The Hindu Business Line : Stress is on standards

In the recent CA examinations, there seems to be a clear shift in focus to accounting standards (AS) and auditing and assurance standard (AAS). The recently concluded exams on auditing and advanced auditing at the PE-II and Final levels, respectively, were no different.

This is arguably one of the best question papers in advanced auditing in recent times. While there are a couple of questions which are easy, there are ones which leave the candidates groping, forcing an error of judgment.

Peer review topic absent

Conspicuous by their absence are the topics on tax audit, cost audit, audit of stockbrokers (but for a 4 marks short notes question on NEAT), management audit and investigations. Except solvency margin for 4 marks in short notes, audit of insurance companies is not covered. There are no questions on topics such as peer review, due diligence, investigations, etc (those appearing in May 2007 better note this).

Question on Government grants, which is more or less a repetition from PE II paper and choice of answering any four out of six in Q8 on short notes stand out.

Questions 1 and 2 are not difficult. In fact Question 1 seems to be too simple for the Final level. The questions on indebtedness of the auditor and capital grant are of PE II standard and seem to be a bonus to the candidates. However, the question on auditor deciding to relinquish the audit should leave the candidates writing vague answers. The question on political contribution tends to catch the candidates on the wrong foot.

Q2 is a run of the mill stuff and there are no complications or surprises. The question on clients' money deposited in the bank account might lead to different interpretations. But if the auditors deposit the money in to the account of the client, the question loses its sanctity.

Q3 requiring to draft a report u/s.227 (3) (f) is good and exposes the limitations of drafting skills of candidates. Q3 b on the essential features of an audit programme under computerised environment is to be answered with what are to be the features of the programme and not the requirements of implementing the same.

Q4 on environment audit is out of the blue and should have surprised many a candidate. Same is the case with the second part of the question on audit of PSUs. One would do well to leave this alone.

Q5(a) requires propriety elements of CARO. Unless one understands CARO properly and does a segment analysis, it is not easy to attempt this question.

Q5(b) is on matters of audit governance and the answer is in AAS 27. If one writes of corporate Governance, audit committees, etc, one is done in. What it requires is which matters of an audit are to be communicated at which level of management.

Q6 is straight from the textbook and any candidate can answer the question with a reasonable level of success.

Q7 is sure to catch the candidates unawares. It has two parts. The first part is about the matters to be considered before taking up the audit (and not before accepting the audit). The situation is after accepting the audit and before actually starting to plan for the audit.Similarly, the second part of the question requires the sources of knowledge of business (AAS 20), which might be misunderstood to be audit evidence.

Q7(b) on reporting by the auditor in case of non-compliance is to be answered keeping in mind the provisions of AAS 21 and not the requirements of company law.

Q8 is quite tricky and there are certain inclusions which are not generally asked. Perhaps to compensate this, candidates are given a choice to answer any four out of six questions.

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