General

1. Describe about yourself (schooling, professional examination status, article-ship experience etc.)
2. Describe your strengths and weaknesses.
Strengths:
 Quick learner
 Adaptable
 Self-Motivated
 Professionally congenial
 Hardworking
Weaknesses:
 Nervous incase of fault on my part
 I lose trust on myself sometimes
 Forget things until and unless checked couple of times
 A bit emotional
 My family and close friends

3. How long have you been with audit firm?

It has been 3.9 years since I joined the first audit firm

4. How many clients have you finalized?

I have finalized 5 to 6 clients so far and assisted to supervisor 5 to 6 clients in finalizing the audit
engagements

5. When were you promoted to senior?

I was promoted to senior by December 2022. Its been 12 months since then.

6. Why do we take you on secondment?

I believe I have the requisite skills for the secondment and I could prove myself as an asset.

7. How are your client management skills. How will you be able to manage the audits without team?
I have already done it on the client I finalized. I was given 2 junior and assigned him little work and
did close supervision as if I were alone there.

8. What will be your action plan to meet such stiff deadlines?

Planning time-work dimensions ahead of going to client. Keeping in mind the dates allotted and
then planning time in backward direction. Allocating one day for review purposes and one day for
any contingency/rest.

9. Issues that were identified in any of your audit clients.

Make sure that you must go through the Cover letter or management letter of major clients you
served. He may also ask that what were the major heads in the financial statement or in what
products your client deals in etc. Link your answers with IFRS, auditing standards and other technical
pronouncement (if any) which you have consulted to respond to the issue.
 10. What is the role of Job In charge and Supervisor?
Managers and supervisor  control tower
Job in charge  Captain on the field directing the crew and execution

11. What work you have performed when you are carrying out interim reviews / hard closing?
Work on P&L heads on sample basis to mitigate pressure over meeting client deadline after year
end.

Audit Planning

12. Initial procedure before the start of new client

- First Pass Check of the Company and its directors including Chairman;
- Circulate conflict of Interest email
- Request for NOC to the retiring auditors
- After receiving NOC from previous auditors, we send engagement letter to the client.

13. What we will do for the clients where engagement risk is assessed as greater than normal? Will it
impact our audit procedure? Should we perform any special procedures?

- Involvement of second partner;

- More involvement of senior staff including engagement partner, director, manager etc;
- Increase extent of testing;

14. What will you document in planning?

Assessment of engagement risk

Understanding of the entity and its environment
Preliminary analytical procedures
Material classes of transaction, Account balances and Disclosures for Audit procedures
Determination of materiality, performance materiality and trivial misstatements;
Determination of risk assessment and plan further audit procedures
Audit Planning Memorandum

15. Why the auditor obtains the Understanding of the entity and its environment including its relevant
controls?

- Identify and assess risk — Our awareness of and ability to respond to risks are considerably
enhanced by our understanding of the Entity and its environment.

- Develop an effective Audit Plan to perform our Further Audit Procedures

16. What is the difference between fraud and error?

 Fraud is Intentional whereas error is unintentional misstatement in financial statements, including
the omission of an amount or a disclosure.

17. What are the types of frauds?

Management fraud – Fraudulent financial reporting

Employee fraud – Misappropriation of assets

18. What are components of audit risk?

Inherent risk
Control risk
Detection risk

19. What is risk of material misstatement?

The risk that the financial statements are materially misstated prior to audit. It has 2 components
Inherent risk and control risk.

20. At what level the risk of material misstatement exist?

a. At the Financial Statement Level

b. At the assertion level

21. How will you calculate materiality and in which document (form #)?

- Computed as per the benchmark to be decided by the engagement partner

Normally the bench mark should be:
 Profit before tax (Preferred for Public companies – 5% to 10% factor)
 Revenue – 0.8 % to 5%
 Total assets (Input selected factor depending on the Professional judgment
 Equity (normally 2%)
22. How do we compute materiality based on profit before tax if there is variation in profit?

When there is variation in profits, first we eliminate the unusual items from the profit and then we
use adjusted profit for the computation of materiality. If there is no unusual item we will normalize
the profit i.e. we will take the average profit of 3 years.

23. Why do we reduce our PM to arrive at MP?

Performance materiality is set to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements in the financial statements exceeds
materiality for the financial statements as a whole.
 Normally it should be LY misstatement reported in schedule of misstatement w/p or 10% of
materiality whichever is higher. It depends on the professional judgment of the Partner. However, on
listed clients including insurance and banking clients we normally take PM 75% of materiality.

24. If you have observed variation in one account head, though the balance is immaterial, will you
consider it for further audit procedures according to new audit approach?

We can select the account balance as material on quantitative basis as there might be some
misstatement in account balance or some control weakness has been identified last year.

25. What reasons could constitute an account head as qualitatively material, though it is
quantitatively immaterial?

 Nature of account balance like related party transactions and balances;

 Account balance involving management estimates and judgment;
 Transactions involving fraud like cash in hand etc.
 Disclosures if required by the Regulator / IFRS.

26. What risks are associated with a trading client?

- Management override of controls;

- Cutoff of Revenue, Purchases and Expenses;
- Unrecorded liability;
- Fraud risk in Revenue;
- Overstatement of Stock;
- Provision for doubtful receivable
- Transaction with related parties;
- Contingencies and commitments;
- Taxation including deferred taxation.

27. Difference between risk and significant risk. How do we identify a significant risk?

- Risk is a possibility of misstatement in account balance.

- Significant Risk: It is a matter of professional judgment to determine which risks of material
misstatement are significant risks. Risks of material misstatement related to fraud and
management override of controls are required to be considered significant risks. Other types of
risks of material misstatement which may be considered significant are:

 Risks related to significant economic development, accounting or other developments and,

therefore require special attention;
 Risks related to complex transactions;
 Risks involving significant transactions with related parties;
  Risks where there is a degree of subjectivity in the measurement, especially those
measurements involving a wide range of measurement uncertainty;
 Risks involving significant transaction that are outside the normal course of business for the
entity or that otherwise appear to be unusual.

28. How do we respond to significant risk?

If the auditor has determined that an assessed risk of material misstatement at the assertion level is
a significant risk, first identify relevant control to mitigate that risk and perform D&I and the result of
D&I is effective and no control reliance strategy adopted, then the auditor shall perform substantive
procedures that are specifically responsive to that risk. When the approach to a significant risk
consists only of substantive procedures, those procedures shall include tests of details.

If control reliance strategy adopted, then first perform Test of controls and then the auditor shall
perform substantive procedures that are specifically responsive to that risk.

Auditor should perform substantive procedures that are specifically responsive to risks the auditor
has determined to be significant risks. Audit evidence in the form of external confirmations received
directly by the auditor from appropriate confirming parties may assist the auditor in obtaining audit
evidence with the high level of reliability that the auditor requires to respond to significant risks of
material misstatement, whether due to fraud or error. For example, if the auditor identifies that
management is under pressure to meet earnings expectations, there may be a risk that management
is inflating sales by improperly recognizing revenue related to sales agreements with terms that
preclude revenue recognition or by invoicing sales before shipment. In these circumstances, the
auditor may, for example, design external confirmation procedures not only to confirm outstanding
amounts, but also to confirm the details of the sales agreements, including date, any rights of return
and delivery terms. In addition, the auditor may find it effective to supplement such external
confirmation procedures with inquiries of non-financial personnel in the entity regarding any
changes in sales agreements and delivery terms.

29. What are presumed significant risk?

There are two presumed risks which we keep while doing planning:

- Management override of control;

- Fraud risk on revenue recognition. Often result from the overstatement of revenue) for example
premature revenue recognition or recording fictitious revenues. It may result also from an
understatement of revenues through, for example, improperly shifting revenues to a later period.

30. What are different audit assertion

Balance sheet assertions

- Existence
- Rights and obligations
- Completeness
 - Valuation and allocation

Profit and loss assertions

- Occurrence
- Completeness
- Accuracy
- Cutoff
- Classification

Disclosure Assertions

- Occurrence and rights and obligations

- Completeness
- Classification and understandability
- Accuracy and valuation

31. What is cut-off assertion and what procedures are performed to check this assertion
Transactions and events have been recorded in the correct accounting period.

To verify the cut off assertion we normally select last 5 transactions at year end and 5 transactions
subsequent to the year end and verify that whether these are recorded in correct period. However,
depending upon the cut-off controls at the client we may select more transactions e.g. 10 or 15
transactions before and after year end.

32. What is difference in procedure to check overstatement (occurrence/existence) and

understatement (completeness)
(Directional testing)
For overstatement, we select the sample from the ledger and trace them to the supporting
documents e.g. sales invoices, delivery challans etc.

For understatement we select the samples from the source documents and trace them back to the
general ledger.

33. Why we perform preliminary analytical review? Why we repeat it again at the end of audit in
financial statement review? What is difference between the two reviews and what are the form
numbers in which we document these?

Preliminary analytical procedure at planning stage is a high level review and provide base for
identifying risks. Our procedures are performed with a number of objectives in mind. These are to:

· Identify indications of risks (i.e., unusual or unexpected balances and relationships in the financial
statements that may indicate a specific risk of material misstatement)

· Understand the financial statements, including liquidity and profitability

· Understand the client’s business, including any significant operational or accounting changes
that may have occurred since the prior audit engagement

· Assist with the assessment of planning materiality

 · Identify matters that call into question going concern viability.

Financial Statement Review at the end of audit is to determine whether:

· As a whole, the financial statements are consistent with our knowledge of the business, our
understanding of individual account balances and relationships, and our audit evidence

· The accounting policies used in preparing the financial statements are appropriate and properly
disclosed, as are any changes in the policies

· The balances and associated disclosures in the financial statements are presented in
accordance with the accounting policies, professional standards, and legislative and regulatory
requirements of the financial reporting framework.

Audit procedures

34. How do you perform test for unrecorded liability test?

Test for unrecorded liabilities might include the following procedures:

 Review transactions (e.g., cash disbursements, including wire transfers or purchases)
recorded after the balance sheet date for any significant transactions that apply to the audit
period;
 Review invoices processed after year-end but not yet paid as of our report date for any
significant transactions that apply to the period under audit;
 Review files of unprocessed invoices and unmatched purchase orders for items that should
be accrued in the period under audit;
 Examine files of unmatched receiving reports for items received on or before the physical
inventory or balance sheet date;
 Examine support for transactions recorded prior to the balance sheet date.
 Ask accounting and purchasing personnel about any significant unrecorded liabilities.
 Review cutoffs in related areas such as purchases and inventories.

35. How do you verify accounts receivable, along with its alternative procedure, if it is not possible to
obtain client confirmation then what would be the audit implication?

- Obtain the list of debtors from client and select the balances for confirmation on sampling basis.
- If confirmation not received then check subsequent movement in the balances. Further, if
confirmation not received then performs Test of invoices. If not possible then we may report the
matter in ASM or modified the report depend on the materiality. – Negative confirmation (ask the
client to respond if they find a discrepancy between their and client records) – Positive
confirmation (To respond in any case)

36. What action will you take if you third party confirmation is received through client?

Not acceptable as these has to be confirmed by the third party directly to our office.
37. How do you verify inventory and obsolete stock?

- Perform Physical count as of BS sheet date

- Checked valuation of Stock as per accounting policy i.e. verifies the rate.
- Perform Quantity reconciliation of stock.
- Checked whether the stock is kept at lower of stock or NRV.
- Checked aging of stock.
- Checked that adequate provision is made on obsolete or left over stock.

38. How do you perform NRV testing of inventory?

Check the subsequent invoices or latest available invoice of relevant samples sold after the year end.

39. What is difference between weighted average and moving average inventory system?

- The AVCO is used in Periodic system i.e. inventory is valued at period end.
- However, Moving average is used in perpetual system i.e. at each purchase, the rate is computed.

40. What alternate procedures will you perform, if physical inventory count was not done on cutoff
date?

Perform stock count at date after the year end and check the movement of stock from the year end
date to the date of stock count by verifying the purchases and sales during the period.

41. What procedures will you perform in order to address the risk of management override of
controls?
- Test the appropriateness of journal entries recorded in the general ledger and other adjustments in
the preparation of the financial statements. In designing and performing audit procedures for such
Tests, we:

- Make inquiries of individuals involved in the financial reporting process about inappropriate or
unusual activity relating to the processing of journal entries and other adjustments

- Select journal entries and other adjustments made at the end of a reporting period

- Consider the need to Test journal entries and other adjustments throughout the period.

- Review accounting estimates for management bias and evaluate whether the circumstances
producing the bias, if any, represent a Risk of Material Misstatement due to Fraud. In performing this
review, we:

 Evaluate whether the judgments and decisions made by Management in making the
Accounting Estimates included in the Financial Statements indicate a possible bias on the
part of the Entity's Management;
  Perform a retrospective review of Management judgments and assumptions related to
significant Accounting Estimates reflected in the Financial Statements of the prior year

42. What procedures you will perform, if you identify any fraudulent activity at client?

Immediately inform to your senior / manager / partner about the fraudulent activity so that he can
take appropriate action. The procedures performed to address the risk would depend on the nature
of the fraud and the related account balance affected.

43. How will you verify cash and bank?

- Obtain bank confirmations.

- Obtain bank statements, if confirmations not obtained.
- Obtain bank reconciliations if balance as per confirmations/statements differs from ledger.
- Verify reconciling items of the reconciliations from bank statements.

44. What procedure will you perform for bank reconciling items?

Verify subsequent clearance of the items from the bank statements.

45. Why do we perform test of control?

In order to determine whether internal controls are designed, implemented and operating
effectively and determine the extent of substantive procedures to be performed.

46. Are TOCs providing the evidence at the assertion level?

The auditor shall design and perform tests of controls to obtain sufficient appropriate audit evidence
as to the operating effectiveness of relevant controls if; The auditor’s assessment of risks of material
misstatement at the assertion level includes an expectation that the controls are operating
effectively (that is, the auditor intends to rely on the operating effectiveness of controls in
determining the nature, timing and extent of substantive procedures); or

47. Do we verify controls in owner managed companies

Normally we don’t have control reliance strategy for owner managed companies. We rely on
substantive procedures including both test of details and substantive analytical procedures.

48. Is it mandatory to perform test of control (TOC)? (Note: if no, why?)

- No. For normal risk, if there is no change in internal controls and we have performed test of
controls in the preceding year, we may not perform tests of controls during the current audit.
Controls in this case could be review once in three years.

- Where the substantive procedures alone don’t provide the sufficient appropriate audit evidence

a. Is it necessary to perform TOCs for significant risk?

 Only D&I are mandatory. However, in case of significant risk, if the auditor decides to perform control
testing then TOCs are required to be performed each year.

b. What is the audit procedure if any deficiency is found during control testing?

Where one deficiency is identified we will increase our samples size, if no further deficiencies are
identified then we should rely on controls otherwise we should not.

c. Why do we perform JV Testing? Is it necessary? And how do we perform it?

- In order to address the risk of management override of controls.

- To ensure unusual entries have not been recorded close to year end to manipulate the financial
results.

d. What procedures do we perform for related party transactions?

- Obtain complete list of related party transactions

- Send confirmation request to related parties for transactions and outstanding balances
- Scan general ledger for transactions incurred during the year to ensure the transactions are carried
at arm’s length.

e. How do we review subsequent events?

- Review minutes of BOD meetings held subsequent to the year end

- Review correspondence with legal advisor, and certain declarations to be filed with regulatory
authorities.
- Review monthly management accounts subsequent to the year end e.g. for January & February if
the year-end is December 31 to identify any unusual / significant adjustments.
- Enquire with CFO, Head of Legal and Compliance and CEO about subsequent events

Events Occurring between the Date of the Financial Statements

and the Date of the Auditor’s Report
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit
evidence that all events occurring between the date of the financial statements and the date of
the auditor’s report that require adjustment of, or disclosure in, the financial statements have
been identified

If, as a result of the procedures performed as required by paragraphs 6 and 7, the auditor
identifies events that require adjustment of, or disclosure in, the financial statements, the auditor
shall determine whether each such event is appropriately reflected in those financial statements
in accordance with the applicable financial reporting framework.

Facts Which Become Known to the Auditor after the Date of the
Auditor’s Report but before the Date the Financial Statements
Are Issued
The auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of the auditor’s report. However, if, after the date of the
auditor’s report but before the date the financial statements are issued, a fact becomes
known to the auditor that, had it been known to the auditor at the date of the auditor’s
report, may have caused the auditor to amend the auditor’s report, the auditor shall:
(Ref: Para. A11-A12)
a. Discuss the matter with management and, where appropriate, those charged with
governance;
b. Determine whether the financial statements need amendment and, if so,
c. Inquire how management intends to address the matter in the financial
statements.

11.
If management amends the financial statements, the auditor shall:
a. Carry out the audit procedures necessary in the circumstances on the
amendment.
b. Unless the circumstances in paragraph 12 apply:
i. Extend the audit procedures referred to in paragraphs 6 and 7 to the date of
the new auditor’s report; and
ii. Provide a new auditor’s report on the amended financial
statements. The new auditor’s report shall not be dated earlier
than the date of approval of the amended financial statements.

Facts Which Become Known to the Auditor after the Financial

Statements Have Been Issued
.
After the financial statements have been issued, the auditor has no obligation to perform
any audit procedures regarding such financial statements. However, if, after the
financial statements have been issued, a fact becomes known to the auditor that, had it
been known to the auditor at the date of the auditor’s report, may have caused the
auditor to amend the auditor’s report, the auditor shall:
a. Discuss the matter with management and, where appropriate, those charged with
governance;
b. Determine whether the financial statements need amendment; and, if so,
 c. Inquire how management intends to address the matter in the financial
statements. (Ref: Para. A18)

15.
If management amends the financial statements, the auditor shall: (Ref: Para. A19)
a. Carry out the audit procedures necessary in the circumstances on the
amendment.
b. Review the steps taken by management to ensure that anyone in receipt of
the previously issued financial statements together with the auditor’s report
thereon is informed of the situation.
c. Unless the circumstances in paragraph 12 apply:
i. Extend the audit procedures referred to in paragraphs 6 and 7 to the date of
the new auditor’s report, and date the new auditor’s report no earlier than the
date of approval of the amended financial statements; and
ii. Provide a new auditor’s report on the amended financial
statements.
d. When the circumstances in paragraph 12 apply, amend the
auditor’s report, or provide a new auditor’s report as required by
paragraph 12.

16.
The auditor shall include in the new or amended auditor’s report an Emphasis of Matter
paragraph or Other Matter paragraph referring to a note to the financial statements that
more extensively discusses the reason for the amendment of the previously issued
financial statements and to the earlier report provided by the auditor.

17.
If management does not take the necessary steps to ensure that anyone in receipt of
the previously issued financial statements is informed of the situation and does not
amend the financial statements in circumstances where the auditor believes they need
to be amended, the auditor shall notify management and, unless all of those charged
with governance are involved in managing the entity,7 those charged with governance,
that the auditor will seek to prevent future reliance on the auditor’s report. If, despite
such notification, management or those charged with governance do not take these
necessary steps, the auditor shall take appropriate action to seek to prevent reliance on
the auditor’s report. (Ref: Para. A20)
Key audit matters—Those matters that, in the auditor’s professional judgment, were of most
significance in the audit of the financial statements of the current period. Key audit matters are
selected from matters communicated with those charged with governance.

Accounting Treatment

f. Treatment of deferred tax on surplus on revaluation of fixed assets?

Deferred tax liability is recognized.

g. What are the changes in IAS 19 and whether these changes applied retrospectively?

IAS 19 (revised) is applicable from accounting period beginning on or after January 01, 2013.
Following are some significant changes in IAS 19 Revised:
1. actuarial gains and losses are routed to OCI;
2. Amounts recorded in the profit and loss account are limited to current and past service costs,
gains or losses on settlements, and net interest income (expense);
3. All other changes in the net defined benefit obligation are recognized directly in other
comprehensive income with no subsequent recycling to the profit and loss account

Changes in IAS 19 are applied retrospectively as change in accounting policy. All the provision of IAS
08 relating to Change in accounting policy are applicable.
 Detail knowledge of IASs is required (mainly IAS 11, IAS 18, IAS 40, IAS 37 and IFRS 5).

h. What is change in IAS 1 relating to classification in OCI?

In OCI, the following need to be presented separately:

- Items that are reclassified to P/L subsequently
- Items that are not reclassified to P/L subsequently

i. What are the categories of investment under IAS 39 and what are there different treatments?

- FV through profit or loss – Carried at fair value with changes in FV recognized in P/L
- AFS – Carried at fair value with changes in FV recognized in OCI. However, impairment is charged to
P&L.
- HTM – Amortized cost
- Loans and receivables – Amortized cost

The trainees are advised to read provisions of impairment mentioned in IAS 39 and how to compute
amortized cost (or what is the difference between cost and amortized cost)

j. What is the key difference in classification of investments in IFRS 9 and IAS 39

The main difference is that the IFRS 9 has only 2 categories for investment which are

1- At FV through profit or loss and

2- At amortized cost
Investment categories as per IAS 39 are mentioned above.

Reporting

k. What issues will you include in Management Letter and Cover Letter?
- Control weaknesses are normally reported to ML.
- Significant issues requiring attention of BOD are reported in CL.
- If ML is not issued then all the above matters can be reported in CL.

l. If you identify material misstatements, what actions will you take in this respect?

Ask the management to adjust / correct it. If the management disagrees then immediately report it
to supervisor / manager so that the impact of such misstatement on the financial statement can be
assessed. If the impact of audit adjustments is material then modified opinion would be issued.
However all corrected and uncorrected misstatements (above CTM) are reported in schedule of
misstatement w/p.

Further, all unrecorded misstatements are stated in representation letter by the management.

m. In what circumstances you will qualify an audit report?

Trainees should have sufficient knowledge of ISA relating to modifications of audit report.
 n. If uncorrected misstatement exceeds MP then what is the procedure? Do we report in ASM or put
qualification in Audit report?

First report the matter in audit summary memorandum, then it is be included in the ML and / or
audit report to be decided by the engagement partner based on materiality and severity of
misstatement.

Construction related:

The trainees should have the knowledge of the following:

 How would you determine accuracy of estimation of cost?

 How to determine percentage of completion?
 What is work in process?
 Risks in construction companies.
Knowledge of IAS 11/IFRS 15 is necessary.

49. What is IPE and how it is verified?

Information produced by the entity (IPE) is the information used for performing audit procedures. For
example For example, the effectiveness of auditing revenue by applying standard prices to records of
sales volume is affected by the accuracy of the price information and the completeness and accuracy of
the sales volume data.

IPE can be system generated report i.e. computer generated information (CGI) and could be manual.

When using information produced by the Entity we shall evaluate whether the information is sufficiently
reliable for our purposes. The Auditor is:

1 Obtaining Audit Evidence about the accuracy and completeness of the information

2 Evaluating whether the information is sufficiently precise and detailed for our purposes. (In some
cases, the auditor may intend to use information produced by the entity for other audit purposes. For
example, the auditor may intend to make use of the entity’s performance measures for the purpose of
analytical procedures, or to make use of the entity’s information produced for monitoring activities, such
as internal auditor’s reports. In such cases, the appropriateness of the audit evidence obtained is
affected by whether the information is sufficiently precise or detailed for the auditor’s purposes. For
example, performance measures used by management may not be precise enough to detect material
misstatements.)

Computer Generated Information (CGI) should be verified by IT expert

Type of control
Verifications
Physical Controls and Counts
Authorizations and Approvals
Controls over IUC
Reconciliations
Controls with a Review Element

Accrual Vs provision and payable

Types of analytical – pre , SAP, Concluding

Uncorrected misstatement

If the uncorrected misstatements, excluding income statement and balance sheet

reclassifications, accumulated during the audit are greater than 70 percent of materiality,
the engagement partner shall consult with the Engagement Partner or designee to reach
a conclusion on whether the overall audit strategy and audit plan need to be revised.
Modification in Auditor’s Report on the Prior Period Unresolved
8#If the auditor’s report on the prior period, as previously issued, included a
qualified opinion, a disclaimer of opinion, or an adverse opinion and the matter
which gave rise to the modification is unresolved, the auditor shall modify the
auditor’s opinion on the current period’s financial statements. In the Basis for
Modification paragraph in the auditor’s report, the auditor shall either:

a. Refer to both the current period’s figures and the corresponding figures in
the description of the matter giving rise to the modification when the effects or
possible effects of the matter on the current period’s figures are material; or
b. In other cases, explain that the audit opinion has been modified
because of the effects or possible effects of the unresolved matter on
the comparability of the current period’s figures and the
corresponding figures.

Prior Period Financial Statements Not Audited

#If the prior period financial statements were not audited, the auditor shall state in an
Other Matter paragraph in the auditor’s report that the corresponding figures are
unaudited. Such a statement does not, however, relieve the auditor of the requirement
to obtain sufficient appropriate audit evidence that the opening balances do not
contain misstatements that materially affect the current period’s financial statements

COMPONENT OF INTERNAL CONTROL:

Control Environment

Risk Assessment

Information Systems

Financial reporting process

Control Activities
Minimum Practical Questionnaire for IFRSs & ISAs

1) IFRS 40 - Transfers to or from investment property classification

- Transfers to, or from, investment property should only be made when there is a change in
use.
- The following rules apply for accounting for transfers between categories:

i) for a transfer from investment property carried at fair value to owner-occupied

property or inventories, the fair value at the change of use is the 'cost' of the property
under its new classification [IAS 40.60]
ii) for a transfer from owner-occupied property to investment property carried at fair
value, IAS 16 should be applied up to the date of reclassification. Any difference
arising between the carrying amount under IAS 16 at that date and the fair value is
dealt with as a revaluation under IAS 16 [IAS 40.61]
iii) for a transfer from inventories to investment property at fair value, any difference
between the fair value at the date of transfer and it previous carrying amount should
be recognised in profit or loss [IAS 40.63]
iv) when an entity completes construction/development of an investment property that
will be carried at fair value, any difference between the fair value at the date of
transfer and the previous carrying amount should be recognised in profit or loss. [IAS
40.65]

Note: Highlighted point ii should be ask, be prepare

2) IFRS 15 – Recongnition types

i) Point in time i.e. goods delivered to customer
ii) Over time i.e. construction contract like POC (Percentage of completion)

3) IFRS 15 – Variable consideration

Discount, rebate or refund – only recognized if it is highly probable and deduct from gross revenue

4) IFRS 16 – Lease exception

- Under IFRS 16 – no distinction b/w operating lease and finance lease now
- Now required to recognized right to use assets and lease liability for all leases except;
i) Short term lease (lease term is less than 12 months)
ii) Low value assets (less than $5,000 USD)
5) Audit report opinion

Unmodified Modified
1Transfers to or fr om i nvestment pr operty clas sification

Qualified Adverse Disclaimer

If matter is material If matters is material and pervasive

6) Emphasis of matter
A paragraph included in the auditor's report that refers to a matter appropriately presented or
disclosed in the financial statements.

7) Financial ratios
Current ratio = Current assets/current liabilities
Gross profit (GP) ratio = GP/Sales
Net Profit (NP) ratio = NP/Sales
Return on equity = Profit after tax/share capital and reserves

8) IFRS 11 – Joint arrangement

2 Types
Joint operation (parties have agreed to share assets, liabilities etc.) – Recognise assets and
liabilities according to Investment %
Joint venture (parties have agreed to share net assets) – Recognized under equity method (under
the name ‘Investment in JV’)

9) IAS 28 – Investment in associate and joint venture

Investment can be recorded at,
i) Cost
ii) Equity method (if associate or JV)
iii) IFRS 9 (FV or amortised cost)
10) IFRS 9 – Expected credit loss
2 approaches
i) General (loss allowance measured as the 12 month expected credit losses)
ii) Simplified (loss allowance measured as the lifetime expected credit losses)
11) IAS 16 Property, plant and equipment
12) IFRS 5 Non-current assets held for sale
13) IAS 36 Impairment - Goodwill
Impairment of goodwill
Goodwill should be tested for impairment annually. [IAS 36.96]

To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating
units.

A cash-generating unit to which goodwill has been allocated shall be tested for impairment at
least annually by comparing the carrying amount of the unit, including the goodwill, with the
recoverable amount of the unit: [IAS 36.90]

If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the
goodwill allocated to that unit is not impaired

If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity must
recognise an impairment loss.

The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group
of units) in the following order: [IAS 36.104]
 first, reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of
units); and
 then, reduce the carrying amounts of the other assets of the unit (group of units) pro rata on the
basis.
The carrying amount of an asset should not be reduced below the highest of: [IAS 36.105]
i) its fair value less costs of disposal (if measurable)
ii) its value in use (if measurable)
iii) zero.

Reversal of an impairment loss

Reversal of an impairment loss for goodwill is prohibited. [IAS 36.124]

14) IFRS 10 consolidation

Read IFRS 10 general process, inventory adjustment and elimination (Elimination of intra-group
transactions and the parent’s investment)
15) IAS 8
i) Changes in accounting policies – changes is only made if a) required by standard b) FS
provide reliable and more relevant information. If a change in accounting policy is
required by a new IASB standard or interpretation, the change is accounted for as
required by that new pronouncement or, if the new pronouncement does not
include specific transition provisions, then the change in accounting policy is applied
retrospectively.
ii) Changes in accounting estimates - The effect of a change in an accounting estimate
shall be recognized prospectively by including it in profit or loss
iii) Error - an entity must correct all material prior period errors retrospectively