Sunday, March 30, 2014



There are many students in our fraternity who find this subject difficult and there is always a thought in one’s mind that they don’t get good marks in subject like Auditing though they have good practical experience. From my opinion, theory subject is based on how you present yourself in your answers; most important is your command over English language.

So with my small effort to help students in the subject of auditing, I have tried to compile some mnemonics in two important topics of auditing i.e. Companies (Auditor's Report) Order, 2003 and Schedules of Professional Ethics as per Chartered Accountants Act, 1949. This document will help you to memorize these clauses and will surely fetch you good marks because you will be able to quote clauses in your answers wherever possible and examiner will also be impressed if you quote correct clauses.

A. Mnemonics – The Companies (Auditor's Report) Order, 2003

This is how it is prepared-

21 clauses of CARO are divided in two parts:

1st Part – Clause i to x
2nd Part – Clause xi to xxi

Firstly, there is Summary of all the points for fast reference and then there is detailed clauses of complete CARO’s 21 Clauses.

How to learn this –

For example –
Clause i is related to Fixed Asset so mnemonic to it will be Fashion

These Mnemonics will help you to remember the heading and not the whole clause. As recollecting the heading in exam will enable you to write something about that clause.

Initials of each clause is used to frame one statements, so there are two statements which cover all 21 clauses of CARO –

Statement 1 Fashion In London Is Terrible Due to Italian Clothes Sold in London.

Statement 2Rancho Loves Collecting Pictures, Getting Everyone’s Appreciation, Putting Smile on Everyone’s Face.

Fast Reference to CARO’s Clauses

Introduction to CARO Provisions in detail:


G.S.R. 480(E).— In exercise of the powers conferred by sub-section (4A) of section 227 of the Companies Act, 1956 (1 of 1956), read with the Notification of the Government of India in the Department of Company Affairs, number G.S.R. 443(E), dated 18th October, 1972, as amended from time to time and in supersession of order number G.S.R. 909(E), dated 7th September, 1988, published in the Gazette of India, part II, section 3, sub-section (i), except as respects things done or omitted to be done before the supersession, and after consultation with the Institute of Chartered Accountants of India [constituted under the Chartered Accountants Act, 1949 (38 of 1949)], in regard to class of companies to which this order applies and other ancillary matters, the Central Government hereby makes the following Order, namely:-

1. Short title, application and commencement

1.    This order may be called the Companies (Auditor’s Report) Order, 2003.
2.    It shall apply to every company including a foreign company as defined in section 591 of the Act, except the following:—
  • a Banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
  • an insurance company as defined in clause (21) of section 2 of the Act;
  • a company licensed to operate under section 25 of the Act; and
  • a private limited company with a paid-up capital and reserves not more than fifty lakh rupees and does not have loan outstanding exceeding Rupees Twenty Five lakhs from any bank or financial institution and does not have a turnover exceeding five crores rupees at any point of time during the financial year
3.    It shall come into force on the 1st day of July, 2003.

2. Definitions

In this Order, unless the context otherwise requires:
  • "Act" means the Companies Act, 1956 (1 of 1956);
  • "chit fund company", "nidhi company" or "mutual benefit company" means a company engaged in the business of managing, conducting or supervising as a foreman or agent of any transaction or arrangement by which it enters into an agreement with a number of subscribers that every one of them shall subscribe to a certain sum of installments for a definite period and that each subscriber, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement, shall be entitled to a prize amount, and includes companies whose principal business is accepting fixed deposits from, and lending money to members.
3. Auditor’s report to contain matters specified in paragraphs 4 and 5

Every report made by the auditor under section 227 of Act, on the accounts of every company examined by him to which this Order applies for every financial year ending on any day on or after the commencement of this Order, shall contain the matters specified in paragraphs 4 and 5.

4. Auditor’s report to contain matters specified in paragraphs 4 and 5

The auditor’s report on the account of a company to which this Order applies shall include a statement on the following matters, namely:—

B.  Mnemonics – Schedules to Professional Ethics under the Chartered Accountants Act, 1949

Professional Ethics has a weight age of 16 Marks in Q2 of Paper – 3. This question gives you a good chance to secure marks that’s why you should impress your examiner with your answers.

For Impressing examiner through your answer, you should write small introduction about Professional Ethics in your first answer to Q2.

“The hallmark of noble professional is a strict adherence by its members to a common code of conduct. In India, the ICAI is a premier body which regulates the conduct of its members. A Chartered Accountant being a member of a learned profession should not conduct himself in a manner which is unbecoming the member of institute, therefore all his actions, in a professional capacity should be within the four corners of the Chartered Accountants Act, 1949.”

Mnemonics are given only for PART I of First Schedule and PART I of Second Schedule as these two covers majority of Clauses i.e. 12 and 10 respectively.

As I said in my initial introduction, writing clauses in your answers will surely fetch you good marks. So you are required to be thorough in PART I of First Schedule and PART I of Second Schedule, this can be done easily by using Mnemonics given in below tables.


Suggestion for writing answers of Professional Ethics

Always Divide your answers in three parts:
  • Introduction – Write your clauses in this part of answer (Both clause number and what clause is all about i.e. you have to write complete clause as given in above table)
  • Analysis Write your analysis according to the question asked and the clause you wrote in introduction part.
  • Conclusion – Write your conclusion based on your analysis (avoid using ‘IF’ in your conclusion i.e. your answer should be straight). Better way to conclude your answer when a member asked in question is found guilty of his misconduct will be that you should write the consequences he/she may face. (REFER EXAMPLE BELOW)

Any member aggrieved by order of Board or Disciplinary committee can prefer appeal within 90 days before Appellate Authority u/s 22G.

To give a clear understanding, I would like to give you one example:

CA Z who is leading Income Tax Practitioner and consultant in Mumbai is also trading in derivatives.

As per clause 11 of Part I of First Schedule of Chartered Accountant Act, 1949, a chartered accountant is deemed to be guilty of professional misconduct if he ‘Engage in any Business or occupation other than profession of C.A. unless permitted by council so to engage’.

However, the council has granted general permissions to be members to engage in certain specific occupation. In respect of all other occupation specific permission of the institute is necessary.

In this Case CA Z is engaged in the occupation of trading in derivatives which is not covered under the general permission.

Hence specific permission of the institute has to be obtained otherwise he will be deemed to be guilty of professional misconduct under clause 11 of Part 1 of First Schedule of Chartered Accountant Act, 1949.

Further,  CA Z  may  have  to  face consequences  under  Section  21A  of Chartered Accountants Act, 1949 from Board of Discipline under First Schedule that he can be:
  • Reprimand
  • His name can be removed for the period up to 3 months year 
  • Impose fine upto `1,00,000/-
In case misconduct is under second schedule, you may write – Disciplinary committee-
  • Reprimand
  • His name can be removed for the period up to permanent or for any duration
  • Impose fine upto `5,00,000/-


  1. It’s very important that you should complete your Chapter no. 1 from Practice Manual. This chapter can be taken as a replacement of Standard on Auditing (SA) as this covers SA’s on greater extent. And day before exam, you should go through only this chapter instead of going for full-fledged SA’s. This will save your time for other important chapters.
  2. Do refer Accounting Standard (AS) because auditing cannot be done without AS, both practically as well as theoretically. You will surely find questions based on both Standards on Auditing and Accounting Standard in Q1 of your exam. So Standards on Auditing and Accounting Standard plays a vital role in your exam preparation.
  3. In theory subject, you should always present your answers in three parts. The way it has been presented for professional ethics in example above i.e. Introduction, Analysis and Conclusion. While concluding your answers of company law, you can give reference to clauses of professional ethics, if any that fits into your answers.
  4. If you mention relevant section numbers of Companies Act or any other Act relating to your answer, it will surely impress your examiner and there are chances that your will get marks for writing section number.
  5. Try to cover up ‘Company Audit’ properly as this is the same topic in Paper 3 and Paper 4 and this covers approx 35 marks in paper 3 and have equal weight age in paper 4 as well. So, it will save your time in preparation of Paper 4.
  6. You can always expect one question on Fiscal Law, to be specific on ‘Tax Audit” – approx 5 Marks
  7. It’s easy to secure marks in Audit by referring few topics. 
    Weight age (approx):
    Based on Standards on Auditing and Accounting Standards -    35 Marks
    Professional Ethics in Q2 -   16 Marks
    Company Audit   - 35 Marks
    Total :   86 Marks

    86 marks out of total 116 marks. This will surely make it easy to secure at least 50 marks or you can say that scoring exemption will be easy with some more efforts.
  8. How to utilize 15 minutes allotted to go through question paper? 
  • Read your question paper thoroughly to understand which question is asked from chapter.
  • Set the sequence in which you will attempt your exam. Always start with your best and end with your worst. This will help you secure good marks in your best answers.
  • Once you have set your sequence then start framing your answers to the questions you will be attempting initially.
     9. It sometime happens that you are not able to attempt one subpart of question in that case leave
         appropriate space for that answer and try to attempt your next best.
         Attempt the question you left for answering at last.
    10.  Time Management is very important:
          180 minutes for 100 Marks i.e.1.8 minute/ marks 

         You should not allot more time to one single question as it is rightly said that – 6 average
         answers will fetch you more marks than 5 good.
         So if you are not able to complete the answer don’t stick to it, leave it and go for the next 



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