This time around, the CA (Final) papers, including the one on auditing, should have brought cheer to the candidates. The advanced auditing paper is well-conceived, covering a cross-section of the syllabus.
On the face of it, the paper seems complex, but not so for those who have prepared well. In Question 8, a new trend appears to have been set by way of asking the candidates to write short notes on Clause 49 of the listing agreement about independen t directors, P/E ratio, integral foreign operations, etc., which are not normally asked in the auditing paper.
Conspicuous by their absence were questions on peer review and audit of cooperative societies. Conspicuous by its presence was the question on audit trail for five marks.
The spread of the question paper has been on expected lines: Company audit (32 marks); AS and AAS (28); code of conduct (21); miscellaneous items (21); management and operations audit (8); EDP audit (6); insurance companies (5); stock brokers (5); tax audit (5); and basics (4).
The candidates are expected to answer for 100 marks, of which Questions 1 and 2 on company audit and code of conduct are compulsory, carrying 36 marks. As a strategy, if one is thorough with AS and AAS, company audit (which, anyway, one has to study at the PCC level) and code of conduct, getting through the paper should not be difficult. This has been demonstrated time and again.Some errors
The paper, though, is not without its share of bloomers.
Question 2(d) reads as follows: “M, a chartered accountant in practice, is the statutory auditor of S Ltd for the year ended March 31, 2008…”
Auditors are not appointed for a particular financial year. The period of office of the statutory auditor is from the conclusion of one AGM to the conclusion of the subsequent AGM.
Question 1 on company audit covered newer areas and is not the copy-paste stuff from old papers.
Part A is based on payment of dividend rules while part B is on accounting estimates. We have an auditing standard on accounting estimates, though not an accounting standard exclusively dedicated to it.
Parts C and D are based purely on Accounting Standards 2 and 13, which are quite easy to comprehend.
Question 2 on code of conduct is about the easiest in recent years.
Part A on “profit forecast” is a straight lift from the study material. The auditor should not give any opinion about the future in such a way as to vouchsafe for the statement.
Part B is on “other misconduct”. Based on the facts of the case, if the council determines to be so, the auditor may be guilty of other misconduct.
Part C is on communication to the retiring auditor. The firm would be guilty of misconduct if the assignment “previously held by a member” is accepted without first communicating to the outgoing auditor. The clause applies to all the assignments and not restricted to audits only.
Part D is a clever mix of company audit with code of conduct.
The auditor is guilty of misconduct unless his appointment is valid under Sections 224 and 225.
Under Section 226(4), the auditor is disqualified from being appointed as auditor of S Ltd. Hence he is guilty of misconduct.
Question 3 is purely textual. Part (a) of this question, on EDP audit, involves using some imagination.
Question 3(b), on independent director, is a twister.
Question 3(c), on audit trail, must have caught the students unawares.
But at the CA (Final) level, the candidates would have had hands-on experience on audit trail to be bamboozled by the question. One should welcome such questions.
Question 4(a), on differences between financial and operations audit, is from the study material. The other part of the question is on CARO.
Question 5 could have as well been asked at the PCC level.
Part (a) of this question, on audit for advance for goods, should not have posed any problems to those who did their articles properly.
Part (b) on audit risk is on AAS-6. The general tendency of candidates is to take this standard a bit easy as it appears to be a bit too complex for the teachers as well.
Question 6 is a cakewalk. Part (a) on reserve for unexpired risk at 25 per cent is too elementary.
So is the case with Part (b) on rolling settlement on audit of members of stock exchange.
Part (c) on haphazard sampling was among the easiest questions in the paper.
Question 7(a) briefly touches upon due diligence audit. Part (b) is a sequel to Question 2(d), where the auditor is disqualified. The procedures to ensure that the appointment is valid under Sections 224 and 225 are clearly given in the study material.

A new accounting standard –Financial Instruments: Disclosures (AS-32) has received the nod of the Central Council of the Institute of Chartered Accountants of India (ICAI).

The Council proposes to make AS-32 recommendatory from April 1, 2009, and mandatory from April 1, 2011.

The objective of this accounting standard is to require entities to provide disclosures in their financial statements to enable users to evaluate the significance of financial instruments for the entity’s financial position and performance.

The draft of the standard can be found here
As if the current Accounting standards were not confusing enough we now have more Standards to confuse us even more - HAPPY READING !!!!

AS -30 awaits panel approval

Companies can continue with their existing accounting practice on derivatives as the Centre is yet to notify a new set of accounting standards (AS) for the purpose.

The Ministry for Corporate Affairs (MCA) is awaiting recommendation by the National Advisory Committee on Accounting Standards (NACAS) on standards for Financial Instruments (Recognition and Measurement) or AS-30.

A senior Ministry official told Business Line that, “The Institute of Chartered Accountant of India (ICAI) formulated AS-30 has been referred to NACAS. And once NACAS recommendations come it would be notified.”

AS-30 establishes principles for recognition, de-recognition and measurement of financial instrument. In other words, it lays down the principles that would determine the manner in which financial instruments such as options and other derivatives should be measured and recognised in the balance sheets of banks and companies.

Meanwhile, the central council of ICAI is understood to have at its meeting held here on Thursday approved the Accounting Standard on disclosure of Financial Instruments (AS-32).

Recognising the importance of financial reporting in providing essential financial information about the company to its shareholders and other stakeholders, the Government prescribes the accounting standards in consultation with NACAS. A body of experts including representatives of various regulatory bodies and Government agencies, NACAS is engaged in examining the standards prepared by the ICAI for use by the corporates.

The ICAI council in October last year approved AS-30, which deals with Financial Instruments: Recognition and Measurements, and AS-31, which prescribes for Financial Instruments: Presentation. The Standard is to come into effect for accounting periods commencing on or after April 1, 2009, and will be recommendatory in nature for two accounting years. It will become mandatory for corporates from accounting year beginning April 1, 2011.

Instruments classification


For the purpose of AS-30, financial instruments are classified into financial assets or financial liabilities at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets and other financial liability. While, AS-30 also establishes principles for hedge accounting, AS-31 is for presenting financial instruments as liabilities or equity and related principles of interest, dividends, losses and gains.

The principles in this Standard complement the principles established in AS-30. AS-30 and AS-31 are based on the corresponding International Accounting Standards — IAS 39, Financial Instruments: Recognition and Measurement and IAS 32, Financial Instruments: Presentation — respectively. There are no material differences between AS 30 and IAS 39, and AS 31 and IAS 32.

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