CA Inter audit concept capsule - 2

Points to remember while calculating drawing power of working capital under Bank audit

1) Add - Debtors
2) Less - Ineligble debtors
3) Less - margin on debtors ( to be calculated on 1 - 2)
4) Add - Stock
5) Less - Creditors
6) Less - Margin on stock (to be calculated on 4-5)

The amount that you arrive by doing this calculation is the drawing power. Do remember that drawing power should be always less than sanction limit.

Let me know if you have any doubts.
-CA Balakrishna Kovuru

CA Inter audit concept capsule - 3

Financial statements(FS) can be either historical FS or prospective FS. Now what’s the difference between these two?

Historical FS contains past transactions, which have already taken place.

Prospective FS contains those figures that the entity assumes to occur in future, assumptions are involved here.

Now the question is can auditor provide opinion on both historical FS and also on prospective FS?

See with respect to historical FS. Of course, auditor can provide opinion on whether amounts in these FS are correct or not and whether these FS are showing a true and fair view or not.

But with respect to prospective FS, Auditor can provide opinion only on whether underlying assumptions are reasonable or not, but he cannot provide opinion on the actual amounts that are shown in the prospective FS.

Let me know if you have any doubts.
-CA Balakrishna kovuru

CA Inter concept capsule - 5

We all know that in case of an audit Auditor provides reasonable assurance on financial statements, but do you know apart from audit a chartered accountant can be appointed to conduct review of financial statements also.

Now, what’s the difference between audit and review?

1) Audit - Reasonable Assurance, Review - Limited Assurance.

2) Audit - Extensive audit procedures performed, Review - Only some procedures performed.

3) Audit - SA’s are applicable, Review - SRE’s are applicable.

Comment if you know any other differences

-CA Balakrishna Kovuru

CA Inter audit concept capsule - 6

1) Overall audit strategy
2) Audit plan
3) Audit programme

These are the three documents that Auditor prepares during planning phase of an audit. let’s understand the difference between these three documents.

1) Overall audit strategy - This is the first document that is prepared as part of audit planning, this briefly establishes objective, scope, and timing of audit. this answers what has to be audited and when.

2) Audit plan- audit plan is developed based on overall audit strategy. this contains detailed audit procedures that has to be performed. This answers how an item has to be audited.

3) Audit programme - audit programme contains list of procedures which will be given to the assistant who is actually conducting the audit. This will act as a guide to the assistant.

-CA Balakrishna Kovuru

CA Inter Audit Hard Copy Books- Demo
https://youtu.be/khy04Y3kAFU

CA Inter audit concept capsule - 7

In auditing subject, we will be listening to these two terms very frequently, professional judgement and professional skcepticism. Now let’s see What’s the difference between these two terms?

1) Professional Judgement - application of knowledge gained through your experience and your training while making a decision is known as professional judgement.

2) professional sckepticism - this includes three things
a) Questioning mind
b) critical assessment of evidence
c) being alert to material misstatements

Hope now you properly understood the difference between these two terms.

-CA Balakrishna Kovuru

CA Inter Audit concept capsule - 8

Students often confuse between the terms, materiality and performance materiality. Let us understand the difference between these two.

Materiality - it is a level of misstatements that will influence the economic decisions of users. Materiality = (Benchmark x percentage)

Performance materiality - audit cannot detect all the misstatements. so, to avoid the possibility of detected statements and undetected statements crossing the level of materiality, Auditor determine performance materiality. auditor becomes alert when statements reaches performance materiality.
Performance materiality= (materiality x percentage)

Hope this makes your concept clear
-CA Balakrishna Kovuru

CA Inter Audit Concept Capsule - 9

Quite often, we listen to these terms management and those charged with governance(TCWG). Most of the students think these two terms can be used interchangeably, but that is not correct. There is major difference between these two.

Management - Management are the people who are involved with the executory functions of the company. Eg- CEO, Managing Director, Whole Time Director etc

TCWG - These are the people who are involved with decision-making activity in the company. Eg- Board of Directors, Audit Committee etc.

You should also remember that in some companies, both management and TCWG can be same people or there can be some common people between management and TCWG.

So, since the term management and TCWG changes from entity to entity, it becomes very important for the auditor to identify these two in each and every entity that he audits.

Hope this makes your concept clear
-CA Balakrishna Kovuru

CA Inter Audit Concept Capsule - 10

We know audit risk is combination of inherent risk, control risk, and detection risk. Here, let us understand the relationship between these three types of risks and how this will lead to audit risk.

Firstly, inherent risk is the risk that will be present in an item by birth, provided there are no internal controls.

To reduce this inherent risk, controls will be implemented. However, the controls cannot detect or reduce 100% of the misstatements. So, the risk that controls might fail is a control risk.

Now auditor will multiply inherent risk with control risk to arrive at ROMM.

To reduce this ROMM to an acceptable level, auditor will perform audit procedures. And the risk that audit procedures cannot detect the misstatements is detection risk.

Auditor will adjust this detection risk to bring audit risk to an acceptable level.

Hope now you understood the relationship between these three risks.

-CA Balakrishna kovuru

CA Inter Audit Concept Capsule - 11

We know that when 2 or more auditors are appointed to audit a single entity, we call it as a joint audit.

Now the question is whether the joint auditors should together give single audit report or they have to give separate audit report by each joint auditor.

It depends on the opinion that joint auditors reaches. If all the joint auditors comes to same opinion, then they can give single audit report.

If it joint auditors have differences of opinions, then they can express their opinion in their own separate audit report

A joint auditor is not bound by opinion of majority of auditors.

-CA Balakrishna Kovuru

CA Inter Audit Concept Capsule - 12

In SA 530, there are these two terms replacement item and anomaly which most of the students will confuse let us understand them clearly.

1) Replacement item - let’s say you have selected some sample of cheques for performing audit procedures, In that sample, one of the cancelled cheque got selected.

Now your audit procedures are not applicable for that cancelled cheque so you have replaced that cancelled Cheque with other cheque and performed audit procedures on that other cheque.

In this situation that new cheque which has replaced the cancelled cheque will become replacement item.

2) Anomaly - let’s say you have found a Misstatement in the sample, but that misstatement is very rare and not representative of entire population. Then you will call such a statement as anomaly.

Hope you got clear understanding of these two terms.

-CA Balakrishna Kovuru

Will be live for an announcement at 11.00 AM

Let’s Catchup

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Will discuss the amendments applicable for CA Final Audit jan 2026 exams

Join the live tomorrow at 11.00 AM

https://www.youtube.com/live/t2GbIZVNBHs?si=cLYApzANLlwPBEDm

Results of Sep 25 CA Exams will be declared on 3rd November guys

All the Best

CA Final Audit Amendments for Jan 2026

CA Final Audit Books are now live on website

https://lecturepedia.in/course-details.html?_id=6788e0227b1186a8cb41ff4a