Launching CA Final Audit Fastrack Classes
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CA Final Audit Concept capsule - 12

We know that Auditor has to report as per clause 9 of CARO 2020

If term loans have been used for the object other than for which they were obtained;

Now the question that arises is if company has deposited loan funds in FD for temporary period till it utilizes the amount for actual purpose, Should it be considered as diversion of funds and reported under CARO?

The answer is yes, This will be considered as diversion of funds, instead of making FD Amount should have been kept ideal till utilization for actual purpose

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CA Final Audit Concept Capsule - 13

Do you know that if auditor of a listed company wants to resign, he can't resign just like that? SEBI has put a responsibility on him, which is as follows.

1) If auditor wants to resign within 45 days from the end of the quarter, then before resignation, he has to submit the quarterly review report of that particular quarter and has to resign.

2) If auditor wants to resign after 45 days from the end of the quarter, then he has to submit limited review report of that particular quarter and also the next quarter in order to resign.

3) If auditor wants to resign after giving limited review reports of first three quarters, then before his resignation, he should also submit the limited review report of fourth quarter and also the audit report for that entire financial year before resignation.

Interesting analysis from the above provision -

If auditor wants to resign after 45 days frim end of the Second quarter, then he has to give limited review report for second quarter as well as third quarter. Now, since he has given the limited review report of third quarter, he should also give limited review report of fourth quarter and audit report for the entire financial year.

CA Final Audit Concept Capsule - 14

We know that if a company is having components, then it shall, in addition to its standalone financial statements, it should also prepare CFS. But there are certain exemptions and exclusions….

now the question is what is difference between exemption and exclusion?

1) Exemptions provided in Companies Act

a) It should be either wholly owned or partially owned subsidiary of another company and it should have obtained consent from all the shareholders that it will not prepare CFS and

b) It is neither listed nor in the process of listing.and

c) It's Ultimate Holding Company Files CFS.

If all the above three conditions are satisfied, then the company need not prepare CFS as per Companies Act, irrespective of whether AS or INDAS applicable to it.

2) Exemption provided in Ind AS 110 - If the company is an investment company, it need not prepare CFS.This exemption is applicable only if IND AS is applicable to the company.


3) Exclusions(not exemptions, just exclusion) provided in AS 21.

a) Relationship between parent and entity is temporary.
b) Subsidiary is operating under a severe long-term fund transfer restriction.

In the first two cases, there has been complete exemption granted from preparation of CFS. But as per AS-21, there is no such exemption, but it can exclude certain subsidiaries from CFS.

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CA Final Audit Concept Capsule -15

Students often confuse between these two terms 1) Digital Audit
2) Auditing Digitally

Let us quickly understand the difference
Digital audit involves auditing the technologies that the organisation is using because auditor wants to place reliance on technology used by organisation

Auditing digitally means auditor uses technology to conduct the audit.

Hope this helps you to understand these terms.

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CA Final Audit Concept Capsule - 16

As per clause 9 of CARO 2020, auditor has to report whether there is any deviation in the utilization of the amount that has been raised through term loans.

Let’s say, the borrower has taken a term loan to purchase a delivery truck for the business.
However, instead of buying the exact model originally mentioned in the loan documents, the borrower purchases a newer, upgraded version of the delivery truck, which has better fuel efficiency and more features.

Now the question is:
Should this be considered as a diversion of loan funds under Clause 9 of CARO 2020?

It is NOT considered a diversion of funds because, If the objective of the loan is fulfilled, and the loan was used for the intended type of asset, it will not be considered a diversion, even if there are minor variations (like a better model, color, or specifications)

Let me know if you have any questions in the comments section.

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CA Final Audit Concept Capsule - 17

Every NBFC has to maintain a net owned fund of 2 crore rupees(some NBFC’s need to maintain even more) as per section 45IA of RBI Act 1997 and auditor has to check whether this net owned fund requirement has been complied with by NBFC or not.

Now the question is, when should this Net owned fund requirement has to be satisfied? Whether at the end of each day, or at the end of each month, or at the end of current financial year, or at the end of previous financial year? Very much confused, right?

Auditor has to check whether NBFC has satisfied with this Net owned fund requirement at the end of the financial year for which the auditor is conducting the audit.

Hope this will clear your confusion. Let me know if you are having any questions in the comment section.

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CA Final Audit concept Capsule - 18

As per Schedule 1, Part 1, Clause 8, a chartered accountant in practice shall be deemed to be guilty of professional misconduct if he accepts a position as auditor previously held by another chartered accountant.

Whether this is applicable only for a statutory audit as per Companies Act or also for a tax audit and GST audit?

This is applicable for all the types of audits because here in the provision the term that has been used is position as an auditor. However, this is not applicable for non-audit services.

Hope this makes the provision clear. If you are having any questions, let me know them in the comment section.

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Hope your FR exam went well! I heard the paper was a bit lengthy this time — but hey, don’t stress if you couldn’t attempt the full 100 marks. Remember, quality matters more than quantity! Stay confident, keep your spirits high, and get ready to rock your next exam, AFM. You’ve got this — all the best!

Hope Your AFM Exam went well, Here is your 1.5 day revision plan for Audit Exam.

Since the syllabus is huge don't waste your time & start revision immediately.

CA Final Audit Concept Capsule - 19

As per Clause 2 of CARO 2020, Auditor has to report if there is any disrepancy of 10% or more between physical inventory and inventory as per Books of Accounts.

Now, the catch over here is, the disrepancy of 10% or more has to be seen inventory class wise but not on total inventory basis. Now, what does this mean?

Example of class of inventory is like
1) raw material is one class of inventory,
2) work in progress is another class of inventory,
3) finished goods is another class of inventory.

Now, if difference between raw material as per books of accounts and physical raw material is 10% or more, then the auditor will report. Same with respect to working progress, finished goods, and any other classes of inventories that are present.

Another catch over here is this 10% has to be calculated on the book values of the inventory.

Hope this makes your concept clear. If you have any questions, let me know in the comment section.

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All the resources for your Audit revision

1) Amendments for May 2025 - https://youtu.be/YMYKHkA5LE4?si=qkQ9raFf-MBnChOU

2) RTP discussion May 2025 - https://youtu.be/kmaRsrklI3g?si=51qn2KTGiGuhzWAK

3) Revision lectures playlist - https://youtube.com/playlist?list=PLTcMTjZTEh8pzTO5DPr9tpQuIwIhKsmKE&si=gf3o5q0ucPSJj8Sv

4) Case Scrnario based MCQ Discussion - https://youtube.com/playlist?list=PLTcMTjZTEh8rHmNc7yyogL5VLyabWN8pK&si=v66sIyi_hArC1PpU

5) Q&A Discussion Playlist - https://youtube.com/playlist?list=PLTcMTjZTEh8riYh2cucUEfgPCy4n9nTIi&si=aI51pk6K3Dim4njp

1,2,6,7,11,14,16,20,22,24,26,27,28,32,34

These are Important Case scenarios from ICAI issued case scenario booklet, They will start from page 58 in this PDF.