CA Inter Audit & Ethics Notes

Chapter 5 – Audit of Items of Financial Statements

Part 6 – Complete Chapter Revision, Important SA, Exam Charts & Memory Aids

1. COMPLETE ASSERTION-WISE REVISION

A. Income Statement Assertions

Assertion	Meaning	Examples of Audit Procedures
Occurrence	Transactions actually occurred	Vouch invoices, agreements, supporting documents
Completeness	No transaction omitted	Cut-off tests, sequence checking
Cut-off	Correct accounting period	Verify transactions around year-end
Measurement	Correct amount	Recalculate amounts, discounts, taxes
Presentation & Disclosure	Proper classification	Check Schedule III & Accounting Standards

B. Balance Sheet Assertions

Assertion	Meaning	Examples of Audit Procedures
Existence	Asset/Liability exists	Physical verification, confirmations
Completeness	Nothing omitted	Trace source documents to books
Rights & Obligations	Ownership exists	Title deeds, agreements
Valuation	Correct valuation	Recompute, impairment testing
Presentation & Disclosure	Proper disclosure	Schedule III verification

2. AUDIT PROCEDURES – QUICK REVISION TABLE

Item	Most Important Audit Procedure
Share Capital	MOA, Board Resolution, ROC Forms
Reserves	Verify utilisation & Schedule III
Borrowings	Bank Confirmation (SA 505)
Trade Receivables	External Confirmation
Cash	Surprise Cash Count
Inventory	Physical Verification (SA 501)
PPE	Title Deeds & FAR
Investments	Demat Statements
Loans	Loan Agreement
Trade Payables	Supplier Confirmation
Revenue	Cut-off Testing
Expenses	Vouching

3. IMPORTANT STANDARDS ON AUDITING (SA)

SA	Topic	Importance
SA 500	Audit Evidence	Basic source of evidence
SA 501	Inventory, Litigation & Segment Information	Physical verification of inventory
SA 505	External Confirmations	Debtors, Creditors, Bank Balances
SA 520	Analytical Procedures	Ratio & Trend Analysis
SA 530	Audit Sampling	Sample checking
SA 560	Subsequent Events	Events after reporting period
SA 580	Written Representations	Management Representation Letter

4. IMPORTANT ACCOUNTING STANDARDS

Standard	Topic
AS 2	Inventory
AS 9	Revenue
AS 11	Foreign Exchange
AS 18	Related Parties
AS 28	Impairment
AS 29	Provisions
Ind AS 10	Events after Reporting Period
Ind AS 24	Related Party Disclosures
Ind AS 37	Provisions
Ind AS 115	Revenue from Contracts

5. IMPORTANT COMPANIES ACT SECTIONS

Section	Topic
52	Securities Premium
53	Shares issued at Discount
54	Sweat Equity Shares
66	Reduction of Share Capital
68	Buy-back of Shares
180	Restrictions on Powers of Board
185	Loans to Directors
186	Loans & Investments
189	Register of Contracts in which Directors are Interested

6. SCHEDULE III – IMPORTANT DISCLOSURES

The auditor should verify disclosure relating to:

Share Capital

Authorised Capital
Issued Capital
Subscribed Capital
Paid-up Capital
Promoter Holding
Bonus Shares
Buy-back
Calls Unpaid

Borrowings

Secured/Unsecured
Nature of Security
Defaults
Director Guarantees
Current Maturity
Terms of Repayment

Trade Receivables

Ageing Schedule
Good/Doubtful
Secured/Unsecured
Related Parties
Allowance for Bad Debts

Trade Payables

Ageing Schedule

Separate disclosure for:

MSME
Others
Disputed
Undisputed

Inventory

Separate disclosure of:

Raw Materials
WIP
Finished Goods
Stock-in-Trade
Stores & Spares

PPE

Gross Block
Additions
Deductions
Depreciation
Net Block
CWIP

7. ICAI EXAM FAVOURITE QUESTIONS

Q1

Why does auditor attend inventory count?

Answer

To obtain sufficient appropriate audit evidence regarding:

Existence
Condition of Inventory

(SA 501)

Q2

Why obtain debtor confirmation?

Answer

To verify:

Existence
Accuracy
Recoverability

(SA 505)

Q3

Why is cut-off testing important?

Answer

To ensure transactions are recorded in the correct accounting period.

Q4

Why is supplier confirmation important?

Answer

To detect:

Unrecorded liabilities
Incorrect balances

Q5

What is surprise cash verification?

Answer

Cash verification without prior notice to detect fraud or temporary cash arrangements.

8. ASSERTION-WISE EXAM QUESTIONS

Existence

Examples

Cash
Inventory
PPE
Debtors

Evidence

Physical Verification
Confirmation

Completeness

Examples

Creditors
Borrowings
Expenses

Evidence

Cut-off
Subsequent Payments

Rights & Obligations

Examples

Inventory
Land
Investments

Evidence

Title Deeds
Purchase Documents

Valuation

Examples

Inventory
Debtors
Investments

Evidence

Recalculation
AS Compliance

Disclosure

Examples

Schedule III

Accounting Standards

CARO

9. HIGH-RISK AREAS IN AUDIT

Always apply greater professional scepticism while auditing:

Cash
Inventory
Revenue
Journal Entries
Related Party Transactions
Borrowings
Provisions
Estimates
Impairment
Management Override

10. MOST IMPORTANT ANALYTICAL PROCEDURES

Compare with:

Previous Year
Budget
Industry Average

Common Ratios:

Gross Profit Ratio
Net Profit Ratio
Inventory Turnover
Debtors Turnover
Collection Period
Current Ratio
Quick Ratio

Investigate significant fluctuations.

11. TOP 20 EXAM KEYWORDS

True & Fair View
Professional Skepticism
Sufficient Appropriate Audit Evidence
Audit Assertion
Test Check
External Confirmation
Physical Verification
Cut-off Testing
Subsequent Events
Management Representation
Impairment
Net Realisable Value
Material Misstatement
Related Party
Analytical Procedures
Going Concern
Schedule III
Companies Act, 2013
Internal Control
Written Representation

12. CHAPTER-WISE MEMORY CHART

Financial Statement Item	Key Audit Procedure
Share Capital	ROC Forms, MOA
Reserves	Schedule III
Borrowings	Bank Confirmation
Debtors	External Confirmation
Cash	Surprise Verification
Inventory	Physical Count
PPE	Title Deeds
Investments	Demat Statement
Loans	Agreements
Creditors	Supplier Confirmation
Revenue	Cut-off
Expenses	Vouching
Provisions	AS 29

13. ONE-DAY REVISION SHEET

Remember these audit procedures:

Share Capital → MOA + ROC + Resolutions
Borrowings → Loan Agreement + Bank Confirmation
Trade Receivables → External Confirmation + Ageing
Cash → Surprise Count + BRS
Inventory → Physical Verification + SA 501
PPE → FAR + Title Deeds
Investments → Demat + Valuation
Loans → Agreement + Interest
Trade Payables → Supplier Confirmation + Subsequent Payments
Revenue → Cut-off + Sales Return
Expenses → Vouching + Outstanding Expenses
Provisions → AS 29 + Legal Opinion

14. SUPER REVISION MNEMONICS

Income Statement Assertions

OCCMP

O – Occurrence
C – Completeness
C – Cut-off
M – Measurement
P – Presentation

Balance Sheet Assertions

ECCVRP

E – Existence
C – Completeness
C – Cut-off
V – Valuation
R – Rights & Obligations
P – Presentation

Borrowings

BCVD

B – Bank Confirmation
C – Covenants
V – Valuation
D – Disclosure

Trade Receivables

ECVD

E – External Confirmation
C – Cut-off
V – Valuation
D – Disclosure

Inventory

PTCV

P – Physical Verification
T – Test Count
C – Cut-off
V – Valuation (Lower of Cost or NRV)

Cash

SBR

S – Surprise Cash Count
B – Bank Reconciliation Statement
R – Reconciliation & Review

15. FINAL EXAM TIPS

Start every audit answer with the objective/assertion.
Quote the relevant SA, AS/Ind AS, Companies Act section, or Schedule III wherever applicable.
Present audit procedures as bullet points rather than long paragraphs.
Use audit terminology such as “verify”, “inspect”, “recalculate”, “obtain confirmation”, “observe”, and “reperform”.
For practical questions, clearly identify the relevant assertion (Existence, Completeness, Valuation, etc.) before writing the procedure.

✅ Chapter 5 Complete

With Parts 1–6, you now have a comprehensive set of exam-oriented notes covering the entire Chapter 5 – Audit of Items of Financial Statements, including:

Complete audit procedures for all major financial statement items.
Relevant Standards on Auditing (SAs) and Accounting Standards (AS/Ind AS).
Companies Act, 2013 provisions.
Schedule III disclosure requirements.
Assertion-wise revision charts.
ICAI exam-focused mnemonics and rapid revision material.