Audit for CA Inter by CA SANIDHYA SARAF

Out of Order: An account should be treated as ‘out of order’ if:- • the outstanding balance remains continuously in excess of the sanctioned limit/drawing power or • In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet ; or • credits are there but are not enough to cover the interest debited during the same period, these accounts should be treated as ‘out of order’.

Professional skepticism refers to an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. The auditor shall plan and perform an audit with professional skepticism recognising that circumstances may exist that cause the financial statements to be materially misstated. Professional skepticism includes being alert to, for example: • Audit evidence that contradicts other audit evidence obtained. • Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence. • Conditions that may indicate possible fraud. • Circumstances that suggest the need for audit procedures in addition to those required by the SAs. Maintaining professional skepticism throughout the audit is necessary if the auditor is to reduce the risks of: • Overlooking unusual circumstances. • Over generalising when drawing conclusions from audit observations. • Using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof.

All the best.

2.Account of a borrower availing cash credit facility from branch of a bank has become “Out or order.” Discuss the term “Out of order”.

1.How application of professional skepticism throughout audit is helpful in reducing audit risk?

Descriptive questions

5.Which of the following statements is most appropriate regarding providing offer of work of IT services by auditors to the company? (a) Such offer may create a self-review threat. (b) Such offer may create an advocacy threat. (c) Such offer does not constitute any threat. (d) Such offer may create self-review and advocacy threats.

4.Das & Co. have failed to advise the company regarding audit of consolidated financial statements. Which fundamental principle of professional ethics is violated by Das & Co.? (a) Professional behaviour (b) Integrity (c) Objectivity (d) Professional competence and due care