
the companies except the following companies specifically excluded from its purview:
•One person company.
•Small companies (Companies with paid up capital less than/equal to Rs 50 lakh and with a last reported turnover which
is less than/equal to Rs 2 crore).
•Banking companies.
•Companies registered for charitable purposes.
•Insurance companies.
•The following private companies are also exempt from the requirements of CARO, 2020: –
• Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or equal to Rs 10
crore in the financial year.
• Whose paid up share capital plus reserves is less than or equal to Rs 1 crore as on the balance sheet date (i.e.
usually at the end of the FY).
• Not a holding or subsidiary of a Public company.
• Whose borrowings is less than or equal to Rs 1 crore at any time during the FY.
Anything found during
the audit process you
have conducted
 Type of audit opinion

Sr No. Opinion Type of Audit Report

1 Un Qualified Opinion Clean Report

2 Qualified Opinion Qualified Report

3 Disclaimer of Opinion Disclaimer Report

4 Adverse Opinion Adverse Audit Report

 How to audit cash and bank balance

Auditing Cash & Bank Balances

Auditing Cash & Bank balance involves several audit procedures. In broad sense following
procedures can be performed,

1. Analytical Procedures
2. Calling Confirmations
3. Reviewing Bank Reconciliations
4. Physical verification
5. Verify the Cash Valuation
6. Cut off testing
1. Analytical Procedures

Cash and/or bank balance can be compared with the previous year respective balance and if
there are any material deviations from the previous financial period, management explanations
needs to be obtained by the auditor for such variances.

2. Calling confirmations

Calling confirmation is one of most critical audit procedure in verifying cash & bank balances. In
particular the auditor must ensure that the bank confirms all the bank balances and related off
balance sheet items such as Letter of credit facilities etc.

Therefore the best way to do this is to sending and letter by the auditor himself to the bank with
the approval of the management,requesting necessary information.

Further it should note that in the current practice some international banks (Ex. HSBC)
outsourced the confirmation activities and therefore auditors can obtain confirmation through
online process.
3. Reviewing Bank Reconciliations

Same as calling confirmation this is also a critical audit procedure whereby the auditor
can obtain a reasonable assurance on the completeness assertion of the Bank balance.

In this audit procedure auditor obtains the bank reconciliation prepared by the
management and check the accuracy of the reconciliation by considering the balances
used for the reconciliation and the appropriateness of the reconciling items
(Ex. represented cheques, Unrealized deposits)

4. Physical Verification

with regard to the cash in hand balances, specially petty cash balances surprise physical
verification can be arranged so that the auditor can ascertain whether such book balance
of cash in hand is physically exists.
5. Cash valuation

In a case where the cash and bank balances are maintained other than reporting currency, such
balances needs to be converted to the reporting currency using appropriate exchange rates. Thus
the auditor needs to check the accuracy of the conversion of such casn & bank balances in to
reporting currency.
Ex.

The reporting currency of the company "A" is US $ while it holds bank balances in Euros. Thus
such balances carried in Euro needs to be converted to the US $ in the financial statements using
appropriate exchange rate.
6. Cut off testing

Cut off testing are used as both substantive procedure and Test of controls. by
performing cut off test auditor can ensure that all the payments and receipts that
should have recorded in the current financial period were recorded and all the
payments and receipts that should have recorded in next financial period were
recorded properly.

The auditor selects last 5 payments and receipts recorded in the current year bank
book and check whether such transactions are recorded in the proper period. further
he select first 5 payments and receipts recorded in the next financial period and
ensure that those transactions are recorded in the proper period.
 What is Management Representation

Management Representation is a Letter issued by the client (Auditee) to the auditor in writing as a part
of Audit Evidence. This document during the audit clarifies the separation of responsibilities of the
auditor and auditee (management). The MRL is a part of Audit Evidence and hence should be taken
(applicable) for all type of audits like Statutory, Internal, Transfer pricing, tax audit, management audit
and so on.
What is Management Representation
Management Representation is a Letter issued by the client (Auditee) to
the auditor in writing as a part of Audit Evidence. This document during
the audit clarifies the separation of responsibilities of the auditor and
auditee (management). The MRL is a part of Audit Evidence and hence
should be taken (applicable) for all type of audits like Statutory, Internal,
Transfer pricing, tax audit, management audit and so on.
 Purpose of MRL
1.To focus the management attention on those matters so that, the management can
address matters and issues mentioned in detail with specific attention giving the due
weightage about specific management functions, internal controls etc.

2. Confirmation from the management about the correctness, fairness of the various
financial statements as the management has the primary responsibility for their
accuracy.

3. Management representations and attestations in the letter provide some assurance

that information during examination is reliable in use of audit procedure and to base for
any report.
4. The MRL is also require as it gives reasonable assurance and details of all the events occur after
the last date on which the financial statements are prepared, if any may, and/or may not happen
after the date of the financial statement and have a material impact on the financial statements
consider for the purpose of audit. Such events are listed in the MRL for more clarity to the reader of
the financial statement.

5.The MRL is assurance that, the management is upholding & stand by the verbal, written
representations made during audit on the matters covers the audit scope.

6. Auditing standards require auditor to communicate the management about the material
weakness and/or significant deficiencies in internal control during audit, the MRL will help in such
communication from both the sides auditor as well as auditee. Significant matters (SA 230).
 Content of MRL

The contents of the MRL are enumerated as follows:

1. Type of audit and period of audit to be covered. Date of the financial statements.
2. Management responsibilities w.r.t. financial statements. Preparation, maintenance of the accounting
records, internal financial systems, controls, and these controls are effective as to the financial
statements are free from material deficiencies, omissions, miss statements. If any list of uncorrected
misstatements, if any. (SA450)
3. Accounting policies to be adopted. Accounting standards applicable. (SA540)
4. Information and documents, representations provided and their authenticity.
5. Conflicts of Interest, related party transactions. if any, (SA550)
6. Details of Frauds, Misstatements, misappropriations if any. (SA240)
7. Assets Title of the fixed assets, records of the fixed assets, record of additions, deletion, depreciation on
the fixed assets. Physical verification and reconciliation if any.
8. Investments. Investment policy, Investments made during the year. As per the policy document of the
auditee. Deviation from the policy if any. And the terms of the investment are beneficial to the auditee
9. Cash Balances, its verification, Balance certificate, whether as per the norms of the company.
10.Bank balances, Balance confirmations, Reconciliation, Comments on the items of reconciliation if any.
11.Other Current assets and its releasable value, determination of the value as stated in the financial
statements.
12.Liabilities their adequacy, confirmation, reconciliation of the balances.
13.Contingent liabilities, their nature, their impact on the financial statements.
14.Capital Commitments if any. Differed commitments, if any.
15.Expenses, nature of expenses to the auditee business, their adequacy, and provisions.
16.Provision for claims and losses if any, provision for ascertained, known losses, and claims to be occurred
after the date of the financial statements.
17.The coverage of the main audit report, and the details, statistical data, its correctness, accuracy, analysis if
any given in the report for which this representation is given.
18.Disclosure in Revenue and Expenditure account, ascertainment, policy adopted for revenue recognition.
19.General commitments. About compliance of the various acts, statutory dues, taxation, and provisions for the
same, pending assessments, and disputes, litigation, and its position as on the date. (SA250)
20.Details of subsequent events affecting the financial statements. (SA560)
21.Specific representations applicable to the business of the auditee and covering the scope of audit
/assignment.
THANK YOU
ALL THE BEST