CA Intermediate PAPER 5: AUDITING AND ETHICS Syllabus

PAPER 5: AUDITING AND ETHICS syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for PAPER 5: AUDITING AND ETHICS in CA Intermediate, not a summary of it.

1. 1

   Nature, Objective and Scope of Audit

   2 topics

   • Auditing Concepts
     • Origin of Auditing
     • Meaning of Audit
     • Need for Audit (Benefits of Audit)
     • Objective of the Audit
     • Scope of Audit
     • External Audit engagements
     • Qualities of Auditor
   • Inherent Limitations of an Audit
     • Relationship of auditing with other disciplines
2. 2

   Audit Strategy, Audit Planning and Audit Program

   1 topic

   • Auditor’s responsibility to plan an audit of financial statements
     • Benefits of audit planning
     • Continual and iterative process
     • Involvement of Key Engagement Team Members
     • Preliminary engagement activities
     • Client continuance and ethical requirements
     • Establishing an overall audit strategy
     • Development of audit plan
     • Documenting the overall audit strategy and audit plan
     • Development of Audit Plan and Program
3. 3

   Risk Assessment and Internal Control

   4 topics

   • Audit Risk
     • Risk of Material Misstatement
     • Inherent Risk and Control Risk
     • Detection Risk
   • Concept of Materiality
     • Materiality in Planning and Performing an Audit
     • Auditor’s responsibility to apply the concept of materiality
   • Application of materiality in planning and performing the audit
     • Concept of Performance materiality
     • Determining materiality and performance materiality when planning the audit
     • Use of Benchmarks in determining materiality for the financial statements
     • Revision in materiality as the audit progresses
     • Documenting the Materiality
   • Identifying and Assessing the Risk of Material Misstatement
     • Risk Assessment procedures
     • Understanding the entity and its environment
     • Internal control
4. 4

   Audit Evidence

   2 topics

   • Meaning of Audit Evidence
     • Relevance and Reliability of audit evidence
     • Sufficient appropriate audit evidence
     • Meaning of Assertions
   • Assertions contained in the Financial Statements
     • Source of audit evidence
     • Test of controls
     • Substantive Procedures
     • Evaluation of Audit Evidence
5. 5

   Audit of Items of Financial Statements

   4 topics

   • Audit of sale of Products and Services
   • Audit of Purchases
   • Audit of Share Capital
   • Audit of Loan & Advances
6. 6

   Audit Documentation

   2 topics

   • Concept of Audit Documentation
     • Nature & Purpose of Audit Documentation
     • Form, Content & Extent of Audit Documentation
   • Ownership and custody of Audit Documentation
7. 7

   Completion and Review

   2 topics

   • Meaning of Subsequent Events
   • Responsibilities of the Auditor with regard to Going Concern Assumption
8. 8

   Audit Report

   2 topics

   • Forming an opinion on the Financial Statements
   • Communicating key Audit Matters in the Independent Auditor’s Report
9. 9

   Special Features of Audit of Different Type of Entities

   overview

   Examined as a single unit within PAPER 5: AUDITING AND ETHICS — no further topic split in the official outline.

10. 10

    Audit of Banks

    3 topics

    • Understanding of accounting system in Banks
    • Audit of Revenue items
    • Special Consideration in Bank Audit with emphasis on Advances and NPAs
11. 11

    Ethics and Terms of Audit Engagements

    5 topics

    • Meaning of Ethics
    • Principles based approach v Rules based approach
    • Independence of Auditors
    • Safeguards to Independence
    • Terms of Audit Engagements

PAPER 5: AUDITING AND ETHICS flashcards for CA Intermediate

20 of 61 cards from the PAPER 5: AUDITING AND ETHICS deck — real questions with worked answers.

1. Define 'auditing' as per the SA framework.

   Auditing is the independent examination of financial information of any entity, whether profit-oriented or not, irrespective of size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.

2. What is the objective of an audit of financial statements as per SA 200?

   To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement (whether due to fraud or error), enabling the auditor to express an opinion on whether they are prepared, in all material respects, in accordance with the applicable financial reporting framework, and to report on the financial statements.

3. What is meant by 'reasonable assurance' in an audit?

   Reasonable assurance is a high level of assurance (but not absolute) obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. It is not a guarantee that the financial statements are free from all misstatement.

4. List the main inherent limitations of an audit.

   1) Nature of financial reporting (use of judgement/estimates), 2) Nature of audit procedures (limits of evidence, possibility of management not providing complete information, fraud concealment), 3) Need for the audit to be conducted within a reasonable time and at reasonable cost, and 4) Other limitations affecting persuasiveness of evidence (e.g., related party transactions, non-compliance with laws).

5. Why can an auditor not obtain 'absolute assurance'?

   Because of inherent limitations of an audit arising from the nature of financial reporting, the nature of audit procedures, and the practical/legal constraint of completing the audit within a reasonable time at reasonable cost — meaning audit evidence is persuasive rather than conclusive.

6. What is the auditor's overall responsibility when planning an audit (SA 300)?

   To plan the audit so that it is performed in an effective manner — establishing the overall audit strategy and developing an audit plan that reduces audit risk to an acceptably low level.

7. Distinguish between the 'overall audit strategy' and the 'audit plan' (SA 300).

   The overall audit strategy sets the scope, timing and direction of the audit and guides the development of the audit plan. The audit plan is more detailed and describes the nature, timing and extent of risk assessment procedures and further audit procedures at the assertion level.

8. State the benefits of planning an audit.

   Planning helps the auditor devote appropriate attention to important areas, identify and resolve problems on a timely basis, properly organise and manage the engagement, select team members with appropriate capabilities, direct and supervise the team, review their work, and coordinate work done by others (e.g., experts, component auditors).

9. Define 'audit risk' and give its formula.

   Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit Risk = Risk of Material Misstatement × Detection Risk (i.e., AR = Inherent Risk × Control Risk × Detection Risk).

10. What are the two components of the Risk of Material Misstatement (RMM)?

    Inherent Risk and Control Risk. RMM = Inherent Risk × Control Risk. These exist independently of the audit and relate to the entity, not the auditor.

11. Define inherent risk, control risk and detection risk.

    Inherent risk: susceptibility of an assertion to misstatement before considering controls. Control risk: risk that a misstatement will not be prevented or detected and corrected on a timely basis by internal controls. Detection risk: risk that the auditor's procedures will not detect an existing material misstatement.

12. What is the relationship between Risk of Material Misstatement and Detection Risk?

    They have an inverse relationship for a given level of audit risk. The higher the assessed RMM, the lower the acceptable detection risk, requiring more persuasive audit evidence (more extensive/effective procedures).

13. Define 'materiality' in the context of an audit.

    Misstatements, including omissions, are considered material if they, individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

14. Distinguish between 'materiality for the financial statements as a whole' and 'performance materiality' (SA 320).

    Materiality for the financial statements as a whole is the amount set by the auditor for the FS overall. Performance materiality is the amount(s) set at less than overall materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality.

15. How is materiality used in planning and performing the audit (SA 320)?

    Materiality is used to determine the nature, timing and extent of risk assessment procedures, to identify and assess risks of material misstatement, and to determine the nature, timing and extent of further audit procedures. It must be revised if information comes to light that would have caused a different initial determination.

16. What two aspects of materiality must the auditor consider?

    Quantitative aspect (the size/amount of the misstatement) and qualitative aspect (the nature of the item, e.g., misstatements affecting compliance with law, debt covenants, related party transactions, or that turn a loss into a profit).

17. What are the auditor's objectives under SA 315 (Identifying and Assessing RMM)?

    To identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels, through understanding the entity and its environment, including its internal control, thereby providing a basis for designing and implementing responses to those risks.

18. What are 'risk assessment procedures' under SA 315?

    Procedures performed to obtain an understanding of the entity and its environment and internal control, to identify and assess RMM. They include: inquiries of management and others, analytical procedures, and observation and inspection.

19. What is a 'significant risk' under SA 315?

    A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgement, requires special audit consideration (e.g., fraud risks, significant transactions with related parties, complexity, significant non-routine or judgemental transactions).

20. Define 'audit evidence'.

    Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based, including information from the accounting records underlying the financial statements and other information.

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