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COMPANY AUDIT

SAs by CA SANIDHYA SARAF Pg 61 “APNA MENTOR” 976-040-0350

APNA MENTOR AUDIT SAGA

SECTION - 128 (BOOKS OF ACCOUNTS TO BE KEPT BY THE COMPANY)

All sums of moneys Received & Expended

Items of Cost u/s 148 Books of A/c

Records of

All Sales & purchases of Goods & Services

All Assets & Liabilities

Books or/ & Paper

Books of A/c, Deeds, Vouchers, Writings, Documents, Minutes & Registers (in E or paper form)

Prepare & keep at Registered Office BOA & other relevant books & papers & Financial Statements (FS) giving True & fair view of State of Affairs of co {also BOA, FS & docs of Branch office(s)}

Place of BOA

Books kept on Double Entry + Accruals Basis of Accounting (no cash basis BOA allowed)

All or any of BOA & papers if kept at other place in India as Board decide = in 7 days notice to be filed with ROC in

writing giving Full Address of that other place

E-F

orm

BO

A, R

ule

3

Remain accessible in India to enable subsequent reference + Info in E records to be Complete & Unaltered

Retained completely in format Originally Generated, Sent or Received OR Format presenting accurately such Info

Info received from Br. Office not be altered & be kept in manner depicting it was Originally received from branches

Info in E record of document to be capable of displayed in Legible form

Proper system for Storage, Retrieval, Display or Printout of E records (not to be disposed of or rendered unusable)

Backup of E mode BOA at place outside India = Also be kept in Servers physically located in India periodcally

Co. to intimate ROC on Annual Basis at time of Filing of FS = Name, IP Address & Location of Service Provider

Branch

BOA BOA for transactions effected at Br office = kept at that office (whether in or outside India) & summarized returns

periodically sent by to RO or other place decided by BODs.

BO

A In

spec

tion,

Rul

e 4

(Sec

206

)

BOA, Books & Papers to be Open for Inspection by Director at RO or other place in India during business hrs

Inspection of subsidiary Books & papers to be done only by Person Authorized for it by Board Resolution

Members no right to Examine/ Inspect BOA unless Table F apply i.e. where no Articles of Association exist

Read with Regulation 89 (ii) = Members can inspect BOA if : - Conferred by Co or Authorize by GM/ BODs

Inspection by : - Directors, ROC, Govt. Officers by CG order, SEBI officers & Co. officers & employees = assist

Financial info maintained o/s India= its copies to be maintained & produced for Inspection by Director by Rule 4

Summarized returns of BOA o/s India to be sent to RO at Quarterly Intervals & open to Directors for inspection

Other o/s India financial info required by Director = To furnish Request to co + Full details, Period of info asked

Co to produce such financial info to Director in 15 days of Date of receipt of Written Request

Financial info above be sought for by Director self (not by his Power of Attorney Holder/ Agent/ Representative)

Maintenance period of

BOA

BOA + Relevant Vouchers to be kept in order by co for min 8 FYs immediately preceding a FY

(If co exists for less than 8 years = maintain books in respect of All such preceding years)

If Investigation ordered on co = CG may direct BOA may be kept for such longer period as it deem fit

COMPANY AUDIT



SECTION - 129 (FINANCIAL STATEMENTS)

FORM, NATURE & CONTENTS

OF FS

Give True & Fair view of State of Affairs Such Form & Content of FS Not apply (N/A) to: - * Banking & Insurance companies * Co. generating or supplying Electricity * Co. whose form of FS specified in Act governing it

Comply with Accounting Standards (AS)

In form provided in Schedule - III (S- III)

DEVIATION FROM AS

To Disclose in FS: -

Deviation from AS + Reason + Financial Effect of Deviation

Exemption may be granted either unconditionally or in relation to

Terms & Conditions as in notification

Central Govt. (CG) on own or on Application by Class of Co. by notification exempt compliance to requirements of Sec 129

or Rules if consider necessary in Public Interest Exemption

LA

YIN

G O

F FS

&

CO

NSO

LID

AT

ED

FS

At each AGM = BODs to lay before Co. FS & CFS for FY

Rule 6 N/A in preparing CFS by Co if: - * It’s a wholly or partially owned subsidiary of other co & all its members intimated in writing = not objects Co. not present CFS * It’s a Co. whose securities not listed or not in listing process on Stock exchange in or outside India * It’s ultimate or intermediate holding Co. files CFS with ROC in compliance to AS

Prepare CFS of own Co. with subsidiaries (Joint Venture &

Associates including) in same form & manner as that of its own

Attach with FS = Separate Statement of salient features of FS of

subsidiaries in AOC–1

Rule 6 = CFS to be made as per S –III & applicable AS (If Co. not required to make CFS by AS = it is sufficient if Co

comply to S –III in relation to CFS )

Sec.

130

Re

Ope

ning

of F

S

130(1)

A Company shall not re-open its BOA & not recast its FS unless application in this regard is made by:- • CG • Income-tax authorities • SEBI • Other statutory regulatory body or authority or other person concerned & order is made by Court of competent jurisdiction or Tribunal to effect that: - - Relevant earlier accounts were prepared in Fraudulent manner. OR - Affairs of company were mismanaged during Relevant period, casting Doubt on Reliability of FS. (Provided that court or Tribunal to give notice to CG, Income-tax authorities, SEBI or Other statutory regulatory body or authority concerned & shall take into consideration Representations made by that Govt. or authorities, SEBI or body or authority concerned before passing any order under this section.)

130(2)

Revised accounts shall be final: - • Accounts so revised or re-cast under sub-section (1) shall be final. • Re-opening of FS on application made by CG, Income tax authorities, SEBI, other statuary /regulatory body or other person concerned. • Tribunal may pass an order to the effect that: - - Relevant earlier accounts were prepared in a fraudulent manner. OR - Affairs of company were mismanaged during relevant period, casting a doubt on reliability of FS. • If Tribunal issues above order, company will need to re-open its BOA & recast its FS

130(3) No order u/s 130(2) earlier than 8 FYs immediately preceding current FY (And where u/s 128(5) BOA

ordered to be kept > 8 years then 130 to apply i.e. books to remain reopened for such period)

BOARD REPORT (CONTENTS) Extract of Annual Return Co. policy on Ds appointment & remuneration & Criteria for

Qualifications, Positive Attributes, Independence , etc No. of meetings of Board Directors Responsibility Statement Listed Co. & Public co with paid up share capital of 25 Cr or more in

preceding FY = A Statement showing manner Formal Annual Evaluation done by Board of own, committees & Ds performance

State of Co. Affairs Contract & Arrangements with Related Parties

Amt proposed to be carried as Reserves Material changes & commitments affecting Financial position of Co. between end of FY of Co. to which FS relate & Date of Report Amt recommended to pay as Dividend

Other matter as prescribed Explanations/ comments by Board on Qualification, Reservation or Adverse remark or Disclaimer made in Audit report of CA & CS Policy developed & implemented on CSR

R & D Expense &Web address Annual Return placed Techn Controls = Effects, benefits got & Imported tech in last 3 yrs Loan, Guarantees & investments details Statement on Declaration by Independent Ds

Conservation of energy, technology absorption, FOREX earnings & outgo in manner prescribed

Statement of Develop & implement of Risk mgt policy of Co. identifying elements of Risk that may threaten existence of Co.

BODs to give details about frauds reported by Auditor to BODs & not the CG Conserve Energy = Steps TakeN & Impact, steps to use alternate energy by company & capital investment in such equipment

COMPANY AUDIT



(SECTION 135) - CORPORATE SOCIAL RESPONSIBILITY {CSR}

App

licab

ility

Co. with: • Net worth 500 Cr or more OR • Turnover 1000 Cr or more OR • Net profit 5 Cr or more = Constitute CSR Committee & spend least 2 % of Average NP (PBT) for Immediately preceding 3 YRs on CSR

Sec 135= N/A to Specified IFSC (International Finance Service Centre) from 5 yrs of commence of business

Co. ceases to fulfill Criteria for 3 Consecutive FYs = no CSR Committee & no Sec 135 till meets such criteria

Where co. not required to appoint Independent Director u/s 149(4) = To have CSR committee of > 2Directors

Copy of order passed by Tribunal to be filed to ROC

;

CG may make rules w.r.t. revised FS or Director’s report requiring Directors to take steps as be prescribed

If copies of previous FS or report sent already to members or delivered to ROC or laid before Co. in GM = Revision must be

confined to Correction & necessary alternation being made

CG may prescribe AS as recommended by ICAI in consult with & after examination of recommendations by National

Financial Reporting Authority (NFRA)

Till the time NFRA is constituted, CG may prescribe AS as recommended by the ICAI in consultation with & after examination of the recommendations made by National

Advisory Committee on AS (NACAS)

Company secretary (CS) Chairperson of Co. if authorized by Board& OR

Chief Financial Officer (CFO) & 2 Directors (1 MD & other to be CEO if he is Director too)

In preparation of Annual A/c = applicable AS followed with proper explanation w.r.t. material departures

Ds of Listed Co laid Internal Financial Controls to be followed & such are = adequate & operating effectively

Directors took proper & sufficient care for maintenance of Adequate A/c records to Safeguarding Assets of Co. & for

preventing & detecting fraud & other irregularitiesDirectors had prepared Annual A/c on Going Concern basis

Directors selected A/c policies & applied them consistently & made reasonable and prudent judgments & estimates = to give

True & Fair view of State of Affairs of Co. at end of FY & of P & L of company for that period

Directors had devised proper systems to ensure compliance with laws & such systems were adequate & operating effectively.

FS & CFS to be approved by BODs before signed on behalf of Board at least by: -

In One Person Company (OPC): -* FS to be signed by only 1 Director for submission to Auditor for his report* Report of Board containing explanation & comments by Board on each of qualifications or adverse remark in Auditors Reports

Auditors report to be attached to every FS Signed copy of every FS & CFS to be issued, circulated or published with copy each of: -1. Any notes annexed to or forming part of such financial statement + 2. Auditor‘s report + 3. Board‘s report

NOTE: - Specified IFSC Pvt. Co. i.e. Private ltd. co licensed to operate by RBI/ SEBI/ IRDA from IFSC (International Financial Service Center located in SEZ) = No need to include in Board Report info which is already included in FS.

Directors (Ds) Responsibility Statement

Tribunal to: - Give notice to CG & Income Tax authorities- Consider representations made by CG or authoritiesbefore passing order u/s 131

* Such revised FS or report = not be prepared or filed more than once in a Financial Year (FY)

* Detailed reasons for revision = disclosed in Board’sreport in relevant FY of revision

SECTION - 133 (CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS)

SECTION - 134 (FINANCIAL STATEMENTS, BOARD REPORT, ETC)

SECTION - 131 (VOLUNTARY REVISION OF FS or BOARD REPORT)

If appears to Directors that FS or Board Report: - Not comply to Sec 129 (FS) or Sec 134 (Board’s report)

= May prepare Revised FS or Report for any of 3 preceding FY after obtaining approval of Tribunal on application by Co.

COMPANY AUDIT



Dut

y

Committee to: - * Formulate & recommend to Board, a CSR Policy indicating activities to undertake & * Recommend amt of Expenditure to incur on CSR activities & * Monitor CSR Policy of Co. from time to time

Con

stitu

tion

of

Com

mitt

ee

3 or more Directors {Out of 3 = Least 1 director to be Independent Director (ID)}

Unlisted public Co. or Private Co. = To have its CSR Committee without any IDA

Private Co. with only 2 directors = Constitute CSR Committee with 2 directors only

Foreign Co. = CSR Committee of 2 persons (1 be resident in India authorized on behalf of co)

Board Report to include Composition of CSR Committee

CSR

Act

iviti

es u

nder

Sch

edul

e V

II

Homes for Women, Orphan & Senior Citizen Eradicate hunger, poverty & malnutrition

Protect Natural Heritage, Art, & Culture Promote Healthcare, Education & Gender equality Measures to reduce Inequalities faced by socially & economically backward groups

Contribute to PMs National Relief Fund/ other fund setup by CG for welfare of SC, ST, OBC & Minority

Contribute to Technology Incubators in CG approved Academic Institutions & Rural development projects

Contribution to Clean Ganga fund or Swachh Bharat Kosh or Slum Area Development

Sustain Enviro, Ecological, Animal welfare Benefit Armed forces veterans, War widows & dependents

Training to promote rural, nationally recognized, Paralympics or Olympic Sports

Act

iviti

es

Not

CSR

Contribution to Political Party CSR activities undertaken in normal course of business Activities outside India Expenses due to Act or Statute or Regulations (MCA Circular)

CSR expense benefiting only Co. employees (But MCA = Salaries to Regular CSR Staff, volunteer is CSR Expense)

Not

e

If Co. has a website = CSR policy of Co. need to be disclosed on it

Co. fails to spend CSR amt = Reason be specified in Board Report as no penalty in Co Act 2013 for it

How

to u

nder

take

C

SR A

ctiv

ities

?

Through Registered Trust/ Society or Co. established (Trust to be established by Co or its Holding or Subsidiary or Associate and if not then Trust to have Track Record of 3 yrs in undertaking similar programs or projects)

Co. may collaborate with other companies for undertaking CSR projects or programs

Co. may build CSR capacities of their own personnel & of implementing agencies through institutions with Track Record of at least 3 FYs but such exp must not exceed 5 % of Total CSR exp of Co. in 1 FY

Not

ifica

tion

&

Cir

cula

rs o

n C

SR

CSR expense undertaken by Co. to be in Project or Program mode (Events like Marathon, Awards, Charity contribution, Sponsorship of TV program, Advertisement = Not qualify as CSR Expense)

CSR policy relatable to Schedule VII = Interpretation liberally to capture Essence of Subject Expense by Foreign Holding Co for CSR activities in India = deemed CSR by Indian Subsidiary (if CSR expense

routed by Indian subsidiary & also Indian co liable under CSR criteria u/s 135 for CSR expense)

Contribution to Corpus of Trust/ Society/ Sec 8 Co. will be CSR expense as long as such Trust/ Society/ Sec 8 Co is exclusively created for doing CSR Activities as per Schedule VII

Poin

ts T

o R

emem

ber

CSR Expense not to be Claimed as Business Expense or Professional Expense CSR not to form part of Business expense already taken exemption of under Income Tax Act 1961

Sec 135 read as " Every co……." i.e. no specific exemption to Sec 8 Co. regarding its applicability & compliance

Contribution in Kind = can't be converted to monetary value to show as CSR expense as Sec 135 read as "…….shall ensures that Co. spends…"(Hence no contribution in kind i.e. Co has to spend in monetary values)

Co with Small CSR funds take up CSR Activities/ Program/ Project can combine with other similar Co. by pooling CSR resources in lieu of CSR Rules 2014

COMPANY AUDIT



SECTION - 136 (CIRCULATION OF FS OR RIGHT OF MEMBERS TO COPIES OF AUDITED FS)

FS & other Documents

copy to Dispatch

Copy of Audited FS laid in GM with CFS, Audit Report & Other docs as required by law = shall be sent

To every Member (Eq. & preference), Trustee of Debt holder, all other person (so entitled to get Notice)

To be sent = in not less than 21 days before Date of such meeting

Co. to allow every member or trustee of debt holder to Inspect above docs at its RO in business hours

Provisions in case of Listed

Co. (Send

Abridged Accounts)

Deemed complied with Sec 134 if = copies of docs available for Inspection at its Registered Office (RO) during

working hrs for 21 days before Date of the meeting

A Statement containing salient features of such docs in AOC-3 or Copies of docs is sent to Every Member of Co & to every Trustee for holders of any Debs issued by co. in not less than 21 days before Date of meeting unless

Shareholders ask for full FS

To place its FS & CFS & other docs on its website maintained by or on behalf of Co.

Section 8 Co. Rather 21 days = 14 days is considered New

Insertion by Co

Amendment Act 2017

If copies of docs are sent < 21 days before meeting = deemed duly sent if it is so agreed by members: - (a) Holding, if company has Share capital, majority in number entitled to vote and who represent not < 95% of such

part of the paid-up share capital of company as gives a right to vote at the meeting OR (b) Having, if company has no share capital, not < 95% of Total voting power exercisable at meeting

Listed

Company requirements

as per Co.

(Amendment) Act 2017

With > 1 Subsidiary = To Place Separate Audited a/c of each Subsidiary on its website

Listed company which has foreign subsidiary & where such foreign subsidiary: - * Is statutorily required to prepare CFS under any law of country of its incorporation = Requirement of this proviso shall be met if CFS of such foreign subsidiary is placed on website of listed co * Is not required to get its FS audited under any law of country of its incorporation and which does not get such FS audited = holding Indian listed company may place such unaudited FS on its website (If such FS is not in English = translated copy of FS in English also be placed on website)

Rule 11

(Manner of Circulation in Certain

Cases)

Listed & other Public Co having Net Worth of > Rs. 1 Cr & Turnover > Rs. 10 Cr may sent FS by: -

By E Mode = To members whose shareholding is dematerialized & Email ids registered with Co.

By E Mode = To members not holding shares physically & given written consent to get FS by E Mode

By dispatch of Physical copies by Registered Post or Speed Post or Courier service.

Provisions for NIDHI

Co.

Not to send FS to individual members in case of NIDHI companies if members not Individually or Jointly hold

shares of > Rs. 1000 in face value or more than 1 % of Total paid up share capital (whichever less)

Only intimation sent by public notice in newspaper circulated in district of RO of NIDHI stating Date, Time &

venue of AGM & FS with enclosures can be inspected at RO & too affixed in Notice Board

SECTION - 137 (FILING OF FINANCIAL STATEMENTS WITH ROC)

Docs + Form AOC-4 to

ROC

To file in 30 days from AGM Date: - * FS + * CFS + * All docs required to be attached with FS + * A/s of Subsidiaries incorporated outside India & not with established Place of Business in India

In case of OPC = FS duly adopted to be filed to ROC in 180 days of Closure of FY

Financial Statements not adopted

at AGM

To be filed to ROC in 30 days from Date of AGM or Date of Adoption in Adjourned AGM

Registrar to take note of Un-adopted FS on records as provisional till Audited & Adopted FS are filed

Un-adopted FS & other docs if not filed in 30 days = filing may be done in 300 days with additional fee

AGM not held

File in 30 days of Last Date before AGM due = FS & docs duly signed with reasons of AGM not held

ICAI View

As per ICAI view expressed = Only Audited FS to be submitted to ROC

COMPANY AUDIT



FS in XBRL (Extensible Bus

Reporting Language) filed

to ROC by: -

All Listed Co. & their subsidiaries

All Co. with Paid up capital of Rs. 5 Cr or more OR Turnover of Rs. 100 Cr or more

(Co. in Banking, Insurance, Power sector, NBFC & housing finance co. = not to file FS under this Rule)

(Co Required to furnish Cost Audit Report & other docs to CG = File report using XBRL

SECTION - 138 (INTERNAL AUDIT) + Rule 13

Appointment

of Internal Auditors or

Firm of Internal

Auditors by: -

Listed Co

Unlisted Co satisfying any of below in Previous FY: - * Paid up Share Capital Rs. 50 Cr or more OR * Turnover Rs. 200 Cr or more OR * Outstanding Borrowing from Bank/ PFI Rs. 100 Cr or more OR * Outstanding Deposits 25 Cr or more

Pvt. Ltd. Co satisfying any of below in Previous FY: - * Turnover Rs. 200 Cr or more OR * Outstanding Borrowing from Bank/ PFI Rs. 100 Cr or more

Points to

Remember Internal Auditor to be: - CA (in practice or not) or CWA or Other professional decided by BODs

Audit Committee of Co. or Board = in consultation with Internal Auditor, formulate scope, functioning,

methodology & periodicity for conduct of Internal Audit

SECTION - 139 (APPOINTMENT OF AUDITOR) = INDIVIDUAL OR FIRM

1st A

udito

r

Non - Govt. Co {139(6)}

By BODs in 30 days of Registration of Co. If BODs fail = BODs to inform members

Members in 90 days at EGM appoint 1st Auditor Auditor to hold office till 1st AGM Conclusion

Govt./

Govt. Owned or Controlled

{139(7)}

By CAG in 60 days of Registration of Co. CAG fail = BODs appoint Auditor in 30 days

Members in 60 days at EGM appoint 1st Auditor If BODs fail = BODs to inform members

Such Appointed Auditor hold office till Conclusion of 1st AGM

SUB

SEQ

UE

NT

AU

DIT

OR

Non -

Govt. Co {139(1)}

+

Rule 3

+

1st - 4th Proviso

Appointment at 1st AGM = till conclusion of 6th AGM & thereafter till every 6th AGM under Rule 3

Constitute if required u/s 177 an Audit Committee & if not then BODs = Consider Auditor's Eligibility

Consider Qualification & Experience of Proposed Auditor match Size & Requirements of Co.

Also consider any Pending Proceeding/ Order of Professional Misconduct against Proposed Auditor

Audit Committee (AC) if constituted or BODs = May call for further Information (Info)

AC to recommend Name of Auditor to Board

If No AC u/s 177 = BODs recommend to AGM

If BODs agrees = BODs recommend to AGM to members

If Not agree = Refer Back to AC for reconsideration citing reasons for disagree

If AC reconsiders original recommendation & agrees with BODs or BODs agrees with AC =

Recommend Name in AGM to members

If AC not reconsiders original recommendation & continues to disagree with BODs = BODs to

record reasons for disagreement with AC & send own recommend in AGM to members

Ratification for appointment = Not required at every AGM when auditors been appointed for 5yrs

Ratification will be through Ordinary Resolution (O/R) & If not ratified = BODs will appoint Auditor

Before appointment = Written Consent & Certificate from Auditor that he satisfy u/s 141 conditions

Certificate Content = Rule 4 = * Eligible not Disqualified + * Appointment Proposed is as per Act + *

Within Limits + * List of pending proceeding disclosed & is true & correct

Co to inform Auditor & ROC in Form ADT-1 about appointment in 15 days of appointment meeting

{In case of IFSC Co. (International Financial Service Center) = 30 days taken rather 15 days above}

{139(5)} By CAG for FY in 180 days of Commence of FY Auditor hold office till Next AGM Conclusion

COMPANY AUDIT



RO

TA

TIO

N O

F A

UD

ITO

RS

N/A to: -

Specified IFSC Co (International Financial Service Center), Small Co. & OPC Co. (One Person Co.)

139(2)

+

1st - 4th Proviso

Listed & Other prescribed Co. not to Appoint

Rule 5 = Other Prescribed Co.: -

Individual as Auditor for > 1 Term of 5 Consecutive yrs

* Unlisted Public Co. Paid up capital Rs. 10 Cr or more

* Pvt. Ltd. Co. Paid up capital Rs. 50 Cr. or more

Audit Firm as Auditor for >2 Terms of 5

Consecutive yrs * Co. not covered above if Public Borrowings from Banks & FI or Public deposits Rs. 50 Cr. or more

Cooling Off Period = Individual Auditor OR Audit Firm = Not eligible for Reappointment as Auditor in same company for 5 years after completing of Tenure

Apply to Statutory but not to Internal Auditor Reappointment in Subsidiary nowhere Restricted

Audit Firm = Having Common partner with A Audit firm whose tenure has just expired as on date of appointment = Not be appointed as Auditor of same company for a period of 5 years

Every Co. existing before commencement of this Act = Shall comply with 139(2) not later than Date of

1st AGM after 3 yrs from Date of commencement of this Act

Sec. 139(2) not prejudice Right = Of company to Remove Auditor OR Right of Auditor to Resign

139(4)

+

Rule 6

Central Govt. (CG) by Rules = Prescribe Manner of Rotation u/s 139(2) i.e. Rule 6 prescribed

AC to recommend to Board Auditor who may replace existing Auditor after expiry of Term

Board may itself consider & recommend too to AGM such replacement

Incoming Auditor Not Eligible if = associated with Outgoing Auditor under same Network or Control

Audit In charge Partner certifying FS = Retires from A & join B firm = B firm become Ineligible for 5 yrs

Joint Auditors appointed by Co. = Both Jt. Auditors taken as Separately for Rotation provisions

139(5)

Members of Co. may Resolve to provide: -

Audit to be conducted by > 1 Auditor Rotation of Auditing Partner & his Team = at such Interval as may be prescribed by Members

Filling of Casual

Vacancy Sec. – 139(8)

Meaning

Death, Resign or Dissolution of Auditor/ Firm of Auditors ( Ex: - 1 of Joint Auditors died)

Non Govt. Co

Other Reason

Filled by BODs in 30 days

Resignation

To be approved in GM convened in 3 months of BODs recommend

If GM not ratify it = BODs appoint auditor by Board Resolution (B/R)

Govt. / Govt.

Owned/ controlled Co

Filled by CAG in 30 days

If CAG fails = BODs fill in next 30 days

Reappoint – 139(9)

Retiring reappoint at AGM if: -

Not disqualified under Law

No notice of Unwillingness of Auditor got from Auditor

No Special Resolution (S/R) appointing other Auditor or Providing No Reappointment

139(10) - No Auditor Appointed/ Reappointed at AGM OR AGM not held

Existing Auditor to continue Recommendation by Audit Committee 139(11)

If Co. required to constitute Audit committee u/s 177 = All appointments including filling of casual vacancies to be made only after taking into a/c recommendations of AC

SECTION 140 - (REMOVAL & RESIGNATION OF AUDITOR & GIVING SPECIAL NOTICE) AMENDMENT: - Earlier, appointment of auditor to be ratified every yr at AGM but no such requirement now.

140(1) Removal

before Term Expiry

Before taking action = Auditor provided

Opportunity of being heard

Principle of Audi Alteram Partem to be

followed

Rule 7 = Application to CG in 30 days of Passing Board Resolution (B/R) in

ADT-2

In 60 days of Approval of CG = Convene GM to pass S/R for it

COMPANY AUDIT



140(2), (3) Filing of

Statement of Resign

Auditor who Resigned = To file in 30 days from Date of Resign in ADT- 3 to Co. & ROC

File to CAG also in Govt. Co case indicating facts & reasons for Resign If auditor not comply to Sec 140 = 50,000 to 5,00,000 OR Audit fees/ Renumeration (whichever lower)

Sec 140(4) Special Notice

Special notice required

to pass Special resolution at

AGM providing

Retiring Auditor not

Reappointed

Copy of notice to Auditor

(Auditor has right of representation to be

sent to Co. to a reasonable length)

Copy of Notice & Representation sent

to every person who got notice of

AGM

Appoint as Auditor other than Retiring

Co aggrieved may apply to Tribunal for not sending or reading Representation = If auditor abused such right (Tribunal satisfied = Copy of Representation not be sent nor read at meeting)

If copy of Representation not sent

as required = Copy filed to ROC

Auditor may demand reading

Representation in Meeting

Sec. 140(5)

Directions for

Change of Auditor

Tribunal may by order = Direct Co. to

change Auditors

Either on own

If satisfied Auditor acted in Fraudulent

manner or involved in fraud = Direct Co. to

Change Auditor

Tribunal in 15 days of Receipt of Application

Or application by C.G. or any person

Not be Eligible to be appointed as Auditor of Co. for 5 years from Date of passing of Order

& Auditor also be liable for action u/s 447

Auditor against whom Final order passed by

the Tribunal u/s 140(5)

Order that Auditor not to function as Auditor &C.G.

may appoint other auditor

SECTION - 141 (ELIGIBILITY, QUALIFICATIONS & DISQUALIFICATIONS OF AUDITOR)

141 (1), (2) – Eligibility for Appointment

Only CA is eligible for

Appointment

Firm (LLP too) with Majority of Partners Practicing in India are CA = Eligible for

Appointment under Firm Name

Only CA partners = Authorized to Act & sign on behalf of firm

141(

3) D

isqu

alify

from

App

oint

men

t as A

udito

r

Any

of F

ollo

win

g Pe

rson

= I

nelig

ible

for

App

oint

men

t as A

udito

r

Body corporate (BC)

Officer or Employee of Co.

Person whose Relative =

Director or Key managerial personnel

(KMP) of Co.

Person with Full Time Employment Elsewhere

Partner or Employee of Officer / Employee of Co.

Person who, directly or indirectly renders any service referred in Section 144 to company or its holding company or its subsidiary company.

Person or Partner on Date of such Appointment or Reappointment holding Appointment as Auditor of > 20 Companies (Individual Auditor wise limit = 20)

Person convicted by

Court of offence involving Fraud & 10 yrs has not

elapsed from Date of such conviction

Person indirectly/ directly engaged in services u/s 144 in Co. its Holding or Subsidiary

OPC, Small Co., Dormant Co. & Pvt. Ltd. Co. having Share Capital <Rs. 100 Cr not included while counting

Limit of 20 Co.

CA can do any No. of Audits of these Companies but as per Council General Guidelines, Upper Limit = 30 including

above Companies

Person or Firm who Directly or Indirectly has Business Relationship with Co. or Associate or Subsidiary or Holding (CASH) except Professional services or Commercial Transactions in ordinary course of bus at Arm

Length Price by Telecom, Airline, Hospital, Hotels Co. or Similar Co.

Said Person or his Relative/ Partner: - * Is Indebted to CASH >Rs. 5 Lakh OR * Hold Security/ Interest in CASH (Relative may hold Security/ Interest in Co. of Face Value max. 1 Lakh) OR * Has given Guarantee or Security w.r.t. Indebtedness of 3rd Person to CASH for >Rs. 1 Lakh OR If Relative acquires Security >Rs 1 Lakh = Auditor in 60 days to take Corrective Action & maintain Limit (All relatives are to be taken together BUT Limit of Rs. 1 lakh to be checked Individually for every Co.)

COMPANY AUDIT



141 (4) – Vacation of Office

If after appointment Auditor incurs any Disqualification u/s 141(3) = Vacate Office & such Vacation be treated as Casual Vacancy

142 –

Remuneration of Auditors

Authority to Fix Remuneration

By General Meeting (GM) or in manner as may be determined therein May be BOD in case of 1st Auditor, if appointed by BODs

Elements of Remuneration

All expenses incurred in relation to =.Audit & Facility to Auditor

Not Include Remuneration paid for other services

SECTION 143 - (POWER, RIGHT & DUTIES OF COMPANY AUDITOR)

143(

1) R

ight

s of

Aud

itor

Right to Access

At all Times to BOA & Vouchers at RO or Other Place (Br., Associate & Subsidiary too)

Right to Obtain Info

From Officers of Co. as necessary for performance of his Duties

Right of Lien (Not

specified in Act 2013)

Right of Lien for Non Payment of Dues of Work Done

Auditor can exercise this on Clients Books & docs for Non- Payment of fee (But

impracticable under Legal & professional ethics)

DU

TIE

S O

F A

UD

ITO

R

Inquire into Propriety

Matters - 143(1)

In Opinion of

Research Committee of

ICAI = Reporting of

Propriety matters only if Auditors

find Adverse answer to it

Loans & Advances properly secured & Terms not prejudicial to Interest of Co. & Members

Shares, debentures & other securities = Sold at a Price < Acquisition Cost in case of Non- Banking & Non Investment Co.

Loans & Advances made are shown as Deposits

Personal Exp Charged to Revenue A/c

Cash actually got on Shares Allotted for Cash & if not got = Correct position shown in Books & Balance Sheet (B/S)

Reporting over A/c & FS 143(2)

That to the Best of Auditor info & knowledge = A/c & FS give True & Fair view of State of Affairs of Co. as at end of its FY & Profit & Loss & Cash Flow for FY

143(

3) R

epor

ting

to S

hare

hold

ers

FS comply to AS

Qualifications w.r.t. maintenance of A/c

Proper BOA maintained (Available to Pvt. Co which = Not Defaulted in Filing FS u/s 137 OR Annual Return

u/s 92 with Registrar)

Adequate, Operative effectiveness of Internal Financial Control with reference to FS. No reporting needed for IFC effectiveness for: - * Co with Aggregate Borrowings from Bank, PFI or Body corporate at any pt. of time in FY < 25 Cr & with Turnover < 50 Cr as per latest Audited FS * OPC * Small Co.

B/S & P/L agree with BOA

Br. Audit Report Received & manner of dealing with it

Ds disqualified u/s 164(2)

Comments on Financial Transaction with Adverse Effect on Co. Obtained Info for Audit

Disclosure of Pending Litigations Impact on Financial Position Other matters prescribed in

Rule 11 (Amended)

Any delay in Transferring amt to IEPF

Provisions for Material Foreseeable loss on LT Contracts made

Co. provided Disclosures in FS of Holding & Dealing in Specified Bank Notes (SBN) during 8-11-16 to 30-12-16 & whether these are as per BOA maintained by Co.

Aud

it Pr

oced

ure

in

rela

tion

to S

BN

If Auditor conducted Physical Cash Counts on 8th Nov 2016 to 30th December 2016 or Closer Date before or after that date = Consider performing Roll Forward or Roll Back Procedures to confirm that

Balance Certified by Mgt was arrived correctly

Obtain from Mgt = * List of Receipts in period in relation to SBN * List of How SBN with Co. used for payment & Amount deposited in Banks * Obtain Reconciliation of Cash Balance & Certificate of Closing Cash Balance

Confirm Balances as certified by Mgt from BOA

Obtain Understanding of Controls & Procedures implemented by Co. in such period (9th Nov 2016

to 30th Dec 2016) to ensure no Banned notes were received or Used for payment

143(4) Reasons of Reservations

For every matter reported with Qualification (i.e. Negative) by Auditor in Audit Report = Report to State Reasons thereof

COMPANY AUDIT



Dut

ies o

f Aud

itor

143(5) Duties of Govt. Co. Auditor

CAG to Appoint & Direct Auditor manner in which A/c to be audited & Auditor to submit copy of Audit Report to CAF including: -

Directions by CAG Action taken thereon Its impact on A/c & FS

Supplementary

Audit u/s 143(6) In 60 days of Receipt of Audit Report = CAG has Right to order Supplementary Audit of F.S. by such persons as authorized by him

Test Audit - Sec. 143(7)

Comptroller & Auditor General of India (CAG) may if considers necessary by an order cause Test Audit of a/c of Govt. companies

Audit of Branch

A/c- 143(8)

By Co. Auditor or other person qualified for appointment as Co. Auditor of Co. as in Sec 139

If Br. Office is situated o/s India = A/c of Br. Office audited by Co. Auditor or Accountant or other person duly qualified to act as Auditor of Br. As per laws of that Country

Br. Auditor Report to be sent to Auditor of Co. who to deal with it as necessary

143(9)

Every Auditor to comply with Accounting Standards (AS)

143(10)

CG may prescribe SAs in consult with NFRA (National Financial Reporting Authority) 143(11)

CG may direct Auditor Report to include Statement on matters in order issued (CARO 2016)

143(

12) R

epor

ting

of F

raud

Fraud of Rs. 1 Cr or more by Officers or Employees = Statutory obligation to Report to CG (Rule 13)

Frauds less than Rs. 1 Cr = Reported to Audit Committee or

BODs in 2 Days of Knowledge of Fraud seeking reply in 45 Days

Rule13 Reporting include: * Fraud = Nature & Detail * Approximate Amount * Parties Involved * Remedial Action Taken

If reply received = Forward his report, reply & comments

on reply to CG in 15 days

Report = Sent to Secretary MCA in sealed envelope by Registered Post

with Acknowledgement due OR Speed post OR Email

If reply not received = Forward his

report to CG with Note that reply not

received

Details of Such Frauds as in Rule 13 = Disclose in Board’s report

Report on Letter Head of CA + Address + Mail + Phone No. + Signed + Seal + Membership No. = File in ADT - 4

143(13)

Auditor not said to have contravened Reporting of Fraud u/s 143(12) if reporting Done in Good Faith

143(14)

Sec 143 apply mutatis mutandis apply to = Cost Accountant in Practice & CS in practice

143(15)

Auditor, CWA, CS in practice not comply with Sec 143(12) = Fine Rs. 1Lakh to Rs. 25Lakh

Sec 144 Auditor Not to Render Certain

Services

Auditor Appointed = Provide Service as approved by the BOD or Audit Committee

Services that can't be rendered Directly or

Indirectly (By Relative or Associated Person) to Co,

Holding or Subsidiary

Internal Audit

Design & Implement Financial Info System

Other Prescribed Services

Actuarial Services

Management Services Investment advisory

Outsourced Financial Investment Banking

PO

INTS

TO

R

EMEM

BER

Notification Dt 23.2.18 = CG exempted companies in defence production to extent AS on segment reporting apply.

141(3) + Rule 10 of Co (Audit and Auditors) Rules, 2014 = Person who directly or indirectly renders any service referred in 144 to company or its holding or its subsidiary = Not eligible for appointment as auditor of company.

MCA Notification Dt Feb 5, 2018 = Provision of deferred tax asset as per Ind AS 12 or AS 22 = N/A to Govt Company which is PFI, NBFC registered with RBI in RBI Act, & engaged in business of infra finance leasing with not < 75% of its Total Revenue from such business with Govt companies or other entities owned or controlled by Govt

Sec 145 Sign Audit

Report

Auditor to Sign Audit Report & Certify other documents

Qualifications, observations or comments on Financial Transactions or matters having Adverse effect on functioning of Co. = Mention in Audit Report & read before GM & be open to inspection by members

COMPANY AUDIT



Sec 146 Attend GM

All Notice & other communication of General Meetings shall be forwarded to Auditor

Unless exempted auditor to attend himself or through his authorized representative any General Meeting

Auditor shall have right to be heard at such meeting on part of business which concerns him as Auditor

Sec

14

7 –

Pun

ishm

ent

fo

r C

ontr

aven

tion

Over the Co & Officer in default – 147(1)

{Violation of Sec. 139 -146}

Company = Fine from Rs. 25,000 to Rs. 5 Lac

Officer in Default = Imprisonment to 1 yr

or Fine 10,000 - 1 Lac or Both

Measures for prompt payment of Damages147(4)

* CG by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to company. * Such body, authority or officer shall pay damages to such company or persons. * File report with CG on making such damages in manner specified in notification.

Over the Auditor – 147(2) {Violate Sec 139, 143, 144, 145}

Fine Rs. 25,000 to Rs. 5 Lakh OR 4 Times the Remuneration of Auditor (Whichever less)

If Willful default/ intentionally/ knowingly/ willfully to deceive = Imprisonment up to 1 yr & Fine Rs. 50,000 - Rs. 25 Lac

OR 8 Times the Remuneration of Auditor (Whichever less)

147(5) = If criminal liability of audit firm, in respect of liability other than fine = concerned partner or partners, who acted in a fraudulent manner or abetted or colluded in any fraud shall only be liable.

If auditor convicted u/s 147(2) = Liable to Refund Remuneration received by him to company & Pay for damages to company, statutory bodies or authorities or to members or creditors of Company for loss

arising out of incorrect or misleading statements of particulars made in his audit report.

148

Cost Audit

ordered by CG

CG by order = Specify Class of Co. in Production of G & S (Goods & Services) & direct particulars of use of

items of Cost i.e. Raw Materials, Labor, etc = To be included in Books of Accounts of them

CG before order issue = To Consult with Regulatory Body concerned or established under Special Act

CG of opinion necessary by order to Direct Audit of Cost Records of Class of Co covered u/s 148(1) with Net

Worth or Turnover as prescribed in Rules

Comply with Cost Standards ICWA issued with CG Approval & also & Report of Cost Accountant to BODs

Cost Accountant (recommended by BODs & remuneration by Members) = To do Cost Audit

Co. Auditor u/s139 not to be appointed as Cost Auditor

Co. in 30 days of CWA Report = Forward to CG with Report full info & explanations or any Qualification

CG may further Call for Info & Explanation & Co. to furnish the same

Default = By Co. & Officer covered u/s 147(1) & if by Cost Accountant covered u/s 147(2)

Sec

132

- Nat

iona

l Fin

ancia

l Rep

ortin

g Au

thor

ity (N

FRA)

FUN

CT

ION

CG may by notification, constitute NFRA to provide for matters relating to AS & SA. Functions of NFRA: - * Make recommendations to CG on formulation & laying down of accounting & auditing policies & standards for adoption by companies or class of companies or their auditors * Monitor and enforce compliance with ensuring compliance with AS & SA in manner prescribed * Oversee quality of service of professions associated with ensuring compliance with such standards & suggest measures required for improvement in quality of service & other related matters as may be prescribed. * Perform such other functions relating to above functions as may be prescribed.

CO

NST

ITU

TIO

N

* NFRA to consist of Chairman = person of eminence & Expertise in accountancy, auditing, finance or law to be appointed by CG & such other members not > 15 consisting of part-time & full time members prescribed * Chairperson and members shall make a declaration to the CG in the prescribed form regarding no conflict of interest or lack of independence in respect of their appointment. * Chairpersons & members in full-time employment with NFRA = shall not be associated with any audit firm (including related consultancy firms) during their appointment & 2 after ceasing to hold such appointment.

POW

ER

S

* Powers to investigate on own motion or on reference made to it by CG, matters of professional or other misconduct committed by any member or firm of CA. * Powers of civil court. * Power of NFRA to impose penalty on CA/CA firm for professional or other misconduct: - - Individuals - Min 1 Lac rupees &- Max 5 times of fees received - Firms - Min 5 Lac rupees & Max 10 times of fees received (earlier it was 10 Lac) - Debarring a member of the institute for a period of 6 months to 10 years.

NOTE: - Any person aggrieved by the order of NFRA may prefer an appeal before the Appellate Tribunal in such manner and on payment of such fee as may be prescribed

STANDARDS ON AUDITING



SA 200: - Overall Objective of Independent Audit& Conduct of Audit as per SA(s) A

udito

r R

espo

nsib

ility

(O

vera

ll O

bjec

tive

of In

depe

nden

t A

udit)

* To obtain reasonable assurance that FS are free from MM resulting from either due to fraud or error enabling Auditor to express an opinion on whether FS are prepared in all material respects as per applicable FRF * To Report on FS & Communicate as required by SA's. * To Report u/s 143(2) to Members of Co. on A/c examined by him & FS to be laid in AGM. * To ensure that his opinion on FS is reflecting True & Fair view. * To State in his Report u/s 143(2) whether A/c examined by him & FS give True & Fair view * To obtain SAAE to reduce Audit Risk to Acceptable low level & consider SA 500 as per SA 200.

RE

QU

IRE

ME

NT

S O

F SA

200

Professional Skepticism

* Remain Alert to conditions indicating possible misstatement due to Error or fraud * Critical assessment of audit evidence * Maintain it throughout Audit to identify fraud risk factors & evaluate RP transactions * Attitude requiring: - - Alertness towards Info provided to him by client - A Questionable mind being alert * Reduces Risks of: - - Overlooking unusual circumstances. - Over generalizing when drawing conclusions from audit observations. - Using inappropriate assumptions in determining Nature, Time & Extent of Audit Procedures & evaluating results * Being alert to: - - Audit evidence that contradicts other audit evidence obtained. - Info bringing in question reliability of docs & responses to inquiries used as evidence. - Conditions indicating possible fraud or suggest need for Additional Audit Procedures

Scope of Audit

Area of work for Auditor determined by following factors: - * Requirements of legislation. * SA & other guidance by ICAI * Terms of engagement of Auditor Terms of engagement can’t override Scope decided by Legislation or SAs.” (i.e. mgt cannot Restrict Scope of auditor's audit function) * If Scope restricted or threat to Independence = communicate to TCWG as per SA 260.

Professional Judgment

Apply relevant Training, knowledge & experience in particular regarding decisions about: -* Materiality and audit risk. * NTE of audit procedures used to meet requirements of SAs & gather audit evidence * Evaluating whether SAAE has been obtained & whether more needs to be done to achieve objectives of SAs & thereby overall objectives of Auditor. * Evaluation of mgt judgments in applying Entity’s Applicable FRF * Drawing of conclusions based on Audit evidence i.e. assessing reasonableness of Estimates made by mgt in preparing FS

Obtain SAAE

Sufficient & Appropriate

Audit Evidence

* Auditor to obtain SAAE as per AS 500 & Reasonable Assurance (High but not Absolute Level of Assurance) to decrease Audit Risk to Acceptable Low Level * SAAE are interrelated i.e. Sufficiency = Measure of Quantity of Audit Evidence & Appropriateness = Measure of Quality of Audit Evidence i.e. its relevance & reliability to support conclusions on which auditor’s opinion is based. * If Auditor fails to obtain SAAE = give disclaimer

Compliance

with SAs * SA 200 & Section 143(9) of Co Act 2013 states that Auditor to comply with SAs

* Fail to comply & fail to depart attention to Departure = Guilty of professional misconduct




(Accept or continue Audit Engagement only when basis on which Audit is to be performed = Agreed with Client)

INH

ER

EN

T L

IMIT

AT

ION

S O

F A

USI

T

Nature of Financial Reporting

* Preparation of FS is responsibility of mgmt. involving Judgment & decision making by mgt. * There are range of issues involving different interpretation &judgment.

Nature of Audit

Procedure

* Audit procedures used to gather audit evidence may be ineffective against fraud detection. * Audit is not an official investigation into alleged wrong doings * Possibility that Mgmt. may not provide complete Info intentionally or unintentionally. * Internal control systems may be planned & framed by mgmt. to manipulate & override it. * Frauds may involve sophisticated & carefully organized schemes. * Nature of audit procedures = Audit evidences obtained persuasive rather than conclusive

Timeliness

& Cost Benefit

* Difficulty, time, or cost is not valid basis to omit Audit procedure for no alternative * Pressure to finish audit quickly, in least possible time * Because of limited audit fees there is budget & cost constraint.

Other

Limitations

* Frauds, particularly involving senior management or collusion. * Non-disclosure of related parties. * Non- compliance with laws & regulation. * Info not provided by management.

SA 210: - Agreeing the Terms of Engagement

Pre Conditions for Audit

Determine whether applied Financial Reporting Framework (FRF) is = Acceptable. AND Obtain = Management Representation that it understand its responsibilities for: - * Acceptable FRF is used in preparation of FS * Necessary Internal Controls implemented to ensure FS Free from Fraud or Error * Providing Auditor with Access to all Records& Info, Additional Info requested by Auditor * Unrestricted access to persons within entity to enable him to get Audit Evidence.

Acc

epta

nce/

Cha

nge

in T

erm

s of A

udit

Eng

agem

ent/

Rec

urri

ng A

udits

Initial audit Engagement

Limitations Imposed by Mgt = Not accept unless required by Law

No Limitations Imposed by Mgt = Ascertain existence of Pre Conditions if: - * Exist = Accept Audit * Not Exist = Discuss Matter with Mgt & not accept Audit in case of: - - Unacceptable FRF OR - Mgt not agree to Responsibilities

Recurring Audit

Auditor to assess below: - * Whether Circumstances require Revision in Terms of Audit Engagement * Whether there is need to remind Entity of Existing terms of Audit Engagement. = And decide to send or not New Engagement Letter or other written agreement

During Audit/ Before

Completion of Audit

(Client or Mgt Requests for

Changes in Terms of Audit

Engagement)

Auditor to consider whether Proposed changed terms of engagement effects Level of Assurance (If Change not conveys lower level of Assurance = Auditor not to agree unless reasonable justification from mgt) * If Terms Changed & Auditor & Mgt agree = Record new terms of engagement in Engagement letter or other suitable form of written agreement * If Reasonable Justification not given by Mgt OR Auditor unable to agree to Change & is not permitted by Mgt to continue Original Audit Engagement = Auditor shall: - - Withdraw Audit Engagement where possible under Applicable Law - Determine whether any obligation to report circumstances to other parties, such as TCWG, Owners or Regulators




Circumstances Warranting Revision in Terms of

Audit Engagement

* Change in Financial Reporting Framework * Change in-Senior mgt * Significant change in Nature & Size of entity. * Significant change in Ownership * Revised/ Special Terms of Audit Engagement * Change in Reporting Requirement * Indication that Entity Misunderstood Scope & Objective of Audit * Legal or Regulatory Requirement

Instructions Auditor gives

to Client before Audit

Form &Contents of Engagement Letter: - Agreed terms of Audit Engagement recorded in Audit Engagement Letter or other suitable form of Written agreement & includes: - * Objective & Scope of audit of FSs * Responsibilities of Auditor & Mgt * Identification of Applicable FRF for Preparation of FS * Reference to Expected form & content of any reports to be issued by Auditor

SA 220: - Quality Control For An Audit of FS

Fact

ors c

onsi

dere

d fo

r In

corp

orat

ing

Qua

lity

cont

rol i

n A

udit

Wor

k

* Leadership responsibility = Engagement Partner appointed to take responsibility of Quality Control & to Direct, Review & Supervise work of his Team * Skills & Competence = Audit Personnel to have required Skill & Competence. * Assignment = Audit assigned only to competent personnel. * Delegation = Sufficient direction, supervision & review of work at all levels. * Consultation = When necessary consultation in & outside firm with experts. * Accept & Retain Clients = Evaluate prospective client & Review existing client on ongoing basis. * Monitoring = Continued Adequacy & Operating effectiveness of Quality Control policies & procedures should be monitored. * Communication = Firm’s Quality Control Policy/ Procedure communicated to personnel

Eng

agem

ent P

artn

er to

take

Res

pons

ibili

ty o

f: -

Direction

Audit assistants informed of Nature of business & possible accounting or auditing problems & explained of what is expected of them & how to achieve it. (Also informed = Importance of Audit program, Time budget & Overall Audit Plan)

Supervision

Persons carrying out supervisory responsibilities should: - • Monitor Progress of Audit • Become informed of & address significant accounting & auditing questions raised in Audit • Resolve Differences of professional judgment & consider level of consultation as appropriate.

REVIEW

Review of work of Audit staff to ensure: - • Work performed as per Audit program & adequately documented • All significant matters resolved or reflected in audit conclusions • Objectives of Audit procedures achieved • Conclusions expressed consistent with work performed

Following matters to be Reviewed on Timely basis: - • Overall Audit Plan & Audit program • Assessment of Inherent & control risks & modifications to Overall Audit Plan • Documentation of Audit Evidence obtained from substantive procedures & conclusions drawn there from • Proposed adjustments to FS arising out of auditor's examination & observations.




(Documentation = Collecting, Recording & Preparing Working Papers (Schedules, Lists, Confirmation)

Info assisting Auditor in Accepting,

Continuing or to withdraw

Relationship with Client

* Integrity of Principal Owners, Key Mgt & TCWG of Entity * Whether Engagement Team is competent to perform Audit & has necessary Capabilities, Time & Resources * Whether Firm & Engagement Team can comply with relevant Ethical Requirements * Significant matters in current or past Audit & implications for continuing relationship.

AU

DIT

OF

LIS

TE

D E

NT

ITIE

S

Matters evaluated by Engagement QC Reviewer

(EQCR)

* Review of FS & Proposed Audit Report * Discuss Significant Matters with Engagement Team * Review Audit docs, Judgments& Conclusions of Engagement Team. * Evaluate Conclusions reached * Consider Audit Report is Appropriate

Additional Considerations

in Audit

* Appropriate Conclusions drawn * Engagement Team Evaluation of Independence * Audit Doc selected for Review = Reflect work done

Documentation

* By Auditor = Issues Detected &Conclusion on Compliance & Nature & Scope * By EQCR = Procedure for QC Review performed & whether EQCR work done on/ before Audit Report Date

There should be an Engagement Partner (EP) appointed to each Audit Engagement undertaken by firm to take responsibility for engagement on firm's behalf (As per SQC 1 = for listed entity EP to be rotated every 7 years)

SA 230: - Audit Documentation

MEANING * Record of Audit Procedures, Performance, Test of Controls, Substantive Procedures, Relevant Audit Evidence obtained (Oral/ Visual/ Documentary) & Conclusions reached (Modified/ Unmodified)

NATURE

* Auditor may include abstracts or copies of the entity’s records like significant & specific contracts & agreements) as part of Audit Documentation. * Not a substitute for entity’s accounting records. * Oral explanations by Auditor not represent adequate support for work auditor performed or conclusions auditor reached, but may be used to explain or clarify info contained in Audit Documentation. * Auditor need not include in Audit documentation: - - Superseded drafts of working papers & FS - Notes that reflect incomplete or preliminary thinking, - Previous copies of docs corrected for typographical or other errors & duplicates of documents.

Assembly of Audit File as per SQC 1

* Auditor to assemble Audit documentation in Audit File in 60 days of Completion of Audit * Auditor to Retain Audit file for 7 yrs. (No working paper deleted/ discarded up to 7 yrs. From Audit Report.




Purposes Served by

Audit Documentation

• Records for Future Audit • Assist Engagement Team to plan &perform Audit. • Assist in Supervision of Audit Work • Enable Engagement Team to be accountable for users • Enable Conduct of Quality Control Reviews as per SQC 1 • Enabling Conduct of External Inspections in accordance with Legal, Regulatory framework.

FOR

M, C

ON

TE

NT

S &

EX

TE

NT

OF

AU

DIT

PR

OC

ED

UR

E

Make Documentation

Sufficient to Understand

• Who performed Audit work & date such work was completed • Who reviewed Audit work performed & Date & Extent of such review • Significant matters arising in audit, conclusions reached & professional judgments made to reach conclusions.

NTE of Audit

Procedures

* To comply with the SAs & Applicable legal and regulatory requirements. * In documenting NTE of Audit procedures performed, Auditor to record & identify Characteristics of Specific items or matters tested

Other Significant Matters to Document

NTE of Audit Procedures to comply with laws: - * Results of Audit Procedures & Audit evidences obtained * Significant matters arising during Audit & Discussion of matters with TCWG * Reasons for Discarding/ Modifying/ Deleting working papers after 7 yrs. * Sometimes some SA's require mandatory documentation. * Conclusions reached thereon& their effect on audit report * How Auditor addressed Inconsistent Info identified with Auditor’s Final Conclusion * Alternative Audit Procedures performed to achieve SA requirement departed & its reasons

Specific Documentation

Documentation of Departure from a relevant requirement: - * Reasons for the departure * Alternative procedures performed Documentation of Discussions: - * Significant Matters Discussed with Mgt & TCWG. * When & with whom Discussion took place. * How Auditor address inconsistency (if any detected during discussion)

After Date of Auditor’s

report

If under Exceptional circumstances, Auditor performs New or Additional audit procedures or Draws new conclusions, Auditor to document: - * New or Additional Audit Procedures performed * Circumstances encountered * Effect on Auditor’s report * Audit Evidence obtained & conclusions reached * When & by whom resulting changes to Audit documentation were made & reviewed.

Factors affecting Form,

Contents & Extent of Audit

* Identified risks of Material Misstatements (MM) * Nature of Audit Procedures to be performed * Size & Complexity of Entity * Significance of Audit Evidence obtained * NTE of exceptions identified * Audit methodology & tools used. * Need to document Conclusion




SA 240: - Auditor's Responsibility in relation to Fraud in Audit of FS

FRAUD Intentional act by 1 or more Individual among Mgt, TCWG, Employees, or 3rd Parties to Deceive, Mislead/ Conceal Truth or to obtain Unjust/ Illegal Advantage

Auditor's Responsibilities/ Duty in relation

to Fraud in Audit of FS

• Obtain Reasonable Assurance that FS taken as whole are free from MM due to fraud or error • Perform Risk Assessment Procedures i.e.: - - Enquiry of Mgt. - Enquiry of TCWG - Evaluation of fraud risk factor - Evaluation of identified unusual & unexpected relationship. • Consider Impact of fraud on FS • Consider Reliability of WR if mgt fraud found. • Communicate to Chairman & BODs • Maintain Professional Skepticism throughout Audit. • Unless Doubtful = may accept BOA as Genuine • Obtain Written Representation • Conditions cause to believe docs not authentic or terms of docs modified = Investigate then • Responses of Mgt or TCWG inconsistent = Investigate then • Additional Reporting responsibility in CARO & u/s & person committing fraud liable u/s 447 • When fraud is discovered by Auditor Report u/s 143(12) = if Auditor in course of performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against co by officers or employees of co = immediately report matter to Audit Committee in 2 days of knowledge (as amount < ₹1Crore) mentioning - - Nature of Fraud & Description & - Approximate amount involved & - Parties involved (Immediately report matter to CG in time & manner prescribed in Rule 13 if amount > ₹1Crore)

If Auditor is unable to continue Engagement: - Auditor to determine: - • Legal & professional responsibility of auditor to report to persons appointing him &to regulatory authorities • Whether it is appropriate to withdraw, where withdrawal is legally permitted. • If he withdraws, then: - - Discuss with mgt & TCWG - Give reasons for withdrawal. - Determine legal & professional responsibility to report to persons appointing him & regulatory authorities.

Mgt. Responsibility for Prevention/

Detection of Fraud

* Primarily of Mgt & TCWG * Mgt Responsibility/ Representation i.e. Mgt commit to create culture of Honesty & ethical behavior by: - - Acknowledge for Design, Implement, Maintenance of Internal Control System to Prevent Fraud & Error - Disclose results of Mgt Fraud & Risk Mgt/ Assessment - Disclose knowledge of Fraud/ Suspected Fraud affecting Co by Mgt/ Employees/ Others or its Allegation




Risk Associated for Non

Detection of MM

• Due to inherent limitations of Audit = there is an unavoidable risk that some MM of FS not be detected even though auditor is properly planned & performed in accordance with SA's

• Risk of Not Detecting MM resulting Management fraud is > than Employee fraud, because mgt can easily manipulate accounting records as management in unique position to penetrate fraud & manipulate accounting records & prepare FS by overriding controls.

• Risk of Not detecting MM from Fraud is > fraud from Error as Fraud is designed to Conceal

CA

USE

S O

F M

ISST

AT

EM

EN

T

Fraudulent FR

• Manipulate, Falsify, Alter A/c records & Supporting docs • Misrepresentations or Intentional omission • Intentional Misappropriation of Assets (Fraudulent FR involves mgt override of controls that may appear operating effectively)

Possible Source/ Ways of Fraudulent FR: - i.e. Recording Fictitious Assets/ Entries: - • Engage in Complex transactions to misrepresent Financial Position • Inappropriate Adjust Assumptions •Omit, Advance, Delay Recognition • Conceal or not disclose facts affecting FS • Alter Records & terms related to Significant Transactions

Misappropriation of Assets

• Embezzling Receipts • Stealing Physical Assets/ Intellectual Property • Using Entity's assets for Personal use. • Causing Entity to Pay for Goods & Services (G& S) not actually received.

Conditions or Events which Increases Risk

of Fraud or Error

• Discrepancies in A/c Records = Due to improper Recording, Unauthorized transactions, last minute adjustments • Conflicting or Missing Evidences = Missing & Altered docs, Non Availability of Originals, Unexplained items • Unusual relation in Auditor & mgt = Undue Time pressure, Unusual delay in providing Info, Unwilling to address weak Internal Control. • Others = Mgt not allow Auditor to meet TCWG, Varied A/c policies, Frequent changes in A/c estimates.

Cha

ract

eris

tics o

f Fra

ud/ F

raud

Ris

k Fa

ctor

s re

late

d to

Mis

stat

emen

t & M

isap

prop

riat

ion Incentive or

Pressure to Commit Fraud

* Personal Financial Obligation may put pressure on employees or mgt having access of Cash/ Assets to misappropriate it * Adverse Relationship in Company & Employees due to: - - Pressure to achieve Unrealistic target. - Anticipated/ Known lay off in Future - Recent Unfavorable Changes in Promotion & Benefit Plan

Rationalization OR Attitude to

do so

* Individuals possess Attitude, Character or Set of ethical values that allow them knowingly & intentionally to commit a dishonest act. * Disregard need of Check on Assets Misappropriation * Disregard check on Internal Control System Deficiency & timely remedial actions * Behavior or Unjust Treatment with Employees

Perceived opportunity to

do so

* Individual knows Internal Control System is weak or can be Forbidden or if Individual in Trust Position * Inadequate Internal Control System * Assets are marketable & lacks ownership observance * Small Size of Stock with High value/ demand (like Apple I Phone) * Inadequate independent check, Investigation & Duty Segregation




SA 250: - Consideration of Laws & Regulations in Audit of FS R

epor

ting

Res

pons

ibili

ty o

n N

on-C

ompl

ianc

e of

Law

& R

egul

atio

n

To

TC

WG

(Tho

se C

harg

ed

with

Gov

erna

nce)

• Unless all of TCWG are involved in mgt of entity = Auditor to communicate with TCWG matters involving non-compliance with laws & regulations that come to Auditor’s attention during course of audit • If in Auditor’s judgment non-compliance is intentional & material = Auditor to communicate matter to TCWG as soon as practicable. • If Auditor suspects that mgt or TCWG are involved in non-compliance = auditor to communicate to Next higher level of authority at entity (Audit Committee or Supervisory board) • Where no higher authority exists or if auditor believes communication may not be acted upon or is unsure as to person to whom to report = auditor shall consider need to obtain legal advice.

To

Use

rs in

Aud

itor’

s R

epor

t

* If Auditor concludes non-compliance has material effect on FS &not adequately reflected in FS i.e. not reflecting True & fair view {Required in SA 200 & Sec 143(2)} = Modify as per SA 705 * If Auditor precluded (restricted) by Mgt/ TCWG from obtaining SAAE to evaluate non compliance that may be material to FS or is likely occurred = Auditor to express Qualified opinion or Disclaim an opinion * If Auditor unable to determine if non-compliance occurred due to limitations imposed by circumstances rather than by Mgt or TCWG = Auditor to evaluate effect on Auditor’s opinion.

To

Reg

ulat

ory

&

Enf

orce

men

t A

utho

ritie

s

If Auditor identified or suspects non-compliance with laws & regulations = Auditor to determine whether auditor has responsibility to report identified or suspected non-compliance to 3rd Parties

Res

pons

ibili

ties o

f Aud

itor

•Auditor not responsible to prevent/ detect non compliances = only consider use of Law & Regulation in Audit. • To Disclose whether co. has made provisions fines & litigations due to non compliance. • Remain Alert to possibility suspected non-compliance with laws & regulation • Obtain General understanding of: - - Legal & regulatory framework applicable & industry or sector entity operates & - How entity complies with such framework • Not required to obtain expert understanding of other laws like Environmental Laws (not Tax laws or Labor Laws) that do not have a direct bearing on FS • Obtain WR & SAAE that all actual/ suspected non- compliances disclosed to him. Also Obtain SAAE that: - - In relation to laws directly effecting determination of amount & disclosure in FS - That whether misstatements found is due to fraud or error. • Perform Audit procedures to help identify instances of non- compliance having material effect on FS by: - - Inquiring of mgt - Inspect correspondence with relevant licensing or regulatory authorities




Communication to TCWG Communication to Shareholders SA 260 Apply SA 700,705, 706 & Section 143 Apply

Focuses on NTE & Scope of Audit On True & Fair View of FS Internal Report not on Public Domain External Report on Public Domain

Mgt Responsibility

for Compliance with Laws & Regulations

* Ensure entity’s operations are conducted as per provisions of laws & regulations that determine reported amounts & disclosures in an entity’s FS * Examples of Policies & Procedures entity may implement to Prevent & detect non compliance: - - Monitoring legal requirements & ensure procedures designed to meet these requirements. - Instituting & Operating appropriate Internal Control systems - Developing, Publicising & Following a Code of conduct. - Ensuring Employees Proper Training& Understanding of Code of conduct. - Monitoring compliance with code & Discipline employees who fail to comply it. - Engaging Legal Advisors to assist in monitoring legal requirements. - Maintaining Register of significant laws & regulations which entity to comply in its particular industry & a record of complaints.

Possible Indicators to

verify compliance

with Laws & Regulation

• Payments of Unusual Type: - (PUT) - Unusual payments in cash, purchase by bearer Cheque. - Unusual payments towards legal & retainer ship fees (litigation claims indicated) - Unauthorized Transactions or improperly recorded transactions. • Payments: - (P) - Of fines, additional taxes or penalties. - For unspecified services or loans to consultants or to related parties, employees or government employees. - For Goods & Services made other than to country from which G & S originated. - Without proper exchange control documentation. • Investigation (I) by Regulatory organization or Government departments • Excess (E) Sales commission/ Agents fees or Purchase Prices significantly > Market Price.

SA 260: - Communicating with TCWG

Mgt Personnel responsible to perform day to day functions of business & responsible for making FS.

(Example: - Executive members of Governance Board .i.e. Executive Board)

TCWG

Personnel who supervise performance of Mgt & responsible for approving FS like Audit Committee They are Personnel having Two responsibilities: - - Overseeing Strategic Directions of Entity & - Obligations related to Accountability of Entity.)

Documentation

• Oral Communication Matters = When, To Whom & What + Minutes Copy • Written Communication Matters = Copy retained of documents

Significant Difficulties

encountered in Audit

Communication to TCWG

* Unavailability of Entity Personnel or Expected Info & * Significant delays * Unwillingness by mgt to provide info necessary for Auditor to perform Auditor’s Procedures. * Unreasonably brief time in which to complete Audit. * Extensive unexpected effort required to obtain SAAE * Restrictions imposed on Auditor by mgt. * Mgt unwillingness to make/ extend its Assessment of entity’s ability to continue as Going Concern if requested.




MA

TT

ER

S T

O B

E C

OM

MU

NIC

AT

ED

Auditor's

Responsibility in Relation to Audit of FS

* To form & express opinion on FS prepared by mgt with Oversight of TCWG. (Audit not Relieve Mgt or TCWG of their responsibilities) * Auditor responsible for forming & expressing an opinion on FS. * Auditor is required to communicate certain matters to TCWG. (Due to Low size or Structure, entity may not have Separate committee for approval of FS & so Mgt responsible for same & then circumstances auditor communicate to Mgt)

Planned NTE & Audit Scope

Auditor to communicate Overview of Planned Scope & NTE timing of Audit which includes communicating about significant risks identified by Auditor.

Audit Findings

• Auditor view on Qualitative aspects of Entity A/c practices, policies, estimates & disclosures • Significant matters from Audit that were discussed or subject to correspondence with mgt

Others

• Written representations Auditor is Requesting • Circumstances that Affect Form & content of Auditor’s report • Other Significant matters that in Auditor’s professional judgment are significant to Oversight of FR process. • Material weaknesses if any in Design, Implementation or Operating effectiveness of Internal Control that have come to Auditor's Attention & duly communicated to mgt.

Auditors Independence

In Case of Listed entities additional communication required i.e.: - • Engagement Team & others in firm have complied with relevant ethical requirements regarding Independence • All relationships & other matters between Firm, Network firms & entity that in Auditor's professional judgment may reasonably be thought to bear on Independence. • Related safeguards applied to eliminate identified threats to independence or reduce them to acceptable level.

Factors affecting Mode of

Communication

• Whether Discussion of matter will be included in Auditor’s report. • Whether Matter satisfactorily resolved. • Whether Mgt has previously communicated matter. • Whether Significant changes in membership of Governing body. • Size, Operating structure, Control environment & Legal structure of entity. • If Audit of Special Purpose FS whether Auditor also audits entity’s General Purpose FS • Legal requirements i.e. in some entities Written communication with TCWG under local law. • Expectations of TCWG & arrangements for periodic meeting or communications with auditor • Amt of ongoing contact & dialogue auditor has with TCWG

CO

MM

UN

ICA

TIO

N P

RO

CE

SS

Establish Communication Communicate NTE, Form & Factors of Communication to TCWG

Forms of Communication

• Oral or written • Detailed or summarized • Structured or Unstructured = Auditor to communicate in WRITING with TCWG regarding significant deficiencies when in Auditor’s professional judgment Oral communication won’t be adequate. = Auditor to communicate in WRITING with TCWG regarding Auditor Independence.

Timing of Communication

To TCWG on Timely basis (may vary with Significance & nature of matter & action expected to be taken by TCWG i.e.): - * Communications regarding planning matters = made early in audit engagement * Significant difficulty encountered during audit =as soon as practicable * SA 701 apply = communicate preliminary views about Current year Key Audit Matters * Communications regarding Independence when Threats to independence * Communications on findings from Audit = made as part of Concluding discussion. * When audit both General & Special purpose FS = coordinate communication timing

Adequacy of Two way

Communication

* Auditor to Evaluate 2 way communication adequate for Audit or not * If not adequate then Evaluate effect on RMM & get SAAE * Also Evaluate Role & of Effective 2 Way Communication:




(Applicable when more than 1 Auditor is appointed to conduct Audit of Large Entity) Advantages of Joint Audit Disadvantages of Joint Audit

Pooling & sharing of resources. Sharing of fees Everyone has expertise in different area. Lack of clear definition in case of joint responsibility.

Advantage of mutual discussion. Co-ordination problems in conduct of work. Better quality & Low Costs of work performance Areas of common concern being neglected.

Improved services to Client Company. Problems when firms of different standing are associated.

SA 265: - Communicating Deficiencies in Internal Control to TCWG

Deficiency in Internal

Control

* When Internal Controls is designed, implemented or operated in a way that it is either unable to prevent, detect or correct MMs on timely basis OR * When internal control system does not exists. (Individually or combined deficiencies significant to judgment of Auditor = communicated to TCWG & Letter of Weakness describing such weakness communicated in writing to Mgt)

Identify Deficiencies

• Auditor to Determine on basis of Audit performed if he identified 1 or > deficiencies • It depends on Occurrence of Misstatement & also on Likelihood to occur Misstatement (Ex: - Non disclosure of Related Party Transactions; Assets are overstated & Liabilities are understated) • If Auditor has identified 1 or more deficiencies in internal control = Auditor to determine whether individually or in combination, they constitute significant deficiencies.

Communications of Deficiencies

Auditor to communicate in Writing on Timely basis: - - To TCWG = Significant deficiencies in internal control identified - To Mgt = Significant & Other deficiencies that in auditor’s professional judgment are of sufficient importance to merit Mgt attention.

Indicators of Significant Deficiencies

• Evidence of Ineffective Control Environment • Absence/ Evidence of Ineffective Risk assessment process in Entity • Evidence of Ineffective response to Identified Risk • Misstatements detected by Auditor not prevented, detected & corrected by Internal Control • Evidence of mgt inability to Oversee Preparation of FS • Disclosure of MM due to error or fraud as prior period items in current years Statement of P/L

Con

tent

of W

ritt

en

Com

mun

icat

ion

of

Sign

ifica

nt

Def

icie

ncie

s

• Description of deficiencies & Explanation of their potential effects • Sufficient info to enable TCWG & mgt to understand Context of communication • In particular, Auditor to explain that: - - Purpose of audit to express an opinion on FS - Audit include consideration of internal control relevant to preparation of FS to design audit procedures appropriate in circumstances but not to expressing opinion on effectiveness of Internal control - Matters reported are limited to those deficiencies that auditor identified during audit & that Auditor has concluded are of sufficient importance to merit being reported to TCWG.

SA 299: - Joint Audit of Financial Statements

Requirements of SA 299

* Engagement partner & key members of engagement team from each of joint auditors to be involved in planning audit. * Joint auditors to jointly establish overall audit strategy that sets Scope, Time & direction of audit. * Development of Audit Plan {Principles of SA 300 will be applicable}. * Identification of RMM (Risk of Material Misstatements) * Allocation of work.




IMPORTANCE OF AUDIT PLANNING

• Facilitate Supervision & Direction • Coordination of Work • Properly Manage & Organize Audit • Devote appropriate attention to important areas • Identify & resolve potential problems • Assist in Selection of capable Engagement Team

RE

LA

TIO

NSH

IP O

F JO

INT

AU

DIT

OR

S

Division of Work

• Where Joint Auditors appointed = By mutual discussion divide Audit work in themselves • Division of work = on basis or in terms of Audit of Identifiable Units or Specified areas like Components of FS i.e. Assets & Liabilities/ Income/ Expense or reference to Period of time. • Certain Important Areas which can’t be divided is covered by both. • Division adequately documented & Communicated to entity.

Coordination Matters Requiring Disclosure or Discussion or Application of Judgment & deserves attention to be communicated to all Auditors in writing by concerned Joint Auditor

Responsibility of Joint

Auditors

(a) Joint Auditor Solely or Individually responsible or liable for: - • Professional Judgment • Obtaining Info & explanation. • Reviewing Internal Control & Audit Reports of work allocated to him • Work Divided/ Allotted to each Joint Auditor in NTE of Audit Procedure whether or not Separate Report is prepared by Joint Auditor

(b) Joint Auditors Wholly, Jointly & Severally responsible or liable for: - • Work not divided & to be carried out together • Matter brought to notice of joint auditors • Examine of FS as per Requirement of Statute • Matters on Agreement among Joint Auditors • Statute requirement in relation to disclosure requirement of FS • Ensure Audit Report comply to Laws, Regulations & Statutory requirements • Decisions taken by All Auditor's with respect to NTE of Audit Procedures

Rights of Joint Auditor’s

To assume that other joint auditors have carried out work as per Generally Accepted Auditing Procedures so not necessary for 1Joint Auditor to view work of Other Joint Auditor.

Reporting Responsibility

* Normally Arrive at Single Agreed Report. * If Disagreement on a matter in Joint Auditor = Each Joint Auditor to express his opinion by Separate Report. * However efforts be made to arrive at agreed report so that users of FS not confused. * If Joint Auditor Disagree to Majority Joint Auditors = then such Joint Auditor is not bound by their views & so to issue a Separate Report.

SA 300: - Planning an Audit of FS

What Audit

Plan to include?

* Description of NTE of planned risk assessment procedures, as explained in SA-315 * Description of NTE of planned further audit procedures as determined under SA-330 * Description of Other planned audit procedures to be carried so that engagement complies with SAs * Description of NTE of direction & supervision of engagement team members & review of their work

Planning =

Continuous Process

Since Planning is Not a Discrete Phase it begins shortly after previous audit completion & end on current Audit = Planning include considering prior to Auditor’s identification & assessment of RMM misstatement matters: - • Analytical Procedure • Perform Risk Assessment Procedures • Determine Materiality • Obtain Good Understanding of Legal & Regulatory framework • Involve Experts




Who involved in Audit

Planning? Preliminary Engagement Activities (ETC) Planning

Activities

Along with Senior Partner, Engagement Team leader of

Audit Engagement Team with his Key members

• E = Evaluating compliance with ethical requirements, including Independence, as required by SA 220 • T = Understanding of Terms of Engagements as required by SA 210 • C = Perform procedures in SA 220 regarding continuance of client relationship & specific audit engagement

Establish Overall Audit Strategy

+ Development of

Audit Plan

DEVELOPMENT OF AUDIT PLAN • Terms of Engagement • Legal & Statutory Requirements • Professional Responsibility • Effect of New Accounting Pronouncements • Allocation of Work • Accounting Policies adopted & changes • Work of Internal Auditor & Existence of Reliance • Reporting Responsibility & Objectives • Coordination in Staff Needs • Nature, Mode & Time of Communication • Identify Significant Matters & areas requiring Special Attention • Setting Materiality Level • Degree of reliance on accounting system &internal control. • NTE of audit evidence to be obtained. • Possible rotation of emphasis on specific audit areas. • Involvement of other auditors& Experts • How Fix Assets shall be verified? • How Inventory will be witnessed? • Methods of Physical verification of Cash & Investment. • Manner of Verifying Scrap records. • Identify benchmarks in relation to which Actual results of Activities, Time Spent & Cost incurred to be measured.

CONSIDERATIONS IN ESTABLISHING OVERALL AUDIT STRATEGY

Identify Characteristics of Engagement

Ascertain Reporting Objectives, Timing of Audit & Nature of Communication

Significant Factors while Considering Preliminary Engagement Activities results

Audit Strategy = Backbone of “Audit Planning” process/ Steps Involved in formulation of Audit Strategy • Obtaining knowledge of business as per SA 315 & SA 330. • Evaluating Inherent Risk. • Performing Analytical Procedures. • Evaluating Internal Control.

Audit Planning

Audit Plan + Audit Program + Audit Procedure + Audit Strategy (Audit Planning essential to plan in advance to complete audit in timely & efficient manner)

Changes to Planning Decisions

* Auditor to Update changes to Audit Plan & Audit Strategy * Audit planning is Continuous Process but still Auditor may change audit plan or strategy during performance of Audit engagement as a result of: - - Unexpected events or Change in conditions - New Audit evidence obtained from result of Additional or Alternative Audit Procedures * Based on Revised/ Modified Assessment of Risks due to Modified Strategy & Plan, auditor to change NTE of Audit Procedure * Auditor to Document = Audit Plan + Audit Strategy + Changes to these + Reasons for changes

Relationship in Overall

Audit Strategy & Audit Plan

* Audit strategy provides guidelines for developing audit plan. (It establishes Scope & conduct of Audit procedures & thereby works as basis for developing a detailed audit plan). * Detailed audit plan would include NTE of audit procedures to obtain SAAE * Audit strategy is prepared before Audit Plan. * Audit plan contains more details than overall Audit Strategy. * Audit strategy & audit plan = inter-related as change in one would result into change in other.




FACTORS IN RELATION TO AUDIT STRATEGY FORMULATION

General Factors to be considered in formulating Audit Strategy of Company

Specific Factors for Online Shopping

• Engagement objectives. • Identified inherent risks considering risk of fraud. • Results of business review. • Broad NTE of substantive tests. • Degree to which Team should carry out further assessment of controls to reduce substantive testing. • Main points relating to Planning & controlling Audit or comments on Adequacy of existing arrangements. • Preliminary judgments as to materiality.

• Nature of Transactions significant to FS • Procedures in both IT & Manual systems by which those transactions are initiated, recorded, processed, corrected as necessary, transferred to the general ledger and reported in FS • System by which Info system captures events & conditions (other than transactions significant to FS) • Controls used to record non-recurring, unusual transactions or adjustments.

SA 315: - Identifying & Assessing RMM by understanding Entity & its Environment & Internal Control

IDE

NT

IFY

ING

& A

SSE

SS R

ISK

OF

MA

TE

RIA

L M

ISST

AT

EM

EN

T/ A

UD

IT R

ISK

Assessment of RMM at FS

level

• Refers to RMM that relate pervasively to FS as a whole & potentially affect many assertion • Risks at FS level may derive in particular form deficient control environment i.e. deficiencies such as mgt lack of competence may have a more pervasive effect on FS • Auditors understanding of Internal Control may raise doubt over audit ability of FS i.e.: - - Concerns about Integrity of Entity’s Mgt - Concerns about condition & reliability of Entity’s Records

Assessment of

RMM at Assertion Level

• RMM at Assertion level for classes of Transactions, A/ Balances & disclosures needs to be considered as assists in determining NTE of Further audit procedures to obtain SAAE.

Steps in Assessing

RMM due to Fraud * Understanding Entities business * Enquiries trough mgt

* Enquiries with Internal Auditor * Result of Auditor's Analytical Procedures

Evaluating/ Obtaining

Knowledge of Business

OR Understanding Requirements of Entity& its Environment

• Relevant industry, regulatory, economic &other external factors • Applicable FRF& Internal Control System • Nature of entity, including: - - Its operations - Its ownership and governance structures; - Types of investments entity makes & plans of investment in special-purpose entities - Way entity structured & how financing to enable auditor understand transactions, account balances & disclosures to be expected in FS • Entity’s selection and application of accounting policies & reasons to change them • Entity’s objectives & strategies & those related business risks that may result in RMM • Measurement and review of the entity’s financial performance.

Auditor Documentation

• Discussion in engagement team & significant decisions reached • Key elements of understanding obtained on aspects of entity & its environment sources of info from which understanding was obtained & risk assessment procedures performed • Identified & assessed RMM at FS level & Assertion level • Risks identified & related controls about which auditor obtained understanding.




ASSERTIONS EVALUATED

Transactions occurred during yr A/c Balances at period end Presentation & Disclosure * Occurrence = actually occurred in yr * Completeness = recorded completely * Accuracy = recorded precisely * Cut off = recorded in correct Accounting Period * Classification = Transactions properly classified to Capital & Revenue

*Existence = A & L shown in B/S actually exists * Right & obligations = Rights of Entity shown as Assets & obligations as Liability * Completeness = record complete * Valuation & Allocation = A & L in FS at appropriate Amt.

* Occurrence, Rights & Obligations = Transactions occurred, A & L belong to entity * Completeness = Disclosures in FS completely * Classification & Understandability = FS presented & disclosures appropriately * Accuracy & Valuation = Financial & other info amt disclosed fairly

Auditors Responsibility

• Identify & assess RMM due to Fraud or Error at FS & Assertion Levels • Understand entity & its environment • Understand entity Internal control • Design & implement responses to assesses RMM

INT

ER

NA

L C

ON

TR

OL

Meaning

Process Designed, Implemented & Maintained by Mgt & TCWG to Provide Reasonable Assurance about achievement of entity’s objective of: - • Reliability of financial reporting. • Effectiveness & Efficiency of operation. • Safeguarding of Assets. • Compliance with laws and regulation.

Objectives

• Transactions executed with proper authorizations of mgt • Transactions recorded with Correct amt, period & value • Assets safeguarded against unauthorized use/ disposal or access • Framework Based Application of Accounting Policies & Practices • Recorded assets tally to physical existence at Regular intervals & action on differences

Limitations

•Mgt's consideration that Cost of Internal control not > Expected benefits to be derived • Most Internal controls not tend to be directed at transactions of unusual nature. * Human error by carelessness, distraction, mistakes of judgment & misunderstand instructions • Circumvention of Internal controls by collusion with employees or with parties outside entity. • Person responsible to exercise Internal control abuse responsibility • Manipulations by Mgt (Mgt Overriding of Controls)

Internal Control

Objectives for

Accounting Control System

• Whether all transactions are RECORDED •Whether recorded transactions are REAL • Whether all recorded transactions are PROPERLY VALUED • Whether all transactions are RECORDED TIMELY • Whether all transactions are PROPERLY POSTED • Whether all transactions are PROPERLY CLASSIFIED AND DISCLOSED • Whether all transactions are PROPERLY SUMMARIZED

Internal controls not

in use throughout

Audit period

covered = Controls objectives

for it

• Adherence to company’s policies. • Safeguarding of its assets. • Prevention and detection of frauds and errors. • Risk assessment procedures.z • Timely preparation of reliable financial information. • Supervisory and Physical controls. • Compliance with applicable laws and regulations. • Ensure segregation of duties. • Effectiveness and efficiency of its operation. • Proper authorization of transactions. • Monitoring of accounting/financial controls. • Systematic information processing. • Accuracy and completeness of the accounting records. • Changes occurred in the accounting and internal control systems during the period. • NTE of substantive procedures which the auditor plans to carry out. • Nature and amount of the transactions and other events and the balance involved.




Components of Risk Assessment

Procedures Risks that require Special Audit Consideration Risk Assessment Process

• Enquiries of management &TCWG who can assist in identifying RMM • Observation and Inspection. • Enquiry of others. • Analytical Procedures (SA-520).

• Risk of Fraud • Risk of economic, accounting/ other changes • Risk involved in complex transactions. • Significant transactions with related parties. • Risk involved significant unusual transaction.

• Identify Risks • Assess & Evaluate Identified Risks • Relate identified risks to what can go wrong at Assertion Level • Likelihood of Misstatement

Areas Examined for deficiencies & Risk

Identification in CIS Environment

(Causes of RMM at CIS Environment)

• Program developed & maintenance has some defect since inception. • System software support is improper. • Operations including processing of data are not regulated and ungoverned. • Physical CIS security may be lacking. • Control over access to specialized utility program is improper. (These deficiencies would tend to have negative impact on all application systems processed through computer)

Specific Risk to Entity’s Internal Control posed by

IT System

* Unauthorized changes to data in Master files. * In appropriate manual intervention. * Failure to make necessary changes to systems or programs. * Unauthorized change to system/ program * Reliance on systems/ programs inaccurately processing data or processing inaccurate data * Potential loss of data or inability to access data as required. * Unauthorized access to data resulting in destruction of data or improper changes to data, including recording of unauthorized or non-existent transactions or inaccurate recording of transactions. * Possibility of IT personnel gaining access beyond those necessary to perform their assigned duties thereby breaking down segregation of duties.

CAUSES OF

RISKS

• Changes in operating environment • New personnel • New technology • New or revamped information systems • Rapid growth of operations • New business models, products, or activities • Corporate restructurings • Expanded foreign operations like additional or changed risks from foreign currency transaction • Adopting New/ Changing accounting principles may affect risks in preparing financial statements.

Com

pone

nts o

f Int

erna

l Con

trol

Monitoring of Controls

(SA-220) = To assess the quality of internal control performance over time.

Control Activities

Relevant to Auditor Auditor to obtain understanding of control activities relevant to audit like: -

* Authorization * Segregation of duties * Safeguarding & Asset accountability

Info System

- Captures information relevant to FR - Transfer Info - Initiate, Record, Process & Report Entity Transactions - Resolve Incorrect Processing of Transactions - Process & A/c system overrides or bypasses to controls - Ensure information required to be disclosed by applicable FRF

Control Environment

Understanding Control environment, whether mgt, with TCWG has created & maintained Culture of honesty & ethical behavior. Control environment encompasses below elements: - Communication and enforcement of integrity and ethical values. - Commitment to Competence& Skills to accomplish tasks defining individual’s job. - Management’s philosophy and operating style - Participation by TCWG - Assignment of authority and responsibility - Organizational structure - Human resource policies and practices

Entity Risk Assessment

Procedure & Process Audit Procedures performed to understand Entity & its environment & internal

Controls to identify & assess RMM due to Fraud/ Error at FS & Assertion Levels.




Auditors Assessment of Materiality = To Consider Aggregate of all Uncorrected Misstatements & Estimates

SA requirement Aggregate of Uncorrected Misstatements comprises of: -

Impact of Misstatements

• In forming opinion on financial info, Auditor to consider all material aspects important for True & fair view of FS. • To consider if Effect of Aggregate uncorrected misstatements on Financial Info is material. • Qualitative considerations also influence Auditor to reach conclusion whether misstatements are material.

(a) Specific Misstatements identified by Auditor including net effect of uncorrected misstatements identified during audit of previous periods & (b) Auditor’s best estimate of other misstatements which cannot be specifically identified i.e. Projected errors. = Analytical procedures employed by Auditor may give him some indication about existence of misstatements, which can be further substantiated by him through estimates process. = When Auditor uses audit sampling to test an account balance or class of transactions, he projects amt of known misstatements identified by him in his sample = Projected misstatement

• If Aggregate of uncorrected misstatements that auditor identified approaches materiality level or if auditor determines aggregate of uncorrected misstatements causes financial info to be materially misstated = Consider Requesting Mgt to adjust financial info or extending his audit procedures. • Mgt may Adjust Financial Info for known misstatements. • If Mgt refuses to adjust Financial info & results of extended audit procedures do not enable auditor to conclude Uncorrected misstatements is not material = Auditor to express a Qualified or Adverse opinion

SA 320: - Materiality in Planning & Performing an Audit

Concept of Materiality

• Auditor considers materiality from point of view of Overall financial info & Individual a/c balances. • Materiality is judged at time of: - - Planning - Evaluation of Audit Evidence - Conclusion of Reporting

Revision/ Re-Evaluation of

Materiality Levels

• Auditor can revise materiality level based on progress of Audit. • If he finds MM then reduce materiality level to cover more items • Consider whether NTE of further Audit Procedures will remain appropriate • If Auditor gets additional info then he should revise materiality Example: - If there is new requirement under Law/ Regulation/ FRF OR - Entity has made major decision to dispose of major part of entity’s business (Auditor to revise materiality level & if materiality is more, auditor to perform more audit procedures & reduce overall Audit risk. Auditor may decide to evaluate misstatements even if it is less than materiality level set by him)

Perf

orm

ance

M

ater

ialit

y

= Amount set by the auditor at less than materiality level for the financial statement as a whole. = To ensure aggregate of uncorrected & undetected misstatements < Materiality for FS as a whole. = To reduce risk to an appropriately low level. Example: - Materiality level of ₹5 Lakh decided says 40% = ₹2 Lakh decided as performance materiality. (If 3 mistakes of ₹2 Lakh each identified & detected, then aggregately main materiality level is exceeded)

Factors affecting

Identification of Benchmark

in Determining

Materiality for FS as a Whole

• Elements of the financial statements (Example: A & L, Equity, Revenue, Expenses) • Whether there are items on which attention of users of particular entity’s FS tends to be focused (Example: for evaluating financial performance users may focus on profit, revenue or net assets) • Nature of entity, Life cycle and industry & economic environment in which entity operates • Entity’s Ownership Structure & way it is financed (Example: if entity is financed solely by debt rather than equity, users may put emphasis on Assets & claims on them rather entity’s earnings) • Relative volatility of benchmark.




FACTORS THAT MAY RE- WARRANT TEST OF CONTROLS •Deficient Control environment • Significant Manual Element to relevant Controls. •Deficient Monitoring of control. • Changing circumstances that indicate need for change in controls •Deficient General IT controls. • Personnel changes

SA 330: - Auditor’s Responses to Assessed Risk

SUB

STA

NT

IVE

PR

OC

ED

UR

ES

It is an Audit Procedure designed to detect MM at assertion level. Substantive Procedures comprise: - - Tests of details (of classes of transactions, account balances &disclosures) - Substantive Analytical Procedures. - External Confirmations - FS Closing Process - Response to Risks • Irrespective of assessed risk of MM, auditor shall design & perform substantive procedures for each material class of transactions, account balances & disclosure. • Example: - Auditor's Substantive Procedures in relation to FR Closing Process includes: - - Agreeing or reconciling FS with underlying accounting records - Examine material journal entries & other adjustments made during course of preparing FS

TEST OF CONTROLS

• To ensure Internal Control designed & effectively operating throughout period. • If control risk is high, perform more tests of controls. • Communicate material weakness in Internal Control to TCWG.

Subs

tant

ive

Proc

edur

es P

erfo

rmed

to A

sses

s RM

M

Test of Details

* Nature of risk & assertion is relevant to design of tests of details. * Example, Tests of details related to existence or occurrence assertion may involve selecting from items contained in FS amount & obtaining relevant Audit Evidence * Tests of Details related to completeness assertion may involve selecting from items that are expected to be included in relevant FS amt &investigating whether they are included * In designing Tests of Details, extent of testing is ordinarily thought of in terms of sample size.

Substantive Analytical Procedure

* Applicable to Large Volumes of transactions that are predictable over time. * Application of planned analytical procedures is based on expectation that relationships among data exist & continue in absence of known conditions to contrary. * Suitability of particular analytical procedure will depend on Auditor’s assessment of how effective it will be in detecting misstatement that, individually or when aggregated with other misstatements may cause FS to be materially misstated. * Trade ratios like Profit margins can be used effectively in substantive analytical procedures to provide evidence to support reasonableness of recorded amt.

Depending on circumstances,

Auditor Determines

* Performing only substantive analytical procedures will be sufficient to reduce Audit Risk to low level * Only Tests of Detail are appropriate * Combination of Substantive Analytical Procedures & Tests of Details is Responsive to Assessed risks.




Service Auditor Auditor at request of service organization (org.) provides assurance report on controls of service org. Service Org. 3rd party organization that provides services to user entities that are part of those entities that are part

of those entities info system relevant to FR User Auditor Auditor who audits & reports on FS of user entity. User Entity Entity that uses Service organization &who’s FS is being audited.

SA 402 : - Audit considerations relating to Entity using Service Organization

Auditor Considerations

(Procedure if User Auditor can’t obtain Sufficient

Understanding from user

Entity)

* User Auditor Determine whether sufficient understanding of Nature & Significance of services provided by service organization & their effect on user entity’s internal control relevant to audit has been obtained to provide a basis for identification &assessment of RMM. * User Auditor Evaluate design & implementation of relevant controls of user entity that relate to services provided by service organization. * If User Auditor is unable to obtain Sufficient understanding from User entity, user auditor: - - Obtaining Type 1 or Type 2 report (if available) - Contacting Service Organization, through user entity to obtain specific info - Use other auditor to perform procedures to get info on relevant control at service org. - Visiting Service organization & performing procedures for the same

PRE

CA

UT

ION

S/ C

HE

CK

S FO

R A

UD

IT U

ND

ER

SA

402

Obtain Understanding/ Assessment of

services provided by Outsourcing Agency/ Service

organization

• Nature of services provided by Service Organization & significance of those services to User Entity including effect thereof on User Entity’s Internal Control • Nature & Materiality of Transactions processed or A/c or FR processes affected by Service organization • Degree of interaction in activities of Service organization & those of User Entity • Nature of Relationship in User entity & Service organization including Relevant Contractual terms for activities undertaken by Service Organization.

Determine SAAE Use

Determine sufficiency& appropriateness of Audit Evidence provided by a Type 1 or Type 2 report satisfied as to: - • Service auditor’s professional competence • Adequacy of standards under which Type 1 or Type 2 report was issued i.e. if it was prepare as per SAE 3402. • If Auditor of user org. not able to obtain Info = Give Qualified or Disclaimer.

Obtain Type 1

& Type2 Report

Type 1 Report: - - Report on description & design of controls designed & implemented at service org. - Report by Service auditor that comprises of service org. system, control objectives & related controls that have been designed & implemented at a particular date. Type 2 Report: - - More comprehensive & includes Type 1 report & additionally it includes Description of Test of Controls performed to arrive at the opinion (These 2 methods are also known as Inclusive methods &Carve out method)

Obtain Info on Controls

at Sub-Service

Organization

* If Service org. uses subservice org, service auditor’s report may either include or exclude subservice org. relevant control objectives & related controls in service org. description of its system & in scope of service auditor's engagement. * These 2methods of reporting are known as Inclusive & Carve-out method respectively. * If Type 1 or Type 2 report excludes control at Sub service organization & services provided by subservice organization are relevant to audit of user entity’s FS, User auditor is required to apply requirements of SA 402 for subservice org. * NTE of work performed by User auditor of services provided by sub-service organization depend on nature & significance of services to user entity & relevance of services to audit.




If Misstatement is Immaterial If Misstatement is Material

* Document all misstatement treated as material. * Obtain Written Representation that uncorrected misstatement are immaterial

If misstatement is material or Aggregate of Uncorrected misstatement becomes material

Consider adjustment of NTE of Audit Procedures

Communicate them to appropriate level of mgt & request them to correct it If Management: -

Refuses to correct Corrects Them Consider reasons & effect on Audit Report Perform additional procedures to determine if other misstatement remains.

AUDIT PROCEDURE TO OBTAIN SAAE Procedures in SA 500 read with SA 315 & SA 330 i.e. Risk Assessment procedures + Test of controls

(Compliance procedures) & Substantive procedures. {Substantive procedures further compromises of Test of details & substantive analytical procedures}

Test of Controls Substantive Procedures

* Designed to check if internal control system designed & operating effectively * Evaluate operating effectiveness of internal controls at assertion level * Auditor performs Audit procedures so that he can obtain Audit Evidence regarding adequacy of internal controls in Enterprise. * After performing Test of Controls, if auditor finds controls are Inadequate/ absent = communicate same to TCWG as per SA-265.

* Designed to detect MMs at assertion level * Compromise Test of details &Substantive analytical procedures (SA- 520) * Substantive Tests conducted in areas not subject to internal controls & are hence judgmental in nature.

SA 450 : - Evaluation of Misstatements identified during Audit

Mis

stat

emen

t

• Difference in amounts, classification, presentation, or disclosure of a reported FS item that is required to be in accordance with the applicable FRF • Include adjustments of amounts, classifications, presentation, or disclosures that in auditor’s judgment are necessary for FS to give a True & Fair view or present fairly in all material respects. • An item is said to be misstated when it is reported in FS in way which is different from that prescribed in FRF may be due to error &fraud i.e. Misstatements can arise from error or fraud Uncorrected misstatements = Misstatements that Auditor accumulated during audit & not been corrected.

SOURCES OF MISSTATEMENT

• Inaccuracy in gathering/ processing data from which Financial statements prepared • Omission of Amount or Disclosure • Incorrect accounting estimate arising from overlooking or clear misinterpretation of facts • Judgments of mgt concerning accounting estimates that Auditor considers unreasonable; • Selection & application of accounting policies that Auditor considers inappropriate.

SA 500 : - Audit Evidence

Audit Evidence = Info contained in A/c Records + Other Info used by Auditor to arrive at conclusions to base opinion (Auditor should obtain SAAE as per SA 200 read with SA 500)

Assessing Reliability of Audit Evidence

• Original documents are more reliable than mere photocopies& Written docs more reliable then Oral • Evidences obtained from outside entity (Independent Sources) more reliable than obtained in entity. • Evidences are more reliable when internal control system is sound. • Evidences obtained directly by auditor are more reliable than obtained indirectly.




ME

TH

OD

S T

O O

BT

AIN

AU

DIT

EV

IDE

NC

E

(RA

P IN

2 RE

CO

) Re -Performance

(R) Auditor’s Independent execution of procedures originally performed as part of entity’s

internal control.

Analytical Procedure

(AP)

* Evaluations of financial info made by Study of relationships in financial & non- financial data. * Encompass Investigation of identified fluctuations & relationships inconsistent with other relevant info or deviate significantly from predicted amounts.

Inquiry (IN)

* Seeking info of knowledgeable persons financial & non- financial in or outside entity. * Used extensively throughout audit in addition to other audit procedures. * May range from formal written inquiries to informal oral inquiries. * Evaluating responses to inquiries is an integral part of Inquiry process.

Insp

ectio

n (I

N)

* Examine records or doc (Internal or External) in Paper or E form or other media/ physical examine Asset * Inspection of Records & docs provides Audit Evidence of varying degrees of reliability depending on Nature & Source & Effectiveness of controls over their production. * Example of Inspection used as a Test of Controls is Inspection of records for evidence of authorization. * Some docs represent direct audit evidence of existence of Asset like a document constituting financial instrument such as a Stock or Bond. * Inspection of such documents may not necessarily provide audit evidence about ownership or value * Inspecting executed contract may provide audit evidence relevant to entity’s application of a/c policies, such as revenue recognition. * Inspection of Tangible assets may provide reliable audit evidence with respect to their existence not necessarily about entity’s Rights & Obligations or Valuation of Assets. * Inspection of Individual Inventory items to accompany observation of inventory count. Recalculation (R) * Recalculation consists of checking the arithmetical accuracy of documents or records.

* Recalculation may be performed manually or electronically.

External Confirmation (EC) Refer SA 505 for details

Obs

erva

tion

(O)

* Looking at Process or Procedure being performed by others like auditor’s observation of inventory counting by entity’s personnel or of performance of control activities. * Provides Audit evidence about performance of process or procedure, but limited to point of time at which observation takes place * It may affect how process or procedure is performed.

Eva

luat

e W

ork

of M

gt/ O

utsi

de E

xper

t

Evaluate CCO of Expert

C = Competence = Nature & level of Expertise C = Capability = Ability to exercise competence O = Objectivity = Personal effect of not being biased & no conflict of interest

Obtain info regarding CCO of mgt expert from Variety of sources by Auditor: - • Personal experience with previous work of that expert • Discussions with that expert • Published papers/ books written by Expert • Knowledge of expert’s qualifications • Discussions with others who are familiar with that expert’s work

Obtain

Understanding of Work of Expert

Aspects of mgt expert’s field relevant to auditor’s understanding may include what assumptions & methods are used by mgt expert & whether they are generally accepted in that expert’s field & appropriate for FR purposes.

Evaluate Appropriateness of Expert’s work

• Relevance & reasonableness of that expert’s findings or conclusions, their consistency with other audit evidence & whether they have been appropriately reflected in FS • If expert’s work involves use of significant assumptions & methods, relevance & reasonableness of such methods • If expert’s work involves significant use of source data, relevance, completeness & accuracy of that source data.




Spec

ial C

onsi

dera

tion

To

Inve

ntor

y (W

hen

inve

ntor

y is

mat

eria

l to

FS =

Aud

itor t

o ob

tain

SA

AE

of e

xist

ence

& c

ondi

tion

of in

vent

ory)

Attending Physical Count

• Evaluate mgt instructions & procedures for recording & controlling results of entity’s physical counting • Inspect Inventory • Observe performance of mgt count procedures • Perform Test Counts

Audit Procedures

on Final Inventory Records

* To Determine if they accurately reflect actual inventory count results * Inspecting inventory when attending physical inventory counting assists auditor in ascertaining existence of Inventory (though not necessarily its ownership) & identifying obsolete, damaged or ageing inventory.

Attending Physical Count Not Practicable/

Impracticable

• Due to factors such as Nature & Location of Inventory like Inventory held in location that may pose threats to safety of Auditor. • If Attendance Impracticable = Alternative audit procedures like Inspection of documentation of subsequent sale of specific inventory items acquired or purchased prior to physical inventory count provides SAAE to existence & condition • In some cases though it may not be possible to obtain SAAE regarding existence & condition of Inventory by performing alternative audit procedures. In such cases, SA 705 requires Auditor to modify opinion in Auditor’s report due to Scope limitation.

INVENTORY LITIGATION& CLAIMS

Mandatory to: - 1. Attend physical inventory counting unless impracticable 2. Evaluate mgt procedure for inventory counting 3. Inspect Inventory 4. Perform Test Counts. Situation- 1 If impracticable = Perform Alternative Audit Procedures to obtain

SAAE regarding existence & condition of Stock If not possible to perform alternate procedures = Modify Audit Report

as per SA 705. Situation- 2

* If Unable to attend inventory counting due to unforeseen circumstances * Perform physical counts on alternative date & perform Alternate audit procedures including: - - Reconcile changes in inventory between date of physical count & period end date. - Observe treatment given for discrepancies observed. - Ensure appropriate cut off procedures followed or not. - Obtain Written Representation.

Perform Audit Procedures to obtain SAAE of its existence by: - 1. Inquiry from Mgt 2. Review minutes of meeting of TCWG & correspondence in entity & external council 3. Review legal expense account. It includes: - Obtain WR that all litigations & claims

presented in FS &disclosed to auditor. - If audit procedures indicate other

litigations or claims, seek communication with entity's external legal counsel.

If mgt refuses to give permission to auditor to communicate with external legal counsel & unable to obtain SAAE = Modify Report

SA 501 : - Audit Evidence Specific Considerations for Selected Items




SA 505 : - External Confirmations

External Confirmation = One of methods of obtaining Audit evidence as enumerated under SA-500 (Obtaining & evaluating audit evidence by direct communication from 3rd party on certain assertions by mgt in FS)

Process of External Confirmation

•Selecting items for which confirmations are needed. •Designing form of confirmation request. •Communicating confirmation request to appropriate third party. • Obtaining response from third party. • Evaluating Info

Factors affecting Auditor in Determining use of

External Confirmations

• Willingness of Confirming party to Respond or Ability • Knowledge to confirming party about Subject matter. • Objectivity of Intended Confirming Party.

TY

PES

OF

CO

NFI

RM

AT

ION

RE

QU

EST

Positive confirmation

• Response mandatory in case of agreement or disagreement. • If response is not received in reasonable time, send additional confirmation request. • Regarded as a better mode of confirmation request. • Advisable where: - - Risk or materiality level is high - Internal control system is not so sound - Exception rate is high

Effects of using Positive External Confirmation Request: - • A positive external confirmation request asks confirming party to reply to auditor in all cases • Response by either by indicating Confirming party’s agreement with given info or by asking confirming party to provide info • Response to Positive confirmation request is expected to provide reliable audit evidence. • Risk that confirming party may reply to confirmation request without verifying info. • Auditor may reduce this risk by using positive confirmation requests that do not state amt (or other info) on confirmation request & ask confirming party to fill.

Negative confirmation

• Response from external party is required only in case of disagreement. • It is to be used when risk of MM or materiality level is low, internal control is effective & exception rate is low. • Limited use i.e. it is Advisable where: - - Risk or materiality level is low - Internal control system is sound& effective - Exception rate is low - Population of Large No. of Homogeneous & Small Account balances or transactions.

• Confirming party respond directly to auditor only if party disagrees with info in request. • Provide less persuasive audit evidence than positive confirmations • Failure to receive response to Negative confirmation request not indicates receipt by intended confirming party of confirmation request or verification of accuracy of info in request. • Accordingly failure of confirming party to respond to negative confirmation request provides less persuasive audit evidence than response to positive confirmation request. • Confirming parties also may be more likely to respond indicating their disagreement with confirmation request when info in request not in their favor & less likely to respond otherwise




SITUATIONS WHERE EXTERNAL CONFIRMATIONS CAN BE USED • Bank balance from bankers • Long outstanding share application money • Account receivable balances • Account payable balances • Inventories held by third parties • Loan from lenders • Property title deeds held by third parties • Investments purchased but delivery not taken

REPORTING REQUIREMENTS

Audit Evidence Regarding Opening Balance Reporting Responsibility

Available & MM can be corrected Issue Unqualified report

Available & MM can’t be corrected/ accounting policies not consistent/ not disclosed Issue Qualify or Adverse report

Not Available & MM cannot be corrected Issue Qualified or Disclaimer report

Factors considered

while Designing

Confirmation Request

• Assertions being addressed • Specific identified risks of MM, including fraud risks. • Layout & presentation of confirmation request. • Prior experience on audit or similar engagements. • Method of communication (in Paper form, or Electronic or other medium). • Mgt authorization or encouragement to confirming parties to respond to auditor. Confirming parties may only be willing to respond to confirmation request containing mgt authorization. • Ability of Intended confirming party to confirm or provide requested Info

Mgt refusal to allow

Auditor to send

Confirmation Request

AUDITOR RESPONSE OR PROCEDURE WILL BE: - • Inquire of Mgt reasons for refusal & seek audit evidence to their validity & reasonableness • Evaluate implications of mgt refusal on Auditor’s assessment of relevant RMM including risk of fraud & on NTE of other audit procedures • Ask mgt to submit its request in written form giving in details reason for such request. • If auditor agrees to mgt request, document reasons for acceding to mgt request. • Perform alternative audit procedures designed to obtain relevant & reliable audit evidence. (If auditor Concludes Mgt refusal is unreasonable/ can’t obtain SAAE = auditor to communicate with TCWG & determine its implication for audit & his opinion)

SA 510 : - Initial Audit Engagements - Opening Balances Applicability of SA 510 = Opening Balance Present + Previous year Audit not done or done by another auditor

Opening Balances

Balances existing at Beginning of yr

Predecessor Auditor

Other Audit firm who audited FS in Prior period

Initial Audit Engagement

Engagement in which either: - • FS for prior period were not audited OR • FS for prior period audited by Predecessor auditor.




Audit Procedure for Sufficiency & Appropriateness of Opening Balances & ensure it’s free from Misstatement

FS Audited for preceding period by Other Auditor FS Audited for 1stTime

• If prior period’s FS are audited by Predecessor Auditor, auditor may be able to obtain SAAE regarding opening balances by perusing copies of FS including other relevant docs relating to prior period FS such as supporting schedules to audited FS. • Current Auditor can place reliance on closing balances in FS for preceding period, except when performing of audit procedures for current period possibility of misstatements in opening balances is indicated.

• Auditor to perform auditing procedures to obtain SAAE. • Since opening balances represent effect of transaction & events of preceding period & accounting policies applied in preceding period, auditor need to obtain evidence having regard to nature of opening balances & materiality of opening balances • Since it will not be possible for auditor to perform certain procedures, e.g., observing physical verification of inventories, etc. auditor may obtain confirmation, etc. & perform suitable procedures in respect of fixed assets, investments, etc. • Auditor can obtain Mgt WR for Opening balances

Auditor’s Objective

Auditor to Obtain SAAE whether: - • Opening balance contain MM in opening balances is materially effecting FS of current period. • A/c Policies in preceding yr = consistent with current year & any change appropriately disclosed. • Closing balances of preceding yr are correctly brought forward in current period. • If Previous FY audited by Other Auditor CA in practice = then in current yr new auditor not required to re-audit previous FS, but obtain SAAE regarding MP plus read most recent FS. • If Previous FY were unaudited = then in current yr, new auditor is not required to re-audit previous FS, but to disclose this fact in his audit report in Other Matters Para plus read most recent FS.

SA 520 : - Analytical Procedures (AP)

ME

AN

INIG

• Evaluation of Financial Info through analysis of relationships in Financial &Non- Financial data. • Involves = Comparison with-Prior period info; Anticipated results i.e. Budgets & Similar industry Info. • Refers to comparisons & ratio analysis (i.e. analysis of significant ratios & trends. Purpose: - - To assist auditor in planning NTE of other audit procedures. - Investigating unusual fluctuations. - Analysis of significant ratios & trends. - Used as substantive procedures more effectively than test of details in reducing detection risk

Extent Reliance on Analytical Procedures

• Depending on materiality of items involved: - - If more materiality level = perform analytical procedure plus other substantive procedures - If less material = may rely solely on analytical procedures. • Depending on other inherent risk & control risk-more risk = more reliance on comprehensive test of details & not solely on analytical procedures. • Accuracy of results of analytical procedures. • Other audit procedures directed towards same objective.

Auditor's Objective

• To obtain relevant & reliable audit evidence when using substantive audit procedure. • To design & perform SAP near end of audit. • If there is unusual fluctuations, then make enquiry of mgt & perform extended procedures (further investigation, obtain more explanations, more evidence)




Risk Impact on Opinion

Under reliance and incorrect rejection More audit work. Report not erroneous. over reliance and incorrect acceptance Erroneous report by the auditor

TYPE OF SAMPLING RISK

Situation Risk Type Arises in Test of Controls Risk of over reliance and under reliance Arises in Test of Details Risk of incorrect rejection and incorrect acceptance

Risk factors Kept in mind to apply Sampling Techniques Sampling risk can lead to two types of erroneous conclusions: -

FAC

TO

RS

CO

NSI

DE

RE

D W

HIL

E P

ER

FOR

MIN

G

AN

AL

YT

ICA

L P

RO

CE

DU

RE

S:

Suitability

Determine suitability of particular substantive Analytical Review Procedure for given assertion taking a/c of assessed RMM & Tests of details if any for these assertions. (Example: - In case of predictable relationships, analytical procedures is more suitable.)

Reliability

Evaluate Reliability of data from which auditor’s expectation of recorded amt or ratios is developed, taking to a/c: - - Controls over Preparation of Info - Nature of data/ Info - Source of Info - Relevance of Info - Comparability of Info

Expectations

To develop an expectation of recorded amount & evaluate whether expectation is sufficiently precise to identify misstatement

Difference

Difference of recorded amt from expected values i.e. acceptable without further investigation & if analytical procedures performed as per SA, identify fluctuations or relationships inconsistent with other relevant info or that differ from expected values by significant amt, Auditor to Investigate such differences as result of Analytical Procedures by: - - Inquiring mgt & obtaining SAAE relevant to mgt responses. - Performing other audit procedures as necessary in circumstances.

SA 530 : - Audit Sampling (Audit Sampling = Refers to application of Audit Procedures to less than 100% of FS)

SAMPLING RISK

(Non Sampling Risk = Erroneous conclusions reached) Risk that auditor's conclusion based on sample is different from conclusion if entire population were subjected to same audit procedure. • Conclusion based on Sample selected not consistent with Whole population based Sample) • Opinion based on 100% FS/ Larger sample size (-) Opinion based upon Selected sample size

If Test of Controls If Test of Details

That controls are more effective than they actually are or in case of

Test of Details

That material misstatement not exist when in fact it does

That controls are less effective than they actually are or in case of Test

of Details

That material misstatement not exist when in fact it does not

Auditor concerned with this type of erroneous conclusion as it

affects audit effectiveness & is more likely to lead to

Inappropriate Audit Opinion

This type of Erroneous conclusion affects audit efficiency as it leads to

additional work to establish that initial conclusions were incorrect




ME

TH

OD

S O

F SE

LE

CT

ION

OF

SAM

PLE

SIZ

E

Random selection/

Non –Statistical

* Sample size selected on professional judgment, personal experience & knowledge of auditor. * Every item would have equal chances of selection or de-selection. * Commonly used for many years due to its simplicity in operation. * Auditor on basis of his personal experience will determine size of sample & express it in terms that no. of pages or personal accounts in purchases or sales ledger to be checked. * Example: - March, June & September may be selected in yr one &different months would be selected in next yr. Attempt would be made to avoid establishing pattern of selection yr after yr to maintain element of surprise as to what auditor is going to check.

Systematic Selection/ Statistical

* Sample size select on basis of Permutations & Combinations, Simulation models & Probability. * More scientific than testing only on auditor’s own judgment as it involves use of math laws. * Reasonably wide application where population tested consists of large no. of similar items. * Helpful in transactions involving compliance testing, trade receivables’ confirmation, payroll checking, vouching of invoices and petty cash vouchers.

Monetary

Unit Sampling

Value-weighted selection in which sample size, selection &evaluation results in conclusion in monetary amt

Block Selection

* Selection of a block(s) of contiguous items from within population. * Block selection cannot ordinarily be used in audit sampling because most populations are structured such that items in a sequence can be expected to have similar characteristics to each other, but different characteristics from elsewhere in population.

Haphazard

Selection

Adopted by auditor in cases where sample does not follow a structured sampling. - Haphazard selection is not appropriate when using statistical sampling. - All items in a population should get a chance of being selected.

Tol

erab

le

Mis

stat

emen

t

* Tolerable error is amount of error that is acceptable to auditor in making a sample choice. * While designing Sample, auditor determines tolerable misstatement to address risk that MMs may cause FSs to be materially misstated to provide a margin for possible undetected misstatements. * Tolerable misstatement is application of performance materiality, to a particular sampling procedure. * Tolerable misstatement may be same amt or an amt lower than performance materiality.

AU

DIT

OR

RE

SPO

NSI

BIL

ITY

Sample Design, Size & Selection

of items

* While designing, consider purpose of audit procedure & characteristics of population. * Sample size sufficient to reduce sampling risk to Acceptably low level. * Selection in way that each sampling unit in population has equal chance of selection.

Perform Audit

Procedures

* Perform audit procedures on each item selected. * If audit procedure not applicable to selected item = perform procedure on replacement item. * If auditor unable to apply designed audit procedures/ alternative procedure to selected item, consider that item as a deviation

Evaluation

of results of Audit

Sampling

To determine whether use of audit sampling has provided reasonable basis for conclusions about population that has been tested.




A/c estimates with Low Estimation Uncertainty/ RMM A/c Estimates with High Estimation Uncertainty

• A/c estimates in business activities that aren’t complex • A/c estimates frequently made & updated as routine nature • A/c estimates derived from data i.e. readily available such as published interest rate data or share exchange-traded prices • Fair value A/c estimate where method of measurement prescribed by Applicable FRF is simple & applied easily • Fair value A/c estimates where model used to measure A/c estimate is well-known or generally accepted provided that assumptions or inputs to model are observable.

• A/c Estimates highly dependent on Judgment (Outcome of pending litigation) • A/c Estimates not calculated using recognized measurement techniques. • A/c Estimates where Auditor’s review of similar A/c estimates made in prior period FS indicate substantial differ in original A/c estimates & actual outcome. • Fair value A/c estimates for which a highly specialized entity developed model is used.

SA 540 : - Auditing Accounting Estimate including Fair Value Accounting Estimates & Related Disclosure

Meaning & Nature of

Accounting Estimates

• Approximation of monetary amount in absence of precise means of measurement • Used for amt measured at Fair Value where there is estimation uncertainty as well as for other amt that require estimation. • Degree of estimation uncertainty affects RMMM of accounting estimates. • Difference in outcome of accounting estimate & amount originally recognized in FS not necessarily represent MM. This is particularly case for Fair Value Accounting Estimate.

Indicators of Possible Mgt Bias to Accounting Estimates: - • Changes in accounting estimate or method for making it • Use of entity’s own assumptions for Fair Value A/c estimates inconsistent with market assumptions • Selection of a point estimate that may indicate a pattern of optimism or pessimism

Examples of A/c

Estimates

• Allowance for doubtful accounts. • Inventory obsolescence. • Depreciation method or asset useful life. • Warranty obligations. • Provision against carrying amount of Investment where there is uncertainty of its recoverability. • Outcome of long term contracts. • Financial Obligations / Costs arising from litigation settlements and judgments.

Fair Value Accounting Estimates

Estimates where current transaction cost basis is used or based on condition prevailing in market. Situations/ Examples where Fair Value Accounting Estimates required: - • Property or equipment held for disposal • Share-based payments • Complex financial instruments, which are not traded in an active and open market • Assets or Liabilities acquired in business combination including goodwill & intangible assets. • Exchange of assets or liabilities between independent parties without monetary consideration. (Ex: non-monetary exchange of plant facilities in different lines of business)

Reporting under SA 540

If there is difference between auditor's range & estimate by mgt: - • Ask Mgt to adjust OR • Qualified or Adverse Opinion if not adjusted by mgt.




Risk Assessment Procedures Further Audit Procedures

• Understand Nature of entity business & significance of use of estimate.

• Auditor may apply his own audit procedures to get his point estimate & should compare with Management Point Estimate.

• How Mgt identifies events, transactions & conditions giving rise to need for a/c estimates • Make Enquiry of mgt for same

• Evaluate whether mgt has used Mgt Expert under SA 500. • Auditor may also use Expert under SA 620

• Evaluate process used by mgt to make estimate • Assumptions used

• Consider consistency of estimation procedures applied by mgt. • If changed, whether change is justified.

• Confirm from mgt, how they ensure reliability of data used in estimates & method • Assumptions used.

• Evaluate reasonableness of accounting estimates, disclosures, obtain Written Representation.

Material FS assertions based Estimates by Mgt = Auditor to minimize RMM Obtain understanding for identification & assessment of

RMM for accounting estimates by: - Estimation making process adopted by mgt includes: -

• Requirements of applicable FRF relevant to A/c Estimates, including related disclosures. • How Mgt identifies those transactions, events & conditions that may give rise to need for A/c estimates to be recognized or disclosed in FS. • Make Inquiries of mgt about changes in circumstances giving rise to new or revision of existing a/c estimates.

• Method where applicable model used in making A/c estimates. • Relevant controls. • Whether management has used an expert? • Assumption underlying the accounting estimates. • Whether change from prior period in methods for making accounting estimates & if so why? • How mgt assessed effect of estimation uncertainty

Duties of Auditor

Auditor should obtain sufficient & appropriate accounting estimate that all estimates by mgt used in preparation & presentation of FS are: - - Reasonable & - Disclosed properly as per FRF.

SA 550 : - Related Parties (Audit Sampling = Refers to application of Audit Procedures to less than 100% of FS)

MEANING

Related parties (RP) as

per AS 18

a) Holding, Subsidiary &Co-Subsidiary, Associates, Joint Venture & Co-Venture b) Individuals having control or significant influence over entity. c) Key mgt personnel & their relatives. d) Enterprises over which (c) & (d) above have significant influence.

* A person or other entity that has control or significant influence through 1 or more intermediaries, over Reporting entity (Holding company) OR * Another entity over which Reporting entity has control or significant influence, directly or indirectly through 1 or more intermediaries (Subsidiary company) OR * Another entity under common control with reporting entity through having (Fellow Subsidiary): - - Common controlling ownership or - Owners who are close family members or - Common key mgt. (Entities under common control by State i.e., National, Regional or Local Government not related unless they engage in significant transactions/ share resources to significant extent with 1 another)




GENERAL SPECIFIC procedures if FRF establish accounting &

Disclosure for RP Relationship & Transactions Obtain Understanding of RP Relation & Transactions: - To recognize Fraud Risk factors - To conclude whether F.S. in so far as that are affected by those relations & transactions achieve: - a) True & Fair presentation & b) Not misleading.

• Perform Audit Procedure to identify, assess & respond to RMM • Evaluate whether identified RP relationships & Transactions appropriately accounted &disclosed as per FRF. • Obtain WR from Mgt/ TCWG for: - - Disclosure to auditor identity of RP they are aware - Appropriate accounting & disclosure as per FRF

Auditor Duties/ Objectives/ Procedures in relation to Related Parties R

ISK

ASS

ESM

EN

T P

RO

CE

DU

RE

& R

EL

AT

ED

AC

TIV

ITIE

S

Understanding Entity’s RP

Relationships & Transactions

(a) Auditor shall Inquire of mgt regarding: - • Identity of entity's related parties, including changes from prior period • Nature of relationships between the entity & these related parties • If entity entered into any transactions with these related parties in period & if so type & purpose of transactions.

(b) Auditor to Inquire of mgt &others in entity & perform other risk assessment procedures considered appropriate to Obtain Understanding of the controls that Mgt established to: - • Identify, A/c for & disclose RP Relationships & transactions as per applicable FRF • Authorize & approve significant transactions & arrangements with related parties • Authorize & approve significant transactions & arrangements outside normal business.

Remain

Alert for RP Info when Reviewing Records/

Docs

Auditor Remain Alert when Inspecting records or documents: - To arrangements or other info indicating existence of RP relationships or transactions that mgt has not previously identified or disclosed to auditor.

If Auditor Identify significant transaction outside entity’s normal business = Inquire mgt of: - • Nature of these transactions • Whether Related parties could be involved.

Possible Sources for

identification of RP Info

(Verify

Existence/ Indications of

Related Parties)

• Entity Income Tax Returns (ITRs) • LIC Policies • Info supplied by entity to regulatory authorities. • Internal Auditor's Report. • Shareholder registers to identify entity’s principal shareholders. • Statements of conflicts of interest from mgt & TCWG. • Records of entity’s investments & those of its pension plans. • Contracts & agreements with Key mgt or TCWG. • Significant contracts & agreements not in entity’s ordinary course of business. • Specific invoices & correspondence from entity’s professional advisors. • Significant contracts re-negotiated by entity during period. • Docs associated with entity’s filings with a securities regulator (e.g., prospectuses) • Minutes of meetings of shareholders & of TCWG. • Bank, legal & 3rd party confirmations obtained as part of auditor’s procedures • Other docs Auditor considers necessary. (MOA, AOA, Sec 189 Register, Annual Returns)

Identifying Fraud Risk

Factors

Domination of mgt by single person or small group of persons without compensating controls is fraud risk factor Indicators of dominant influence exerted by a related party include: - • Related party vested significant business decisions taken by Mgt or TCWG • Significant transactions referred to related party for final approval. • No debate among Mgt & TCWG regarding business proposals initiated by related party. • Transactions involving Related Party rarely independently reviewed & approved




Auditor’s duties if identifies RP or RP transactions that mgt not previously

disclosed to him Where contract is of abnormally

high amt with RP/ Outside entity's normal course of

business

Inquire Mgt regarding: - • Business rationale (or lack thereof) of transactions suggests engagement in Fraudulent FR or to conceal misappropriation of assets • Terms of transactions are consistent with mgt explanations • Transactions appropriately accounted for & disclosed as per applicable FRF.

* Auditor to apply additional audit procedures in regards to contract terms, pricing & RP transaction, approve, authenticate & disclose. * Inspect contracts/ agreements & evaluate transactions consistency with Mgt explanation & disclosure as per FRF. * Inspect Fraud Risk Factors. * If found unreasonable = Auditor to modify audit report as per SA705.

Remain alert when inspecting records/ docs for info indicating existence of RP relationships or transactions that mgt not prior identified or disclosed to auditor. • Promptly communicate info to other members of Engagement team • Where applicable FRF establishes related party requirements: - - Ask mgt to identify all transactions with newly identified RP - Inquire as to why entity’s controls over RP relationships & transactions failed to enable identification or disclosure of that RP • Perform appropriate substantive audit procedures relating to such newly RP info • Reconsider risk & perform additional audit procedures as necessary • If non-disclosure by mgt appears intentional & indicative of RMM due to fraud = Evaluate implications for audit.

Communicate to Mgt & TCWG & Request mgt to disclose it. If Mgt agrees to disclose = Unqualified Report & If Mgt refuse = Modify Report & document reasons for refusal.

Auditor Responsibility

/ Audit Procedures

• Have Attitude of professional skepticism. • Obtain WR on all RPT's. • Ensure compliance of Financial Reporting Framework & Co's Act as far as related to RP • Obtain understanding of entity's Related Party’s Transaction • Perform Audit Procedures to identify , assess & respond to Risk of MM. • Evaluate fraud risk factors in relation to related parties. • Communicate to TCWG all significant matters arising in audit in relation to RPT's.

RESPONSE TO ASSESSED RISK

SA 560 : - Subsequent Events 1. Events occurring between Date of FS (Date of end of latest period covered by FS) & Date of Auditor's report & 2. Facts that become known to auditor after Date of Auditor's report (Date auditor dates report on FS by SA-700)

Aud

itor'

s Res

pons

ibili

ty r

egar

ding

Su

bseq

uent

Eve

nts

• When Auditor draws Audit plan = Check Subsequent Events irrespective of level of test checks employed for checking of transactions during yr. • More detailed check required for subsequent events to confirm certain assertions in FS (like payment made by debtors after close of accounting period confirms outstanding debtors on B/S date have been realized) • SA 560 = Establishes standards on auditor's responsibility regarding subsequent events. • SA states that term "subsequent events" refers to events occurring between date of FS & date of auditor’s report, & facts that become known to auditor after date of auditor’s report. • AS 4 = "Contingencies & Events Occurring after Balance Sheet Date" deals with significant events, both favorable &unfavorable, that occurs between B/S date & date on which FS are approved. • AS 4 = Only those events contingency of which existed at B/S Date can be adjusted. Exceptions being: - - When Going Concern is affected - Proposed dividend. (Proposed Dividend not requires any adjustment under Revised Schedule III). • SA 560 lays down that auditor should consider effect of subsequent events on FS & on auditor's report. ( (When Time between close of yr- end &adoption of A/c is about to take place, examination of subsequent events gains more importance)

Documentation by Auditor:- • Name of RP identified • Nature of Relationship • Amt involved




Aud

it Pr

oced

ures

on

Subs

eque

nt E

vent

s

• Perform audit procedures designed to obtain SAAE that all events occurring between Date of FS & date of auditor’s report that require adjustment of or disclosure in FS = have been identified. • Risk Assessment in Determining NTE of such audit procedures to include following: - - Obtaining Understanding of procedures mgt established to ensure subsequent events are identified. - Inquiring mgt& TCWG whether any subsequent events have occurred which might affect FS. - Reading minutes of meetings of entity’s Owners (GM), Mgt (BODs) & TCWG (Executive committees) held after date of FS & inquiring matters discussed at such meetings for which minutes not available. - Collect info from other sources like Budgets/ Estimates, Cash Flows, Forecasts, Interim FS etc. - Make enquiries and hold discussions with Top Mgt. - Details from company's lawyers for any Litigation matter. - Reading entity’s latest subsequent interim FS • If auditor identifies events that require adjustment of or disclosure in FS =auditor shall determine whether each such event is appropriately reflected in those FS. • Request mgt to provide WR that all events occurring subsequent to Date of FS requiring adjustments or disclosures have been adjusted or disclosed.

Mat

ters

Ari

sing

Aft

er D

ate

of

Aud

itor'

s Rep

ort

• As per SA 560, if auditor is aware of any of matter after date of audit report & auditor is of opinion that, if matter had been known to him at date of auditor's report it may have caused auditor to amend his report, auditor to perform additional procedures. • If in exceptional circumstances, auditor performs new or additional audit procedures or draws new conclusions after date of auditor’s report, auditor shall document: - - Circumstances encountered - New/ Additional Audit Procedures performed, SAAE obtained & conclusions reached & their effect on Auditor’s report - When & by whom resulting changes to audit documentation were made & reviewed.

Matters where

Specific Inquiry

from Mgt

Whether: - • New commitments, borrowings or guarantees have been entered into. • Sales or acquisitions of assets have occurred or are planned. • Increases in capital or issuance of debt instruments, such as issue of new shares or debentures, or an agreement to merge or liquidate has been made or is planned. • Any Assets have been appropriated by government or destroyed, for example, by fire or flood. • There have been any developments regarding contingencies. • Any Unusual accounting adjustments have been made or are contemplated. • Events have occurred or are likely to occur, questioning appropriateness of A/c policies used in FS • Any Events have occurred calling into question Validity of Going Concern assumption. • Any events have occurred that are relevant to measurement of estimates or provisions made in FS. • Any events have occurred that are relevant to Recoverability of Assets.




SA 570 : - Going Concern While planning & performing audit procedure & in evaluating results thereof = Auditor to consider appropriateness of

Going Concern Assumption underlying Preparation of FS.

AU

DIT

OR

RE

SPO

NSI

BIL

ITY

• Consider events, conditions that may cast significant doubt on going concern. • Determine whether Mgt has performed assessment of entity available to consider as Going Concern. • Maintain Professional Skepticism. • Review latest interim FS, Subsequent Events after B/S Date, Review BODs minutes &Budgeted Cash flow • Communicate to TCWG events/conditions that may cast significant doubt on entity's ability on Going Concern. • If Material Uncertainty exists &Mitigating Factors present = Auditor may include matter in EOM Para + Unmodified Report & as per Revised SA 570 also include matter in “Material Uncertainty Relating to Going Concern Basis of Accounting” (MURGA). • Obtain SAAE & conclude on Appropriateness of mgt use of Going Concern basis of in preparation of FS • Conclude based on SAAE, whether material uncertainty exists about ability to continue as Going Concern. • These responsibilities exist even if FRF used in Preparation of FS does not include Explicit requirement for mgt to make Specific assessment of Entity’s ability to continue as Going concern. • Absence of any reference to material uncertainty about Entity’s ability to continue as Going concern in auditor’s report cannot be viewed as Guarantee as to Entity’s ability to continue as Going concern.

CO

ND

ITIO

NS

TH

AT

MA

Y C

AST

DO

UB

T O

N G

OIN

G

Fina

ncia

l Ind

icat

ors

• Net liability or net current liability position. • Adverse key financial ratios. • Withdrawal of financial support by trade payables • Arrears or discontinued of dividends. • Negative operating cash flows in historical or prospective FS • Substantial operating losses or significant deterioration in the value of assets used to generate cash flows. • Inability to pay Trade Payables on due dates. • Inability to comply with the terms of loan agreements. • Change from credit to cash-on-delivery transactions with suppliers. • Inability to obtain financing for essential new product development or other essential investments.

Operating Indicators

• Shortages of important supplies • Labor difficulties. • Emergence of a highly successful competitor. • Loss of key mgt without replacement. • Loss of a major market, key customer(s), franchise, license, or principal supplier(s). • Management intentions to liquidate the entity or to cease operations.

Others

• Non-compliance with capital or other statutory requirements. • Pending legal or regulatory proceedings against the entity that may, if successful, result in claims that entity is unlikely to be able to satisfy • Changes in law or regulation or government policy expected to adversely affect the entity. Uninsured or underinsured catastrophes when they occur

Res

pons

ibili

ty fo

r A

sses

smen

t of

Ent

ity’s

Abi

lity

to

Con

tinue

as G

oing

C

once

rn

• It is management responsibility to assess Entity’s ability to continue as Going concern even if FRF not include an explicit requirement to do so. • Mgt assessment of entity’s ability to continue as Going Concern involves making a judgment, at particular Point of Time about inherently uncertain future outcomes of events or conditions. • Following factors are relevant to that judgment: - - Degree of uncertainty associated with the outcome of Event or Condition. - Size, complexity, nature & condition of business & degree to which it’s affected by external factors




Going Concern Assumption Auditor's Opinion Appropriate Unmodified Opinion.

Uncertainty relating to Going Concern disclosed by Mgt Unmodified Opinion but disclose in (MURGA) Material Uncertainty Relating to Going Concern Para.

Uncertainty relating to Going Concern not disclosed by Mgt Qualified Opinion.

Inappropriate Adverse Opinion.

Add

ition

al A

udit

Proc

edur

es W

hen

Eve

nts o

r C

ondi

tions

Are

Iden

tifie

d th

at m

ay c

ast D

oubt

on

goin

g co

ncer

n (A

udito

r to

obta

in S

AA

E to

det

erm

ine

whe

ther

or n

ot m

ater

ial u

ncer

tain

ty

exis

ts b

y pe

rfor

min

g A

dditi

onal

Aud

it Pr

oced

ures

incl

udin

g co

nsid

erat

ion

of

miti

gatin

g fa

ctor

s. Th

ese

proc

edur

es in

clud

es: -

Management’s Assessment of Ability to Continue as Going

concern if not prepared yet

= Request mgt to make it = Evaluate mgt plans for future actions for its going concern assessment. = Evaluate if mgt plans are feasible in circumstances& also whether outcome of it is likely to improve situation.

Cash Flow

Forecast

= Determining the adequacy of support for any planned disposals of assets. = Analyzing &discussing cash flow, profit & other relevant forecasts with mgt by: - - Evaluating Reliability of underlying data generated to prepare forecast - Determine whether adequate support for assumptions underlying forecast.

Subsequent

Events

= Analyzing & discussing entity’s latest available interim financial statements. = Performing audit procedures regarding subsequent events to identify those that either mitigate or otherwise affect entity’s ability to continue as going concern.

Wri

tten

R

epre

sent

atio

n

= Confirming existence, legality and enforceability of arrangements to provide or maintain financial support with related &third parties & assessing financial ability of such parties to provide additional funds. = Requesting WR from Mgt& TCWG regarding their plans for future actions & feasibility of these plans.

Oth

ers

= Obtain & review reports of regulatory actions. = Read terms of debentures & loan agreements & determine whether any breaches. = Read minutes of meetings of shareholders, TCWG & committees for financing difficulties. = Inquire of entity’s legal counsel on existence of litigation & claims& reasonableness of mgt assessments of their outcome & estimate of their financial implications. = Evaluate entity’s plans to deal with unfilled customer orders.

REPORTING RESPONSIBILITY AS PER SA 570

Govt. department ordered closure of Plant (Pending outcome of law suit) (Inability to continue as Going Concern)

Material Uncertainty exists & When auditor concludes that use of Going Concern assumption is appropriate in circumstances but a material uncertainty exists, Auditor shall determine whether FS: - • Adequately describe principal events or conditions that may cast significant doubt on Going Concern • Include Mgt plans to deal with these events or conditions • Disclose clearly that there is a material uncertainty that may cast significant doubt Going concern & so that it may be unable to realize its assets & discharge its liabilities in normal course of business. = Para 10 of AS 1- Going concern + SA 570 Reporting Responsibility + Auditor Responsibility

If mgt fails in adequate disclosure in FS about it as asked by Auditor = Modify opinion & include in report If In-appropriate assumption used in FS is material & pervasive as to make FS misleading = Adverse opinion If adequate disclosure is made FS = Unmodified opinion & include matter in EOM Para & also as “Material

Uncertainty Relating to Going Concern Basis of Accounting” (MURGA) as new heading in Auditor’s Report to: - - Highlight existence of material uncertainty relating to event or condition casting doubt on Going Concern - Draw attention to note in FS that discloses matters




SA 580 : - Written Representations (WR) M

EA

NIN

G

A written statement by mgt provided to auditor to confirm certain matters or to support other audit evidence. (FS, Supporting books records & assertions do not constitute WR) • As per Section 143 of Co. Act 2013, Auditors are required to report as to whether they have obtained Info & explanation as may be necessary for purpose of audit evidence. (WR is one of ways of obtaining such Info) • WR not relieve Auditor of Reporting Responsibility as still Auditor will have to perform Substantive Procedures irrespective of fact that WR has been received.

If mgt does not provide WR responsibilities of auditor are as under: - - Discuss matter with mgt - Re-evaluate Integrity of mgt & Evaluate its Potential effect. - If doubt about mgt integrity or WR not provided = Take possible actions. - Also consider effect on auditor opinion in Audit report. - Additionally not providing of WR will be regarded as Limitations on auditor scope. Auditor hence to communicate same to TCWG as per SA 260. Its Professional Judgment of Auditor to obtain WR but some SAs requires mandatory obtaining written WR. (SA 250, SA 501, SA505, SA 540, SA 550, SA 560 & SA 570)

Extent of Reliance on WR

by Auditor

• If Auditor has concerns about Competence, Integrity, Ethical values or Diligence of mgt or about it commitment, auditor shall determine effect that such concerns may have on Reliability of representations (Oral or Written) & Audit Evidence in general. • If WR is inconsistent with other audit evidences obtained = Perform additional audit procedures to resolve it. - If matter remains unsolved, reconsider reliability of WR. - Example: - Mgt provides WR that no frauds in organization but other evidences indicate existence of it. • If Auditor concludes that WR are not reliable: - - Re-Evaluate Integrity of mgt &Evaluate its Potential effect. - If doubt about mgt integrity or WR not provided =Take appropriate possible actions. - Also consider effect on auditor’s opinion in Audit report.

Bas

ic E

lem

ents

of

Mgt

Rep

rese

ntat

ion

* A Written statement provided to Auditor to confirm certain matter or to support other audit evidence. * Not include FS, Assertions, or Supporting Books & records. * Auditor to request Mgt to provide WR, that it fulfilled responsibility to prepare FS as per applicable FRF. * WR shall be for all FS & periods referred to in Audit Report. * WR can’t be a substitute for other audit evidence, that auditor could reasonably expect to be available. * WR provides necessary audit evidence for purpose of SA 500 but not provide SAAE. * Auditor cannot form his opinion solely on WR.




Coordination in Principal Auditor & Other Auditor

Principal auditor to properly another auditor as below: - Other Auditor to coordinate as below: - • There should be Sufficient Liaison between Principal Auditor & Other Auditor. • For this purpose, Principal auditor may find it necessary to issue Written Communication to other auditor • Principal Auditor should advise other auditor of any matters that come to his attention that he thinks may have important bearing on other auditor’s work.

• Adhering to Time Table. • Bringing to attention of Principal Auditor any Significant Finding. • Compliance with relevant Statuary Requirements. • Respond to detailed Questionnaire.

Role of Other Auditor (Auditor of Subsidiary Company) Role of Principal Auditor (Auditor of Parent Company) • On knowing context in which his work is to be used by Principal Auditor = should co-ordinate with principal auditor • Ensure compliance with relevant statutory requirements. • Respond timely to Questionnaire sent by Principal Auditor.

• Necessary to issue Written Communication(s) as Principal auditor to Other auditor. • Principal auditor may require other auditor to answer Detailed Questionnaire regarding matters on which principal auditor requires Info to discharge his duties

SA 600 : - Using work of Another Auditor This SA does not deal with: - * 2 or more Joint auditors OR * Auditor’s relationship with Predecessor Auditor

Another Auditor: - Person other than principal auditor of company. (Example: - Branch Auditor or Auditor of Subsidiary) {In case Other auditor may happen to be Person other than a professionally qualified auditor like where component is situated in a foreign country & applicable laws permit a person other than a professionally qualified auditor to audit FS of such component. In such circumstances, procedures outlined above assume added importance}

Relevance of SA 600 while Auditing Consolidation of FS: - * Principal Auditor use work of Subsidiary co. auditor, Associates & Joint ventures * Considerations by Principal Auditor + Reporting + Division of Responsibility + Documentation

Con

side

ratio

ns b

y Pr

inci

pal A

udito

r

• Before Use of work of other auditor = Principal Auditor to evaluate competence of another auditor. (Principal auditor is not required to evaluate professional competence if another auditor is a member of ICAI) • Principal auditor normally entitled to rely on work of such auditor unless special circumstances make it essential to visit component and/ or to examine BOA & other records of said component. • Advice/ May give directions in writing to other auditor regarding specific procedures/ observations to be done. • Obtain SAAE regarding fact whether work of other auditor is sufficient for his purpose. • Review Written Summary of other Auditors audit procedure & ask another Auditor to furnish questionnaire & perform supplementary test. • Consider significant findings of other auditor. • May discuss with other auditor & mgt of component, Audit findings or other matters affecting financial info • If there is modification in another auditor's report then = Principal auditor to consider whether modification in his report is required. • Obtain representation from other auditor that accounting, auditing &reporting requirements complied. • If Principal auditor uses work of another auditor, Principal auditor to determine how work of other auditor will affect Audit (SA-705 = Principal auditor to modify report if he can't use work of other auditor or perform sufficient additional procedures




Doc

umen

tatio

n

Principal Auditor to document in his working papers following: - • Components whose financial info was audited by other auditors • Their significance to financial info of entity as a whole • Names of the other auditors • Any conclusions reached that individual components are not material • Procedures performed & conclusions reached • Manner of dealing with Modifies Report of other Auditor while finalizing Principal Auditor’s Report. Example: - Principal Auditor would document results of discussions with Other auditor & Review of Written Summary of Other auditor's procedures.

Considerations in accepting position as Principal Auditor

• Materiality of Assertion in financial info which he audits • Principal auditor's degree of knowledge regarding business of components • RMM in financial info of components audited by Other Auditor • Performance of additional procedures regarding components audited by Other Auditor resulting in Principal Auditor having significant participation in such audit.

Acc

ess t

o Su

bsid

iary

’s

Aud

itor

wor

king

pap

ers b

y A

udito

r of

Hol

ding

Co.

• Principal auditor not have right to access to audit working papers of Branch auditor's • SA 230 & SQC 1 = Audit documentation property of Auditor & may at his discretion, make it available • SA 230-working paper is property of auditor. • Clause 1 of Part 1 of Second Schedule & SA 200 i.e. Confidentiality requirement. • ICAI clarification: - Auditor not required providing client or other auditor access to working papers. • SA 600 = Auditor can rely on work of other auditor without right of access to working papers if due diligence exercised. Holding Co. Auditor can’t access Working Papers of Subsidiary Co. but can ask Questions & seek clarifications

Reporting Considerations

Principal auditor to express Qualified opinion or Disclaimer of opinion due to Limitation on Scope of audit if: - • Principal auditor concludes based on his procedures that work of Other auditor cannot be used & • Principal Auditor not able to perform Sufficient Additional procedures regarding financial info of component audited by Other auditor = If other auditor issues or intends to issue modified auditor's report, Principal Auditor should consider whether subject of modification is of such nature & significance in relation to Financial info of Entity on which Principal auditor is reporting that it requires modification of Principal auditor's report.

Div

isio

n of

R

espo

nsib

ility

• Principal auditor is not responsible for work carried out by other auditor unless there are circumstances, which should have aroused suspicion about Reliability of work performed by other auditor. • When Principal Auditor has to base his opinion on Financial info of Entity as whole relying on Statements & Reports of Other auditors = His report should state clearly Division of Responsibility for Financial info of entity • It should indicate extent to which financial info of components audited by the other auditors have been included in financial info of Entity Example: - Number of Divisions/ Branches/ Subsidiaries or other components audited by Other Auditors.




SA 610 : - Using work of Internal Auditor A

PPL

ICA

BIL

ITY

• SA 610 N/A if entity does not have Internal Audit Function. • SA not deal when Individual Internal Auditors provide Direct Assistance to External Auditor in carrying Audit • If entity has Internal audit function, requirements of SA relating to using work of that function do not apply if: - - Responsibilities & activities of function are not relevant to audit - Based on auditor’s preliminary understanding of function obtained as result of procedures performed under SA 315, External auditor not expect to use work of function in obtaining audit evidence. • Requirements in SA relating to direct assistance not apply if External auditor not plans to use internal auditors to provide direct assistance.

Internal Audit Function

A function of Entity that performs Assurance & Consulting Activities designed to evaluate & improve effectiveness of entity’s governance, risk mgt & internal control processes

External Auditor

Solely responsible for opinion expressed & responsibility not reduced by use of Internal Audit work or Direct assistance. (SA 200 = Internal Audit Function & Internal auditors are both independent of entity)

USI

NG

WO

RK

OF

INT

ER

NA

L A

UD

IT F

UN

CT

ION

Discussion External Auditor shall discuss planned use of Internal Auditor work with function as a basis for

coordinating their respective activities.

Internal Audit Reports

External Auditor shall read reports & findings of Internal Audit function relating to work of function that External Auditor plans to use, to understand NTE of audit procedures performed

Determine if work

of Internal Auditors is Adequate by

evaluating

* Objectivity of Internal Audit Function * Technical competence of Internal auditors * Whether work of Internal auditors is likely to be carried out with due professional care * Whether there is likely to be effective communication in Internal & external auditors.

Ade

quac

y of

Spe

cific

wor

k pe

rfor

med

by

Inte

rnal

Aud

itors

fo

r Ext

erna

l Aud

itor e

valu

ated

• Work was performed by internal auditors having competence & skill • Work was properly supervised, reviewed and documented i.e. due professional care has been take • Adequate audit evidence obtained to enable the internal auditors to draw reasonable conclusions • Conclusions reached are appropriate in circumstances & any reports prepared by Internal Auditors are consistent with results of work performed • Exceptions/ unusual matters disclosed by Internal Auditors are properly resolved. = External Auditor to Test Check few items & observe procedures performed by Internal Auditors. = If satisfied about Appropriateness of work = can rely on report but if he finds that it’s not in order = decide otherwise. = Final responsibility to express opinion on FS remains with Statutory/ External Auditor.

Factors

NTE of External Auditors audit procedures shall be responsive to his evaluation of : - - Amount of judgment involved& Assessed RMM - Extent to which Internal Audit function organizational status &relevant policies & procedures support objectivity of Internal Audit - Level of competence of function & include re–performance of some of work.

Evaluation

External Auditor shall evaluate whether his conclusions regarding Internal Audit function & determination of NTE of use of work of Internal Audit function remain appropriate.




DIRECT ASSISTANCE

• Use of Internal Auditors to perform audit procedures under direction, supervision &review of external auditor. • External auditor may be prohibited by law or regulation from obtaining direct assistance from internal auditors.

Statutory Auditor will determine NTE on which direct assistance can be taken. Statuary auditor has to determine whether direct assistance can be used i.e. to use work of internal auditor under his direction, supervision & review. It is allowed when: - • It is not prohibition by law or regulation • There should be no significant threats to objectivity of Internal Auditor • Internal auditor should be competent & capable.

Direct assistance is not advisable on following: - • Matters involving Significant Judgments in Audit i.e. - Assessing RMM - Evaluate Sufficiency of Tests performed & A/c estimates - Evaluate Appropriateness of mgt use of GC assumption - Evaluating Adequacy of disclosures in FS & other matters affecting auditor’s report. • Matters on which RMM is high. • Matters in which Internal Auditor is already involved. • When internal auditor not objective, competent & capable.

Precautions to be taken while using Direct Assistance: - • External auditor shall not use internal auditors to provide direct assistance to perform procedures that prior to using internal auditors to provide direct assistance for purposes of audit. • External Auditor to Direct, Supervise & Review work of Internal Auditors on engagement as per SA 220 • External auditor in SA 505 to maintain control on external confirmation requests & evaluate result of external confirmation procedure but not to assign this responsibility to Internal Auditor (Internal Auditors may assist in assembling info for External Auditor to resolve exceptions in confirmation responses).

SCO

PE O

F IN

TE

RN

AL

AU

DIT

FU

NC

TIO

N

Activities Relating to Governance

Internal audit function may assess governance process in its accomplishment of objectives on ethics & values, performance mgt & accountability, communicating risk to appropriate areas of organization.

Activities Relating to Risk Mgt

Internal audit function may assist entity by identifying & evaluating significant exposures to risk & contributing to improvement of risk mgt & internal control (including effectiveness of FR process).

Act

iviti

es R

elat

ing

to In

tern

al

Con

trol

Evaluation of internal control: - Internal Audit function may be assigned specific responsibility for reviewing controls, evaluating their operation & recommending improvements thereto.

Examination of financial and operating information: - Internal audit function may be assigned to review means used to identify, recognize, measure, classify & report financial & operating info & to make specific inquiry into individual items, including detailed testing of transactions, balances & procedures.

Review of operating activities: - Internal audit function may be assigned to review economy, efficiency & effectiveness of operating activities, including non- financial activities of an entity.

• Review of compliance with laws & regulations: - Internal Audit function may be assigned to review compliance with laws, regulations & other external requirements & with mgt policies & directives and other internal requirements.

Examples of work of Internal

audit function that can be used

by External Auditor

• Testing of the operating effectiveness of controls. • Substantive procedures involving limited judgment. • Observations of inventory counts. • Tracing transactions through the information system relevant to financial reporting. • Testing of compliance with regulatory requirements. • Audits or Reviews of financial info of subsidiaries that are not significant components to group




SA 620 : - Using work of Auditor’s Expert SC

OPE

• This SA deals with Auditor’s Responsibilities regarding use of Individual or org. work in field of expertise other than accounting or auditing, when that work is used to assist auditor in obtaining SAAE • This SA does not deal with: - - Situations where engagement team includes member with expertise in specialized accounting or auditing - Auditor’s use of work of Individual or org possessing expertise in field other than accounting or auditing, whose work in that field is used by entity to assist entity in preparing FS (Mgt Expert) • Auditor has sole responsibility for audit opinion expressed & that responsibility is not reduced by Auditor’s use of work of Auditor’s expert.

Auditor's Expert

• Individual or organization possessing expertise in field other than accounting or auditing, whose work in that field is used by auditor to assist auditor in obtaining SAAE. • An auditor’s expert may be either an auditor’s internal expert (who is a partner or staff, including temporary staff, of the auditor’s firm or a network firm) or an auditor’s external expert.

Procedure to Evaluate

Experts Work

(ASK U CID)

(Procedures by Statutory Auditor to verify Certificate of Actuary): - A = Assumptions to be used by expert & their consistence with previous year. S = Scope of experts work K = Knowledge of expert in particular field. U = Understanding of experts work C = Competence, Capability & Objectivity of expert. C = Contents of expert's report & usefulness to auditor. I = Independence of expert & his relationship with client. D = Data to be used by expert & its reliability

Can Experts name be included in Auditor's Report

(Reference of Auditor’s Expert in Auditor Report)

* Yes, but only after prior consent of expert. * Auditor not to refer to work of Auditor’s expert in auditor’s report containing unmodified opinion unless required by law or regulation & if so required, auditor to indicate that reference not reduces auditor’s responsibility for audit opinion .

Need for detailed &

written agreement in Auditor

& Auditor’s expert.

(Factors)

* Auditor’s expert will have access to sensitive or confidential entity Info. * Respective roles or responsibility of auditor & auditor’s expert are different from those normally expected * Multi-jurisdictional legal or regulatory requirements apply * Matter to which auditor’s expert’s work relates is highly complex * Auditor has not previously used work performed by that expert * Greater extent of auditor’s expert’s work, & its significance in context of audit

AREAS OF USE/

MATTERS OF

EXPERTISE OF EXPERT

WORK

• Valuation of complex financial instruments, land & building, plant & machinery, Jewellery, works of art, antiques, intangible assets, impaired assets & liabilities. • Actuarial calculation of liabilities associated with insurance contracts or employee benefit plans • Estimation of oil & gas reserves. • Valuation of environmental liabilities & site Cleanup costs. • Interpretation of contracts, laws & regulations. • Analysis of complex or unusual tax compliance issues.




.PR

OC

ED

UR

ES

FOL

LO

WE

D W

HIL

E U

SIN

G W

OR

K O

F A

UD

ITO

RS

EX

PER

T

(Bef

ore

usin

g ex

perts

wor

k au

dito

r sho

uld

also

app

ly p

rofe

ssio

nal s

kept

icism

as p

er S

A-2

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Det

erm

ine

Nee

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udito

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xper

t

Auditor’s expert may be needed to assist auditor in 1 or more of following • Obtaining an understanding of the entity and its environment, including its internal control. • Identifying and assessing the risks of material misstatement. • Determining and implementing overall responses to assessed risks at the financial statement level. • Designing and performing further audit procedures to respond to assessed risks at the assertion level, comprising tests of controls or substantive procedures. • Evaluate sufficiency and appropriateness of audit evidence obtained in forming an opinion on FS

Determine NTE of those

procedures

• Nature of the matter to which that expert’s work relates • RMM in matter to which that expert’s work relates • Significance of that expert’s work in the context of audit • Auditor’s knowledge & experience with previous work performed by that expert • Whether that expert is subject to auditor’s firm’s quality control policies &procedures.

Evaluating Relevance,

Adequacy & Reasonableness

(RAR) i.e. Appropriateness

/ Extent of reliance on

Expert Work

• Expert’s Findings or Conclusions & their consistency with other audit evidence • Assumptions & methods used by Expert in his work • Significant Source Data & its use to expert’s work. = If auditor determines that work of auditor’s expert is not adequate for auditor’s purposes, auditor shall: - - Agree with that expert on NTE of further work to be performed by that expert OR - Perform further audit procedures appropriate to the circumstances.

Eva

luat

e C

CO

of t

hat E

xper

t (S

A 5

00)

C = Competence = Nature & level of Expertise C = Capability = Ability to exercise competence O = Objectivity = Personal effect of not being biased & no conflict of interest Obtain info regarding CCO of mgt expert from Variety of sources by Auditor: - • Personal experience with previous work of that expert • Discussions with that expert • Discussions with others who are familiar with that expert’s work • Knowledge of that expert’s qualifications • Published papers or books written by that expert

Obtaining Understanding

of Field of Expertise of Auditor’s Expert

To enable Auditor to determine Nature, scope and objectives of that expert’s work for auditor’s purposes = Evaluate adequacy of that work for auditor’s purposes

Agreement with

Auditor’s Expert

Auditor shall agree, in writing when appropriate, on following matters with auditor’s expert: - • Nature, scope and objectives of that expert’s work • Roles and responsibilities of the auditor and that expert • NTE of communication in auditor & that expert, including form of any report to be provided by that expert • Need for the auditor’s expert to observe confidentiality requirements.

BASIC ELEMENTS/ CONTENTS OF AUDIT REPORT

Scop

e A

udito

rs R

espo

nsib

ility

A


Addressee

Auditor’s

Going Concern

Key Audit

Management's Responsibility

Responsibility

OtherResponsibilities

Signature of

Place

Scop

e A

udito

rs R

espo

nsib

ility

AUDIT SAG


TitleAddressee

Auditor’s Opinion

Basis for Opinion

Going Concern

Key Audit Matters(KAM)


Auditor's Responsibility

OtherReporting esponsibilities

Signature of Auditor

Place

UDIT SAG


TitleAddressee

Auditor’s Opinion

Basis for Opinion

Going Concern

Key Audit Matters(KAM)



Reporting esponsibilities

Signature of

Auditor

Place ; Date

* * Not deals with audit of particular FS out of complete set or any particular component of FS

= Auditor to form an = = • If SAAE has been obtained.• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.• Results of evaluation - - - - - -

UDIT SAG


Title Addressee

Auditor’s Opinion

Basis for Opinion

Going Concern

Key Audit Matters (KAM)




Signature of

Auditor

; Date

* SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805* Not deals with audit of particular FS out of complete set or any particular component of FS

= Auditor to form an = Auditor needs to conclu= Auditor to conclude that reasonable assurance has been obtained, auditor • If SAAE has been obtained.• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.

Results of evaluation

UDIT SAGA


Addressee

Auditor’s

Basis for

Going Concern

Key Audit




Signature of

; Date

SA 70SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805

* Not deals with audit of particular FS out of complete set or any particular component of FS

= Auditor to form an uditor needs to conclu

Auditor to conclude that reasonable assurance has been obtained, auditor • If SAAE has been obtained.• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.

Results of evaluation Significant policies Selected & Applied are adequately disclosed. Accounting policies so selected & applied are consistent with framework requirements. Mgt's estimates are reasonable. FS fulfill Qualitative requirements i.e. Relevance, Relia Adequate disclosures has been made. Terminology used, including Title of FS is Appropriate.


Going Concern


Responsibility






Results of evaluation Significant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable.FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.













STANDARDS


Independent Auditor Audience 1st

Opinion section of Auditor’s Report shall also: Auditor’s report to include for Opinion” that:

Where applicable, the auditor shall report in accordance with SA 570.

Sub heading “Report on Other Legal & Regulatory Requirements”

City

SA 700 : SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805





STANDARDS


Independent AuditorAudience st section of Auditor’s Report to include Auditor’s opinion & have heading “Opinion.”

Opinion section of Auditor’s Report shall also: Identify entity whose FS are audited State that FS have been audited Identify Title of FS that comprise complete set of FS Refer to Summary of Important policies & other explanatory info Specify Time period covered by audited FS

Auditor’s report to include for Opinion” that: States Audit was conducted in accordance with SAs. Refers to section of auditor’s report that describes auditor’s responsibilities under SA. Includes Statement that Au

requirementsthese requirements.

States if Auditor believes Audit


For Audits of complete sets of General Purpose FS of listed entities, auditor communicate Key Audit Matters in Auditor’s report as per SA 701.

When Auditor is otherwise required by law or regulation or decides to communicate key audit matters in auditor’s report, auditor shall do so in accordance with SA701.

Preparation of F Designing and Implementation of internal Express opinion Location of description of Auditor’s responsibilities for audit of FS.


Audit Report to be S If Firm was appointed as Auditor = Signed in Personal & Audit Firm Name Also mention Membership No. As applicable Registration No. of Firm allotted by ICAI.

City

0 : SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805


= Auditor to form an opinion on whether FS are prepared in all material respects as per applicable FRF.uditor needs to conclu


Results of evaluation whereSignificant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable.FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS


Independent AuditorAudience

section of Auditor’s Report to include Auditor’s opinion & have heading “Opinion.”Opinion section of Auditor’s Report shall also:

Identify entity whose FS are audited State that FS have been auditedIdentify Title of FS that comprise complete set of FSRefer to Summary of Important policies & other explanatory infoSpecify Time period covered by audited FS

Auditor’s report to include for Opinion” that:

States Audit was conducted in accordance with SAs.Refers to section of auditor’s report that describes auditor’s responsibilities under SA.Includes Statement that Aurequirementsthese requirements.States if Auditor believes Audit


For Audits of complete sets of General Purpose FS of listed entities, auditor communicate Key Audit Matters in Auditor’s report as per SA 701.When Auditor is otherwise required by law or regulation or decides to communicate key audit matters in auditor’s report, auditor shall do so in accordance with SA701.Preparation of FDesigning and Implementation of internalExpress opinionLocation of description of Auditor’s responsibilities for audit of FS.


Audit Report to be SIf Firm was appointed as Auditor = Signed in Personal & Audit Firm NameAlso mention Membership No.As applicable Registration No. of Firm allotted by ICAI.

City where

0 : - SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805


opinion on whether FS are prepared in all material respects as per applicable FRF.uditor needs to conclude whether he


whereSignificant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable.FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS


Independent AuditorAudience Addressed (To Members of XYZ Ltd.)









where

Forming Opinion & Reporting on FSSA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805


opinion on whether FS are prepared in all material respects as per applicable FRF.de whether he

Auditor to conclude that reasonable assurance has been obtained, auditor • If SAAE has been obtained. • Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.

where auditor required to evaluate if FS prepared as per applicable FRF by evaluatSignificant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable.FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS


Independent AuditorAddressed (To Members of XYZ Ltd.)









where Audit report is signed




Auditor to conclude that reasonable assurance has been obtained, auditor

• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.auditor required to evaluate if FS prepared as per applicable FRF by evaluat

Significant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable.FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS






States Audit was conducted in accordance with SAs.Refers to section of auditor’s report that describes auditor’s responsibilities under SA.Includes Statement that Aurequirements relating to Audit & fulfilled auditor’s other ethical responsibilithese requirements.States if Auditor believes Audit





Audit report is signed






Significant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable.FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS





Auditor’s report to include for Opinion” that: -

States Audit was conducted in accordance with SAs.Refers to section of auditor’s report that describes auditor’s responsibilities under SA.Includes Statement that Au

relating to Audit & fulfilled auditor’s other ethical responsibilithese requirements.States if Auditor believes Audit


For Audits of complete sets of General Purpose FS of listed entities, auditor communicate Key Audit Matters in Auditor’s report as per SA 701.When Auditor is otherwise required by law or regulation or decides to communicate key audit matters in auditor’s report, auditor shall do so in accordance with SA701.Preparation of FS as perDesigning and Implementation of internalExpress opinion onLocation of description of Auditor’s responsibilities for audit of FS.






opinion on whether FS are prepared in all material respects as per applicable FRF.de whether he obtained reasonable assurance FS



Significant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.Mgt's estimates are reasonable. FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS


Independent Auditor’s ReportAddressed (To Members of XYZ Ltd.)



Auditor’s report to include


relating to Audit & fulfilled auditor’s other ethical responsibilithese requirements. Statement shall refer to Code of Ethics issued by ICAI.States if Auditor believes Audit


For Audits of complete sets of General Purpose FS of listed entities, auditor communicate Key Audit Matters in Auditor’s report as per SA 701.When Auditor is otherwise required by law or regulation or decides to communicate key audit matters in auditor’s report, auditor shall do so in accordance with SA701.

S as perDesigning and Implementation of internal

on FSLocation of description of Auditor’s responsibilities for audit of FS.


Audit Report to be Signed in Auditors Personal NameIf Firm was appointed as Auditor = Signed in Personal & Audit Firm NameAlso mention Membership No.As applicable Registration No. of Firm allotted by ICAI.




opinion on whether FS are prepared in all material respects as per applicable FRF.obtained reasonable assurance FS



Significant policies Selected & Applied are adequately disclosed.Accounting policies so selected & applied are consistent with framework requirements.

FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made.Terminology used, including Title of FS is Appropriate.

STANDARDS


s ReportAddressed (To Members of XYZ Ltd.)



Auditor’s report to include


relating to Audit & fulfilled auditor’s other ethical responsibiliStatement shall refer to Code of Ethics issued by ICAI.




S as perDesigning and Implementation of internal

FS Location of description of Auditor’s responsibilities for audit of FS.


igned in Auditors Personal NameIf Firm was appointed as Auditor = Signed in Personal & Audit Firm NameAlso mention Membership No.As applicable Registration No. of Firm allotted by ICAI.








FS fulfill Qualitative requirements i.e. Relevance, ReliaAdequate disclosures has been made. Terminology used, including Title of FS is Appropriate.

STANDARDS


s ReportAddressed (To Members of XYZ Ltd.)



Auditor’s report to include a section, directly following Opini






S as per FRFDesigning and Implementation of internal

Location of description of Auditor’s responsibilities for audit of FS.










FS fulfill Qualitative requirements i.e. Relevance, Relia

Terminology used, including Title of FS is Appropriate.

ON


s Report Addressed (To Members of XYZ Ltd.)



a section, directly following Opini

States Audit was conducted in accordance with SAs.Refers to section of auditor’s report that describes auditor’s responsibilities under SA.Includes Statement that Auditor is independent of entity as pe





FRF Designing and Implementation of internal













ON


Addressed (To Members of XYZ Ltd.)section of Auditor’s Report to include Auditor’s opinion & have heading “Opinion.”

Opinion section of Auditor’s Report shall also: Identify entity whose FS are audited State that FS have been audited Identify Title of FS that comprise complete set of FSRefer to Summary of Important policies & other explanatory infoSpecify Time period covered by audited FS


States Audit was conducted in accordance with SAs.Refers to section of auditor’s report that describes auditor’s responsibilities under SA.

ditor is independent of entity as perelating to Audit & fulfilled auditor’s other ethical responsibili

Statement shall refer to Code of Ethics issued by ICAI.States if Auditor believes Audit evidence obtained is SAAE to provide basis for Opinion.



Designing and Implementation of internal



igned in Auditors Personal NameIf Firm was appointed as Auditor = Signed in Personal & Audit Firm NameAlso mention Membership No. As applicable Registration No. of Firm allotted by ICAI.

Audit report is signed & Date









ON AUDITING


Opinion section of Auditor’s Report shall also: Identify entity whose FS are audited

Identify Title of FS that comprise complete set of FSRefer to Summary of Important policies & other explanatory infoSpecify Time period covered by audited FS




Statement shall refer to Code of Ethics issued by ICAI.evidence obtained is SAAE to provide basis for Opinion.






igned in Auditors Personal NameIf Firm was appointed as Auditor = Signed in Personal & Audit Firm Name

As applicable Registration No. of Firm allotted by ICAI.

& Date









AUDITING


Opinion section of Auditor’s Report shall also:













& Date









AUDITING


Opinion section of Auditor’s Report shall also:








Giving WR that Mgt is responsible forDesigning and Implementation of internal control

Compliance withLocation of description of Auditor’s responsibilities for audit of FS.










FS fulfill Qualitative requirements i.e. Relevance, Reliability, Understandability & Comparability, etc.


AUDITING

Addressed (To Members of XYZ Ltd.) section of Auditor’s Report to include Auditor’s opinion & have heading “Opinion.”

Opinion section of Auditor’s Report shall also: -

Identify Title of FS that comprise complete set of FSRefer to Summary of Important policies & other explanatory info







Giving WR that Mgt is responsible forcontrolCompliance with











bility, Understandability & Comparability, etc.

AUDITING

section of Auditor’s Report to include Auditor’s opinion & have heading “Opinion.”

Identify Title of FS that comprise complete set of FSRefer to Summary of Important policies & other explanatory info







Giving WR that Mgt is responsible forcontrol Compliance with












AUDITING


Identify Title of FS that comprise complete set of FS Refer to Summary of Important policies & other explanatory info


States Audit was conducted in accordance with SAs. Refers to section of auditor’s report that describes auditor’s responsibilities under SA.





Giving WR that Mgt is responsible for







opinion on whether FS are prepared in all material respects as per applicable FRF.obtained reasonable assurance FS as

Auditor to conclude that reasonable assurance has been obtained, auditor to consider:


Significant policies Selected & Applied are adequately disclosed. Accounting policies so selected & applied are consistent with framework requirements.


AUDITING


Refer to Summary of Important policies & other explanatory info


Refers to section of auditor’s report that describes auditor’s responsibilities under SA.








igned in Auditors Personal Name If Firm was appointed as Auditor = Signed in Personal & Audit Firm Name




opinion on whether FS are prepared in all material respects as per applicable FRF.as whole are free from MMto consider:


Accounting policies so selected & applied are consistent with framework requirements.


AUDITING



a section, directly following Opinion section, with heading “Basis

Refers to section of auditor’s report that describes auditor’s responsibilities under SA.ditor is independent of entity as pe


evidence obtained is SAAE to provide basis for Opinion.






If Firm was appointed as Auditor = Signed in Personal & Audit Firm Name



opinion on whether FS are prepared in all material respects as per applicable FRF.whole are free from MM

to consider:




AUDITING



on section, with heading “Basis

Refers to section of auditor’s report that describes auditor’s responsibilities under SA.ditor is independent of entity as per relevant ethical






Compliance with SALocation of description of Auditor’s responsibilities for audit of FS.






to consider:







Refers to section of auditor’s report that describes auditor’s responsibilities under SA.r relevant ethical






SA Location of description of Auditor’s responsibilities for audit of FS.






to consider: -




APNA MENTOR







For Audits of complete sets of General Purpose FS of listed entities, auditor communicate Key Audit Matters in Auditor’s report as per SA 701. When Auditor is otherwise required by law or regulation or decides to communicate key audit matters in auditor’s report, auditor shall do so in accordance with SA701.










APNA MENTOR







For Audits of complete sets of General Purpose FS of listed entities, auditor










APNA MENTOR














APNA MENTOR




relating to Audit & fulfilled auditor’s other ethical responsibilities as per





Forming Opinion & Reporting on FS SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805




APNA MENTOR




ties as per




Giving WR that Mgt is responsible for same

SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805

opinion on whether FS are prepared in all material respects as per applicable FRF. whole are free from MM



APNA MENTOR




ties as per


For Audits of complete sets of General Purpose FS of listed entities, auditor shall


same


• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken. auditor required to evaluate if FS prepared as per applicable FRF by evaluating:


APNA MENTOR



ties as per


shall

When Auditor is otherwise required by law or regulation or decides to communicate

same


ing:





ing: -




Drafting of Qualified Opinion: - "In our opinion & to best of Info & explanation given to us, except for matter described in Basis of Qualified Opinion paragraph, FS reflect a True & Fair view.

Drafting of Disclaimer of Opinion Para: - "Because of significance of matters described in Basis for Disclaimer of Opinion paragraph, we have not been able to Obtain SAAE to provide a basis for an audit opinion; Accordingly, we do not express an opinion on FS.” OR “In our opinion, because of significance of matter discusses in Basis for Adverse Opinion paragraph, consolidated F/S do not give a True & Fair view in conformity with accounting principles generally accepted in India”.

SA 701: - Communicating KAM in Independent Auditor’s Report K

AM

• Matters that in auditor’s professional judgment were of most significance in Audit of FS of current period. • Key Audit Matters (KAM) selected from matters communicated with TCWG.

Communicating KAM = not a substitute for modified opinion or for reporting as per SA 570 Auditor not to communicate matter in KAM when already required to modify opinion in SA705 as a result of matter

Factors/ Considerations while Determining KAM

* Areas of higher assessed RMM or significant risks identified in accordance with SA315. * Highly uncertain management estimates. * Effect of the audit of significant events or transactions that occurred during the period.

Purp

ose

of

KA

M

• To enhance communicative value of audit report by providing greater transparency about audit performed • To provide additional info to intended users of FS • To assist intended users in Understanding entity & areas of Significant mgt judgment in audited FS • To provide a basis to further engage with Mgt & TCWG about certain matters

Matters not to be reported as

KAM

• A matter giving rise to modified opinion as per SA 705 (Revised) • A material uncertainty related to events or conditions that may cast significant doubt on entity’s ability to continue as a going concern in accordance with SA 570.

Circumstances where KAM

not required in Auditor’s

Report

Auditor to describe each Key Audit Matter in Auditor’s Report unless: - • Law or Regulation precludes (already includes) Public Disclosure about matter • Auditor determines that disclosure of such matter in Audit Report will have adverse consequences as would outweigh Public Interest benefits of such communication. • Entity has already disclosed info about such KAM.

SA 705 : - Modifications to opinion in Independent Auditor’s Report

Nature of Matter giving rise to Modification

Auditor's Judgment on Pervasiveness of Effect or Possible Effect on FS Material but not Pervasive Material and Pervasive

FS materially misstated Qualified opinion Adverse opinion Inability to obtain SAAE Qualified opinion Disclaimer of opinion

POINTS TO

NOTE

• Before drafting Qualified/ Disclaimer Para = Auditor must prepare Basis for Qualified/ Disclaimer opinion drawing intention of users of FS towards reason of giving Qualification/ Disclaimer. • Most of time auditor is not able to obtain SAAE due to: - - Limitations imposed by circumstances. - Limitations imposed by mgt. • FRF v/s Law-conflict = Discuss conflict with mgt (If additional requirement can't be met even by additional disclosure, modify audit report as per SA 705)




PHYSICAL STOCK & FA VERIFICATION CAN’T BE CARRIED & SAAE CAN’T BE OBTAINED

Reporting Responsibility * SA 501 = if attend physical count impracticable, Auditor to perform alternative audit procedures to obtain SAAE (If it is not possible to do so = modify opinion in auditor’s report as per SA 705) * Issue DISCLAIMER of opinion because auditor is unable to obtain SAAE that FS are free from MM & matter is MATERIAL AND PERVASIVE. Factors are to be considered in auditor’s reporting responsibility: - • Inventories & Fixed Assets are material and PERVASIVE to FS • Auditor unable to attend physical verification of inventories & FA as impracticable • Auditor failed to obtain SAAE even by alternative audit procedures.

Draft Report to be incorporated in main Audit Report

AUDITORS RESPONSIBILITY PARA: - Our Responsibility is to express opinion on these FS based on our audit as per SA issued by ICAI. Because of matters described in Basis for Disclaimer of Opinion paragraph, however we were not able to Obtain SAAE to provide a basis for Audit Opinion. Basis for Disclaimer of Opinion PARA: - We were appointed as auditors of Company & we report that we could not observe counting of Physical Stock & Physical verification of FA due to civil & political unrest in foreign country where the company has significant operation. We were unable to satisfy ourselves by alternative means concerning inventory quantities and fixed assets of company held at March31st 20XX, which are stated in B/S at ₹XXX & ₹XXX respectively. Disclaimer of Opinion: - Because of significant matters described in Basis for Disclaimer of Opinion paragraph, we have not been able to Obtain SAAE to provide a basis for audit opinion. Accordingly, we do not express Opinion on FS. Report on Other Legal and Regulatory Requirements: -As u/s 143 (3) of Co Act, 2013, we report that: - As described in the Basis for Disclaimer of Opinion paragraph, we were unable to obtain all info & explanations which to best of our knowledge and belief were necessary for purpose of our audit.

MO

DIF

ICA

TIO

NS

TY

PES

IN R

EPO

RT

Q

ualif

ied

Opi

nion

Auditor shall express Qualified Opinion when: - • Auditor Obtained SAAE + Concludes Misstatements is Material but not pervasive to FS or • Auditor unable to Obtain SAAE to base opinion + Concludes Possible effects on FS of undetected misstatements (if any) could be Material but not Pervasive.

e O

pini

o

Auditor shall express Adverse opinion when: - Auditor Obtained SAAE + Concludes misstatements individually or in aggregate are both Material & pervasive to FS.

Dis

clai

mer

of

Opi

nion

Auditor shall disclaim an opinion when: - • Auditor unable to Obtain SAAE to base opinion + Concludes possible effects on FS of undetected misstatements (if any) could be both Material and Pervasive. • In extremely rare circumstances with multiple uncertainties = Auditor concludes that he obtained SAAE regarding each of individual uncertainties it is not possible to form Opinion on FS due to potential interaction of uncertainties & their possible cumulative effect on FS.

Circumstances requiring

Modifications in Audit Report

Auditor concludes based on SAAE obtained that FS as whole are not free from MM due to: - - Inappropriate Accounting Policies - Inappropriate Selection of Accounting Policies - Inappropriate or Inadequate Disclosures in FS OR Auditor unable to Obtain SAAE to conclude that FS as a whole are free from MM due to: - - Limitation Imposed by Mgt - Circumstances beyond Entity Control (Example: Records destroyed by Fire) - Circumstances relating to NTE of Auditor’s Work




OTHER MATTERS PARAGRAPH (OM Para)

MEANINIG EXAMPLE • If auditor considers necessary to draw user’s attention to matter other than those presented or disclosed in FS that in auditor’s judgment is fundamental to user’s understanding of FS = Auditor to include OM Para • OM Para only if not prohibited by law & matter not being KAM. • If auditor to include EOM/ OM Para = communicate with TCWG regarding this & wording of Para

If auditor of CFS = Report includes an OM Para in respect of auditor's responsibility in respect of subsidiaries not audited by him but which form part of consolidated FS under report. “We didn’t audit FS of 1 subsidiary, whose FS reflect Total Assets (net) of ₹XXX as at March 31, 2016, total revenues of ₹XXX & net cash outflows amounting to ₹XXX for yr then ended. These FS audited by other auditors M/s B& Co. CAs whose reports furnished to us by Mgt & our opinion is based solely on reports of other auditors. Our opinion is not qualified in respect of this matter.”

SA 706: - Emphasis of Matter Paragraphs & Other Matter Paragraphs in Independent Auditor’s Report

EM

PHA

SIS

OF

MA

TT

ER

PA

RA

GR

APH

(EO

M P

ara)

ME

AN

ING

• If auditor considers necessary to draw user’s attention to matter presented or disclosed in FS that in auditor’s judgment is fundamental to user’s understanding of FS = Include EOM Para • EOM Para only if Auditor Not required to Modify opinion & matter isn’t KAM • EOM highlights matter affecting FS included in note to FS by more extensively discussing matter. • EOM Para does not affect Auditor’s Opinion. • Large use of EOM Para = may diminish effectiveness of Auditor’s communication about such matters.

Drafting of EOM

Para

“Without qualifying our opinion, we draw attention to Note X of Schedule ………. to FS.” The Entity is defendant in lawsuit & filed counter action & Ultimate outcome of matter cannot presently be determined & no provision made in FS for it. Addition of paragraph, emphasizing Going Concern problem or significant uncertainty is ordinarily adequate to meet auditor's reporting responsibilities regarding such matters. If multiple uncertainties that are significant to FS, Auditor may consider it appropriate to express Disclaimer of opinion instead of adding EOM Para.

Auditor to

specifically include EOM Para in

Auditor’s report

* When FRF prescribed by law or regulation unacceptable. * To alert users that FS are prepared as per Special purpose framework. * When facts known to Auditor after Date of Auditor’s report & auditor provides new/ amended auditor report (SA 560)

Cir

cum

stan

ces

Aud

itor

may

in

clud

e E

OM

Pa

ra

* Uncertainty relating to the future outcome of exceptional litigation or regulatory action. * Significant subsequent event that occurs between Date of FS & Date of Auditor’s report. * Early application (where permitted) of a new AS that has Material effect on FS * Major Catastrophe had or continues to have significant effect on Entity’s financial position.

EOM effect on

functioning of

Company

EOM which may have Adverse effect on functioning of company: - • Factors leading to material uncertainty casting doubt on ability to continue as going concern. • Material uncertainty regarding outcome of litigation Examples of EOM which may not have Adverse effect on functioning of company: - • Excess managerial remuneration paid • Accrual of contractually receivable claim based on mgt estimate if ultimate realization different from amt accrued • On Frauds dealt with in FS of company & not having continuing effect on FS.




SA 710: - Comparative Info & Figures & Comparative FS Comparative Info

Amt & disclosures included in FS in respect of 1 or more prior periods as per applicable FRF

Corresponding Figures

• Where amt & other disclosures for prior period are included as an integral part of Current FS & are intended to be read only in relation to amt & other disclosures relating to current period • Not presented as Complete FS capable of standing alone but are Integral part of current period FS intended to be read only in relationship to current period figures.

Comparative FS

• Where amt & other disclosures for prior period are included for comparison with FS of current period but if audited are referred to in Auditor’s opinion. • Level of info included in those Comparative FS is comparable with FS of current period.

Auditor's Duty

Obtain SAAE if Corresponding figures meet requirement of FRF by Assessing: - • Accounting policies are consistent& if changes then adequately accounted, presented & disclosed • Whether Corresponding figures agree with prior period figures. • Appropriate Adjustments/ Disclosures made for any changes in Accounting Policies

Auditor to Request WR for all periods referred to in Auditor’s Opinion. (Also Obtain Specific WR for any prior period item separately disclosed in current yr P/L)

AU

DIT

OR

’S R

EPO

RT

ING

RE

QU

IRE

ME

NT

S

Audit Report

for Earlier yr

is Qualified

As per SA 610& 710, when auditor’s report on prior period as previously issued: - • Included Qualified opinion, Disclaimer of opinion, or Adverse opinion & • Matter giving rise to modification resolved & properly accounted/ disclosed in FS as per FRF Auditor to: - * Modify opinion on Current period’s FS in Basis for Modification Para in Auditor report. * Refer to both current period’s figures & corresponding figures in Description of matter giving rise to modification when effects of matter on Current period’s figures are material. * In other cases, explain audit opinion modified because of effects or possible effects of unresolved matter on comparability of current period’s figures & corresponding figures.

Audit Report for Earlier yr is Unmodified but Auditor

obtains SAAE that MM exists in prior period FS

OR Auditor concludes MM exists affecting Prior Period FS on which Predecessor auditor reported no modification

* Communicate misstatement with appropriate level of Mgt & TCWG * Request that predecessor auditor to be informed. * Report only on current period if prior period FS are amended & predecessor auditor agrees to issue new auditor’s report on amended FS of prior period. * Verify whether misstatement has been dealt with as required under applicable FRF & if that’s not case = Auditor to express Qualified opinion or Adverse opinion in auditor’s report on Current period FS modified with respect to corresponding figures included therein.

Prior Period FS

Not Audited

Auditor to State in OM Para in auditor’s report that corresponding figures = Unaudited (Such statement does not however relieve auditor of requirement to Obtain SAAE that opening balances not contain misstatements that materially affect Current period’s FS)

Prio

r Pe

riod

FS

Aud

ited

by

Pred

eces

sor

Aud

itor

* Apply SA 510 to audit of opening balances. * If prior period FS audited by auditor himself = Apply SA 560 * If auditor permitted by law or regulation to refer to Predecessor Auditor’s Report on corresponding figures & decides to do so = Then Auditor in addition to expressing opinion on Current Period’s FS shall State in Other Matter paragraph in auditor’s report:- - That FS of Prior period were audited by Predecessor Auditor & - Type of opinion expressed by Predecessor auditor & if opinion was modified, Reasons therefore & - Date of that report. (Unless Predecessor auditor’s report on prior period’s FS is revised with FS)

Com

para

tive

FS

• When Comparative FS presented = Auditor’s opinion shall refer to each period for which FS are presented & on which audit opinion is expressed. • When Reporting on prior period FS in connection with current period’s audit, if auditor’s opinion on such prior period FS differs from Opinion auditor previously expressed = Auditor shall disclose substantive reasons for different opinion in Other Matter paragraph as per SA 706.




SA 720: - Auditor’s Responsibility in relation to Other Information O

TH

ER

INFO

RM

AT

ION

M

eani

ng

Other information refers to Financial or non-financial information (other than F.S and the auditor’s report thereon) included in the entity’s annual report.

Incl

ude

• Corporate Governance Report • Financial summaries • Financial ratios. • Mgt Discussion & Analysis Report • Director’s Report • Chairman Speech • CSR Report

SA S

cope

• SA 720 deals with auditor’s responsibilities relating to other information relating to other info that is included in entity’s annual report. • These responsibilities do not require auditor to give assurance on other info.

Rep

ortin

g of

Oth

er In

fo

Include separate section with heading “Other Info” when the auditor has obtained some or all of other info. (It will be placed after heading Key Audit Matters). Other information section shall include:

Statement that Mgt is responsible for other info. Identification of other info obtained prior to the date of auditor’s report. For listed entity, identification of other info expected to be obtained after date of auditor’s report. Statement that auditor’s opinion on FS not covers other info & accordingly auditor does not

express any opinion or conclusion thereon. Description of auditor’s responsibilities relating to obtaining, reading, considering & reporting

other info as required by this SA. When other info obtained prior to date of audit report, a statement that auditor not identified

misstatement in other info & has nothing to report in this regard or a statement that describes uncorrected misstatement of other info.

AU

DIT

OR

RE

SPO

NSI

BIL

ITY

- SA

720

RE

QU

IRE

RO

LE

• Obtaining other info from Mgt by making appropriate arrangements to obtain such docs which consist of such info. • Auditor to Read Other Info to identify material inconsistency between other info & FS.

RE

SPO

NSE

Material misstatement/

Material inconsistency

exists in other info

• If Material inconsistency identified in other info prior to audit report • Ask Mgt to make correction. • If mgt refuses to make correction, auditor to communicate matter with TCWG & request that the correction be made. • If other info not corrected even after communicating to TCWG, then consider implication for auditor’s report & communicate with TCWG about how auditor plans t address material misstatement in auditor’s report. • Possible implications may be reporting in the section “Other Information” Paragraph.

Material inconsistency /Material misstatement exists subsequent to date of Audit

Report

• Material inconsistency identified in other information subsequent- to audit report = apply SA-560 if such misstatements effect FS. • If not corrected by mgt, take appropriate action considering legal rights & obligations.

Material misstatement exists

in FS Respond appropriately in accordance with other Standards. Example-SA

450, SA 315, 330, SA 705.

OTHER TOPICS-NEW COURSE

By CA SANIDHYA SARAF Pg 95 “APNA MENTOR” 976-040-0350


Understanding Client operations& Internal Control System Auditor to identify & prioritize risks that impact audit of FS to understand client operations: - - Environment in which entity operates - Framework of operations - Operational performances - Information process framework etc.

Determination of Residual Risk i.e. Identification & Assess RMM Response to & Manage Identified Residual Risk Reporting to Client = Auditor to conclude on areas of risk by obtaining SAAE & communicate to Client immediately his significant observation on Weakness & Deficiencies in design & operation of Internal Controls

Risk Based Audit

• Audit approach that analysis audit risks, sets materiality thresholds based on audit risk analysis & develops audit program that allocate Larger portion of audit resources to high-risk areas. • Combined assessment of SA 315 & 330 = Risk Based Audit. STEPS/ STAGES involved in Risk Based Audit

AUDIT REPORT & CARO 2016

App

licab

ility

of

CA

RO

CARO 2016 apply to all companies including Foreign companies except following: - (a) Banking Company (b) Insurance Company (c) Company licensed to operate u/s 8 (d) One Person Company (e) Small Company (f) Private limited Company (not being a subsidiary or holding of public co) with: - • Paid up capital + Reserves & Surplus < 1Cr. (as on Balance Sheet Date) + • Total borrowings from Bank & F.I. < 1Cr. (at any point of time during the FY) + • Total revenue as disclosed in Schedule III < 10 Cr. (for the FY)

• 2(64) = Paid Up Capital = Aggregate amt credited as paid-up is equivalent to amt received as paid up in respect of Shares issued. It also includes any amount credited as paid up in respect of shares. • Guidance Notes: - Paid up s/c means that part of Subscribed Share Capital for which consideration in Cash or otherwise received. This includes Bonus Shares allotted by Corporate Enterprises. • In respect of co other than finance co, Revenue from operations consist of revenue from: - (a) Sale of products (b) sale of services (c) other operating revenues, as reduced by excise duty • In respect of finance company, Revenue from operations consist of revenue from: - (a) Interest (b) Other financial services. • Other income shall consist of followings: - - Dividend Income - Net gain/loss on sale of investments - Interest income (in case co other than finance co) - Other non-operating income (net of expenses directly attributable to such incomes)

CERTIFICATE for Special

Purpose

* Used where Auditor verifies accuracy of facts * Written confirmation of accuracy of facts stated & not involve any estimate or opinion * Certify circulation figures of a newspaper or value of imports or exports of company * Represents that verified certain figures & is in position to vouch safe their accuracy * After issues certificate = responsible for actual accuracy of what is stated therein.

REPORT

* Formal statement made after Enquiry, examination or review of specified matters including opinion. * After issue report = responsible for ensuring that report is based on factual data * Involves expression of opinion differing from one professional to another. * No question of exactitude in report as info based on estimates & involves judgment too.

Features of Qualified Audit Report

• Clarity • Explanation • Placement • Except for • Quantification • Nature of qualification • Violation of law • Notes – Report Relationship • Draft Report

OTHER TOPICS-NEW COURSE

By CA SANIDHYA SARAF Pg 96 “APNA MENTOR” 976-040-0350


MATTERS TO BE REPORTED UNDER CARO 2016 (Para 3)

Para 3

Reporting Area

Reporting Requirements

(i)

Fixed Assets

• Whether company is maintaining proper records with full particulars including quantitative details & situation. • Whether Fixed Assets physically verified by mgt at reasonable intervals. • Whether Material discrepancies were noticed on such verification. • Whether such discrepancies have been properly dealt with in BOA. • Whether Title deeds of immovable properties held in name of co & if not provide details thereof.

(ii) Stock • Whether physical verification conducted at reasonable intervals by Mgt. • Whether material discrepancies noticed & if so whether dealt properly in books.

(iii)

Loans & Advances

• Whether loans granted to companies, firms, LLP covered u/s 189. If so: - - T & C are not prejudicial to the co interest - Schedule of repayment of principal & payment of interest stipulated - State amount overdue for > 90days & whether reasonable steps taken to recover Principal & interest by company.

(iv)

Comply Sec 185 &186

• In respect of loans, investments, guarantees & security. • If not, provide details thereof.

(v) Public Deposits

• RBI Directions & Sec. 73 – 76 complied & if not then Nature of contravention • Order passed by CLB/ RBI/ Court/ Tribunal = Whether complied with or not.

(vi) Cost Records • Whether as per Specified u/s 148(1) • Whether accounts & records made & maintained.

(vii)

Statutory Dues

• Undisputed PF, ESI, IT, ST, Custom, VAT, Excise, CESS, etc paid regularly • If Not outstanding > 6 months as on Balance Sheet Date. • State Amount involved thereon &forum of it.

(viii) Repay Dues • Whether co. default in repayment of dues – F.I., Bank, Govt., Debenture holders • If Yes – Nature & Amount of Default.

(ix)

Money raised by Public

Issue & Loans

• Whether money rose by IPO/ FPO/ Term Loans = applied for stated purpose • If Not = details along with delay & subsequent ratification be reported.

(x) Fraud • Whether fraud by company or by its officers/ employees noticed or reported. • If Yes – Nature and amount to be stated.

(xi)

Mgr

Remuneration

• Whether managerial remuneration paid with requisite approvals u/s197. • If Not, state amount involved and steps taken for securing refund to be reported. • Details to be reported are: - - To whom - Amount due for Recovery as at BS date - Amt paid/ promised - Steps taken to secure recovery of amt

(xii) NIDHI Co. • Whether Net Owned Funds to Deposits Ratio = 1:20. • Whether 10% unencumbered term deposits maintained.

(xiii) Transaction with Related

Parties

• Whether transactions with related parties are in compliance with Sec. 177 &188. • Whether details disclosed in F.S. as required by applicable AS.

(xiv) Preferential Allotment

• Whether any preferential allotment of Shares/ FCD/ PCD made. • If so, whether Sec.42complied with & amount raised used for stated purpose. • If Not – provide details of amount involved & nature of noncompliance.

(xv) Non Cash Transactions

with Directors

• Whether co. has entered into non cash transactions with Directors. • If so. Whether Sec. 192 has been complied with.

(xvi) Registration with RBI

• Whether registration required u/s 45IA of RBI Act, 1934 & if so if it is got.