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Analysis of Audit (CA IPC) Paper for May 16 Exams #pdf
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PAPER ANALYSIS / SUGGESTED ANSWERS / COMMON MISTAKES CA IPC May 2016 Exams By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Highlights • Around 50 marks paper was not from PM, they were new questions • 35 Marks from SA, 28 Marks from Company Audit, 20 Marks from Vouching & Verification, 12 Marks from Special Audit 2 2 6 1 6 12 6 9 6 S A C O M PA N Y A U DIT V & V S PE C IA L A U DIT B A SIC S O F A U DIT IN G E D P I C S A U DIT O F S H ARE C A PIT A L N ot i n P M P M By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Identified Significant RelatedPartyTransactions outsidetheEntity’s NormalCourseofBusiness For identified significant related party transactions outside the entity’s normal course of business, the auditor shall: (Sale to subsidiaries in Mauritius and Dubai then export to various countries for tax saving) (a) Inspect the underlying contracts or agreements, if any, and evaluate whether: ( i) The business rationale (or lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets; (ii) The terms of the transactions are consistent with management’s explanations ; and (But goods are not exported but sold to local manufacturer) (iii) The transactions have been appropriately accounted for and disclosed in accordance with the applicable financial reporting framework; and (Sales were recorded when goods move out of factory gates, but it should be when they are delivered) (b) Obtain audit evidence that the transactions have been appropriately authorised and approved. (Many BOD members were not aware about such arrangement and no BOD resolution to support it) By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Audit Sampling: As per SA 530 on “Audit Sampling”, the meaning of the term “Audit Sampling” is the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population. According to the said SA, requirements relating to sample design, sample size and selection of items for testing are explained below Sample Design -When designing an audit sample, the auditor shall consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn. Sample Size -The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level. Selection of Items for Testing - The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori (a) The Role ofAudit Programme inAudit PlanandPerformance :The audit programme is helpful bothinplanning andperformance stagesofaudit - (b) (i)The audit programme listsdown areasofaudit before commencement . (ii)The audittiming isbuilt therein; therebyitbecomes aschedule ofaudit plan. (iii)The staffwhoareentrusted withtheaudit assignment isalso specified .It is aplan ofresource allocation ofthe firm. (iv) Itspecifies theprocedures tobe checked duringtheaudit . (v) Asthe audit workissplit intovarious elements ofprocedures tobe performed ,the audit programme actsasaguiding chartorcheck listduring theperformance ofaudit . (vi) Since thestaff incharge ofeach work isspecified andthey signtheprogramme, itextracts the responsibility fromtheaudit assistants . (vii) The working papersofthe audit staffcanbereviewed againsttheaudit programme whichhelpsa base ofreference forevaluation ofthe performance beforereporting onthe financial statements . (viii) Italso helps inpreparing adiary ofthe performance andplan andalso base forbilling theclients for thetime andmanpower involvedinthe audit . By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Specific Risktoan Entity’s internal Control:As per SA315 “Identifying andAssessing theRisks ofMaterial Misstatement throughUnderstanding theEntity anditsEnvironment”, ITsystem alsoposes specific risksto an entity’s Internal Control.They are– ( i) Reliance onsystems orprograms thatareinaccurately processingdata,processing inaccuratedataor both (ii) Unauthorised accesstodata thatmay result indestruction ofdata orimproper changesto data, including therecording ofunauthorized ornon existent transactions, orinaccurate recordingof transactions .Particular riskmay arise when multiple usersaccess acommon database. (iii) The possibility ofITpersonnel gainingaccessbeyond thosenecessary toperform theirassigned duties thereby breaking downsegregation ofduties . (iv) Unauthorised changestodata inMaster files (v) Unauthorised changestosystems orprograms . (vi) Failure tomake necessary changestosystems orprograms . (vii) Inappropriate manualintervention (viii) Potential lossofdata orinability toaccess dataasrequired . By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori True Scope of Internal Auditor is covered in SA 610. It covers many other things than just checking book keeping. See next Slide By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori True As per SA 200  Our primary objective is to give opinion on whether financial statements give true & fair view / whether there are material misstatements.  Secondary objective is to tell with reasonable assurance about material fraud & error.  We don’t comment efficiency / effectiveness / profitability & Future Viability True As per SA 500 Inquiry is one of the most important method of collecting audit evidence. Replies obtained are corroborated with other evidences and if there is difference are resolved. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori True It is one of the tool to review Internal Control System, where list of questions is sent to management, they fill it as per existing internal control system and send it to auditor for evaluation, which will let auditor know about deficiency. True SA 530 Sampling is applicable. In cluster sampling, as we randomly select few clusters, so our scope narrows down to part of population and selection is from limited area. But in random sampling whole population is open for selection hence variety of selection is better and effective as compared to cluster sampling. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori False In error of duplication accounting entry gets repeated so we double debits as well credit , in such situation trial balance will tally. False It means to substantiate / confirm transactions & balances after test of controls. It covers analytical procedures & test of details (Vouching & Verification) By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori False As per Sec 139 in case of government company right to appoint first auditor should go to C&AG and if not appointed within 60 days of incorporation then BOD within 30 days, if they also fail then share holders within 60 days. False Auditor has to submit audit report to company / Audit Committee / BOD, it is companies responsibility to send it to shareholders. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori True Disqualification of Sec 141 (3) are for auditor and not consultants. So there no disqualifications for them, but Sec 188 will be applicable if related party is appointed to any position being place of profit (earning). By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori PRELIMINARY EXPENSES Review Flow of Internal Control System Appointment ofLawyer/CS/CA ->Preparation ofAOA/MOA ->Forms filingwithROC->Stamp Duty /Registration Feespayment -> Professional Bill-> After company formation BODresolution toaccept these expenses . General Points Date ofVoucher/ NameofClient/ Authorisation/ RubberStamp/ Revenue Stamp(Payments above 5000 ) Documents ProfessionalBill/BODResolution/Prospectus/ BankStatement Registers NA Accounting Preliminary Exp.A/c DrXXX To Bank A/cXXX As per AS26these expenses shouldbewritten ofimmediately (P&L). Revised Schedule III Other Expenses/If notwritten ofthen Other Current Asset. Special Points Checked thatnoexpenses otherthanthose thatconstitute preliminary expensesarebooked under this heading .e .g underwriting commission&brokerage fees. As per Income TaxAct 35D 1/5 th is allowed asdeduction eachyear By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori CUSTOM DUTY Review Flow of Internal Control System Order forimport ofgoods ->Goods reachIndian port->Appoint C&Fagent->Bill ofEntry->Bill of Lading ->Payment ofcustom duty->Bill ofC&F agent &its payment General Points Date ofVoucher/ NameofClient/ Authorisation/ RubberStamp/ Revenue Stamp(Payments above 5000 ) Documents Bill ofEntry/ BillofLading/ C&FAgent Bill/Bank Statement Registers Import register/ GoodsInward Book Accounting Dr ->P&L ifit is inventory Dr ->Asset A/cifit isCapital Expenditure Revised Schedule III Custom Duty->OtherExpenses CARO Statutory Paymentclausewillbeapplicable . Special Points In case there isdispute regarding dutypayable ,check whether theprovision forthe same havebeen made ornot Obtain aconfirmation fromthesupplier regarding actualimport ofgoods . By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori EXCISE DUTY Review Flow of Internal Control System Production ofgoods ->Levy ofexcise duty->Duty ispayable Monthly/Quarterly by5th of next month -> Excise Challan ER-7->Excise Registers ->Stock Register ->PLARegister General Points Date ofVoucher/ NameofClient/ Authorisation/ RubberStamp/ Revenue Stamp(Payments above 5000 ) Documents ExciseChallan/Bank Statement Registers StockRegister/ PLARegister (ER-1/ER -2/ER -3) Accounting Disclosure Sales XXX Excise Duty(XXX) Net Sales XXX Revised Schedule III Other Expenses onclosing stockwhich ismanufactured butnot sold . CARO StatutoryPaymentclausewillbeapplicable . Special Points Excise canbepaid with CENVAT onpurchases . Compute ratioofexcise dutytosales andcompare forpast 2-3 years . In case ofexport ,see whether DutyDrawback hasbeen properly claimedornot As per Section 43Bof Income TaxAct deduction ofBonus willnotbegiven unless itis paid . By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori FLOATING ASSETS M eaning Floating Assetmeans thoseCurrent Assetsthataremanufactured orpurchased during the normal courseofbusiness .They continuously circulatefromoneform toother Cash- >RM ->WIP ->FG ->Debtor ->Cash. Theyareheld forashorter periodandmay be converted intocash within ayear . E xamples Raw Materials, Work-In -Progress, FinishedGoods,Consumables, Debtors,Sundry Receivables . V aluation Stocks /Inventories shallbevalued atlower of-(i) Cost, or(ii) Market Price.Sundry Debtors andBills Receivable shallbevalued atNet Realisable Value. C harge Generally Debentures havecharge onfloating assets,insuch charge creditors arepaid after specific secured chargebutbefore unsecured creditors. By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori RECOVERY OF BAD DEBT Review Flow of Internal Control System Bad Debt written off(Chances ofrecovery low)-> Correspondence through letter/email -> Appointment ofrecovery agent-> Legal Caseforrecovery -> Final recovery -> Receipt Issued General Points Date ofVoucher/ NameofClient/ Authorisation/ RubberStamp/ Revenue Stamp (Payments above5000) Documents Correspondence Letters/Statement fromrecovery Agent/CourtOrder (Decree)/Receipt/ BankStatement Registers RegisterofBad Debt Recoveries/ BadDebt Recovery File Accounting Bank A/cDrXXX To, Bad Debt Recovery XXX Revised Schedule III Shown inOther Income Special Points Confirmation fromdebtor . Authorisation forsettlement . Liquidators letterincase ofwinding upofcompany .By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Current Investments ( i) Current investments shallbeclassified as: ( a ) Investments inEquity Instruments ; ( f) Investments inPartnership Firms; ( b ) Investment inPreference Shares; ( d ) Investments inDebentures orBonds ; ( e ) Investments inMutual Funds; ( c ) Investments inGovernment orTrust Securities ; ( g ) Other investments (specifynature). Under eachclassification, detailsshallbegiven ofnames ofthe bodies corporate [indicating separatelywhether such bodies are:(i) subsidiaries, (ii ) associates, (iii )joint ventures, or(iv )controlled specialpurpose entities]in whom investments havebeenmade andthenature andextent ofthe investment somade ineach suchbody corporate ( showing separately investments whicharepartly paid). In regard toinvestments inthe capital of partnership firms, thenames ofthe firms (with thenames ofall their partners, totalcapital andtheshares ofeach partner) shall be given . ( ii )The following shallalsobedisclosed : ( a ) The basis ofvaluation ofindividual investments ; ( b )Aggregate amountofquoted investments andmarket valuethereof ; ( c ) Aggregate amountofunquoted investments ; ( d )Aggregate provisionmadefordiminution invalue ofinvestments . By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Significant mattersobserved duringthecourse ofaudit, arecord ofwhich should be kept inthe Audit NoteBook: (d)Important information aboutthecompany whichisnot apparent fromtheaccounts . (Promoters /Big Shareholders /Licensed Capacity/Number ofLocations etc) (a) Audit queries notcleared immediately e.g.missing receipts, vouchers, etc. (c) Unsatisfactory book-keeping arrangements, costingmethod, internalorfinancial administration ororganisation .(No segregation ofduty /No fixed format /No timely accounting etc) (b) The mistakes orirregularities observedduringthecourse ofaudit e.g.cases offailure to comply withtherequirements ofthe Companies Act,2013 orthe provisions containedinthe Memorandum orArticles ;a change inthe basis ofvaluation offinished inventory andwork -in - progress orinthe computation ofdepreciation ;failure toprovide adequate depreciation, etc. (e)Special pointsrequiring consideration atthe time ofverification offinal accounts . (Investment Classification &Valuation /Inventory Valuation /Prior Period Itemsetc) (f) Important mattersforfuture reference .(Provision fordoubtful debts,GoingConcern validity) By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori It is agraphic presentation ofeach partofthe company’s systemofinternal control.A flow chart is considered tobe the most concise wayofrecording theauditor’s reviewofthe system .It minimises theamount ofnarrative explanation andthereby achieves aconsideration or presentation notpossible inany other form.It gives bird’s eyeview ofthe system andtheflow of transactions andintegration andindocumentation, canbeeasily spotted andimprovements can be suggested . It is also necessary forthe auditor tostudy thesignificant featuresofthe business carriedonby the concern ;the nature ofits activities andvarious channels ofgoods andmaterials aswell as cash, bothinward andoutward ;and also acomprehensive studyofthe entire process of manufacturing, tradingandadministration .This willhelp himtounderstand andevaluate the internal controls inthe correct perspective . By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Special PointsinAudit ofaPartnership Firm:Matters whichshould bespecially considered in the audit ofaccounts ofapartnership firmareasunder : i. Confirming thattheletter ofappointment ,signed byapartner, dulyauthorised, clearly states thenature andscope ofaudit contemplated bythe partners, speciallythelimitation, if any, under whichtheauditor shallhave tofunction . ii. Examine thepartnership deedsigned byallpartners anditsregistration withtheregistrar of firms .Also ascertain fromthepartnership deedabout capital contribution, profitsharing ratios, interest oncapital contribution, powersandresponsibilities ofthe partners, etc. iii. Studying theminute book,if any, maintained torecord thepolicy decision takenbypartners specially theminutes relatingtoauthorisation ofextraordinary andcapital expenditure, raising of loans, purchase ofassets, extraordinary contractsenteredintoandother suchmatters which are not ofaroutine nature. Verifying that the business in which the partnership is engaged is authorised by the partnership agreement; or by any extension or modification thereof agreed to subsequently. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori i. Examining whetherbooksofaccount appeartobe reasonable andareconsidered adequatein relation tothe nature ofthe business ofthe partnership . ii. Verifying generally thattheinterest ofno partner hassuffered prejudicially byanactivity engaged inby the partnership which,itwas notauthorised todo under thepartnership deed or by any violation ofaprovision inthe partnership agreement. iii. Confirming thataprovision forthe firm’s taxpayable bythe partnership hasbeen made inthe accounts beforearriving atthe amount ofprofit divisible amongthepartners .Also seevarious requirements oflegislations applicabletothe partnership firmlikeSection 44(AB) ofthe Income - tax Act, 1961 havebeen complied with. Verifying that the profits and losses have been divided among the partners in their agreed profit - sharing ratio. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Background ofLocal Bodies :A municipality canbedefined asaunit oflocal selfgovernment inan urban area. By the term ‘local self-government’ isordinarily understood theadministration ofalocality –avillage, atown, acity orany other areasmaller thanastate –by abody representing thelocal inhabitants, possessingfairlylargeautonomy, raisingat least apart ofits revenue through localtaxation andspending itsincome onservices whichareregarded aslocal and, therefore, distinctfromstate andcentral services . Municipal government inIndia covers fivedistinct typesofurban localauthorities ,viz ., the municipal corporations, the municipal councils,thenotified areacommittees, thetown areacommittees andthecantonment committees. Audit Programme forLocal Bodies : (i) The Local FundAudit Wingofthe State Govt.is generally incharge ofthe audit ofmunicipal accounts.Sometimes bigger municipal corporations e.g . Delhi, Mumbai etchave power toappoint theirownauditors forregular external audit .So the auditor shouldensure authenticity ofhis appointment . (ii) The auditor whileauditing thelocal bodies should reportonthe fairness ofthe contents andpresentation offinancial statements, thestrengths andweaknesses ofsystem offinancial control ,the adherence tolegal and/or administrative requirements;upon whether valueisbeing fullyreceived onmoney spent.His objective shouldbeto detect errorsandfraud andmisuse ofresources . (iii) The auditor shouldensure thattheexpenditure incurredconforms tothe relevant provisions ofthe law and isin accordance withthefinancial rulesandregulations framedbythe competent authority. (iv) Heshould ensure thatalltypes ofsanctions, eitherspecial orgeneral, accorded bythe competent authority. (v) Heshould ensure thatthere isaprovision offunds andtheexpenditure isincurred fromtheprovision andthesame has been authorized bythe competent authority. (vi) The auditor shouldcheckthatthedifferent schemes, programmes andprojects, wherelargefinancial expenditure has been incurred, arerunning economically andgetting theexpected results. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori The precautions thatshould betaken maybethe following :1. First check internal controlsystem 2. 100 %checking insome areas 3. Stratification 4. Unbiased Selection 5. Prepare testcheck planandtrain team members 6. Carefully decidesample size 7. Study sometransactions frombeginning tillend 8. Evaluate errors By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori It is also thefunction ofaudit toestablish thatpayments havebeen made validly topersons whoareshown tobe recipients .For example, itmust beverified thatsalaries topartners werepaidaccording toaprovision contained inthe partnership deedandthedirectors feeswere paidaccording tothe provisions inthat regard inthe Articles of Association orthe resolution passedbymembers ofthe company atageneral meeting.For checking thevalidity ofa transaction, itis usually necessary torefer todocumentary evidence.It may exist inany ofthe following forms-  The legal provisions, ifany, having bearing onthe accounts ofthe entity under audit .  The rules orregulations governingtheinternal working ofthe organisation, e.g ., the Articles of Association, PartnershipDeed,TrustDeed, etc  Minutes ofthe proceedings ofameeting ofmembers ofthe company, thatofthe directors orthat ofthe Managing committee .  Copy ofan agreement, e.g ., Managing Director’sagreement, LeaseDeed,vendor’s agreement, agency agreement, contractwithanemployee, etc An auditor shouldhaveaclear andprecise knowledge oflegal provisions underwhichtheconcern wasregistered oris functioning, aswell asthose which constitutes thebasis ofvarious transactions enteredinto,more particularly the provisions asregards maintenance andaudit ofits accounts .He should alsostudy therules, ifany, framed for regulating theinternal management ofthe entity ;these maybeembodied insome ofthe documents mentionedabove. If he has anydoubt onany legal point, byway ofguidance, heshould callforlegal opinion .However, unlessheis convinced ofthe reasonableness ofthe legal opinion, heshould notactonit. In the case ofRepublic ofBolivia Exploration SyndicateLtd.[1914 ],itwas held thatauditors areprima facieresponsible forultra vires payments made on the faith oftheir balance sheetbutwhether, andtowhat extent, theyareconsidered responsible fornot having discovered themintheir audit would depend uponthecircumstances ofeach case.An auditor isresponsible fordetecting payments that are ultra vires the company ( Leed Estate Building & Investment Society v . Shepherd) .By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori By CA Ravi Taori By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori (i) Prohibition forbuy back incertain circumstances : As per provisions ofSection 70ofthe Companies Act2013 : A. No company shalldirectly orindirectly purchaseitsown shares orother specified securities— (a) Through anysubsidiary companyincluding itsown subsidiary companies ;or (b) Through anyinvestment companyorgroup ofinvestment companies ;or (c) Ifadefault, bythe company, inrepayment ofdeposit orinterest payable thereon,redemption ofdebentures or preference sharesorpayment ofdividend toany shareholder orrepayment ofany term loanorinterest payable thereon toany financial institutions orbank, issubsisting . Provided thatthebuy –back isnot prohibited ifthe default isremedied andaperiod ofthree yearshaselapsed since the cessation ofthe default . No company shall directly or indirectly purchase its own shares or other specified securities in case such company has not complied with provisions of Sections 92,123, 127 and 129. Section 92 relates to the filing of Annual Return, Section 123 and 127 to declaration and payment of dividend and Section 129 to the financial statement of the company. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Advantages of CAAT: ( i) Audit effectiveness : The effectiveness and efficiency of auditing procedures will be improved through the use of CAAT in obtaining and evaluating audit evidence, for example – (iii) Effective test checking and examination in depth: CAAT permits effective examination in depth of selected transactions since the auditor constructs the lost audit trail. (a) Some transactions may be tested more effectively for a similar level of cost by using the computer. (b) In applying analytical review procedures, transactions or balance details of unusual items may be reviewed and reports got printed more efficiently by using the computer. (ii) Savings in time: The auditor can save time by reviewing the EDP controls using CAAT than through other audit procedures. By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Change inAccounting Policies:Same accounting policiesareadopted forsimilar events ortransactions in each period soastoenable theuser tocompare thefinancial statements ofan enterprise overa period oftime. However, Accounting Standard5, “Net Profit orLoss forthe period, PriorPeriod Items and Changes inAccounting Policies”provides thataccounting policiescanbechanged underthefollowing circumstances - ( 1 ) if the adoption ofadifferent accounting policyisrequired bystatute ;or ( 2) for compliance withanaccounting standard;or ( 3 ) if it is considered thatthechange wouldresultinamore appropriate presentation ofthe financial statements ofthe enterprise . A more appropriate presentation ofevents ortransactions inthe financial statements occurswhenthenew accounting policyresults inmore relevant orreliable information aboutthefinancial position, performance or cash flows ofthe enterprise. AS5also requires anychange inaccounting policyconsequent uponthe adoption ofan Accounting Standardshouldbeaccounted forinaccordance withthespecific transitional provisions, ifany, contained inthat Accounting Standard.However, disclosures requiredbyAS 5should be made unless thetransitional provisiosof any other Accounting Standardrequirealternative disclosures inthis regard .For instance, howanenterprise shoulddealwith intangible itemsappearing inits balance sheetwhenitapplies AS26,Intangible Assets,forthe first time . By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori Recognition ofInterest onDeposits : (i) Accounting Standard9on Revenue Recognition requiresthattherevenue arisingfrominterest should berecognised onatime proportion basistaking intoaccount theamount outstanding and the rate applicable .Such revenues shouldonlyberecognised whennosignificant uncertainty asto measurability orcollectability exists. (ii) Further, according toSection 128ofthe Companies Act,2013, books aretobe maintained onaccrual basis .Again, accrual method ofaccounting isafundamental assumptionofaccounting policies. (iii) Though theinterest becomes dueforpayment onlyatmaturity date,itaccrues eachquarter . Interest accrued butnot due should beshown undercurrent assetsinthe balance sheetasper Schedule IIIPart Irequirement ofthe Companies Act,2013. (iv) Assuch, theprofits andcurrent assetsareunderstated andtrue andfairview ofthe accounts are thus vitiated . (v) Onconsiderations ofmateriality ofthe item, theauditor mayappropriately decidetoqualify the audit report . By CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi TaoriBy CA Ravi Taori




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