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1.3 Methodology 8
5 2) Bibliography 38
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1.1 INTRODUCTION:
The word audit is derived from the Latin word audire which means to hear. It is an important tool
of management. It is concerned with making an analytical and critical analysis of the books of
accounts, checking and verification of evidence in support of entries appearing in the books of
accounts, and ascertaining the authenticity of the financial statements. It is also concerned with
the examination of accounting data to determine the extent of an audit examination is too made
on the basis of evidential document such as invoice, money receipts and other records by the
authorized representative of the client. Auditor has used to send for the accountants and
hear whatever they had to say in connection with the accounts. The auditor has to look into the
facts behind figures and he must certify their accuracy. Auditing is to ascertain the balance sheet
and profit and loss account that they show a true and fair view of the financial state of affairs of a
concern. The Institute of Chartered Accountants of India has issued a number of statements of
standard auditing practices and accounting standards for guidance of Auditor of India.
books, accounts and vouchers of a business, as will enable the auditor to satisfy
himself that the balance sheet is properly drawn up, so as to exhibit a true and fair value of the
state of the affairs of the business, whether the profit and loss account gives a true
and fair value of the profit and loss for the financial year.
In order to facilitate understanding of the scope and authority of the pronouncements of the
Auditing and Assurance Standards Board ('AASB'), the ICAI has issued revised preface viz.,
Preface to Standards on Quality Control for Auditing, Review, Other Assurance and Related
Services, which has come into effect from 1st April, 2008. Standards of the following nature
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Standards on Quality Control (SQC) are applicable to the auditing firms which performs Audits
and Reviews of Historical Financial information and other Assurance and related services
engagements.
information.
agreed upon procedures to information, compilation engagements, and other related services
Auditing and Assurance Standard ('AAS') have been re-numbered and classified in the above five
SQC1 Quality control for Firms that perform audits and reviews of historical financial 1-4-2009
information and other assurance and related services engagement
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SA Title of Standard on Auditing Effective
from
200 Overall objectives of the Independent Auditor and the conduct of an audit, in 1-4-2010
accordance with standards on auditing
240 The Auditor's Responsibilities relating to Fraud in an Audit of Financial Statements 1-4-2009
250 The Auditor's Responsibilities relating to Laws and Regulations in an Audit of 1-4-2009
Financial Statements
265 Communicating Deficiencies in internal control to those charged with Governance 1-4-2010
and management
315 Identifying and Assessing the Risks of Material Misstatement through understanding 1-4-2008
the Entity and its Environment
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SA Title of Standard on Auditing Effective
from
540 Auditing Accounting Estimates, including fair value estimates, and related 1-4-2009
disclosures
600 Special consideration audits of group financial statements under (including the work
of component auditors) consideration of the Board
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SA Title of Standard on Auditing Effective
from
706 Emphasis of matter Paragraphs and Other Matter Paragraphs in the Independent 1-4-2012
Auditor's Report
710 Revised Comparative Information- corresponding figures and Comparative financial 1-4-2011
Statements
800 Special Considerations- Audits of Financial Statements prepared in accordance with 1-4-2011
special purpose framework
805 Special Considerations- Audits of single purpose financial statements and specific 1-4-2011
elements, accounts, or items of a financial statement
2410 Review of Interim Financial Information performed by the independent auditor of 1-4-2010
the entity
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SA Title of Standard on Auditing Effective
from
RELATED SERVICES
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The main objective of an audit is to verify and establish that at a given date balance sheet
presents true and fair view of financial position of the business and the profit and loss account
gives the true and fair value of the profit or loss for the accounting period.
Verify the accuracy of posting, balancing reconfirm the validity of transactions with supporting
documents Confirm existence of assets and liabilities Assess the system of internal
control Ascertain whether distinction has been made between capital and revenue items
(B) Fraud
Fraud is the word used to mean intentional error. This is done deliberately which implies that
there is intent to deceive, to mislead. These are more serious than intentional errors. A great
variety of intentional errors may be found. Intentional errors are the most difficult to detect and
auditors generally devote greater attention to this type. Auditors while studying the possibility
and nature of fraud must keep this always in mind and should not take any exception for those
who held high offices. These things generally start in a non-consequential way after a
subordinate staff member first borrow small amounts from the cash box to meet his temporary
difficulty and gradually it becomes his habit to borrow in such a manner. Fraud also takes place
Misappropriation of goods
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In these types the businessman appropriates the goods to wrong accounts for committing frauds
Misappropriation of cash
This system can be done by theft of cash receipts, petty cash cherubs, creditors, purchases etc.
The transaction relating to the receipt of cash are omitted from the records or recorded with
lesser amount in the cash book. Some of the examples are as follows:-Cash sale may not be
recorded at all omitting credit not received from supplier and discount allowed to them
Manipulation of accounts
These frauds may be committed by manipulated wrong statement and accounts. These are made
only to give fraud to the higher authorities. This type of fraud is committees by manager, director
or board of directors.
Accounting is the device for collecting and presenting useful information in financial terms
about a business enterprise. It should as well be recognized that accounting data may contain
1.3 METHODOLOGY:
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This section highlights describes sources of literature, techniques employed in data collection,
research purpose, data analysis as well as critics to the method use. In a research process, it is
important that information provided satisfies the purpose and should be reliable as well.
Therefore this will depend on the method of data collection employed. The reason to this is due
to the fact that if data collected does not suit the purpose, then it would be difficult to analyze
and the research would be considered as inappropriate. Therefore, we will analyze information
interview, etc.
PROBLEMS IN COLLECTING PRIMARY DATA:
Lack of resources and time,
Expensive,
No participation,
SECONDARY DATA:
We tried to use data on the subject matter ascertained from textbooks, articles, journals on
Budgeting and Budgetary control which will be through the assistance search engine such as
Google. These materials aided us in getting most of the information for the research. It includes
that data which are collected from some earlier research work and used in the study, the
researcher has presently undertaken. Sources of secondary data collection include Internet,
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1.4SCOPE OF STANDARDS ON AUDITING:
A) Functions of Auditing
The principal aspects to be covered in an audit concerning final statements of accounts are as
follows:-
is appropriate for the business and helps in properly recording all transactions.
Reviewing the systems and procedures to find out whether they are adequate and
comprehensive.
Check the arithmetical accuracy of books of accounts by the verification of postings,
balances etc.
Examine the documentary evidence to establish the accuracy, authenticity and validity of
transactions recorded.
Verifying that a proper distinction is made between capital and revenue items.
Verification of the title, existence and valuation of assets appearing in the balance sheet.
Examination that the statutory requirements are complied with.
Verifications of the liabilities stated in the balance sheet.
Comparison of balance sheet and profit and loss account and other statements with
underlying records in order to see that they are in accordance there with.
Checking the results shown by the balance sheet and profit and loss account to see
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Reporting to the proper person as to what extent, accounts reveal a true and fair view of
the state of affairs and of the profit and loss account of the organization.
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1.5 IMPORTANCE OF STANDARDS ON AUDITING:
The fact that audit is compulsory by law, in certain cases by it should show that there must be
some positive utility in it. The chief utility of audit lies in reliable financial statements on the
basis of which the state of affairs may be easy to understand. Apart from this obvious utility,
considerable value even to those enterprises and organizations where audit is notcompulsory, the
(a) It safeguards the financial interest of persons who are not associated with the
by which these might be checked, especially those that occur due to the absence of
properly kept and helps the client in making good deficiencies or inadequacies in this
respect
(g) As an appraisal function, audit reviews the existence and operations of various controls in
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The ICAI. vide Announcement dt 17th May 2016 has released various Revised Standards on
Auditing (i.e. SA 700, SA 701, SA 705, SA 706, SA 260 & SA 570), as under:
New SA 701, Communicating Key Audit Matters in the Independent Auditors Report
Revised SA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
It may be noted that recently on 3rd Dec., 2015 ICAI had issued Exposure Drafts of above
Revised Standards on Auditing, for Comments from its Members to be sent latest by January 18,
2016. After consideration of the suggestions/ comments from its members, the ICAI has issued
these standards.
We will consider SA 570 & SA 700 old vs. revised to understand the changes better.
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1.7 LIMITATIONS OF STANDARDS ON AUDITING:
A. At this stage, it must be clear that the objective of an audit of financial statements
it is the auditors opinion which helps determination of the true and fair view
significant to note that the AAS-2 makes it a subtle point that such an opinion
conducted affairs of the enterprise. Further, the process of auditing is such that it
limitation which cannot be overcome irrespective of the nature and extent of audit
audit since understanding of the same would only provide clarity as to the overall
deciding the extent of audit procedures and in assessing the reasonableness of the
statements. Further
muchof the evidence available to the auditor can enable him to draw only reasona
persuasive in nature rather than conclusive in nature. Because of these factors, the
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rarely attainable. There is also likelihood that some material misstatements of the
financial information resulting from fraud or error, if either exists, may not be
detected
C.
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D. 2. DETAILED OVERVIEW OF STANDARDS ON AUDITING:
are as follows:-
An examination of the system of accounting and integral controls to ascertain whether it
is appropriate for the business and helps in properly recording all transactions.
Reviewing the systems and procedures to find out whether they are adequate and
comprehensive.
Check the arithmetical accuracy of books of accounts by the verification of postings,
balances etc.
Examine the documentary evidence to establish the accuracy, authenticity and validity of
transactions recorded.
Verifying that a proper distinction is made between capital and revenue items.
Verification of the title, existence and valuation of assets appearing in the balance sheet.
Examination that the statutory requirements are complied with.
Verifications of the liabilities stated in the balance sheet.
Comparison of balance sheet and profit and loss account and other statements with
underlying records in order to see that they are in accordance there with.
Checking the results shown by the balance sheet and profit and loss account to see
the state of affairs and of the profit and loss account of the organization.
E.
F.
G. The ICAI. vide Announcement dt 17th May 2016 has released various Revised
Standards on Auditing (i.e. SA 700, SA 701, SA 705, SA 706, SA 260 & SA 570),
as under:
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Revised SA 260, Communication with Those Charged with Governance
New SA 701, Communicating Key Audit Matters in the Independent Auditors Report
Revised SA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
H. It may be noted that recently on 3rd Dec., 2015 ICAI had issued Exposure Drafts
sent latest by January 18, 2016. After consideration of the suggestions/ comments
I.
J. We will consider SA 570 & SA 700 old vs revised to understand the changes
better.
K.
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C) SA 570: GOING CONCERN (Effective for audits of financial statements for periods
I. Scope of this SA
1. This Standard on Auditing (SA) deals with the auditors responsibility in the audit
of financial statements with respect to managements use of the going concern assumption in the
business for the foreseeable future. General purpose financial statements are prepared on a going
concern basis, unless management either intends to liquidate the entity or to cease operations, or
has no realistic alternative but to do so. Special purpose financial statements3 may or may not be
prepared in accordance with a financial reporting framework for which the going concern basis is
relevant. When the use of the going concern assumption is appropriate, assets and liabilities are
recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in
M. Responsibilities of Management
3. Some financial reporting frameworks contain an explicit requirement for management to make a
specific assessment of the entitys ability to continue as a going concern, and standards regarding
matters to be considered and disclosures to be made in connection with going concern. The
financial reporting framework may require the management to make an assessment of the
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entitys ability to continue as a going concern and prepare the financial statements on a going
concern basis unless the management intends to liquidate the entity or cease operations, or has no
realistic alternative but to do so. In case the financial statements have not been prepared on a
going concern basis, the fact would need to be appropriately disclosed, together with the basis on
which the financial statements are prepared and the reason why the entity is not regarded as a
going concern. The detailed requirements regarding managements responsibility to assess the
entitys ability to continue as a going concern and related financial statement disclosures may
4. In other financial reporting frameworks, there may be no explicit requirement for management to
make a specific assessment of the entitys ability to continue as a going concern. Nevertheless,
since the going concern assumption is a fundamental principle in the preparation of financial
presentation of the financial statements includes a responsibility to assess the entitys ability to
continue as a going concern even if the financial reporting framework does not include an
5. Managements assessment of the entitys ability to continue as a going concern involves making
a judgment, at a particular point in time, about inherently uncertain future outcomes of events or
increases significantly the further into the future an event or condition or the
outcome occurs. For that reason, financial reporting frameworks normally require
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an explicit management assessment specify the period for which management is
O. The size and complexity of the entity, the nature and condition of its business
and the degree to which it is affected by external factors affect the judgment
P. Any judgment about the future is based on information available at the time at
which the judgment is made. Subsequent events may result in outcomes that are
inconsistent with judgments that were reasonable at the time they were made.
6. The auditors responsibility is to obtain sufficient appropriate audit evidence about the
appropriateness of managements use of the going concern assumption in the preparation and
presentation of the financial statements and to conclude whether there is a material uncertainty
about the entitys ability to continue as a going concern. This responsibility exists even if the
financial reporting framework used in the preparation of the financial statements does not
include an explicit requirement for management to make a specific assessment of the entitys
7. However, as described in SA 200, the potential effects of inherent limitations on the auditors
ability to detect material misstatements are greater for future events or conditions that may cause
an entity to cease to continue as a going concern. The auditor cannot predict such future events
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auditors report cannot be viewed as a guarantee as to the entitys ability to continue as a going
concern.
II. Effective Date: This SA is effective for audits of financial statements for periods
III. Objectives: The objectives of the auditor are: (a) To obtain sufficient appropriate audit
conclude, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the entitys ability to
continue as a going concern; and (c) To determine the implications for the auditors
report.
R.
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D) SA 570: GOING CONCERN (Effective for audits of financial statements for periods
statements relating to going concern and the implications for the auditors report. (Ref: Para. A1)
T. 2. Under the going concern basis of accounting, the financial statements are
prepared on the assumption that the entity is a going concern and will continue its
operations for the foreseeable future. General purpose financial statements are
prepared using the going concern basis of accounting, unless management either
but to do so. Special purpose financial statements may or may not be prepared in
accordance with a financial reporting framework for which the going concern
basis of accounting is relevant (e.g., the going concern basis of accounting is not
relevant for some financial statements prepared on a tax basis). When the use of
the going concern basis of accounting is appropriate, assets and liabilities are
recorded on the basis that the entity will be able to realize its assets and discharge
Concern
a going concern and related financial statement disclosures may also be set out in
law or regulation.
assess the entitys ability to continue as a going concern even if the financial
increases significantly the further into the future an event or condition or the
outcome occurs. For that reason, most financial reporting frameworks that require
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Z. The size and complexity of the entity, the nature and condition of its business
and the degree to which it is affected by external factors affect the judgment
AA. Any judgment about the future is based on information available at the
time at which the judgment is made. Subsequent events may result in outcomes
that are www.taxguru.in 3 inconsistent with judgments that were reasonable at the
used in the preparation of the financial statements does not include an explicit
limitations on the auditors ability to detect material misstatements are greater for
going concern. The auditor cannot predict such future events or conditions.
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entitys ability to continue as a going concern in an auditors report cannot be
II. Effective Date : This SA is effective for audits of financial statements for periods
evidence regarding, and conclude on, the appropriateness of managements use of the
going concern basis of accounting in the preparation of the financial statements; (b) To
conclude, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the entitys ability to
continue as a going concern; and (c) To report in accordance with this SA.
E) Significant changes introduced in the revised auditing standards SA 570-
Going Concern:
AF.The revised Auditing Standard introduced for SA 570 Going concern is for the
audits of financial statements for the periods beginning on or after 01st April,
2017.
AH. Scope
AI. The earlier standard which was effective for audits of financial statements for
periods beginning on or after April 1, 2009, the scope was restricted to the
from April 1, 2017, the scope of the auditor has been increased manifolds which
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includes auditors responsibility in the audit of financial statements relating to
going concern and the implications for the auditors report. The auditor is now
included in the auditors report for all the entities in relation to going concern to
AJ.
AK.
AM. Further, wordings has also been prescribed for conditions when the auditor
report on the basis of the above requirements, where the role of the auditor has
audit evidence has been obtained regarding, and shall conclude on, the
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AN. If the auditor concludes that managements use of going concern basis of
AO. a. Adequately disclose the principal events or conditions that may cast
AP.b. Disclose clearly there is material uncertainty related to events or conditions that
may cast significant doubt on the entitys ability to continue as going concern and,
therefore, that it may be unable to realize its assets and discharge its liabilities in
AR. To comply with the enhanced scope and the reporting requirements,
Thus, even when no material uncertainty exists, the auditor has to evaluate
conditions that may cast significant doubt on the entitys ability to continue as a
conditions; or
plans for future actions in relation to its going concern assessment and the
AZ. The newly introduced auditing standard, SA 701 deals with auditors
701 applies, matters relating to going concern may be determined to be key audit
that may cast significant doubt on the entitys ability to continue as a going
relevant to public sector entities. Going concern risks may arise, but are not
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limited to, situations where public sector entities operate on a for-profit basis,
ability to continue as a going concern in the public sector may include situations
where the public sector entity lacks funding for its continued existence or when
policy decisions are made that affect the services provided by the public sector
entity.
BC.
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F) Standard on Auditing (SA) 700 (Revised), Forming an Opinion and
BD. 1. This Standard on Auditing (SA) deals with the auditors responsibility
to form an opinion on the financial statements. It also deals with the form and
audit matters in the auditors report. SA 7052 (Revised) and SA 7063 (Revised)
deal with how the form and content of the auditors report are affected when the
paragraph or an Other Matter paragraph in the auditors report. Other SAs also
report.
a financial statement. This SA also applies to audits for which SA 800 or SA 805
apply.
balance between the need for consistency and comparability in auditor reporting
globally and the need to increase the value of auditor reporting by making the
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information provided in the auditors report more relevant to users. This SA
promotes consistency in the auditors report, but recognizes the need for
Consistency in the auditors report, when the audit has been conducted in
more readily identifiable those audits that have been conducted in accordance
II. Effective Date: This SA is effective for audits of financial statements for periods
statements based on an evaluation of the conclusions drawn from the audit evidence
obtained; and (b) To express clearly that opinion through a written report.
BH.
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G) Significant changes introduced in the revised auditing standard SA 700:
section.
BP.2. Auditors Opinion: BT.2. Auditors Opinion:
expressed after the Basis for expressed before the Basis for
BS. These requirements were not o Identify the entity whose AFS
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were noted in the introductory unless a disclaimer of opinion is
by the AFS.
Basis for Opinion: 3. Basis for Opinion:
for opinion.
CE. Where a material uncertainty (that CG. 4. Going Concern:
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reported on in a separate section section in the auditors report
Emphasis of matter
paragraph.
36
audits of AFS for periods audits of AFS for periods
701(new).
prominence to the
a disclaimer of opinion.
CR. 6. Other information: CT.6. Other information:
CS. This section is for reporting in CU. This section was not
use of the going concern basis is whether the use of the going
audit report.
DB. 8. Auditors DF.8. Auditors Responsibilities:
of the audit report, far below the section just before the
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(revised) par 41, the description audit report This section did not
high level assurance; (c) That 2016. Key audit matters were
Responsibilities: Responsibilities:
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DN. 10. Name of the DP.10. Name of the Engagement
report for listed entities unless Signature and name of the firm
not sufficient.
DR.
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DS. 4. SUGGESTIONS, RECOMMENDATIONS & CONCLUSION:
assessing the accounting principles used and the significant estimates made by the
management. Audit conclusions and reporting are one of the principles governing
conclusions and expressing an opinion. The auditor should get sufficient and
appropriate audit evidence both at the transaction level, as well as the account
level. He should evaluate the adequacy of the evidence in his possession, both in
terms of quality and quantity. The auditor should draw a conclusion on each of the
line items of the financial statements, based on the transactions examined by him.
account level, which, he should express in his report without any fear or favor.
efforts to gather the audit evidence, and be impartial in its evaluation. Substantive
the audit evidence by substantive procedures, the auditor should ensure that the
entity has complied with the necessary requirements such as requirements of law,
policies adapted by the entity from time to time, and internal control systems.
DX. Evaluation of audit evidence: Having gathered the audit evidence, the
auditor goes through the evidence with a fine-toothed comb to properly evaluate
it, judge their reliability and draw logical conclusions. He has to document the
norm with the data of the unit, etc. to analyze the data.
DZ. Audit conclusions: Such analyses help the auditor to draw conclusions
regarding various aspects of the line items of the financial statements. These
EA. Compliance with code of conduct: Professional ethics of the ICAI hold
enough evidence to justify his opinion. He would be liable if the evidence in his
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possession is contradictory to the opinion expressed by him. This makes drawing
EC. The auditor discusses his observations with those charged with
governance, such as the audit committee of the company, before finalizing the
report. The auditor should be firm in his opinion, and exercise his independence at
this level. This part of the audit is critical, and calls for resilience on the part of
the auditor. An audit report, being a public document, should be drafted skillfully.
The code of conduct prohibits an auditor from divulging any information received
do. Therefore, the auditor shouldn't hesitate to take the help of a legal expert on
ED.
EE.
EF.
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EG. 5. BIBLIOGRAPHY:
1) https://www.scribd.com/doc/58324715/Project-on-Auditing
2) http://www.slideshare.net/soumeetsarkar/audit-project-46669166
3) file:///G:/Project%20Topics/Mcom%202/sa570%20old.pdf
4) http://assets.cacharya.com/Standard-on-Auditing-A6E5QP34.pdf?1437806351
5) https://www.bcasonline.org/Referencer2015-
6) 16/Accounting%20&%20Auditing/standards_on_auditing.html
7) http://resource.cdn.icai.org/15401Link36_SA570-final_standard.pdf
8) http://www.caclubindia.com/articles/significant-changes-introduced-in-the-revised-
auditing-standard-sa-570-going-concern-27044.asp
EH.
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