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CMA Inter Gr. II (New Syllabus)(Solution of December - 2015)

Paper - 12: Company Accounts and Audit

Chapter - 1 : Conceptual Framework for Preparation and Presentationof Financial Statements

2015 - Dec [2] (a) (ii)Characteristics of a Liability:

(i) Normally liability arises from present obligation. But future obligationmay also create liability if they are irrevocable. A forward contract tobuy goods is irrevocable; therefore, gain or loss on such contract isevaluated and recognized as an asset or a liability.

(ii) Liabilities result from past transactions or other past events. Even anirrevocable future obligation arises from past transactions orcommitment (events) only.

(iii) Normally liabilities are measurable in money terms. Sometimesliabilities are estimated which are termed as provisions. Frame workdefines the term liability broadly that includes provisions.

(iv) Settlement of liability means giving up resources embodying economicbenefits. Liabilities are settled in any of the following ways:- payment cash or transfer of other assets; - provision of services (services are rendered or to be rendered) - replacement by a new obligation; - conversion of an obligation into equity; - extinguished by way of waiver from the creditors.

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Solved Scanner Appendix CMA Inter Gr. II Paper 12 (New Syllabus) 2

Chapter - 2 : Accounting Standards

2015 - Dec [1] (a), (b)(a) As per AS-12 Accounting for Government Grant:

When government grant is received for a specific purpose, it should beutilised for the same. Therefore the grant received for setting up amanufacturing unit is not available for distribution of dividend.In the second case even if the company has not spent money for theacquisition of land, land should be recorded in the books of account atnominal value.Therefore, treatment of both the grants is incorrect as per AS-12.

(b) Calculation of Actual Return on Plan Assets As per AS - 15:

FMV of plan Assets as on 31-03-2015 17,00,000

Less: FMV of plan Assets as on 31-03-2014 16,00,000

Add: Employer contribution 1,50,000 17,50,000

Add: Employer contribution (50,000)

2015 - Dec [2] (a) (i)Disclosure under AS -11: An enterprise should disclose: (a) The amount of exchange difference included in the net profit or loss for

the period. (b) The amount of exchange difference adjusted in the carrying amount of

fixed assets during the accounting period. (c) The amount of exchange difference in respect of forward contracts to be

recognized in the profit/ loss for one or more subsequent accountingperiod.

(d) Foreign currency risk management policy.


2015 - Dec [2] (b) (i) Calculation of Basic Earning Per Share (EPS)

EPS for 2013-14 as originally reported

=

=

F. Y.2013-14

4.20

F. Y.2014-15

EPS for F. Y. 2013 -14 restated for right issue = 4.00

EPS for the F. Y. 2014 -15 including effect of Right issue= 4.76

Working Notes:W. N. 1- Calculation of theoretical Ex. right fair value per share.

=

fair value of all outstanding sharesimmediately prior to exercise of Rights

+

Total Amount Receivedfrom exercise of Rights

No. of shares outstanding prior toexercise of Rights

No. of shares issued onexercise of Rights

=

= = ` 23.83 approx


W. N. 2- Calculation of Adjustment factor=

= = 1.05 approx.

(ii) Calculation of weighted Average No. of shares

Date Particulars No. of shares

01.04.2014

01.07.2014

31.03.2015

Opening Balance

Issue of shares for cash

Buy-back of shares

= 3,000

= 675

= 0 3675

Chapter - 3 : Accounting for Shares and Debentures2015 - Dec [1] (d)

In the Books of Mahi Ltd.Journal Entries

Particulars Amt. Dr. Amt. CrBank A/c Dr.

To SBI Loan A/c(Being Loan of ̀ 15,00,000, taken from SBIand 25,000, 12% Debentures of ̀ 100 eachissued as collateral security.

15,00,00015,00,000


2015 - Dec [1] (f)In the Books of Suku ltd.

Journal Entries2015June 1

12% own Debentures A/c Dr.Interest A/c Dr.

To Bank A/c(Being 250, 12% own DebenturesPurchased from open market@ ` 97 (cum Interest)

23,0001,250

24,250

2015June 1

12% Debentures A/c Dr.To 12% own Debentures A/cTo Capital Reserve A/c

(Being 250, 12% own Debentures cancelled and profit transferred tocapital Reserve A/c)

25,00023,000

2,000

2015 - Dec [3] (a) (i) In the Books of FCS Limited

Journal EntriesAmt. in Lakhs

Date Particulars Amt. Dr.

Amt.Cr.

2015Apr. 1

Bank A/c Dr.To Investment A/cTo Profit on sale of Investment A/c

(Being Investment sold on profit)

150148

2

2015Apr. 1

Equity Share buy-back A/c Dr.To Bank A/c

(Being payment made on account of Buy-back of 60 lakhs equity shares @ ` 15/- pershare)

900900


2015Apr. 1

Bank A/c Dr.To 14% preference Share capital A/c

(Being issue of 2,00,000 preferences sharesof ` 100 each)

200200

2015Apr. 1

Equity share Capital A/c Dr.Premium on Buy-Back A/c Dr.

To Equity Share Buy-Back A/c

600300

9002015Apr. 1

General Reserve A/c Dr.Profit & Loss A/c Dr.

To capital Redemption Reserve A/c(Being amount transferred to capitalRedemption Reserve A/c)

58342

400

2015Apr. 1

Securities Premium A/c Dr.To Premium on buy-back of Shares A/c

(Being premium on Buy-Back of equityshares written off.)

300300

2015Apr. 1

Capital Redemption Reserve A/c Dr.Securities Premium A/c Dr.

To Bonus to equity shareholders A/c(Being Declaration of Bonus to equityshareholders by issue of one equity sharefully paid-up of ` 10 each for every fourequity shares)

40050

450

2015Apr. 1

Bonus to Equity shareholders A/c Dr.To equity share Capital A/c

(Being issue of 45 lakhs equity share of ` 10each as bonus)

450450


Working Note-1-

2-

Calculation of Amount of Bonus Shares= [ ` 2,400 lakhs - 600 lakhs) × 1/4 ] × 10= ` 4500 LakhsCalculation of Cash at Bank after Buy-Back & Issue of BonussharesCash Balance at Bankas on 01.04.2015 ` 2,460 LakhsAdd. Sale of Investment ` 150 Lakhs

` 2,610 LakhsLess- Payment on Buy-Back ` 900 Lakhs

` 1,710 LakhsAdd. Issue of 14% Pref. Shares ` 200 Lakhs

` 1,910 Lakhs

3. It is assumed that current Assets represents Cash at Bank.

2015 - Dec [3] (b) (ii)Computation of Liability of underwriters

Particulars S T U V

Gross Liability 4,00,000 3,00,000 2,00,000 1,00,000

Less: Marked App. 4,40,000 1,80,000 2,20,000 20,000

(40,000) 1,20,000 (20,000) 80,000

Less unmarked App. (In the ratioof Gross Liability) — 30,000 — 10,000

(40,000) 90,000 (20,000) 70,000

Excess of S & U shared with T &V in the Ratio of Gross Liability 40,000 (45,000) 20,000 (15,000)

Net Liability (Shares) — 45,000 — 55,000

Net Liability Value — ` 4,50,000 — ` 5,50,000


Chapter - 4 : Presentation of Financial Statements2015 - Dec [1] (e)

Calculation of Managerial RemunerationNet profit before provision for Income Tax and ManagerialRemuneration but after depreciation.Add. Depreciation provided in the books

Less. Depreciation allowable under schedule - II of thecompanies Act, 2013Net profit available for ManagerialNet profit available for Managerial Remuneration

98,00,00030,00,000

1,28,00,000

25,00,001,03,00,000

If there is one whole time Director = 1,03,00,000 × = ` 5,15,000

Chapter - 6 : Segmental Reporting2015 - Dec [3] (a) (ii)

Identification of Reportable Segments` in lacks

Segments A B C D E(a) Segment Revenue

(% as total Revenue 2,000)20010%

60030%

40020%

20010%

60030%

(b) Segment Result(% as profit 280)(i.e. 80 + 180 +20)

80

28.5%

(120)

42.86%

180

64.28%

20

7.14%

(60)

21.43%(c) Segment Assets

(% as total Assets 600)90

15% 110

18.33%280

46.67%40

6.67%80

13.33%Reportable Segment

Yesa, b, c

Yes a, b, c

Yesa, b, c

Yesa

Yesa, b, c

Chapter - 7 : Business Combinations and Corporate Restructuring2015 - Dec [1] (c) Accounting Standard (AS-14) as prescribed by the Institute of CharteredAccountants of India deals with accounting for amalgamation and treatmentfor resulting goodwill or reserves. AS-14 classifies amalgamation into twotypes, viz. Amalgamation in nature of merger; and


Amalgamation in nature of purchase.

2015 - Dec [3] (c) (i)In the Books of Poova Ltd.

Journal Entries` in lakhs

Date Particulars Amt. Dr. Amt. Cr.

2015-April 1

Equity share capital A/c Dr.To Equity share capital A/c

(Being sub division of one share of` 100 each in 10 shares of ` 10 each)

3,0003,000

2015-April1

Equity share capital A/c Dr.To capital Reduction A/c

(Being Reduction of capital by 50%)

1,5001,500

2015-April1

Capital Reduction A/c Dr.To Bank A/c

(Being amount paid to preferenceshareholders for dividend in arrear)

2%2%

2015-April 1

Bank A/c Dr.To own Debentures A/cTo capital Reduction A/c

(Being own Debentures sold and profit)

24.5023.75

0.75

2015-April 1

12% Debentures A/c Dr.To own Debentures A/cTo capital Reduction A/c

(Being own Debentures cancelled)

15.0014.25

0.75


2015-April 1

12% Debentures A/c Dr.Capital Reduction A/c Dr.

To Machinery (Fixed Assets) A/c(Being Debentures A/c settled)

48020

500

2015-April 1

Trade payable A/c Dr.Capital Reduction A/c Dr.

To Trade Receivable A/cTo Inventory A/cTo Goodwill A/cTo Discount on Issue of Deb A/cTo Profit & Loss A/c

(Being all accounts adjusted/written off)

110970

1507040

6814

2015-April 1

Capital Reduction A/c Dr.To Bank A/c

(Being penalty paid to avoid

4.004.00

2015-April 1

Capital Reduction A/c Dr.To Capital Reserve A/c

(Being amount transferred)

480.50480.50

2015-April 2

Business purchase A/c Dr.To Liquidator Pouru Ltd.

(Being Business purchased)

2,6402,640

2015-April 2

Other fixed Assets A/c Dr.Trade Receivables A/c Dr.Inventory A/c Dr.Cash at Bank A/c Dr.

To 12% Debentures A/cTo Trade Payables A/cTo Business Purchase A/cTo Capital Reserve A/c

(Being Incorporation of Assets &Liabilities)

1,520880

1,360260

400450

2,640530


2015-April 2

Liquidator of Pouru Ltd. Dr.To Equity share capital A/cTo 9% Pref. share capital A/c

(Being purchase consideration paid)

2,6402,000

640

2015-April 2

12% Debentures of Pouru Ltd. Dr.To 12% Debentures of Poova Ltd.

(Being Debentures of Pouru Ltd.converted in Debentures of Poova Ltd.

400400

Working Note:Calculation of purchase consideration Equity shareholders

20 x x10 = ` 2,000 Lakhs

% Preference shares 8 x x100 = ` 640 Lakhs

Purchase consideration = ` 2,640 lakhs

2015 - Dec [3] (c) (ii)(a) Calculation of Time Ratio:

Pre Incorporation Post incorporationApril May & June July 14 to March 15

3 Months 9 Monthsi.e. 3:9

or1:3

(b) Calculation of Sales RatioMonths Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar

Sales 0.5 0.5 0.5 0.5 0.5 0.5 1 1 1 1 1 1

1.5 : 7.5 1 : 5


Chapter - 8 : Liquidation of Companies2015 - Dec [3] (b) (i)Liquidators final Statement of Account

Particulars Amount ` Particulars Amount `To Assets RealisedTo Receipt of call moneyon 72,500 equity shares@ ` 2 Per share

50,00,000

1,45,000

By Liquidator’s Remuneration:(*1) 2.5% of ` 58,00,000 = 1,45,000 2% of ` 1,25,000 = 2,500(*4) 2% of ` 32,81,863 = 65,637 2,13,137

By Liquidation Expenses 25,000

By Debentureholders having floatingcharge on all assets of the company 15,00,000

By Preferential creditors 1,25,000

By unsecured creditors (*SeeW.N.4)

32,81,863

Total 51,45,000 Total 51,45,000

Working Note:*1. Total Amount realised from assets excluding call money = 50,00,000 +

8,00,000 = ` 58,00,000*2. Amount of unsecured creditors in partly secured.*3. Total unsecured creditors

= 45,00,000 + 75,000 = 45,75,000*4. Calculation of Amount of Liquidator’s remuneration on payment

made to unsecured creditorsAmount available for unsecured creditors after all payments i.e.Liquidator’s Remuneration, payment to debentureholders & preferentialcreditors i.e.` (51,45,000 - 1,45,000 - 2,500 - 25,000 - 15,00,000 - 1,25,000) x


= 33,47,500 x

= ` 32,81,863Liquidator’s Remuneration @ 2%= 32,81,863 x 2%= ` 65,637

Chapter - 11 : Type of Audit2015 - Dec [1] (i)TAX AUDIT:The tax audit u/s. 44AB of the Income-tax Act, 1961 is significant practicearea for Chartered Accountants. Since the introduction of tax audit, we havebeen given responsibilities to discharge the duties as tax auditors for theproper compliance of tax law by the assessees.The Institute of Chartered Accountants of India has defined auditing asfollows—

“A systematic and independent examination of data, statements, records,operations and performances (financial or otherwise) of an enterprise for astated purpose. In any auditing situation, the auditor perceives andrecognises the propositions before him for examination, collects evidence,evaluates the same and on this basis formulates his judgment which iscommunicated through his audit report”.

Under the existing provisions of Section 44AB, every person carrying onbusiness is required to get his accounts audited if the total sales, turnoveror gross receipts in the previous year exceed sixty lakh rupees. Similarly, aperson carrying on a profession is required to get his accounts audited if thetotal sales, turnover or gross receipts in the previous year exceed fifteenlakh rupees.

2015 - Dec [4] (c) (i)Special Points in Audit of a Partnership Firm: Matters which should bespecially considered in the audit of accounts of a partnership firm are asunder:

(i) Confirming that the letter of appointment, signed by a partner, dulyauthorised, clearly states the nature and scope of audit contemplated


by the partners, specially the limitation, if any, under which the auditorshall have to function.

(ii) Examine the partnership deed signed by all partners and itsregistration with the registrar of firms. Also ascertain from thepartnership deed about capital contribution, profit sharing ratios,interest on capital contribution, powers and responsibilities of thepartners, etc.

(iii) Studying the minute book, if any, maintained to record the policydecision taken by partners specially the minutes relating toauthorisation of extraordinary and capital expenditure, raising of loans,purchase of assets, extraordinary contracts entered into and othersuch matters which are not of a routine nature.

(iv) Verifying that the business in which the partnership is engaged isauthorised by the partnership agreement; or by any extension ormodification thereof agreed to subsequently.

(v) Examining whether books of account appear to be reasonable and areconsidered adequate in relation to the nature of the business of thepartnership.

(vi) Verifying generally that the interest of no partner has sufferedprejudicially by an activity engaged in by the partnership which, it wasnot authorised to do under the partnership deed or by any violation ofa provision in the partnership agreement.

(vii) Confirming that a provision for the firm’s tax payable by thepartnership has been made in the accounts before arriving at theamount of profit divisible among the partners. Also see variousrequirements of legislations applicable to the partnership firm likeSection 44AB of the Income- tax Act, 1961 have been complied with.

(viii) Verifying that the profits and losses have been divided among thepartners in their agreed profit-sharing ratio.

2015 - Dec [4] (c) (ii)Audit by Cost Accountant: Cost Audit can be done only by a 'Cost Accountant'. The Cost Accountant/firm of cost accountants will be appointed by Board of Directors of the


company. His remuneration will be fixed by members in the prescribedmanner [Section 148(3) of the 2013 Act]. "Cost Accountant" means a cost accountant as defined in Section 2(1)(b) ofthe Cost and Works Accountants Act, 1959 [Section 2(28) of the 2013 Act].As per government guidelines, a Cost Accountant holding certificate ofpractice on part time basis is not entitled to conduct cost audit. Thus, onlya Cost Accountant in whole-time practice can conduct cost audit. Appointing Cost Auditor and his Remuneration - An individual costaccountant or firm of cost accountants can be appointed as Cost Auditor.Where company has Audit Committee, appointment and remuneration willbe recommended by audit committee and approved by Board. If there is noaudit committee, appointment and remuneration fixation will be done byBoard. Later, this remuneration shall be ratified by shareholders.Limit on number of Cost Audit per person - Limit on number of audits perperson, as are applicable to Statutory Auditors are applicable to Cost Auditoralso - MCA Master Circular No. 2/2011 dated 11-11-2011.Statutory Auditor cannot be appointed as Cost Auditor - Statutoryauditor appointed under section 139 of the 2013 Act cannot be appointed toaudit cost records - first proviso to Section 148(3) of the 2013 Act. Duty of Company - The company shall give all assistance and facilities tothe Cost Auditor for auditing the cost records [Section 148(5) of the 2013Act.

Chapter - 12 : Audit Planning, Programme and Procedures2015 - Dec [1] (j) Audit Programme: Audit programme is a detailed plan of the auditing work to be performed,specifying the procedures to be followed in verification of each item and thefinancial statements and the estimated time required. To be morecomprehensive, an audit programme is written plan containing exact detailswith regard to the conduct of a particular audit. It is a description ormemorandum of the work to be done during an audit. Audit programmeserves as a guide in arranging and distributing the audit work as well aschecking against the possibility of the omissions.


An audit book is usually a bound book in which a large variety of matersobserved during the course of audit are recorded. The audit note book is apermanent record of the auditor. For each individual audit, the auditorusually maintains a separate audit note book. The audit note book should bemaintained clearly, completely and systematically. An audit note book is agreat evidential tool available as a defense with the auditors in the event ofany charge is brought against them. In case of City Equitable Fire InsuranceCompany, the auditors were relieved because they have maintained recordof the audit work performed at each stage. Chapter - 13 : Internal Control, Internal Check and Internal Audit2015 - Dec [4] (a) (i)Way of checking: In internal check system work is automatically checkedwhereas in internal audit system work is checked specially. Cost involvement: In internal check system checking is done when the workis being done. Mistake can be checked at an early stage in internal checksystem. Thrust of system: Thrust of internal check system is to prevent the errorsand whereas the thrust of internal audit system is to detect the errors andfrauds. Time of checking: In internal check system checking is done when thework is being done whereas in internal audit system work is checked afterit is done. Mistakes can be checked at an early stage in internal checksystem.Chapter - 14 : Vouching and Verification2015 - Dec [4] (a) (ii)Objects of verification— Verification of assets and liabilities is done withthe following objects:

(i) To know whether the Balance-Sheet exhibits a true and fair view of theState of affairs of the business.

(ii) To find out whether the assets were in existence (iii) To find out the ownership and title of the assets (iv) To show correct valuation of assets and liabilities (v) To verify the arithmetical accuracy of the books of accounts (vi) To ensure that the assets have been recorded properly


(vii) To detect frauds & errors, if any (viii) To find out whether there is an adequate internal control regarding

acquisition, utilization and disposal of assets.Chapter - 16 : The Company Auditor2015 - Dec [4] (a) (iii)Powers and duties of auditors and auditing standards [Section 143]:(1) Every auditor of a company shall have a right of access at all times to

the books of account and vouchers of the company, whether kept at theregistered office of the company or at any other place and shall beentitled to require from the officers of the company such information andexplanation as he may consider necessary for the performance of hisduties as auditor and amongst other matters inquire into the followingmatters, namely: (a) whether loans and advances made by the company on the basis of

security have been properly secured and whether the terms onwhich they have been made are prejudicial to the interests of thecompany or its members;

(b) whether transactions of the company which are represented merelyby book entries are prejudicial to the interests of the company;

(c) where the company not being an investment company or a bankingcompany, whether so much of the assets of the company as consistof shares, debentures and other securities have been sold at a priceless than that at which they were purchased by the company;

(d) whether loans and advances made by the company have beenshown as deposits;

(e) whether personal expenses have been charged to revenue account; (2) The auditor shall make a report to the members of the company on the

accounts examined by him and on every financial statements which arerequired by or under this Act to be laid before the company in generalmeeting and the report shall after taking into account the provisions ofthis Act, the accounting and auditing standards and matters which arerequired to be included in the audit report under the provisions of thisAct or any rules made thereunder or under any order made undersub-section (11) and to the best of his information and knowledge, the


said accounts, financial statements give a true and fair view of the stateof the company’s affairs as at the end of its financial year and profit orloss and cash flow for the year and such other matters as may beprescribed.

(3) The auditor’s report shall also state— (a) whether he has sought and obtained all the information and

explanations which to the best of his knowledge and belief werenecessary for the purpose of his audit and if not, the details thereofand the effect of such information on the financial statements;

(b) whether, in his opinion, proper books of account as required by lawhave been kept by the company so far as appears from hisexamination of those books and proper returns adequate for thepurposes of his audit have been received from branches not visitedby him;

(4) Where any of the matters required to be included in the audit reportunder this section is answered in the negative or with a qualification, thereport shall state the reasons therefor.

Chapter - 17 : The Company Audit2015 - Dec [1] (h)Auditor’s Duty: • The auditor should inspect the debentures or trust deed for the terms

and conditions regarding redemption of debentures. • He should see the Director’s minute book authorizing the redemption of

debentures.• He should also vouch the redemption with the help of debenture bonds

cancelled and the cash book.• He should also examine the accounting treatment thoroughly.

2015 - Dec [4] (b) (i)Re-issue of forfeited shares: • The auditor should ascertain that the Board of Directors has the

authority under the Articles of Association of the company to reissueforfeited shares. Check the relevant resolution of the Board of Directors.


• Vouch the amounts collected from persons to whom the shares havebeen allotted and verify the entries recorded from re-allotment. Auditorshould check the total amount received on the shares including receivedprior to forfeiture, is not less than the par value of shares.

• Verify that computation of surplus amount arising on the reissue ofshares credited to Capital Reserve Account and

• Where partly paid shares are forfeited for non-payment of call, andre-issued as fully paid, the reissue is considered as an allotment at adiscount and compliance of the provisions of Section 53 is essential.

Chapter - 18 : Audit Report

2015 - Dec [4] (b) (iii)Difference between Audit Report and Audit Certificate:

(i) Meaning: Audit Report is a statement of collected and consideredinformation so as to give a clear picture of the state of affairs of thebusiness to the persons who are not in possession of the full facts.While Audit Certificate is a written confirmation of the accuracy ofthe information stated there in.

(ii) Opinion: Audit Report contains the opinion of the auditor on theaccounts, while Audit Certificate does not contain any opinion butonly confirms the accuracy of the figures with the books of accounts.

(iii) Basis: Audit Report is made out on the basis of informationobtained & books of account verified by the auditor, while AuditCertificate is made out on the basis of the particular data capable ofverification as regards accuracy.

(iv) Guarantee: Audit Report may not guarantee correctness of financialstatement in absolute terms, while Audit Certificate guaranteesabsolute correctness of the figures & information mentioned in theCertificate.

(v) Coverage: Audit Report always covers entire accounts of theconcern, while Audit Certificate covers only certain part of theaccounts of the concern.


(vi) Responsibility: Audit Report does not hold auditor responsible foranything wrong in the accounts, while Audit Certificate makes anauditor responsible if anything mentioned in the certificate found aswrong later on.

(vii) Suggestion: Audit Report may provide certain suggestions forimprovement while Audit Certificate does not provide any suchsuggestion.

(viii) Nature: Audit Report is based on the vouching & verification ofbooks of accounts, voucher, assets & liabilities, while AuditCertificate is based on checking arithmetical accuracy of the facts.

(ix) Scope: Audit Report covers all transactions done during the year,while the Audit Certificate is very specific.

(x) Characteristics: Audit Report is subjective as it is opinion oriented,while Audit Certificate is objective as it is fact oriented.

(xi) Form: Audit Report is required to be presented in the prescribedformat, while Audit Certificate, except in few cases, is not requiredto be presented in any Standard format.

(xii) Address: Audit Report is addressed to the members of the companyat large or appointing authority, while Audit Certificate is addressedto particular person or sometimes may include the words like “ToWhomsoever it may concern”.

Chapter - 19 : Standards on Auditing (SA)2015 - Dec [1] (g) When the principal auditor concludes, based on his procedures, that thework of the auditor cannot be used and the principal auditor has not beenable to perform sufficient additional procedures regarding the financialinformation of the component audited by the other auditor, the principalauditor should express a qualified opinion or disclaimer of opinion becausethere is a limitation on the scope of audit.In all circumstances, if the other auditor issues, or intends to issue, amodified auditor’s report, the principal auditor should consider whether thesubject of the modification is of such nature and significance, in relation tothe financial information of the entity on which the principal auditor is


reporting that it requires a modification of the principal auditor’s report (SA600).

2015 - Dec [4] (b) (ii)The objectives and functions of the Auditing and Assurance StandardBoard (AASB)

(i) To review the existing and emerging auditing practices World wide. (ii) To formulate Engagement Standards, Standards on Quality Control

and Statement on Auditing. (iii) To review and revise the existing Standards and Statements on

Auditing.

(iv) To develop Guidance Notes on issues arising out of any Standard,auditing issues pertaining to any specific industry and revise.

(v) To review and revise the existing Guidance Notes. (vi) To formulate General Clarifications, where necessary, on issues

arising from Standards. (vii) To formulate and issue Technical Guides, Practice Manuals, Studies

and Other papers.

Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,

Allahabad - 211002Visit us: www.shuchita.com

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