Vol 24 No. 08 Pages 36 January 2021 50

VOL 24 NO.
08 PAGES 36 JANUARY 2021 50
n ced Auditing and Prof

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CONTENTS
Board of Studies
(Academic) (2020-21)
INSIDE
Chairman 03 President’s Communication
CA. (Dr.) Debashis Mitra
Vice-Chairman
CA. Sushil Kumar Goyal, Kolkata 04 Vice-President’s Communication
Members
CA. Atul Kumar Gupta, New Delhi
CA. Nihar Niranjan Jambusaria, Mumbai 05 Chairman’s Communication
CA. Anil Satyanarayan Bhandari, Mumbai
CA. Tarun Jamnadas Ghia, Mumbai
CA. Nandkishore Chidamber Hegde, Mumbai 06 CA Final: Advanced Auditing and Professional Ethics
CA. Chandrashekhar Vasant Chitale, Pune
CA. Shriniwas Yeshwant Joshi, Mumbai
CA. Durgesh Kumar Kabra, Mumbai
CA. Aniket Sunil Talati, Ahmedabad 21 CA Intermediate: Economics for Finance
CA. Dayaniwas Sharma, Hyderabad
CA. Rajendra Kumar P, Chennai
CA. M P Vijay Kumar, Chennai 30 CA Foundation: Business Laws
CA. Pramod Kumar Boob, Jaipur
CA. Manu Agrawal, Kanpur
CA. Anuj Goyal, Ghaziabad
CA. Prakash Sharma,Jaipur 35 News Updates
CA. Kemisha Soni, Indore
CA. Satish Kumar Gupta, Jaipur
CA. Pramod Jain, New Delhi 36 Crossword
CA. Charanjot Singh Nanda, New Delhi
Dr. P. C. Jain, New Delhi
Adv. Vijay Kumar Jhalani, New Delhi
President and Editor-in-Chief Chairman and Editor
Co-opted Members CA. Atul Kumar Gupta, New Delhi CA. (Dr.) Debashis Mitra, Kolkata
CA. Amarjit Chopra
CA. Ashok Sharma Vice President Vice-Chairman
CA. Mukesh Goyal CA. Nihar Niranjan Jambusaria, Mumbai CA. Sushil Kumar Goyal, Kolkata
CA. (Dr.) M.S. Jadhav
CA. Senthil Kumar RM
CA. Viral Kiran Mehta Director- Board of Studies Editorial Support
CA. Aditya Kumar Maheshwari CA. Vandana D Nagpal Dr. Ruchi Agarwal, Assistant Secretary
CA. Jayesh Gupta
Office
Board of Studies, The Institute of Chartered, Accountants of India, ICAI Bhawan,
Total Circulation: 2,56,461 A-29, Sector-62, Noida-201 309. Phone : 0120-3045907
Check your Address: All students should Head Office

check their mailing address printed on back The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg,
cover. In case, there is any change or the PIN New Delhi-110 104.
Code (Postal Index Code) is either missing
or is incorrect, kindly inform immediately EDITOR: CA. (DR.) DEBASHIS MITRA
the concerned Regional Office, giving full Printed and published by CA. Vandana D Nagpal, on behalf of The Institute of
particulars of your address alongwith correct Chartered Accountants of India, New Delhi.
PIN Code. This would enable us to ensure PUBLISHED at the Institute’s Office at Indraprastha Marg, New Delhi and
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Correspondence with regard to advertising and The views and opinions expressed or implied in THE CHARTERED ACCOUNTANT
writing articles STUDENT are those of the authors and do not necessarily reflect those of ICAI. Unsolicited
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liability for loss or damage. Material in this publication may not be reproduced, whether in
Non-receipt of Students’ Journal part or in whole, without the consent of ICAI.
Email: nosj@icai.in DISCLAIMER: The ICAI is not in any way responsible for the result of any action taken on the basis of
the advertisement published in the Journal.
Cover Image Courtesy: www.shutterstock.com
Inside image: www.shutterstock.com
SWACHH BHARAT - A STEP TOWARDS CLEANLINESS
02 January 2021 The Chartered Accountant Student

PRESIDENT’S COMMUNICATION
levels of the Chartered Accountancy Course have been uploaded

on the BoS Knowledge Portal and are also available on the CDS
portal. There has been an endeavour to enrich the question banks
contained in the Study Material to better assist the students in
understanding and applying the concepts.
As all of you are aware that MCQ based assessment was
introduced in select core papers at the Intermediate and Final
levels from May 2019 examinations. From November 2020
examinations, case scenario based MCQs have also been
My Dear Students, introduced in these papers. Further, under the New Scheme of
Education and Training, the assessment of all six elective papers
I
t is with great pleasure that I extend my heartiest wishes to at the Final level is open book and case study based. With a view
you all for a healthy, prosperous and wonderful new year to augment the preparation and practice of the students on the
2021. I am pretty hopeful that the hard lessons learnt from same, a new publication containing the independent MCQs, case
the pandemic during the past year will be succeeded by unfolding scenario based MCQs and case-study based questions is being
of innumerable opportunities, hopes, aspirations, vigour and prepared and will be available shortly.
vitality by the dawn of this New Year. Each year end marks the While theoretical knowledge provides necessary foundation,
beginning of new aspirations, dreams and ambitions. New Year is practical training helps aspiring CAs to apply the concepts learnt
the most appropriate time for all of us to take pledge that we will in theoretical education in practical scenarios on real-time basis,
serve our society with utmost sincerity, honesty, transparency thus honing their analytical and application skills as well as their
and thereby contribute to the overall development of the nation. oral and written skills. Therefore, my advice to you to sincerely
“Begin to be now what you will be hereafter”. William James. undertake your three-year mandatory practical training which
is the USP of the Chartered Accountancy course. It would be
I believe that those of you who have appeared in the November
appropriate to say that Practical Training is the bedrock on which
2020 CA examinations must be eagerly waiting for the results. My
ICAI’s distinction as an esteemed professional institution has
best wishes are with you and I hope that you will be able to achieve
been strongly built. Completion of practical training is critical for
success with flying colours. November 2020 examinations have
ensuring achievement of professional competence expected from
been one of the most challenging examinations in the history of
a chartered accountant, which ultimately enhances the credibility
the ICAI. Organising the Chartered Accountancy examinations
of the profession and protects public interest. Effective and
in physical mode at more than 1085 examination centres at global
sincere practical training would certainly lay the firm base for the
level in the midst of the pandemic and at the same time ensuring
ongoing development of professional competence throughout
the safety of the candidates, had been a foremost challenge. The
the career of a chartered accountant.
ICAI undertook adequate measures for the safety of candidates
without compromising the high standards, sanctity and fairness Keeping in mind the importance of practical training in
in the conduct of the examination. I must also compliment the developing professionally competent chartered accountants, a
fighting spirit of the candidates who, undeterred by the challenges two-level practical training assessment was introduced in the year
posed due to pandemic, appeared for the examinations. 2018 to assess the professional knowledge and intellectual skills
acquired by an aspiring CA in the course of practical training.
Those students who opted to appear for November 2020
Forthcoming Practical Training Assessment is scheduled to be
Cycle II examination commencing from January 21st, 2021 need
organised in this month on two consecutive weekends - 9th - 10th
to gear up and prepare. Chartered Accountancy course requires
and 16th - 17th of January, 2021.
a lot of perseverance and hard work. Perseverance makes all the
difference between success and failure as the future belongs to Before I conclude, I also express my best wishes on the 72nd
those who pursue their tasks unmindful of problems encountered. Republic Day of our beloved motherland – a day to remember
with gratitude, the enormous efforts and sacrifices of millions of
The Chartered Accountancy examination calls for a holistic
freedom fighters whose blood and sweat gave us Independence
professional approach. It is my earnest desire that the students
and created our Republic. Above all, this is a day to cherish
pass in their first available attempts and join the realms of
our republican values. I hope and sincerely cherish that in our
the profession at an early date. However, keep in mind that
country peace and prosperity prevail forever.
successful Chartered Accountants of future will be those who
see the qualification as the beginning point and not the end for Wishing you all the best in all your future endeavours!!
their professional education and development. In the dynamic
professional environment, you should continue to learn and Yours sincerely
update your skills.
Students’ interest has always been the topmost priority of the
Institute and for this, ICAI takes various initiatives to facilitate
their learning. The updation of Study Material is a constant
process. This entails meticulous quality review of the syllabus and
contents by ICAI. As conveyed in my previous communication,
I take pleasure to inform you that the rationalised and revised CA. ATUL K. GUPTA
editions of the Study Materials for all the papers at all the three PRESIDENT, ICAI, NEW DELHI
The Chartered Accountant Student January 2021 03

"You may have a fresh start any moment you choose, for this thing that we call ‘failure’ is not the
falling down, but the staying down." - Mary Pickford
VICE PRESIDENT’S COMMUNICATION
Dear Students,
T
he past year, with all its tribulations, has come to an your application and analytical skills and acquire and develop
end but has taught us an important lesson that we need the requisite professional competence expected at the point of
to take all odds in our stride and should strive to come qualification.
out as a winner. We pray to the Almighty for a better year ahead
The Board of Studies conducts MCQ-based assessment of CA
filled with happiness and prosperity. I, on behalf of the Institute
students after completion of first and second year of practical
of Chartered Accountants of India (ICAI), feel really delighted
training. In this series, the next test is being conducted in the
to convey my best wishes to all of you for a very prosperous and
month of January, 2021. This test is home-based and students
happy New Year 2021. Hope this New Year brings with it new
can appear in the test from the convenience of their homes. In
hopes and opportunities to explore new areas of professional
order to appear in the test, students are required to meet the
and personal success. Let’s make a resolve and regard New
basic system requirements at their place so that they can take
Year as a fresh opportunity for the betterment and to set higher
the examination in a hassle-free manner. These requirements
benchmarks as students of the Accountancy Profession. I also
are mentioned on the registration portal. All the students who
extend my warm greetings on the occasion of 72nd Republic
have appeared in the Final examination in November, 2020 or
Day of our nation. We salute our freedom fighters who sacrificed
are appearing in the Cycle-II Final examinations are advised to
their invaluable lives to redeem our country from the bondage of
complete their practical training assessment at the earliest.
foreign rule.
For the overall development of the CA students, virtual-cum-
I am sure that the students who have appeared in November 2020
physical two-days International Conference for the CA students
CA Examinations must be eagerly waiting for the declaration of
has been organized at Ahmedabad, Gujarat on 16th and 17th
the results. My best wishes are with you and I hope that you will
January, 2021. The theme for the conference is “Aptitude,
be able to achieve success with flying colors. Students who have
Attitude, Altitude”. Students from various International Bodies
opted out from November 2020 Examinations and opted for
are invited to participate virtually in the said International
November 2020 Cycle – II scheduled from 21st January 2021 to
Conference as it would help to learn and appreciate the impact
7th February 2021, due to any contingency, must stay focused
of innovations across the borders. This platform shall offer an
and give their best. I again extend my best wishes to all of you.
excellent opportunity for Chartered Accountancy students from
I am sure that you would improve your performance with your
different parts of India to share their knowledge and experiences.
persistent efforts and do exceedingly well to prove your mettle.
It is a step towards holistic education. It is my earnest desire that
The Board of Studies continuously strives to provide quality a large number of students join and participate in this grand
inputs to enhance student learning. In this direction, BoS would event. We, at the Institute are sincerely committed to work for
be coming out with a 100-page MCQ booklet in select papers the betterment of students.
of Intermediate and Final course, wherein assessment is partially
Stay safe, stay healthy.
MCQ based i.e., for 30 marks. This booklet would comprise a
mix of case scenario based MCQs, independent application- Yours sincerely
oriented MCQs and knowledge-based MCQs in each of the
select subjects. You are expected to solve these MCQs on your
own after reading the concepts and provisions discussed in
the Study Material, and thereafter, compare your answers with
the given answers. While attempting to solve these questions,
you should proceed in a systematic manner by first reading the
scenario/facts as well as the options given carefully; thereafter,
identifying the relevant provision(s)/concept(s) to be applied to
the facts of the case and finally, applying the same correctly to
choose the correct option to the question. The process of critical CA. NIHAR N JAMBUSARIA
thinking involved in solving MCQs will help you further hone VICE PRESIDENT, ICAI
"Small deeds done are better than great deeds planned." - Peter Marshall
CHAIRMAN’S COMMUNICATION
time table to fit in theory and practical subjects intermittently since
reading too much theory at a stretch may become monotonous.
Step III: Ideal study pattern
Ideally, when you take up any topic for study, you must first go
through the relevant chapter of the study material for building a
strong conceptual base. After reading each chapter in the study
material, try to work out the illustrations and exercise questions
given therein, and thereafter compare your answers with the
answers given therein. This would help you to identify your
mistakes and also learn from your mistakes. Further, this process
would help in revision of the concepts and principles contained
in each chapter of the study material and application of the same
while solving practical problems.
Step IV: Learn, revise, revise again
The first round of study should be concluded at least 3 months
before the examination; the initial round/s of revision should be
My Dear Students, done in the penultimate two months prior to the examination
W
and the final revision in the last month before the examination.
ishing you all a very happy and prosperous New Solving the questions and problems in the Revision Test Papers
Year! The New Year is a beginning with new and Mock Test Paper on your own would help you to self-assess
promises, new resolutions, and new aspirations. I the effectiveness of your study and revision.
believe we all make new resolutions, knowing that In this manner, you would be able to complete revision of
some may be achieved, and some may be left, midway but still the entire syllabus. Such effective planning would help you to
we continue with our persistent efforts. This shows our power approach the question paper with a positive attitude and this
of positivity and zeal to do new things and determination to would ultimately be reflected in your results. Do remember that
accomplish them. Please maintain the same zeal and zest for your implementation of your study plan is equally important – the
CA Course as well. plan should not be on paper alone. Do make sure you adhere to
Students appeared in November, 2020 examination - the timetable and avoid significant deviation, except, of course,
November 2020 examinations are over, I am sure many of you in case of exigency. Rest assured, if you put in your best efforts,
have performed satisfactorily. We hope that you succeed with success will surely follow.
flying colours. BoS Endeavours
Students appearing in November 2020 Cycle II examination
commencing from 21st January, 2021 - To students who have The Board of Studies, having direct interface with the students,
opted out of November, 2020 examinations, our best wishes has always been striving to add value to all its publications for
for upcoming exams in January, 2021. You should resist all the benefit of the students at large. This year, a comprehensive
distractions and give your 100%. exercise for quality enhancement of Study Materials has been
Students appearing in May, 2021 examination onwards undertaken in all subjects across the three levels, by adding more
- Effective planning is undoubtedly the key to success in examples/illustrations/questions for conceptual understanding
examinations. including pictorials, flow charts, and tables making the study
Your study plan may ideally be on the following lines material more students friendly.
These value added Study Materials relevant for May, 2021
Step I : Make a comprehensive study time examination and onwards, are intended to make students’
table learning both effective and enjoyable. Hope you all are availing
Making a detailed study time table well in advance would facilitate the benefits of the added features while preparing for May, 2021
in organising your study in an effective manner. The time table Examinations.
should be prepared keeping in mind the number of months It is to be clarified that the curriculum at all levels remains
remaining before the examination and the effective number the same. The new study materials, relevant from May, 2021
of hours available in a day for study. The last month should be examination, are available on ICAI’s BoS Knowledge Portal in
earmarked for final revision. The effective number of hours downloadable PDF form and also available at CDS Portal. These
available for study on a working day can range from, 2 to 4 hours will also be available in the form of e-books in due course of time
and on weekends from 10 to 12 hours. In this manner, you can so that students can make notes, annotations etc.
arrive at the total number of hours available for study before the Do also take the maximum advantage of the Free Virtual Coaching
examination. This would encompass the time for initial round & Classes which are conducted by the BOS for your benefit. While
rounds of revision as well. Final level classes targeting May 2021 are already going on, classes
for Intermediate and Foundation will commence in January/
Step II: Allocate time for each subject and February 2021. Please visit BoS knowledge portal for detailed
each topic within the subject announcement in this regard.
The next step is to apportion the time between the different Please remember the following Quote by Swami Vivekananda
subjects. It would, no doubt, involve estimation of time to be “Arise, Awake, stop not till the goal is reached”.
allocated for each subject and also for each topic/chapter of I hope the New Year brings an end to all the concerns related
the subject. The scope of syllabus and the contents of the study to the Pandemic and ushers in peace, happiness and success.
material would help you to broadly assess the time which each
subject and each topic within the subject would consume. The Stay safe, stay healthy.
section-wise weightages for each subject have been webhosted at
the BoS Knowledge Portal. This would also give you an idea of the
number of hours to be allocated for each section.
Of course, you have to keep some percentage margin over and
above the time assessed by you to take care of possible difficulty
in understanding or interpreting concepts, particularly relating to
accounting standards, Ind AS and tax laws. Try to organise your
CA. (DR.) DEBASHIS MITRA
CHAIRMAN, BOARD OF STUDIES (ACADEMIC), ICAI
"Never underestimate your problem or your ability to deal with it." - Robert H. Schuller
ADVANCED AUDITING AND PROFESSIONAL ETHICS
CA FINAL - PAPER 3 - ADVANCED AUDITING AND PROFESSIONAL ETHICS
It has always been the endeavour of Board of Studies to provide quality academic inputs to the students of Chartered Accountancy
Course. Keeping in mind this objective, BoS has decided to come out with a crisp & concise Capsule of each subject to facilitate
students in quick revision before examination.
This series of capsules is on Paper 3: Advanced Auditing & Professional Ethics of Final Course. In this capsule we are covering
Engagement and Quality Control Standards i.e. SA 300, 500 and 600 series (refer March 2019 edition for SA 540 and SA 600). It
may be mentioned that this capsule is a tool for quick revision of some significant areas of Auditing subject, but this should not
be taken as a substitute for the detailed study of the subject. Students are advised to refer to the relevant Study Material, Auditing
Pronouncements and RTP for comprehensive study & revision.
SA 300 - 499: Risk Assessment and Response to Assessed Risks
SA 300
" Planning an Audit of

Financial Statements"
Scope of Objective of Involvement of Preliminary Other Important

Planning
the SA the Auditor Key Engagement Engagement points to be
Activities
Team Members Activities considered
This SA deals The engagement The auditor shall undertake Documentation:

with the auditor’s partner & other the following activities at the The auditor shall
responsibility to key members of the beginning of the current audit document:
plan an audit engagement team engagement: 1. The overall audit
of financial shall be involved in 1. Performing procedures strategy.
statements. This planning the audit, required by SA 220. 2. The audit plan and
SA is framed in including planning 2. Evaluating compliance 3. Any significant changes
& participating made to the strategy
the context of with ethical requirements,
or the audit plan along
recurring audits. in the discussion including independence, as with the reasons.
among engagement required by SA 220.
team members. 3. Establishing an understanding
of the terms of engagement, as
required by SA 210. Additional
Considerations in Initial
Audit Engagements:
The objective of the Prior to starting an audit,
auditor is to plan the 1. The auditor shall establish an overall audit strategy that sets the auditor shall:
audit so that it will the scope, timing and direction of the audit and that guides the 1. Perform procedures
be performed in an development of the audit plan. required by SA
2. In establishing the overall audit strategy, the auditor shall: 220 regarding the
effective manner. acceptance of the
a) Identify characteristics of the engagement that defines its
client relationship
scope.
and the specific audit
b) Ascertain the reporting objectives. engagement.
c) Conisder the factors significant in directing engagement team's 2. Communicate with the
efforts. predecessor auditor.
d) Consider the results of preliminary engagement activities.
e) Ascertain the resources necessary to perform the engagement.
3. The auditor shall develop an audit plan including description of:
a) The planned risk assessment procedures, as per SA 315.
b) The planned further audit procedures at the assertion level as
per SA 330.
c) Other planned audit procedures.
4. The auditor shall update/ change overall audit startegy or plan as
necessary.
5. The auditor shall direct & supervise the engagement team and
review their work.

SA 315
" Identifying and Assessing the Risk of

Material Misstatement through understanding
the Entity and its Environment"
Scope of Objective of Risk Assessment Understanding Identifying & Other important

the SA the Auditor procedures and the Entity and its Assessing the points to be
related activities Environment including ROMM considered
Internal Control
This SA deals A) Risk Assessment Significant Risks:

with the auditor’s Procedures include the The auditor shall obtain an
Entity & its Environment: understanding of the entity's
responsibility following: The auditor shall obtain an
1. Inquiries of management control and control activities
to identify and understanding of: relevant to the significant risk.
assess the risks and of others within the
entity.
a) Relevant industry, regulatory
of material & other external factors.
2. Analytical procedures.
misstatement 3. Observation and b) The nature of the entity.
(ROMM) in c) The accounting policies Risks for which Substantive
Inspection.
the financial including reasons for changes. Procedures alone do
statements, not provide sufficient
d) Entity's Objectives & appropriate audit evidence:
t h r o u g h Strategies. In such case the auditor shall
understanding B) The auditor shall e) Measurement & review of obtain an understanding of
the entity and consider whether the entity's financial performance. entity's controls over such
its environment, information obtained from risks.
including the auditor's client acceptance
entity's internal or continuance process or
control. Entity's Internal Control: The
information from other
auditor shall evaluate the design Revision of Risk Assessment:
engagement or previous
of the controls to determine The auditor's assessment of
audits is relevant in
whether they have been ROMM at the assertion level
identifying the ROMM. may change during the course
implemented.
of audit as additional audit
The auditor shall obtain evidence is obtained. In such
understanding of : case, the auditor shall revise
C) The audit team to 1. the control environment. and the assessment and modify
discuss the susceptibility entity's risk assessment process. the further planned audit
of the entity's financial 2. the information system and procedures accordingly.
statements to material entiy's communication process.
misstatement and the 3. the control activities relevant to
the audit and the major activities
application of the
used by entity to monitor internal Documentation:
applicable FRF to control over financial reporting. Auditor shall document:
the entity's facts and 4. the internal audit function and 1. The discussion among the
circumstances. sources of information used in engagement team.
entity's monitoring activities. 2. Key elements of the
understanding obtained.
To identify and assess 3. Identified & Assessed
the ROMM, whether due ROMM.
to fraud or error at the 4. The risks identified and the
financial statement and related controls.
assertion levels, through The auditor shall identify and assess ROMM at:
understanding the entity & • financial statement level &
its environment, including • assertion level for classes of transactions and account balances.
the entity's internal control,
The auditor shall:
therby providing a basis for 1. Identify risks throughout the process of obtaining understanding of
designing and implementing the entity.
the responses to the assessed 2. Assess the identified risk and evaluate whether they have pervasive
ROMM. effect.
3. Relate the identified assertions to what can go wrong at the
assertion level.
4. Consider the likelihood of the misstatement and its magnitude.

SA 320
"Materiality in Planning and Performing an Audit"
Scope of the SA Determining Materiality & Use of Benchmarks Other important

& Objective of Performance Materiality points
the Auditor
Scope 1. Determining materiality

1. The auditor shall determine the materiality for the
This SA deals involves exercise of
financial statements as a whole.
with the auditor's professional judgement.
responsibility to
apply the concept
of materiality
in planning & 2. If there is one or more particular classes of 2. A percentage is often applied
performing an transactions, account balances or disclosures for to a chosen benchmark as a
audit of financial which misstatements of lesser amounts than the starting point in determining
statements. materiality for the financial statements as a whole materiality for the financial
could reasonably be expected to influence the statements as a whole.
economic decisions of users taken on the basis of the
financial statements, the auditor shall also determine
Objective the materiality level or levels to be applied to those
particular classes of transactions, account balances 3. Examples of benchmarks:
To apply the a) Profit before tax
concept of or disclosures.
b) total revenue
materiality c) gross profit
appropriately d) total expenses etc.
in planning and
performing an 3. The auditor shall determine performance materiality
audit. for purposes of assessing the ROMM and
dertermining the nature, timimg & extent of further
audit procedures.
Revision as the Audit progresses:

1. Materiality for the financial statements as a whole
may need to be revised as a result of a change in
circumstances that occurred during the audit, new
information, or a change in the auditor’s understanding
of the entity and its operations as a result of performing
further audit procedures.
Definition
2. If the auditor concludes that a lower materiality for
Performance materiality means the the financial statements as a whole than that initially
amount or amounts set by the auditor determined is appropriate, the auditor shall determine
at less than materailty for the financial whether it is necessary to revise performance
statements as a whole to reduce to an materiality, and whether the nature, timing and extent
appropriately low level the probability of the further audit procedures remain appropriate.
that the aggregate of uncorrected and
undetected misstatements exceeds
materiality for the financial statements
as a whole. Documentation of:
1. Materiality for the financial statements as a whole.
2. The materiality level or levels for particular classes of
transactions, account balances or disclosures.
3. Performance materiality.
4. Any revision as the audit progressed.

SA 330
"The Auditor's Responses to Assessed Risks"
Scope of the SA Requirements Test of Substantive Other important

& Objective of of SA controls procedures points
the Auditor
Scope Overall Responses: The A) The auditor shall design 1. Irrespective of the assessed
This SA deals auditor shall design & & perform test of controls ROMM, auditor shall
with the auditor’s implement overall responses when: perform substantive
responsibility to address the assessed 1. the auditor expects that procedures.
to design and ROMM at the financial the controls are operating 2. Auditor shall consider
implement statement level. effectively or whether external
responses to 2. Substantive procedures confirmation are to be
ROMM identified alone cannot provide performed as Substantive
& assessed by sufficient appropriate audit audit procedures.
the auditor in Audit Procedures for evidence at the assertion 3. Auditor shall perform
accordance Assessed ROMM at level. substantive procedures
with SA 315 Assertion Level: related to financial
B) The auditor shall perform
in a financial The auditor shall design statement closing process
other audit procedures along
statement audit. & perform further audit and those responsive to
with inquiry & determine
procedures whose nature, significant risks.
whether the controls to be
timing & extent are based 4. When substantive
tested depend upon indirect
on & are responsive to the procedures are performed
controls.
Objective assessed ROMM at the at an interim date, the
assertion level. C) The auditor shall test auditor shall cover the
To obtain
controls for a particular time remianing period also.
sufficient &
or throughout the period. 5. If misstatements that the
appropriate audit
evidence about D) The auditor may use audit auditor did not expect
In designing Further Audit
the assessed evidence obtained in previous when assessing ROMM
Procedures, the auditor
ROMM, through audits after considering are detected at an interim
shall:
designing & continuing relevance. date, the auditor shall
a) Consider the reasons
implementing for the assessment given E) The auditor shall test the evaluate whether the
appropriate to the ROMM at the controls for significant risk in related assessment of risk
responses to assertion level for each current period. & planned substantive
those risks. class of transactions, procedures covering the
F) When deviations from
account balance and remaining period need to be
controls are detected, the
disclosure. modified.
auditor shall make specific
b) Obtain more persuasive inquires to understand these
audit evidence because matters & their potential
of a higher assessment of consequences.
risk.
Definition
Substantive Procedure: 1. The auditor shall perform audit procedures to evaluate
An audit procedure designed to detect material the adequacy of presentation & disclosures made in the
misstatements at the assertion level. It comprises of: financial statements.
1. Test of details (of classes of transactions, account 2. The auditor shall evaluate the sufficiency &
balances, & disclosures), & appropriateness of audit evidence.
2. Substantive analytical procedures. 3. The auditor shall document:
a) the overall responses and the nature , timing, extent
of further audit procedures performed.
Test of Controls:
b) the linkage of those procedures with assessed risks
An audit procedure designed to evaluate operating at the assertion level.
effectiveness of controls in preventing, or detecting and c) the results of audit procedures.
correcting, material misstatements at the assertion level.

SA 402
"Audit Considerations Relating to an Entity Using a Service Organisation"
Scope of Objective of the Types of Reports & their Requirements Reporting by the
the SA Auditor use by user auditor of the SA user auditor
This SA deals The objective of the user A) Type 1 Report The auditor shall obtain
with the auditor’s auditor, when the user entity Report on the description & an understandng of the
responsibility to uses the services of service design of controls at a service services provided by a
obtain sufficient organisation are: organisation. service organisation,
appropriate audit including internal control
evidence when a B) Type 2 Report that relate to the services
user entity uses Report on the description, provided by the service
the services of one To obtain an understanding design & operating orgainsation.
or more service of the nature & significance effectiveness of controls at a
organisations. of the service provided by the service organisation.
service organisation & their C) In determining the
effect on the user entity's sufficiency & appropriateness If the auditor is unable
internal control, sufficient of audit evidence provided by to obatin sufficient
to identify & assess the Type 1 & Type 2 report, the understanding from the user
ROMM. user auditor shall be satisfied entity, the user auditor shall
as to: obtain that understanding
(i) The service auditor's by:
professional competence. a) Obtaining Type1 or
To design & perform audit (ii) The adequacy of standards Type 2 report.
procedures responsive to under which the Type 1 or b) Contacting service
those risks. Type 2 report was issued. organisation through
D) When the user auditor user entity.
plans to use Type 2 report c) Visiting the service
as audit evidence, the user organisation &
auditor shall determine performing procedures.
whether the service auditor's d) Using another auditor to
report provides sufficient & perform the procedures.
appropriate audit evidence
about the effectiveness of the
Definition controls to support theuser
auditor's risk assessment.
Service auditor: An auditor who, at
the request of the service organisation,
provides an assurance report on the
controls of a service organisation.
Service Organisation: A third party
1. If the user auditor is unable to obtain sufficient
organisation that provides services
appropriate audit evidence regarding the services
to user entities that are part of those
provided by the service organisation, the user auditor
entities' information system relevant
shall modify his audit opinion.
to financial reporting.
2. The user auditor shall not refer to the work of the
User Auditor: An auditor who audits service auditor in the user's auditor report containing
& reports on the financial statements unmodified opinion.
of a user entity. 3. If user auditor makes reference of the work of the
User Entity: An entity that uses service auditor in user auditor's report with modified
a service organisation and whose opinion, the user's auditor report shall also indicate
financial statements are being that such reference does not diminish the user auditor's
audited. responsibility for that opinion.

SA 450
"Evaluation of Misstatements Identified during the Audit"
Scope of Objective of the Requirements Evaluating the effect of Other important

the SA Auditor of the SA Uncorrected misstatements points to be
considered
This SA deals The objective of the Auditor 1. The auditor shall accumulate The auditor shall first
with the auditor’s is to evaluate: misstatements identified during reassess the materiality
responsibility audit other than those clearly determined in accordance
to evaluate the trivial. with SA 320.
effect of identified 2. The auditor shall determine
misstatements whether the overall audit
on the audit and 1. The effect of identified strategy or audit plan need to
of uncorrected The auditor shall
misstatements on audit be revised.
misstatement s , determine whether
and 3.
If at auditor's request,
if any, on u n c o r r e c t e d
the financial management has examined misstatements are
statements. or corrected any misstatement material, individually or in
that was detected, the auditor aggregate by considering:
2. The effect of uncorrected shall perform additional
misstatement, if any, on a) The size & nature of
audit procedure to determine misstatements.
the financial statements. whether misstatement remains.
b)
The effect of
4. The auditor shall communicate u n c o r r e c t e d
all accumulated misstatements misstatements of prior
on timely basis at appropriate periods.
level of management with a
request to correct them.
5.
If management refuses to
correct them, auditor shall
consider managment's
reasons for refusal and shall
evaluate whether the financial
statements as a whole are free
from material misstatement.
Definition
Misstatement: A difference
Communication with TCWG:
between the amounts,
The auditor shall communicate with TCWG
classification, presentation or
a) uncorrected misstatements & their effects and request that
disclosure of a reported financial
uncorrected misstatements be corrected.
statement item and the amount,
b) the effect of uncorrected misstatements related to prior periods.
classification, presentation or
disclosure that is required for the
item to be in accordance with the
applicable FRF. Written Representation:
The auditor shall request a written representation from managment/
Misstatements can arise from
TCWG whether they believe the effects of uncorrected misstatements
error or fraud.
are immaterial, individually or in aggregate, to the financial statements
as a whole.
Uncorrected Misstatements:
Misstatements that the auditor has
accumulated during the audit and
Documentation:
that have not been corrected.
1. The amount below which misstatements would be regarded as
clearly trivial.
2. All misstatements accumulated during the audit & whether they
have been corrected.
3. The auditor's conclusion as to whether the uncorrected
misstatements are material and the basis of that conclusion.

SA 500 - 599: Audit Evidence
SA 500 - "Audit Evidence"
Scope of Objective of Information to be used Audit procedures to Inconsistency in or

the SA the auditor as audit evidence obtain audit evidence doubts over reliability
of audit evidence
This SA deals with the To design and The auditor shall consider the relevance Audit evidence to
auditor's responsibility perform audit and reliability of the information to be draw reasonable The auditor shall
to design and perform procedures in used as audit evidence. conclusions on determine what
audit procedures to obtain such a way as to which to base the modifications
sufficient and appropriate enable the auditor When information from management auditor's opinion or additions to
audit evidence to be to obtain sufficient expert is used, the auditor shall is obtained by audit procedures
able to draw reasonable appropriate audit evaluate the competence, objectivity performing: are necessary
conclusions on which to evidence to be able of the expert, appropriateness of the 1. R i s k to resolve the
expert's work. Assessment matter and
base the auditor's opinion. to draw reasonable
conclusions on procedures shall consider
This SA is applicable to When using information produced by
which to base 2. Further audit the effect of the
all the audit evidence the entity, the auditor shall evaluate
auditor's opinion. procedures matter, if any, on
obtained during the the reliability, completeness, accuracy
comprising of : other aspects of
course of audit. of the information.
Test of the audit.
controls and
Definition Substantive
procedures
Audit Evidence: Information used by the auditor in arriving at the conclusions on which
the auditor's opinion is based. It includes both information contained in the accounting
records underlying the financial statements and other information.
Appropriateness: It is the measure of quality of audit evidence.
Sufficieny: It is the measure of quantity of audit evidence.
SA 501 - "Audit Evidence- Specific Considerations for Selected Items"
Scope of Objective of Inventory Litigations & Segment

the SA the auditor Claims Information
This SA deals with specific a) If inventory is material, obtain evidence a)

Auditor to perform audit Auditor to obtain
considerations by the for existence and condition of inventory procedures to identify audit evidence
auditor in obtaining by: litigation and claims by: reg ard i ng
sufficient appropriate audit 1. Attendance at physical inventory 1. Inquiry of management. presentation
evidence with respect counting. 2. Reviewing minutes of and disclosure
to inventory, litigation 2. Performing audit procedures over the meetings. of segment
and claims and segment entity's final inventory records. information in
3. Reviewing legal expense
information in an audit of b) If inventory counting conducted at date accordance with
accounts.
other than the date of financial statements, applicable FRF
financial statements.
perform additional procedures with b) If auditor assesses risk of
by:
respect to inventory between count date material misstatement, seek
and date of financial statements. direct communication with 1. Understanding
c) If auditor is unable to attend the physical entity's external legal counsel. the methods
To obtain sufficient and
inventory counting due to unforeseen used by the
appropriate audit evidence c)
If auditor is unable to
circumstances, auditor to make/ observe management
regarding: communicate with the
some physical count on alternate date and in determining
1. Existence and condition external legal counsel, modify s e g m e n t
perform audit procedures on intervening
of inventory transactions. the opinion as per SA 705. information
2. Completness of litigation d) If attendance at inventory count is d) Obtain Written 2. P e r f o r m i n g
and claims involving the impracticable, auditor to perform Representation that all analytical
entity. alternate procedures. If it is not possible known actual or possible procedures.
3. Presentation and to do so, modify the opinion. litigation and claims have
disclosure of segment e) When inventory is under custody of third been disclosed to the auditor
information in accordance party, request confirmation from third and appropriately accounted
with applicable FRF. party and perform inspection and other for as per applicable FRF.
procedures.

SA 505 - "External Confirmations" Refer page 17 for definition
Management's refusal to Results of the External

Scope of the SA External Confirmation procedures
allow the auditor to send
& Objective of Confirmation
a confirmation request
the auditor Procedures
A) Reliability of responses to confirmation requests:
If auditor has doubt about reliability of response,
Scope 1. D e t e r m i n i n g 1. Inquire as to management’s
auditor to obtain further audit evidence. If auditor
This SA deals the information reasons for the refusal, and determines response is not reliable, auditor to evaluate
with auditor's to be seek audit evidence as to their the implications on the assessment of risk of material
use of external confirmed/ validity and reasonableness misstatement.
confirmation requested. 2. Evaluate the implications B) Non Response: Auditor shall perform alternative
procedures to 2. Selecting the of management’s refusal on audit procedures.
obtain audit appropriate the auditor’s assessment of C) When a response to positive confirmation is
evidence. confirming the relevant risks of material necessary and the same is not received: Determine
party. misstatement, including the implications on the audit and the auditors opinion.
the risk of fraud, and on the D) Exception: Auditor shall investigate exceptions
3. Designing the
Objective nature, timing and extent of to determine whether or not they are indicative of
conf ir mation
To design other audit procedures; and misstatement.
requests.
and perform 3. Perform alternative audit E) Negative Confirmation: Auditor to use negative
4. Sending the
e x t e r n a l procedures designed to confirmation as sole substantive audit procedure when:
requests,
confirmation obtain relevant and reliable 1. Assessed Risk of Material misstatement is low and
including
procedures to audit evidence. relevant controls are effective.
follow-up
obtain relevant 2. The population comprise of large number of small,
requests. If management's refusal
and reliable homogeneous transactions.
audit evidence. is unreasonable, then
communicate with TCWG and 3. A very low exception rate is expected.
consider the implications on 4.The auditor is not aware of circumstances that would
audit and auditor's opinion. cause recipients of negative confirmation requests to
disregard such requests.
SA 510 - "Initial Audit Engagements- Opening Balances" Refer page 18 for definition
Scope of the SA Audit Procedures Audit Conclusion

This SA deals with and reporting
auditor's responsibilities
relating to opening
balances when Opening Balances: Consistency Relevant Opening Balances:
conducting an initial The auditor shall: of Accounting Information
1. If auditor is unable to obtain
audit engagement. 1. Read the most recent Policies: in the
audit evidence regarding opening
financial statements Obtain audit Predecessor's
balances- Qualified/ disclaimer of
and predecessor's evidence as to Auditor's
Objective of the opinion.
auditor's report. whether the Report :
auditor 2.If auditor concludes opening
2. Determine whether accounting I f
To obtain sufficient balances contain misstatement,
prior period's policies are modification
appropriate audit not properly presented/ disclosed-
evidence about: closing balance consistently in predecessor
Qualified/ Adverse Opinion.
has been correctly applied and auditor's
1. Whether opening
brought forward. in case of r e p o r t ,
balances contain Consistency of Accounting
misstatements 3. Determine whether any changes, evaluate the
the opening balances w h e t h e r effect of the Policies:
that materially
affect the current reflect appropriate p r o p e r l y matter giving If auditor concludes that accounting
period's financial accounting policies. accounted for, rise to such policies are not consistently applied
statements. 4. Perform audit presented and modification in relation to opening balances or
2. W h e t h e r procedures on disclosed. with respect changes are not properly accounted
appropriate opening balances. to current for- Qualified/ Adverse Opinion.
accounting 5. If current period period's
policies are financial statements financial Modification to the opinion in the
consistently are misstated due statements. predecessor's auditor's report:
applied and any to misstatement in
opening balances, If the modification is relevant and
change thereto
communicate with material to the current period's
has been properly
management or financial statements, auditor shall
accounted for,
presented and TCWG. modify the current period audit
disclosed. report.

SA 520
"Analytical Procedures"
Scope of the SA & Substantive Analytical procedures that Investigating results of

Objective of the auditor Analytical Procedures assist when forming an analytical procedures
overall conclusion
Scope While designing and If auditor finds fluctuations
This SA deals with auditor's use of performing substantive The auditor shall design or relationship that are
analytical procedures as substantive analytical procedures, and perform analytical inconsistent with other
procedures and as procedures near the auditor shall: procedures near the end relevant information
the end of audit that assist the auditor 1. Determine suitability of of the audit that assist the auditor shall investigate
when forming an overall conclusion analytical procedure for auditor when forming such differences by:
on the financial statements. given assertions. an overall conclusion as 1. Inquiring of management
2. Evaluate reliability of to whether the financial and obtaining appropriate
Data. statements are consistent audit evidence relevant to
Objective with the auditor's management's responses
3. Develop an expectation
1. To obtain relevant & reliable audit of recorded amounts. understanding of the entity. and
evidence when using substantive 2. Performing other audit
4. Determine the amount
analytical procedures. procedures as necessary
of acceptable difference.
2. To design and perform analytical in the circumstances.
procedures near the end of audit.
Definition
Analytical Procedures means evaluations of financial information through
analysis of plausible relationships among both financial and non-financial data.
Analytical procedures also encompass such investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other relevant
information or that differ from expected values by a significant amount.
SA 530
"Audit Sampling"
Scope of the SA & Sample design, size and Performing Other points of
Objective of the auditor selection of items for testing Audit Procedures consideration
Scope 1. While designing audit 1. The auditor shall perform 1. The auditor shall investigate
This SA applies when the sample, the auditor shall appropriate audit the nature and cause of
auditor has decided to use consider the purpose of procedure on each item deviation or misstatement
audit sampling in performing the audit procedure and selected. identified and evaluate its
audit procedures. It deals the characteristics of the 2. If audit procedure is not possible effect.
with auditor's use of statistical population. applicable on the selelcted 2. When a deviation/
and non statistical sampling. 2. The auditor shall determine item, apply the procedure misstatement is considered
sample size sufficient to on a replacement item. as anomaly, the auditor shall
reduce sampling risk to an 3. If the auditor is unable to perform audit procedures to
Objective acceptably low level. apply the designed audit obtain high degree of certainty
To provide a reasonable 3. The auditor shall select procedure to a selected that it is not representative of
basis for the auditor to items for the sample such item, treat that item as the population.
draw conclusions about the that each sampling unit in a deviation from the 3. For test of details, the auditor
population from which the the population has a chance prescribed control, in case shall project misstatements
sample is selected. of selection. of tests of controls, or a found in the sample to the
misstatement, in the case population.
of tests of details. 4. The auditor shall evaluate
Definition the results of the sample
Audit Sampling: and whether the use
of audit sampling has
The application of audit procedures to less than 100% of provided a reasonable basis
items within a population of audit relevance such that all for conclusion about the
the sampling units have a chance of selection in order to population tested.
provide the auditor with a reasonable basis on which to
draw conclusions about the entire population.

SA 550
"Related Parties"
Scope of Objectives of Requirements Identification of Identified significant Other

the SA the auditor of the SA previously unidentified related party transactions important
or undisclosed related outside the entity's normal points
part transactions. course of business
This SA deals with the auditor's
responsibilities regarding
related party relationships and
transactions. It expands on how
SA 315, SA 330, SA 240 are to be 1. Auditor shall determine The auditor shall obtain Written
applied in relation to related party whether the underlying Representation that:
relationships and transactions. circumstances confirm the a) all the related parties and related party
existence of such transactions. transactions have been disclosed to
2. Communicate within the the auditor and
team. b) all such transactions have been
A. To obtain an understanding of the
related party transactions to: 3. Request managment to properly accounted for and disclosed.
identify all transactions with
1. recognize fraud risk factors arising from
such transactions. newly identified related Communication with TCWG
parties. The auditor shall communicate with
2. conclude whether financial statements, in so
4. Perform more substantive TCWG significant matters arising
far as they are affected by such transactions
procedures. during the audit in connection with the
a) achieve a true and fair presentation. entity's related parties.
5. Reconsider risks with respect
b) are not misleading.
to other related parties.
Documentation:
6. If non disclosure by the
B. To obtain audit evidence as to whether The auditor shall include in audit
management appears
the related party transactions are documentation names of the related
intentional, evaluate the
properly identified, accounted for, and parties and the nature of the related
implications for the audit.
disclosed in the financial statements. party transactions.
1. Risk Assessment procedures and related activities. 1. Inspect the underlying contracts and
2. Understanding the Entity's related party relationships and evaluate:
transactions. a) the business rationale of the transactions.
3. Maintaining alertness for related party information when b) whether the terms of transactions are
reviewing records or documents. consistent with managment's explanations.
4. Sharing related party information with the Engagement team. c) whether such transactions have been
5. Identification and assessment of the risk of material properly accounted for.
misstatement associated with related party transactions and 2. Obtain audit evidence that the transactions
relationships.
have been appropriately authorised and
6. Responses to the Risks of Material Misstatement associated approved.
with related party relationships and transactions.
Definition
Related party- A party that is either:
i) a related party as defined in applicable FRF.
ii) where applicable FRF establishes minimal or no related party requirements:
a) A person or other entity that has control or significant influence, directly or
indirectly through one or more intermediaries, over the reporting entity,
b) Another entity over which the reporting entity has control or significant
influence, directly or indirectly through one or more intermediaries; or
c) Another entity that is under common control with the reporting entity
through having:
• common controlling ownership,
• owners who are close family members, or
• common key management.

SA 560
"Subsequent Events"
Scope of Objectives of Events occuring Facts which become Facts that

the SA the auditor between the date known to the auditor after become known
of the Financial the date of the auditor's to the auditor
Statements and date report but before the date after the financial
of the auditor's report the financial statements statements have
are issued been issued
This SA deals Obtain sufficient appropriate 1.

The auditor shall 1. Discuss the matter with
with auditor's audit evidence about whether perform audit management or TCWG.
responsibilities events occuring between the procedures to ensure 2. Determine whether the financial
relating to date of the financial statements that all such events statements need amendment.
subsequent and the date of the auditor's have been identified. 3. Inquire how management intends
events in report that require adjustment
an audit of to address the matter in the
of, or disclosure in, the financial financial statements.
financial statements are appropriately
statements. reflected in those financial
statements. 2.
The auditor shall
consider the auditor's If manangement amends the
risk assessment in financial statements, auditor
determining the nature should extend the audit
and extent of such procedures and
Respond appropriately to the
procedures. 1. Either amend the audit report
facts that become known to
the auditor after the date of the to include an additional date
auditor's report, that, had they restricted to the amendment .
been known to the auditor at 2. Or provide a new/ amended
that date, may have caused the 3.
If such event is report including a statement in
auditor to amend the auditor's identified, determine EOM/ OM para.
report. whether such event is
appropriately reflected
in financial statements.
If managment doesn't amend the
financial statements :
1. If audit report not yet provided
to the managment, modify the
4. Obtain Written
Definition opinion.
Representation that all
such events have been 2. If audit report has already been
Subsequent Events: provided to the management,
adjusted or disclosed.
Events occuring between the date of notify TCWG not to issue it to
the financial statements and the date third parties. If still issued then
of the auditor's report, and facts that take appropriate action to prevent
become known to the auditor after the reliance on the auditor's report.
date of the auditor's report.
1. Discuss the matter with management or TCWG.

2. Determine whether the financial statements need amendment.
3. Inquire how management intends to address the matter in the
Review if management has taken steps to inform about the

situation to everyone in receipt of the previously issued
1. If steps taken, issue new / amended report with EOM/ OM
para.
2. If steps not taken, then take appropriate steps to prevent
reliance on the auditor's report.

SA 570
"Going Concern"
Scope of Responsibilities Responsibilities When conditions Implications Other Important

the SA of the of the auditor or events are on the auditor's Points to be
management identified report considered
This SA deals 1. To obtain sufficient and Use of Going The auditor shall
with the auditor's appropriate audit evidence Concern Basis communicate with
responsibilities and conclude on the of Accounting is TCWG, events
in the audit appropriateness of the inappropriate The or conditions
of financial management's use of going auditor shall express identified that may
statements concern. an adverse opinion. cast significant
relating to going 2. To assess whether a material doubt on the entity's
concern and the uncertainty exists about the ability to continue
implications on the entity's ability to continue as a as a going concern.
auditor's report. going concern. Use of Going Concern
3. However, auditor cannot be basis of accounting
expected to guarantee the is appropriate but a If there is delay
entity's ability to continue as a material uncertainty in the approval
going concern. exists and: of the financial
Adequate disclosure statements and the
1.
To make specific of material auditor believes that
assessment of the 1. Requesting managment to make its uncertanity is made such delay can be
entity's ability to asessment relating to entity's ability to in the financial related to events or
continue as a going continue as a going concern. s t a t e m e n t s - conditions relating
concern. 2. Evaluating management's plan of future Unmodified Opinion to going concern
actions. and a separate section assessment, the
3. Analysing the cash flow forecast of the "Material Uncertainty auditor shall
2. To make appropriate entity. related to going perform additional
disclosures in 4. Considering the additional facts or concern". procedures as well
connection with information available. as consider the
going concern in the 5. Requesting Written Representation from effect on auditor's
financial statements. management regarding the plans of future conclusion.
actions and the feasibility of these plans. Use of Going Concern
basis of accounting
is appropriate but a
material uncertainty
exists and:
Definition - SA 505 - "External Confirmations" Adequate disclosure
External Confirmation: Audit evidence obtained as a direct written of material
response to the auditor from a third party (the confirming party), in paper uncertanity is
form, or by electronic or other medium. not made in the
Positive confirmation request – A request that the confirming party financial statements-
respond directly to the auditor indicating whether the confirming party Qualified/ adverse
agrees or disagrees with the information in the request, or providing the opinion and mention
requested information. in the basis of opinion
paragraph.
Negative confirmation request – A request that the confirming party
respond directly to the auditor only if the confirming party disagrees with
the information provided in the request.
Non-response – A failure of the confirming party to respond, or fully
Management unwilling
respond, to a positive confirmation request, or a confirmation request
to make or extend its
returned undelivered.
assessment- Auditor
Exception – A response that indicates a difference between information shall consider the
requested to be confirmed, or contained in the entity’s records, and implications for the
information provided by the confirming party. auditor's report.

SA 580
"Written
Representations"
Scope of Objectives of Written Representation Date & Periods covered by Important points
the SA the auditor as Audit Evidence Written Representation to be considered
Doubts as to reliability of
This SA deals 1.
To obtain written Although Written Written Representations:
with the auditor's representation from the Representations If written representations
responsibility to management or TCWG that provide necessary are inconsistent with other
obtain written they believe that they have audit evidence, audit evidence, auditor shall
representation from fulfilled their responsibility they do not provide perform audit procedures
management and, for the preparation of the sufficient appropriate to resolve the matter.
where appropriate, financial statements and audit evidence on If the auditor concludes that
those charged with for the completness of the their own. the written representation
governance. information provided to the are not reliable, the auditor
auditor. shall take appropriate
action in accordance with
The date of Written SA 705.
Representation shall be
as near as practicable to,
2. To support other audit but not after, the date of Requested Written
evidence relevant to the the auditor's report on Representation not
financial statements or the financial statements. provided:
specific assertions in the
Written Representation Auditor shall discuss
financial statements by means
shall be for all financial with the management,
of written representations.
statements and periods re-evaluate the integrity
referred to in the auditor's of management, take
report. appropriate actions
including the impact on
3. To respond appropriately audit report as per SA 705.
to written representation
provided by managment/
TCWG.
Definition - SA 510 - "Initial Audit Engagements-
Opening Balances"
Initial Audit Engagement:

An engagement in which either:
Definition
1. The financial statements for the prior period were not
Written Representation: audited, or
A written statement by management 2. The financial statements for the prior period were
provided to the auditor to confirm certain audited by a predecessor auditor.
matters or to support other audit evidence.
Do not include financial statements, the Predecessor Auditor:
assertions therein, or supporting books or The auditor from a different audit firm, who audited the
records. financial statements of an entity in the prior period and
who has been replaced by the current auditor.

SA 600 - 699: Using Work of Others
SA 610
"Using the Work of Internal Auditors"
Scope of External auditor's Objectives of Using the work of Using Internal When using the
responsibility for the External the Internal Audit Auditors to provide work or direct
the SA the Audit Auditor Function direct assistance assistance
This SA deals with external External auditor shall determine

auditor's responsibilities if whether the work of the Internal Using the work of Internal Audit
using the work of internal Audit function can be used for the Function
auditors. This includes: audit by evaluating:
a) using the work of internal audit The External Auditor shall:
a) the objectivity of the Internal
function in obtaining audit a) discuss the planned use of the Internal
auditors.
evidence. Audit function.
b) level of competence of the internal
b) using the internal auditors to b) read the report of the Internal Audit
audit function.
provide direct assistance under function.
the direction, supervision and c) approach of Internal Audit function
c) perform sufficient audit procedures to
review of external auditor. including quality control.
evaluate the internal audit function.
External auditor shall determine
the nature and extent of work of
Internal Audit function that can be
used by:
The External Auditor has the a) considering the nature and scope
sole responsibility for the audit of work of Internal Audit function Using the Internal Auditors to provide
opinion expressed, and that and its relevance to the external Direct Assistance:
responsibility is not reduced by the auditor's overall audit strategy and The External Auditor shall:
external auditor's use of the work plan. a) obtain written agreement from the
of the internal audit function or entity.
b) making all significant judgements
internal auditors to provide direct
and preventing undue use of the b) obtain written agreement from the
assistance on the engagement.
internal audit function. internal auditors.
c) being sufficiently involved in the c) direct, supervise and review the work
audit. performed by the Internal Auditors.
d) communicating to TCWG, as to
how they have planned to use the
work of the internal audit function.
1. To determine whether the work of the
internal audit function or direct assistance The external auditor shall document
from internal auditors can be used, and if the above.
so, in which areas and to what extent; and
having made that determination:
External auditor shall determine whether Internal Auditors
can be used to provide Direct Assistance by evaluating:
a) the existence and significance of threats to objectivity and
2. If using the work of the internal audit b) the level of competence of the internal auditors.
function, to determine whether that work is
External auditors shall determine the nature and extent of work
adequate for the purposes of audit; and
that can be assigned to Internal Auditors providing Direct
Assistance by considering:
a) the amount of judgement involved.
3. If using internal auditors to provide direct b) the assessed risk of material misstatements.
assistance, to appropriately direct, supervise c) the evaluation as mentioned above.
and review their work. The external auditor shall be sufficiently involved in the audit
and shall communicate to TCWG, the nature and extent of the
planned use of internal auditors to provide direct assistance.
The external auditor shall document the above.

SA 620
"Using the Work of an Auditor's Expert"
Scope of The auditor's Reference to the

Objectives of Requirements
responsibility for Auditor's Expert in
the SA the auditor of the SA
the audit opinion the Auditor's Report
This SA deals with auditor's 1. To determine whether to use the

responsibilities regarding work of an auditor's expert; and The auditor shall not refer to the work
the use of an individual or
of an auditor's expert in the auditor's
organisation's work in a
report containing an unmodified
field of expertise other than
2. If using the work of an auditor's opinion unless required by law or
accounting or auditing,
expert, to determine whether that regulation to do so.
when that work is used
to assist the auditor in work is adequate for the auditor's If the auditor makes a reference
obtaining sufficient and purposes. in the auditor's report for better
appropriate audit evidence. understanding of a modification to the
auditor's opinion, he shall indicate that
such reference does not reduce auditor's
responsibility for that opinion.
The auditor has sole responsibility for the audit

opinion expressed, and that responsibility is
not reduced by the auditor's use of the work of
an auditor's expert. 1. Determining the need for an auditor's expert.
If the auditor concludes that the work of
auditor's expert is adequate for his purposes,
he may accept the expert's findings or
conclusions in the expert's field as appropriate 2. Determining nature, timing and extent of
audit evidence. audit procedures.
3. Evaluating the competence, capabilities and

objectivity of the Auditor's expert
Definition
Auditor's Expert:
An individual or organisation possessing 4. Obtaining an Understanding of the field of
expertise in a filed other than accounting expertise of the Auditor's expert
or auditing, whose work in that field is
used by the auditor to assist the auditor in
obtaining sufficient and appropriate audit
evidence. 5. Agreeing with the Auditor's expert in
writing.
Management's Expert:
An individual or organisation possessing
expertise in the field other than accounting 6. Evaluating the adequacy of the Auditor's
or auditing, whose work in that field is Expert work.
used by the entity to assist the entity in
preparing the financial statements.
"A diamond is a chunk of coal that did well under pressure."

- Unknown

ECONOMICS FOR FINANCE
CA INTERMEDIATE - PAPER 8B - ECONOMICS FOR FINANCE
At the Intermediate level , students are expected to not only acquire professional knowledge but also to attain the ability to apply
such knowledge in problem solving.In this capsule, an attempt has been made to capture the significance and importance of the
subject of Economics for Finance with the intention to assist students in revision of concepts discussed in the study material. In
this issue, the topics - Government intervention to correct Market Failure , Fiscal poicy and Money Market are included.
Government Interventions to Pigovian Tax

Correct Market Failure
• These taxes by ‘making the polluter pay’, seek to internalize
external costs into the price of a product or activity.
• The tax is placed on the externality itself (the amount of
Minimize Market Merit & Demerit Equitable
Distribution pollution emissions) rather than on output (say, amount of
Power Goods
steel). For each unit of pollution, the polluter must choose
either to pay the tax or to reduce pollution through any
Correct Correcting means at its disposal.
Externalities Information Failure • Tax increases the private cost of production or consumption
and would decrease the quantity demanded and therefore
the output of the good which creates negative externality.
Governments intervene by establishing rules and

Government regulations designed to promote competition
Intervention
and prohibit actions that are likely to restrain
to minimise Cost/ Marginal private cost
Market Power competition.
benefit plus taxes
Marginal social cost
C Marginal Private cost

ABC = Dead
Openly regulate the B
A1
weight loss or welfare
Direct actions of those involved P1 loss to the society.
controls in generating negative P A B = new equilibrium point
externalities where MSC= MSB
Government Q1 = socially optimal and
initiatives Marginal Social Benefit eliminate the whole
towards Provide economic of welfare loss
Negative incentives so that the
Externalities Market-based self-interest of the market Q1 Q Quantity
policies participants would achieve
Market Outcomes of Pollution Tax
the socially optimal
solution.
Pollution taxes are difficult to determine and
Problems in
administer due to difficulty to discover the
administering
Market-based Approaches right level of taxation, problems associated
an Efficient
with inelastic nature of demand for the good
Pollution Tax
and the problem of possible capital flight.
Environmental Taxes Cap-and-Trade
Operate through price mechanism to create Tradable Emissions

The Market- an incentive for change. In other words, they Permits
based rely on economic incentives to accomplish
Approaches environmental goals at lesser costs.
These are marketable licenses

to emit limited quantities
of pollutants and can be
bought and sold by polluters.
Internalization Through These taxes The high polluters have to
buy more permits and the
of Negative imposing are named low polluters receive extra
Externalities Pollution Tax Pigouvian Taxes revenue from selling their
surplus permits.

Advantages claimed for tradable permits are- Price S
The system It is It also Consumers may When people are

a l l o w s administratively provides benefit if the required to pay the free
market price, people would
flexibility cheap and simple s t r o n g extra profits Free
consume only OQ quantity
and reward to implement incentives made by low market
price of healthcare. If provided
efficiency. and ensures f o r pollution firms free at zero prices, the
that pollution innovation. are passed on to demand OD far exceeds
is minimised in them in the form supply.
D
the most cost- of lower prices. Free
O Q
effective way. Quantity of
healthcare
Consumption of Merit Goods at Zero Price
Subsidy is market-based policy and involves the

government paying part of the cost to the firms in
Government intervention in case of Demerit Goods
Subsidy order to promote the production of goods having
positive externalities.
• Demerit goods are goods which impose significant negative
externalities on the society as a whole and are believed to
be socially undesirable.
• The production and consumption of demerit goods are
P likely to be more than optimal under free markets. The
S=MPC=MSC government should therefore intervene in the marketplace
A Pigouvian
subsidy equal to the benefit to discourage their production and consumption.
S=E of externality (S=E) is granted
by government to the producer.
Theoutput level post subsidy is Q*
which equates marginal social
benefit with marginal social
cost. This is socially optimum
level of output. MSC = MPC B= produces an
MSB
output of a demerit good
Q Q* Minimum price Q at which MSB is much
Quantity
P1 less than MPB.
Effect of Subsidy on Output ABC = Shaded area represents
loss of social welfare.
B P1 = demand contracts and the
P quantity of alcohol consumed would
• Merit goods are goods which are deemed MPB be reduced to Q1. At Q1level of
to be socially desirable and therefore the A output, MSB= MSC and the
C
government deems that its consumption quantity of alcohol consumed
should be encouraged. Substantial positive is optimal from the
externalities are involved in the consumption society’s point of view.
of merit goods. Marginal Social Benefit
Government • Merit goods such as education, health care
Intervention in
case of Merit etc are socially desirable and have substantial
Goods positive externalities. They are rival,
Q1 Q Quantity of
excludable, limited in supply, rejectable by
alcohol consumed
those unwilling to pay, and involve positive
marginal cost for supplying to extra users. Outcomes of Minimum Price for a Demerit Good
• Left to the market, merit goods are likely to
be under-produced and underconsumed so
that social welfare will not be maximized.
• Direct provision of a public good

Cost/ by government can help overcome
benefit
Marginal private cost free-rider problem which leads to
B
market failure.
Marginal social cost • In the case of pure public goods
Government where entry fees cannot be
A Welfare loss from Q* = Optimal output Intervention
at which marginal charged, direct provision by
P underproduction/ in case
underprovision
social (MSC) cost of Public governments through the use of
C is equal to marginal Goods general government tax revenues
social benefit (MSB). is the only option. Excludable
MPB=MSB public goods can be provided by
government and the same can be
financed through entry fees.
Q Q* Quantity
Market Outcome for Merit Goods

Price Intervention
• Price controls may take the form of either a price floor (a Fiscal Policy
minimum price buyers are required to pay) or a price ceiling • Fiscal policy involves the use of government spending,
(a maximum price sellers are allowed to charge for a good or taxation and borrowing to influence both the pattern of
service). economic activity and level of growth of aggregate demand,
• Fixing of minimum wages and rent controls are examples of output and employment.
such market intervention. • It includes any design on the part of the government to
• When prices of certain essential commodities rise change the price level, composition or timing of government
excessively, government may resort to controls in the form expenditure or to alter the burden, structure or frequency of
of price ceilings (also called maximum price) for making a tax payment.
resource or commodity available to all at reasonable prices.
• With the objective of ensuring stability in prices and
distribution, governments often intervene in grain markets
through building and maintenance of buffer stocks. It Objective of Fiscal Policy
involves purchases from the market during good harvest
and releasing stocks during periods when production is • Achievement and maintenance of full employment.
below average. • Maintenance of price stability.
• Acceleration of the rate of economic development, and
• Equitable distribution of income and wealth.
Government intervention for correcting Information Failure

Non-discretionary Fiscal policy or Automatic Stabilizers
Government makes Public dissemination Regulation of • Non-discretionary fiscal policy or automatic stabilizers
it mandatory to have of information to advertising and are part of the structure of the economy and are ‘built-in’
accurate labeling and improve knowledge setting of advertising fiscal mechanisms that operate automatically to reduce the
content disclosures and subsidizing of standards to expansions and contractions of the business cycle.
by producers. For initiatives in that make advertising • Any government programme that automatically tends to
example: SEBI direction. more responsible, reduce fluctuations in GDP is called an automatic stabilizer.
requires that informative and less • Automatic stabilizers have a tendency for increasing GDP
accurate information persuasive. when it is falling and reducing GDP when it is rising.
be provided to • In automatic or non discretionary fiscal policy, the tax
prospective buyers policy and expenditure pattern are so framed that taxes
of new stocks. and government expenditure automatically change with
the change in national income. It involves built- in- tax
or expenditure mechanism that automatically increases
aggregate demand when recession is there and reduces
aggregate demand when there is inflation in the economy.
Government Intervention for Equitable Distribution • Personal income taxes, corporate income taxes and transfer
• One of the most important activities of the government is payments (unemployment compensation, welfare benefits)
to redistribute incomes so that there is equity and fairness in are prominent automatic stabilizers.
the society. Equity can be brought about by redistribution of
endowments with which the economic agents enter the market.
• Government also intervenes to combat black economy and Discretionary fiscal policy refers
market distortions associated with a parallel black economy. to deliberate policy actions on
Government intervention in a market that reduces efficiency Discretionary the part of the government to
while increasing equity is often justified because equity is greatly Fiscal change the levels of expenditure
appreciated by society. Policy and taxes to influence the level
of national output, employment
and prices.
Public Finance
Instruments of
Fiscal Policy
Fiscal policy
Government Public Government

Taxes
Objectives of Automatic Instrument Types of Expenditure Debt Budget
Fiscal Policy Stabilizers and of Fiscal Fiscal Policy
Discretionary Policy
Fiscal Policy

SAS2
Price
Pump pricing
Level
Pump priming involves Compensatory SAS1
a one-shot injection spending is said to be
of government resorted to when the
expenditure into a government spending
P3
depressed economy is carried out with
with the aim of the obvious intention P2
Compensatory Spending
boosting business to compensate the
confidence and deficiency in private AD2
P1
encouraging larger investment.
private investment. AD1
It is a temporary fiscal
stimulus in order to Y
set off the multiplier Real GDP (Y)
process.
Contractionary Fiscal Policy for combating Inflation
Types of Fiscal Policy

Recessionary
Gap
Expansionary Fiscal Contractionary Fiscal A recessionary gap, also

Policy Policy known as a contractionary
gap, is said to exist if the
existing levels of aggregate
production is less than what
It is designed to stimulate the economy during would be produced with full
the contractionary phase of a business cycle employment of resources.
and is accomplished by increasing aggregate
Expansionary expenditures and aggregate demand through an
Fiscal increase in all types of government spending and
Policy
/ or a decrease in taxes. Limitations of Fiscal Policy
Fiscal policy suffers from limitations such as limitations
in respect of choice of appropriate policy, recognition lag,
decision lag, implementation lag, impact lag, inappropriate
timing, difficulties of forecasting due to uncertainties,
Price LAS SAS1 possible conflicts between different objectives, possibility of
Level generating disincentives , practical difficulty to reduce go ment
SAS2 expenditures and the possibility of certain fiscal measures
replacing private spending or crowding out private spending.
P2
P1
AD2 Crowding Out
P3
• Crowding out effect is the negative effect fiscal policy may
AD1 generate when money from the private sector is ‘crowded
out’ to the public sector. In other words, when spending by
government in an economy replaces private spending, the
Y1 Y2 Real GDP (Y) latter is said to be crowded out.
• For example, if government provides free computers to
Expansionary Fiscal Policy for combating Recession students, the demand from students for computers may not
be forthcoming. When government increases it’s spending
by borrowing from the loanable funds from market, the
demand for loans increases and this pushes the interest rates
It is designed to restrain the levels of economic up. Private investments are sensitive to interest rates and
activity of the economy during an inflationary therefore some private investment spending is discouraged.
phase by decreasing the aggregate expenditures
Contractionary and aggregate demand through a decrease in
Fiscal Policy all types of government spending and/ or an
increase in taxes.

Theories of Demand for Money
Money Market
Classical The Neo Classical The Keynesian

Concept of Money Demand Approach: The Approach: The Theory
Quantity Theory Cambridge
of Money (QTM) Approach
Functions of Demand for Theories of Post-Keynesian

Money Money Demand for Developments
Money in the Theory of Transactions Precautionary Speculative
Demand for Money Motive Motive Motive
Money Classical Approach: The Quantity Theory of Money (QTM)
• Money refers to assets which are commonly used and • First propounded by Irving Fisher of Yale University in his
accepted as a means of payment or as a medium of exchange book ‘The Purchasing Power of Money’ published in 1911
or of transferring purchasing power. and later by the neo-classical economists.
• Money is totally liquid and has generalized purchasing • Both versions of the QTM demonstrate that there is strong
power and is generally acceptable in settlement of all relationship between money and price level and the quantity
transactions and in discharge of other kinds of business of money is the main determinant of the price level or the
obligations including future payments. value of money.
Fisher’s version, also termed as ‘equation of

• acts as a medium of exchange to facilitate exchange’ or ‘transaction approach’ is formally
easy exchanges of goods and services, stated as follows
• provides a ‘common measure of value’ or
Functions of ‘common denominator of value’,
Money • serves as a unit or standard of deferred MV = PT
payments and facilitates storing of value
both as a temporary abode of purchasing
power and a permanent store of value. Where,
• M= the total amount of money in circulation (on an
average) in an economy
• V = transactions velocity of circulation i.e. the
average number of times across all transactions a unit
 generally acceptable of money(say Rupee) is spent in purchasing goods
 durable or long-lasting and services
effortlessly recognizable • P = average price level (P= MV/T)
Characterstics  • T = the total number of transactions.
of Money  difficult to counterfeit i.e. not easily reproducible
by people
 relatively scarce, but has elasticity of supply
 portable or easily transported
 possess uniformity; and Fishers Extended Version
 divisible into smaller parts in usable quantities
or fractions without losing value. • Equation of Exachange to include demand ( bank) depostits (M')
and Velocity in the total supply of Money : MV + M'V' = PT
The Neo -Classical Approach: Cambridge Version

The Cambridge version holds that money increases utility in
Demand for the following two ways:
Money • enabling the possibility of split-up of sale and purchase
to two different points of time rather than being
simultaneous, and
• being a hedge against uncertainty.
has an important role

in the determination Md = k PY
of interest, prices and Where
The • Md = is the demand for money
income in an economy. Cambridge • Y = real national income
Equation is • P = average price level of currently produced
goods and services
• PY = nominal income
• k = proportion of nominal income (PY) that
people want to hold as cash balances

People hold money (M) in cash Aggregate Speculative Demand for Money
for three motives
According to Keynes, higher the rate of interest, lower the
speculative demand for money, and lower the rate of interest,
the higher the speculative demand for money.
Transactions Precautionary Speculative
motive motive motive
r*
Transacton Motive
• The transactions motive for holding cash relates to ‘the need Interest Rate
for cash for current transactions for personal and business
exchange.
• Lr = kY, Where, Lr is the transactions demand for money, r1
k is the ratio of earnings which is kept for transactions
purposes and Y is the earnings. r2 Liquidity Trap
• The aggregate transaction demand for money is a function Region
r0
of national income.
Precautionary Motive
• Precautionary motive is to meet unforeseen and un
predictable contingencies involving money payments and
depends on the size of the income, prevailing economic as 0 M1 M2 M3 M4
well as political conditions and personal characteristics of Speculative Demand for Money
the individual such as optimism/ pessimism, farsightedness
etc. Aggregate Speculative Demand for Money
Speculative Motive
• The speculative motive reflects people’s desire to hold cash Post-Keynesian
in order to be equipped to exploit any attractive investment Developments in the Theory
opportunity requiring cash expenditure. of Demand for Money
• The speculative demand for money and interest are
inversely related.
Baumol's Inventory Friedman's Tobin's The
Approach to Restatement of Demand for
Transaction the Quantity Money as Behavior
When the current rate of
Balances Theory toward Risk
interest rn is higher than the
critical rate of interest rc, the
entire wealth is held by the
Individual's individual wealth-holder in the  Baumol (1952) and Tobin (1956) developed a
Speculative deterministic theory of transaction demand for
demand for form of government bonds. If Inventory
Money the rate of interest falls below Approach to ‘real cash balance’, known as Inventory Theoretic
the critical rate of interest rc, Transaction Approach, in which money is essentially viewed
the individual will hold his Balances as an inventory held for transaction purposes.
entire wealth in the form of  People hold an optimum combination of bonds
speculative cash balances. and cash balance, i.e., an amount that minimizes
the opportunity cost.
 The optimal average money holding is: a positive
function of income Y, a positive function of the
m price level P, a positive function of transactions
costs c, and a negative function of the nominal
interest rate i.
Interest Rate
rc
Friedman's Restatement of the Quantity Theory
Milton Friedman (1956) The nominal demand for money

extending Keynes’ speculative is positively related to the price
money demand within the level, P; rises if bonds and stock
framework of asset price theory returns, rb and re, respectively
holds that demand for money decline and vice versa; is
M2 is affected by the same factors influenced by inflation; and is a
Speculative Demand for Money as demand for any other asset, function of total wealth
namely, permanent income and
Individual’s Speculative Demand for Money relative returns on assets.

New Monetary Aggregates
♦ The Demand for Money as
Behavior toward as ‘aversion to • Reserve Money = Currency in circulation + Bankers’
risk’ propounded by Tobin states deposits with the RBI + Other deposits with the RBI Or
that money is a safe asset but an • Reserve Money = Net RBI credit to the Government + RBI
The investor will be willing to exercise credit to the Commercial sector + RBI’s Claims on banks +
Demand a trade-off and sacrifice to some RBI’s net Foreign assets + Government’s Currency liabilities
for extent the higher return from to the public – RBI’s net non-monetary Liabilities
Money as bonds for a reduction in risk • NM1 = Currency with the public + Demand deposits with
Behavior ♦ According to Tobin, rational
behaviour induces individuals the banking system + ‘Other’ deposits with the RBI.
toward • NM2 = NM1 + Short-term time deposits of residents
Risk to hold an optimally structured
wealth portfolio which is (including and up to contractual maturity of one year).
comprised of both bonds and • NM3 = NM2 + Long-term time deposits of residents + Call/
money and the demand for money Term funding from financial institutions
as a store of wealth depends
negatively on the interest rate.
Liquidity Aggregates
The Concept of • L1 = NM3 + All deposits with the post office savings banks
Money Supply (excluding National Savings Certificates).
• L2 = L1 +Term deposits with term lending institutions and
refinancing institutions (FIs) + Term borrowing by FIs +
Certificates of deposit issued by FI’s.
The Sources Measurement Determinants The Concept • L3 = L2 + Public deposits of non-banking financial
of Money of Money of Money of Money companies
Supply Supply Supply Multiplier
Determinants of Money Supply
Importance of Money Supply The first view , money supply is

determined exogenously by the
central bank.
Monetary Monetary Policy Price Stability
Development perspective & GDP Growth
The second view holds that the money
supply is determined endogenously
by changes in the economic activities
Sources of Money Supply which affect people’s desire to hold
currency relative to deposits, rate of
• The central banks of all countries are empowered to issue interest, etc.
currency and therefore, the central bank is the primary source
of money supply in all countries. In effect, high powered
money is the source of all other forms of money. Money Multiplier Approach to Supply of Money
• The second major source of money supply is the banking
system of the country. The money multiplier approach to money supply propounded
by Milton Friedman and Anna Schwartz, (1963) considers three
factors as immediate determinants of money supply
• the stock of high-powered money (H)
Measurement of Money Supply
• the ratio of deposit to reserve, e = {ER/D} and
• The measures of money supply vary from country to country, • the ratio of deposit to currency, c ={C/D}
from time to time and from purpose to purpose.
• Measurement of money supply is essenetial as it enables a
framework to evaluate whether the stock of money in the Effect of Government Expenditure on Money supply
economy is consistent with the standards for price stability, to
When the Reserve Bank lends to the governments under WMA
understand the nature of deviations from this standard and to
/OD it results in the generation of excess reserves (i.e., excess
study the causes of money growth.
balances of commercial banks with the Reserve Bank).
• In India RBI has been publishing data on four alternative
measures of money supply denoted by M1, M2, M3, M4 besides
the reserve money.
The Credit Multiplier

Monetary Aggregates are The Credit Multiplier also referred to
as the deposit multiplier or the deposit
• M1 = Currency and coins with the people + demand deposits
expansion multiplier, describes the
of banks (Current and Saving accounts) + other deposits of
amount of additional money created by
the RBI
commercial bank through the process
• M2 = M1 + savings deposits with post office savings banks
of lending the available money it has
• M3 = M1 + net time deposits of banks
in excess of the central bank's reserve
• M4 = M3 + total deposits with the Post Office Savings
requirements.
Organization (excluding National Savings Certificates)

Monetary Policy
Monetary Policy
Instruments
The Organisational
The Monetary
Structure for
Policy
Monetary Policy
Framework
Decisions
Direct Indirect
Objectives Analytics of Operative

of Monetary Monetary Procedures &
Policy Policy Instruments Direct Instruments
The Monetary The Monetary

Policy Framework Policy Committee Cash Reserve Ratio and Credit to Administered
Agreement ( MPC) Liquidity Reserve Ratios Priority Sector Interest Rate
prescribed from time
to time
Monetary policy refers to the use of monetary
policy instruments which are at the disposal
Monetary of the central bank to regulate the availability,
cost and use of money and credit to promote Indirect Instruments
Policy
economic growth, price stability, optimum levels
of output and employment, balance of payments
equilibrium, stable currency or any other goal of
government's economic policy. Repos Open Market Standing Market-based
Operations Facilities Discount Window
♦ Price Stability Cash Reserve Ratio

Objectives ♦ Economic Growth
of ♦ Ensuring an adequate flow of credit The Cash Reserve Ratio (CRR) refers to the fraction of the
Monetary total net demand and time liabilities (NDTL) of a scheduled
Policy ♦ Creation of an efficient market for
commercial bank in India which it should maintain as cash
government securities
deposit with the Reserve Bank irrespective of its size or
financial position.
Interest rate
Lower will be
Channel Higher the
liuidity in the
CRR with the
system and
RBI
vice versa
Asset Price Analytics of Exchange rate Statutory Liquidity Ratio

Channel Monetary Channel
Policy • The Statutory Liquidity Ratio (SLR) is what the scheduled
commercial banks in India are required to maintain as
a stipulated percentage of their total Demand and Time
Liabilities (DTL) / Net DTL (NDTL) in Cash, Gold or
approved investments in securities.
• The SLR is also a powerful tool for controlling liquidity in
the domestic market by means of manipulating bank credit.
Quantum Changes in the SLR chiefly influence the availability of
Channel resources in the banking system for lending.
The Liquidity Adjustment (LAF)

Operating Framework
The Liquidity Adjustment Facility(LAF) is a facility extended by
the Reserve Bank of India to the scheduled commercial banks
(excluding RRBs) and primary dealers to avail of liquidity in
case of requirement (or park excess funds with the RBI in case
Choosing the Choosing the Choosing the policy of excess liquidity) on an overnight basis against the collateral of
operating target intermediate target instruments
(e.g. Inflation) (e.g. Economic Stability) (e.g. Cash Reserve Ratio)
government securities including state government securities.

Repo or repurchase option is a collaterised Monetary Policy Committee
lending because banks borrow money from • The Monetary Policy Committee (MPC) consisting of six
Repo Rate Reserve bank of India to fulfill their short term members shall determine the policy rate to achieve the
monetary requirements by selling securities to inflation target through debate and majority vote by a panel
RBI with an explicit agreement to repurchase the of experts.
same at predetermined date and at a fixed rate. • The Monetary Policy Framework Agreement is an
The rate charged by RBI for this transaction is agreement reached between the Government of India and
called the ‘repo rate’. the Reserve Bank of India (RBI) on the maximum tolerable
inflation rate as 4 per cent Consumer Price Index (CPI)
inflation with a deviation of 2 percent.
Reverse Repo Rate • Choice of a monetary policy action is rather complicated
Reverse Repo is defined as an instrument for lending in view of the surrounding uncertainties and the need
funds by purchasing securities with an agreement to resell the for exercising complex judgment to balance growth and
securities on a mutually agreed future date at an agreed price inflation concerns. Additional complexities arise in the case
which includes interest for the funds lent. of an emerging market like India.
Market Stabilisation Scheme

Marginal Standing Facility( MSF)
The Marginal Standing Facility (MSF) refers to the facility under Under the Market Stabilisation Scheme (MSS) the Government
which scheduled commercial banks can borrow additional of India borrows from the RBI (such borrowing being additional
amount of overnight money from the central bank over and to its normal borrowing requirements) and issues treasury-bills/
above what is available to them through the LAF window by dated securities.
dipping into their Statutory Liquidity Ratio (SLR) portfolio up
to a limit.
"If you don't like the road you're walking, start paving another one."
- Dolly Parton
CROSSWORD SOLUTION – DECEMBER 2020
1
B 2
I 3
T 4
T E A 5
F I 6
N 7
I T 8
E
9
A C U 10
T E 11
R 12
C I 13
O P E N
14
N O T A R Y 15
O F 16
F E R D
17
N O R M 18
E M A I L
19
L 20
R O S E P V 21
L 22
O 23
T
E 24
A T 25
T U 26
T E 27
L A G E
28
A D 29
D 30
I 31
R A T E 32
V I R E
D N 33
B E T E N 34
O I R E
35
S 36
P A 37
C E B A R V 38
S
O 39
I T O 40
P E R 41
T T
42
M I N T O 43
S L R 44
O L E
C N 45
E 46
N T 47
R E A T P A
48
I T I E 49
I N G 50
T E 51
A M
52
I E 53
N E M O 54
U P P E R
55
I R I S 56
T I E A 57
E G

BUSINESS LAWS
CA FOUNDATION - PAPER 2 (SECTION A) - BUSINESS LAWS
This Capsule deals with the significant concepts covered under units 4, 5 & 6 of Chapter 1 of the Study material of Foundation
Paper 2 - Section A -Business Laws. It is in continuation to units 1, 2, & 3 of the chapter 1 published earlier in July 2020 and
August 2020 edition of the Student Journal. This capsule itemize significant concepts related to “Performance and Breach
of Contract”, and “Special Contracts discussing Contingent and Quasi Contract under the Indian Contract Act, 1872. In
order to have understanding of the related concepts, this capsule will help to revise and retain the important facet of the
legal provisions.
CONCEPTS RELATED TO PERFORMANCE AND BREACH OF CONTRACT AND

SPECIAL CONTRACT UNDER THE INDIAN CONTRACT ACT, 1872
I. Performance of Contract
(1) Meaning of Performance (5) Who may perform the contract
A contract is said
Legal
to be performed Promisor himself Promisor’s Agent
-Either perform, or
Representatives
when the
parties
to the -Offer to
contract
perform their
promises
Third persons Joint promisors

(2) Types of performance of the Contract
Actual performance Attempted Performance

(6) Liability of joint promisor
• Where a Promisor, • Where a Promisor,
• made an offer of • made an offer,
performance, • to the Promisee, General rule-If two or more persons have made a joint promise,
• to Promisee, • and the offer has not been all of them must jointly fulfill the promise.
• and the offer has been accepted by the Promisee
accepted by the Promisee
After death of any one of After the death of the last
them- survivor-
(3) Effects of the performance of the contract his legal representative jointly the legal representatives of all
with the survivor/survivors the original co-promisors
Actual • Liability of the Promisor comes to an end

with the performance of the Act, and
Performance • there remains nothing to be done by him (7) Rules as to time and place for performance of the promise
Case where Rule as to performance
Time not specified Within the reasonable time

Attempted • the Promisor is not responsible for non-
Time specified but promise During the usual business
Performance performance, and
• have right to claim. is to be performed without hours on that particular day
promisee’s application
Time specified but promise is The promisee must apply for

(4) Who may demand performance of contract to performed on promisee’s performance at a proper place
application and within usual business
hours
Legal Place not specified The promisor must apply

Third Joint
Promisee Represent- Party Promisees to the promisee to appoint
ative
a reasonable place for the
performance and to perform
the promise at such place.
Manner for performance The promise must be

performed in the manner and
at the time prescribed by the
30 January 2021 The Chartered Accountant Student promisee.
BUSINESS LAWS
(8) Is time an essence of Contract? (12) Supervening impossibility
Cases, where- When time is essence of Case Effects

contract Where an act becomes The contract becomes void when
impossible after the contract is the act becomes impossible.
Parties have Expressly agreed Time is considered to be essence made
of Contract Where an act becomes The contract becomes void
Non-performance at the Time is considered to be unlawful by reason of some when the act becomes
specified time results in an essence of Contract event beyond the control of unlawful.
injury to the Party promisor
Where the promisor alone Promisor must compensate
Nature and necessity requires Time is considered to be knows about the impossibility the promisee for any loss
the performance of the essence of Contract which might have suffered on
Contract within the specified account of non-performance
time of the promise.
Where an agreement is Any person who has received
(9) Consequences of Non-performance within the specified time discovered to be void or where any benefit under such
a contract becomes void agreement or contract is
Cases where time is essence Cases where time is not bound to restore it or to make
of the contract essence of a contract compensation to the person
from whom he received it.
• Contract becomes Voidable • Contract does not become
at the option of the Promisee voidable at the option of the
Promisee (13) Discharge of a contract
• If performance beyond the • The Promisee is entitled Discharge by performance

specified time is accepted to claim compensation for
by the Promisee- any loss occasioned to him
The Promisee cannot claim by non-performance of the Discharge by mutual agreement
compensation for any loss promise at the agreed time.
caused by non-performance
at the agreed time, unless Discharge by impossibility of performance
at the time of acceptance
,he has given a notice to the
Promisor of his intention to Discharge by lapse of time
claim compensation.
Discharge by operation of law

(10) Impossibility of performance
A contract to do an act which, after the contract Discharge by breach of contract

is made, becomes-
impossible, or, unlawful

by reason of some event which the promisor II. Breach of contract
could not prevent, - becomes void when the act (1) When breach of contract take place?
becomes impossible or unlawful and parties
discharged from performance.
Breach of contract occurs, if any party-
makes
Fails to perform
it impossible
refuses, or his part of the By his act
(11) Impossibility existing at the time of contract or Initial to perform his
contract, or
Impossibility obligation
Case Effects
If the impossibility is known to Such an agreement is void-ab- (2) Effects of the Breach of Contract
the parties initio
If unknown to the parties Such an agreement is void on
the ground of mutual mistake The aggrieved party is
If known to the promisor only Such promisor must gets a right to proceed
relieved from performing
against the party at fault
compensate for any loss his obligation, and
which such promisee sustains
through the non performance
of the promise.
BUSINESS LAWS
(3) Types of breach of contract
Case laws Facts Decision
Breach of contract Gibbons A business man whose In the case, it was held
Vs. West credit has suffered will that a non-trader cannot
Minister get exemplary damages get heavy damages in
Bank even if he has sustained the like circumstances,
Anticipatory breach Actual breach no pecuniary loss. unless the damages are
alleged and proved as
special damages.
breach occuring
before time fixed Refusal to perform
for performance has promise on the
arrived scheduled date III. Special types of Contract
Contingent
(4) Liability for Damages Quasi-Contracts
Contracts
Ordinary
damages
Rules Relating to
Cases deemed as
Pre-fixed Special
Enforcement of
Quasi -Contracts
damages damages Contingent Contracts
Damages for Vindictive or (1) Contingent Contract

deterioration exemplary
caused by delay damages
Contingent contract is
Nominal
damages
(5) Remedies Available

a contract to do or if some event, collateral
not to to such contract, does or
Rescission of Contract do something, does not happen.
Suit upon Quantum Meruit (2) Essentials of a Contingent Contract
Suit for Specific Performance (a) Dependence on future event
Suit for Injunction Dependence on a future event
The performance of a contingent contract is

Relevant case laws made dependent upon the happening or non-
happening of some event. A contract may be
Case laws Facts Decision
subject to a condition precedent or subsequent.
Hadley Vs. The crankshaft of P’s The court held that P
Baxendale flour mill had broken. He was entitled only to
(b) 'Event' referred is collateral to the contract
gives it to D, a common ordinary damages and
carrier who promised to D was not liable for the
deliver it to the foundry loss of profits because Collateral
in 2 days where the new the only information Event
shaft was to be made. The given by P to D was that The event on which the
mill stopped working, the article to be carried performance is made
D delayed the delivery was the broken shaft of a to depend, is an event
of the crankshaft so the mill and it was not made collateral to the contract.
mill remained idle for known to them that the
another 5 days. P received delay would result in
the repaired crankshaft 7 loss of profits.
days later than he would (c) The event must be uncertain
have otherwise received.
Consequently, P sued D Uncertain Event
for damages not only for
the delay in the delivering
of the broken part but
also for loss of profits The contingent event must be uncertain and should
suffered by the mill for not be the mere will of the promisor.
not having been worked.

BUSINESS LAWS
(3) Rules regarding Contingent contracts
Rule 4 Rule 5 Rule 6

Rule 1 Rule 2 Rule 3
Contract Contracts Agreement
Enforcement Enforcement Contract
contingent upon contingent contingent
of contracts of contracts contingent
the happening upon the non- on impossible
contingent contingent on upon the future
of an uncertain happening of event.
on an event an event 'not- conduct of a
specified event an uncertain
'happening’ happening’ living person
within a fixed specified event
time within a fixed time
(a) Rule 1 regarding contingent contracts (e) Rule 5 regarding contingent contracts
Enforcement of contracts contingent on an

Contract contingent upon the non-happening of an
event 'happening‘ uncertain specified event within a fixed time;
Where a contingent contract is made to do or not to do • Such contract can be enforced by law if before the
anything if an uncertain future event happens, expiry of fixed time-
• Such event does not happen ,or
• it cannot be enforced by law unless and until that • It become certain that such event will not happen.
event has happened.
• If the event becomes impossible, such contracts
become void.
(f) Rule 6 regarding contingent contracts
(b) Rule 2 regarding contingent contracts Agreement contingent on impossible event.
Enforcement of contracts contingent on an event 'not- • A contingent agreement to do or not to do anything, if

happening‘ an impossible event happens, is void.
• The impossibility of the event may be or may not be
known to the parties to the agreement at the time
• Where a contingent contract is made to do or not do
when they entered into it.
anything
• if an uncertain future event does not happen
• it can be enforced only when the happening of that
event becomes impossible and not before. IV. Quasi-Contract
(1) Meaning
Quasi
Contract
(c) Rule 3 regarding contingent contracts
Contract contingent upon the future conduct of a In the

living person absence
upon
person for of a
• Where, the future event on which a contract is contract.
the benefit
contingent is the way in which a person will act at an An of another.
unspecified time. obligation
• In such a case, the event shall be considered to have imposed by
become impossible when such person does anything law.
which renders it impossible that he should so act
within any definite time or otherwise than under
further contingencies. (2) Features of a Quasi- Contract
Imposed by Law
(d) Rule 4 regarding contingent contracts Obligation is a duty and not the promise of a party
The right is always a right to money

Contract contingent upon the happening of an
uncertain specified event within a fixed time;
Right is available against specific person
• Such type of contracts become void if before the
expiry of fixed time- Suit for breach may be filed same as of a complete contract
• Such event does not happen, or
• Such events becomes impossible.

BUSINESS LAWS
(3) Difference between quasi contracts and Contingent (d) Type iv of quasi-contracts
contract
Basis of Quasi- Contract Contingent Contract • A person who finds goods
distinction Responsibility belonging to another, and takes
of a finder them into his custody
Essential The essentials for the Present of goods • there such person is subject to the
for the valid formation of a valid same responsibility as a bailee
contract contract are absent
Obligation Imposed by law Created by the consent of
the parties (e) Type v of quasi-contracts
Liability for money paid or thing delivered

(4) Types of quasi-contracts by mistake or under coercion
• A person to whom money has been paid, or anything
i Claim for necessaries supplied to persons incapable of delivered by mistake, or
contracting • under coercion
• must repay or return it.
ii Right to recover money paid for another person
(5) Remedy on breach of quasi-contract

iii Obligation of a person enjoying benefits of non-gratuitous act
When the • there the injured party is entitled

iv Responsibility of a finder of goods obligation to receive the compensation same
created by the as defaulted party had contracted
quasi-contract is to discharge as it had broken his
Liability for money paid or thing delivered by mistake or not discharged- contract.
v under coercion
(a) Type i of quasi-contracts

Relevant case laws
• If necessaries are supplied to Case laws Facts Decision
Claim for
a person who is incapable of
necessaries ShyamLal ‘S’ a government servant The appeal was
contracting, e.g. minor or a person
supplied to vs. State of was compulsorily retired decided in favour of
of unsound mind-
persons U.P by the government. He the government and ‘S’
• the supplier is entitled to claim
incapable of filed a writ petition and was directed to return
their price from the property of
contracting- obtained an injunction the salary paid to him
such a person.
against the order. He was during the period of
reinstated and was paid reinstatement
salary but was given no
(b) Type ii of quasi-contracts
work and in the mean
time government went on
appeal.
Right to recover money paid for another person
Hollins vs. H’ picked up a diamond Held that ‘F’ must return
• A person who has paid a sum of money which another Howler L. R. on the floor of ‘F’s shop the diamond to ‘H’ as he
is obliged to pay- & H. L., and handed over the was entitled to retain
• Such person is entitled to be reimbursed by that other same to ‘F’ to keep till the goods found against
person. the owner was found. In everybody except the
spite of the best efforts, true owner.
Provided, the payment has been made by him to the true owner could
protect his own interest not be traced. After the
lapse of some weeks, ‘H’
tendered to ‘F’ the lawful
(c) Type iii of quasi-contracts expenses incurred by him
and requested to return
Obligation of a person enjoying benefits of the diamond to him. ‘F’
non-gratuitous act refused to do so.
• Such an obligation/right to recover arises “where a Trikamdas T’ was traveling without The suit was decreed in
person lawfully does anything for another person, vs. Bombay ticket in a tram car and his favour.
or delivers anything to him not intending to do so Municipal on checking he was asked
gratuitously and such other person enjoys the benefit Corporation to pay R5/- as penalty to
thereof, compound transaction.
• the latter is bound to make compensation to the T filed a suit against the
former in respect of, or to restore, the thing so done corporation for recovery
or delivered. on the ground that it was
extorted from him.

NEWS UPDATES
FINANCE UPDATES
SEBI proposes to relax rules for re-classification India allows WhatsApp Pay to go live on UPI
of promoter as public shareholder After facing regulatory hurdles and courtroom battles for
Securities Exchange Board of India (SEBI) proposed to change months, WhatsApp has received the approval in India to go
the minimum threshold for voting rights for re-classification of live with a payment feature on its messaging platform using
a promoter as a public shareholder and suggested all promoter the Unified Payments Interface.
entities disclose shareholding even in case of ’nil’ holding. https://economictimes.indiatimes.com/tech/technology/
https://www.moneycontrol.com/news/business/markets/sebi- w h a t s a p p - p a y - g e t s - g r e e n - l ig h t - t o - g o - l i v e - o n - u p i /
proposes-to-relax-rules-for-re-classification-of-promoter-as- articleshow/79066734.cms
public-shareholder-6148751.html SEBI forms new department to check promoter
frauds
RTGS money transfer facility to be operational
Market regulator SEBI has set up a specialised department to
24X7 tackle cases of diversion of funds, bank loans and resources by
In a bid to give a push to digital payments, the Reserve Bank company promoters. The move comes after a spate of cases
of India (RBI) allowed the transfer of funds through Real-Time involving Cox and Kings, DHFL and the now infamous liquor
Gross Settlement (RTGS) round-the-clock from December 14, baron Vijay Mallya. The new department will be known as the
2020. Corporation Finance Investigation Department (CFID).
https://www.livemint.com/money/personal-finance/rtgs- https://www.thehindubusinessline.com/markets/stock-
money-transfer-facility-to-be-operational-24x7-from- markets/sebi-forms-new-department-to-check-promoter-
today-11607845503499.html frauds/article33321760.ece
NSE launches first agri-commodity futures Rising loan collections bring relief but risks still
linger in securitization
National Stock Exchange of India Ltd (NSE) has launched
India’s loan securitization market is slowly buzzing with
its first agricultural commodity futures contract on crude
activity, encouraged by the broad-based improvement in
degummed soybean oil (CDSO Futures) on December 1, 2020.
loan collections by lenders but risk still persists. Most banks
https://economictimes.indiatimes.com/markets/stocks/ and even some non-banking financial companies (NBFCs)
n e w s / n s e - l aun ch e s - f ir s t - a g r i - c o mm o di t y - f u t ur e s / have reported a marked improvement in repayments after
articleshow/79529036.cms the economy steadily unlocked from June. Delinquency rates,
especially those of home and auto loans, have dipped.
SEBI considering revamp of IPO rules on equity https://www.livemint.com/market/mark-to-market/in-
dilution: Sources securitisation-rising-loan-collections-bring-relief-but-risks-
The capital markets regulator may cut down the requirement linger-11607685972412.html
of 10 percent equity dilution for IPOs that have more than Rs
4,000 crores of post-issue equity capital.
Banks turn to AI to curtail loan frauds
https://www.moneycontrol.com/news/business/ipo/sebi- Banks such as state-run Punjab National Bank (PNB) are
considering-revamp-of-ipo-rules-on-equity-dilution- looking to deploy an artificial intelligence-enabled early
sources-6094151.html warning signal system that crawls the web for information on
borrower’s activities, including news articles and social media.
SEBI introduces flexi cap category in mutual funds https://www.livemint.com/industry/banking/banks-turn-to-
ai-to-curtail-loan-frauds-11603889357341.html
SEBI has given a green signal to the introduction of a flexi
cap category in mutual funds. Schemes in this category are
required to invest at least 65% of their corpus in equity. Unlike ECONOMIC UPDATES
the new multi cap funds, there is no restriction in terms of
allocation to any market cap. RBI keeps repo rate unchanged at 4%, maintains
https://m.economictimes.com/mf/mf-news/sebi-introduces- accommodative stance
flexi-cap-category-in-mutual-funds/articleshow/79084269. The Reserve Bank of India (RBI) kept the repo rate unchanged at
cms 4 per cent and maintained the policy stance at accommodative.
The RBI’s Monetary Policy Committee (MPC) made a
SEBI lays downs guidelines for due-diligence on unanimous decision to maintain status-quo after a three-day
debt securities meeting that began on December 2.The reverse repo rate also
The SEBI laid down fresh set of norms for increasing diligence remains steady at 3.35 per cent, RBI Governor Shaktikanta Das
said. “MPC decided to continue with accommodative stands
on debt securities. It prescribed enhanced disclosures in the
of monetary policy as long as necessary, at least till current
trustee deed which would make it easier for debenture trustees
financial year and into next year to revive growth on a durable
to conduct due-diligence on encumbrances of underlying
basis and mitigate the impact of Covid-19 while ensuring that
assets. inflation remains within the target,”
h t t p s : / / w w w. l i v e m i n t . c o m / n e w s / i n d i a / s e b i - l a y s - h t t p s : / / w w w. l i v e m i n t . c o m / v i d e o s / r b i - k e e p s - r e p o -
downs-guidelines-for-due-diligence-on-debt- rate-unchanged-at-4-maintains-accommodative-
securities-11604471006209.html stance-11607073294950.html
RNI NO. 66180/1997 Registered: DL(C)-01/1280/2018-20, D. NO. MH/MR/TECH-47/3/2018-20 License To Post Without Prepayment,
WPP Licence No.: MR/TECH/WPP-247/DL(C)/2018-20 Posted at Mumbai Patrika Channel Sorting Office, Mumbai - 400001
Posting Date: Last three days of advance month & first 04 days of current month, Date of publication: 26th of previous month
CROSSWORD - JANUARY 2021

1 2 3 4 5 6 7 8 9 32. The main headdress for Christians and Jews
during the Ottoman Empire.
10 11 12 13
33. A forum of professional accounting bodies in the
14 15 16 SAARC region of eight nations.
36. ______ is the tool your Account Management
17 18 19
team needs to drive growth and retention with
20 21 22 23 24 25 your existing clients.
26 27 28 29 30 31 32 33 34
37. A network detector.
39. An agreed sum paid at fixed intervals by a tenant
35 36 37 38 39 to the landlord.
40 41 42 43 44
42. A non-profit corporation that aims to “produce,
establish, maintain and endorse a standardized
45 46 47 48 set” of performance benchmarks for computers.
49 50 51 52 53 54
43. A photon stroller for baby.
44. The first garden.
55 56 57 58 46. To open the mouth wide.
59 60 61 49. Land measure
50. Elm or Pine
62 63 51. An entry-level certification aimed at providing
professionals with an awareness of the
ACROSS 55. Discards. methodologies and values of Scrum, including
1. ________is the quantity of a good that 56. Something that is environmentally team performance, accountability, and iterative
consumers are willing and able to purchase friendly or sustainable. progress
at various prices during a given period of 58. Pronto. 52. A short letter.
time 59. Anger. 54. Taboo.
60. To send out something. 55. A tool that helps you to invest regularly in mutual
3. _____ Index is a measure of the distribution 61. Hackneyed fund schemes,
of income across a population. 62. The outer protective layer of a fruit or 57. Smallest binary digit.
vegetable
6. It’s your life. Make it _______ 63. A method used to examine the tasks
10. An active volcano of Sicily, Italy. that are in a schedule and determine a
11. As you sow ____ shall you reap. variation of the Critical Path Method.
12. Unaware. DOWNWARD
14. An Indian stock exchange 1. _____Moines: Capital of the U.S. state of
16. Books of Maps Iowa
17. Softwares designed to carry out particular 2. ______ James.
tasks.
3. People come and ____. That’s life.
21. An international software company
4. ______ Aayog was established with the
purchased and incorporated into IBM
aim to achieve sustainable development
announced in January, 2009.
goals with cooperative federalism by
22. Opposite of Yes
fostering the involvement of State
23. Coloured
Governments of India in the economic
26. One of six research laboratories within
policy-making process using a bottom-
the National Institute of Standards and
up approach.
Technology.
5. An Eskimo house
28. _________is a voluntary certification
6. The profit and ____ statement is a
program for Health IT to provide for the
certification of health IT. financial statement that summarises the
30. ________is the ratio of the circumference of revenues, costs, and expenses incurred
any circle to the diameter of that circle. during a specified period
32. A type of savings account that provides the 7. Exist
account holder with specific tax advantages. 8. Harsh sounding
34. Roman numeral for 6. 9. An abbreviation which means ‘and so on’.
35. A saved shortcut that directs your browser 11. Part of a min.
to a specific webpage. 13. _______ indicates that the monitoring
38. A person or thing of special ability or system is not receiving any numeric data.
importance. 14. Phase of a business cycle.
40. Crypto-currency designed for the Internet 15. A series of radio waves.
of things. 16. Upon
41. ______is an economic system in which 18. The ____ project is an initial small-scale
transactions between private groups of implementation that is used to prove the
people are devoid or almost devoid of any viability of a project idea.
form of economic interventionism such as 19. The form of the indefinite article used
regulation and subsidies before words beginning with a vowel
45. It is an accommodation agreement wherein sound
an individual stays within the premises of 20. The unit symbol of tebibit.
the owner in the same house utilising all the 23. A collection of data stored on computer
benefits of the house like a guest and pays 24. At any time.
for the facilities like food, laundry, bed etc. 25. Roman Numeral of 501
to the owner. 27. A social movement against sexual
47. Student services by ICAI have been made violence and sexual assault: Me ____.
online, in digitized form on a new platform 29. A stock market ____ is a sudden
which works on a Self Service Mode on the dramatic decline of stock prices across
_____. a major cross-section of a stock market, If undelivered, please return to: The
48. ______is a method of assigning overhead resulting in a significant loss of paper Institute of Chartered Accountants of
and indirect costs—such as salaries and wealth. India, ICAI Bhawan, Indraprastha Marg,
utilities—to products and services. 31. A society dedicated to the scientific
49. A file that is added to an email. and engineering development of geo- New Delhi-110104
53. Elite. synthetic materials.
36

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n ced Auditing and Prof

Check your Address: All students should Head Office

02 January 2021 The Chartered Accountant Student

levels of the Chartered Accountancy Course have been uploaded

The Chartered Accountant Student January 2021 03

04 January 2021 The Chartered Accountant Student

SA 300 - 499: Risk Assessment and Response to Assessed Risks

" Planning an Audit of

Scope of Objective of Involvement of Preliminary Other Important

This SA deals The engagement The auditor shall undertake Documentation:

06 January 2021 The Chartered Accountant Student

" Identifying and Assessing the Risk of

Scope of Objective of Risk Assessment Understanding Identifying & Other important

This SA deals A) Risk Assessment Significant Risks:

The Chartered Accountant Student January 2021 07

"Materiality in Planning and Performing an Audit"

Scope of the SA Determining Materiality & Use of Benchmarks Other important

Scope 1. Determining materiality

Revision as the Audit progresses:

08 January 2021 The Chartered Accountant Student

"The Auditor's Responses to Assessed Risks"

Scope of the SA Requirements Test of Substantive Other important

The Chartered Accountant Student January 2021 09

"Audit Considerations Relating to an Entity Using a Service Organisation"

10 January 2021 The Chartered Accountant Student

"Evaluation of Misstatements Identified during the Audit"

Scope of Objective of the Requirements Evaluating the effect of Other important

The Chartered Accountant Student January 2021 11

SA 500 - 599: Audit Evidence

SA 500 - "Audit Evidence"

Scope of Objective of Information to be used Audit procedures to Inconsistency in or

SA 501 - "Audit Evidence- Specific Considerations for Selected Items"

Scope of Objective of Inventory Litigations & Segment

This SA deals with specific a) If inventory is material, obtain evidence a)

12 January 2021 The Chartered Accountant Student

Management's refusal to Results of the External

Scope of the SA Audit Procedures Audit Conclusion

The Chartered Accountant Student January 2021 13

Scope of the SA & Substantive Analytical procedures that Investigating results of

14 January 2021 The Chartered Accountant Student

Scope of Objectives of Requirements Identification of Identified significant Other

The Chartered Accountant Student January 2021 15

Scope of Objectives of Events occuring Facts which become Facts that

This SA deals Obtain sufficient appropriate 1.

1. Discuss the matter with management or TCWG.

Review if management has taken steps to inform about the

16 January 2021 The Chartered Accountant Student

Scope of Responsibilities Responsibilities When conditions Implications Other Important

The Chartered Accountant Student January 2021 17

Initial Audit Engagement:

18 January 2021 The Chartered Accountant Student

SA 600 - 699: Using Work of Others

"Using the Work of Internal Auditors"

This SA deals with external External auditor shall determine

The Chartered Accountant Student January 2021 19

"Using the Work of an Auditor's Expert"

Scope of The auditor's Reference to the

This SA deals with auditor's 1. To determine whether to use the

The auditor has sole responsibility for the audit

3. Evaluating the competence, capabilities and