Page 60 - CA Final PARAM Digital Book.

(ii) Machine breakdown, power failure, etc. may also result into loss of materials in process. Check the
machine utilisation statements.
(iii) A high rate of rejections in the finished lots may also be responsible for abnormal wastage;
therefore, examine the inspectors’ reports in respect of inspection carried out on the completion of
each stage of work or process.
(iv) It is possible that the wastage may have occurred because the particular lot out of which issues
were made was lying in the store for a long time, leading to deterioration in quality or because of a
change in the weather which may have led to the deterioration. Compare the wastage figures.
(v) Abnormal wastage in storage and handling may arise due to the following reasons:
(1) Write offs on account of reconciliation of physical and book inventories: In case of periodical
physical inventory taking, such write offs will be reflected only in the month such reconciliation
takes place.
(2) Accidental, theft or fire losses in storage: The auditor should examine the possibility of these
for the purpose.
(vi) Examine whether any new production line was taken up during the month in respect of which
standard input-output ratio is yet to be set-up.

QNO Audit Strategy For Online Business Old Course – (M15E, N16M, SM17, PM17, N17R, N17M, SM21)
160.000 TITANIUM CNO— APSE.180 New Course – (SM23)
As an auditor of garment manufacturing company for the last five years you have observed that new
venture of online shopping has been added by the company during current year As an auditor what
factors would be considered by you in formulating the audit strategy of the company?
Answer 1. SA 300: Reference to SA 300, its full name & its applicable in the given scenario.
2. Concept: CNO-APSE.180 Overall Audit Strategy
Specific Factors for Online Shopping:
Due to the new online shopping venture, the auditor should understand the information system and
related business processes. This includes:
1A. Understand significant class of transactions: Understand the classes of transactions significant to
the financial statements.
1B. Understand business & accounting Procedures: Grasp the procedures, both IT and manual, for
initiating, recording, processing, correcting, transferring to the general ledger, and reporting
transactions.
1C. Understand specific accounts & Accounting Records: Understand the related accounting records
and specific accounts used for transactions, including corrections and ledger transfers.
2. Understand system to capture Events & conditions: Determine how the system captures events and
conditions significant to the financial statements other than transactions.
3. Understand Journal Entry Controls: Understand controls around journal entries, especially non-
standard entries for non-recurring or unusual transactions.

3. Conclusion: Auditor should draft overall Audit strategy as per above points.

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