Notes And Study Material for Exam Papers

Classification of investigation has following types 1. Evaluation investigation                     4. Analysis investigation 2. Review investigation              5. Special audit 3. Survey investigation              6. Statutory investigation 1. Evaluation Investigation: Evaluation investigation is conducted to determine the real worth of business proposed to be purchased or sold, or to determine the performance of machinery or efficiency of the personnel of an organization. In case of proposed purchase of business, the investigation relates to valuating the assets and liabilities and ascertaining the present earning potential and future prospects. In case of sale of business, net worth of business is determined. In case of evaluation of machin...

Investigation involves inquiry into facts behind the books and accounts, into the technical, financial and the economic position of the business or organisation. Investigation is an examination of books and records preliminary of financing or for any specified purpose, sometimes differing in scope from the ordinary audit. Investigation implies an examination of and record for some special purpose. Audit and Investigation distinguished 1.         Legal binding Audit of annual financial statements is compulsory under the Companies Ordinance, 1984. Investigation is not compulsory under Companies Ordinance but voluntary depending upon necessity. 2.         Object in view Audit is conducted to ascertain whether the financial statements show a true and fair view. Investigation is conducted with a particular object in view, viz to know financial position, earning capaci...

Sugar Manufacturing Company is a manufacturing company where raw material is converted into finished product. In addition to various other important considerations from audit point of view, some special consideration will receive attention on the part of an Auditor. They may be as under: 1-         Raw material is purchased in sufficient large quantities either from the farmers or contractors. In this behalf, various types of receipts issued to the farmers or contractors should be checked. Also the stock of goods should be physically checked in order to ensure the quality and quantity of raw material purchased. 2-         Sugar industry is a process industry and proper and strong cost accounting system is required. Necessary accounts pertaining to work-in-process, material, factory overhead and finished goods are to be properly maintained. Production record is to be properly maintained by the Facto...

Textile Mill is a manufacturing concern where raw-material is purchased and finished product in the form of yarn and cloth etc is obtained. From Auditor’s point view so many important aspects will require special consideration. These may be as under: 1-         System of internal check / internal control should be studied in order to ensure that it is satisfactory and is serving the best interest of the organization. 2-         Considerable amount is spent on the procuring raw cotton which is purchased either directly from farmers or contractors. Proper record in this behalf must be maintained. Quantity and quality of stock is to be checked and the rates etc, verified. 3-         Although an auditor is not supposed to be an expert to check the quality of raw material, but he is supposed to be pay special visits to the Mill to the quality of stock physically mai...

While auditing the accounts of a Cinema, the following points will receive special consideration on the part of an Auditor: 1-         Auditor will examine the working of the system of internal check in operation in the business particularly in relation to cash receipts and payments ad un-issued tickets. He will see that un-issued tickets are kept under proper control and the issued tickets are duly signed by a responsible officer of the business. 2-         Auditor will check the daily returns for the tickets sold for different shows. He will see that the collections are daily deposited into the bank. He can vouch receipts from tickets sold with the amount of entertainment tax paid. 3-         Auditor will check other sundry receipts from contracts to supply refreshments, receipts from advertisements, hire charges of opera glasses, space allotted for display o...

While auditing the accounts of a big hotel, auditor will pay his special attention to the following points: 1-         Examination of the system of internal check in operation in the business will be the first and the most important duty of the auditor. He will thoroughly enquire into the system of internal check with regard to cash receipts and the preparation of customer’s bills. 2-         Auditor will carry out complete checking of Cash Book and Pass Book. He may prepare Bank Reconciliation Statement to reconcile the amount of cash at bank as shown by both the books. 3-         Auditor will vouch all payments made from the Cash Book and Petty Cash Book. He will check the posting of cash transactions to their respective ledger accounts. 4-         Auditor will see that room rent receipts and bar receipts ar...

The primary object of such an audit is to give an idea to the advertisers about the effectiveness of their advertisements. In order to eliminate the effect of temporary factors contributing to sudden increase or decrease in circulation of a newspaper, it is always better to select short durations, say a month or a quarter of the year, for the purposes of investigation in the accounts of a newspaper. Auditor must remain on guard throughout his work against attempts made to show a false increase in the circulation of a newspaper by including the names of dummy subscribers. Leading advertisers in the country have set up an Audit Bureau, which has developed the procedure to be followed by auditors while conducting such audit. The audit programme for verifying the circulation of a newspaper will be on the following lines: 1-         Auditor will verify the number of copies printed from the printers voucher and the entry for the issue of newsp...

In the course of audit examination, the auditor will have to keep in mind the different situations existing in different types of organizations. There may be some very important steps to be taken by an auditor in a certain type of audit examination which may not be so important in other organizations. Audit examination of manufacturing organizations such as Textile and Sugar Companies will require different emphasis to be laid by the auditor which may be totally different in case of a trading concern or a banking company. However some general points may be discussed which may be applicable in every type of business. These general points may be summarized as under: 1-         To check the efficiency or otherwise of Internal Control System in the organization; 2-      In order to ensure the liquid position of the organization to verify the cash in hand; 3-      Verification of bank balance is also a must almos...

Goethe himself once described the differences between the two sections of his poem by saying: The first part is almost entirely subjective; it proceeded entirely from a perplexed, impassioned individual, and his semi-darkness is probably highly pleasing to mankind. But, in the second part, there is scarcely anything of the subjective; here is seen a higher, broader, clearer, more passionless world, and he who has not looked about him and had some experience, will not know what to make of it. The two parts of the poem are essential elements of a single whole, but their relationship is an indirect and metaphorical one. They present alternative views of the human yearning for truth and fulfilment by exploring different aspects of this same problem. Part One is concerned mainly with highly personal experience, while Part Two treats society as a whole, and Faust develops from a single individual into a symbolic figure who represents the striving spirit of man in the modern world. Th...

Although there are many elements of Catholic religious symbolism in this scene, they were adopted by Goethe only because he saw in them a means to give tangible expression to his beliefs, and do not demonstrate his adherence to orthodox Christianity. Faust has been saved as a result of the heightened knowledge and insight gained through great experience. The presence of all these figures in the place to which Faust’s soul is brought, indicates that striving for union with the ultimate is part of the essential character of all life, and is the basis from which immortality arises. The angles who bring in Faust’s soul reveal that he has not yet attained Salvation. Now that he has been liberated from sin, however, he will commence his purification and will free himself from the remaining traces of his earthly existence. He will be reborn, in a sense, like the spirits of the innocent children, and with them will rise to the higher levels of Salvation. This indicates the Salvation ...

The scene is particularly praised by critics for its poignant portrayal of Gretchen’s madness. Gretchen’s restoration to sanity when she sees Faust illustrates the regenerative power of love. He refusal to escape is based on her acknowledgment of responsibility for her acts and her acceptance of God’s law. She has a simple and clear-cut conception of right and wrong which is incomprehensible to the still inwardly doubling Faust. Gretchen is granted salvation by God’s grace (the voice from Heaven) because her crimes were the result of inexperience and her motives were never sinful or impure. Gretchen was led into sin by following her instincts, but in Goethe’s thought it is part of being human to err. One is redeemed in the end if his conscience learns to know the difference between good and evil, rejects sinfulness, and repents. Gretchen’s final words, “Heinrich! I shudder to look at you,” express her horror at the ungodly, negativistic life Faust has chosen by maintaining his as...

It has been nearly a year since Valentine’s death and Faust has again abandoned Gretchen. Now it is Walpurgis Night (April 30 th ), the time of the annual gathering of witches and spirits at the top of the Brocken in the Harz Mountains (located in central Germany ) to celebrate a satanic orgy. The mountaintop is covered with swarms of demons dancing and singing. While coupled in an erotic dance with a young female witch, Faust suddenly notices a mouse coming out of his partner’s mouth. The shock of this causes him to remember Gretchen. He has a vision of her in chains, becomes distressed, and starts to wander away. This episode can be interpreted symbolically as the descent into Hell promised in the “Prelude in the Theatre.” The witches and demons whom Faust encounters are incarnations of all the many facets of evil. Faust is made to face the awful reality of his degeneration, but at the last moment his moral sensibility makes a final effort to assert itself. He remembers Gretc...

Gretchen: Gretchen is a simple, innocent, and pious maiden who develops into a figure of genuine tragic stature. She is essentially pure and innocent, but becomes a willing victim of Faust’s seduction due to loneliness, inexperience, resentment of her mother’s strictness, and an idealistic naivete that leads her to assume that Faust’s love will be as permanent and unselfish as her own. In a sense her crimes are the result of her innocence, although this does not negate her own responsibility for her downfall. Gretchen has an innate religious sense, and one critic has called her the only the Christian in the poem.  This is why she is able to accept her punishment at the end of Part One, and also explains her intuitive aversion to Mephisto and her insight that Faust’s plan for escape would be morally unbearable. Gretchen is admitted to Heaven at the close of Part One because, despite her acts, she was never motivated by evil intentions and had acted according to her natural i...

Following difficulties are faced by an auditor in obtaining audit evidence. 1. Inadequate records maintained. 2. Existence of mass of data. 3. Client’s assistance facility not available. 4. International concealment and falsification 5. Accounting procedures problems 1.         Inadequate records maintained: An audit or expresses his opinion on the financial statement prepared by the client from the books and records maintained by it. The opinion is to be the truth and fairness of financial statements. When a client has not maintained proper and systematic financial records of his business activities, adequate and acceptable audit evidence will not be available to the auditor. He would, therefore, find it difficult to form an opinion with regard to the financial statements prepared from such record. Resultantly, it would be very difficult for him to collect necessary evidence to ensure himself about the accuracy of the financia...

ISA8 describe audit evidence as: “Audit evidence means the information obtained by the auditor in arriving at the conclusions on which the audit opinion is based. Audit evidence comprises source documents and accounting records rendering the financial statements and corroborating informations from other sources.” ISA8 requires that an auditor should obtain sufficient appropriate audit evidence through the compliance procedures and substantive procedures to enable him to draw reasonable conclusions therefore to form the basis of his opinion on the financial statements. ISA8 contains three important standards relating to nature and sources of audit evidences: (a) ISA8.2: The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. (b) ISA8.10: When obtaining audit evidence from tests of control, the auditor should consider the sufficiency and appropriateness of the audit evidence to support t...

Audit evidence may be obtained from various sources, but the basic factor is that, irrespective of the source, the evidence must be acceptable, relevant and reliable so that the auditor can fulfil his statutory duty and form an opinion. Audit evidences collected by an auditor may be divided into the following categories: a. Observations b. Testimony from independent third parties c. Authoritative outside documents d. Authoritative inside documents f. Satisfactory internal control g. Subsequent events h. Relationship evidence i. Computation and comparison j. Calculations and analysis by auditor k. External events. Observations: Auditor’s own observation of the existence of an item, asserted the existence of the item which is the strongest audit evidence. The Observation comprises of the following aspects. a. Physical examination b. Witnessing internal control and book keeping procedures. c. Presence of record to ensure that procedures have been carrie...

The overall objective of an examination of the financial statements is to render an opinion as to the fairness of the financial statements in conformity with the “Generally Accepted Accounting Principles (GAAP).” In order to render an opinion the auditor has to gather and evaluate certain information called audit evidence. Meaning: “Audit Evidence” is a mixture of observations made by audit inquiry and data compiled via analysis of other data which, when combined, enables the auditor to from and substantiate an opinion on financial statement. Audit separates all the confirmations that the auditor has obtained and that (a) Is relevant to what the auditor is trying to determine. (b) Influences the auditor in formulating an opinion as to fairness of the financial statements. Assertion by Management Financial statements assertions are the representations of the directors that are embodied in the financial statements. The directors by approving the financial statements are...

Nomenclature: Also called Progressive Audit Programme or Special Audit Programme. Definition: A flexible audit programme may be defined as a plan which only outlines general scope, character and limitations of the audit engagement, and makes no mention of audit procedures to be followed, the nature of work to be performed by individual staff, and time allocated for each item. Under flexible audit programme, the staffs have much discretion in improving it as the audit work progresses. The staff can also display its initiative. Construction of Audit Programme: Audit programme containing detailed directions to audit staff regarding the audit work to be carried out is prepared to ensure intended implementation of the strategy set up in the planning memorandum. The audit programme of different clients would of course, contain similar points but still programme for each must be written individually in the light of the needs and circumstances of each particular audit. The pr...

Types of Audit Programme Definition: A fixed audit programme may be defined as a plan based on organized thinking and deep deliberations and contains general, standardized and all conceivable audit instruction and procedures irrespective of their applicability to the audit engagement. Drawback of fixed audit programme are: a. Fixed audit programme lays down a rigid framework for conducting audit examination. b. Audit staff members are not free to use their own imagination and initiative. c. It is unsuitable in case of clients where working conditions may vary from year to year. Existing Concept of Fixed Programme An audit process, from initial planning through formation of final audit opinion, is highly complex. From a liability point of view professional auditing firm cannot afford to allow each and every one of their qualified staff to determine their own personalized audit programme. Audit Manuals prepared by large audit firms dictate the course of both complia...