Audit Summary

VOL 22 NO.
04 PAGES 36 SEPTEMBER 2018 50
The Institute
of Chartered
Accountants of
India
(Set up by an act of
Parliament) Your monthly guide to CA news, information and events
SPECIAL ISSUE ON
ADVANCED AUDITING AND
PROFESSIONAL ETHICS
GLIMPSES
CA Students’ Conference- Jalgaon : ICAI Vice President, CA. Prafulla P. Chhajed along with the Central Council Members, CA. S. B. Zaware,
CA. Anil Bhandari, Prof. P. P. Mauhlikar, Pro - Vice Chancellor of North Maharashtra University, Branch Chairman, CA. Ajay Jain, Branch WICASA
Chairman, CA. Sagar Patni and other office bearers and students at the inaugural ceremony.
CA Students’ Conference- Nagpur: Chief Guest, Dr. Ved Prakash Past President, ICAI, CA. Jaydeep N. Shah, Central Council Members,
Sharma, Chancellor, Krishna Institute of Medical Sciences addressing CA. S. B. Zaware, CA. Nihar Jambusaria, Chief Guest Shri Vijay Darda,
the Conference. Central Council Member, CA. Anil Bhandari, Branch former Rajya Sabha Member, Branch Chairman, CA. Umang Agrawal,
Chairman, CA. Umang Agrawal, Branch WICASA Chairman, CA. Jiten Branch WICASA Chairman, CA. Jiten Saglani at the conference.
Saglani also seen.
GST Seminar- Nagpur: ICAI Vice President, CA. Prafulla P. Chhajed CA Students’ Conference- Salem: Central Council Members, CA.
being welcomed at the seminar in the presence of ICAI Past President, Babu Abraham Kallivayalil, CA. M. P. Vijay Kumar, Branch Chairman,
CA. Jaydeep N. Shah, Branch Chairman, CA. Umang Agrawal and CA. S. Suresh Kumar, Vice Chairman, K. Divya and Branch SICASA
Branch WICASA Chairman, CA. Jiten Saglani. Chairman, CA. A. V. Arun at the inaugural ceremony.
02 September 2018 The Chartered Accountant Student

PRESIDENT’S COMMUNICATION
completing their 1st / 2nd year of practical training must register
for the test scheduled for September 23, 2018. Further, details
in this regard are available on https://www.icai.org/new_post.
html?post_id=15030&c_id=347. Frequently Asked Questions
(FAQs) concerning the assessment test are also available on
the Institute’s website and I advise you to go through the same.
Live Virtual Classes

As I informed in my previous communication, Live Virtual
Classes for CA Intermediate and Final levels have been
commenced from August 16, 2018 across the nation. To enable
you to attend these classes, they have been scheduled beyond
your office hours, i.e., from 7.00 AM to 9.00 AM in the morning
and from 6.00 PM to 8.00 PM in the evening. I am sure that you
will avail this learning opportunity which is aimed to facilitate
C
Dear Students, effective knowledge delivery at reasonable cost.
ongratulations to the ones successful in May 2018
CA Intermediate/ IIPC exams and best wishes Mock Tests
to those who are going to meet success soon. My Mock Tests (Series-I) is being organised for the students of
special regards to the rank holders who performed CA Foundation, CA IIPC, Intermediate and CA Final (old and
exceedingly well despite tough competition. New) courses from August 27 till September 25, 2018. This
Drawing analogy from the age-old tradition of Guru and will enable you to assess your preparedness for the exams as
Shishya, in our profession relationship between a Principal well as identify gaps in learning. A quick analysis of your mock
and an Article Assistant can be examined from the same test result will give you clarity on the topics which require your
perspective. Similar to the tradition, the association of a attention and thorough revision. I genuinely hope that you will
Principal with their Article/(s) goes much beyond the formal make good use of this facility to upgrade your performance and
period of training. The Principal develops the overall persona of supplement learning.
the articles. From imparting technical knowledge, to instilling To support you in your exam preparation, the current issue of
the soft skills and passion for learning, from inculcating this Journal carries a capsules on Paper 3: Advanced Auditing
discipline, moral values, ethical principles to reinstating the & Professional Ethics of Final Course, wherein the students
professional conduct, the Principal plays a very significant will not only be finding topics like Professional Ethics, Internal
role as a mentor and guide like an ideal Guru. The shloka aptly Management and Operation Audit but also they will be able
praises the Guru: to enhance their knowledge on Fraud indicators and response
Gurur Brahma, Gurur Vishnu, Gurur Devo Maheshwara, thereto, Investigation, Due Diligence and Forensic Audit. In
addition 700 series of Revised Standards on Auditing based on
Gurur Sakshat Parabrahma, Tasmai Shri Gurve Namah Audit Reports is also covered.
Meaning: Realise that the Guru is Brahma Himself. He Overseas Campus Placements
is Vishnu and He is also Shiva (Maheshwar). Guru is
Parabrahma (Supreme God or the Absolute Truth). With First ever Overseas Campus Placement programme for CAs
this knowledge, I (salute) offer my obeisance to the Guru. is being organised during September 14 to 16 in New Delhi,
Mumbai and Chennai through personal interview/video
With this note, I convey my greetings to all of you on conferencing mode in collaboration with our Chapters abroad
the auspicious occasion of Teacher’s Day, observed on for which till date 150 requirements/vacancies have been
5th September every year, the birth anniversary of hon’ble received. It offers unique opportunities for newly qualified CAs
past President of India, Dr. Sarvepalli Radhakrishnan. He to fulfill their professional aspirations and give their career a
was a renowned scholar, noted educationist, a true statesman head start. I would like to wish all the very best to those who
and above all a devoted teacher. have registered for the same.
Practical Training Assessment Irrespective of the career path you choose, you will have to
exhibit utmost integrity, sincerity and thorough professionalism
Practical training is the crucial connecting link between
to be able to succeed in your endeavours. Remember - Success
theoretical knowledge and the profession. While knowing
is simple to achieve, do what is right, the right way at the
theoretical concepts is vital for examinations, knowing their
right time.
practical application gives the winning edge in professional
life. Lessons learnt in articleship training prepares you to solve With best regards,
practical problems in a systematic and structured manner.
Taking it forward, I would like to inform that practical training
assessment has been introduced to assess the knowledge
gained by you during the course of practical training and
the ability to apply the subject specific skills acquired while
undergoing the training in that particular area through online
Multiple-Choice Question tests. All the students who will be CA. NAVEEN N. D. GUPTA
PRESIDENT, ICAI, NEW DELHI
The Chartered Accountant Student September 2018 03

Set your goals high, and don’t stop till you get there. - Bo Jackson
VICE PRESIDENT’S COMMUNICATION
Dear Students, able guidance of their respective principals. As future
CA professionals, you should always keep yourself adhere
At the outset, I extend with the core principles of our enduring profession viz.
my best wishes to the Integrity, Objectivity, Independence, Confidentiality,
teaching fraternity on Professional Competence and Ethical Behaviour. I hope
the auspicious occasion that by following these principles candidly and earnestly,
of Teacher’s Day, which you can reach to the acme of success in your professional
is observed every year endeavours.
on September 5th to
commemorate the birth day Recently, the results of the Intermediate (IPC) existing
of the great philosopher, and new course examinations of May 2018 were declared.
teacher par excellence I offer my heartiest congratulations to those students
and the former President who have passed and my full support to those who
of India, Dr. Sarvepalli have not been able to make up to the success list. I also
Radhakrishnan. As you know, the role of a teacher in any congratulate the rank holders of the examination.
society is noteworthy and invaluable. The teachers are Wishing you all the best in all your pursuits of life
the role models for the students as they try to follow them
in their manners, costumes, etiquette and conversational Yours sincerely
style. Moreover, teachers are considered architects for
moulding the future of their students.
In the Chartered Accountancy profession, the role of
our principal is very important. The practical training
serves as the launching platform to unfold the horizons
of a successful professional career. Being a well groomed
and well disciplined student of Chartered Accountancy
Course, it is the utmost responsibility of our students
to follow the code of conduct while learning the nitty- CA. PRAFULLA P. CHHAJED
VICE PRESIDENT, ICAI, NEW DELHI
gritty of the professional skills under the mastery and
TOPPERS OF CHARTERED ACCOUNTANTS

INTERMEDIATE (IPC) EXAMINATION MAY-2018
DEEPA JAIN LAKSHMANAN A. PARTH GUPTA

DELHI COIMBATORE DELHI
FIRST SECOND THIRD
INTERMEDIATE (NEW) EXAMINATION MAY-2018
SAKHSHI AIRAN RADHIKA CHAUTHMAL BERIWALA AKSHIT AGARWAL

INDORE SURAT JAIPUR
FIRST SECOND THIRD
Accept the challenges so that you can feel the exhilaration of victory. - George S. Patton
CHAIRMAN’S COMMUNICATION
also make it a habit of visiting the Institute’s website. It
contains all the educational inputs of the Board of Studies
like latest study materials, suggested answers, RTPs,
supplementary study materials, notifications etc. It also
contains announcements like relevant list of publications,
Accounting and Auditing Standards etc. applicable for the
examination.
Practical Training Assessment Test

A significant initiative of Board of Studies is the practical
training assessment which would be commencing this
month. Concurrent practical training along with theoretical
education is undoubtedly the unique feature of the CA
course. In fact, it is the knowledge and skills acquired by
students during the three year practical training which
helps them develop the requisite professional competence.
It is keeping in mind the importance of practical training
Dear Students, in developing professionally competent chartered
accountants, that practical training assessment has been
At the outset, I would like to felicitate and convey my introduced in the scheme of education and training. The
heartiest greetings to the teaching fraternity on the concepts learnt through theoretical education need to be
auspicious occasion of Teacher’s Day, which is observed effectively demonstrated during practical training. Effective
every year on 5th September to commemorate the birth application of such concepts in practical training is, thus,
day of the former President of India, late Dr. Sarvepalli a sine qua non to emerge as a professionally competent
Radhakrishnan, a philosopher and a teacher par excellence. chartered accountant. Practical training assessment, thus,
It is my firm belief that under the able guidance of your serves as an indicator of the level of knowledge and skills
respective principal who is imparting practical training, you acquired by you in the course of practical training. The skills
all will be successful in the realm of accounting profession. are assessed at two levels, namely, after completion of the
first and second year of practical training. The compulsory
I am extremely happy to convey my hearty congratulations subject area is accounting and auditing (including corporate
to all the successful candidates of the May 2018 Intermediate laws) at both levels; and optional subjects are Direct Tax,
(IPC) and Intermediate (New) Examinations. I convey Indirect Tax and Internal Audit. One optional subject has to
my heartiest congratulations to those who have secured be chosen at the first level and two optional subjects have to
ranks. They deserve special praise for their painstaking be chosen at the second level, in addition to the compulsory
efforts in securing the coveted positions. The factors, which subject. We are sure that, with effective practical training,
contributed to the creditable success of the rank holders you would be able to do very well in this assessment, which
include total commitment to the cause and a confident is MCQ based.
approach, sincere, serious and systematic preparation from
the very inception and planning of the study methodology
in advance and adherence to the same etc. Live Virtual Classes
With a view to facilitate effective knowledge delivery at
My heart goes out to all those who could not get through affordable cost, Live Virtual Classes have been started by
the examinations, and I exhort you, not to get disheartened BOS for CA Intermediate and Final levels from August 16,
or depressed with the negative result. Failures make us 2018. The students can watch the live classes from their
much stronger in life. Try to face defeat with grace and learn own work stations. We are getting overwhelming response
from your mistakes. So get up, and again commence with a from the students. Those who could not register so far can
fighting spirit and this time more smartly and wisely. register now. Online registration form is available at https://
icai.org/boslvc/. The students can also watch the earlier
As you know the examination system of the Institute is one missed classes as the recorded versions are available online.
of the best systems in the country and it has maintained very
high standards of integrity, confidentiality and credibility If you study with commitment, success would come
over the years. It seeks to test the multifaceted knowledge, knocking at your doorsteps very soon! As said by Winston
which a Chartered Accountant is expected to possess. To Churchill “Success is not final, failure is not fatal: it is the
achieve success, you have to approach the examination with courage to continue that counts.”
a positive attitude. I am sure; you would have already started
your preparations for the November examinations with Wish you all the best
some plans. The study materials provided by the Institute
would help you to develop a strong conceptual base. It gives
you the parameters within which you have to study.
I would also suggest you to take the practical training

very seriously. Many students consider practical training
as a burdensome task. But practical knowledge is a must CA. DHINAL A. SHAH
for success in your respective examinations. You should CHAIRMAN, BOARD OF STUDIES, ICAI

Let us make our future now, and let us make our dreams tomorrow’s reality. - Malala Yousafzai
CONTENTS
EDITORIAL BOARD INSIDE

President and Editor-in-Chief 02 Glimpses
CA. Naveen N. D. Gupta, New Delhi
Vice President
CA. Prafulla Premsukh Chhajed, Mumbai 03 President’s Communication
Chairman and Editor
CA. Dhinal A.Shah, Ahmedabad
Vice-Chairman 04 Vice-President’s Communication
CA. Vijay Kumar Gupta, Faridabad
Members
CA. Atul Kumar Gupta, New Delhi 05 Chairman’s Communication
CA. Babu Abraham Kallivayalil, Kochi
CA. (Dr.)Debashis Mitra, Kolkata
CA. Dhiraj Kumar Khandelwal, Mumbai 07 Advanced Auditing and Professional Ethics
CA. Kemisha Soni,Indore
CA. K. Sripriya, Chennai
CA. Madhukar Narayan Hiregange, Bangalore 31 Announcements
CA. Manu Agrawal, Kanpur
CA. Mangesh Pandurang Kinare, Mumbai
CA. M. Devaraja Reddy, Hyderabad 33 Students’ Conference Announcement
CA. M. P. Vijay Kumar, Chennai
CA. Mukesh Singh Kushwah, Ghaziabad
CA. Prakash Sharma, Jaipur
36 Glimpses
CA. Rajesh Sharma, New Delhi
CA. Ranjeet Kumar Agarwal, Kolkata
CA. Sanjiv Kumar Chaudhary, New Delhi
CA. Sushil Kumar Goyal, Kolkata SWACHH BHARAT - A STEP TOWARDS CLEANLINESS
Dr. P.C.Jain, New Delhi
Shri Vijay Jhalani, New Delhi
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EDITOR: CA. Dhinal A. Shah
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ADVANCED AUDITING AND PROFESSIONAL ETHICS
FINAL NEW COURSE PAPER 3- ADVANCED AUDITING AND PROFESSIONAL ETHICS:
A CAPSULE FOR QUICK REVISION
It has always been the endeavour of Board of Studies to provide quality academic inputs to the students of Chartered
Accountancy Course.
Keeping in mind this objective, BoS has decided to come out with a Crisp & Concise Capsule of each subject to facilitate
students in quick revision before examination.
This series of capsules is on Paper 3: Advanced Auditing & Professional Ethics of Final Course. It may be mentioned that this
capsule is a tool for quick revision of some significant areas of Auditing subject, this should not be taken as a substitute for
the detailed study of the subject. Students are advised to refer to the relevant Study Material and RTP for comprehensive
study & revision.
CHAPTER 17 INTERNAL AUDIT, MANAGEMENT AUDIT AND OPERATIONAL AUDIT

Internal Audit
As defined in scope of the Standards on Internal Audit,
Internal Audit means “an independent management
Assurance function, which involves a continuous and critical appraisal
of the functioning of an entity with a view to suggest
Objectivity improvements thereto and add value to and strengthen
the overall governance mechanism of the entity, including
Insight the entity’s strategic risk management and internal control
system”.
Applicability of Provisions of Internal Audit: As per section 138 of the Companies Act, 2013, following class of companies
(prescribed in Rule 13 of Companies(Accounts) Rules, 2014) shall be required to appoint an internal auditor which may be either
an individual or a partnership firm or a body corporate, namely-
(a) every listed company;
(b) every unlisted public company having- (iii) outstanding loans or borrowings from banks or public financial institutions
(i) paid up share capital of fifty crore rupees or exceeding one hundred crore rupees or more at any point of time during
more during the preceding financial year; or the preceding financial year; or
(ii) turnover of two hundred crore rupees or (iv) outstanding deposits of twenty five crore rupees or more at any point of
more during the preceding financial year; or time during the preceding financial year; and
(c) every private company having- (ii) outstanding loans or borrowings from banks or public financial institutions
(i) turnover of two hundred crore rupees or exceeding one hundred crore rupees or more at any point of time during
more during the preceding financial year; or the preceding financial year.
Who can be Appointed as Internal Auditor: The internal auditor shall either be a chartered accountant or a cost accountant (whether
engaged in practice or not), or such other professional as may be decided by the Board to conduct internal audit of the functions and
activities of the companies. The internal auditor may or may not be an employee of the company.
His main responsibility, however, must be
to observe facts to associate closely

and situations and with management
to maintain bring them to notice and his knowledge
adequate system Not to involve
to observe himself in the of authorities who must be kept up to
of internal control would otherwise date by his being
by a continuous independently performance of
accounting staff and executive functions never know them; kept informed
examination also, they critically about all important
of accounting must not in any way in order that his
divest himself of any objective outlook appraise various occurrences and
procedures, receipts policies of the events affecting the
and disbursements of the responsibilities does not get
placed upon him. obscured by the management and business, as well as
and to provide draw its attention the changes that are
adequate safe creation of vested
interest. to any deficiencies, made in business
guards against wherever these policies. He must
misappropriation of require to be enjoy an independent
assets. corrected. status.
In addition, the Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope,
functioning, periodicity and methodology for conducting the internal audit.
It may also be noted that the Central Government may, by rules, prescribe the manner and the intervals in which the internal audit
shall be conducted and reported to the Board.
Scope of Internal Auditor’s Work
include review of -
(i) (ii) (iii) (iv) (v) (vi) (vii)

Internal Custodianship Compliance Relevance and Organisational Utilisation of Accomplishment
with Policies, Reliability of Structure Resources of Goals and
Control and
Plans, Information Objectives
System and Safeguarding Procedures and
Procedures of Assets Regulations
The internal auditor should (e) Opening or introductory paragraph;

(i) identification of the processes/functions and items
of financial statements audited; and
1. Be straightforward, honest and sincere in his (ii) a statement of the responsibility of the entity’s
approach to his professional work; management and the responsibility of the internal
2. Be fair and must not allow prejudice or bias to auditor;
override his objectivity; (f ) Objectives paragraph - statement of the objectives and
3. Should maintain an impartial attitude. He should scope of the internal audit engagement;
not only be independent in fact but also appear to (g) Scope paragraph (describing the nature of an internal
be independent. audit):
4. The internal auditor should not, therefore, to (i) a reference to the generally accepted audit
the extent possible, undertake activities, which procedures in India, as applicable;
are or might appear to be incompatible with his (ii) a description of the engagement background and
independence and objectivity. the methodology of the internal audit together with
procedures performed by the internal auditor; and
(iii) a description of the population and the sampling
Qualifications of Internal Auditor (IA) technique used.
(h) Executive Summary, highlighting the key material issues,
1. The internal auditor (IA) should have the special expertise observations, control weaknesses and exceptions;
necessary for evaluating management control systems, (i) Observations, findings and recommendations made by
especially financial and accounting controls. the internal auditor;
(j) Comments from the local management;
2. Accounting and finance functions provide basic data for (k) Action Taken Report – Action taken/ not taken pursuant
management control of an enterprise. Therefore the IA to the observations made in the previous internal audit
must have accounting and financial expertise to be able to reports;
discharge his duties. (l) Date of the report;
(m) Place of signature; and
3. The IA is also expected to evaluate operational (n) Internal auditor’s signature with Membership Number.
performance and non-monetary, operational controls.
This requires a basic knowledge of the technology and
commercial practices of the enterprise. Determining Whether, in Which Areas, and to What Extent
the Work of the Internal Audit Function Can Be Used -
4. He should also have a basic knowledge of commerce, Evaluating the Internal Audit Function:
laws, taxation, cost accounting, economics, quantitative
methods and EDP systems.
5. An understanding of management principles and Evaluation of Scope of IA Objective of

techniques is another essential qualification of an IA as IA Function Function Evaluation of IA
also the ability to deal with people. includes: • Monitoring Function
• Appraisal Internal • Assurance to
6. By his conduct the IA should provide an assurance to activity. controls. management.
the management that confidentiality of such information • Examining / • Examination • Evaluate &
would be maintained. Evaluating/ of financial improve the
Monitoring & Operating effectiveness
Basic Elements of the Internal Audit Report: As per Standard adequacy / functions. of Risk
on Internal Audit (SIA) 4 the internal auditor’s report includes effectiveness • Review of management.
the following basic elements, ordinarily, in the following layout: of internal regulatory
controls. Laws &
(a) Title; Compliances.
(b) Addressee;
(c) Report Distribution List;
(d) Period of coverage of the Report;

Determining the Nature & Extent of work of If the external auditor uses internal auditors to provide
Internal Audit function that can be used direct assistance on the audit, the external auditor shall
include in the audit documentation:
(a) The evaluation of the existence and significance of threats

The external auditor to the objectivity of the internal auditors, and the level
shall consider Nature & Determine adequacy of of competence of the internal auditors used to provide
scope of work done & Internal Audit work for direct assistance;
its relevance to overall external auditors purpose
Strategy & Audit Plan
(b) The basis for the decision regarding the nature and extent
of the work performed by the internal auditors;
1. Objectivity of the internal audit functions. (c) Who reviewed the work performed and the date and
2. Level of competence of internal audit function. extent of that review in accordance with SA 230 Audit
3. W
hether a systematic & disciplined approach is Documentation;
applied including quality control.
(d) The written agreements obtained from an authorised
representative of the entity and the internal auditors; and
Determining Whether, in Which Areas, and to What Extent
Internal Auditors Can Be Used to Provide Direct Assistance
(e) The working papers prepared by the internal auditors
Nature & Extent of work that can be who provided direct assistance on the audit engagement.
assigned to Internal auditors providing
Direct Assistance
Finally, a review of the internal audit function in specified
companies has become a statutory responsibility for the
statutory auditor.
The E.A. shall not use
internal auditors to Management Audit: “In a management audit, the auditor
The E.A. shall consider :
provide direct assistance to will look to see whether management is getting information
perform procedures that :
relevant to the decisions and actions which it must take. This
will require a much more intensive analysis of information
needs and the efficiency of the existing system in meeting them.
Involved in making Amount of The auditor will not have to decide whether management is
significant judgements judgement wrt: making the right strategic and operative decisions but rather
in the audit a) Planning & whether management has available to it and is using the relevant
performing information and techniques necessary to evaluate rationally the
relevant audit various alternatives that exist”.
Relate to higher procedures
assessed risks of b) Evaluation of the
material misstatement audit evidence Organising the Management Audit
where the judgement gathered.
required is more than
limited. Devising the statement of policy
Assessed risk
Relate to work of material Location of audit function within the organisation
which is reported to misstatement
management or TCWG Allocation of personnel
by Internal audit
function Evaluation of
existence & Staff training programme
significance of threats
Relate to decisions Time and other aspects
the E.A. makes in
accordance with SA.
Frequency
* EA = External Auditor
IA = Internal Auditor
Brief Steps w.r.t Audit Report

Planning the Supporting Preparing draft Writing and Follow-up of the Action / Response
Audit Report information report issuing the final audit report of Management on
report Audit Report
Before starting The management Before writing The final report The management Where
the report, the auditor should the final report, should be auditor should management has
auditor should supplement his report the auditor written only review whether not acted upon his
ask himself, by such documents should prepare when the auditor follow-up action suggestions or not
“What do I want and data which a draft report. is completely is taken by implemented his
to tell the reader adequately and satisfied with the management on recommendations,
about this audit? convincingly support draft report. the basis of his the auditor should
The answer will the conclusions. report. If no action ascertain the
enable him to Supporting information is taken within a reasons therefor.
communicate may include the reasonable time,
effectively.” relevant standards or he should draw
regulations. management’s
attention to it.
Operational Audit : Operational auditing is a systematic process involving logical, structured and organised series of procedures.
Qualities of Operational Auditor

1. In areas beyond accounting and finance, his knowledge ordinarily would be rather scanty and this is a reason which should make
him even more inquisitive.
2. He should ask the who, why, how of everything.
3. He should try to see everything as to whether that properly fits in the business frame and organisational policy. He should be
persistent and should possess an attitude of skepticism.
4. He should not give up or feel satisfied easily. He should imbibe a constructive approach rather than a fault-finding approach.
5. If the auditor succeeds in giving a feeling of help and assistance through constructive criticism, he will be able to obtain co-
operation of the persons who are involved in the operations.
Type of Operational Audits (i) Is the organisational structure in

Appraisal of Controls conformity with management objectives?
Objectives of Operational Audit
Functions are a means of

Functional categorising the activities
of a business, such as the Evaluation of (ii) Whether the organisational structure
Audits billing function or production Performance is drawn up on the basis of matching of
function. There are many ways responsibility and authority?
to categorise and subdivide
functions. A functional audit Appraisal of (iii) Whether the line of responsibility
has the advantage of permitting from the top to the bottom is clearly
specialisation by auditors. Objectives and Plans
discernible from the structure?
Organisational An operational audit of an
organisation deals with an Appraisal of (iv) Whether the delegation of
Audits entire organisational unit, such Organisational Structure responsibility and authority at each stage
as a department, branch, or is clear and overlapping are avoided?
subsidiary.
In operational auditing, special Management Audit Questionnaire: A management audit questionnaire is
Special assignments arise at the request an important tool for conducting the management audit. It is through these
Assignments of management. There are a questionnaires that the auditors make an inquiry into important facts by measuring
wide variety of such audits. current performance. Such questionnaires aim at a comprehensive and constructive
examination of an organisation’s management and its assigned tasks.
Management Audit Questionnaire
Its primary objective is to highlight weaknesses and deficiencies of the organisation. It includes a review of how well or badly the
management functions of planning, organising, directing and controlling are being performed. The questionnaire provides a means
for evaluating an organisation’s ongoing operations by examining its major functional areas. There are three possible answers to the
management audit questions
Yes No Not Applicable
It indicates that the specific area, function or aspect

It indicates unacceptable performance It indicates that the
under study is functioning in an acceptable manner. No
& should be explained in writing. question doesnot apply.
written application is needed in that case.
Thus, management audit questionnaire for this part of the audit not only serves as a management tool to analyse the current situation; more
importantly, it enables the management auditors to synthesis those elements that are causing organisational difficulties and deficiencies.
CHAPTER 18 DUE DILIGENCE INVESTIGATION AND FORENSIC AUDIT

UNIT 1 -DUE DILIGENCE
Due diligence refers to an examination of a potential investment to confirms all material

facts of the prospective business opportunity. It involves review of financial and non-
financial records as deemed relevant and material.
There are many reasons for carrying out due Financial Due Diligence
diligence including:
• To confirm that the business is what it appears to be; In order to achieve its objective, the due diligence process can
include any or all of the following objectives for individual
• To identify potential ‘deal killer’ defects in the target and
areas of the verification:
avoid a bad business transaction;
• Brief description of the history of business
• To gain information that will be useful for valuing assets,
defining representations and warranties, and/or negotiating • The background of promoters
price concessions; and • Accounting policies and practices
• To verify that the transaction complies with investment or • Management information systems
acquisition criteria. • Details of management structure
• Trading results, both past and the recent past
Classification of Due-Diligence • Assets and liabilities as per latest balance sheet
• Current status of Income tax assessments including appeals
Commercial Performed by the concerned acquire
pending against tax liabilities assessed by tax authority
or Operational enterprise involving an evaluation
Due Diligence from commercial, strategic and • Cash flow patterns
operational perspectives. • The projection of future profitability
The objective of the Due Diligence exercise will be to look

• Perform after completion of
Financial Due commercial due diligence. specifically for any hidden liabilities or over-valued assets.
Diligence • Analyse the books of accounts
and other information pertaining Hidden Liabilities
to financial matters of the entity.
♣ The company may not show any show cause notices which
have not matured into demands, as contingent liabilities.
These may be material and important.
Tax Due Pertains to all taxation and related ♣ The company may have given “Letters of Comfort” to
Diligence matters of the entity. banks and financial institutions. Since these are not
“guarantees”, these may not be disclosed in the Balance
sheet of the target company.
♣ The Company may have sold some subsidiaries/businesses
Legal Due and may have agreed to take over and indemnify all
This may be required where legal
Diligence aspects of functioning of the entity liabilities and contingent liabilities of the same, prior to
are reviewed. the date of transfer. These may not be reflected in the
books of accounts of the company.
♣ Product and other liability claims; warranty liabilities;
product returns/discounts; liquidated damages for late
deliveries etc., and all litigation.
Environmental To study the entity’s environment,
♣ Tax liabilities under direct and indirect taxes.
its flexibility and adaptiveness to
Due Diligence the acquirer entity. ♣ Long pending sales tax assessments.
♣ Pending final assessments of customs duty where
provisional assessment only has been completed.
♣ Agreement to buy back shares sold at a stated price.
♣ Future lease liabilities.
To ascertain that the entity’s ♣ Environmental problems/claims/third party claims.
Personnel Due personnel policies are in line
♣ Unfunded gratuity/superannuation/leave salary liabilities;
Diligence or can be changed to suit the
requirements of the restructuring. incorrect gratuity valuations.
♣ Huge labour claims under negotiation when the labour
wage agreement has already expired.

Over-Valued Assets
♣ Uncollected/uncollectable receivables.
♣ Obsolete, slow non-moving inventories or inventories Talk to customers, suppliers, business partners,
valued above NRV; huge inventories of packing materials and employees are great resources.
etc., with name of company.
♣ Underused or obsolete Plant and Machinery and their
spares; asset values which have been impaired due to
sudden fall in market value etc. Take a risk management approach. So, while
♣ Assets carried at much more than current market value you want to do your research, you also want to
due to capitalisation of expenditure/foreign exchange make sure that you do not antagonise the team
fluctuation, or capitalisation of expenditure mainly in the of people of the target company by bogging
nature of revenue. them down with loads of questions.
♣ Litigated assets and property.
♣ Investments carried at cost though realisable value is
much lower.
♣ Investments carrying a very low rate of income / return. Prepare a comprehensive report detailing the
♣ Infructuous project expenditure/deferred revenue compliances and substantive risks/issues.
expenditure etc.
♣ Group Company balances under reconciliation etc.
♣ Intangibles of no value.
Work Approach to Due diligence : The purchase of business in
many instances is the largest and most expensive assets purchase Contents of a Due Diligence Report: The contents of a due
in life time and therefore some caution should be exercised diligence report will always vary with individual circumstances.
through the due diligence process. Therefore, assessing the Following headings are illustrative:
businesses fair value passes through.
Example of Headings of a Due Diligence Report
Reviewing and reporting Assessing the business Executive Summary Comments on properties, terms of
on the financials first hand by a site visit leases, lien and encumbrances
submitted by the target (if applicable). Introduction Assessment of operating results
company.
Background of Target Assessment of taxation and statutory
Working through the liabilities
due diligence process Helping prepare an offer Objective of due Assessment of possible liabilities
with the acquisitioning based on completion of diligence on account of litigation and legal
company or investor by due diligence. proceedings against the company
defining the key areas.
Terms of reference and Assessment of net worth
scope of verification
How to Conduct Due Diligence
Brief history of the Interlocking investments and
company financial obligations with group
Start with an open mind. Do not assume that / associates companies, amounts
anything wrong will be found and look for it. receivables subject to litigation, any
What needs to be done is to identify trouble other likely liability which is not
spots and ask for explanations. provided for in the books of account
Share holding pattern SWOT Analysis
Get the best team of people. If you do not have a Observations on the Comments on future projections
group of people inside your firm that can do the review
task (e.g. lack of staff, lack of people who know
the new business because you are acquiring Assessment of Status of charges, liens, mortgages,
a business in an unrelated areas, etc.), there management structure assets and properties of the company
are due diligence experts that you can hire. Assessment of financial Suggestion on ways and means
When hiring such professionals, look for their liabilities including affidavits, indemnities, to
experience record in the industry. be executed to cover unforeseen and
undetected contingent liabilities
Get help in all areas like finance, tax accounting, Assessment of Suggestions on various aspects to
legal, marketing, technology, and any others valuation of assets be taken care of before and after the
relevant to the assignment so that you get a proposed merger/acquisition.
360-degree view of the acquisition candidate.
12 September The Chartered Accountant Student

UNIT 2 : INVESTIGATION Steps in Investigation: As investigation involves a variety

Basis of Investigation Audit
of situations, it is not possible to lay down any standardised
Difference procedure. However, usually, an investigation requires the
(i) Objective An investigation aims The main objective of an following steps in order of sequence:
at establishing a fact audit is to verify whether
or a happening or at the financial statements 1. Determination of objectives and establishment of scope
assessing a particular display a true and fair of investigation.
situation. view of the state of affairs
and the working results of 2. Formulation of the investigation programme.
an entity.
(ii) Scope The scope of The scope of audit is 3. Examination and study of various records by reference
investigation may be wide and in case of to appropriate evidence.
governed by statute statutory audit the scope
or it may be non- of work is determined
4. Analysis, processing and interpretation of findings.
statutory. by the provisions of
5. Preparation of report and drawing up of conclusions.
relevant law.
(iii) Periodicity The work is not limited The audit is carried
by rigid time frame. It either quarterly, half- Diagram showing Sequence of Steps for Investigation
may cover several years, yearly or yearly.
The important issues to be kept in mind by the investigator
as the outcome of the
while preparing his report are as follows:
same is not certain.
(iv) Nature Requires a detailed Involves tests checking (i) The report should not contain anything which is not
study and examination or sample technique relevant either to highlight the nature of the investigation
of facts and figures. to draw evidences for or the final outcome thereof.
forming a judgement and
expression of opinion. (ii) Every word or expression used should be properly
(v) Inherent No inherent limitation Audit suffers from considered so that the possibility of arriving at a different
Limitations owing to its nature of inherent limitation. meaning or interpretation other than the one intended by
engagement. the investigator can be minimised.
(vi) Evidence It seeks conclusive Audit is mainly
evidence. concerned with prima- (iii) Relevant facts and conclusions should be properly linked.
facie evidence. (iv) Bases and assumptions made should be explicitly stated.
(vii) It is analytical in nature Is governed by
Observance and requires a thorough compliance with (v) The report should clearly spell out the nature and objective
of Accounting mind, capable of generally accepted of the assignment accepted its scope and limitations, if
Principles observing, collecting accounting principles, any.
and evaluating facts. audit procedures and
disclosure requirements.
(vi) The report should be made in paragraph form with
(viii) The outcome is The outcome is reported headings for the paragraphs. Any detailed data and figures
Reporting reported to the to the owners of the supporting any finding may be given in Annexures.
person(s) on whose business entity. (viii) The opinion of the investigator should appear in the final
behalf investigation is paragraph of the report.
carried out.
Types of Investigation: The different types of investigation that a chartered accountant is usually called upon to carry out are given
hereunder:
Types of Investigation
Statutory Non-statutory
Investigation on behalf of an
Investigation into the Investigation of ownership of a incoming partner
affairs of a company company (Section 216)
Investigation for valuation of
shares in private companies
By inspector through an order of the Central Government (Section
210) on the receipt of report of registrar or on intimation of a Investigation on behalf of a bank
special resolution passed by a company that the affairs of the
company ought to be investigated; or in public interest. proposing to advance loan to a company
Investigation of frauds
By Serious Fraud Investigation Office (Section 212) on receipt
of a report of the Registrar or inspector; or on intimation of a Investigation on behalf of an individual
special resolution passed by a company; or in public interest; or or a firm proposing to buy a business
on request from the Department of the Central Government, or a
State Government.
Investigation in connection with review
Other cases (Section 213) of profit / financial forecast

Who can be appointed as an Inspector - A firm, body (iv) Framing of Programme: The next step is the
corporate or other association cannot be appointed as an investigator/inspector should frame his programme for
inspector. Thus, a firm of professional accountant cannot be investigation in a systematic manner.
appointed as inspector but an individual accountant can be
so appointed. (v) Using the work of Experts: He should also consider
whether assistance of other experts like engineers,
PROCEDURE, POWERS ETC., OF INSPECTORS – Section lawyers, etc., is necessary.
217 of the Companies Act, 2013 states the procedures, powers of
the Inspectors as follows: (vi) Legal requirements and investigation Report: Only
after he has completed the steps in the investigation
Duty of officers and employees of the company towards programme and has marshaled all the information that
inspector to preserve and to produce all books and papers he needed should he prepare his report. He, however,
relating to the company or the person; and to provide can also make interim report as provided under
assistance in connection with the investigation which they section 223 of the Companies Act. Before he makes his
final report he should obtain and keep on record the
are reasonably able to give.
evidence relied upon by him. He should make his report
Inspector may ask information from any body corporate in accordance with the provisions of the section 223 of
the Companies Act, 2013.
Not to keep Books and Papers in custody for more than
Investigation of Frauds: In the Companies Act, 2013 meaning
180 days of fraud has been considered in two specific sections viz. Section
Examine on oath 143(10), where the SAs specified by the ICAI are deemed to be
the auditing standards for purposes of the Act, which, inter alia,
Inspector to possess all the Powers of Civil Court under define fraud, and in section 447, where punishment for fraud has
been prescribed.
the Code of Civil Procedure, while trying a suit in respect of
specified matters.
Fraud has been defined in paragraph 11(a) of SA 240, “The
Assistance of Officers of Government to Inspector to Auditor’s responsibilities Relating to Fraud in an Audit
provide necessary assistance to the inspector for the purpose of Financial Statements” as ‘an intentional act by one or
of inspection, investigation etc. more individuals among management, those charged with
Evidence from place outside India: If in the course of an governance, employees, or third parties, involving the use of
investigation into the affairs of the company, an application is deception to obtain an unjust or illegal advantage.’
made to the competent court in India by the inspector stating
that evidence may be available in a country or place outside In the context of stating the provisions for punishment for
India, such court may issue a letter of request to a court or an fraud, section 447 of the Act has explained the term ‘fraud’ as
authority in such country or place for seeking such evidence. “fraud in relation to affairs of a company or any body corporate,
includes any act, omission, concealment of fact or abuse of
It may be noted that the letter of request shall be transmitted
position committed by any person or any other person with the
in such manner as the Central Government may specify in this
behalf. connivance in any manner, with intent to deceive, to gain undue
advantage from, or to injure the interests of, the company or its
INSPECTOR’S REPORT - Under section 223 of the Companies shareholders or its creditors or any other person, whether or not
Act, 2013, an inspector shall, if so directed by the Central there is any wrongful gain or wrongful loss.”
Government, submit interim reports to that Government,
and on the conclusion of the investigation, shall submit a final Types of Frauds: Frauds may broadly be categorised as –
report to the Central Government. Every report made, shall be
in writing or printed as directed by the Central Government. A
Fraudulent Financial Mis-appropriation of Assets
copy of the report may be obtained by making an application to
the Central Government. Reporting
♣ Alteration or falsification ♣ Embezzlement of receipts
Investigation under sections 210 and 213 do not call for
of records & documents. in respect of written-off
any special approach. Approach/Steps for pursuing the
♣ Misrepresentation in or accounts.
investigation are:
intentional omission of ♣ Stealing physical assets or
events, transactions or intellectual properties.
(i) Clarity of Terms of Reference: The inspector information. ♣ Introduction of fictitious
should ensure that the terms of reference are clear, ♣ Intentional misapplication vendors.
unambiguous and in writing. of accounting principles. ♣ Payment of factitious
♣ Fictitious Journal Entries. employees.
(ii) Scope of Investigation: Next step is to determine the scope ♣ Adjusting assumptions ♣ Using entities assets for
of the investigation on the basis of the terms of reference. and changing Judgments. personal use.
♣ Omitting, advancing or
(iii) Period for investigation: He should also have regard to delaying the recognition
the period over which the investigation should stretch. of events or transactions.

Fraudulent Entries Sales Frauds Collection Frauds Expenses Frauds

♦ Late entry ♦ Price enhancement ♦ Defalcation of ♦ Entering ineligible
♦ No entry ♦ Omission to make receipt of sale of scrap. contributions to discount
♦ Part entry ♦ Billing and sales reversals in amusement parks. charity funds ♦ Overcharging
♦ Inserting wrong ♦ Food production yield ratio in hotels and ♦ Crediting donation to expenses
entries to divert suppression of Revenue. loan accounts ♦ Falsification of
attention ♦ Using or hiring assets of the company in lean documents
period. ♦ Untimely payment
♦ Omission in preparation of dispatch note for sale. ♦ Introduction of
♦ Sale of Assets recorded as Income. fictitious vendor
Payroll Frauds Data Frauds

♦ Extra number of employees ♦ Change in computer data
♦ Extra hours ♦ Destroy, suppress or insert records
♦ Calculation of net pay by transferring rounding off amount ♦ Using open fields in computerised accounting system
to personal account
♦ Not deactivating the retired employees’ IDs
Technology related Frauds Banking related Frauds Others

♣ Employing hostile software ♣ Forged Signatures ♣ Teaming and Lading
programs or malware ♣ Cheque Frauds - Alteration in amounts, alteration ♣ Process houses mixing inferior quality
attacks in accounts titles, Kite flying material to sale good quality material
♣ Phishing mails ♣ Cash lending during working hours ♣ Pilferage and theft in super markets
♣ Vishing – Voice Mail ♣ Missing notes in bundles ♣ Selling classified information,
♣ SMSishing - Text ♣ Use of same notes bundles by two branches ♣ Withholding information from
messages ♣ Wrong posting in other accounts customer about free product schemes,
♣ Whaling – Targeted ♣ Misuse of sensitive stationery discount and concession
phishing on high net worth ♣ ATM transaction misuse ♣ Enhancement of performance
individuals ♣ Using PINs of debit card/credit card holder ♣ Taking advantage of disaster or natural
♣ Card duplications ♣ Advances - Car, Xerox Machine, inflated stock calamity
♣ Stealing confidential data statements, inflated projections, forged/duplicate ♣ Trust FDs
land documents, L/Cs ♣ Fictitious journal entries to inflate
expenses or income
Indicators of Fraud
Several indications of possible frauds can be listed as follows :-
i. Discrepancies in Accounting Records including non-
recording or partial recording or incorrect recording or
delayed recording of amounts, misclassifications, etc. Auditor needs to assess fraud risk factors for material
misstatement or misappropriation of assets due to fraud,
ii. Conflicting or missing evidence including missing such as incentive / pressures, opportunities and attitudes /
documents, altered documents, significant unexplained rationalisations.
items in reconciliations, discrepancies between entity’s
records and confirmations received etc. The responses to fraud will include communications
iii. Unacceptable management responses such as – denial of to management and those charged with governance,
access to records/facilities/employees, undue time pressure communication to regulatory and enforcement authorities
to resolve complex issues, unusual delays in providing and appropriate documentation on his assessment of the
requested information, denial for use of Computer Assisted risks of material misstatement.
Audit Techniques, unwillingness to address identified
deficiencies in internal control etc.
iv. Other indications such as – Accounting Policies in variance Auditor’s ability to detect fraud depends on factors such as –
with Industry Norms, Frequent changes in accounting
estimates etc. - the skillfulness of the perpetrator
- the frequency & extent of manipulation
Responses to Fraud : SA 330 states the auditor’s responses to
assessed risks. Response to the risks related to management - the degree of collusion involved
override of controls includes testing the appropriateness of - the relative size of individual amounts manipulated; and
journal entries and other adjustments made in preparation
- the seniority of those individuals involved
of the Financial Statements, review of accounting estimates
for biases and also review the significant transactions that are Detection of Fraud depends upon effectiveness of Audit
outside the normal course of business for the entity or that Procedure. Detection risk, however, can only be reduced, not
otherwise appear to be unusual. eliminated.

UNIT 3 : FORENSIC AUDIT Fraud Auditing: It is a meticulous review of financial

documents conducted when fraud is suspected. Some entities
“Forensic” means “suitable for use in the court of law”. do them as a precaution to prevent fraud from happening
Bologna said that it is the application of financial skills and and to catch it before the loss magnifies. A Fraud Audit
investigative mentality to unresolved issues, conducted however is not an Investigation. Fraud auditing is used to
within the context of the rules of evidence. As an emerging identify fraudulent transactions, not to figure out how they
discipline, it encompasses financial expertise, fraud were created. Fraud auditors often go outside the books of
knowledge and a sound knowledge and understanding of accounts to find fraudulent transactions.
business reality and the working of legal system.
Red Flag: Red flags are sign or warning of any impending
Important Definitions danger or inappropriate behavior. Red flags do not necessarily
indicate the existence of fraud however are indicators
Forensic: The word forensic comes from the Latin word that, caution needs to be exercised while investigating
forensis, meaning “of or before the forum.” It is - the situations. Red flags are classified in categories such as
♣ Relating to, used in, or appropriate for courts of law or for financial performance red flag, accounting system red flags,
operational red flags and behavioural red flags.
public discussion or argumentation.
♣ Relating to the use of science or technology in the Forensic audit can be conducted in order to prosecute a party for
investigation and establishment of facts or evidence in a fraud, embezzlement or other financial claims. In addition, an
court of law. audit may be conducted to determine negligence in addition, an
audit may be conducted to determine negligence
Forensic Accounting: The integration of accounting,
Audit vs. Forensic Accounting/ Forensic Audit
auditing and investigative skills yields the speciality known
as Forensic Accounting. It is the study and interpretation A forensic accountant will often look for indications of fraud that
of accounting evidence. It is the application of accounting are not subject to the scope of a financial statement audit.
methods to the tracking and collection of forensic evidence, ♦ In response to an event
usually for investigation and prosecution of criminal acts Forensic ♦ Financial investigation
such as embezzlement or fraud. Accounting ♦ Finding used as evidence in court or to
resolve disputes
Forensic Accounting can sometimes be referred to as Forensic
♦ Mandatory
Auditing. ♦ Measures compliance with reporting
standards
Forensic Investigation: Also known as forensic audit is the ♦ Obtain reasonable assurance that financial
examination of documents and the interviewing of people to statements are free of material misstatement.
extract evidence. Forensic Accounting examines individual or Audit In practice, there are differences in mind set
company financial records as an investigative measure that between forensic accounting and audit.
♦ “Investigative mentality” vs. “professional
attempts to derive evidence suitable for use in litigation. scepticism”. A forensic accountant will often
require more extensive corroboration.
♦ A forensic accountant may focus more on
seemingly immaterial transactions.
Sr. No. Particulars Other Audits Forensic Audit

1 Objectives Express an opinion as to ‘True & Fair’ Whether fraud has taken place in books
presentation
2 Techniques Substantive & Compliance. Sample based Investigative, substantive or in depth
checking
3 Period Normally for a particular accounting period No such limitations
4 Verification of stock, Relies on the management certificate/ Independent/verification of suspected/
Estimation realisable value Management Representation. selected items where misappropriation is
of assets, provisions, liability suspected
etc.
5 Off balance sheet items (like Used to vouch the arithmetic accuracy & Regulatory & propriety of these transactions/
contracts etc.) compliance with procedures. contracts are examined.
6 Adverse findings if any Negative opinion or qualified opinion Legal determination of fraud impact and
expressed with/without quantification. identification of perpetrators depending on
scope.
FORENSIC AUDITOR : A Forensic Auditor is often retained to analyse, interpret, summarise and present complex financial and
business related issues in a manner which is both understandable and properly supported. Forensic Accountants are trained to look
beyond the numbers and deal with the business reality of the situation.

A Forensic Auditor is often involved in:
Fraud Detection Computer Forensics Fraud Prevention Providing Expert Testimony

Investigating and analysing Developing computerised Either reviewing Assisting in legal
financial evidence, detecting applications to assist in internal controls to proceedings, including
financial frauds and tracing the recovery, analysis and verify their adequacy or testifying in court as
misappropriated funds. presentation of financial providing consultation an expert witness and
evidence. in the development and
implementation of an
preparing visual aids to
internal control framework support trial evidence.
aligned to an organisation’s
risk profile.
In order to properly perform these services, a Forensic Auditor must be familiar with legal concepts and procedures and have expertise
in the use of IT tools and techniques that facilitate data recovery and analysis. In addition, a Forensic Auditor must be able to identify
substance over form when dealing with an issue.
Forensic Auditors are retained by:
Government
Police Insurance Courts Business
Lawyers Regulatory Bodies and Banks
Forces Companies and Community
Agencies
Services rendered by Forensic Auditors:
♣ Crafting questions to be posed

♣ Responding to questions posed
♣ Identifying documents to be requested and/or subpoenaed
♣ Identifying individuals to be most knowledgeable of facts
♣ Conducting research relevant to facts of the case
♣ Identifying and preserving key evidence
♣ Evaluating produced documentation and information for completeness
♣ Analysing produced records and other information for facts
♣ Identifying alternative means to obtain key facts and information
♣ Providing questions for deposition and cross examination of fact and expert witnesses
The services rendered by the forensic accountants are in great demand in the following areas:
Forensic accountants render such services
Matters relating to financial implications
both when called upon to investigate
the services of the forensic accountants are
specific cases as well for a review of or for
availed of. The report of the accountants is
implementation of Internal Controls. Another
considered in preparing and presentation as Fraud area of significance is Risk Assessment and
Criminal evidence. Investigation
Investigation Risk Mitigation.
and Risk/
Control Reviews
Professional negligence cases are taken up by
the forensic accountants. Non-conformation Insurance companies engage forensic
to Generally Accepted Accounting Standards accountants to have an accurate assessment
(GAAS) or non-compliance to auditing of claims to be settled.
Professional practices or ethical codes of any profession.
They are needed to measure the loss due to In case of policyholders seek the help of
Negligence such professional negligence or shortage in a forensic accountant when they need to
Cases services. Settlement of challenge the claim settlement as worked
insurance claims out by the insurance companies. A forensic
accountant handles the claims relating to
consequential loss policy, property loss due
to various risks, fidelity insurance and other
Forensic accountants render arbitration types of insurance claims.
and mediation services for the business
community. Their expertise in data collection Business firms engage forensic accountants
and evidence presentation makes them sought to handle contract disputes, construction
Arbitration after in this specialised practice area. claims, product liability claims, infringement
service of patent and trade marks cases, liability
Dispute arising from breach of contracts and so on.
settlement

Characteristics- Forensic Auditor Skills - Forensic Auditor should possess

♣ Out of the Box Thinking ♣ Auditing standards, procedures and related methodologies
♣ Strong Visualisation and Imagination ♣ Accounting & Business reporting systems
♣ Curiosity ♣ Information Technology
♣ Persistence ♣ Data Analytics
♣ Detail-oriented ♣ Criminology
♣ Inquisitiveness ♣ Legal Framework
♣ Creativity ♣ Litigation processes & procedures
♣ Discretion ♣ Investigative Techniques
♣ Skepticism ♣ Evidence gathering
♣ Confidence ♣ Network of professional contacts in related fields viz.
♣ Sound professional judgement enforcement, regulatory bodies, law, industry, peers etc.
Process of Forensic Accounting : Each Forensic Accounting assignment is unique. Accordingly, the actual approach adopted and
the procedures performed will be specific to it. However, in general, many Forensic Accounting assignments will include the steps
detailed below.
Develop the Obtain Perform Reporting Court Proceedings

Initialisation Plan Relevant Analysis Step 5 Step 6
Step 1 Step 2 Evidence Step 4
Step 3
Forensic Audit Techniques
Step 2 Step 3
Step 1 Identify Possible Frauds Catalog Possible Fraud
Understand The Business That Could Exist Symptoms
Analytical Steps:
Step 4 Step 5 Step 8 (optional)

Use Technology To Gather Analyse Results Automate Detection
Technology Steps: Data About Symptoms Procedures
Step 6 Step 7 (optional)

Investigate Symtoms Follow Up
Invetigative Steps:
Forensic Audit Report : Points to keep in mind while reporting
Clear thinking ♣ To whom the report is directed

♣ Purpose and aim
♣ Cool and calm thinking to have logical and coherent presentation
♣ Pattern of presentation
Keep the reader uppermost in mind ♣ Translate technical matters to layman’s language
♣ To visualise the reader’s viewpoint
Unbiased approach ♣ To mention the view point of the auditee
Impact of the report ♣ The probable reaction to reporting. Whether action or decision will follow
in quickest possible time or to be treated as of academic interest only.
♣ To remember the universal saying - “don’t jump to conclusions”
Facts and figures to be in proper sequences

The main factors to be considered for the various ways of presentations of written reports are
Nature of Nature of For whom Purpose for Management Forensic Extent of

business subject the report is which the attitude, auditor’s details
of the or aspect intended report is directives approach required by
organisation appraised prepared and needs and calibre auditee and
management.
Sample Table of Contents of a Forensic Audit Report may (iii) Obtain management approval for scope
include the following: 3.2. Collect Evidence
1. EXECUTIVE SUMMARY
3.3. Conduct Interviews
1.0 Background
1.1 Origin of the Audit 3.4. Analyse findings
1.2 Audit Objective 3.5. Validate Inferences and conclusions
1.3 Proposed Audit Outputs 4. EVIDENCE OF RISK EVENTS
1.4 Audit Implementation Approach
2. RISK ANALYSIS 4.1 Conflicts of interest
4.2 Bribery
2.1 Internal 2.2 External Environment
Environment Risk Forces 4.3 Extortion
4.4 Theft
2.1.1 Financial 2.2.1 Influence of Economics
Management and relevant Market 4.5 Fraudulent transactions
2.1.2 Customers, Products 2.2.2 Political and Legal 4.6 Inventory frauds
and Competitors Scenario 4.7 Misuse of assets
2.1.3 Information 2.2.3 Technology in the 4.8 Financial Statement frauds
technology Sector
2.1.4 Business Process 5. AUDIT RECOMMENDATIONS
2.1.5 Human Resource 5.1 Logical Framework Approach
Management 5.2 Preconditions and Risks
3. AUDIT PROCESS 6. GOVERNANCE ON RECOMMENDATION
3.1.
Preliminary understanding of scope and incident IMPLEMENTATION
coverage 6.1 Stakeholders
(i) Identification of all related data elements 6.2 Budget Considerations
(ii) Preparation of a List of “persons of interest” for
LIST OF ANNEXURES
interview
CHAPTER 20 PROFESSIONAL ETHICS

Our Institute’s Motto – ‘Ya Esha Supteshu Jagrati’ is adopted from Kathopanishad and it denotes ‘eternal vigilance’ – awakening
when the world is asleep.
Chartered Accountants as professionals are engaged in building trust to vast

variety of users, whether shareholders, government, banks, investors, employees
or others, which imposes a public interest responsibility on their profession.
Like other professionals, Chartered Accountants also have some set of code
of ethics. This Code of Ethics establishes ethical requirements for Professional
Accountants.
A Chartered Accountant, either in practice or in service, has to abide by these ethical behaviours. They are expected to follow the fundamental
principles of professional ethics while performing their jobs. Any deviation from the ethical responsibilities brings the disciplinary mechanism
into action against the Chartered Accountants.
Fundamental Principles: The fundamental principles as discussed in Code of Ethics of ICAI, to be complied, are given below:
Professional
Integrity Objectivity Competence Confidentiality Professional
and Due Care Behaviour

Member in Practice Prohibited from using a Designation (1) With regard to the use of the name-board, there will be
Other Than Chartered Accountant no bar on putting up of a name-board in the place of
residence of a member with the designation of Chartered
(i) The member of the Institute are now permitted to use the Accountant, provided it is a name-plate or a name-board
word ‘CA’ as prefix before their name irrespective of the of an individual member and not of the firm.
fact that they are in practice or not.
(2) The exemption may be granted to a member or a firm
of Chartered Accountants in practice to have a second
(ii) Under section 7 of the Chartered Accountants Act,
1949 a member in practice cannot use any designation office without such second office being under the
other than that of a Chartered Accountant, nor can he separate charge of a member of the Institute, provided-
use any other description, whether in addition thereto (a) the second office is located in the same premises, in
or in substitution therefor, but a member who is not in which the first office is located or,
practice and does not use the designation of a Chartered (b) the second office is located in the same city, in which the
Accountant may use any other description. Nevertheless first office is located or,
a member in practice may use any other letters or (c) the second office is located within a distance of 50 km. from
description indicating membership of Accountancy the municipal limits of a city, in which the first office is
Bodies which have been approved by the Council or of located.
bodies other than Accountancy Institutes so long as such
use does not imply adoption of a designation and/or does A member having two offices of the type referred to above
not amount to advertisement or publicity. shall have to declare, which of the two offices is his main
office, which would constitute his professional address.
For example, though a member cannot
designate himself as a Cost Accountant, he can
KYC Norms for CA in Practice: The financial services
use the letters A.I.C.W.A. after his name, when
industry globally is required to obtain information of their
he is a member of that Institute.
clients and comply with Know Your Client Norms (KYC
Norms). In light of this background, the Council of ICAI
Maintenance of Branch Offices : In terms of section 27 of approved the following KYC Norms which are mandatory in
the Act, if a Chartered Accountant in practice or a Firm of nature and shall apply in all assignments pertaining to attest
Chartered Accountants has more than one office in India, functions.
each one of such offices should be in the separate charge of a
member of the Institute. However, exemption has been given to 1. Where Client is an Individual/ Proprietor
members practicing in hill areas subject to certain conditions. A. General Information
The conditions are: • Name of the Individual
• PAN No. or Aadhar Card No. of the Individual
(1) Temporary offices in a city in the plains for a limited • Business Description
period not exceeding 3 months in a year. • Copy of last Audited Financial Statement
(2) The regular office need not be closed during this period B. Engagement Information
• Type of Engagement
and all correspondence can continue to be made at the
regular office. 2. Where Client is a Corporate Entity
A. General Information
(3) The name board of the firm in the temporary office • Name and Address of the Entity
should not be displayed at times other than the period • Business Description
such office is permitted to function as above. • Name of the Parent Company in case of Subsidiary
• Copy of last Audited Financial Statement
(4) The temporary office should not be mentioned in the
B. Engagement Information
letterheads, visiting cards or any other documents as a • Type of Engagement
place of business of the member/firm. C. Regulatory Information
(5) Before commencement of every winter it shall be • Company PAN No.
• Company Identification No.
obligatory on the member/firm to inform the Institute that • Directors’ Names & Addresses
he/it is opening the temporary office from a particular date • Directors’ Identification No.
and after the office is closed at the expiry of the period of
permission, an intimation to that effect should also be sent 3. Where Client is a Non-Corporate Entity
A. General Information
to the office of the Institute by registered post. • Name and Address of the Entity
• Copy of PAN No.
It is necessary to mention that the Chartered Accountant in- • Business Description
charge of the branch of another firm should be associated with • Partner’s Names & Addresses (with their PAN/Aadhar
him or with the firm either as a partner or as a paid assistant. Card/DIN No.)
If he is a paid assistant, he must be in whole time employment • Copy of last Audited Financial Statement
with him. However, a member can be in-charge of two offices if B. Engagement Information
they are located in one and the same Accommodation. In this • Type of Engagement
context some of the Council’s decisions are as follows:

Flow Chart of Discipline Procedure Mechanism
Receipt of (i) Complaint along with prescribed fee, or (ii) Information,

against member of ICAI of alleged misconduct
Disciplinary Directorate
Prima Facie Opinion
Guilty Not Guilty
Submit all information &

Falling in Falling in Second complaints to
First Schedule Schedule or Both Board of Discipline
Place the matter Place the matter

before Board of Discipline before Accepted Rejected
Disciplinary Committee
Accepted Rejected
Advice the Director
Accepted Rejected
(Discipline) to further
Conduct enquiry Close the matter investigate
Conduct enquiry Close the matter
Found guilty May proceed with the
Found guilty matter, if it is allied to the
First Schedule
Yes No
Yes No Refer the matter to the
It can, Disciplinary Committee,
(i) reprimand the member if it is allied to the
It can, Second Schedule or Both
(ii) remove name of the member (i) reprimand the member
upto period of 3 months (ii) remove name of the member
(iii) impose fine upto ` 1,00,000 permanently or for any
duration, it thinks fit
(iii) impose fine upto ` 5,00,000
Any member or Director (Discipline) aggrieved by order of Board or

Disciplinary Committee can prefer an appeal within 90 days
Appellate Authority
It can,
(i) Confirm, modify or set aside the order.
(ii) Impose, Set aside, Reduce or enhance penalty.
(iii) Remit the case to the Board of Discipline or Disciplinary
Committee for reconsideration.
(iv) Pass such order as the Authority thinks fit.

SCHEDULES TO THE ACT Clause (2) pays or allows or agrees to pay or allow, directly or
indirectly, any share, commission or brokerage in the fees or profits
Part I: Professional misconduct of his professional business, to any person other than a member of the
in relation to Chartered Institute or a partner or a retired partner or the legal representative
Accountants in practice of a deceased partner, or a member of any other professional body
(No. of Clauses: 12) or with such other persons having such qualification as may be
prescribed, for the purpose of rendering such professional services
Part II: Professional misconduct from time to time in or outside India.
in relation to Members of the
Institute in service Treatment of Goodwill –
First Schedule (No. of Clauses: 2) Share of Profit /
Sale of Goodwill
Part III: Professional misconduct
in relation to Members of the
Institute generally Partnership Proprietorship
Types of Schedules
(No. of Clauses: 3) Firm Firm
Part IV: Other misconduct in There are No sharing of fees between Goodwill of a proprietary
relation to Members of the two or more Legal Representative of firm of chartered
single member firm and accountant can be sold/
Institute generally partners and purchaser of Goodwill transferred to another
(No. of Clauses: 2) one of them of the firm on the death eligible member of
dies of the Sole Proprietor of the Institute, after the
the firm death of the proprietor
Part I: Professional misconduct Payments may be made concerned.
in relation to Chartered Legal in instalments, provided * The Council permitted
Accountants in practice the agreement of the sale the sale/transfer of
Representative of goodwill contains such goodwill for such cases in
(No. of Clauses: 10) (say, widow) of the following manner:
provision
Part II: Professional misconduct the deceased
Second in relation to Members of the partner can Death of Death of Death of
Schedule Institute generally continue to proprietor proprietor proprietor
(No. of Clauses: 4) receive a share concerned concerned concerned had
of the firm, occurred on or occurred occurred on
after 30.8.1998 on or after or before 29th
Part III: Other misconduct in only if 30.8.1998 and
partnership August, 1998
relation to Members of the there existed
Institute generally agreement a dispute as
Provided such sale to the legal
(No. of Clause: 1) contains such is completed in all heir of the
provision aspects within a deceased
year of the death
of such proprietor proprietor
The implications of the different clauses in the schedules are concerned.
discussed below: Provided the Provided such
The name of the information as sale/transfer
concerned firm to the existence is completed/
would be kept of the dispute effected and
THE FIRST SCHEDULE in abeyance (i.e.
not removed is received by the Institute’s
on receipt of the Institute permission
Where the Director (Discipline) is of the opinion that member information within a year to practice in
about the death of the death of the deceased’s
is guilty of any professional or other misconduct mentioned in the proprietor proprietary
of the proprietor firm name is
the First Schedule; he shall place the matter before the Board of as is being done concerned.
Discipline. at present) only The name of sought for by
upto a period of concerned firm 28th August,
1 year from the shall be kept 1999 and the
PART I - Professional misconduct in relation to Chartered death of proprietor in abeyance firm name
concerned as till 1 year from concerned is
Accountants in practice the date of still available
aforesaid settlement of with the
A Chartered Accountant in practice is deemed to be guilty dispute Institute
of professional misconduct if he:
Clause (1) allows any person to practice in his name as a chartered * In case of a partnership firm when all the partners die at
accountant unless such person is also a chartered accountant in the same time, the above Council decision would also be
practice and is in partnership with or employed by him. applicable.
Clause (3) accepts or agrees to accept any part of the profits
Who can be allowed to of the professional work of a person who is not a member of
practice in a CA’s name? the Institute.
Clause (4) enters into partnership, in or outside India, with
Non- Chartered Chartered Accountant any person other then Chartered Accountant in practice or
Accountant in practice such other person who is a member of any other professional
body having such qualifications as may be prescribed,
Not allowed Partner Employee Others including a resident who but for his residence abroad would
be entitled to be registered as a member under close (V)
of sub-section (1) of section 4 or whose qualifications are
Allowed Allowed Not Allowed recognised by the Central Government or the Council for the
purpose of permitting such partnerships.

Clause (5) Secures either through the services of a person
who is not an employee of such Chartered Accountant or Regulation 192. Restriction on fees - No Chartered
who is not his partner or by means which are not open to a Accountant in practice shall charge or offer to charge,
Chartered Accountant, any professional business. accept or offer to accept, in respect of any professional work,
fees which are based on a percentage of profits, or which
Provided that nothing herein contained shall be construed as are contingent upon the findings or results of such work,
prohibiting any agreement permitted in terms of item (2), (3) provided that:
and (4) of this part. (a) In the case of a receiver or a liquidator, the fees may be
Clause (6) Solicits clients or professional work either based on a percentage of the realisation or disbursement
directly or indirectly by circular, advertisement, personal of the assets;
communication or interview or by any other means. (b) In the case of an auditor of a co-operative society, the fees
Provided that nothing herein contained shall be construed as may be based on a percentage of the paid up capital or the
preventing or prohibiting - working capital or the gross or net income or profits;
(i)Any Chartered Accountant from applying or requesting (c) In the case of a valuer for the purposes of direct taxes and
for or inviting or securing professional work from another duties, the fees may be based on a percentage of the value
chartered accountant in practice; or of property valued;
(ii)A member from responding to tenders or enquiries issued (d) In the case of certain management consultancy services
by various users of professional services or organisations from as may be decided by the resolution of the Council from
time to time and securing professional work as a consequence. time to time, the fees may be based on percentage basis
However, as per the guideline issued by the Council of the which may be contingent upon the findings, or results of
Institute of Chartered Accountants of India, a member of the such work;
Institute in practice shall not respond to any tender issued (e) In the case of certain fund raising services, the fees may
by an organisation or user of professional services in areas be based on a percentage of the fund raised;
of services which are exclusively reserved for chartered (f ) In the case of debt recovery services, the fees may be
accountants, such as audit and attestation services. However, based on a percentage of the debt recovered;
such restriction shall not be applicable where minimum fee of
the assignment is prescribed in the tender document itself or (g) In the case of services related to cost optimisation, the
where the areas are open to other professionals along with the fees may be based on a percentage of the benefit derived;
Chartered Accountants. and
Clause (7) Advertises his professional attainments or services, (h) Any other service or audit as may be decided by the
or uses any designation or expressions other than the Council.
Chartered Accountant on professional documents, visiting Clause (11) Engages in any business or occupation other than
cards, letter heads or sign boards unless it be a degree of a the profession of chartered accountant unless permitted by
University established by law in India or recognised by the the Council so to engage.
Central Government or a title indicating membership of the Provided that nothing contained herein shall disentitle a
Institute of Chartered Accountants or of any other institution chartered accountant from being a director of a company
that has been recognised by the Central Government or may (Not being managing director or a whole time director)
be recognised by the Council. unless he or any of his partners is interested in such company
Provided that a member in practice may advertise through a as an auditor.
write up, setting out the service provided by him or his firm Clause (12) Allows a person not being a member of the
and particulars of his firm subject to such guidelines as may institute in practice or a member not being his partner to sign
be issued by the Council. on his behalf or on behalf of his firm, any balance sheet, profit
Clause (8) Accepts a position as auditor previously held by and loss account, report or financial statements.
another chartered accountant or a certified auditor who has
been issued certificate under the Restricted Certificate Rules, PART II - Professional misconduct in relation
1932 without first communicating with him in writing. to members of the Institute in service
Clause (9) Accepts an appointment as auditor of a company A member of the Institute (other than a member in practice)
without first ascertaining from it whether the requirements shall be deemed to be guilty of professional misconduct, if he
of section 225 of the Companies Act, 1956, in respect of such being an employee of any company, firm or person:
appointment have been duly complied with.
(Now section 139 and 140 read with section 141 of the Companies
Act, 2013. Students may note that till the time Code of Ethics
etc. bare documents get updated from Ethical Standard Board Clause (1) pays or Clause (2) accepts or agrees
allows or agrees to pay to accept any part of fees,
of ICAI in pursuance of the Companies Act, 2013, students are profits or gains from a lawyer, a
directly or indirectly to
required to understand the basic nature of the provision and any person any share in chartered accountant or broker
quote the same along with the new corresponding provisions.) the emoluments of the engaged by such company, firm
employment undertaken or person or agent or customer
Clause (10) Charges or offers to charge, accepts or offers to of such company, firm or
by him.
accept in respect of any professional employment fees which person by way of commission
are based on a percentage of profits or which are contingent or gratification
upon the findings, or results of such employment, except as
permitted under any regulations made under this Act.
The Council of the Institute has however framed Regulation [Note: A member in the foregoing circumstances would be guilty
192 which exempts members from the operation of this clause of misconduct regardless of the fact that he was in whole-time
in certain professional services. The said Regulation 192 is or part-time employment or that he was holding Certificate of
reproduced - Practice along with his employment.]
Clause (4) Expresses his opinion on financial statements
PART III - Professional misconduct in relation
to members of the Institute generally of any business or enterprise in which he, his firm, or a
partner in his firm has a substantial interest.
A member of the Institute, whether in practice or not, shall be
deemed to be guilty of professional misconduct, if he: Clause (5) Fails to disclose a material fact known to
him which is not disclosed in a financial statement, but
Clause (1) not being a fellow of the Institute, acts as a fellow
of the Institute. disclosure of which is necessary in making such financial
statement not misleading where he is concerned with that
financial statement in a professional capacity.
Clause (2) does not supply the information called for, or does Clause (6) Fails to report a material misstatement known
not comply with the requirements asked for, by the Institute,
Council or any of its Committees, Director (Discipline), to him to appear in a financial statement with which he is
Board of Discipline, Disciplinary Committee, Quality concerned in a professional capacity.
Review Board or the Appellate Authority.
Clause (7) Does not exercise due diligence, or is grossly
negligent in the conduct of his professional duties.
Clause (3) while inviting professional work from another
chartered accountant or while responding to tenders Clause (8) Fails to obtain sufficient information which is
or enquiries or while advertising through a write up, or
anything as provided for in items (6) and (7) of Part I of this necessary for expression of an opinion or its exceptions
Schedule, gives information knowing it to be false. are sufficiently material to negate the expression of an
opinion.
Clause (9) Fails to invite attention to any material
PART IV- Other misconduct in relation to departure from the generally accepted procedure of audit
members of the Institute generally
applicable to the circumstances.
A member of the Institute, whether in practice or not, shall be
deemed to be guilty of other misconduct, if he: Clause (10) Fails to keep moneys of his client other than
fees or remuneration or money meant to be expended
(1) is held guilty by any (2) in the opinion of the
civil or criminal court Council, brings disrepute in a separate banking account or to use such moneys for
for an offence which to the profession or the purposes for which they are intended within a reasonable
is punishable with Institute as a result of his time.
imprisonment for a term action whether or not
not exceeding six months. related to his professional
work.
PART II - Professional misconduct in relation

THE SECOND SCHEDULE to members of the Institute generally
Part I - Professional misconduct in relation
to chartered accountant in practice A member of the Institute, whether in practice or not,
shall be deemed to be guilty of professional misconduct,
A Chartered Accountant in practice shall be deemed to
if he:
be guilty of professional misconduct, if he:
Clause (1) Contravenes any of the provisions of this Act or
Clause (1) Discloses information acquired in the course
the regulations made there under or any guidelines issued
of his professional engagement to any person other than
by the Council.
his client so engaging him without the consent of his
client or otherwise than as required by any law for the Clause (2) Being an employee of any company, firm or
time being in force. person, discloses confidential information acquired in the
course of his employment except as and when required by
Clause (2) If he certifies or submits in his name or in the
any law for the time being in force or except as permitted
name of his firm, a report of an examination of financial
by the employer.
statements unless the examination of such statements
and the related records has been made by him or by Clause (3) Includes in any information, statement, return
a partner or an employee In his firm or by another or form to be submitted to the Institute, Council or any of
chartered accountant in practice. its Committees, Director (Discipline), Board of Discipline.
Clause (3) Permits his name or the name of his firm Disciplinary Committee, Quality Review Board or the
to be used in connection with an estimate of earnings Appellate Authority any particulars knowing them to be
contingent upon future transactions in manner which false.
may lead to the belief that he vouches for the accuracy Clause (4) Defalcates or embezzles money received in his
of the forecast. professional capacity.

THE AUDITOR’S REPORT ON FINANCIAL STATEMENTS
The SA 700 series is purely dedicated to the auditor report to be

issued by the auditor. Here, we are discussing SA 700, SA 701, SA 705
and SA 706.
SA-700 Forming an Opinion and Reporting on Financial Statements

Objective • Forming opinion on the financial statements.
• Form and content of the audit report.
Basic Elements of the Auditor’s Report: The auditor’s report includes the following basic elements, which ordinarily includes in
case of Auditors’ Report for Audits Conducted in Accordance with Standards on Auditing:
1. Title
2. Addressee shall be addressed as required by the circumstances of the engagement
3. Auditor’s Opinion: The first section of the auditor’s report shall include the auditor’s opinion, and shall have the heading
“Opinion.”
The Opinion section of the auditor’s report shall also:
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting policies; and
(e) Specify the date of, or period covered by, each financial statement comprising the financial
statements.
If the reference to the applicable financial reporting framework in the auditor’s opinion is not to
Accounting Standards, the auditor’s opinion shall identify the origin of such other framework.
4. Basis for Opinion: The auditor’s report shall include a section, directly following the Opinion section, with the heading
“Basis for Opinion”, that:
(a) States that the audit was conducted in accordance with Standards on Auditing;
(b) Refers to the section of the auditor’s report that describes the auditor’s responsibilities
under the SAs;
(c) Includes a statement that the auditor is independent of the entity in accordance with the
relevant ethical requirements relating to the audit, and has fulfilled the auditor’s other
ethical responsibilities in accordance with these requirements. The statement shall refer to
the Code of Ethics issued by ICAI
(d) States whether the auditor believes that the audit evidence the auditor has obtained is
sufficient and appropriate to provide a basis for the auditor’s opinion.
5. Going Concern: Where applicable, the auditor shall report in accordance with SA 570.
6. Key Audit Matters For audits of complete sets of general purpose financial statements of listed entities, the auditor shall
communicate key audit matters in the auditor’s report in accordance with SA 701.
7. Responsibilities for the Financial Statements:
This section of the auditor’s report shall describe management’s responsibility for:
(a) Preparing the financial statements in accordance (b) Assessing the entity’s ability to continue as a going
with the applicable financial reporting framework, and concern and whether the use of the going concern
for such internal control as management determines basis of accounting is appropriate as well as disclosing,
is necessary to enable the preparation of financial if applicable, matters relating to going concern. The
statements that are free from material misstatement, explanation of management’s responsibility for this
whether due to fraud or error; and assessment shall include a description of when the use
of the going concern basis of accounting is appropriate.

8. Auditor’s Responsibilities for the Audit of the Financial Statements: The auditors report shall include a section with the
heading “Auditor’s Responsibilities for the Audit of the Financial Statements.”
(I) This section of the auditor’s report shall:
(a) State that the objectives of the auditor are to:
(i) Obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error; and
(ii) Issue an auditor’s report that includes the auditor’s opinion.
(b) State that reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with SAs will always detect a material misstatement when it exists; and
(c) State that misstatements can arise from fraud or error, and either:
(i) Describe that they are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements; or
(ii) Provide a definition or description of materiality in accordance with the applicable financial reporting framework.
(II) The Auditor’s Responsibilities for the Audit of the Financial Statements section of the auditor’s report shall further:
To exercise professional judgment and maintain professional skepticism throughout the audit as per SAs;
To identify and assess the risks of
material misstatement of the FS
Auditor’s Responsibilities in
accounting policies used

To obtain an understanding of internal control
To describe an audit by
relevant for audit to design audit procedures
Audit of FS
stating that the auditor’s reasonableness of

responsibilities are: To evaluate the appropriateness of: accounting estimates
To describe the auditor’s To conclude on the appropriateness of

related disclosures
management’s use of the going concern basis
responsibilities in a group made by management.
audit engagement as per to evaluate the overall presentation, structure and
SA 600. content of the financial statements
(III) The Auditor’s Responsibilities for the Audit of the Financial Statements section of the auditor’s report also shall:
(a) State that the auditor communicates with those charged with governance regarding, among other matters:
♣ the planned scope and timing of the audit and
♣ significant audit findings,
♣ including any significant deficiencies in internal control that the auditor identifies during the audit;
(b) State that the auditor provides those charged with governance with a statement that the auditor has:
♣ complied with relevant ethical requirements regarding independence and
♣ communicate with them all relationships and
♣ other matters that may reasonably be thought to bear on the auditor’s independence, and where applicable,
related safeguards; and
(c) For audits of financial statements of all such entities for which key audit matters are communicated in accordance
with SA 701, state that, from the matters communicated with those charged with governance, the auditor determines
those matters that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters.
In accordance with the requirements of SA 701, the auditor describes these matters in the auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, the auditor
determines that a matter should not be communicated in the auditor’s report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
9. Location of the description of the auditor’s responsibilities for the audit of the financial statements: The
description of the auditor’s responsibilities for the audit of the financial statements required by this SA shall be included:
(b) Within an appendix (c) By a specific reference within the auditor’s

(a) Within the to the auditor’s report, report to the location of such a description on
body of the in which case the a website of an appropriate authority, where
auditor’s report; auditor’s report shall law, regulation or the auditing standards
include a reference expressly permit the auditor to do so.
to the location of the
appendix; or
When the auditor refers to a description of the auditor’s responsibilities on a website of an appropriate authority, the auditor shall
determine that such description addresses, and is not inconsistent with, the requirements of this SA.

10. Other Reporting Responsibilities (9) A description of management’s responsibilities for
11. Signature of the Auditor: The auditor’s report shall be the preparation of the financial statements and an
signed. identification of those responsible for the oversight of
♣ The report is signed by the auditor (i.e. the engagement the financial reporting process that addresses, and is not
partner) in his personal name. inconsistent with, the requirements.
♣ Where the firm is appointed as the auditor, the report is
signed in the personal name of the auditor and in the name (10) A reference to Standards on Auditing and the law or
of the audit firm. regulation, and a description of the auditor’s responsibilities
♣ The partner/proprietor signing the audit report also needs to for an audit of the financial statements that addresses, and
mention the membership number assigned by the Institute is not inconsistent with, the requirements.
of Chartered Accountants of India. They also include the (11) The auditor’s signature.
registration number of the firm, wherever applicable, as
allotted by ICAI, in the audit reports signed by them. (12) The Place of signature
12. Place of Signature: The auditor’s report shall name specific (13) The date of the auditor’s report.
location where the audit report is signed.
13. Date of the Auditor’s Report: The auditor’s report shall Auditor’s Report for Audits Conducted in Accordance with
be dated no earlier than the date on which the auditor has Both Standards on Auditing Issued by ICAI and International
obtained sufficient appropriate audit evidence on which Standards on Auditing or Auditing Standards of Any Other
to base the auditor’s opinion on the financial statements, Jurisdiction. In this case, the auditor’s report may refer to
including evidence that: Standards on Auditing in addition to the International Standards
on Auditing or auditing standards of such other jurisdiction, but
(a) All the statements that comprise the auditor shall do so only if:
the financial statements, including the
related notes, have been prepared; and (a) There is no conflict between the requirements in the ISAs
or such auditing standards of other jurisdiction and those
in SAs that would lead the auditor:
(a ) Those with the recognised (i) to form a different opinion, or
authority have asserted that they have (ii) not to include an Emphasis of Matter paragraph or Other
taken responsibility for those financial Matter paragraph that,
statements. in the particular circumstances, is required by SAs; and
(b) The auditor’s report includes, at a minimum, each of the
elements set out in Auditor’s Report Prescribed by Law
Auditor’s Report Prescribed by Law or Regulation: If the or Regulation discussed above when the auditor uses the
auditor is required by law or regulation applicable to the entity layout or wording specified by the Standards on Auditing.
to use a specific layout, or wording of the auditor’s report, the However, reference to “law or regulation” in above
auditor’s report shall refer to Standards on Auditing only if the paragraph shall be read as reference to the Standards on
auditor’s report includes, at a minimum, each of the following Auditing. The auditor’s report shall thereby identify such
elements: Standards on Auditing.
(1) A title. When the auditor’s report refers to both the ISAs or the
(2) An addressee, as required by the circumstances of the auditing standards of a specific jurisdiction and the Standards
engagement. on Auditing issued by ICAI, the auditor’s report shall clearly
identify the same including the jurisdiction of origin of the
(3) An Opinion section containing an expression of opinion other auditing standards.
on the financial statements and a reference to the
applicable financial reporting framework used to prepare Supplementary Information Presented with the Financial
the financial statements. Statements
(4) An identification of the entity’s financial statements that If supplementary information that is not required by the
have been audited. applicable financial reporting framework is
(5) A statement that the auditor is independent of the entity in presented with the not considered an integral part of
accordance with the relevant ethical requirements relating audited financial the audited financial statements,
to the audit, and has fulfilled the auditor’s other ethical statements, the auditor the auditor shall evaluate whether
responsibilities in accordance with these requirements. The shall evaluate whether, in such supplementary information is
statement shall refer to the Code of Ethics issued by ICAI. the auditor’s professional presented in a way that sufficiently
(6) Where applicable, a section that addresses, and is not judgment, supplementary and clearly differentiates it from
information is nevertheless the audited financial statements.
inconsistent with, the reporting requirements of SA 570.
an integral part of the If this is not the case, then the
(7) Where applicable, a Basis for Qualified (or Adverse) financial statements due auditor shall ask management
Opinion section that addresses, and is not inconsistent to its nature or how it to change how the unaudited
with, the reporting requirements of SA 570 (Revised). is presented. When it is supplementary information is
an integral part of the presented. If management refuses
(8) Where applicable, a section that includes the information financial statements, to do so, the auditor shall identify
required by SA 701, or additional information about the the supplementary the unaudited supplementary
audit that is prescribed by law or regulation and that information shall be information and explain in
addresses, and is not inconsistent with, the reporting covered by the auditor’s the auditor’s report that such
requirements in that SA 701. opinion. supplementary information has
not been audited.

SA-701 Communicating Key Audit Matters in Determining Key Audit Matters: The auditor shall determine,
the Independent Auditor’s Report from the matters communicated with those charged with
governance, those matters that required significant auditor
Objective • To enhance the communicative value attention in performing the audit. In making this determination,
of the auditor’s report by providing the auditor shall take into account the following:
greater transparency about the audit
that was performed.
• To assist the user in understanding (a) Areas of (b) Significant (c) The effect
auditor judgments on the audit of
those matters that, in the auditor’s higher assessed
relating to areas significant events
professional judgment, were of most risk of material in the financial or transactions that
significance in the audit of the financial misstatement, or statements that occurred during
statements of the current period. significant risks involved significant the period.
identified in management
Definition Key Audit matter are those matters that, judgment,
accordance with including
of Key Audit in the auditor’s professional judgment, SA 315 accounting
Matters were of most significance in the audit of estimates that have
the financial statements of the current been identified
period. Key audit matters are selected from as having high
estimation
matters communicated with those charged uncertainty.
with governance.
Scope:
Communicating a substitute for the Communicating The introductory language in this section
a substitute for auditor expressing Key Audit of the auditor’s report shall state that:
key audit disclosures in a modified opinion Matters:
matters in the the financial when required by
auditor’s report (a) Key audit matters are those matters
statements; the circumstances
is not: that, in the auditor’s professional
of a specific audit judgment, were of most significance in
engagement in the audit of the financial statements [of
accordance with SA the current period]; and.
705;
(b) These matters were addressed in

a substitute a separate the context of the audit of the financial
for reporting opinion on statements as a whole, and in forming
in accordance individual the auditor’s opinion thereon, and the
with SA 570 or matters. auditor does not provide a separate
opinion on these matters.
Applicability of ♣ It is intended to address both the
SA 701 auditor’s judgment as to what to SA-705 Modifications to the Opinion in the
communicate in the auditor’s report Independent Auditor’s Report
and the form and content of such Scope ♣ This SA deals with the auditor’s
communication responsibility to issue an appropriate
♣ This SA applies to audits of complete report in circumstances when, in forming
an opinion in accordance with SA 700
sets of general purpose financial
(Revised), the auditor concludes that a
statements of : modification to the auditor’s opinion on
♦ listed entities and the financial statements is necessary.
♦ circumstances when the auditor ♣ This SA also deals with how the form and
otherwise decides to communicate content of the auditor’s report is affected
when the auditor expresses a modified
key audit matters in the auditor’s
opinion.
report and
Objective The objective of the auditor is to express clearly
♦ required by law or regulation to
an appropriately modified opinion on the
communicate key audit matters in financial statement that is necessary when:
the auditor’s report (a) The auditor concludes, based on the audit
However, SA 705 (Revised) prohibits the evidence obtained, that the financial
auditor from communicating key audit statements as a whole are not free from
material misstatement; or
matters when the auditor disclaims an
(b) The auditor is unable to obtain sufficient
opinion on the financial statements, appropriate audit evidence to conclude
unless such reporting is required by law or that the financial statements as a whole are
regulation. free from material misstatement.

Types of Types of (i) Qualified Opinion If management refuses to remove the limitation, the auditor
Modified Modified shall communicate the matter to those charged with
Opinions as (ii) Adverse Opinion
Opinion governance, unless all of those charged with governance are
per SA 705: (iii) Disclaimer of Opinion involved in managing the entity, and determine whether it is
possible to perform alternative procedures to obtain sufficient
The decision regarding which type of
modified opinion is appropriate depends appropriate audit evidence.
upon:
(a) The nature of the matter giving rise to the If the auditor is unable to obtain sufficient appropriate
modification, that is, whether the financial audit evidence, the auditor shall determine the
statements are materially misstated or, in implications as follows:
the case of an inability to obtain sufficient
appropriate audit evidence, may be (a) If the auditor concludes that the possible effects on
materially misstated; and the financial statements of undetected misstatements,
(b) The auditor’s judgment about the
if any, could be material but not pervasive, the auditor
pervasiveness of the effects or possible
effects of the matter on the financial shall qualify the opinion; or
statements. (b) If the auditor concludes that the possible effects on
the financial statements of undetected misstatements,
Circumstances When a Modification to the Auditor’s
if any, could be both material and pervasive so that a
Opinion is Required:
qualification of the opinion would be inadequate to
The auditor shall modify the opinion in the auditor’s report
when: communicate the gravity of the situation, the auditor
shall:
The auditor concludes that, The auditor is unable to (i) Withdraw from the audit, where practicable and
based on the audit evidence obtain sufficient appropriate possible under applicable law or regulation; or
obtained, the financial audit evidence to conclude (ii) If withdrawal from the audit before issuing the
statements as a whole are that the financial statements auditor’s report is not practicable or possible,
not free from material as a whole are free from disclaim an opinion on the financial statements.
misstatement; or material misstatement.
If the auditor decides to withdraw: When the auditor

Determining the Type of Modification to the Auditor’s
Opinion: decides to withdraw then before withdrawing, the auditor shall
Qualified Opinion: The auditor shall express a qualified communicate to those charged with governance any matters
opinion when: regarding misstatements identified during the audit that would
(a) The auditor, having obtained sufficient appropriate audit have given rise to a modification of the opinion.
evidence, concludes that misstatements, individually or
in the aggregate, are material, but not pervasive, to the Other Considerations Relating to an Adverse Opinion
financial statements; or or Disclaimer of Opinion: When the auditor considers it
(b) The auditor is unable to obtain sufficient appropriate necessary to express an adverse opinion or disclaim an opinion
audit evidence on which to base the opinion, but the on the financial statements as a whole, the auditor’s report
auditor concludes that the possible effects on the financial shall not also include an unmodified opinion with respect to
statements of undetected misstatements, if any, could be the same financial reporting framework on a single financial
material but not pervasive.
statement or one or more specific elements, accounts or items
Adverse Opinion: The auditor shall express an adverse opinion
when the auditor, having obtained sufficient appropriate audit of a financial statement. To include such an unmodified opinion
evidence, concludes that misstatements, individually or in the in the same report in these circumstances would contradict
aggregate, are both material and pervasive to the financial the auditor’s adverse opinion or disclaimer of opinion on the
statements. financial statements as a whole.
Disclaimer of Opinion: The auditor shall disclaim an opinion
when the auditor is unable to obtain sufficient appropriate Unless required by law or regulation, when the auditor
audit evidence on which to base the opinion, and the auditor disclaims an opinion on the financial statements, the auditor’s
concludes that the possible effects on the financial statements report shall not include a Key Audit Matters section in
of undetected misstatements, if any, could be both material accordance with SA 701.
and pervasive.
Communication with Those Charged with Governance:
Consequence of an Inability to Obtain Sufficient When the auditor expects to modify the opinion in the
Appropriate Audit Evidence Due to a Management- auditor’s report, the auditor shall communicate with those
Imposed Limitation after the Auditor Has Accepted the charged with governance the circumstances that led to the
Engagement expected modification and the wording of the modification.
The auditor need to express a qualified opinion or to disclaim
an opinion on the financial statements and auditor shall
request that management remove the limitation.

Nature of Matter Giving Rise to the Auditor’s judgment about the Pervasiveness of the Effects or Possible Effects on the
Modification: Financial Statements
Material but not pervasive Material and pervasive
Financial Statements are materially Qualified Opinion Adverse Opinion
misstated
Inability to obtain Sufficient appropriate Qualified Opinion Disclaimer of Opinion
audit evidence
SA-706
Emphasis of Matter Paragraphs and Other Matter Paragraphs in
the Independent Auditor’s Report
Scope
♣ This SA deals with additional communication in the auditor’s report when the auditor considers it necessary to draw users’
attention to a matter or matters
(a) presented or disclosed in the financial statements that are of such importance that they are fundamental to users’
understanding of the financial statements; or
(b) other than those presented or disclosed in the financial statements that are relevant to users’ understanding of the
audit, the auditor’s responsibilities or the auditor’s report.
Objectives
♣ The objective of the auditor, having formed an opinion on the financial statements, is to draw users’ attention, when in the
auditor’s judgment it is necessary to do so, by way of clear additional communication in the auditor’s report, to:
♣ A matter, although appropriately presented or disclosed in the financial statements, that is of such importance that it is
fundamental to users’ understanding of the financial statements; or
♣ As appropriate, any other matter that is relevant to users’ understanding of the audit, the auditor’s responsibilities or the
auditor’s report.
Definitions
♣ Emphasis of Matter paragraph : A paragraph included in the auditor’s report that refers to a matter appropriately
presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is
fundamental to users understanding of the financial statements.
♣ Other Matter paragraph : A paragraph included in the auditor’s report that refers to a matter other than those presented
or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the
auditor’s responsibilities or the auditor’s report.
Emphasis of Matter Paragraphs in the Auditor’s Report

When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:
(a) Include the paragraph within a separate section of the auditor’s report with an appropriate heading that includes the term
“Emphasis of Matter”;
(b) Include in the paragraph a clear reference to the matter being emphasised and to where relevant disclosures that fully
describe the matter can be found in the financial statements. The paragraph shall refer only to information presented or
disclosed in the financial statements; and
(c) Indicate that the auditor’s opinion is not modified in respect of the matter emphasised.
Other Matter Paragraphs in the Auditor’s Report
If the auditor considers it necessary to communicate a matter other than those that are presented or disclosed in the financial
statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the
auditor’s report, the auditor shall include an Other Matter paragraph in the auditor’s report, provided:
(a) This is not prohibited by law or regulation; and
(b) When SA 701 applies, the matter has not been determined to be a key audit matter to be communicated in the auditor’s
report.
The auditor shall include the paragraph within a separate section with the heading “Other Matter,” or other appropriate
heading.
Communication with Those Charged with Governance
If the auditor expects to include an Emphasis of Matter or an Other Matter paragraph in the auditor’s report, the auditor
shall communicate with those charged with governance regarding this expectation and the wording of this paragraph.

Residential Programme on Professional Skills Development at
Centre of Excellence, Hyderabad and Jaipur
The Board of Studies is pleased to announce the next two batches of ICAI’s ‘Four Weeks Residential
Programme’ on Professional Skills Development as below:
Venue Participant Fees Date Online Registration
Centre of Excellence Women R 48,000/- 25th November, 2018 to https://resource.cdn.icai.org/
(CoE), Hyderabad 22nd December, 2018 50872bos40499main.pdf
Centre of Excellence Men R 48,000/- 26th November, 2018 to https://resource.cdn.icai.org/
(CoE), Jaipur 23rd December, 2018 50874bos40500main.pdf
This programme aims to help the Chartered Accountancy students and newly qualified Chartered
Accountants in imbibing the professional skills required for effective functioning in business organisations
and the profession. The Programme environment focuses on development of communication skills, personal
qualities, interpersonal and teamwork skills, problem solving skills, leadership skills etc.
Salient Features of the Programme:
♣ Emphasis on Soft Skills, Communication Skills and Personality Development. Students who have passed
♣ Exemption from payment of Fees to Top 10 Rank holders. Chartered Accountancy IPCC/
♣ Part of Practical Training. PCC/ PE- II examination and
♣ No need for Separate Management and Communication Skills (MCS) pursuing last year of Practical
forming part of Advanced Integrated Course on Information Technology and training or completed Practical
Soft Skills (AICITSS). training are invited to join the
♣ Special Session on Group Discussion & Interview. course for this batch. Recently
♣ Preparation of Project and Presentation Skills. qualified Chartered Accountants
♣ Building Team Spirit. are also welcome to join the
course.
Student’s opinion
CoE is a place to learn from best of speakers who It was an amazing experience and the faculties were
fill the session with loads of earnings and bundle exceptionally good. It bridges the gap between a CA
of creativity. It is a great place to learn from student and a professional. It influences us to be creative
students and professional with diverse background. and think out of the box.
A must-do course for all CA Students. - Ms. Parnika Poddar
- CA. Kevin Dharmesh Gandhi from Eastern Region
from Western Region (Participant of 40th batch)
(Participant of 37th batch)
For online registration, you can proceed with ‘Board of Studies Announcements’ https://www.icai.org/new_category.html?c_
id=345 under the ‘Students’ tab on the Home Page of the ICAI’s website www.icai.org. For any query, you can write us at
ashokdua@icai.in or may also contact us on 0120-3045935 and Mobile No. 9868879548.
Director, Board of Studies
Feedback Forms for study material of new scheme

The Board of Studies has created feedback mechanism in BoS Knowledge Portal at https://icai.org/post.html?post_
id=14685, wherein subject-wise feedback forms are available for all the subjects of the new scheme of education and
training. Students are advised to submit their feedback/ suggestions on the study material of any subject through the
feedback form of the respective subject. This will help the BoS in identifying amendments/ corrections required in the
study material, if any, and rectifying them appropriately. Further, it is advised to submit the complete module/ chapter/
page no. details, if possible, such that the feedback can be used constructively.
Students may also view the amendments done in the study material through the Excel Sheets uploaded for every paper in
BoS Knowledge Portal under the tab “Feedback Window”.
Announcement for Final (New Course) Students appearing in

November 2018 Examinations for paper 6D: Economic Laws
Subject: Relevant amendments for November 2018 examination
Students of Final (New) Course, appearing in November 2018 examinations, are advised to refer significant amendments
related to the topics for the Period 1st May 2017 to 30th April, 2018 w.r.t paper 6D: Economic laws.
The said amendments is available at the following given link https://resource.cdn.icai.org/51362bos41039.pdf
These amendments are to be read with the applicable study material of November 2017 edition.
Scholarships for CA Students
Board of Studies, ICAI invites applications for the award of Scholarships to the selected candidates to be paid
from October 1, 2018 onwards under following categories:
Sr. Scholarship Category No. of Amount Eligibility Criteria
No. Scholarships (p.m.)
1. Merit-cum-Need As per R 1500/- Rank holders (other than covered under Merit category) of
eligibility Intermediate (IPC) May, 2018 Exam whose parents/guardians total
criteria annual income does not exceed R 2,50,000/-
2. Need Based and Weaker 300 R 1250/- Students of Intermediate (IPC)/Intermediate Course whose par-
Sections ents/guardians total annual income does not exceed R 2,00,000/-
200 R 1250/- Students of Final Course whose parents/guardians total annual
income does not exceed R 2,00,000/-
As per R 1250/- The children undergoing Intermediate (IPC)/Intermediate or Final
eligibility Course of the deceased members of ICAI where financial assis-
criteria tance is provided to spouses of the deceased members from the
Chartered Accountants Benevolent Fund (CABF) shall also be eli-
gible for scholarship.
3. Sri Dhanraj Kanhaiyalal 6 R 1250/- Students of Intermediate (IPC)/Intermediate/Final from Karnataka
Dudheria Scholarships State under Need Based & Weaker Sections criteria
4. R.K. Khanna Memorial 2 R 1250/- Students of Intermediate (IPC)/Intermediate/Final under Need Based
Scholarships & Weaker Sections criteria
5. J.S. Lodha Memorial 3 R 1250/- Students of Intermediate (IPC)/Intermediate/Final under Need Based
6. J.M. Sethia Charitable 3 R 1250/- Students of Intermediate (IPC)/Intermediate/Final under Need Based
Trust Scholarships & Weaker Sections criteria
7. BCCO Foundation 2 R 1250/- Students of Intermediate (IPC)/Intermediate/Final under Need Based
8. R. P. Dalal Memorial 3 R 1250/- Students of Intermediate (IPC)/Intermediate/Final under Need Based
Scholarship & Weaker Sections criteria
9. Out of Joint Corpus 6 R 1250/- Students of Intermediate (IPC)/Intermediate/Final under Need Based
formed by Donors & Weaker Sections criteria
Board of Studies, ICAI also awards Merit Scholarships to the Meritorious Students as a token of appreciation. Students
whose names are appearing at Sl. No. 1-10 of Merit lists of Intermediate (IPC) of May, 2018 Exam, in case the Rank at Sl.
No.10 continues to Sl. No. 11 or 12 or so on, then all such rank holders shall be granted @ R 2000/- p.m. Such students
are not required to apply.
The detailed guidelines along with the requisite application forms (Form no. 3 & 4) are available on the Institute’s Website
(www.icai.org) (link: http://www.icai.org/post.html?post_id=6486 ).
Terms for award of Scholarships:
• Applicants shall be the registered students of Intermediate (IPC)/ Intermediate or Final Course.
• In the case of Intermediate (IPC)/Intermediate Students, Scholarship shall be paid for a maximum period of 18
months.
• In the case of Final students, Scholarship shall be paid for a maximum period of 30 months or balance period of their
articleship, whichever is less.
• An additional amount of Rs. 100/- p.m. shall be paid to SC/ ST/ OBC students, under Need-based and Weaker
Section Category on submission of certificate/ documentary proof duly attested by a gazetted officer or a member of
the Institute.
• One scholarship under the Need-Based and Weaker Section Category is reserved for a Physically Challenged student.
• Income Certificate (Form No. 4) is to be submitted on the letter head of the Principal under whom the Student is
undergoing Articleship (Practical Training) (Part I) / letter head of any member of ICAI in case the Student is not
undergoing Articleship (Part-II). The applications without Form No. 4 will not be processed.
Duly completed and signed Application Forms in the prescribed formats as mentioned above should reach the Director,
Board of Studies, The Institute of Chartered Accountants of India, ICAI Bhawan, A-29, Sector-62, NOIDA-201309 latest
by 1st October, 2018.
In case of any clarification, please contact the Board of Studies, Telephone Nos. 0120-3045914/931; email: ajay.kumar@
icai.in

CA Students Conference - UDAIPUR 8TH & 9TH SEPTEMBER, 2018
Organized by: Board of Studies, ICAI
Hosted by: Udaipur Branch of CIRC & CICASA of ICAI
ICAI BHAWAN,
THEME: KNOWLEDGE & TRAINING WITH ETHICAL QUOTIENT - PATHWAY TO SECTOR 14, UDAIPUR
PROFESSIONAL EXCELLENCE
DAY-1
10.00 am to 10.30 am Inaugural Session
10.30 am to 11.00 pm Special Session: I
Motivational Sessionby Eminent Personality
11.00 am to 12.30 pm Technical Session: I: Topic: Company Law
12.30 pm to 1.30pm Special Session: II: Topic- BOS Presentation and Interaction with Board of Studies.
2.15pm to 3.45 pm Technical Session: II: Topic: Disruption in Economy (Covering Changes in Economy in recent times- Startup,
Digitisation, Demonitisation etc.)
3.45 pm to 5.00 pm Technical Session : III: Topic: Capital Market
DAY 2
10.00 am to 12.00 noon Technical Session : IV : Topic: GST
12.00 Noon to 1.30 pm Special Session: III: Topic – Career Beyond CA-Special Address by Eminent Personality
2.15 pm to 4.00 pm Technical Session: V: Topic: Income Tax
4.00 pm to 4.30 pm Valedictory Session
Registration fees ` 500/- per student

Registration on the Portal The student has to register & make the payment online on the Portal itself, the link will be http://
bosactivities.icai.org/
CA. Dhinal Ashvinbhai Shah, Chairman, BOS; CA. Vijay Kumar Gupta, Vice-Chairman, BOS;CA. Prakash Sharma, Central Council Member
& Conference Director; CA. Gyan Chandra Mishra, Chairman, CIRC of ICAI & Conference Co- Director; CA. Pankaj Jain, Chairman, Udaipur
Branch of CIRC of ICAI & CA. Dilip Kothari, Chairman, Udaipur Branch of CICASA of ICAI, Conference Coordinators.
Postponement of First Examination of Practical Training

The Council has decided to assess students after completion of first and second year of practical training with online
MCQ based tests. The students completing their 1st/ 2nd year of practical training in a particular quarter of a year would
be eligible to register for the said test in the subsequent quarter.
The first test for both the category of students which was scheduled to be held on August 26, 2018 has now been
postponed to September 23, 2018. The students who have completed their 1st/ 2nd year of practical training during
the second quarter of 2018, i.e. April-June, 2018 would be eligible to appear in these assessments anytime during
September-December, 2018. The registration related details will be hosted on the Institute website shortly.
Frequently Asked Questions (FAQs) are also available on the Institute website at the link:
https://resource.cdn.icai.org/50659bosfaqapt.pdf.
Clarification regarding Date of Completion of First/ Second year of Practical

Training for Practical Training Assessment Test
Students may note that for the purpose of appearing in Practical Training Assessment test, the first/ second year
completion date would be calculated as one year/ two years after the date of commencement of practical training
irrespective of excess leaves. For instance, if a student has commenced practical training on July 1, 2017, taken leaves
from January 1, 2018 to February 1, 2018, his/ her first year completion date for the purpose of assessment test would
be considered as June 30, 2018 and second year completion date as June 30, 2019.
However, in case of termination/ transfer, the time gap during transfer from one principal to another principal will not
be included in calculating first/ second year of practical training. For instance, if a student has commenced practical
training on July 1, 2017, taken transfer on January 1, 2018 and then joined new Principal on February 1, 2018, his/
her first year completion date for the purpose of assessment test would be extended to July 31, 2018 and second year
completion date as July 31, 2019.

RNI NO. 66180/1997 Registered: DL(C)-01/1280/2018-20, D. NO. MH/MR/TECH-47/3/2018 License To Post Without Prepayment,
WPP Licence No.: MR/TECH/WPP-247/DL(C)/2018 Posted at Mumbai Patrika Channel Sorting Office, Mumbai
Posting Date: Last three days of advance month & first 04 days of current month, Date of publication: 26th of previous month
CA Students’ Conference- Trichur: Central Council Member, CA. Babu Abraham Kallivayalil inaugurating the Conference in the presence of
CA. Aryan K K, Chairman, SICASA and other SICASA members.
CA Students’ Conference- Aurangabad: Central Council Member, CA. Anil

Bhandari inaugurating the Conference in the presence of Branch Chairman, CA.
Sachin Lathi, Branch WICASA Chairman, CA. Pankaj Soni and other dignitaries.
National Conference for CA Students- Kolkata: Chief Guest Shri Nalin S.

Kohli, Advocate, Supreme Court lighting the lamp to inaugurate the Conference. If undelivered, please return to: The
ICAI Past President, CA. Uttam Prakash Agarwal, Central Council Members, Institute of Chartered Accountants of
CA. (Dr.) Debasish Mitra, CA. Sushil Kumar Goyal, CA. Ranjeet Kumar Agarwal,
India, ICAI Bhawan, Indraprastha Marg,
Chairman, EIRC, CA. Sonu Jain, Chairman, EICASA, CA. Sumit Binani also seen.
New Delhi-110104
36

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VOL 22 NO.

04 PAGES 36 SEPTEMBER 2018 50

02 September 2018 The Chartered Accountant Student

Live Virtual Classes

The Chartered Accountant Student September 2018 03

TOPPERS OF CHARTERED ACCOUNTANTS

DEEPA JAIN LAKSHMANAN A. PARTH GUPTA

INTERMEDIATE (NEW) EXAMINATION MAY-2018

SAKHSHI AIRAN RADHIKA CHAUTHMAL BERIWALA AKSHIT AGARWAL

04 September 2018 The Chartered Accountant Student

Practical Training Assessment Test

I would also suggest you to take the practical training

The Chartered Accountant Student September 2018 05

EDITORIAL BOARD INSIDE

06 September 2018 The Chartered Accountant Student

CHAPTER 17 INTERNAL AUDIT, MANAGEMENT AUDIT AND OPERATIONAL AUDIT

His main responsibility, however, must be

to observe facts to associate closely

(i) (ii) (iii) (iv) (v) (vi) (vii)

The internal auditor should (e) Opening or introductory paragraph;

5. An understanding of management principles and Evaluation of Scope of IA Objective of

08 September 2018 The Chartered Accountant Student

(a) The evaluation of the existence and significance of threats

Brief Steps w.r.t Audit Report

Qualities of Operational Auditor

Type of Operational Audits (i) Is the organisational structure in

Functions are a means of

Management Audit Questionnaire

Yes No Not Applicable

It indicates that the specific area, function or aspect

CHAPTER 18 DUE DILIGENCE INVESTIGATION AND FORENSIC AUDIT

Due diligence refers to an examination of a potential investment to confirms all material

The objective of the Due Diligence exercise will be to look

The Chartered Accountant Student September 2018 11

12 September The Chartered Accountant Student

UNIT 2 : INVESTIGATION Steps in Investigation: As investigation involves a variety

The Chartered Accountant Student September 2018 13

14 September The Chartered Accountant Student

Fraudulent Entries Sales Frauds Collection Frauds Expenses Frauds

Payroll Frauds Data Frauds

Technology related Frauds Banking related Frauds Others

The Chartered Accountant Student September 2018 15

UNIT 3 : FORENSIC AUDIT Fraud Auditing: It is a meticulous review of financial

Sr. No. Particulars Other Audits Forensic Audit

16 September The Chartered Accountant Student

Fraud Detection Computer Forensics Fraud Prevention Providing Expert Testimony

Services rendered by Forensic Auditors:

♣ Crafting questions to be posed

The Chartered Accountant Student September 2018 17

Characteristics- Forensic Auditor Skills - Forensic Auditor should possess

Develop the Obtain Perform Reporting Court Proceedings

Forensic Audit Techniques

Step 4 Step 5 Step 8 (optional)

Step 6 Step 7 (optional)

Forensic Audit Report : Points to keep in mind while reporting

Clear thinking ♣ To whom the report is directed

Unbiased approach ♣ To mention the view point of the auditee

Facts and figures to be in proper sequences

18 September The Chartered Accountant Student

Nature of Nature of For whom Purpose for Management Forensic Extent of