SAP-2 Financial Reporting

Q.1

Q.2

Q.3

Strategic Financial Management Q.1

Q.2

Q.3

Q.4

Q.5

Corporate and Allied Laws Q.1

Q.2

Q.3

(i)As per section 581 Y of the Companies Act, 1956, unless the Articles requires a larger number, one fourth of the total number of members of the producer company shall be the quorum at a general meeting. In this case, the company has got 100 members and hence, the quorum is 25. (ii) Section 581 V of the Companies Act, 1956, provides that the quorum for a meeting of the Board shall be one third of the total strength of directors, subject to a minimum of three. In the given case, 1/3 of 6 directors comes to 2, but minimum required is 3, hence, the quorum will be 3 directors for a board meeting. (iii) Section 581 P of the Companies Act, 1956, empowers the Board of Directors of a producer company to co-opt one or more experts as director, but not exceeding one fifth of the total number of directors. As there are 6 directors in the given case, hence, co-opting one expert on the Board will be in order.

(iv) Yes, as per section 581 ZF of the Companies Act, 1956, every producer company is required to have internal audit of its accounts carried out by a Chartered Accountant at such intervals and in such manner as may be specified in the Articles.

Q.4

Q.5

Advanced Auditing & Professional Ethics Q.1

Consideration of Factors in Use of CAATs: In determining whether to use CAATs, the auditor should consider the following factors: (i) Availability of sufficient IT knowledge and expertise: It is essential that members of the audit team should possess sufficient knowledge and experience to plan, execute and use the results of CAAT. The audit team should have sufficient knowledge to plan, execute and use the results of the particular CAAT adopted. (ii) Availability of CAATs and suitable computer facilities and data in suitable format: The auditor may plan to use other computer facilities when the use of CAATs on an entity’s computer is uneconomical or impractical, for example, because of an incompatibility between the auditor’s package programme and entity’s computer. (iii) Impracticability of manual tests due to lack of evidence: Some audit procedures may not be possible to perform manually because they rely on complex processing (for example, advanced statistical analysis) or involve, amounts of data that would overwhelm any manual procedure. (iv) Impact on effectiveness and efficiency in extracting a data: It includes selection of samples, applying analytical procedures, time involved in application of CAAT, etc. (v) Time constraints in certain data, such as transaction details, are often kept for a short time and may not be available in machine-readable form by the time auditor wants them. Thus, the auditor will need to make arrangements for the retention of data required, or may need to alter the timing of the work that requires such data.

Q.2

Q.3

Q.4

Audit Procedure for ensuring correctness of Opening Balances: As per SA 510 “Initial Audit Engagements-Opening Balances”, the auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements by - (i) Determining whether the prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, any adjustments have been disclosed as prior period items in the current year’s Statement of Profit and Loss; (ii) Determining whether the opening balances reflect the application of appropriate accounting policies; and (iii) By evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances; or performing specific audit procedures to obtain evidence regarding the opening balances. If the auditor obtains audit evidence that the opening balances contain misstatements that could materially affect the current period’s financial statements, the auditor shall perform such additional audit procedures as are appropriate in the circumstances to determine the effect on the current period’s financial statements. If the auditor

concludes that such misstatements exist in the current period’s financial statements, the auditor shall communicate the misstatements with the appropriate level of management and those charged with governance. Approach for drafting Audit Report: If the auditor concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements and the effect of the misstatement is not properly accounted for or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with SA 705 and in case where the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate, in accordance with SA 705.

Q.5 Verification of Existence of Related Parties: As per SA 550 “Related Parties”, during the audit, the auditor shall remain alert, when inspecting records or documents, for arrangements or other information that may indicate the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor. Example- (i) Entity Income Tax Returns. (ii) Information supplied by the entity to regulatory authorities. (iii)Shareholder registers to identify the entity’s principal shareholders. (iv)Statements of conflicts of interest from management and those charged with governance. (v) Records of the entity’s investments and those of its pension plans. (vi)Contracts and agreements with key management or those charged with governance. (vii) Significant contracts and agreements not in the entity’s ordinary course of business. (viii) Specific invoices and correspondence from the entity’s professional advisors. (ix) Life insurance policies acquired by the entity. (x) Significant contracts re-negotiated by the entity during the period. (xi) Internal auditors’ reports. (xii) Documents associated with the entity’s filings with a securities regulator (e.g., prospectuses). Arrangements that may indicate the existence of previously unidentified or undisclosed related party relationships or transactions. In particular, the auditor shall inspect the following for indications of the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor:

(i) Bank, legal and third party confirmations obtained as part of the auditor’s procedures; (ii) Minutes of meetings of shareholders and of those charged with governance; and (iii) Such other records or documents as the auditor considers necessary in the circumstances of the entity.

Advanced Management Accounting Q.1

Q.2

Q.3

Information systems control & Audit Q.1

Different audit organizations go about IS auditing in different ways and individual auditors have their own favourite ways of working. However, it can be categorized into the following major stages: (i) Scoping and pre-audit survey: Auditors determine the main area/s of focus and any areas that are explicitly out-of-scope, based on the scope-definitions agreed with management. Information sources at this stage include background reading and web browsing, previous audit reports, pre audit interview, observations and, sometimes, subjective impressions that simply deserve further investigation. (ii) Planning and preparation: During which the scope is broken down into greater levels of detail, usually involving the generation of an audit work plan or risk-control matrix. (iii) Fieldwork: Gathering evidence by interviewing staff and managers, reviewing documents, and observing processes etc. (iv) Analysis: This step involves desperately sorting out, reviewing and trying to make sense of all the evidence gathered earlier. SWOT (Strengths, Weaknesses,

Opportunities, Threats) or PEST (Political, Economic, Social, Technological) techniques can be used for analysis. (v) Reporting: Reporting to the management is done after analysis of evidence gathered and analysed. (vi) Closure: Closure involves preparing notes for future audits and follow up with management to complete the actions they promised after previous audits.

Q.2 System Control Audit Review File (SCARF): The SCARF technique involves embedding audit software modules within a host application system to provide continuous monitoring of the system’s transactions. The information collected is written on a special audit file- the SCARF master files. Auditors then examine the information contained on this file to see if some aspect of the application system needs follow-up. In many ways, the SCARF technique is like the snapshot technique along with other data collection capabilities. Auditors might use SCARF technique to collect the following types of information: Application System Errors - SCARF audit routines provide an independent check on the quality of system processing, whether there are any design and programming errors as well as errors that could creep into the system when it is modified and maintained. Policy and Procedural Variances - Organizations have to adhere to the policies, procedures and standards of the organization and the industry to which they belong. SCARF audit routines can be used to check when variations from these policies, procedures and standards have occurred. System Exception - SCARF can be used to monitor different types of application system exceptions. For example, salespersons might be given some leeway in the prices they charge to customers. SCARF can be used to see how frequently salespersons override the standard price. Statistical Sample - Some embedded audit routines might be statistical sampling routines, SCARF provides a convenient way of collecting all the sample information together on one file and use analytical review tools thereon. Snapshots and Extended Records - Snapshots and extended records can be written into the SCARF file and printed when required. Profiling Data - Auditors can use embedded audit routines to collect data to build profiles of system users. Deviations from these profiles indicate that there may be some errors or irregularities.

Performance Measurement - Auditors can use embedded routines to collect data that is useful for measuring or improving the performance of an application system.

Q.3 Major disadvantages and limitations of continuous audit techniques are given as follows:

a) Auditors should be able to obtain resources required from the organization to support development, implementation, operation, and maintenance of continuous audit techniques.

b) Continuous audit techniques are more likely to be used if auditors are involved in the development work associated with a new application system.

c) Auditors need the knowledge and experience of working with computer systems to be able to use continuous audit techniques effectively and efficiently.

d) Continuous auditing techniques are more likely to be used where the audit trail is less visible and the costs of errors and irregularities are high.

e) Continuous audit techniques are unlikely to be effective unless they are implemented in an application system that is relatively stable.

Q.4 IS (Information Systems) Auditors review risks relating to IT systems and processes; some of them are as follows:

a) Inadequate information security controls (e.g. missing or out of date antivirus controls, open ports, open systems without password or weak passwords etc.)

b) Inefficient use of resources, or poor governance (e.g. huge spending on unnecessary IT projects like printing resources, storage devices, high power servers and workstations etc.)

c) Ineffective IT strategies, policies and practices (including a lack of policy for use of

d) Information and Communication Technology (ICT) resources, Internet usage policies, Security practices etc.).

e) IT-related frauds (including phishing, hacking etc). Q.5

Operating System is the computer control program that allows users and their applications to share and access common computer resources, such as processor, main memory, database and printers. Some of the major tasks performed by an Operating system are as follows:

a) Scheduling Jobs: They can determine the sequence in which jobs are executed, using priorities established.

b) Managing Hardware and Software Resources: They can first cause the user’s application program to be executed by loading it into primary storage and

then cause the various hardware units to perform as specified by the application.

c) Maintaining System Security: They may require users to enter a password – a group of characters that identifies users as being authorized to have access to the system.

d) Enabling Multiple User Resource Sharing: They can handle the scheduling and execution of the application programs for many users at the same time, a feature called multiprogramming.

e) Handling Interrupts: An interrupt is a technique used by the operating system to temporarily suspend the processing of one program in order to allow another program to be executed. Interrupts are issued when a program requests an operation.

f) Maintaining Usage Records: They can keep track of the amount of time used by each user for each system unit - the CPU, secondary storage, and input and output devices.

Direct Tax Laws Q.1

Q.2

Q.3

Q.4

Indirect Tax Laws Q.1

Computation of service tax liability of Sudarshan Ltd. for the month of June, 2016

Q.2

Q.3

Q.4