(a) Steps involved in the verification of fees collected from students:
(i) Check names entered in the Students Fee Register for each month or
term, with the respective Class Registers, showing names of students
on rolls and test amount of fees charged; and verify that there operates
a system of internal check which ensures that demands against the
students are properly raised.
(ii) Check fees received by comparing counterfoils of receipts granted with
entries in the Cash Book and tracing the collections in the Fee Register
to confirm that the revenue from this source has been duly accounted
for.
(iii) Total up the various columns of the Fees Register for each month or
term to ascertain that fees paid in advance have been carried forward
and that the arrears that are irrecoverable have been written off under
the sanction of an appropriate authority.
30
SUGGESTED ANSWER
(iv) Check admission fees with admission slips signed by the head of the
institution and confirm that the amount has been credited to a Capital
fund, unless the Managing Committee has taken a decision to the
contrary.
(v) See that free studentship and concessions have been granted by a
person authorised to do so, having regard to the Rules prepared by
the Managing Committee.
(vi) Confirm that fines for late payment or absence, etc. have been either
collected or remitted under proper authority.
(vii) Confirm that hostel dues were recovered before student’s accounts
were closed and their deposits of caution money refunded.
(b) In the given case, CA Karan noticed that the last year's financial statements
contain an adverse opinion for the financial statement whole due to a
misstatement in the evaluation and disclosure of the debtors. If the
auditor’s report on the prior period, as previously issued, included an
adverse opinion and the matter which gave rise to the modification is
unresolved, the auditor shall modify the auditor’s opinion on the current
period’s financial statements. In the Basis for Modification paragraph in the
auditor’s report, the auditor shall either:
(i) Refer to both the current period’s figures and the corresponding
figures in the description of the matter giving rise to the modification
when the effects or possible effects of the matter on the current
period’s figures are material; or
(ii) In other cases, explain that the audit opinion has been modified
because of the effects or possible effects of the unresolved matter on
the comparability of the current period’s figures and the corresponding
figures.
Further, when comparative financial statements are presented, the auditor’s
opinion shall refer to each period for which financial statements are
presented and on which an audit opinion is expressed. If the financial
statements of the prior period were audited by a predecessor auditor, in
addition to expressing an opinion on the current period’s financial
statements, the auditor shall state in an Other Matter paragraph:
AUDITING AND ETHICS
(i) That the financial statements of the prior period were audited by a
predecessor auditor;
(ii) The type of opinion expressed by the predecessor auditor and, if the
opinion was modified, the reasons therefore; and
(iii) The date of that report,
(c) Fundamental Principles:
(i) Act diligently and in accordance with applicable technical and
professional standards: In the given case, professional competence and
due care fundamental principle is being referred to since a professional
accountant shall comply with the principle of professional competence
and due care, which requires an accountant to attain and maintain
professional knowledge and skill at the level required to ensure that a
client or employing organization receives competent professional
service, based on current technical and professional standards and
relevant legislation; and act diligently and in accordance with
applicable technical and professional standards.
(ii) A professional accountant shall not knowingly be associated with
reports where he believes that the information contains a materially
false or misleading statement: In the given case, integrity fundamental
principle is being referred to, it prescribes that a professional
accountant shall comply with the principle of integrity, which requires
an accountant to be straightforward and honest in all professional and
business relationships. Integrity implies fair dealing and truthfulness.
OR
(c) There are basically four types of audit tests that should be used are inquiry,
observation, inspection and reperformance.
Inquiry is the most efficient audit test, but it also gives the least audit
evidence. Hence, inquiry should always be used in combination with any
one of the other audit testing methods. Inquiry alone is not sufficient.
Reperformance is most effective as an audit test and gives the best audit
evidence. However, testing by reperformance could be very time
consuming and least efficient most of the time.
32
SUGGESTED ANSWER
Generally, applying inquiry in combination with inspection gives the most
effective and efficient audit evidence. However, which audit test to use,
when and in what combination is a matter of professional judgement and
will vary depending on several factors including risk assessment, control
environment,
desired
level
of
evidence
required,
history
of
errors/misstatements, complexity of business, assertions being addressed
etc. The auditor should document the nature of test (or combination of
tests) applied along with the judgements in the audit file.