Auditing

 An auditor opinion report is a letter that auditors attach to the statutory audit report that
reflects their opinion of the audit
 The four types of auditor opinions are:
o Unqualified opinion-clean report
o Qualified opinion-qualified report
o Disclaimer of opinion-disclaimer report
o Adverse opinion-adverse audit report
Unqualified Opinion – Clean Report
 The auditor believes that the company’s operations are in good compliance with
governance principles and applicable laws.
 The company, the auditors, the investors and the public perceive such a report to be free
from material misstatements.
Qualified Opinion-Qualified Report
 When an auditor isn’t confident about any specific process or transaction that prevents them
from issuing an unqualified, or clean, report, the auditor may choose to issue a qualified
opinion.
 A common for reason for auditors issuing a qualified opinion is that the company didn’t present
its records with GAAP.
Disclaimer of Opinion-Disclaimer Report
 When an auditor issues a disclaimer of opinion report, it means that they are distancing
themselves from providing any opinion at all related to the financial statements.
 Some of the reasons that auditors may issue a disclaimer of opinion are because they felt like
the company limited their ability to conduct a thorough audit or they couldn’t get satisfactory
explanations for their questions.
Adverse Opinion-Adverse Audit Report
 The final type of audit opinion is an adverse opinion. Auditors who aren’t at all satisfied with the
financial statements
 discover a high level of material misstatements or irregularities know that this creates a
situation in which investors and the government will mistrust the company’s financial reports

 Professional skepticism is an attitude that includes a questioning mind, being alert assuming
that management is neither honest nor dishonest.

 Audit Engagement letter: documents and confirms the auditor's acceptance of the
appointment, the objective and scope of the audit, the extent of the auditor's responsibilities to
the client and the form of any reports

 A management representation letter is a form letter written by a company's external auditors,

which is signed by senior company management.
 o CONTENTS: All financial records have been made available to the auditors. All board of
directors minutes are complete. Management has made available all letters from
regulatory agencies regarding financial reporting noncompliance. There are no
unrecorded transactions

 A statutory audit is one required by a country's laws, sometimes called an external audit, since
it is carried out by independent external auditors. The concurrent audit serves the purpose of
effective control as it is normally conducted by external agencies.
 + Higher the materiality level, - the lower the audit risk and - lower the efforts
 Audit risk = failure to detect misstatement / inefficiency/
ANALYTICAL PROCEDURE IAS 14
 Analytical procedures consist of ‘evaluations of financial information through analysis of
plausible relationships among both financial and non-financial data.
3 stages of analytical procedures.
 Preliminary analytical review – risk assessment (required by ISA 315): are performed to obtain
an understanding of the business and its environment, Determine nature, timing and extent to
audit work and direct attention to risk areas.
 Substantive analytical procedures: auditor considers that the use of analytical procedures can
be more effective or efficient than tests of details in reducing the risk of material misstatements
at the assertion level to an acceptably low level
 Final analytical review (required by ISA 520) An overall review of the financial statements at the
end of the audit to assess whether they are consistent with the auditor’s understanding of the
entity.
 Final analytical procedures are not conducted to obtain additional substantive assurance. If
irregularities are found, risk assessment should be performed again to consider any additional
audit procedures are necessary.
Key factors affecting the precision of analytical procedures:
1. Disaggregation: The more detailed the level at which analytical procedures are performed, the
greater the potential precision of the procedures.
a. Disaggregated analytical procedures can be best thought of as looking at the
composition of a balance(s) based on time (eg by month or by week) and the source(s)
(eg by geographic region or by product) of the underlying data elements.
2. Data reliability.
3. Predictability: There is a direct correlation between the predictability of the data and the quality
of the expectation derived from the data
4. Type of analytical procedures:
a. Trend analysis, b. ratio analysis and c. reasonableness testing
 Corroborating evidence (or corroboration) is evidence that tends to support a proposition that
is already supported by some initial evidence, therefore confirming the proposition.
 The risk of incorrect acceptance is the risk that the sample supports the conclusion that the
recorded account balance is not materially misstated when it is materially misstated
 The risk of incorrect rejection is the risk that the sample supports the conclusion that the
recorded account balance is materially misstated when it is not materially misstated.

  BODs need to appoint auditor of company within 1 month of incorporation
 Propriety audit may be defined as 'Audit concerning the decisions of the executives, with an
emphasis on public interest

Indian Contract Act 1872: Part I

Types of Contract – Based on Formation
 Express: The terms have been stated clearly in oral as well as written form.
 Implied: A contract in which the terms of the agreement are not expressed in written or oral
form is an implied contract.
 Quasi/ Constructuve: quasi-contract is not agreed upon by the two parties but it comes into
existence by a court order. It is thus enforced by the law which also creates it.

Types of Contracts – Based on Validity/ Enforceability

 Valid: An agreement that is legally binding and enforceable. It must qualify all the essentials of a
contract.
 Void: all those contracts that are not enforceable by a court of law as void.
 Voidable: An agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other or others, is a voidable contract.
 Unenforceable: Unenforceable contracts are rendered unenforceable by law due to some
technical. The contract can’t be enforced against any of the two parties.
 Illegal: An agreement that leads to one or all the parties breaking a law or not conforming to
the norms of the society is deemed to be illegal by the court.

Types of Contract – Based on Performance

 Executed: The act or forbearance promised in the contract has been performed by one, both or
all parties.
 Executory: the consideration can only be performed sometime in the future. Here the promises
of consideration simply cannot be performed immediately.
 Unilateral: when only one party makes a promise, which is open and available to anyone who
wishes to or can fulfil the said promise.
 Bilateral: a bilateral contract is one that has two parties. It is a traditional type of contract most
commonly known and occurring.
 Cross offer: similar offer to each other without having knowledge
 Counter offer: offer accepted with some change in terms of offers.
 a contract with an alien enemy is void but a contract with an alien friend is valid
 WAGERING contract: Agreements entered into between parties under the condition that money
is payable by the first party to the second party on the happening of a future uncertain event
(VOID by nature)
 Parties to a wagering contract focus mainly on the profit or loss they earn.
 A contingent contract: A contract to do or not to do something, if some event collateral to such
contract does or does not happen. (VALID by nature)

 Alteration in terms of contract happens when the parties enter into a contract and one of the
parties wants to modify or change certain terms of the contract.
 Novation is the act of substituting a valid existing contract with a replacement contract.
 Remission means acceptance of a lesser fulfillment of the promise made.
 Rescission: Cancellation of contract at mutual consent.

 Injunction: a judicial order restraining a person from beginning or continuing an action
 Indemnity: Indemnity is when one party promises to compensate the loss occurred to the other
party, due to the act of the promisor.
 Guarantee: guarantee is when a person assures the other party that he/she will perform the
promise or fulfill the obligation of the third party
 Bailment: ailment means a delivery of goods from one person to another for a special purpose
till the purpose is accomplished)
 Lien: A lien is a claim or legal right against assets that are typically used as collateral to satisfy a
debt.
 Pledge/ Pawn: Pledge means delivery of goods as security for the payment of debt or
performance of a promise
 Hypothecation occurs when an asset is pledged as collateral to secure a loan. The owner of the
asset does not give up title, possession, or ownership rights, such as income generated by the
asset.
 Agent id Purpose
Factor Takes good and sells at his own name
Del Creder Undertakes to bear the risk of bad debtson credit sales
Broker Negotiates and makes contract b/w principal and party
Indenter Undertake to trade b/w principal and foreign country
Auctioneer To sell goods at highest bid at public sale
Universal With Unlimited authority

Expansionary monetary policy is simply a policy which expands (increases) the

supply of money, whereas contractionary monetary policy contracts
(decreases) the supply of a country's currency.
Expansionary Monetary Policy can be done through:

 Purchase securities on the open market, known as Open Market Operations

 Lower the Federal Discount Rate
 Lower Reserve Requirements

Contractionary Monetary Policy can be done though

 Sell securities on the open market, known as Open Market Operations

 Raise the Federal Discount Rate
 Raise Reserve Requirements

Principles of Insurance
1. The principle of indemnity ensures that an insurance contract protects you from and
compensates you for any damage, loss, or injury
2. The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss.
3. A principle of Insurability: that states that an insured may not collect more than its own
financial interest in property that is damaged or destroyed.

 During current financial year, as a second phase of the Stock Exchanges Demutualization and
Integration Act 2012, the three stock exchanges of the country i.e Karachi Stock Exchange (KSE),
Islamabad Stock Exchange (ISL) and Lahore Stock Exchange (LSE) formally merged into single
stock exchange on January 11, 2016