Page 91 - CA Inter Bhaskar Vol 1

CA RAVI TAORI That the books of account show a cash balance of identical amount at the end of the day
RISK ASSESSMENT AND INTERNAL CONTROL
AUDIT BHASKAR CH 03 - PART 01 Example 2: 70,000 2,00,000
on which the balance sheet is drawn up.

Rs
Particulars
Plant and Machinery (at cost)
Less: Depreciation till the end of previous year
83,000
Depreciation for the year

The assertions are as follows: 13,000 1,17,000
the firm owns the plant and machinery;
the historical cost of plant and machinery is Rs 2 lacs;
the plant and machinery physically exist;
the asset is being utilised in the business of the company productively;
total charge of depreciation on this asset is Rs 83,000 to date on which Rs 13,000 relates to the
year in respect of which the accounts are drawn up; and
the amount of depreciation has been calculated on recognised basis and the calculation is
correct.
From the above two illustrations we know the sort of assertions that are implied in the financial
statements. Incidentally, the assertions are generally implied and not specifically spelt out,
though some explicit assertions are also found in the financial statements. Explicit assertions are
made when otherwise the reader will be left with an incomplete picture; it may even be
misleading.

An example of the former category may be found in the following items appearing in the liability
side of the balance sheet:
Secured Loans Rs 4,00,000

The description does not give us a complete picture. We do not know:
the name of the lender, if it is relevant;
the nature of security provided; and
the rate at which interest in payable.

(CNO—SA315-P1.120) RISKS THAT REQUIRE SPECIAL AUDIT CONSIDERATION (QNO-315.25) (MCQ-Incs.59.4)
Chart
Determine whether risk is significant risk, exclude effect of controls

Consider following factors, ShortCut “ CFO-CSR”

C F O C S R

Significant Risk of Outside the Complexity Subjectivity Related Parties
Changes Fraud Normal Course Significant
of Business Transactions

After determining Significant Risk obtain understanding of relevant controls

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