CAP-II SYLLABUS

Syllabus of Audit and Assurance

Audit and Assurance is the second paper of CAP-II. It covers 100 marks in total. It is the Group 1 paper. The syllabus you need to cover in CAP-II under “Audit and Assurance” is as follow:

Level of Knowledge : Working

Course objectives:

— To develop candidates’ capability in understanding the relevant auditing procedure.

— To develop candidates’ capability to display the ability to document the accounting and internal control system of an enterprise.

— To develop candidates’ capability in identifying significant risks and apply risk assessment tools to the engagement.

Course contents

1: General concepts

a. Auditing and assurance

Concept of assurance versus audit , origin and history of audit, objectives, scope and limitation of audit, general principles governing an audit, relationship of audit with other subjects; different types of audit, statutory audit, internal audit, tax audit , latest development in auditing profession.

Differences between auditing and accounting, investigation, management etc, working knowledge on the following Nepal Standards on Auditing issued by the Institute of Chartered Accountants of Nepal.

—  NSA 200-Objectives and general principles governing an audit of financial statements

—  NSA 210-Terms of audit engagements

—  NSA 230-Audit documentation

—  NSA 250- Consideration of laws and regulations in an audit of financial statements

—  NSA 300- Planning an audit of financial statements

— NSA 315 -Understanding the entity and its environment an assessing the risk of material misstatements

—  NSA 320- Audit materiality

—  NSA 500- Audit evidence

—  NSA 505- External confirmation

—  NSA 510- Initial engagements-opening balances

—  NSA 530- Audit sampling and other means of testing

—  NSA 610-Considering the work of internal auditing

—  NSA 620-Using the work of an expert

b. Ethics

General introduction to code of ethics issued by ICAN, Provisions governing ethics by ICAN Act and circulars, Basic cases of verdict on disciplinary cases.

c. Regulatory compliance

Regulatory framework: ICAN Act, Companies Act, Securities Act, Audit Act, Bank and Finance Companies Act and other relevant acts with regards to appointment, responsibility and reporting by auditors.

 

  1. Planning an audit engagement

a. Understanding the entity and its environment and assessing the risk of material misstatement

— Understanding the client’s business, risk assessment and response to assessed risk, Identification of business risk of Client and application of business risk concept over the audit risk assessment procedure.

— Audit risk and concept of inherent risk, control risk and detection risk and interrelationship among the different types of audit risk,

— Discuss the importance of risk analysis and identify and describe the need to plan and perform audits with an attitude of professional skepticism

—  Describe the use of information technology in the risk analysis

 

b. Audit plan and audit strategy-

contents of an audit plan, concept of audit planning memorandum, and requirement of documentation in planning and communication to those charged with governance.

 

c. Concepts of using approaches on audit planning

—  Reliance on control

—  Reliance on internal auditors

—  Reliance on other experts

—  Reliance on work of another auditor

— Probable extent of tests of controls and substantive procedures, including analytical procedures

—  The nature and extent of client-generated information

—  The probable number, timing, staffing and location of assurance visits

 

d. Internal control system and control environment, fraud and error

—  Definition of internal control

—  Management role in designing the internal control system

—  Design of internal control system to prevent and detect fraud and error

—  Components of internal control

—  Limitations of internal control

—  Concept of fraud and error and auditors responsibility to consider fraud in an audit

—  Auditor’s responsibility with regard to fraud and error

 

e. Application of analytical procedures

Analytical review- concept and use of analytical review procedure in gathering audit evidence

 

f. Materiality, tolerable error, and sample sizes

Concept of materiality and standards of auditing on materiality

 

g. Design and documentation of plan and program

—  Audit documentations

—  Definitions, nature of audit documentation

—  Form, content and extent of audit documentation

—  Audit file (temporary and permanent)

—  Changes in audit documentation in exceptional circumstances

—  Concept of audit note book, working papers, etc.

 

h. Evaluation of going concern assessment at planning stage and use of standard related to going concern in planning an audit engagement.

 

i. Co-ordinance and monitoring of the work. Evaluation of internal control system

 

j. Transaction cycles (revenue, purchases, payroll, inventory, capital expenditure)

 

k. Communication with management and those charged with corporate governance

 

l. Evaluation of financial statement assertions: assets, liabilities, income and expenditure, including accounting estimates.

 

  1. Gathering evidence during an audit engagement

— Assertions- meaning of assertions, types of assertions at classes of transactions and account balances, financial statement level and disclosure level, use of assertions in gathering audit evidence

—  Concept, sufficient appropriate audit evidence

— Vouching and verification of major financial statement items (income, expenses, assets, liabilities, contingent liabilities) – consideration of internal control requirement, different laws and regulations and assertion testing

—  Audit sampling and other means of testing

—  Use of external confirmation as audit evidences

—  Different methods of obtaining evidence

—  Identification and use of the methods for different business situations

—  Reliability of different types of assurance evidence

— Identification of situations where analytical procedures, test of control and substantive procedures are to be implied.

—  Evidence from analytical procedures, test of control and substantive procedures

—  Quantity and quality of evidence needed for reports

— Written confirmation of representations from management (management representations-concept, cases when management representation cannot be an audit evidence, use of management representations as audit evidence)

— Initial audit engagements- Consideration from the incoming auditor regarding the correctness of opening balances

— Audit of payments: General considerations, wages, capital expenditure, other payments and expenses, petty cash payments, audit of payments into and out of the bank, reconciliation of bank statements with cash book

—  Audit of receipts: General considerations, cash sales, receipts from debtors, other receipts

—  Audit of purchases, vouching cash and credit purchases, forward purchases, purchases returns

— Audit of sales, cash and credit sales, goods on consignment, sale on approval basis, sales under hire-purchase agreement, returnable containers, various types of allowances given to customers, sales returns, sales ledger

—  Audit of suppliers’ ledger and debtors’ ledger: Self-balancing and the sectional-balancing system, total or control accounts, loose leaf and card ledgers, confirmatory statements from credit customers and suppliers, provision for bad and doubtful debts, writing off of bad debts

— Audit of impersonal ledgers: Capital expenditure, deferred revenue expenditure and revenue expenditure, outstanding expenses and income, repairs and renewals, distinction between reserves and provisions, implications of change in the basis of accounting

—  Audit of assets and liabilities

—  Audit of share capital and transfer of shares

—  Audit of incomplete records

—  Audit of accounting estimates (concept of “accounting estimates” and techniques to obtain audit evidence regarding the appropriateness of using the right estimate by management)

—  Audit of limited companies: Appointment of auditors, powers and duties of auditors

 

  1. Using work of others

—  Using the work of another auditor

—  Considering the work of internal auditor

—  Using the work of an expert

  1. Internal audit and corporate governance

— Concept of Internal Audit and Best Practices adopted from IFAC Code of Ethics for Internal Audit Services

—  Difference between internal and external audit services

—  Scope of internal audit function

—  Internal audit reports

—  Concept of corporate governance

—  Role of internal audit in corporate governance

—  Function and extent of internal audit in entities

—  Outsourcing in internal audit

—  Audit committee and relevant legal provisions for requirement of audit committee

 

  1. Audit conclusions and reporting

 

  1. Concept of “Hot Review and Cold Review”

 

i. Audit finalization and final review

—  Importance of overall review of audit evidence obtained

—  Procedures for overall review of financial statements

—  Significance of uncorrected misstatements

—  Effect of dealing with uncorrected misstatements

 

ii. Concluding and reporting on engagements

—  Consideration of subsequent events

—  Evaluation of results of assurance tests and procedures

—  Reports on assurance engagements consistent with results of assurance procedures

—  Elements of assurance reports

— The auditor’s report on financial statements- Elements of auditor’s report, auditor’s liability regarding the unaudited supplementary information presented with audited financial statements

—  Types of audit opinion- Unqualified opinion and modified opinion

— Modified opinion- Qualified opinion, disclaimer of opinion, adverse opinion and situations when such opinion is concluded

—  Audit reports- Unmodified reports and modified reports

— Modified reports- Modification through modification of opinion and modification without modifying audit opinion- use of emphasis of matter paragraph and other matter paragraph and cases when such paragraphs is added to auditor’s report

— Comparatives- Concepts of corresponding figures and comparative financial statements and their differences

—  Auditor’s responsibility regarding other information in documents containing audited financial statements [not included- special purpose audit engagement-NSA-800]

b. Related services

—  The concept of audit and other assurance engagements

—  Concept of statutory audits

—  Inherent limitation of audit

 

Concept of true and fair view

—  Concept of materiality

— Concept of and differences between audit services and non audit services (assurance and non assurance engagements), the difference between limited assurance engagement and reasonable assurance engagement

—  NSA: 240-Nepal Framework for Assurance Engagements

—  Engagements to perform agreed upon procedures regarding financial information

—  Engagements to compile financial information

 

  1. Government audit

Government audit as per ISSAI frameworks, financial audit and compliance audit. General concept of performance audit, propriety audit and audit of governmental organizations – Simple knowledge testing about the definition of such concepts, features and basic principles of government audit and audit of local bodies.

 

  1. Audit of specific organizations

Audit of specific organizations- Hospitals, educational institutions like schools, universities, not for profit organizations, clubs , Cooperatives, Hire purchase and leasing companies, joint venture.

 

 

 

 

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